PROSPECTUS SUPPLEMENT
(To Prospectus dated June 20, 1997)
(LOGO)
CITYSCAPE CORP.
CITYSCAPE HOME EQUITY LOAN TRUST, SERIES 1997-C
$ 39,600,000 Class A-1 Variable Pass-Through Rate
$ 27,500,000 Class A-2 6.78% Pass-Through Rate
$ 12,438,000 Class A-3 7.38% Pass-Through Rate
$ 7,800,000 Class A-4 7.00% Pass-Through Rate
$ 78,527,000 Class A-5 Variable Pass-Through Rate
$ 6,659,000 Class M-1F 7.24% Pass-Through Rate
$ 4,867,000 Class M-2F 7.48% Pass-Through Rate
$ 9,268,000 Class M-1A Variable Pass-Through Rate
$ 5,609,000 Class M-2A Variable Pass-Through Rate
$ 3,586,076 Class B-1F 7.83% Pass-Through Rate
$ 4,145,924 Class B-1A Variable Pass-Through Rate
Home Equity Loan Pass-Through Certificates
Distributions payable on the 25th day of each month, commencing in July 1997
FINANCIAL ASSET SECURITIES CORP.
Depositor
CITYSCAPE CORP.
Seller and Servicer
------------------------
The Cityscape Home Equity Loan Trust, Series 1997-C Certificates consist
of (i) the Class A-1 Certificates, Class A-2 Certificates, Class A-3
Certificates and Class A-4 Certificates (collectively, the "Group I Senior
Certificates"), (ii) the Class A-5 Certificates (the "Group II Senior
Certificates"), (iii) the Class M-1F Certificates and the Class M-2F
Certificates (collectively, the "Group I Mezzanine Certificates"), (iv) the
Class M-1A Certificates and the Class M-2A Certificates (collectively, the
"Group II Mezzanine Certificates"), (v) the Class B-1F Certificates (the
"Group I Subordinate Certificates" and, together with the Group I Senior
Certificates and the Group I Mezzanine Certificates, the "Group I
Certificates"), (vi) the Class B-1A Certificates (the "Group II Subordinate
Certificates" and, together with the Group II Senior Certificates and the
Group II Mezzanine Certificates, the "Group II Certificates"), (vii) the
Class R-I Certificates and (viii) the Class R-II Certificates (together with
the Class R-I Certificates, the "Residual Certificates"). The Group I and
Group II Senior Certificates are collectively referred to herein as the
"Senior Certificates," the Group I and Group II Mezzanine Certificates are
collectively referred to herein as the "Mezzanine Certificates," and the
Group I and Group II Subordinate Certificates are collectively referred to
herein as the "Subordinate Certificates." The Group I and Group II
Certificates (each, a "Certificate Group" and, collectively, the "Offered
Certificates") and the Residual Certificates are collectively referred to
herein as the "Certificates." Only the Offered Certificates are offered
hereby.
Price to Public Underwriting Discount Proceeds to Depositor(2)
Class A-1 Certificates . . . . . 100.000000% 0.195% 99.805000%
Class A-2 Certificates(1) . . . . 100.000000% 0.295% 99.705000%
Class A-3 Certificates(1) . . . . 99.953125% 0.400% 99.553125%
Class A-4 Certificates(1) . . . . 99.968750% 0.350% 99.618750%
Class A-5 Certificates . . . . . 100.000000% 0.350% 99.650000%
Class M-1F Certificates(1) . . . 100.000000% 0.500% 99.500000%
Class M-1A Certificates . . . . . 99.968750% 0.570% 99.398750%
Class M-2F Certificates(1) . . . 100.00000% 0.500% 99.500000%
Class M-2A Certificates . . . . . 100.00000% 0.570% 99.430000%
Class B-1F Certificates(1) . . . 99.984375% 0.650% 99.334375%
Class B-1A Certificates . . . . . 100.0000% 0.650% 99.350000%
Total . . . . . . . . . . . . . . $199,989,650.93 $699,847.70 $199,289,803.23
(1) Plus accrued interest, if any, at the applicable Pass-Through
Rate from June 10, 1997.
(2) Before deducting expenses, estimated to be $300,000
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
OFFERED CERTIFICATES, SEE THE INFORMATION UNDER "RISK FACTORS" BEGINNING ON
PAGE S-13 HEREIN AND IN THE PROSPECTUS BEGINNING ON PAGE 11.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
GREENWICH CAPITAL PRUDENTIAL SECURITIES
MARKETS, INC. INCORPORATED
June 24, 1997
THE YIELDS TO MATURITY OF THE OFFERED CERTIFICATES MAY VARY FROM THE
ANTICIPATED YIELDS TO THE EXTENT ANY SUCH CERTIFICATES ARE PURCHASED AT A
DISCOUNT OR PREMIUM AND TO THE EXTENT THE RATE AND TIMING OF PAYMENTS THEREON
ARE SENSITIVE TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING
PREPAYMENTS) OF THE MORTGAGE LOANS IN THE MORTGAGE LOAN GROUPS. THE YIELD TO
INVESTORS ON THE CLASS A-1 CERTIFICATES AND THE GROUP II CERTIFICATES WILL
ALSO BE SENSITIVE TO, AMONG OTHER THINGS, THE LEVEL OF THE LONDON INTERBANK
OFFERED RATE FOR ONE-MONTH UNITED STATES DOLLAR DEPOSITS ("ONE-MONTH LIBOR").
CERTIFICATEHOLDERS SHOULD CONSIDER, IN THE CASE OF ANY OFFERED CERTIFICATES
PURCHASED AT A DISCOUNT, THE RISK THAT A LOWER THAN ANTICIPATED RATE OF
PRINCIPAL PAYMENTS COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN THE
ANTICIPATED YIELD AND, IN THE CASE OF ANY OFFERED CERTIFICATES PURCHASED AT A
PREMIUM, THE RISK THAT A FASTER THAN ANTICIPATED RATE OF PRINCIPAL PAYMENTS
COULD RESULT IN AN ACTUAL YIELD THAT IS LOWER THAN THE ANTICIPATED YIELD.
SEE "RISK FACTORS--YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS" HEREIN.
The Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (the "Trust Fund") to be created pursuant
to a Pooling and Servicing Agreement, dated as of June 9, 1997 (the "Pooling
and Servicing Agreement"), among the Depositor, Cityscape Corp.
("Cityscape"), as seller and servicer (in such capacities, the "Seller" and
the "Servicer," respectively), and First Bank National Association, as
trustee (the "Trustee"). The Trust Fund will consist primarily of two
separate pools (each, a "Mortgage Loan Group") of mortgage loans (the
"Mortgage Loans"). The Mortgage Loan Groups will be designated as
(i) Mortgage Loan Group I, which consists of a group of fixed-rate home
equity loans (the "Group I Mortgage Loans") secured by first and second liens
on one- to four-family residential properties and small mixed-use properties
and (ii) Mortgage Loan Group II, which consists of a group of adjustable-rate
home equity loans (the "Group II Mortgage Loans") secured by first liens on
one- to four-family residential properties. The Group I Certificates will
represent undivided ownership interests in the Group I Mortgage Loans, and
the Group II Certificates will represent undivided ownership interests in the
Group II Mortgage Loans. Distributions on each class of Offered Certificates
will be made from collections on the Mortgage Loans of the related Mortgage
Loan Group. As of the close of business on June 9, 1997, Mortgage Loan Group
I and Mortgage Loan Group II consisted of Mortgage Loans (collectively, the
"Initial Mortgage Loans") having aggregate unpaid principal balances of
$80,183,777.04 and $97,549,923.60, respectively. On or prior to August 31,
1997, additional mortgage loans (the "Group I Subsequent Mortgage Loans")
having an aggregate unpaid principal balance of up to $22,266,299.36 may be
purchased by the Trust Fund with amounts on deposit in an account (the "Pre-
Funding Account") to be established for such purpose on June 26, 1997, the
date on which the Initial Mortgage Loans are expected to be conveyed to the
Trust Fund and the Certificates to be issued (the "Closing Date").
The aggregate original principal balance of each class of Offered
Certificates (each such balance, an "Original Certificate Principal Balance"
and, as such balance is reduced from time to time, the "Certificate Principal
Balance") is set forth above. The Senior Certificates, the Mezzanine
Certificates and the Subordinate Certificates evidence senior, mezzanine and
subordinate beneficial ownership interests, respectively, in the Trust Fund.
Distributions to holders of the Offered Certificates will be made on the 25th
day of each month or, if such 25th day is not a Business Day, on the first
Business Day thereafter (each, a "Distribution Date"), commencing in July
1997.
Under the limited circumstances described herein, the Majority Residual
Interestholders with respect to the Residual Certificates of each Certificate
Group have the option (but not the obligation) to purchase the related
Mortgage Loan Group, and the Servicer has the option (but not the obligation)
to purchase each Mortgage Loan Group, any of which purchases would result in
an early retirement of the Offered Certificates related to the applicable
Mortgage Loan Group.
The interests of the owners of the Offered Certificates will initially
be represented by book-entries on the records of The Depository Trust Company
(the "Depository") and participating members thereof. No person acquiring a
beneficial interest in such a Certificate will be entitled to receive a
physical certificate representing such Certificate, except in the limited
circumstances described herein. See "Description of the Certificates--Book-
Entry Certificates" herein.
Except for certain representations and warranties relating to the
Mortgage Loans, Cityscape's obligations with respect to the Certificates are
limited to its contractual servicing obligations. The Offered Certificates
evidence interests in the Trust Fund only and are payable solely from amounts
received with respect thereto. The Offered Certificates do not constitute an
obligation of or an interest in the Depositor, the Trustee or Cityscape, or
any of their respective affiliates, and will not be insured or guaranteed by
any governmental agency. An election will be made to treat each Mortgage
Loan Group as a real estate mortgage investment conduit (the "REMIC") for
federal income tax purposes.
Greenwich Capital Markets, Inc. and Prudential Securities Incorporated
(together, the "Underwriters") intend to make a secondary market in the
Offered Certificates but have no obligation to do so. There is currently no
secondary market for the Offered Certificates and there can be no assurance
that such a market will develop or, if it does develop, that it will
continue.
The Offered Certificates are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by the Underwriters,
and subject to approval of certain legal matters by counsel. It is expected
that delivery of the Offered Certificates will be made in book-entry form
only through the facilities of The Depository Trust Company on or about the
Closing Date.
Certain persons participating in this offering may engage in
transactions that stabilize, maintain, or otherwise affect the price of the
Offered Certificates. Such transactions may include stabilizing and the
purchase of Offered Certificates to cover syndicate short positions. For a
description of these activities, see "Method of Distribution" herein.
This Prospectus Supplement does not contain complete information about
the offering of the Offered Certificates. Additional information is contained
in the Prospectus dated June 20, 1997 (the "Prospectus") which accompanies
this Prospectus Supplement and purchasers are urged to read both this
Prospectus Supplement and the Prospectus in full. Sales of the Offered
Certificates may not be consummated unless the purchaser has received both
this Prospectus Supplement and the Prospectus.
Upon written request, Cityscape will make available its most recent
audited financial statements. Requests should be directed to Cityscape
Corp., 565 Taxter Road, Elmsford, New York 10523, Attention: Cheryl P. Carl,
Senior Vice President.
UNTIL NINETY DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL
DEALERS EFFECTING TRANSACTIONS IN THE OFFERED CERTIFICATES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS SUPPLEMENT AND THE PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
To the extent statements contained herein do not relate to historical or
current information, this Prospectus Supplement may be deemed to consist of
forward looking statements that involve risks and uncertainties that may
adversely affect the distributions to be made on, or the yield of, the
Offered Certificates, which risks and uncertainties are discussed under "Risk
Factors" and "Prepayment and Yield Considerations." As a consequence, no
assurance can be given as to the actual distributions on, or the yield of,
any class of Offered Certificates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference all documents filed by the
Depositor with the Securities and Exchange Commission (the "Commission")
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934, as amended, on or subsequent to the date of this Prospectus
Supplement and prior to the termination of the offering of the Offered
Certificates. The Depositor will provide without charge to each person to
whom this Prospectus Supplement and Prospectus are delivered, on request of
such person, a copy of any or all of the documents incorporated herein by
reference other than the exhibits to such documents (unless such exhibits are
specifically incorporated by reference in such documents). Requests should
be made to Mr. Peter McMullin, Vice President, Financial Asset Securities
Corp., in writing at 600 Steamboat Road, Greenwich, Connecticut 06830.
SUMMARY OF TERMS
This Summary of Terms is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary
of Terms are defined elsewhere in this Prospectus Supplement or in the
Prospectus.
Title of Certificates Cityscape Home Equity Loan Trust, Series 1997-
C, Home Equity Loan Pass-Through Certificates
(the "Certificates"), consisting of the Class
A-1, Class A-2, Class A-3 and Class A-4
Certificates (collectively, the "Group I Senior
Certificates"), (ii) the Class A-5 Certificates
(the "Group II Senior Certificates"), (iii) the
Class M-1F and Class M-2F Certificates
(collectively, the "Group I Mezzanine
Certificates"), (iv) the Class M-1A and Class
M-2A Certificates (collectively, the "Group II
Mezzanine Certificates"), (v) the Class B-1F
Certificates (the "Group I Subordinate
Certificates" and, together with the Group I
Senior Certificates and the Group I Mezzanine
Certificates, the "Group I Certificates"),
(vi) the Class B-1A Certificates (the "Group II
Subordinate Certificates" and, together with
the Group II Senior Certificates and the
Group II Mezzanine Certificates, the "Group II
Certificates"), (vii) the Class R-1F
Certificates (the "Group I Residual
Certificates") and (viii) the Class R-1A
Certificates (the "Group II Residual
Certificates" and, together with the Group I
Residual Certificates, the "Residual
Certificates"). The Group I Certificates and
the Group II Certificates are collectively
referred to herein as the "Offered
Certificates." Only the Offered Certificates
are offered hereby.
The Depositor Financial Asset Securities Corp. (the "Depositor"), a
Delaware corporation. The Depositor is an indirect
limited purpose finance subsidiary of National
Westminster Bank Plc and an affiliate of Greenwich
Capital Markets, Inc. ("Greenwich"). See "The Depositor"
in the Prospectus and "Method of Distribution" herein.
None of the Depositor, National Westminster Bank Plc or
any of their respective affiliates or any other person
or entity will insure or guarantee or otherwise be
obligated with respect to the Certificates.
Servicer Cityscape Corp. ("Cityscape") will serve as the servicer (in
such capacity, the "Servicer"). See "Cityscape Corp."
herein. The Mortgage Loans were originated or purchased by
Cityscape (in such capacity, the "Seller").
Trustee First Bank National Association, a national banking association,
not in its individual capacity but solely as trustee on behalf
of the holders of the Certificates (the "Trustee").
Cut-Off Date With respect to any Initial Mortgage Loan (as defined
herein), the close of business on June 9, 1997 (the
"Initial Cut-Off Date"). With respect to any Group I
Subsequent Mortgage Loan, the close of business on the
date identified in the Subsequent Transfer Agreement.
Closing Date On or about June 26, 1997.
Description of Certificates
A. General The Certificates will be issued pursuant to a Pooling
and Servicing Agreement, dated as of June 9, 1997 (the
"Pooling and Servicing Agreement"), among the Depositor,
the Servicer, the Seller and the Trustee.
The Group I Certificates will be entitled to receive collections on
a group of fixed-rate home equity loans (the "Group I Mortgage
Loans") secured by first and second liens on one- to four-family
residential properties and small mixed-use properties (the "Group I
Mortgaged Properties"). The Group II Certificates will be entitled
to receive collections on a group of adjustable-rate home equity
loans (the "Group II Mortgage Loans") secured by first liens on one-
to four-family residential properties (the "Group II Mortgaged
Properties" and, together with the Group I Mortgaged Properties, the
"Mortgaged Properties"). The Mortgage Loans that have been
designated for inclusion in the Trust Fund as of June 9, 1997 are
referred to herein as the "Initial Mortgage Loans" and those
additional Group I Mortgage Loans to be acquired by the Trust Fund
on or before August 31, 1997 are referred to herein as the "Group I
Subsequent Mortgage Loans".
B. Form of Certificates The Offered Certificates will initially be
issued in book-entry form. So long as such
Certificates are Book-Entry Certificates
(as defined herein), such Certificates will
be evidenced by one or more certificates
registered in the name of Cede & Co.
("Cede"), as nominee of The Depository
Trust Company (the "Depository"). No
person acquiring a beneficial ownership
interest in such Certificates will be
entitled to receive a Definitive
Certificate (as defined herein)
representing such person's interest, except
in the event Definitive Certificates are
issued under the limited circumstances
described herein.
C. Distributions Distributions on the Offered Certificates will be
made on the 25th day of each month or, if such day
is not a Business Day, on the first Business Day
thereafter, commencing in July 1997 (each, a
"Distribution Date"). Distributions on each
Distribution Date will be made to holders of the
Certificates of record as of the last Business Day
of the month preceding the month of such
Distribution Date (each, a "Record Date"), except
that the final distribution on an Offered
Certificate will be made only upon presentation and
surrender of such Offered Certificate at the office
or agency of the Trustee in St. Paul, Minnesota.
Distributions on the Mortgage Loans will be applied
to the payment of principal and interest on the
Certificates in accordance with the priorities
described below.
1. Interest On each Distribution Date, to the extent funds
are available therefor, the holders of each
class of Offered Certificates will be entitled
to receive interest in an amount equal to the
sum of (i) interest accrued during the related
Accrual Period (as defined herein) at the
related Pass-Through Rate (as defined herein)
on the Certificate Principal Balance of such
class and (ii) any Unpaid Interest Shortfall
Amount (as defined herein) payable to such
class, except that payment of Unpaid Interest
Shortfall Amounts to the Mezzanine and
Subordinate Certificates will be subordinated
to payments of principal due the related
Offered Certificates on such Distribution Date.
See "Description of the Certificates--
Allocation of Available Funds" herein.
2. Principal Amounts distributable in respect of principal
of the Offered Certificates relating to a given
Mortgage Loan Group will be allocated to those
classes of such Offered Certificates then
entitled to receive distributions of principal
in the order and priorities described in
"Description of the Certificates--Allocation of
Available Funds" herein. On each Distribution
Date, to the extent funds are available
therefor after distributions of interest on the
Offered Certificates of each Certificate Group
(as described in the preceding paragraph),
those classes of Offered Certificates then
entitled to receive principal distributions
will receive as principal the sum of (i) an
amount (the "Regular Principal Distribution
Amount") equal to the lesser of (a) the
aggregate of the Certificate Principal Balances
of the Offered Certificates of such Certificate
Group immediately prior to such Distribution
Date and (b) the sum of (x) all scheduled
installments of Mortgage Loan principal and all
unscheduled collections and recoveries of prin-
cipal, in each case to the extent relating to
the Mortgage Loans of the related Mortgage Loan
Group and to the extent actually received by
the Servicer during the related Due Period and
(y) in the case of the Group I Certificates, on
the Distribution Date immediately following the
Due Period in which the end of the Funding
Period (as defined herein) occurs, that portion
of the Pre-Funded Amount not utilized to
purchase Group I Subsequent Mortgage Loans (the
"Unutilized Funding Amount"), if such amount is
less than $100,000 and (ii) to the extent
described herein, an amount necessary to
increase the Overcollateralized Amount (as
defined herein) for the related Certificate
Group to the related Overcollateralization
Target Amount (as defined herein). If the
Unutilized Funding Amount equals or exceeds
$100,000, holders of the Group I Certificates
will receive a pro rata distribution of such
Unutilized Funding Amount, as described herein
(rather than a distribution of such amount
pursuant to the order and priorities otherwise
applicable to the Regular Principal
Distribution Amount as described in
"Description of the Certificates--Allocation of
Available Funds").
Pass-Through Rates The Pass-Through Rate for the Class A-1 Certificates
for a particular Distribution Date is equal to the
lesser of (a) One-Month LIBOR on the related LIBOR
Determination Date (as defined herein) plus 0.14%
and (b) the Class A-1 Available Funds Cap. The
"Class A-1 Available Funds Cap" is a rate per annum
equal to the weighted average of the interest rates
(the "Mortgage Rates") of the Group I Mortgage Loans
outstanding as of the first day of the related Due
Period net of the sum of (i) the Servicing Fee Rate
(as defined herein) and (ii) the Trustee fee rate of
0.01125% per annum (the "Trustee Fee Rate"). The
Pass-Through Rates for the classes of Group I
Certificates (other than the Class A-1 Certificates)
will be as set forth on the cover page hereof;
provided, however, that, with respect to the Class
A-3, Class A-4, Class M-1F, Class M-2F and Class B-
1F Certificates, on any Distribution Date after the
Call Option Date (as defined below) relating to the
Group I Mortgage Loans, each such Pass-Through Rate
will be increased by 0.50% (50 basis points). The
Pass-Through Rate for each class of Group II
Certificates for a particular Distribution Date is
equal to the lesser of (a) the sum of (i) One-Month
LIBOR on the related LIBOR Determination Date (as
defined herein) and (ii) the related Group II Pass-
Through Margin and (b) the Group II Available Funds
Cap. The Group II Pass-Through Margins for the
Class A-5, Class M-1A, Class M-2A and Class B-1A
Certificates will be equal to 0.24% (24 basis
points), 0.50% (50 basis points), 0.70% (70 basis
points) and 1.10% (110 basis points), respectively,
per annum until the first Distribution Date
following the Call Option Date relating to the Group
II Mortgage Loans, and 0.48% (48 basis points),
0.75% (75 basis points), 1.05% (105 basis points)
and 1.65% (165 basis points), respectively, per
annum on and after such Distribution Date. As to
any Distribution Date, the "Group II Available Funds
Cap" is a rate per annum equal to the weighted
average of the Mortgage Rates on the Group II
Mortgage Loans outstanding as of the first day of
the related Due Period, net of the sum of (i) the
Servicing Fee Rate and (ii) the Trustee Fee Rate.
The "Call Option Date" with respect to a Mortgage
Loan Group is the first Distribution Date on which
the related Group Principal Balance (as defined
herein) is less than or equal to 10% of the Maximum
Collateral Amount (as defined herein) for such
Mortgage Loan Group. The Pass-Through Rates for the
Class A-1, Class A-5, Class M-1A, Class M-2A and
Class B-1A Certificates for the Distribution Date in
July 1997 will be 5.8275%, 5.9275%, 6.1875%, 6.3875%
and 6.7875%, respectively, per annum. See
"Calculation of One-Month LIBOR" herein.
Credit Enhancement The credit enhancement provided for the benefit of
the holders of the Offered Certificates of each
Certificate Group consists solely of (a) any
overcollateralization resulting from allocation of
the internal cash flows of such Certificate Group
and the related Mortgage Loan Group and (b) the
subordination provided to the Offered Certificates
of each Certificate Group by any class or classes of
Certificates of such Certificate Group that are
subordinate thereto.
Overcollateralization. The Pooling and Servicing Agreement provides
for limited acceleration of principal distributions on the Offered
Certificates of each Certificate Group relative to the amortization
of the Mortgage Loans in the related Mortgage Loan Group. This
acceleration of principal distributions on each Certificate Group is
achieved by the application of certain excess cashflow as a payment
of principal of the Offered Certificates of such Certificate Group,
thereby creating overcollateralization to the extent the aggregate
of the Loan Balances (as defined herein) of the Mortgage Loans in
the related Mortgage Loan Group (the "Group Principal Balance") and,
in the case of the Group I Certificates, the Pre-Funded Amount
exceeds the aggregate Class Principal Balance of the Offered
Certificates of such Certificate Group. Once the required level of
overcollateralization for a Certificate Group is reached, and
subject to the provisions described in the next paragraph, further
application of such acceleration feature will cease as to that
Certificate Group, unless necessary to maintain the required level
of overcollateralization.
As described herein, subject to certain trigger tests, the required
levels of overcollateralization may increase or decrease. An
increase would result in a temporary period of accelerated
amortization of the Offered Certificates of the affected Certificate
Group relative to the related Mortgage Loan Group to increase the
actual level of overcollateralization to its required level; a
decrease would result in a temporary period of decelerated
amortization to reduce the actual level of overcollateralization to
its required level.
Subordination. The Group I and Group II Mezzanine and Subordinate
Certificates are subordinate in right of certain payments to the
Group I and Group II Senior Certificates, respectively. The Class
M-2F and Class M-2A Certificates are subordinate in right of certain
payments to the Class M-1F and Class M-1A Certificates,
respectively. The Group I and Group II Subordinate Certificates are
subordinate in right of certain payments to the Group I and Group II
Mezzanine Certificates, respectively. Generally, on any date on
which no overcollateralization exists, all Realized Losses on the
Mortgage Loans in each Mortgage Loan Group will be borne by the most
subordinate class of Offered Certificates in such Group before being
borne by a class senior thereto.
The Mortgage Loan
Groups The Initial Mortgage Loans will be conveyed to the Trust
Fund by the Depositor on or about June 26, 1997 (the
"Closing Date"). The Mortgage Loans will be divided into
two groups (each, a "Mortgage Loan Group"): Mortgage Loan
Group I and Mortgage Loan Group II. The aggregate Loan
Balances of the Group I Mortgage Loans and the Group II
Mortgage Loans as of the close of business on the Initial
Cut-Off Date were $80,183,777.04 (the "Group I Initial Cut-
Off Date Principal Balance") and $97,549,923.60 (the "Group
II Initial Cut-Off Date Principal Balance"), respectively.
The Initial Mortgage Loans consist of 2,409 Mortgage Loans relating
to Mortgaged Properties located in 39 states and the District of
Columbia. Group I Subsequent Mortgage Loans having an aggregate
principal balance of up to $22,266,299.36 may also be included in
the Trust Fund on or before August 31, 1997.
Each Mortgage Loan is evidenced by a promissory note (a "Mortgage
Note") and secured by a mortgage, deed of trust or other similar
security instrument creating a first lien or, in the case of certain
Group I Mortgage Loans, a second lien on the related Mortgaged
Property.
Each Mortgage Loan provides for the amortization of the amount
financed under such Mortgage Loan over a series of substantially
equal monthly payments except for Balloon Mortgage Loans for which
the amortization schedule extends beyond the stated maturity date
and which provide for a payment at maturity that is substantially
larger than any scheduled payment.
All weighted averages specified herein are weighted based on the
Cut-Off Date Principal Balances of the Initial Mortgage Loans. All
Mortgage Loan statistics set forth herein are based on principal
balances, interest rates, terms to maturity, mortgage loan counts
and similar statistics as of the Initial Cut-Off Date, unless
indicated to the contrary herein. References to percentages of the
Mortgage Loans in a particular Mortgage Loan Group mean percentages
based on the Group Principal Balance of such Mortgage Loan Group as
of the Initial Cut-Off Date.
The Mortgage Loans are not insured or guaranteed by any governmental
entity, private mortgage insurer or by any other person or entity.
See "The Mortgage Loan Groups" herein.
The statistical information presented in this Prospectus
Supplement regarding the Mortgage Loan Groups is based
solely on the Initial Mortgage Loans and does not take into
account any Group I Subsequent Mortgage Loans that may be
added to Mortgage Loan Group I during the Funding Period
through application of amounts on deposit in the Pre-Funding
Account. As a result of the foregoing, the statistical
information presented herein regarding the Initial Group I
Mortgage Loans may vary in certain respects from comparable
information based on the actual composition of the final
Group I Mortgage Loans. See "The Mortgage Loan Groups."
Group I Mortgage Loans. The Group I Mortgage Loans consist of 1,377
fixed-rate home equity loans to be acquired by the Trust Fund on the
Closing Date (the "Initial Group I Mortgage Loans") and secured by
first and second liens on one- to four-family residential properties
and small mixed-use properties located in 37 states and the District
of Columbia.
Initial Group I Mortgage Loans representing approximately 84.69% of
the Group I Initial Cut-Off Date Principal Balance are secured by
mortgages which are first liens. The remainder of the Initial Group
I Mortgage Loans are second in lien priority (together with any
Group I Subsequent Mortgage Loan that is second in lien priority,
the "Second Mortgage Loans") to mortgage loans that are secured by
senior liens on the related Mortgaged Properties (any such senior
lien, a "First Lien"), which First Lien mortgage loans are not
included in the Group I Mortgage Loans.
The Initial Group I Mortgage Loans bear interest at fixed rates (the
"Group I Mortgage Rates") which range from 7.85% to 17.15% per
annum. The weighted average Group I Mortgage Rate of the Initial
Group I Mortgage Loans was approximately 11.67% per annum as of the
Initial Cut-Off Date. As of the Initial Cut-Off Date, less than 1%
of the Initial Group I Mortgage Loans were Simple Interest Loans (as
defined herein). The Loan Balances of the Initial Group I Mortgage
Loans as of the Initial Cut-Off Date ranged from approximately
$9,607 to $469,892. The average Initial Cut-Off Date Principal
Balance of the Initial Group I Mortgage Loans was approximately
$58,231. The weighted average original term to stated maturity of
the Initial Group I Mortgage Loans as of the Initial Cut-Off Date
was approximately 231 months. The weighted average remaining term
to stated maturity of the Initial Group I Mortgage Loans as of the
Initial Cut-Off Date was approximately 229 months. As of the
Initial Cut-Off Date, the weighted average number of months that had
elapsed since origination of the Initial Group I Mortgage Loans was
approximately 2 months.
The lowest and highest Combined Loan-to-Value Ratios, at
origination, of the Initial Group I Mortgage Loans were
approximately 9.20% and 98.71% respectively. The weighted average
Combined Loan-to-Value Ratio of the Initial Group I Mortgage Loans
at origination was approximately 73.89%. "Combined Loan-to-Value
Ratio" means, with respect to any Mortgage Loan, the fraction,
expressed as a percentage, the numerator of which is the principal
balance of such Mortgage Loan at origination plus, in the case of a
Second Mortgage Loan, the outstanding principal balance of the
related First Lien on the date of origination of such Mortgage Loan,
and the denominator of which is the appraised value of the related
Mortgaged Property at the time of origination of such Mortgage Loan
or, in the case of a purchase money Mortgage Loan, the lesser of the
purchase price or the appraised value.
Initial Group I Mortgage Loans representing approximately 45.54% of
the Group I Initial Cut-Off Date Principal Balance require monthly
payments of principal based on amortization schedules significantly
longer than the respective original terms of such Mortgage Loans
(each, a "Balloon Mortgage Loan"), in each case leaving a
substantial portion of the original principal amount due and payable
on the maturity date (each such payment, together with accrued
interest on the related Balloon Mortgage Loan for the one-month
period ending on the day preceding its stated maturity date, a
"Balloon Payment"). Each Group I Mortgage Loan that is not a
Balloon Mortgage Loan provides for a schedule of equal monthly
payments which are sufficient to amortize fully the principal
balance of such Mortgage Loan over its original term. See "Risk
Factors--Balloon Mortgage Loans".
On or prior to August 31, 1997, the Trust Fund is expected to
acquire, subject to availability, Group I Subsequent Mortgage Loans
that will have been originated or purchased on or before such date
by the Seller. The maximum aggregate principal amount of Group I
Subsequent Mortgage Loans that may be so acquired by the Trust Fund
is approximately $22,266,299.36. All of the Group I Subsequent
Mortgage Loans will be secured by liens on one- to four-family
residential properties. See "The Mortgage Loan Groups".
Group II Mortgage Loans. The Group II Mortgage Loans consist of
1,032 adjustable-rate home equity loans to be acquired by the Trust
Fund on the Closing Date and secured by first liens on one- to four-
family residential properties located in 36 states and the District
of Columbia. The Group II Mortgage Loans bear interest at variable
Mortgage Rates that as of the Initial Cut-Off Date ranged from 5.99%
to 15.50%. The weighted average Mortgage Rate for the Group II
Mortgage Loans was approximately 10.40% per annum as of the Initial
Cut-Off Date. The Loan Balances of the Group II Mortgage Loans
ranged from approximately $12,790 to $1,795,478. The average Loan
Balance of the Group II Mortgage Loans as of the Initial Cut-Off
Date was approximately $94,525. The weighted average original term
to stated maturity of the Group II Mortgage Loans as of the Initial
Cut-Off Date was approximately 360 months. As of the Initial Cut-
Off Date, the weighted average number of months that had elapsed
since origination of the Initial Group II Mortgage Loans was
approximately 2 months. The weighted average remaining term to
stated maturity of the Group II Mortgage Loans was approximately 358
months. The weighted average number of months until the next
Adjustment Date for the Group II Mortgage Loans as of the Initial
Cut-Off Date was approximately 10 months. The lowest and highest
Combined Loan-to-Value Ratios of the Group II Mortgage Loans at
origination were approximately 14.12% and 97.50%, respectively. The
weighted average Combined Loan-to-Value Ratio of the Group II
Mortgage Loans as of the Initial Cut-Off Date was approximately
76.86%. None of the Group II Mortgage Loans is a Balloon Mortgage
Loan.
Except as described below, all of the Group II Mortgage Loans have
Mortgage Rates that are subject to semi-annual adjustment on the
applicable day of the months specified in the related Mortgage Notes
(each such date, an "Adjustment Date") to equal the sum, rounded to
the nearest 0.125%, of (i) the average of the London interbank
offered rates for six-month dollar deposits in the London market
("Six-Month LIBOR") and (ii) a fixed percentage amount specified in
each such Mortgage Note (the "Gross Margin"). In no event, however,
will the Mortgage Rates of the Group II Mortgage Loans increase or
decrease on any Adjustment Date by more than 1.0% per annum with
respect to 96.39% of the Group II Mortgage Loans or more than 1.5%
per annum with respect to 3.61% of the Group II Mortgage Loans (each
such rate limitation, a "Periodic Rate Cap"). A majority of the
Mortgage Loans were originated with Mortgage Rates less than the sum
of the then applicable Mortgage Index (as defined herein) values and
the related Gross Margins. Approximately 34.45% of the Group II
Mortgage Loans (the "2/28 LIBOR Mortgage Loans") will have fixed
Mortgage Rates for 24 months after origination thereof before
becoming subject to the semi-annual adjustment described above for
Group II Mortgage Loans. Each Group II Mortgage Loan, over the life
thereof, is subject to a maximum Mortgage Rate (a "Maximum Mortgage
Rate") equal to the sum of the initial Mortgage Rate thereof and a
percentage (a "Lifetime Cap") set forth in the related Mortgage
Note. Group II Mortgage Loans representing approximately 91.28%,
0.08%, 0.65% and 7.99% of the Group II Cut-Off Date Principal
Balance have Lifetime Caps of 6.00%, 6.45%, 6.50% and 7.00%,
respectively, per annum. In general, each Mortgage Loan provides
that in no event will the Mortgage Rate be less than the initial
Mortgage Rate (such rate, the "Minimum Mortgage Rate"). Effective
with the first payment due on a Mortgage Loan after each related
Adjustment Date, the monthly payment will be adjusted to an amount
which will fully amortize the outstanding principal balance of the
Mortgage Loan over its remaining term.
As of the Initial Cut-Off Date, the lowest and highest Gross Margins
of the Group II Mortgage Loans were approximately 2.75% and 11.60%,
respectively, and the weighted average of the Gross Margins of the
Group II Mortgage Loans was approximately 7.18%.
All of the Group II Mortgage Loans are Actuarial Loans (as defined
herein).
The Mortgage Loans are not insured or guaranteed by any governmental
entity, private mortgage insurer or by any other person or entity.
See "The Mortgage Loan Groups."
Pre-Funding Account On the Closing Date, $22,266,299.36 (the "Pre-Funded
Amount") will be deposited in an account (the "Pre-
Funding Account") that is in the name of and
maintained by the Trustee as part of the Trust Fund
for the benefit of the holders of the Group I
Certificates and will be used to acquire Group I
Subsequent Mortgage Loans. See "The Mortgage Loan
Groups" herein. The Pre-Funding Account shall not
be an asset of the REMIC related to the Group I
Mortgage Loans. Any reinvestment earnings on
amounts in the Pre-Funding Account shall be taxable
to the Seller. During the period beginning on the
Closing Date and generally terminating on the
earlier to occur of (i) the date on which the amount
on deposit in the Pre-Funding Account (exclusive of
any investment earnings) is less than $100,000 and
(ii) August 31, 1997 (the "Funding Period"), the
Pre-Funded Amount will be maintained in the Pre-
Funding Account. The Pre-Funded Amount will be
reduced during the Funding Period by the amount
thereof used to purchase Group I Subsequent Mortgage
Loans in accordance with the Pooling and Servicing
Agreement. Any Unutilized Funding Amount will be
distributed to holders of the classes of Group I
Certificates on the related Distribution Date in
reduction of the related Certificate Principal
Balances, thus resulting in an unscheduled
distribution of principal in respect of such classes
of Group I Certificates on such date. The
allocation of such distribution to the various
classes of Group I Certificates will depend on the
size of the Unutilized Funding Amount. If the
Unutilized Funding Amount equals or exceeds
$100,000, holders of the Group I Certificates will
be entitled to a pro rata distribution of such
Unutilized Funding Amount, on the basis of the
respective Original Certificate Principal Balances
of such classes, as described herein. If the
Unutilized Funding Amount is less than $100,000, it
will be distributed pursuant to the allocation of
the Regular Principal Distribution Amount for the
related Distribution Date, as described in
"Description of the Certificates--Allocation of
Available Funds."
Capitalized Interest
Account On the Closing Date the Seller will deposit into an account (the
"Capitalized Interest Account"), to be maintained with and in
the name of the Trustee on behalf of the Trust Fund, a portion
of the proceeds of the sale of the Offered Certificates. The
amount deposited therein will be used by the Trustee on the
Distribution Dates in July, August and September 1997 to cover
shortfalls in interest on the Group I Certificates that may
arise as a result of the utilization of the Pre-Funding Account
for the purchase by the Trust Fund of Group I Subsequent
Mortgage Loans after the Closing Date. Any amounts remaining in
the Capitalized Interest Account at the end of the Funding
Period are required to be paid directly to the Seller. The
Capitalized Interest Account shall not be an asset of the REMIC
related to the Group I Mortgage Loans. Any reinvestment
earnings on amounts in the Capitalized Interest Account shall be
taxable to the Seller.
Underwriting Standards . As described herein, the Seller's
underwriting standards generally are less
stringent than those of FNMA or FHLMC with
respect to a borrower's credit history and
in certain other respects. A borrower's
tarnished credit history may not preclude
the Seller from making a loan. As a result
of this approach to underwriting, the
Mortgage Loans may experience higher rates
of delinquencies, defaults and foreclosures
than mortgage loans underwritten in a more
traditional manner. See "Cityscape's
Portfolio of Mortgage Loans--Underwriting
Guidelines of the Seller" herein.
Servicing Cityscape will serve as the Servicer under the Pooling and
Servicing Agreement. The Servicer will be responsible for
servicing the Mortgage Loans and will receive from interest
collected on the Mortgage Loans a monthly servicing fee on
each Mortgage Loan equal to the Loan Balance thereof
multiplied by one-twelfth of the Servicing Fee Rate (such
product, the "Servicing Fee"). See "The Pooling and
Servicing Agreement--Servicing Compensation and Payment of
Expenses" herein.
The Servicer will be obligated to make advances ("Advances") with
respect to delinquent payments of interest on any Mortgage Loan to
the extent described herein. The Trustee will be obligated to make
any such Advance if the Servicer fails in its obligation to do so,
to the extent provided in the Pooling and Servicing Agreement. See
"The Pooling and Servicing Agreement--Advances" herein.
Payments to Cover
Prepayment Interest
Shortfalls The Servicer will be required to fund in respect of each
Distribution Date, without any right of reimbursement,
an amount equal to the lesser of (a) the aggregate, for
each Mortgage Loan, of the excess, if any, of a full
month's interest on the amount of each Principal
Prepayment at a rate per annum equal to the related
interest rate (the "Mortgage Rate") applicable to such
Mortgage Loan (or such lower rate as may be in effect
for a Mortgage Loan because of application of the Civil
Relief Act) minus the Servicing Fee Rate (the "Net
Mortgage Rate") over the amount of interest actually
paid by the Mortgagor in connection with such Principal
Prepayment during the related Due Period less the
Servicing Fee for the related Mortgage Loan for such
month (a "Prepayment Interest Shortfall") and (b) the
aggregate Servicing Fee received by the Servicer in the
related Due Period. See "The Pooling and Servicing
Agreement--Adjustment to Servicing Fee in Connection
with Certain Prepaid Mortgage Loans" herein.
Optional Termination On any Distribution Date on which the Group
Principal Balance of a Mortgage Loan Group is
less than or equal to 10% of the Maximum
Collateral Amount (as defined herein) for such
Mortgage Loan Group, the holders of the
majority interest in the Residual Certificates
of the related Certificate Group (the "Majority
Residual Interestholders") will have the option
(but not the obligation) to purchase, as a
whole, the Mortgage Loans and the REO Property,
if any, with respect to such Mortgage Loan
Group and thereby effect the early retirement
of all Certificates of the related Certificate
Group. In addition, on any Distribution Date
on which the Group Principal Balance of a
Mortgage Loan Group is less than or equal to 5%
of the Maximum Collateral Amount for such
Mortgage Loan Group, the Servicer will have a
similar option with respect to each such
Mortgage Loan Group. See "Description of the
Certificates--Optional Termination" herein.
Certain Federal Income Tax
Considerations An election will be made to treat each Mortgage Loan
Group (other than the Pre-Funding Account and the
Capitalized Interest Account relating to the Group I
Mortgage Loans) as a "real estate mortgage
investment conduit" (the "REMIC") for federal income
tax purposes. The Offered Certificates of each
Certificate Group will constitute "regular
interests" in the related REMIC and the Residual
Certificates of each Certificate Group will
constitute the sole class of "residual interests" in
the related REMIC. See "Certain Material Federal
Income Tax Consequences" herein and "Certain
Material Federal Income Tax Consequences" in the
Prospectus.
ERISA Considerations The acquisition of an Offered Certificate by an
employee benefit plan subject to the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), or a plan or arrangement
subject to Section 4975 of the Code (as defined
herein) (each of the foregoing, a "Plan")
could, in some instances, result in a
"prohibited transaction" or other violation of
the fiduciary responsibility provisions of
ERISA and Code Section 4975.
Any Plan fiduciary considering whether to purchase any Offered
Certificates on behalf of a Plan should consult with its counsel
regarding the applicability of the provisions of ERISA and the Code.
See "ERISA Considerations" herein and in the Prospectus.
Legal Investment The Offered Certificates will not constitute
"mortgage related securities" for purposes of SMMEA.
The appropriate characterization of the Offered
Certificates under various legal investment
restrictions, and thus the ability of investors
subject to these restrictions to purchase Offered
Certificates, may be subject to significant
interpretive uncertainties. All investors whose
investment authority is subject to legal
restrictions should consult their own legal advisors
to determine whether, and to what extent, the
Offered Certificates will constitute legal
investments for them. See "Legal Investment" in the
Prospectus.
Ratings It is a condition to the issuance of the Offered Certificates
that (i) the Group I Senior Certificates and Group II Senior
Certificates be rated "AAA" by Standard & Poor's, a division of
The McGraw-Hill Companies ("S&P"), Duff & Phelps Credit Rating
Co. ("DCR") and Fitch Investors Service, L.P. ("Fitch" and,
together with S&P and DCR, the "Rating Agencies"), (ii) the
Class M-1F Certificates be rated "AA" by each of the Rating
Agencies, (iii) the Class M-1A Certificates be rated "AA+" by
S&P and "AA" by DCR and Fitch, (iv) the Class M-2F Certificates
be rated "A" by each of the Rating Agencies, (v) the Class M-2A
Certificates be rated "A+" by S&P, "A" by Fitch and "A-" by DCR,
(vi) the Class B-1F Certificates be rated "BBB" by each of the
Rating Agencies and (vii) the Class B-1A Certificates be rated
"BBB" by S&P and Fitch and "BBB-" by DCR. No rating addresses
whether Group I Subsequent Mortgage Loans will be purchased by
the Trust Fund, the amount of any such Mortgage Loans to be so
purchased, or the impact any such purchase might have on the
yields of the Offered Certificates. The security ratings of the
Offered Certificates should be evaluated independently from
similar ratings on other types of securities. A security rating
is not a recommendation to buy, sell or hold securities and may
be subject to revision or withdrawal at any time by the Rating
Agencies. See "Ratings" herein.
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Offered Certificates.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
Yield Generally. The yields to maturity of the Offered Certificates may
vary from the anticipated yields to the extent such Certificates are
purchased at a discount or premium and to the extent the rate and timing of
payments thereon are sensitive to the rate and timing of principal payments
(including prepayments) of the Mortgage Loans. Certificateholders should
consider, in the case of any Offered Certificates purchased at a discount,
the risk that a lower than anticipated rate of principal payments could
result in an actual yield that is lower than the anticipated yield and, in
the case of any Offered Certificates purchased at a premium, the risk that a
faster than anticipated rate of principal payments could result in an actual
yield that is lower than the anticipated yield. In addition, the timing of
changes in the rate of Principal Prepayments (as defined herein) on the
Mortgage Loans may significantly affect an investor's actual yield to
maturity, even if the average rate of Principal Prepayments is consistent
with such investor's expectation. In general, the earlier a Principal
Prepayment on the Mortgage Loans occurs, the greater the effect of such
Principal Prepayment on an investor's yield to maturity. The effect on an
investor's yield of Principal Prepayments occurring at a rate higher (or
lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Offered Certificates may not be
offset by a subsequent like decrease (or increase) in the rate of Principal
Prepayments.
Prepayment Considerations and Risks. The rates of principal
distributions on the Offered Certificates, the aggregate amounts of
distributions thereon and the yields to maturity of the Offered Certificates
will be related to, among other things, the rate and timing of payments of
principal on the Mortgage Loans. The rate of principal payments on the
Mortgage Loans will in turn be affected by the amortization schedules of the
Mortgage Loans and by the rate of Principal Prepayments thereon (including
for this purpose, prepayments resulting from (i) refinancing, (ii)
liquidations of the Mortgage Loans due to defaults, casualties and
condemnations and (iii) repurchases by Cityscape or the Servicer). In
addition, as described herein, Initial Group I Mortgage Loans representing
approximately 45.54% of the Group I Initial Cut-Off Date Principal Balance
are Balloon Mortgage Loans that generally provide for scheduled amortization
over 30 years from their respective dates of origination and a single lump-
sum payment at the end of the fifteenth year. The Mortgage Loans may be
prepaid by the mortgagors (each, a "Mortgagor") at any time; however, with
respect to certain Mortgage Loans, a prepayment charge will generally apply
to full and partial prepayments by Mortgagors during the first three years
after origination. Any such prepayment charge will be retained by the
Servicer as additional servicing compensation. The Mortgage Loans are subject
to the "due-on-sale" provisions included therein (insofar as such provisions
are enforceable under applicable state law). Prepayments, liquidations and
purchases of the Mortgage Loans (including any optional purchase by the
Servicer of a defaulted Mortgage Loan or any purchase by the Majority
Residual Certificateholders of a Certificate Group, or by the Servicer, of
the remaining Mortgage Loans and REO Property with respect to the related
Mortgage Loan Group in connection with the optional termination of such
Mortgage Loan Group) will, subject to certain conditions, result in
distributions to holders of the Offered Certificates then entitled to receive
principal distributions of principal that would otherwise be distributed over
the remaining terms of the Mortgage Loans. In addition, the
overcollateralization provisions of the Trust Fund will result in a limited
acceleration of principal payments to the holders of the Offered
Certificates. Moreover, as described herein, on the Distribution Date
immediately following the Due Period in which the end of the Funding Period
occurs, a principal prepayment will be made to the holders of certain classes
of Group I Certificates in the amount which represents the excess of the Pre-
Funded Amount over the aggregate Loan Balance of all Group I Subsequent
Mortgage Loans acquired by the Trust Fund subsequent to the Closing Date
(i.e., the balance on deposit in the Pre-Funding Account on such date (net of
investment earnings)). See "Description of the Certificates" herein. Since
the rate of payment of principal on the Mortgage Loans will depend on future
events and a variety of factors, no assurance can be given as to such rate or
the rate of Principal Prepayments.
The weighted average life of a pool of loans (as with each Mortgage Loan
Group included in the Trust Fund) is the average amount of time that will
elapse from the date such pool is formed until each dollar of principal is
scheduled to be repaid to the investors in such pool. Because it is expected
that there will be principal prepayments and defaults on the Mortgage Loans,
the actual weighted average life of the Mortgage Loans is expected to vary
substantially from the weighted average remaining term to stated maturity of
the Mortgage Loans as set forth herein under "The Mortgage Loan Groups--
General".
Defaults and Delinquent Payments. The yields to maturity of the Offered
Certificates will be sensitive to defaults and delinquent payments on the
Mortgage Loans. The Servicer will not be required to advance amounts in
respect of delinquent payments of principal of the Mortgage Loans. If a
purchaser of an Offered Certificate calculates its anticipated yield based on
an assumed rate of default and amount of losses that is lower than the
default rate and amount of losses actually incurred and not borne by a class
of Certificates subordinate thereto, its actual yield to maturity will be
lower than the yield to maturity so calculated and could, in the event of
substantial losses, be negative. The timing of Realized Losses that are not
borne by a subordinate class will also affect an investor's actual yield to
maturity even if the rate of defaults and severity of such losses are
consistent with an investor's expectations. In general, the earlier a loss
occurs, the greater is the effect on an investor's yield to maturity. There
can be no assurance as to the delinquency, foreclosure or loss experience
with respect to the Mortgage Loans.
Payment Delay. Under the Pooling and Servicing Agreement, payments of
principal and interest on the Group I Mortgage Loans in respect of any Due
Period generally will not be passed through to the holders of the Group I
Certificates until the Distribution Date in the following calendar month. As
a result, the monthly distributions to the holders of the Group I
Certificates generally will reflect Mortgagor payments during the prior
calendar month. Each Distribution Date will be on the 25th day of each month
(or the next succeeding business day), commencing in July 1997. Thus, the
effective yield to the holders of all Group I Certificates (other than the
Class A-1 Certificates) will be below that otherwise produced by the related
Pass-Through Rate and the price paid for the Group I Certificates (other than
the Class A-1 Certificates) by such holders because distributions on such
Group I Certificates in respect of any given month will not be made until on
or about the 25th day of the following month and will not bear interest
during such delay.
EFFECT OF GROUP I MORTGAGE RATES ON THE PASS-THROUGH RATE FOR THE CLASS A-1
CERTIFICATES
As described herein, the Pass-Through Rate for the Class A-1
Certificates adjusts monthly to equal the lesser of (a) One-Month LIBOR plus
0.14% and (b) Class A-1 Available Funds Cap. The Group I Mortgage Loans,
from which distributions on the Class A-1 Certificates will be derived, will
bear fixed Mortgage Rates; consequently, the amount of interest that accrues
on the Class A-1 Certificates at the related Pass-Through Rate during any
Accrual Period may be less than the amount that would accrue at One-Month
LIBOR plus 0.14%, in which circumstance the value of the Class A-1
Certificates may be temporarily or permanently reduced.
RISK OF LIMITATIONS TO ADJUSTMENTS OF THE MORTGAGE RATES ON THE GROUP II
MORTGAGE LOANS
As described herein, the Pass-Through Rates for each class of Group II
Certificates adjusts monthly to equal the lesser of (a) the sum of (i) One-
Month LIBOR plus (ii) the related Group II Pass-Through Margin and (b) the
Group II Available Funds Cap. Approximately 34.45% of the Group II Mortgage
Loans are 2/28 Mortgage Loans which have fixed Mortgage Rates for 24 months
after origination and, in addition, each of the Group II Mortgage Loans is
subject to a Periodic Rate Cap and a Maximum Mortgage Rate; consequently, the
amount of interest that accrues on a class of Group II Certificates at the
related Pass-Through Rate during any Accrual Period may be less than the
amount that would accrue at One-Month LIBOR plus the related Group II Pass-
Through Margin, in which circumstance the value of such class or classes of
Group II Certificates may be temporarily or permanently reduced.
GROUP I SUBSEQUENT MORTGAGE LOANS
The ability of the Seller to originate or purchase mortgage loans
subsequent to the date hereof and on or prior to August 31, 1997 that meet
the requirements for transfer to the Trust Fund under the Pooling and
Servicing Agreement will be affected by a variety of factors, including
interest rates, employment levels, the rate of inflation and consumer
perception of economic conditions generally. On the Distribution Date
immediately following the Due Period in which the end of the Funding Period
occurs, a principal prepayment will be made to the holders of certain classes
of Group I Certificates in the amount which represents the excess of the Pre-
Funded Amount over the Loan Balance of all Group I Subsequent Mortgage Loans
acquired by the Trust Fund subsequent to the Closing Date (i.e., the balance
on deposit inthe Pre-Funding Accounton such date(net of investmentearnings)).
EFFECT OF BASIS RISK ON CREDIT ENHANCEMENT
Credit enhancement is provided to the Offered Certificates of each
Certificate Group in part by means of the application of the General Excess
Available Amount for such Certificate Group on each Distribution Date to make
required distributions on the applicable classes of Offered Certificates.
See "Description of the Certificates--Allocation of Available Funds" herein.
The General Excess Available Amount on any Distribution Date will be affected
by the actual amount of interest received, collected or recovered in respect
of the Mortgage Loans of the related Mortgage Loan Group during the related
Due Period and such amount will be influenced by changes in the weighted
average of the Mortgage Rates resulting from prepayments and liquidations of
the Mortgage Loans in the related Mortgage Loan Group as well as from, in the
case of the Group II Mortgage Loans, adjustments of the related Mortgage
Rates. To the extent the weighted average of the Pass-Through Rates on the
classes of Offered Certificates of a Certificate Group increases relative to
the weighted average of the Mortgage Rates for the related Mortgage Loans, it
may be necessary to apply all or a portion of the related General Excess
Available Amount to make required distributions of interest on the related
classes of Offered Certificates and, as a result, such General Excess
Available Amount may be unavailable for any other purpose. In addition, it
is possible that, under certain circumstances, the General Excess Available
Amount may be insufficient to cover the required distributions of interest on
the related classes of Offered Certificates.
BALLOON MORTGAGE LOANS
Initial Group I Mortgage Loans representing approximately 45.54% of the
Group I Initial Cut-Off Date Principal Balance are Balloon Mortgage Loans,
which generally have original terms of 15 years and provide for monthly
payments based on a 30 year amortization schedule and final monthly payments
substantially greater than the preceding monthly payments. The existence of
a Balloon Payment generally will necessitate that the related Mortgagor
refinance the Mortgage Loan or sell the Mortgaged Property on or prior to the
stated maturity date. The ability of a Mortgagor to accomplish either of
these alternatives will be affected by a number of factors, including the
level of available mortgage rates at the time of sale or refinancing, the
Mortgagor's equity in the related Mortgaged Property, the financial condition
of the Mortgagor, tax laws and prevailing general economic conditions. None
of the Seller, the Servicer, the Depositor or the Trustee is obligated to
refinance any Mortgage Loan.
SECOND MORTGAGE LOANS
Initial Group I Mortgage Loans representing 84.69% of the Group I
Initial Cut-Off Date Principal Balance are secured by first liens, with the
remaining Initial Group I Mortgage Loans (representing approximately 15.31%
of the Group I Initial Cut-Off Date Principal Balance) being Second Mortgage
Loans. The First Liens related to such Second Mortgage Loans will not be
included in the Mortgage Loan Groups.
The primary risk to holders of mortgage loans secured by second
mortgages is that the proceeds from any liquidation, insurance or
condemnation proceedings will be available to satisfy the outstanding balance
of a mortgage loan only to the extent that the claims of the first mortgage
have been satisfied in full, including any related foreclosure costs. In
addition, a mortgagee may not foreclose on the property securing a second
mortgage unless it forecloses subject to the first mortgage, in which case it
must either pay the entire amount due on the first mortgage at or prior to
the foreclosure sale or undertake the obligation to make payments on the
first mortgage. In servicing second mortgages in its portfolio, the Servicer
may satisfy the first mortgage at or prior to the foreclosure sale. The
Servicer may also advance funds to keep the first mortgage current until such
time as the first mortgage is satisfied. The Trust Fund will have no source
of funds (and may not be permitted under the REMIC provisions of the Code) to
satisfy any First Lien or to make payments due to the First Lien mortgagee.
The Pooling and Servicing Agreement provides that the Servicer may be
required to advance such amounts under the circumstances described therein.
See "The Pooling and Servicing Agreement" herein.
An overall decline in the residential real estate market, the general
condition of a Mortgaged Property or other factors could adversely affect the
values of the Mortgaged Properties such that the outstanding balances of the
Second Mortgage Loans, together with any First Liens on the Mortgaged
Properties, equal or exceed the values of the Mortgaged Properties. Such a
decline could reduce or eliminate any economic interest of the Trust Fund in
a Mortgaged Property before having any effect on the interest of the related
First Lien mortgagee. In a period of such decline, the rates of
delinquencies, foreclosures and losses on the Second Mortgage Loans could be
higher than those heretofore experienced by the Seller or in the home equity
mortgage lending industry in general. In addition, adverse economic
conditions (which may or may not affect real property values) may affect the
timely payment by Mortgagors of scheduled payments of principal and interest
(including Balloon Payments) on the Mortgage Loans and, accordingly, the
actual rates of delinquencies, foreclosures and losses with respect to the
Mortgage Loan Groups.
Information is provided under "The Mortgage Loan Groups--General" with
respect to the Combined Loan-to-Value Ratios of the Initial Group I Mortgage
Loans. As discussed above, the value of the Mortgaged Properties securing
the payment of Second Mortgage Loans could be adversely affected by a number
of factors. As a result, despite the amortization of the Mortgage Loans and
any First Liens on such Mortgaged Properties, there can be no assurance that
the Combined Loan-to-Value Ratios of any Second Mortgage Loans determined as
of a date subsequent to the origination date will be the same or lower than
the Combined Loan-to-Value Ratios for such Mortgage Loans determined as of
the origination date.
UNDERWRITING STANDARDS, LIMITED OPERATING HISTORY AND POTENTIAL DELINQUENCIES
As described herein, Cityscape's underwriting standards generally are
less stringent than those of the Federal National Mortgage Association
("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC") with respect
to a borrower's credit history and in certain other respects. An applicant's
tarnished credit history may not preclude Cityscape from making the applicant
a loan. As a result of this approach to underwriting, the Mortgage Loans may
experience higher rates of delinquencies, defaults and foreclosures than
mortgage loans underwritten in a manner which is more similar to the FNMA and
FHLMC guidelines.
Cityscape commenced servicing portfolios of mortgage loans in 1994.
Accordingly, Cityscape does not have sufficient historical delinquency,
bankruptcy, foreclosure or default information on which to rely for purposes
of estimating the future delinquency and loss experience of the Mortgage
Loans.
GEOGRAPHIC CONCENTRATION
Initial Group I Mortgage Loans representing approximately 19.54%, 8.97%,
7.79% and 6.92% of the Group I Initial Cut-Off Date Principal Balance are
secured by Mortgaged Properties located in New York, New Jersey, Pennsylvania
and Georgia, respectively. Group II Mortgage Loans representing
approximately 15.76%, 14.21%, 13.96%, 6.34% and 5.80% of the Group II Cut-Off
Date Principal Balance are secured by mortgaged properties in Michigan, New
York, New Jersey, Ohio and Illinois, respectively. If these residential real
estate markets should experience an overall decline in property values after
the dates of origination of the Initial Mortgage Loans, the rates of
delinquencies, foreclosures, bankruptcies and losses on the Initial Mortgage
Loans may increase substantially. Changes in the values of Mortgaged
Properties may have an effect on the delinquency, foreclosure, bankruptcy and
loss experience of the Initial Mortgage Loans. No assurance can be given
that the values of the Mortgaged Properties have remained or will remain at
the levels in effect on the dates of origination of the related Mortgage
Loans.
SMALL MIXED-USE PROPERTIES
Initial Group I Mortgage Loans representing approximately 2.42% of the
Group I Initial Cut-Off Date Principal Balance are secured by small mixed-use
properties. These are properties which have two to seven units including
space used for retail, professional or other commercial uses. The Servicer
has only recently commenced servicing mortgages secured by small mixed-use
properties and, accordingly, has no representative historical delinquency,
bankruptcy, foreclosure, default or prepayment experience applicable to the
Mortgage Loans that are so secured. Due to the limited market for such
properties, it is expected that, in the event of foreclosure, it will take a
longer time to recover liquidation proceeds from such properties than from
single-family properties.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Civil Relief Act"), a mortgagor who enters
military service after the origination of such mortgagor's mortgage loan
(including a mortgagor who is a member of the National Guard or is in reserve
status at the time of the origination of the mortgage loan and is later
called to active duty) may not be charged interest (including fees and
charges) above an annual rate of 6% during the period of such mortgagor's
active duty status, unless a court orders otherwise upon application of the
lender. It is possible that the application of the Civil Relief Act could
have an effect, for an indeterminate period of time, on the ability of the
Servicer to collect full amounts of interest on certain of the Mortgage
Loans. Any such interest shortfalls could result in losses to the holders of
the Offered Certificates. In addition, the Civil Relief Act imposes
limitations which would impair the ability of the Servicer to foreclose on an
affected Mortgage Loan during the Mortgagor's period of active duty status.
Thus, in the event that such a Mortgage Loan goes into default, there may be
delays and losses occasioned by the inability to realize upon the related
Mortgaged Property in a timely fashion. See "Certain Legal Aspects of the
Loans--Soldiers' and Sailors' Civil Relief Act" in the Prospectus.
PURCHASED MORTGAGE LOANS
Substantially all of the Mortgage Loans will have been either originated
by or on behalf of the Seller or purchased and re-underwritten by the Seller
in accordance with the Seller's customary loan purchase program. As
described herein, the Seller will make certain representations and warranties
regarding all of the Mortgage Loans and, in the event of a breach of any such
representation or warranty that materially and adversely affects the
Certificateholders, the Seller will be required either to cure such breach or
to repurchase the related Mortgage Loan or Loans. Upon the purchase of
mortgage loans from third-party originators, Cityscape generally requires
that the servicing of such mortgage loans be transferred to it. During the
time of such transfer, it is possible that delays in the receipt of
collections on such mortgage loans could occur resulting in a higher level of
delinquencies during such period.
LEGAL CONSIDERATIONS
The transfer of the Mortgage Loans from the Seller to the Depositor will
be treated by the Seller and the Depositor as a sale of the Mortgage Loans.
The Seller will warrant that such transfer is a sale of its interest in the
Mortgage Loans. In the event of an insolvency of the Seller, the receiver or
bankruptcy trustee of the Seller may attempt to recharacterize the sale of
the Mortgage Loans as a borrowing by the Seller secured by a pledge of the
Mortgage Loans. If the receiver or bankruptcy trustee decided to challenge
such transfer, delays in payments on the Certificates and possible reductions
in the amount of such payments could occur. The Depositor will warrant in
the Pooling and Servicing Agreement that the transfer of the Mortgage Loans
to the Trust Fund is a valid transfer of all of the Depositor's right, title
and interest in the Mortgage Loans to the Trust Fund.
CERTAIN OTHER LEGAL CONSIDERATIONS REGARDING THE MORTGAGE LOANS
Applicable federal and state laws regulate interest rates and other
charges with respect to mortgage loans and require certain disclosures. In
addition, other laws, public policy and general principles of equity relating
to the protection of consumers, unfair and deceptive practices and debt
collection practices may apply to the origination, servicing and collection
of the Mortgage Loans. Depending on the provisions of the applicable law and
the specific facts and circumstances involved, violations of these laws,
policies and principles may limit the ability to collect all or part of the
principal of or interest on the Mortgage Loans, may entitle the borrower to a
refund of amounts previously paid and, in addition, could subject the owner
of the Mortgage Loans to damages and administrative enforcement. See "Risk
Factors--Certain Other Legal Considerations Regarding the Loans" in the
Prospectus.
BOOK-ENTRY REGISTRATION
The Offered Certificates initially will be represented by one or more
certificates registered in the name of Cede & Co. ("Cede"), as nominee of The
Depository Trust Company ("DTC"), and will not be registered in the names of
the holders of the Certificate Owners (as defined herein) or their nominees.
Because of this, unless and until Definitive Certificates are issued,
Certificate Owners will not be recognized by the Trustee as
"Certificateholders" (as such term is used herein and in the Pooling and
Servicing Agreement) and will be able to exercise the rights of the holders
of the Offered Certificates only indirectly through DTC and its participating
organizations. See "Description of the Certificates -- Form, Denomination,
Exchange, Registration and Title".
ENVIRONMENTAL RISKS
Federal, state and local laws and regulations impose a wide range of
requirements on activities that may affect the environment, health and
safety. In certain circumstances, these laws and regulations impose
obligations on owners or operators of residential properties such as
Mortgaged Properties. The failure to comply with such laws and regulations
may result in fines and penalties.
Under various federal, state and local laws and regulations, an owner or
operator of real estate may be liable for the costs of addressing hazardous
substances on, in or beneath such property and other related costs. Such
liability could exceed the value of the property and the aggregate assets of
the owner or operator. In addition, persons who transport or dispose of
hazardous substances, or arrange for the transportation, disposal or
treatment of hazardous substances, at off-site locations may also be held
liable if there are releases or threatened releases of hazardous substances
at such off-site locations.
Under the laws of some states and under the federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"),
contamination of property may give rise to a lien on the property to assure
the payment of the costs of clean-up. In several states, such a lien has
priority over the lien of an existing mortgage against such property.
Under the laws of some states, and under CERCLA and the federal Solid
Waste Disposal Act, there is a possibility that a lender may be held liable
as an "owner" or "operator" for costs of addressing releases or threatened
releases of hazardous substances at a property, or releases of petroleum from
an underground storage tank, under certain circumstances.
CITYSCAPE'S PORTFOLIO OF MORTGAGE LOANS
UNDERWRITING GUIDELINES OF CITYSCAPE
The following is a description of the underwriting guidelines
customarily and currently employed by Cityscape with respect to home equity
loans which it originates or purchases from others. Cityscape revises such
guidelines from time to time in connection with changing economic and market
conditions.
Cityscape's business consists primarily of originating, purchasing and
servicing home equity loans. Cityscape specializes in home equity loans
(such term as used herein includes both refinancings and purchase money
loans) that do not conform to the underwriting standards of FNMA, FHLMC,
banks and other primary lending institutions, particularly as such standards
relate to a prospective borrower's credit history. In analyzing loan
applications, Cityscape analyzes both the borrower's credit and the value of
the underlying property which will secure the loan, including the
characteristics of the underlying First Lien, if any.
Cityscape considers factors pertaining to the borrower's current
employment, stability of employment and income, financial resources, and
credit history, reflecting not only the borrower's ability to pay but also
the willingness to repay contractual obligations. The property's age,
condition, location, value and continued marketability are additional factors
considered in each risk analysis.
Cityscape's underwriting standards are designed to provide a program for
all qualified applicants in an amount and for a period of time consistent
with their ability to repay. All of Cityscape's underwriting determinations
are made without regard to sex, marital status, race, color, religion, age or
national origin. Each application is evaluated on its individual merits,
applying the guidelines set forth below, to ensure that each application is
considered on an equitable basis.
Cityscape originates home equity loans with different credit
characteristics depending on the credit profiles of individual borrowers.
Except for Balloon Mortgage Loans, the home equity loans originated by
Cityscape generally have amortization schedules ranging from 15 years to 30
years, bear interest at either adjustable rates based on indices set forth in
the related Mortgage Notes or fixed rates and require equal monthly payments
which are due as of a scheduled day of each month which is fixed at the time
of origination. Cityscape also originates Balloon Mortgage Loans, which
generally provide for scheduled amortization over 30 years with a due date
and a Balloon Payment at the end of the fifteenth year. The principal amount
of the loans purchased or originated by Cityscape generally ranges from a
minimum of $8,500 to a maximum of $500,000. Under current policy, the
majority of the home equity loans Cityscape acquires or originates have
Combined Loan-to-Value Ratios which do not exceed 85%, except that in some
instances, on an exception basis, Cityscape may accept a loan with a Combined
Loan-to-Value Ratio up to 100%. The collateral securing loans acquired or
originated by Cityscape are generally one- to four-family residences,
including condominiums, manufactured housing and townhomes and such
properties may or may not be occupied by the owner. It is Cityscape's policy
not to accept mobile home or commercial properties (other than small
mixed-use properties) or unimproved land as collateral. However, Cityscape
will accept small multifamily properties which consist of more than four
residential units.
Cityscape's home equity loan program includes a full documentation
program and a non-income verification program. Under the full documentation
program, the borrower's total monthly debt obligations (which include
principal and interest on the new loan and all other mortgages, loans, charge
accounts and scheduled indebtedness) generally cannot exceed 50% of the
borrower's monthly gross income. Loans to borrowers who are salaried
employees must be supported by current employment information in addition to
employment history. This information for full documentation programs is
generally verified based on written confirmation from employers, one or more
pay-stubs, recent W-2 tax forms, recent tax returns or telephone confirmation
from the employer. For Cityscape's non-income verification program, proof of
employment or self-employment is required.
Cityscape requires that a full appraisal of the property used as
collateral for any loan that it acquires or originates be performed in
connection with the origination of the loan. All appraisals are performed by
third party, fee-based appraisers and generally conform to current FNMA/FHLMC
secondary market requirements for residential property appraisals. Each such
appraisal includes, among other things, an inspection of the exterior and
interior of the subject property and, where available, data from sales within
the preceding 12 months of similar properties within the same general
location as the subject property.
A credit report by an independent, nationally recognized credit
reporting agency reflecting the applicant's complete credit history is
required. The credit report typically contains information reflecting
delinquencies, repossessions, judgments, foreclosures, bankruptcies and
similar instances of adverse credit that can be discovered by a search of
public records. An applicant's recent credit performance weighs heavily in
the evaluation of risk by Cityscape. The credit report is used to evaluate
the borrower's record and must be current at the time of application. A lack
of credit history will not necessarily preclude a loan if the borrower has
sufficient equity in the property. Slow payments on the borrower's credit
report must be satisfactorily explained and will normally reduce the amount
of the loan for which the applicant can be approved.
Cityscape requires title insurance coverage issued by an approved ALTA
title insurance company on all property securing home equity loans it
originates or purchases. The loan originator and its assignees are generally
named as the insured. Title insurance policies indicate the lien position of
the mortgage loan and protect Cityscape against loss if the title or lien
position is not as indicated. The applicant is also required to secure
hazard and, in certain instances, flood insurance in an amount sufficient to
cover the lesser of (a) the new loan and any senior mortgage and (b) an
amount sufficient to cover replacement costs of the mortgaged property.
Cityscape has established classifications with respect to the credit
profiles of loans based on certain borrower characteristics. Each loan
applicant is placed into one of four letter ratings ("A" through "D", with
subratings within those categories), depending upon a number of factors
including the applicant's credit history, based on credit bureau reports and
employment status. Terms of loans made by Cityscape, as well as the maximum
loan-to-value ratio and debt service-to-income ratio (calculated by dividing
fixed monthly debt payments by gross monthly income), vary depending upon the
classification of the borrower. Borrowers with lower credit ratings
generally pay higher interest rates and loan origination fees. The criteria
currently used by Cityscape in classifying loan applicants can be generalized
as follows:
"A" Risk. Under the "A" risk category, a loan applicant must generally
have repaid installment or revolving debt according to its terms.
- Existing mortgage loans: required to be current at the time
the application is submitted, with a maximum of one (or two
on a case-by-case basis) 30-day late payment(s) within the
last 12 months being acceptable.
- Non-mortgage credit: minor derogatory items are allowed,
but a letter of explanation is required; any recent open
collection accounts or open charge-offs, judgments or liens
would generally disqualify a loan applicant from this
category.
- Bankruptcy filings: must have been discharged more than
four years prior to closing with credit re-established.
- Maximum Combined Loan-to-Value Ratio: up to 80% (or 90% on
an exception basis) is permitted for a loan secured by an
owner-occupied one- to four-family residence; 75% (or up to
80% on an exception basis) for a loan secured by an owner-
occupied condominium; and 70% (or up to 80% on an exception
basis) for a loan secured by a non-owner-occupied one- to
four-family residence.
- Debt service-to-income ratio: generally 45% or less.
"B" Risk. Under the "B" risk category, a loan applicant must have
generally repaid installment or revolving debt according to its terms.
- Existing mortgage loans: required to be current at the time
the application is submitted, with a maximum of three (or
four on a case-by-case basis) 30-day late payments within
the last 12 months being acceptable.
- Non-mortgage credit: some prior defaults may have occurred,
but major credit paid or installment debt paid as agreed may
offset some delinquency; any open charge-offs, judgments or
liens would generally disqualify a loan applicant from this
category.
- Bankruptcy filings: must have been discharged more than two
years prior to closing with credit re-established.
- Maximum Combined Loan-to-Value Ratio: up to 80% (or 90% on
an exception basis) is permitted for a loan secured by an
owner-occupied one- to four-family residence; and 70% (or
80% on an exception basis) for a loan secured by a non-
owner-occupied one- to four-family residence.
- Debt service-to-income ratio: generally 50% or less (45% or
less for 90% Combined Loan-to-Value Ratios).
"C" Risk. Under the "C" risk category, a loan applicant may have
experienced significant credit problems in the past.
- Existing mortgage loans: not required to be current at the
time the application is submitted; applicant is allowed a
maximum of five 30-day late payments and two 60-day late
payments within the last 12 months.
- Non-mortgage credit: significant prior delinquencies may
have occurred, but major credit paid or installment debt
paid as agreed may offset some delinquency; all delinquent
credit must be current or paid off.
- Bankruptcy filings: must have been discharged and a minimum
one year of re-established credit is required.
- Maximum Combined Loan-to-Value Ratio: up to 75% (or 80% on
an exception basis for first liens only) is permitted for a
loan secured by an owner-occupied one- to four-family
residence; 65% for a loan secured by an owner-occupied
condominium; and 70% for a non-owner-occupied one- to four-
family residence.
- Debt service-to-income ratio: generally 50% or less.
"D" Risk. Under the "D" risk category a loan applicant may have
experienced significant credit problems in the past.
- Existing mortgage loans: must be brought current from loan
proceeds and no more than 150 days delinquent at closing; an
explanation for such delinquency is required.
- Non-mortgage credit: significant prior defaults may have
occurred, but the applicant must be able to demonstrate
regularity in payment of some credit obligations; all
charge-offs, judgments, liens or collection accounts must be
paid off.
- Bankruptcy filings: open Chapter 13 bankruptcies will be
considered with evidence that the plan is being paid
according to terms; outstanding balance must be paid in full
and discharged from loan proceeds.
- Maximum Combined Loan-to-Value Ratio: up to 70% is
permitted for a loan secured by an owner-occupied one- to
four-family residence; 60% for a loan secured by an owner-
occupied condominium; and 65% for a non-owner-occupied one-
to four-family residence.
- Debt service-to-income ratio: generally 50% or less.
Exceptions. As described above, Cityscape uses the foregoing
categories and characteristics only as guidelines. On a case-by-case
basis, Cityscape may determine that the prospective mortgagor warrants a
risk category upgrade, a debt service-to-income ratio exception, a
pricing exception, a Combined Loan-to-Value Ratio exception or an
exception from certain requirements of a particular risk category
(collectively called an "upgrade" or an "exception"). An upgrade or
exception may generally be allowed if the application reflects certain
compensating factors, among others: low Combined Loan-to-Value Ratio;
pride of ownership; stable employment or length of occupancy at the
applicant's current residence. An upgrade or exception may also be
allowed if the applicant places a down payment in escrow equal to at
least 20% of the purchase price of the mortgaged property, or if the new
loan reduces the applicant's monthly aggregate debt load. Accordingly,
Cityscape may classify in a more favorable risk category certain
mortgage loans that, in the absence of such compensating factors, would
satisfy only the criteria of a less favorable risk category.
Underwriting Guidelines for Small Mixed-Use and Multifamily Properties.
Cityscape originates mortgage loans secured by residential multifamily
properties consisting of more than four units (although no such mortgage
loans are included in the Mortgage Loans) as well as mortgage loans secured
by small mixed-use properties. A potential mortgagor of such a property must
have established credit and any charge-offs, judgment liens or bankruptcies
generally would disqualify the application. If a potential mortgagor is
attempting to obtain a mortgage on a small mixed-use or multifamily property
with two to six units, then such small mixed-use property should have net
income at least equal to debt service. If any such mortgagor is attempting
to obtain a mortgage on a small mixed-use or multi-family property with seven
or more units, such mortgagor should have a net income to debt service ratio
of at least 1.2. The maximum Loan-to-Value Ratio Cityscape allows for a
small mixed-use or multifamily property is usually no greater than 68%.
Cityscape may require a Phase I Environmental Report for mortgage loans
secured by properties with seven or more units depending on the location, the
use of the subject property and any indication in the related appraisal of a
potential environmental problem. Approximately 2.42% of the Initial Group I
Mortgage Loans by Cut-Off Date Principal Balances are secured by small mixed-
use Mortgaged Properties. None of the Group II Mortgage Loans is secured by
a small mixed-use mortgaged property.
CITYSCAPE CORP.
GENERAL
Cityscape Corp., a New York corporation and a wholly owned subsidiary of
Cityscape Financial Corp., a publicly traded Delaware corporation, is a full
service mortgage banker engaged in the business of originating, purchasing,
selling and servicing mortgage loans primarily secured by one- to four-family
residential properties and small mixed-use or multifamily properties, with an
emphasis on non-conforming first and second mortgages. Cityscape was
incorporated in New York in 1985 and currently is licensed as a mortgage
banker or registered, as required, in 44 states (including New York,
Illinois, Maryland, New Jersey, Indiana, Pennsylvania, Massachusetts,
Connecticut, California and Virginia) and the District of Columbia.
Cityscape has its principal offices at 565 Taxter Road, Elmsford, New
York 10523 (telephone number (914) 592-6677). It currently has 914 employees
including professionals and support staff. For the years ended December 31,
1994, 1995 and 1996, Cityscape originated or purchased approximately $154
million, $418 million and $1.3 billion of loans, respectively. Cityscape's
net worth as of December 31, 1991, 1992, 1993, 1994, 1995 and 1996 was
$1,993,330, $2,083,076, $2,398,279, $3,176,738, $50,657,221 and $83,476,527,
respectively.
As of March 31, 1997, the Servicer was servicing a loan portfolio
(including loans it has retained for its own account, but not those master
serviced on behalf of others) of approximately $1,788,360,359. This loan
portfolio consisted of 30,053 loans with an average principal balance of
approximately $59,507.
As a publicly traded company, Cityscape Financial Corp. is required to
file periodic reports with the Securities and Exchange Commission pursuant to
the Securities Exchange Act of 1934, as amended. Cityscape Financial Corp.
will furnish without charge to each person to whom this Prospectus Supplement
is delivered, upon written or oral request, a copy of the most recent
periodic filings made with the Securities and Exchange Commission. Requests
should be directed to Cheryl P. Carl, Senior Vice President, Cityscape
Financial Corp., 565 Taxter Road, Elmsford, New York 10523 (telephone number
(914) 592-6677).
The Servicer may resign only in accordance with the terms of the Pooling
and Servicing Agreement. No removal or resignation will become effective
until the Trustee or a successor servicer has assumed the Servicer's
responsibilities and obligations in accordance therewith.
The Servicer may not assign its obligations under the Pooling and
Servicing Agreement unless it first obtains the written consent of the
Trustee; provided, however, that any assignee must meet the eligibility
requirements for a successor servicer set forth in the Pooling and Servicing
Agreement. Notwithstanding anything in the preceding sentence to the
contrary, the Servicer may delegate certain of its obligations to a sub-
servicer pursuant to a sub-servicing agreement. A sub-servicer must meet
certain eligibility requirements, as set forth in the Pooling and Servicing
Agreement, and each sub-servicing agreement shall require servicing of the
Mortgage Loans consistent with the terms of the Pooling and Servicing
Agreement (see "The Pooling and Servicing Agreement -- Sub-Servicing").
DELINQUENCY AND CHARGE-OFF EXPERIENCE
The following tables set forth information relating to the delinquency
and foreclosure and loan charge-off experience of Cityscape for its servicing
portfolio of home equity loans (including home equity loans serviced on a
contractual basis for others but not those master serviced on behalf of
others) as of the dates or for the periods indicated.
DELINQUENCY AND FORECLOSURE EXPERIENCE
At December 31, At March 31,
1995 1996 1997
Number Number Number
of of of
Loans Amount Loans Amount Loans Amount
Servicing portfolio . . . . . . 5,043 $327,273,085 24,305 $1,485,308,459 30,053 $1,788,360,359
Past due loans(1):
30-59 days . . . . . . . . 91 6,019,360 1,020 55,788,579 75 44,009,563
60-89 days . . . . . . . . 24 1,659,761 364 20,459,505 308 17,820,533
90 days or more . . . . . . 42 2,489,565 493 28,900,463 658 40,918,860
Total past due loans . . . . . 157 10,168,686 1,877 105,148,547 1,722 102,748,956
Foreclosures pending(2) . . . . 49 4,050,186 369 28,370,475 531 40,399,244
REO Properties(3) . . . . . . . 3 224,086 15 1,009,990 18 1,444,882
Total past due loans,
foreclosures pending and REO
Properties . . . . . . . . . . 209 14,442,958 2,261 134,529,012 2,271 144,593,082
Total past due loans,
foreclosures pending, and REO
properties as a percentage of
servicing portfolio . . . . . . 4.1% 4.4% 9.3% 9.1% 7.6% 8.1%
(1) The past due period is based on the actual number of days that a payment
is contractually past due. A loan as to which a monthly payment was due
30-59 days prior to the date specified is reported as 30-59 days past
due, etc.
(2) Includes bankruptcies which preclude foreclosure.
(3) An "REO Property" is a property acquired and held as a result of
foreclosure or deed in lieu of foreclosure.
LOAN CHARGE-OFF EXPERIENCE
For the Three
For the Twelve Months Months
Ended December 31, Ended March 31,
1995 1996 1997
Servicing portfolio at period end . . . . . . . . $327,273,085 $1,485,308,459 $1,788,360,359
Average outstanding(1) . . . . . . . . . . . . . $147,690,551 $ 840,646,422 $1,686,184,150
Number of loans outstanding . . . . . . . . . . 5,043 24,305 30,053
Gross losses(2) . . . . . . . . . . . . . . . . $ 51,816 $ 32,689 $ 0
Loan recoveries . . . . . . . . . . . . . . . . $ 0 $ 689 $ 0
Net loan charge-offs . . . . . . . . . . . . . $ 51,816 $ 32,000 $ 0
Net loan charge-offs as a percentage of average
outstanding . . . . . . . . . . . . . . . . 0% 0% 0%
Net loan charge-offs as a percentage of
servicing portfolio at period end . . . . . 0% 0% 0%
(1) "Average outstanding" for each period presented is the arithmetic
average of the principal balances of the loans in Cityscape's servicing
portfolio outstanding at the close of business on the final business day
of each month during such period. With respect to REO Properties,
Cityscape generally will obtain an updated appraisal of the property,
and the fair market value (as determined by such new appraisal) will be
the principal balance used in such calculation.
(2) "Gross losses" means the outstanding principal balance plus accrued but
unpaid interest on liquidated mortgage loans.
The Servicer commenced servicing portfolios of mortgage loans in 1994.
Accordingly, neither the Servicer nor Cityscape has representative historical
delinquency, bankruptcy, foreclosure or default experience that may be
referred to for purposes of estimating the future delinquency and loss
experience of the Mortgage Loans.
The increase in the above delinquency experience for the period ended
December 31, 1996 from the period ended December 31, 1995 may be due in part
to the Servicer moving its servicing operations to a new office in July 1996
and conversion to a new servicing computer system in August 1996. These
changes resulted in system downtime which may have affected the Servicer's
collection operations. There can be no assurance that these events are the
cause of the increase in the delinquencies, and there can be no assurance
that the delinquencies will decrease in the future.
While the above delinquency, foreclosure and loan charge-off experiences
are typical of Cityscape's experiences at the dates and for the periods
indicated, there can be no assurance that the delinquency, foreclosure and
loan charge-off experiences on the Mortgage Loans will be similar.
Accordingly, the information should not necessarily be considered to reflect
the credit quality of the Mortgage Loans included in the Trust Fund, or as a
basis of assessing the likelihood, amount or severity of losses on the
Mortgage Loans. The statistical data in the tables is based on all of the
loans in Cityscape's servicing portfolio (including home equity loans
serviced on a contractual basis for others but not those master serviced on
behalf of others). The Mortgage Loans, in general, are likely to have
characteristics which may distinguish them from the majority of the loans in
Cityscape's servicing portfolio.
The Offered Certificates will not represent an interest in or obligation
of, nor are the Mortgage Loans guaranteed by, Cityscape or any of its
affiliates, nor will they be insured or guaranteed by the Federal Deposit
Insurance Corporation or any other governmental agency or instrumentality.
THE MORTGAGE LOAN GROUPS
GENERAL
The Initial Mortgage Loans are expected to include 2,409 fixed- and
adjustable-rate Mortgage Loans evidenced by Mortgage Notes secured by first
lien mortgages or deeds of trust or, in the case of certain Group I Mortgage
Loans, second lien mortgages or deeds of trust (collectively, the
"Mortgages") on the Mortgaged Properties. This subsection describes
generally the characteristics of the Initial Mortgage Loans. The Mortgaged
Properties consist of owner-occupied properties and non-owner-occupied
investment properties. The Mortgaged Properties do not include mobile homes,
commercial properties (except for commercial units in the small mixed-use
properties) or unimproved land. With respect to each Initial Mortgage Loan,
the "Cut-Off Date Principal Balance" is the unpaid principal balance of such
Mortgage Loan on the Initial Cut-Off Date.
Mortgage Loans in Cityscape's portfolio have been selected for inclusion
in the Mortgage Loan Groups with a view to satisfying various standards
prevailing in the mortgage-backed securities market, including Mortgage
Rates, Combined Loan-to-Value Ratios and terms to maturity. Pursuant to the
Pooling and Servicing Agreement, Cityscape will make various representations
and warranties regarding the Mortgage Loans. See "The Pooling and Servicing
Agreement -- Assignment of the Mortgage Loans."
All Mortgage Loan statistics set forth herein are based on principal
balances, interest rates, terms to maturity, mortgage loan counts and similar
statistics as of the Initial Cut-Off Date, unless indicated to the contrary
herein. All weighted averages specified herein are weighted based on the
Cut-Off Date Principal Balances of the Initial Mortgage Loans. References to
percentages of the Mortgage Loans in a particular Mortgage Loan Group mean
percentages based on the aggregate Cut-Off Date Principal Balances of the
Initial Mortgage Loans in such Mortgage Loan Group.
GROUP I MORTGAGE LOAN STATISTICS
The Initial Group I Mortgage Loans are expected to consist of 1,377
fixed-rate Mortgage Loans evidenced by Mortgage Notes secured by Mortgages on
Mortgaged Properties located in 37 states and the District of Columbia.
Additional Mortgage Loans (the "Group I Subsequent Mortgage Loans"), all of
which will be secured by liens on one- to four-family residential properties,
are expected to be acquired by the Trust Fund on or prior to August 31, 1997.
Approximately 84.69% of the Initial Group I Mortgage Loans are secured by
first liens on the related Mortgaged Properties, and the remainder are
secured by second liens on the related Mortgaged Properties. As of the
Initial Cut-Off Date, the aggregate Loan Balances of the Initial Group I
Mortgage Loans totaled $80,183,777.04 (the "Group I Initial Cut-Off Date
Principal Balance"). The Initial Group I Mortgage Loans bear interest at
fixed Mortgage Rates ranging from 7.85% to 17.15% per annum as of the Initial
Cut-Off Date. As of the Initial Cut-Off Date, less than 1% of the Group I
Mortgage Loans were Simple Interest Loans. The weighted average Group I
Mortgage Rate for the Initial Group I Mortgage Loans was approximately 11.67%
per annum as of the Initial Cut-Off Date. The lowest Loan Balance of any
Initial Group I Mortgage Loan was approximately $9,607 and the highest was
approximately $469,892 as of the Initial Cut-Off Date. The average Loan
Balance of the Initial Group I Mortgage Loans was approximately $58,231 as of
the Initial Cut-Off Date. The weighted average original term to stated
maturity of the Initial Group I Mortgage Loans as of the Initial Cut-Off Date
was approximately 231 months. The weighted average remaining term to stated
maturity of the Initial Group I Mortgage Loans as of the Initial Cut-Off Date
was approximately 229 months. As of the Initial Cut-Off Date, the weighted
average number of months that have elapsed since origination of the Mortgage
Loans was approximately 2 months. The lowest and highest Combined Loan-to-
Value Ratios of the Initial Group I Mortgage Loans at origination were 9.20%
and 98.71%, respectively. The weighted average Combined Loan-to-Value Ratio
of the Initial Group I Mortgage Loans as of the Initial Cut-Off Date was
approximately 73.89%. The weighted average Combined Loan-to-Value Ratio of
the Initial Group I Mortgage Loans that are Second Mortgage Loans was
approximately 78.30% as of the Initial Cut-Off Date.
Initial Group I Mortgage Loans representing approximately 10.88% of the
Group I Initial Cut-Off Date Principal Balance are secured by non-owner-
occupied Mortgaged Properties (based solely upon statements made by the
related Mortgagors at the time of origination of the related Mortgage Loans)
and approximately 2.42% of the Group I Initial Cut-Off Date Principal Balance
are secured by small mixed-use properties, which consist of two to seven
units including space used for retail, professional or other commercial uses.
Initial Group I Mortgage Loans representing approximately 54.46% of the
Group I Initial Cut-Off Date Principal Balance are fully amortizing Mortgage
Loans having original stated maturities of not more than 30 years. The
remaining Initial Group I Mortgage Loans, representing approximately 45.54%
of the Group I Initial Cut-Off Date Principal Balance, consist of Balloon
Mortgage Loans that generally provide for scheduled amortization over 30
years from their respective dates of origination and a balloon payment at the
end of the fifteenth year. No Initial Group I Mortgage Loan, including any
Balloon Mortgage Loan, is scheduled to mature later than June 1, 2027.
As of the Initial Cut-Off Date, approximately 2.34% of the Initial Group
I Mortgage Loans were between 30 and 59 days past due, and no Initial Group I
Mortgage Loan was 60 or more days past due.
The Combined Loan-to-Value Ratios of the Initial Group I Mortgage Loans
as of the Initial Cut-Off Date were distributed as follows (the sum of the
percentages in the following table may not equal the total due to rounding):
Percent of
Group I
Initial Cut-
Number of Aggregate Off Date
Range of Combined Loan-to-Value Initial Group I Initial Cut-Off Date Principal
Ratios (%) Mortgage Loans Principal Balance Balance
9.20% - 10.00% 1 $ 14,991.18 0.02%
10.01 - 15.00 2 77,624.79 0.10
15.01 - 20.00 2 32,019.60 0.04
20.01 - 25.00 10 392,504.10 0.49
25.01 - 30.00 9 278,786.78 0.35
30.01 - 35.00 18 594,496.00 0.74
35.01 - 40.00 25 884,264.19 1.10
40.01 - 45.00 29 1,516,695.58 1.89
45.01 - 50.00 41 1,883,005.16 2.35
50.01 - 55.00 37 1,691,797.29 2.11
55.01 - 60.00 62 3,486,982.56 4.35
60.01 - 65.00 96 5,684,536.46 7.09
65.01 - 70.00 170 10,081,115.05 12.57
70.01 - 75.00 191 11,776,608.66 14.69
75.01 - 80.00 319 21,813,742.88 27.20
80.01 - 85.00 165 9,658,366.75 12.05
85.01 - 90.00 188 9,979,909.29 12.45
90.01 - 95.00 10 219,589.61 0.27
95.01 - 98.71 2 116,741.11 0.15
TOTAL . . . . . . . . . . . . . 1,377 $80,183,777.04 100.00%
As of the Initial Cut-Off Date, the weighted average Combined Loan-to-
Value Ratio of the Initial Group I Mortgage Loans was approximately 73.89%.
Mortgage Rates of the Initial Group I Mortgage Loans as of the Initial
Cut-Off Date were distributed as follows (the sum of the percentages in the
following table may not equal the total due to rounding):
Number of Aggregate Percent of Group I
Initial Group I Initial Cut-Off Date Initial Cut-Off Date
Range of Mortgage Rates Mortgage Loans Principal Balance Principal Balance
(%)
7.8500% - 8.0000% 2 $ 220,674.71 0.28%
8.0001 - 8.5000 8 613,321.41 0.76
8.5001 - 9.0000 15 1,210,669.66 1.51
9.0001 - 9.5000 37 2,854,547.52 3.56
9.5001 - 10.0000 92 7,124,475.68 8.89
10.0001 - 10.5000 90 5,122,488.11 6.39
10.5001 - 11.0000 206 12,888,536.79 16.07
11.0001 - 11.5000 191 9,898,479.71 12.34
11.5001 - 12.0000 217 12,421,671.16 15.49
12.0001 - 12.5000 154 8,387,348.91 10.46
12.5001 - 13.0000 123 7,411,252.44 9.24
13.0001 - 13.5000 79 4,107,230.40 5.12
13.5001 - 14.0000 69 3,221,634.20 4.02
14.0001 - 14.5000 28 1,251,461.94 1.56
14.5001 - 15.0000 36 2,140,795.62 2.67
15.0001 - 15.5000 11 663,609.36 0.83
15.5001 - 16.0000 12 399,831.36 0.50
16.0001 - 16.5000 3 118,738.80 0.15
16.5001 - 17.0000 2 70,922.25 0.09
17.0001 - 17.1500 2 56,087.01 0.07
1,377 $80,183,777.04 100.00%
TOTAL . . . . . . .
As of the Initial Cut-Off Date, the weighted average Mortgage Rate of
the Initial Group I Mortgage Loans was approximately 11.67% per annum.
The original terms to maturity of the Initial Group I Mortgage Loans as
of the Initial Cut-Off Date were distributed as follows (the sum of the
percentages in the following table may not equal the total due to rounding):
Percent of Group I
Number of Aggregate Initial Cut-Off
Original Terms to Initial Group I Initial Cut-Off Date Date
Maturity (months) Mortgage Loans Principal Balance Principal Balance
60 4 $ 139,521.01 0.17%
84 3 32,750.90 0.04
120 45 1,460,685.02 1.82
180 848 49,136,304.68 61.28
240 197 9,017,638.32 11.25
300 6 598,887.18 0.75
360 274 19,797,989.93 24.69
TOTAL . . . . . . . . . . . . 1,377 $80,183,777.04 100.00%
As of the Initial Cut-Off Date, the weighted average original term to
maturity of the Initial Group I Mortgage Loans was approximately 231 months.
The remaining terms to maturity of the Initial Group I Mortgage Loans as
of the Initial Cut-Off Date were distributed as follows (the sum of the
percentages in the following table may not equal the total due to rounding):
Percent of Group I
Number of Aggregate Initial Cut-Off
Range of Remaining Terms to Initial Group I Initial Cut-Off Date Date
Maturity (months) Mortgage Loans Principal Balance Principal Balance
58 - 60 4 $ 139,521.01 0.17%
73 - 84 3 32,750.90 0.04
109 -120 45 1,460,685.02 1.82
157 -168 2 151,386.79 0.19
169 -180 846 48,984,917.89 61.09
229 -240 197 9,017,638.32 11.25
289 -300 6 598,887.18 0.75
349 -360 274 19,797,989.93 24.69
TOTAL . . . . . . . . . . . . 1,377 $80,183,777.04 100.00%
As of the Initial Cut-Off Date, the weighted average remaining term to
maturity of the Initial Group I Mortgage Loans was approximately 229 months.
The Loan Balances of the Initial Group I Mortgage Loans as of the
Initial Cut-Off Date were distributed as follows (the sum of the percentages
in the following table may not equal the total due to rounding):
Percent of Group I
Range of Number of Aggregate Initial Cut-Off
Initial Cut-Off Date Initial Group I Initial Cut-Off Date Date
Principal Balances ($) Mortgage Loans Principal Balance Principal Balance
$ 9,607.26 - $ 10,000.00 10 $ 99,153.02 0.12%
10,000.01 - 15,000.00 54 718,335.47 0.90
15,000.01 - 20,000.00 106 1,906,581.91 2.38
20,000.01 - 25,000.00 107 2,482,255.02 3.10
25,000.01 - 30,000.00 111 3,104,793.52 3.87
30,000.01 - 35,000.00 108 3,529,002.00 4.40
35,000.01 - 40,000.00 126 4,731,291.21 5.90
40,000.01 - 45,000.00 88 3,752,403.08 4.68
45,000.01 - 50,000.00 95 4,568,157.59 5.70
50,000.01 - 55,000.00 58 3,053,285.02 3.81
55,000.01 - 60,000.00 69 3,983,666.09 4.97
60,000.01 - 65,000.00 47 2,957,564.01 3.69
65,000.01 - 70,000.00 43 2,916,636.79 3.64
70,000.01 - 75,000.00 44 3,204,920.67 4.00
75,000.01 - 80,000.00 32 2,471,651.19 3.08
80,000.01 - 85,000.00 20 1,658,213.68 2.07
85,000.01 - 90,000.00 28 2,455,119.05 3.06
90,000.01 - 95,000.00 23 2,117,726.19 2.64
95,000.01 - 100,000.00 29 2,846,992.64 3.55
100,000.01 - 150,000.00 112 13,250,283.28 16.52
150,000.01 - 200,000.00 36 6,209,729.03 7.74
200,000.01 - 250,000.00 16 3,625,626.07 4.52
250,000.01 - 300,000.00 9 2,462,527.31 3.07
300,000.01 - 350,000.00 5 1,607,970.91 2.01
450,000.01 - 469,892.29 1 469,892.29 0.59
TOTAL . . . . . . . . . . . . 1,377 $80,183,777.04 100.00%
As of the Initial Cut-Off Date, the average Loan Balance of the Initial
Group I Mortgage Loans was approximately $58,231.
As of the Initial Cut-Off Date, the geographic distribution of the
Initial Group I Mortgage Loans was as follows (the sum of the percentages in
the following table may not equal the total due to rounding):
Percent of Group I
Number of Aggregate Initial Cut-Off
Initial Group I Initial Cut-Off Date Date
State Mortgage Loans Principal Balance Principal Balance
Arizona . . . . . . . . . . . . . . 2 $ 123,356.66 0.15%
California . . . . . . . . . . . . 24 1,325,871.77 1.65
Colorado . . . . . . . . . . . . . 3 184,806.65 0.23
Connecticut . . . . . . . . . . . . 22 1,637,046.01 2.04
Delaware . . . . . . . . . . . . . 13 740,022.73 0.92
District of Columbia . . . . . . . 22 1,848,150.82 2.30
Florida . . . . . . . . . . . . . . 82 3,903,844.41 4.87
Georgia . . . . . . . . . . . . . . 103 5,550,236.93 6.92
Hawaii . . . . . . . . . . . . . . 4 143,021.29 0.18
Illinois . . . . . . . . . . . . . 64 3,096,499.88 3.86
Indiana . . . . . . . . . . . . . . 63 2,449,288.24 3.05
Iowa . . . . . . . . . . . . . . . 1 91,769.01 0.11
Kansas . . . . . . . . . . . . . . 2 115,219.44 0.14
Kentucky . . . . . . . . . . . . . 24 1,005,433.79 1.25
Louisiana . . . . . . . . . . . . . 9 239,460.65 0.30
Maryland . . . . . . . . . . . . . 67 4,583,242.84 5.72
Massachusetts . . . . . . . . . . . 27 1,896,688.53 2.37
Michigan . . . . . . . . . . . . . 58 2,917,128.22 3.64
Minnesota . . . . . . . . . . . . . 10 427,089.12 0.53
Mississippi . . . . . . . . . . . . 18 704,734.03 0.88
Missouri . . . . . . . . . . . . . 62 2,176,684.26 2.71
Nebraska . . . . . . . . . . . . . 1 40,487.05 0.05
New Jersey . . . . . . . . . . . . 74 7,192,353.75 8.97
New Mexico . . . . . . . . . . . . 1 19,877.50 0.02
New York . . . . . . . . . . . . . 205 15,670,914.02 19.54
North Carolina . . . . . . . . . . 39 2,673,159.08 3.33
Ohio . . . . . . . . . . . . . . . 86 3,811,664.36 4.75
Oklahoma . . . . . . . . . . . . . 1 93,530.52 0.12
Pennsylvania . . . . . . . . . . . 123 6,247,459.85 7.79
Rhode Island . . . . . . . . . . . 1 20,000.00 0.02
South Carolina . . . . . . . . . . 57 2,754,463.92 3.44
Tennessee . . . . . . . . . . . . . 52 3,233,086.64 4.03
Texas . . . . . . . . . . . . . . . 1 58,425.94 0.07
Utah . . . . . . . . . . . . . . . 5 186,821.64 0.23
Vermont . . . . . . . . . . . . . . 4 135,269.77 0.17
Virginia . . . . . . . . . . . . . 27 2,152,028.36 2.68
West Virginia . . . . . . . . . . . 6 205,228.84 0.26
Wisconsin . . . . . . . . . . . . . 14 529,410.52 0.66
TOTAL . . . . . . . . . . . . 1,377 $80,183,777.04 100.00%
As of the Initial Cut-Off Date, the distribution of the types of
Mortgaged Properties related to the Initial Group I Mortgage Loans was as
follows (the sum of the percentages in the following table may not equal the
total due to rounding):
Percent of Group I
Number of Aggregate Initial Cut-Off
Initial Group I Initial Cut-Off Date Date
Mortgaged Property Type Mortgage Loans Principal Balance Principal Balance
Single family . . . . . . . . . . . 1,174 $66,875,089.92 83.40%
Two- to four-family . . . . . . . . 161 10,338,794.48 12.89
Condominium . . . . . . . . . . . . 24 1,032,215.09 1.29
Small mixed-use . . . . . . . . . . 18 1,937,677.55 2.42
TOTAL . . . . . . . . . . . . 1,377 $80,183,777.04 100.00%
As of the Initial Cut-Off Date, the distribution of the occupancy status
of the Mortgaged Properties related to the Initial Group I Mortgage Loans was
as follows (the sum of the percentages in the following table may not equal
the total due to rounding):
Percent of Group I
Number of Aggregate Initial Cut-Off
Initial Group I Initial Cut-Off Date Date
Occupancy Status Mortgage Loans Principal Balance Principal Balance
Owner-occupied . . . . . . . . . . 1,214 $71,463,077.68 89.12%
Non-owner-occupied . . . . . . . . 163 8,720,699.36 10.88
TOTAL . . . . . . . . . . . . 1,377 $80,183,777.04 100.00%
As of the Initial Cut-Off Date, the distribution of the lien priority of
the Mortgages related to the Initial Group I Mortgage Loans was as follows
(the sum of the percentages in the following table may not equal the total
due to rounding):
Percent of Group I
Number of Aggregate Initial Cut-Off
Initial Group I Initial Cut-Off Date Date
Lien Priority Mortgage Loans Principal Balance Principal Balance
First lien . . . . . . . . . . . . 1,040 $67,908,455.36 84.69%
Second lien . . . . . . . . . . . . 337 12,275,321.68 15.31
TOTAL . . . . . . . . . . . . 1,377 $80,183,777.04 100.00%
As of the Initial Cut-Off Date, the distribution of the months since
origination of the Initial Group I Mortgage Loans was as follows (the sum of
the percentages in the following table may not equal the total due to
rounding):
Percent of Group I
Number of Aggregate Initial Cut-Off
Months Since Initial Group I Initial Cut-Off Date Date
Origination Mortgage Loans Principal Balance Principal Balance
less than 1 164 $ 8,366,477.86 10.43%
1 522 27,111,285.89 33.81
2 471 29,594,675.53 36.91
3 133 9,298,081.95 11.60
4 46 2,973,616.14 3.71
5 19 1,461,362.37 1.82
6 11 659,919.62 0.82
7 3 300,743.67 0.38
8 4 191,601.16 0.24
9 1 24,940.59 0.03
10 1 49,685.47 0.06
12 1 89,533.78 0.11
13 1 61,853.01 0.08
TOTAL . . . . . . . . . . 1,377 $80,183,777.04 100.00%
As of the Initial Cut-Off Date, the weighted average number of months
since origination of the Initial Group I Mortgage Loans was approximately 2
months.
GROUP II MORTGAGE LOAN STATISTICS
The Group II Mortgage Loans are expected to include 1,032 adjustable-
rate Mortgage Loans evidenced by Mortgage Notes secured by first lien
Mortgages on Mortgaged Properties located in 36 states and the District of
Columbia. As of the Initial Cut-Off Date, the aggregate Loan Balances of the
Group II Mortgage Loans totaled $97,549,923.60 (the "Group II Initial Cut-Off
Date Principal Balance"). The Group II Mortgage Loans bear interest at
variable Mortgage Rates ranging as of the Initial Cut-Off Date from 5.99% to
15.50% per annum. The weighted average Mortgage Rate for the Group II
Mortgage Loans was approximately 10.40% per annum as of the Initial Cut-Off
Date. The lowest Loan Balance of any Group II Mortgage Loan as of the
Initial Cut-Off Date was approximately $12,790 and the highest was
approximately $1,795,478. The average Loan Balance of the Group II Mortgage
Loans was approximately $94,525 as of the Initial Cut-Off Date. The original
term to stated maturity of each of the Group II Mortgage Loans was 360
months. The weighted average remaining term to stated maturity of the Group
II Mortgage Loans as of the Initial Cut-Off Date was approximately 358
months. As of the Initial Cut-Off Date, the weighted average number of
months that have elapsed since origination of the Group II Mortgage Loans was
approximately 2 months. The weighted average number of months until the next
Adjustment Date for the Group II Mortgage Loans as of the Initial Cut-Off
Date was approximately 10 months. The lowest and highest Combined Loan-to-
Value Ratios of the Group II Mortgage Loans at origination were approximately
14.12% and 97.50%, respectively. The weighted average Combined Loan-to-Value
Ratio of the Group II Mortgage Loans as of the Initial Cut-Off Date was
approximately 76.86%.
Except as specified below, all of the Group II Mortgage Loans have
Mortgage Rates that are subject to semi-annual adjustment on the applicable
day of the months specified in the related Mortgage Notes (each such date, an
"Adjustment Date") to equal the sum, rounded to the nearest 0.125%, of (i)
the average of the London interbank offered rates for six-month dollar
deposits in the London market ("Six-Month LIBOR") and (ii) a fixed percentage
amount specified in each such Mortgage Note (the "Gross Margin"). In no
event, however, will the Mortgage Rates of the Group II Mortgage Loans
increase or decrease on any Adjustment Date by more than 1.0% per annum with
respect to approximately 96.39% of the Group II Mortgage Loans or more than
1.5% per annum with respect to approximately 3.61% of the Group II Mortgage
Loans (each such rate limitation, a "Periodic Rate Cap"). A majority of the
Mortgage Loans were originated with Mortgage Rates less than the sum of the
then applicable Mortgage Index (as defined herein) values and the related
Gross Margins. Approximately 34.45% of the Group II Mortgage Loans (the
"2/28 LIBOR Mortgage Loans") will have fixed Mortgage Rates for 24 months
after origination thereof before becoming subject to the semi-annual
adjustment described above for Group II Mortgage Loans. Each Group II
Mortgage Loan, over the life thereof, is subject to a maximum Mortgage Rate
(a "Maximum Mortgage Rate") equal to the sum of the initial Mortgage Rate
thereof and a percentage (a "Lifetime Cap") set forth in the related Mortgage
Note. Group II Mortgage Loans representing approximately 91.28%, 0.08%,
0.65% and 7.99% of the Group II Initial Cut-Off Date Principal Balance have
Lifetime Caps of 6.00%, 6.45%, 6.50% and 7.00%, respectively, per annum. In
general, each Mortgage Loan provides that in no event will the Mortgage Rate
be less than the initial Mortgage Rate (such rate, the "Minimum Mortgage
Rate"). Effective with the first payment due on a Mortgage Loan after each
related Adjustment Date, the monthly payment will be adjusted to an amount
which will fully amortize the outstanding principal balance of the Mortgage
Loan over its remaining term.
As of the Initial Cut-Off Date, the lowest and highest Gross Margins of
the Group II Mortgage Loans were approximately 2.75% and 11.60%,
respectively, and the weighted average of the Gross Margins of the Group II
Mortgage Loans was approximately 7.18%.
Group II Mortgage Loans representing approximately 4.98% of the Group II
Initial Cut-Off Date Principal Balance are secured by non-owner-occupied
Mortgage Properties (based solely upon statements made by the related
Mortgagors at the time of origination of the related Mortgage Loans). No
Group II Mortgage Loan is secured by a small mixed-use property. All of the
Group II Mortgage Loans are secured by first liens and have original stated
maturities of not more than 30 years. None of the Group II Mortgage Loans is
a Balloon Mortgage Loan. No Group II Mortgage Loan is scheduled to mature
later than June 14, 2027.
As of the Initial Cut-Off Date, approximately 1.89% of the Group II
Mortgage Loans were between 30 and 59 days past due, and no Group II Mortgage
Loan was 60 days or more past due.
The Mortgage Rates of the Group II Mortgage Loans as of the Initial Cut-
Off Date were distributed as follows (the sum of the percentages in the
following tables may not equal the total due to rounding):
Number of Aggregate Percent of Group II
Group II Initial Cut-Off Date Initial Cut-Off Date
Range of Mortgage Rates (%) Mortgage Loans Principal Balance Principal Balance
5.9900% - 6.0000% 1 $ 239,760.62 0.25%
6.0001 - 6.5000 1 81,600.00 0.08
6.5001 - 7.0000 2 290,846.28 0.30
7.0001 - 7.5000 4 514,897.86 0.53
7.5001 - 8.0000 20 2,146,215.78 2.20
8.0001 - 8.5000 32 5,000,381.77 5.13
8.5001 - 9.0000 88 8,746,580.10 8.97
9.0001 - 9.5000 95 9,784,398.29 10.03
9.5001 - 10.0000 142 13,708,561.34 14.05
10.0001 - 10.5000 131 12,332,792.91 12.64
10.5001 - 11.0000 182 17,355,401.94 17.79
11.0001 - 11.5000 108 9,674,544.44 9.92
11.5001 - 12.0000 91 7,413,971.42 7.60
12.0001 - 12.5000 54 4,381,192.38 4.49
12.5001 - 13.0000 37 2,921,230.63 2.99
13.0001 - 13.5000 14 891,550.75 0.91
13.5001 - 14.0000 16 1,372,403.77 1.41
14.0001 - 14.5000 8 423,915.77 0.43
14.5001 - 15.0000 4 184,269.71 0.19
15.0001 - 15.5000 2 85,407.84 0.09
1,032 $97,549,923.60 100.00%
TOTAL . . . . . . . . .
As of the Initial Cut-Off Date, the weighted average Mortgage Rate of
the Group II Mortgage Loans was approximately 10.40% per annum.
The Combined Loan-to-Value Ratios of the Group II Mortgage Loans as of
the Initial Cut-Off Date were distributed as follows (the sum of the
percentages in the following table may not equal the total due to rounding):
Percent of
Group II
Number of Aggregate Initial Cut-Off
Range of Combined Loan-to-Value Group II Initial Cut-Off Date Date Principal
Ratios (%) Mortgage Loans Principal Balance Balance
14.12% - 15.00% 2 $ 57,981.39 0.06%
15.01 - 20.00 2 74,940.67 0.08
20.01 - 25.00 4 174,797.28 0.18
25.01 - 30.00 4 219,925.62 0.23
30.01 - 35.00 6 249,505.43 0.26
35.01 - 40.00 5 578,291.20 0.59
40.01 - 45.00 7 471,635.41 0.48
45.01 - 50.00 11 775,931.39 0.80
50.01 - 55.00 22 2,185,817.83 2.24
55.01 - 60.00 38 4,115,425.86 4.22
60.01 - 65.00 79 5,617,900.98 5.76
65.01 - 70.00 122 9,483,173.78 9.72
70.01 - 75.00 131 11,909,943.94 12.21
75.01 - 80.00 326 32,284,369.17 33.10
80.01 - 85.00 104 10,704,802.00 10.97
85.01 - 90.00 162 17,599,445.66 18.04
90.01 - 95.00 6 929,171.11 0.95
95.01 - 97.50 1 116,864.88 0.12
TOTAL . . . . . . . . . . . . 1,032 $97,549,923.60 100.00%
As of the Initial Cut-Off Date, the weighted average Combined Loan-to-
Value Ratio of the Group II Mortgage Loans was approximately 76.86%.
The Gross Margins of the Group II Mortgage Loans as of the Initial Cut-
Off Date were distributed as follows (the sum of the percentages in the
following table may not equal the total due to rounding):
Percent of
Number of Aggregate Initial Group II Initial
Group II Cut-Off Date Cut-Off Date
Range of Gross Margins (%) Mortgage Loans Principal Balance Principal Balance
2.7500% - 2.7500% 1 $ 55,951.34 0.06%
3.5001 - 3.7500 1 1,795,477.73 1.84
3.7501 - 4.0000 1 85,348.25 0.09
4.0001 - 4.2500 6 1,068,733.81 1.10
4.2501 - 4.5000 1 151,773.67 0.16
4.5001 - 4.7500 1 116,717.56 0.12
4.7501 - 5.0000 3 250,327.25 0.26
5.0001 - 5.2500 20 1,747,349.61 1.79
5.2501 - 5.5000 30 3,085,640.63 3.16
5.5001 - 5.7500 42 3,928,125.78 4.03
5.7501 - 6.0000 55 5,884,394.22 6.03
6.0001 - 6.2500 89 8,056,656.92 8.26
6.2501 - 6.5000 77 7,121,332.08 7.30
6.5001 - 6.7500 121 10,564,152.25 10.83
6.7501 - 7.0000 81 7,181,748.76 7.36
7.0001 - 7.2500 90 7,496,399.72 7.68
7.2501 - 7.5000 51 4,407,021.60 4.52
7.5001 - 7.7500 71 6,156,233.00 6.31
7.7501 - 8.0000 49 4,869,427.93 4.99
8.0001 - 8.2500 39 3,583,774.58 3.67
8.2501 - 8.5000 41 4,361,668.23 4.47
8.5001 - 8.7500 24 2,213,155.18 2.27
8.7501 - 9.0000 35 3,379,992.05 3.46
9.0001 - 9.2500 13 1,474,317.20 1.51
9.2501 - 9.5000 15 1,152,143.61 1.18
9.5001 - 9.7500 12 903,228.26 0.93
9.7501 - 10.0000 48 5,222,319.98 5.35
10.0001 - 10.2500 2 177,431.48 0.18
10.2501 - 10.5000 3 209,354.80 0.21
10.5001 - 10.7500 4 426,430.23 0.44
10.7501 - 11.0000 4 302,359.00 0.31
11.2501 - 11.5000 1 47,450.00 0.05
11.5001 - 11.6000 1 73,486.89 0.08
TOTAL . . . . . . . . . . . . 1,032 $97,549,923.60 100.00%
As of the Initial Cut-Off Date, the weighted average Gross Margin of the
Group II Mortgage Loans was approximately 7.18%.
The remaining terms to maturity of the Group II Mortgage Loans as of the
Initial Cut-Off Date were distributed as follows (the sum of the percentages
in the following table may not equal the total due to rounding):
Percent of Group II
Number of Aggregate Initial Initial Cut-Off
Range of Remaining Terms to Group II Cut-Off Date Date Principal
Maturity (months) Mortgage Loans Principal Balance Balance
351 1 $ 90,841.62 0.09%
352 1 32,855.80 0.03
353 1 31,172.02 0.03
354 6 679,034.23 0.70
355 19 3,721,223.16 3.81
356 28 2,535,015.19 2.60
357 182 18,082,323.74 18.54
358 392 35,813,351.49 36.71
359 296 27,337,126.40 28.02
360 106 9,226,979.95 9.46
TOTAL 1,032 $97,549,923.60 100.00%
As of the Initial Cut-Off Date, the weighted average remaining term to
maturity of the Group II Mortgage Loans was approximately 358 months.
The Minimum Mortgage Rates of the Group II Mortgage Loans as of the
Initial Cut-Off Date were distributed as follows (the sum of the percentages
in the following table may not equal the total due to rounding):
Percent of Group II
Number of Aggregate Initial Cut-Off
Group II Initial Cut-Off Date Date Principal
Range of Minimum Rates (%) Mortgage Loans Principal Balance Balance
5.9900% - 6.0000% 1 $ 239,760.62 0.25%
6.2501 - 6.5000 1 81,600.00 0.08
6.7501 - 7.0000 2 290,846.28 0.30
7.0001 - 7.2500 2 254,324.19 0.26
7.2501 - 7.5000 2 260,573.67 0.27
7.5001 - 7.7500 3 368,428.34 0.38
7.7501 - 8.0000 17 1,777,787.44 1.82
8.0001 - 8.2500 9 965,158.05 0.99
8.2501 - 8.5000 23 4,035,223.72 4.14
8.5001 - 8.7500 23 2,190,266.48 2.25
8.7501 - 9.0000 66 6,631,099.15 6.80
9.0001 - 9.2500 37 4,252,547.04 4.36
9.2501 - 9.5000 58 5,531,851.25 5.67
9.5001 - 9.7500 57 5,686,648.32 5.83
9.7501 -10.0000 87 8,285,736.32 8.49
10.0001 -10.2500 56 5,711,164.50 5.85
10.2501 -10.5000 75 6,621,628.41 6.79
10.5001 -10.7500 82 7,340,346.76 7.52
10.7501 -11.0000 97 9,676,446.35 9.92
11.0001 -11.2500 62 5,998,288.76 6.15
11.2501 -11.5000 46 3,676,255.68 3.77
11.5001 -11.7500 54 4,111,826.95 4.22
11.7501 -12.0000 38 3,438,013.20 3.52
12.0001 -12.2500 32 2,604,234.90 2.67
12.2501 -12.5000 22 1,776,957.48 1.82
12.5001 -12.7500 13 1,020,085.92 1.05
12.7501 -13.0000 23 1,765,275.98 1.81
13.0001 -13.2500 7 441,180.85 0.45
13.2501 -13.5000 7 450,369.90 0.46
13.5001 -13.7500 7 614,795.80 0.63
13.7501 -14.0000 9 757,607.97 0.78
14.0001 -14.2500 7 357,437.48 0.37
14.2501 -14.5000 1 66,478.29 0.07
14.5001 -14.7500 2 107,510.97 0.11
14.7501 -15.0000 2 76,758.74 0.08
15.0001 -15.2500 1 40,588.60 0.04
15.2501 -15.5000 1 44,819.24 0.05
TOTAL . . . . . . . . . . . . 1,032 $97,549,923.60 100.00%
As of the Initial Cut-Off Date, the weighted average Minimum Mortgage
Rate of the Group II Mortgage Loan was approximately 10.40% per annum.
The Maximum Mortgage Rates of the Group II Mortgage Loans as of the
Initial Cut-Off Date were distributed as follows (the sum of the percentages
in the following table may not equal the total due to rounding):
Percent of Group II
Number of Aggregate Initial Initial Cut-Off
Group II Cut-Off Date Date
Range of Maximum Rates (%) Mortgage Loans Principal Balance Principal Balance
11.9900% - 12.0000% 1 $ 239,760.62 0.25%
12.2501 - 12.5000 1 81,600.00 0.08
12.7501 - 13.0000 2 290,846.28 0.30
13.0001 - 13.2500 2 254,324.19 0.26
13.2501 - 13.5000 2 260,573.67 0.27
13.5001 - 13.7500 3 368,428.34 0.38
13.7501 - 14.0000 16 1,722,825.10 1.77
14.0001 - 14.2500 9 965,158.05 0.99
14.2501 - 14.5000 21 3,795,531.00 3.89
14.5001 - 14.7500 21 1,929,157.22 1.98
14.7501 - 15.0000 66 6,597,159.30 6.76
15.0001 - 15.2500 36 3,892,379.54 3.99
15.2501 - 15.5000 56 5,453,154.20 5.59
15.5001 - 15.7500 56 5,652,594.33 5.79
15.7501 - 16.0000 83 7,404,486.46 7.59
16.0001 - 16.2500 53 5,518,934.70 5.66
16.2501 - 16.5000 75 6,160,281.20 6.32
16.5001 - 16.7500 82 7,168,278.86 7.35
16.7501 - 17.0000 95 9,983,250.88 10.23
17.0001 - 17.2500 62 6,263,565.89 6.42
17.2501 - 17.5000 42 3,945,466.52 4.04
17.5001 - 17.7500 58 4,640,442.67 4.76
17.7501 - 18.0000 41 3,741,899.91 3.84
18.0001 - 18.2500 30 2,299,205.96 2.36
18.2501 - 18.5000 26 2,063,451.61 2.12
18.5001 - 18.7500 12 958,365.95 0.98
18.7501 - 19.0000 25 1,946,113.58 1.99
19.0001 - 19.2500 8 702,427.82 0.72
19.2501 - 19.5000 10 708,169.75 0.73
19.5001 - 19.7500 7 403,184.86 0.41
19.7501 - 20.0000 8 538,690.69 0.55
20.0001 - 20.2500 9 474,318.58 0.49
20.2501 - 20.5000 3 198,406.41 0.20
20.5001 - 20.7500 3 408,349.07 0.42
20.7501 - 21.0000 4 353,849.56 0.36
21.0001 - 21.2500 2 89,299.57 0.09
21.2501 - 21.5000 2 75,991.26 0.08
TOTAL . . . . . . . . . . . . 1,032 $97,549,923.60 100.00%
As of the Initial Cut-Off Date, the weighted average Maximum Mortgage
Rate of the Group II Mortgage Loans was approximately 16.48% per annum.
The Loan Balances of the Group II Mortgage Loans as of the Initial Cut-
Off Date were distributed as follows (the sum of the percentages in the
following table may not equal the total due to rounding):
Percent of
Number of Aggregate Initial Group II
Group II Cut-Off Date Initial Cut-Off
Range of Initial Cut-Off Date Mortgage Loans Principal Balance Date Principal
Principal Balances ($) Balance
$ 12,790.31 -$ 15,000.00 2 $ 25,981.35 0.03%
15,000.01 - 20,000.00 7 129,372.45 0.13
20,000.01 - 25,000.00 19 449,125.20 0.46
25,000.01 - 30,000.00 27 767,665.32 0.79
30,000.01 - 35,000.00 30 990,265.89 1.02
35,000.01 - 40,000.00 48 1,816,988.46 1.86
40,000.01 - 45,000.00 51 2,194,286.12 2.25
45,000.01 - 50,000.00 43 2,063,495.32 2.12
50,000.01 - 55,000.00 55 2,906,215.02 2.98
55,000.01 - 60,000.00 59 3,385,675.56 3.47
60,000.01 - 65,000.00 57 3,589,346.96 3.68
65,000.01 - 70,000.00 54 3,645,186.80 3.74
70,000.01 - 75,000.00 38 2,764,435.45 2.83
75,000.01 - 80,000.00 50 3,880,873.96 3.98
80,000.01 - 85,000.00 34 2,814,139.86 2.88
85,000.01 - 90,000.00 42 3,690,054.49 3.78
90,000.01 - 95,000.00 30 2,786,125.80 2.86
95,000.01 - 100,000.00 43 4,217,535.74 4.32
100,000.01 - 150,000.00 226 27,243,271.56 27.93
150,000.01 - 200,000.00 64 11,126,348.24 11.41
200,000.01 - 250,000.00 22 4,912,704.04 5.04
250,000.01 - 300,000.00 13 3,539,050.91 3.63
300,000.01 - 350,000.00 4 1,267,630.39 1.30
350,000.01 - 400,000.00 7 2,620,977.85 2.69
400,000.01 - 450,000.00 2 880,502.67 0.90
450,000.01 - 500,000.00 1 459,813.22 0.47
500,000.01 - 550,000.00 2 1,034,719.42 1.06
550,000.01 - 600,000.00 1 552,657.82 0.57
1,750,000.01 -1,795,477.73 1 1,795,477.73 1.84
TOTAL . . . . . . . . . . . . . 1,032 $97,549,923.60 100.00%
As of the Initial Cut-Off Date, the average Loan Balance of the Group II
Mortgage Loans was approximately $94,525.
As of the Initial Cut-Off Date, the geographic distribution of the Group
II Mortgage Loans was as follows (the sum of the percentages in the following
table may not equal the total due to rounding):
Percent of Group II
Number of Aggregate Initial Initial Cut-Off
Group II Cut-Off Date Date Principal
State Mortgage Loans Principal Balance Balance
California . . . . . . . . . . . . 11 $ 1,626,287.52 1.67%
Colorado . . . . . . . . . . . . . 7 667,433.59 0.68
Connecticut . . . . . . . . . . . . 14 1,706,140.36 1.75
Delaware . . . . . . . . . . . . . 14 1,446,467.96 1.48
District of Columbia . . . . . . . 3 271,853.30 0.28
Florida . . . . . . . . . . . . . . 29 4,580,387.41 4.70
Georgia . . . . . . . . . . . . . . 34 3,898,297.79 4.00
Illinois . . . . . . . . . . . . . 50 5,659,049.08 5.80
Indiana . . . . . . . . . . . . . . 23 1,562,565.69 1.60
Kansas . . . . . . . . . . . . . . 10 1,035,838.57 1.06
Kentucky . . . . . . . . . . . . . 12 1,194,656.00 1.22
Louisiana . . . . . . . . . . . . . 2 136,752.55 0.14
Maryland . . . . . . . . . . . . . 46 4,012,489.73 4.11
Massachusetts . . . . . . . . . . . 31 4,241,144.54 4.35
Michigan . . . . . . . . . . . . . 207 15,369,025.31 15.76
Minnesota . . . . . . . . . . . . . 3 195,539.44 0.20
Mississippi . . . . . . . . . . . . 3 147,686.64 0.15
Missouri . . . . . . . . . . . . . 12 618,493.40 0.63
Nebraska . . . . . . . . . . . . . 1 75,600.00 0.08
New Hampshire . . . . . . . . . . . 17 1,464,546.51 1.50
New Jersey . . . . . . . . . . . . 117 13,616,229.51 13.96
New Mexico . . . . . . . . . . . . 1 48,710.97 0.05
New York . . . . . . . . . . . . . 143 13,864,647.50 14.21
North Carolina . . . . . . . . . . 19 1,771,928.79 1.82
Ohio . . . . . . . . . . . . . . . 96 6,185,944.38 6.34
Oklahoma . . . . . . . . . . . . . 1 94,360.65 0.10
Pennsylvania . . . . . . . . . . . 43 4,830,059.93 4.95
Rhode Island . . . . . . . . . . . 1 66,424.20 0.07
South Carolina . . . . . . . . . . 5 395,575.22 0.41
Tennessee . . . . . . . . . . . . . 23 2,063,317.11 2.12
Texas . . . . . . . . . . . . . . . 3 161,946.85 0.17
Utah . . . . . . . . . . . . . . . 1 45,090.68 0.05
Vermont . . . . . . . . . . . . . . 12 939,671.52 0.96
Virginia . . . . . . . . . . . . . 13 1,779,165.73 1.82
Washington . . . . . . . . . . . . 1 61,384.57 0.06
West Virginia . . . . . . . . . . . 3 226,868.20 0.23
Wisconsin . . . . . . . . . . . . . 21 1,488,342.40 1.53
TOTAL . . . . . . . . . . . . 1,032 $97,549,923.60 100.00%
As of the Initial Cut-Off Date, the distribution of the types of
Mortgaged Properties related to the Group II Mortgage Loans was as follows
(the sum of the percentages in the following table may not equal the total
due to rounding):
Number of Aggregate Initial Percent of Group II
Group II Cut-Off Date Initial Cut-Off
Mortgaged Property Type Mortgage Loans Principal Balance Principal Balance
Single family . . . . . . . . . . . 916 $84,913,324.30 87.05%
Two- to four-family . . . . . . . . 99 9,552,525.61 9.79
Condominium . . . . . . . . . . . . 17 3,084,073.69 3.16
TOTAL . . . . . . . . . . . . 1,032 $97,549,923.60 100.00%
As of the Initial Cut-Off Date, the distribution of the occupancy status
of the Mortgaged Properties related to the Group II Mortgage Loans was as
follows (the sum of the percentages in the following table may not equal the
total due to rounding):
Percent of Group II
Number of Aggregate Initial Initial Cut-Off
Group II Cut-Off Date Date
Occupancy Status Mortgage Loans Principal Balance Principal Balance
Owner-occupied . . . . . . . . . . 960 $92,695,409.36 95.02%
Non-owner-occupied . . . . . . . . 72 4,854,514.24 4.98
TOTAL . . . . . . . . . . . . 1,032 $97,549,923.60 100.00%
As of the Initial Cut-Off Date, the distribution of the months since
origination of the Group II Mortgage Loans was as follows (the sum of the
percentages in the following table may not equal the total due to rounding):
Percent of Group II
Number of Aggregate Initial Initial Cut-Off
Months Since Group II Cut-Off Date Date Principal
Origination Mortgage Loans Principal Balance Balance
Less than 1 106 $ 9,226,979.95 9.46%
1 296 27,337,126.40 28.02
2 392 35,813,351.49 36.71
3 182 18,082,323.74 18.54
4 28 2,535,015.19 2.60
5 19 3,721,223.16 3.81
6 6 679,034.23 0.70
7 1 31,172.02 0.03
8 1 32,855.80 0.03
9 1 90,841.62 0.09
TOTAL . . . . . . . . . . 1,032 $97,549,923.60 100.00%
As of the Initial Cut-Off Date, the weighted average number of months
since origination of the Group II Mortgage Loans was approximately 2 months.
CONVEYANCE OF GROUP I SUBSEQUENT MORTGAGE LOANS
The Pooling and Servicing Agreement permits the Trust Fund to acquire,
prior to August 31, 1997, Group I Subsequent Mortgage Loans in an amount not
to exceed $22,266,299.36 in aggregate principal balance. Accordingly, the
statistical characteristics of the Group I Mortgage Loans set forth above
(which are based exclusively on the Initial Mortgage Loans) and the
statistical characteristics of Mortgage Loan Group I after giving effect to
the acquisition of any Group I Subsequent Mortgage Loans will likely differ
in certain respects. Each date on which the Seller transfers any Group I
Subsequent Mortgage Loans to the Trust Fund shall be referred to herein as a
"Subsequent Transfer Date."
The Group I Subsequent Mortgage Loans to be conveyed to the Trust Fund
will be subject to the approval of the Rating Agencies and are not expected
to vary materially in the aggregate from the Initial Group I Mortgage Loans.
PAYMENTS ON THE MORTGAGE LOANS
Each Mortgage Loan provides for the amortization of the amount financed
under the Mortgage Loan over a series of substantially equal monthly
payments, except for the Group I Balloon Mortgage Loans, for which the
amortization schedule extends beyond the stated maturity date and which
provide for a payment at maturity that is substantially larger than prior
scheduled monthly payments.
Each Group I Mortgage Loan will provide for monthly payments by the
related Mortgagor according to one of two methods: the "simple interest"
method (such Mortgage Loans, the "Simple Interest Loans"); or the actuarial
method (such Mortgage Loans, the "Actuarial Loans"). As of the Initial Cut-
Off Date, less than 1% of the Group I Mortgage Loans were Simple Interest
Loans. Such Simple Interest Loans provide that the interest is charged to
the Mortgagor at the Mortgage Rate on the outstanding principal balance of
such Mortgage Loan and calculated based on the number of days elapsed between
receipt of the Mortgagor's last payment through receipt of the Mortgagor's
most current payment. Such interest is deducted from the Mortgagor's payment
amount and the remainder, if any, of the payment is applied as a reduction to
the outstanding principal balance of such Mortgage Note. Actuarial Loans
provide that interest is charged to the Mortgagors thereunder, and payments
are due from such Mortgagors, as of a scheduled day of each month that is
fixed at the time of origination. Scheduled monthly payments made by the
Mortgagors on the Actuarial Loans either earlier or later than the scheduled
due dates thereof will not affect the amortization schedule or the relative
application of such payments to principal and interest. All of the Group II
Mortgage Loans are Actuarial Loans.
THE POOLING AND SERVICING AGREEMENT
ASSIGNMENT OF THE MORTGAGE LOANS
On the Closing Date, the Seller will transfer ownership of the Initial
Mortgage Loans to the Depositor. Immediately after such transfer, pursuant to
the Pooling and Servicing Agreement, the Depositor will sell, transfer,
assign, set over and otherwise convey without recourse to the Trustee, in
trust for the benefit of the holders of the Certificates, all right, title
and interest of the Depositor in and to each such Initial Mortgage Loan and
all right, title and interest in and to all other assets included in the
Trust Fund, including all principal collected by the Servicer with respect to
such Mortgage Loans after the Initial Cut-Off Date (to the extent not applied
in computing the Initial Cut-Off Date Principal Balance) and interest
payments due after the Initial Cut-Off Date. On each Subsequent Transfer
Date, the Seller will transfer ownership to the related Group I Subsequent
Mortgage Loans to the Trustee in trust for the benefit of the holders of the
Certificates, including all principal collected by the Servicer with respect
to each such Group I Subsequent Mortgage Loan after the related Cut-Off Date
(to the extent not applied in computing the related Cut-Off Date Principal
Balance) and interest payments due after such Cut-Off Date.
In connection with such transfer and assignment, on the Closing Date the
Depositor will deliver, or cause to be delivered, the following documents
(collectively constituting the "Trustee's Mortgage File") to the Trustee with
respect to each Mortgage Loan: (i) the original Mortgage Note, endorsed in
blank or to the order of the Trustee, with all prior and intervening
endorsements showing a complete chain of endorsement from the originator of
the Mortgage Loan to Cityscape; (ii) the original Mortgage with evidence of
recording thereon (or, if the original Mortgage has not been returned from
the applicable public recording office or is not otherwise available, a copy
of the Mortgage certified by a Responsible Officer of Cityscape or by the
closing attorney or by an officer of the title insurer or agent of the title
insurer which issued the related title insurance policy or commitment
therefor to be a true and complete copy of the original Mortgage submitted
for recording); (iii) the original executed assignment of the Mortgage
executed by Cityscape to the Trustee or in blank, acceptable for recording
except with respect to any currently unavailable information; (iv) the
original assignment and any intervening assignments of the Mortgage, showing
a complete chain of assignment from the originator of the Mortgage Loan to
Cityscape (or, if any such assignment has not been returned from the
applicable public recording office or is not otherwise available, a copy of
such assignment certified by a Responsible Officer of Cityscape or by the
closing attorney or by an officer of the title insurer or agent of the title
insurer which issued the related title insurance policy or commitment
therefor to be a true and complete copy of such assignment submitted for
recording); (v) the original, or a copy certified by Cityscape or the
originator of the Mortgage Loan to be a true and complete copy of the
original, of each assumption, modification, written assurance or substitution
agreement, if any; (vi) an original, or a copy certified by Cityscape to be a
true and complete copy of the original, of a lender's title insurance policy,
or if a lender's title policy has not been issued as of the Closing Date a
marked-up commitment (binder) (including any marked additions thereto or
deletions therefrom) to issue such policy; (vii) either an original hazard
insurance policy, a certificate of insurance issued by the related insurer or
its agent as to such policy or an officer's certificate of Cityscape
certifying that a hazard insurance policy is in effect as to the Mortgaged
Property (in which case such officer's certificate shall be accompanied by a
copy of such hazard insurance policy); and (viii) if required, either a flood
insurance policy or a certificate of insurance issued by the related insurer
or its agent as to such policy.
On each Subsequent Closing Date, the Depositor will deliver, or cause to
be delivered, the Trustee's Mortgage File to the Trustee with respect to each
Group I Subsequent Mortgage Loan to be conveyed to the Trustee on such date.
The Trustee will review the Mortgage Loan documents relating to the
Initial Mortgage Loans on or prior to the Closing Date and will review the
Mortgage Loans relating to the Group I Subsequent Mortgage Loans on or prior
to the Subsequent Transfer Date, and will hold such documents in trust for
the benefit of the holders of the Certificates. After the Closing Date, if
any document is found to be missing or defective in any material respect, the
Trustee is required to notify the Servicer, Cityscape and the Depositor in
writing. If Cityscape cannot or does not cure such omission or defect within
90 days after its receipt of notice from the Trustee, Cityscape will be
required to repurchase the related Mortgage Loan from the Trust Fund at a
price (the "Purchase Price") equal to 100% of the Loan Balance thereof plus
accrued and unpaid interest thereon, calculated at a rate equal to the
difference between the Mortgage Rate and the Servicing Fee Rate (the "Net
Mortgage Rate") (or, if Cityscape is no longer the Servicer, at the
applicable Mortgage Rate) through the day before the Due Date in the calendar
month in which such purchase occurs. Rather than repurchase the Mortgage
Loan as provided above, Cityscape may remove such Mortgage Loan (a "Deleted
Mortgage Loan") from the Trust Fund and substitute in its place another
Mortgage Loan of like kind (a "Replacement Mortgage Loan"); provided,
however, that such substitution is permitted only within two years after the
Closing Date and may not be made unless an opinion of counsel is provided to
the effect that such substitution would not disqualify the related Mortgage
Loan Group as a REMIC or result in a prohibited transaction tax under the
Code. Any Replacement Mortgage Loan generally will, on the date of
substitution, among other characteristics set forth in the Pooling and
Servicing Agreement, (i) have a Loan Balance, after deduction of the
principal portion of the scheduled payment due in the month of substitution,
not in excess of, and not substantially less than the Loan Balance of the
Deleted Mortgage Loan (the amount of any shortfall to be deposited by
Cityscape in the Collection Account not later than the succeeding
Determination Date and held for distribution to the holders of the
Certificates on the related Distribution Date), (ii) have a Mortgage Rate not
less than (and not more than one percentage point greater than) the Mortgage
Rate of the Deleted Mortgage Loan, (iii) have a Combined Loan-to-Value Ratio
not higher than that of the Deleted Mortgage Loan, (iv) have a remaining term
to maturity not more than two years greater than (and not more than two years
less than) that of the Deleted Mortgage Loan, (v) have the same or lower
credit risk, as measured by credit risk category under Cityscape's
underwriting guidelines and (vi) comply with all of the representations and
warranties set forth in the Pooling and Servicing Agreement as of the date of
substitution. This cure, repurchase or substitution obligation constitutes
the sole remedy available to the holders of the Offered Certificates or the
Trustee for omission of, or a material defect in, a Mortgage Loan document.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Servicer will be paid a monthly fee from interest collected with
respect to each Mortgage Loan (as well as from any liquidation proceeds from
a Liquidated Mortgage Loan that are applied to accrued and unpaid interest)
equal to one-twelfth of the Loan Balance thereof multiplied by the Servicing
Fee Rate (such product, the "Servicing Fee"). The Servicing Fee Rate for each
Mortgage Loan will equal 0.50% per annum. The amount of the monthly Servicing
Fee is subject to adjustment with respect to prepaid Mortgage Loans, as
described herein under "--Adjustment to Servicing Fee in Connection with
Certain Prepaid Mortgage Loans." The Servicer is also entitled to receive, as
additional servicing compensation, amounts in respect of all late payment
fees, assumption fees, prepayment penalties and other similar charges and all
reinvestment income earned on amounts on deposit in the Collection Account,
the Certificate Account and the Distribution Account. The Servicer is
obligated to pay certain ongoing expenses associated with the Mortgage Loans
and incurred by the Trustee in connection with its responsibilities under the
Pooling and Servicing Agreement.
ADJUSTMENT TO SERVICING FEE IN CONNECTION WITH CERTAIN PREPAID MORTGAGE LOANS
When a borrower prepays all or a portion of a Mortgage Loan between
scheduled monthly payment dates (each, a "Due Date"), the borrower pays
interest on the amount prepaid only to the date of prepayment. In order to
mitigate the effect of any such shortfall in interest distributions to
holders of the Offered Certificates on any Distribution Date (a "Prepayment
Interest Shortfall"), the amount of the Servicing Fee otherwise payable to
the Servicer for such month shall, to the extent of such shortfall, be
deposited by the Servicer in the Collection Account for distribution to
holders of the Offered Certificates on such Distribution Date. However, any
such reduction in the Servicing Fee will be made only to the extent of the
Servicing Fee otherwise payable to the Servicer with respect to payments on
the Mortgage Loans received during the Due Period to which such Distribution
Date relates. Any such deposit by the Servicer will be reflected in the
distributions to holders of the Offered Certificates made on the Distribution
Date on which the Principal Prepayment received would be distributed. See
"Description of the Certificates--Example of Distributions" herein.
ADVANCES
Subject to the following limitations, on the fifth business day prior to
each Distribution Date (such fifth business day, the "Servicer Remittance
Date"), the Servicer will in general be required to advance its own funds, or
funds in the Collection Account that constitute amounts held for future
distribution, in an amount equal to the amount necessary to make the amount
then on deposit in the Collection Account with respect to interest
collections received on the Mortgage Loans of each Mortgage Loan Group that
were due during the immediately preceding Due Period equal to the Interest
Remittance Amount for such Group with respect to such Due Period, after
taking into account all amounts in respect of Prepayment Interest Shortfalls
paid by the Servicer as described in the preceding paragraph (any such
advance, an "Advance").
Advances are intended to maintain a regular flow of scheduled interest
payments on the Certificates rather than to guarantee or insure against
losses. The Servicer is obligated to make Advances with respect to delinquent
payments of interest on each Mortgage Loan (with such payments of interest
adjusted to the related Net Mortgage Rate) to the extent that such Advances
are, in its judgment, reasonably recoverable from future payments and
collections or insurance payments or proceeds of liquidation of the related
Mortgage Loan. If the Servicer determines on any Servicer Remittance Date to
make an Advance, such Advance will be included with the distribution to
holders of the Offered Certificates on the related Distribution Date. Any
failure by the Servicer to make an Advance as required under the Pooling and
Servicing Agreement with respect to the Certificates will constitute an Event
of Default thereunder, in which case the Trustee, as successor servicer, or
such other entity as may be appointed as successor servicer will be obligated
to make any such Advance, in accordance with the terms of the Pooling and
Servicing Agreement.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Offered Certificates will be issued pursuant to a Pooling and
Servicing Agreement, dated as of June 9, 1997 (the "Pooling and Servicing
Agreement"), among the Depositor, the Seller, the Servicer and the Trustee.
Set forth below are summaries of the specific terms and provisions pursuant
to which the Offered Certificates will be issued. The following summaries do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the provisions of the Pooling and Servicing
Agreement. When particular provisions or terms used in the Pooling and
Servicing Agreement are referred to, the actual provisions (including
definitions of terms) are incorporated by reference.
Cityscape Home Equity Loan Trust, Series 1997-C will consist of the
Class A-1 Certificates, Class A-2 Certificates, Class A-3 Certificates and
Class A-4 Certificates (the "Group I Senior Certificates"), (ii) the Class
A-5 Certificates (the "Group II Senior Certificates"), (iii) the Class M-1F
Certificates and the Class M-2F Certificates (the "Group I Mezzanine
Certificates"), (iv) the Class M-1A Certificates and the Class M-2A
Certificates (the "Group II Mezzanine Certificates"), (v) the Class B-1F
Certificates (the "Group I Subordinate Certificates" and, together with the
Group I Senior Certificates and the Group I Mezzanine Certificates, the
"Group I Certificates"), (vi) the Class B-1A Certificates (the "Group II
Subordinate Certificates" and, together with the Group II Senior Certificates
and the Group II Mezzanine Certificates, the "Group II Certificates"),
(vii) the Class R-I Certificates and (viii) the Class R-II Certificates (and,
together with the Class R-I Certificates, the "Residual Certificates"), which
do not have a principal balance and will evidence a residual interest in the
related Mortgage Loan Group. The Group I and Group II Certificates
(collectively, the "Offered Certificates") and the Residual Certificates are
collectively referred to herein as the "Certificates." Only the Offered
Certificates are offered hereby.
The Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class M-1F,
Class M-2F, Class M-1A, Class M-2A, Class B-1F and Class B-1A Certificates
will have Original Certificate Principal Balances specified on the cover
hereof and, together with the Residual Certificates, will evidence the entire
beneficial ownership interest in the Trust Fund. The aggregate of the
Original Certificate Principal Balances of the Offered Certificates is
$200,000,000.
The Offered Certificates will be issued in book-entry form as described
below. The Offered Certificates will be issued in minimum dollar
denominations of $100,000 and integral multiples of $1,000 in excess thereof
(except that one certificate of each class may be issued in a denomination
which is not an integral multiple thereof). The assumed final maturity dates
for the classes of Offered Certificates are the applicable Distribution Dates
set forth in the table below:
Class Assumed Final Maturity Dates
----------------------------------- ----------------------------
Class A-1 . . . . . . . . . . . . April 25, 2012
Class A-2 . . . . . . . . . . . . July 25, 2017
Class A-3 . . . . . . . . . . . . July 25, 2028
Class A-4 . . . . . . . . . . . . July 25, 2028
Class A-5 . . . . . . . . . . . . July 25, 2028
Class M-1F . . . . . . . . . . . . July 25, 2028
Class M-2F . . . . . . . . . . . . July 25, 2028
Class M-1A . . . . . . . . . . . . July 25, 2028
Class M-2A . . . . . . . . . . . . July 25, 2028
Class B-1F . . . . . . . . . . . . July 25, 2028
Class B-1A . . . . . . . . . . . . July 25, 2028
BOOK-ENTRY CERTIFICATES
The Offered Certificates will initially be book-entry certificates (the
"Book-Entry Certificates"). The Book-Entry Certificates will be issued in one
or more certificates, the original aggregate principal balances of which will
equal the Original Certificate Principal Balance of each class and will be
held by a nominee of The Depository Trust Company (together with any
successor depository selected by the Depositor, the "Depository"). Beneficial
interests in the Book-Entry Certificates will be held indirectly by investors
through the book-entry facilities of the Depository, as described herein. The
Depositor has been informed by the Depository that its nominee will be Cede &
Co. ("Cede"). Accordingly, Cede is expected to be the holder of record of the
Book-Entry Certificates. Except as described below, no person acquiring a
Book-Entry Certificate (each, a "beneficial owner" or "Certificate Owner")
will be entitled to receive a physical certificate representing such
Certificate (a "Definitive Certificate") except in the event Definitive
Certificates are issued under the limited circumstances described herein.
The beneficial owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or
other financial intermediary (each, a "Financial Intermediary") that
maintains the beneficial owner's account for such purpose. In turn, the
Financial Intermediary's ownership of such Book-Entry Certificate will be
recorded on the records of the Depository (or of a participating firm that
acts as agent for the Financial Intermediary, whose interest will in turn be
recorded on the records of the Depository, if the beneficial owner's
Financial Intermediary is not a Depository participant). Therefore, the
beneficial owner must rely on the foregoing procedures to evidence its
beneficial ownership of a Book-Entry Certificate. Beneficial ownership of a
Book-Entry Certificate may be transferred only in compliance with the
procedures of such Financial Intermediaries and Depository participants.
The Depository, which is a New York-chartered limited purpose trust
company, performs services for its participants, some of which (and/or their
representatives) own the Depository. In accordance with its normal
procedures, the Depository is expected to record the positions held by each
Depository participant in the Book-Entry Certificates, whether held for its
own account or as a nominee for another person. In general, beneficial
ownership of the Book-Entry Certificates will be subject to the rules,
regulations and procedures governing the Depository and Depository
participants as in effect from time to time.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to the Depository. The Depository will be
responsible for crediting the amount of such payments to the accounts of the
applicable Depository participants in accordance with the Depository's normal
procedures. Each Depository participant will be responsible for disbursing
such payments to the beneficial owners of the Book-Entry Certificates that it
represents and to each Financial Intermediary for which it acts as agent.
Each such Financial Intermediary will be responsible for disbursing funds to
the beneficial owners of the Book-Entry Certificates that it represents.
Under a book-entry format, beneficial owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since
such payments will be forwarded by the Trustee to Cede. None of the
Depositor, Cityscape or the Trustee is responsible or liable for such delays
in the application of such payments to such beneficial owners. Because the
Depository can only act on behalf of Financial Intermediaries, the ability of
a beneficial owner to pledge Book-Entry Certificates to persons or entities
that do not participate in the Depository system, or otherwise take actions
in respect of the Book-Entry Certificates, may be limited due to the absence
of physical certificates for the Book-Entry Certificates. In addition,
issuance of the Book-Entry Certificates in book-entry form may reduce the
liquidity of such Certificates in the secondary market since certain
potential investors may be unwilling to purchase Certificates for which they
cannot obtain physical certificates.
Unless and until Definitive Certificates are issued, it is anticipated
that the only "Certificateholder" of the Book-Entry Certificates within the
meaning of the Pooling and Servicing Agreement will be Cede, as nominee of
the Depository. Beneficial owners of the Book-Entry Certificates will not be
"Certificateholders", as that term is used in the Pooling and Servicing
Agreement. Beneficial owners are only permitted to exercise the rights of
Certificateholders indirectly through Financial Intermediaries and the
Depository. Reports on the Trust Fund provided by the Servicer to Cede, as
nominee of the Depository, may be made available to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating
and affecting the Depository, and to the Financial Intermediaries to whose
Depository accounts the Book-Entry Certificates of such beneficial owners are
credited.
The Depository has advised the Depositor and the Trustee that, unless
and until Definitive Certificates are issued, the Depository will take any
action permitted to be taken by the holders of the Book-Entry Certificates
under the Pooling and Servicing Agreement only at the direction of one or
more Financial Intermediaries to whose Depository accounts the Book-Entry
Certificates are credited, to the extent that such actions are taken on
behalf of Financial Intermediaries whose holdings include such Book-Entry
Certificates.
Definitive Certificates will be issued to beneficial owners of the Book-
Entry Certificates, or their nominees, rather than to the Depository, only if
(a) the Depositor advises the Trustee in writing that the Depository is no
longer willing, qualified or able to discharge properly its responsibilities
as nominee and depository with respect to the Book-Entry Certificates and the
Depositor or the Trustee is unable to locate a qualified successor; (b) the
Depositor, at its sole option, advises the Trustee that it elects to
terminate a book-entry system through the Depository; or (c) beneficial
owners of the Book-Entry Certificates having not less than 51% of the Voting
Rights evidenced by the Book-Entry Certificates advise the Trustee and the
Depository through the Financial Intermediaries in writing that the
continuation of a book-entry system with respect to such Book-Entry
Certificates through the Depository (or a successor thereto) is no longer in
the best interests of beneficial owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the Book-Entry Certificates through the Depository of the
occurrence of such event and the availability of Definitive Certificates.
Upon surrender by the Depository of the global certificate or certificates
representing the Book-Entry Certificates and instructions for re-
registration, the Trustee will issue the Definitive Certificates, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Pooling and Servicing Agreement.
DISTRIBUTIONS
Distributions on the Offered Certificates will be made by the Trustee on
the 25th day of each month, or if such day is not a Business Day, on the
first Business Day thereafter, commencing on July 25, 1997 (each, a
"Distribution Date"), to the persons in whose names such Certificates are
registered at the close of business on the last Business Day of the month
preceding the month of the related Distribution Date (each, a "Record Date").
DEPOSITS INTO THE COLLECTION ACCOUNT
The Trustee shall establish and, initially, maintain an account (the
"Collection Account") on behalf of the holders of the Certificates. Within
two business days after receipt (or, if applicable, on or prior to such other
date as may be specified in the Pooling and Servicing Agreement), the
Servicer shall remit to the Trustee (or, in the event the Collection Account
is maintained with another institution pursuant to the Pooling and Servicing
Agreement, to such institution) for deposit into the Collection Account the
following payments and collections received or made by it subsequent to the
applicable Cut-Off Date (to the extent not applied in computing the
applicable Cut-Off Date Principal Balance):
(i) all payments on account of principal, including Principal
Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest on the Mortgage Loans that
are due subsequent to the applicable Cut-Off Date;
(iii) all proceeds of any related insurance policies (to the extent
such proceeds are not applied to the restoration of the related
Mortgaged Property or released to the related Mortgagor in accordance
with the Servicer's normal servicing procedures) ("Insurance Proceeds"),
and all other cash amounts received either (i) through eminent domain or
condemnation with respect to the Mortgaged Properties or (ii) in
connection with the liquidation of defaulted Mortgage Loans
("Liquidation Proceeds"), together with the net proceeds on a monthly
basis received with respect to any Mortgaged Properties acquired by the
Servicer by foreclosure, deed in lieu of foreclosure or otherwise;
(iv) all payments made by the Servicer in respect of Prepayment
Interest Shortfalls;
(v) any amount required to be deposited by the Servicer in
connection with any losses on investment of funds in the Collection
Account;
(vi) any amounts required to be deposited by the Servicer with
respect to any deductible clause in any blanket hazard insurance policy
maintained by the Servicer in lieu of requiring each Mortgagor to
maintain a primary hazard insurance policy;
(vii) all proceeds of any Mortgage Loans or property acquired in
respect of Mortgage Loans through foreclosure purchased by Cityscape or
the Servicer and all amounts required to be deposited in connection with
shortfalls in the principal amount of Replacement Mortgage Loans;
(viii) the amount of any Advances to be deposited to the Collection
Account pursuant to the Pooling and Servicing Agreement; and
(ix) all amounts required to be deposited therein in respect of
repurchases of Mortgage Loans.
WITHDRAWALS FROM THE COLLECTION ACCOUNT
The Trustee will withdraw funds from the Collection Account for the
following purposes:
(i) to pay to the Servicer the Servicing Fee (subject to reduction
as described above under "--Adjustment to Servicing Fee in Connection
with Prepaid Mortgage Loans") and, as additional servicing compensation,
any net earnings on or investment income with respect to funds in the
Collection Account credited thereto;
(ii) to reimburse the Servicer for Advances (including certain
servicing advances), such right of reimbursement with respect to any
Mortgage Loan being limited to amounts received that represent late
recoveries of payments of interest on the Mortgage Loan (or Insurance
Proceeds or Liquidation Proceeds with respect thereto) with respect to
which such Advance was made;
(iii) to reimburse the Servicer for any Advances (including
certain servicing advances) previously made that the Servicer has
determined to be nonrecoverable;
(iv) to reimburse the Servicer from Insurance Proceeds for
expenses incurred by the Servicer and covered by the related insurance
policies;
(v) to pay to Cityscape or the Servicer, with respect to each
Mortgage Loan or property acquired in respect thereof that has been
acquired by Cityscape or the Servicer from the Trust Fund (by purchase
or replacement) pursuant to the Pooling and Servicing Agreement, all
amounts received thereon and not taken into account in determining the
related Loan Balance of such purchased or replaced Mortgage Loan;
(vi) to reimburse the Servicer for expenses incurred and
reimbursable pursuant to the Pooling and Servicing Agreement;
(vii) to withdraw any amount deposited in the Collection Account
and not required to be deposited therein; and
(viii) to clear and terminate the Collection Account upon
termination of the Pooling and Servicing Agreement.
In addition, on or prior to 12:00 noon New York time on the second
Business Day preceding the related Distribution Date, the Trustee will
withdraw from the Collection Account the Interest Remittance Amount and the
Principal Remittance Amount (each as defined herein) for each Certificate
Group and deposit such amounts into the Certificate Account, as described
below.
DEPOSITS INTO THE CERTIFICATE ACCOUNT
The Trustee shall maintain a certificate account (the "Certificate
Account") on behalf of the holders of the Certificates. The Trustee shall,
promptly upon receipt, deposit into the Certificate Account and retain
therein the following with respect to each Certificate Group:
(i) the Interest Remittance Amount and the Principal Remittance
Amount for such Distribution Date;
(ii) any amount received by the Trustee in connection with a
termination of the Trust Fund in accordance with the Pooling and
Servicing Agreement;
(iii) any amount received from the Servicer and required to be
deposited therein in respect of losses on investment of funds in the
Certificate Account; and
(iv) the amount, if any, required to be withdrawn from either the
Pre-Funding Account or the Capitalized Interest Account in respect of
such Distribution Date.
WITHDRAWALS FROM THE CERTIFICATE ACCOUNT
The Trustee will withdraw funds from the Certificate Account and apply
them not later than 1:00 p.m. New York time on each Distribution Date in the
following order of priority:
(i) first, to the Trustee, the Trustee Fee with respect to each
Certificate Group for such Distribution Date; and
(ii) second, to the Distribution Account, any remaining amounts
then on deposit in the Certificate Account.
DEPOSITS INTO THE DISTRIBUTION ACCOUNT
The Trustee shall maintain a distribution account (the "Distribution
Account") on behalf of the holders of the Certificates. The Trustee shall,
promptly upon receipt, deposit into the Distribution Account and retain
therein the following:
(i) the aggregate amount withdrawn by it from the Certificate
Account as described in clause (ii) under "Withdrawals from the
Certificate Account" above; and
(ii) any amount required to be deposited by the Servicer in
connection with any losses on investment of funds in the Distribution
Account.
PRE-FUNDING ACCOUNT
On the Closing Date, the Seller will deposit $22,266,299.36 (the "Pre-
Funded Amount") into an account (the "Pre-Funding Account"), to be maintained
by and in the name of the Trustee as part of the Trust Fund for the benefit
of the holders of the Group I Certificates. The Pre-Funding Account will be
used to acquire Group I Subsequent Mortgage Loans during the period beginning
on the Closing Date and generally terminating on the earlier to occur of (i)
the date on which the amount on deposit in the Pre-Funding Account (exclusive
of any investment earnings) is less than $100,000 and (ii) August 31, 1997
(the "Funding Period"). The Pre-Funded Amount will be reduced during the
Funding Period by the amount thereof used to purchase Group I Subsequent
Mortgage Loans in accordance with the Pooling and Servicing Agreement. Any
Pre-Funded Amount remaining at the end of the Funding Period (the "Unutilized
Funding Amount") will be distributed to holders of certain classes of Group I
Certificates on the Distribution Date immediately following the Due Period in
which the end of the Funding Period occurs, in reduction of the related
Certificate Principal Balances, thus resulting in an unscheduled distribution
of principal in respect of such classes of Group I Certificates on such date.
The manner in which the Unutilized Funding Amount is allocated to the Group I
Certificates will depend on its size. If the Unutilized Funding Amount
equals or exceeds $100,000, holders of the Group I Certificates will be
entitled to a pro rata distribution of such Unutilized Funding Amount, on the
basis of the respective Original Certificate Principal Balances of such
classes. If the Unutilized Funding Amount is less than $100,000, it will be
distributed pursuant to the allocation of the Regular Principal Distribution
Amount for the related Distribution Date, as described in "-- Allocation of
Available Funds" below.
Amounts on deposit in the Pre-Funding Account will be invested in
Eligible Investments. All interest and any other investment earnings on
amounts on deposit in the Pre-Funding Account will be deposited in the
Certificate Account. The Pre-Funding Account will not be an asset of the
REMIC related to the Group I Mortgage Loans. For federal income tax
purposes, the Pre-Funding Account will be owned by and all reinvestment
earnings on amounts in the Pre-Funding Account shall be taxable to the
Seller.
CAPITALIZED INTEREST ACCOUNT
On the Closing Date the Seller will deposit into an account (the
"Capitalized Interest Account"), to be maintained with and in the name of the
Trustee as part of the Trust Fund for the benefit of the holders of the Group
I Certificates, a portion of the proceeds of the sale of the Group I
Certificates. The amount deposited therein will be used by the Trustee on
the Distribution Dates in July, August and September 1997 to cover shortfalls
in interest on the Group I Certificates that may arise as a result of the
utilization of the Pre-Funding Account for the purchase by the Trust Fund of
Group I Subsequent Mortgage Loans after the Closing Date. Any amounts
remaining in the Capitalized Interest Account at the end of the Funding
Period which are not needed to cover shortfalls on the related Distribution
Date are required to be paid directly to the Seller. The Capitalized
Interest Account will not be an asset of the REMIC related to the Group I
Mortgage Loans. For federal income tax purposes, the Capitalized Interest
Account will be owned by and all reinvestment earnings on amounts in the
Capitalized Interest Account shall be taxable to the Seller.
ALLOCATION OF AVAILABLE FUNDS
Distributions to holders of each class of Offered Certificates will be
made on each Distribution Date from Available Funds with respect to the
related Certificate Group. "Available Funds" with respect to each
Certificate Group as of any Distribution Date is the aggregate amount on
deposit in the Distribution Account relating to the Mortgage Loans of the
related Mortgage Loan Group after 1:00 p.m. New York time on such
Distribution Date (excluding the portion thereof, if any, consisting of any
net reinvestment earnings).
On each Distribution Date, the Trustee will withdraw from the
Distribution Account all Available Funds then on deposit therein with respect
to each Certificate Group and will distribute the same in the following order
of priority:
(A) concurrently, to each class of Senior Certificates of such
Certificate Group, the Interest Distributable Amount for such class for
such Distribution Date (any insufficiency being allocated among the
classes of Senior Certificates of such Certificate Group in proportion
to such classes' respective Interest Distributable Amounts for such
Distribution Date);
(B) sequentially, to the Class M-1, Class M-2 and Class B-1
Certificates of such Certificate Group, in that order, the related
Monthly Interest Distributable Amount for such Distribution Date;
(C) on the Distribution Date immediately following the Due Period
in which the end of the Funding Period occurs, the Pro Rata Pre-Funding
Distribution Amount, if any, to the Group I Certificates, pro rata, on
the basis of their respective Original Certificate Principal Balances;
(D) from the lesser of (x) that portion of such Available Funds
remaining after making the distributions in paragraphs (A), (B) and (C)
above and (y) the Regular Principal Distribution Amount for such
Certificate Group:
(i) in the case of the Group I Certificates:
(1) to the Class A-4 Certificates, the Class A-4 Priority
General Distribution Amount up to the amount necessary to reduce
the Certificate Principal Balance of the Class A-4 Certificates
to zero;
(2) sequentially, to the Class A-1, Class A-2, Class A-3
and Class A-4 Certificates, in that order, until the respective
Certificate Principal Balances thereof are reduced to zero, the
amount necessary to reduce the Aggregate Senior Certificate
Principal Balance for Group I (after giving effect to any
reduction thereof on such Distribution Date pursuant to
paragraph (C) and clause (D)(i)(1) above) to the related Senior
Optimal Principal Balance for such Distribution Date;
(3) sequentially, to the Class M-1F, Class M-2F and Class
B-1F Certificates, in that order, the amount necessary to reduce
the Certificate Principal Balance of each such class to the
related Optimal Principal Balance for such Distribution Date; or
(ii) in the case of the Group II Certificates, sequentially, to
the Class A-5, Class M-1A, Class M-2A and Class B-1A Certificates,
in that order, the amount necessary to reduce the Certificate
Principal Balance of each such class to the related Optimal
Principal Balance for such Distribution Date;
(E) from the General Excess Available Amount for such Certificate
Group for such Distribution Date:
(i) the Overcollateralization Deficiency Amount, if any, for
such Certificate Group, payable as follows:
(1) in the case of the Group I Certificates:
(a) to the Class A-4 Certificates, the Class A-4
Priority Excess Distribution Amount up to the amount
necessary to reduce the Certificate Principal Balance of the
Class A-4 Certificates (after giving effect to any reduction
thereof on such Distribution Date pursuant to sections (C)
and (D) above) to zero;
(b) sequentially, to the Class A-1, Class A-2,
Class A-3 and Class A-4 Certificates, in that order, until
the respective Certificate Principal Balances thereof are
reduced to zero, the amount necessary to reduce the
Aggregate Senior Certificate Principal Balance for the Group
I Certificates (after giving effect to any reduction thereof
on such Distribution Date pursuant to sections (C), (D) and
(E)(i)(1)(a) above) to the related Senior Optimal Principal
Balance for such Distribution Date;
(c) sequentially, to the Class M-1F, Class M-2F and
Class B-1F Certificates, in that order, the amount necessary
to reduce the Certificate Principal Balance of each such
class (after giving effect to any reduction thereof on such
Distribution Date pursuant to sections (C) and (D) above) to
the related Optimal Principal Balance for such Distribution
Date; or
(2) in the case of the Group II Certificates, sequentially,
to the Class A-5, Class M-1A, Class M-2A and Class B-1A
Certificates, in that order, the amount necessary to reduce the
Certificate Principal Balance of each such class (after giving
effect to any reduction thereof on such Distribution Date
pursuant to section (D) above) to the related Optimal Principal
Balance for such Distribution Date;
(ii) to the Class M-1 Certificates of such Certificate Group,
the related Unpaid Interest Shortfall Amount for such Distribution
Date and then the related Loss Reimbursement Deficiency, if any, for
such Distribution Date;
(iii) to the Class M-2 Certificates of such Certificate Group,
the related Unpaid Interest Shortfall Amount for such Distribution
Date and then the related Loss Reimbursement Deficiency, if any, for
such Distribution Date; and
(iv) to the Class B-1 Certificates of such Certificate Group,
the related Unpaid Interest Shortfall Amount for such Distribution
Date and then the related Loss Reimbursement Deficiency, if any, for
such Distribution Date.
As more fully described in the Pooling and Servicing Agreement, any
remaining Available Funds for such Distribution Date then on deposit in the
Distribution Account will be distributed to the Servicer, in payment of
unpaid servicing fees and reimbursement of certain outstanding Advances, and
then to holders of the Residual Certificates of each Certificate Group.
Notwithstanding the foregoing, if the Certificate Principal Balance of
the Senior Certificates of a Certificate Group on any Distribution Date would
exceed the Group Principal Balance of the related Mortgage Loan Group after
giving effect to distributions to be made on such Distribution Date (a
"Senior Class Subordination Deficit"), then all amounts distributable as
principal of the Senior Certificates of such Certificate Group on such
Distribution Date will be allocated concurrently to the outstanding classes
of Senior Certificates of such Certificate Group, pro rata, on the basis on
their respective Certificate Principal Balances.
DEFINITIONS
The "Accrual Period" for the Group I Certificates (other than the Class
A-1 Certificates) for a given Distribution Date will be the calendar month
preceding the month of such Distribution Date and will be calculated based on
a 360-day year consisting of twelve 30-day months; provided, however, that
the initial Accrual Period for the Group I Certificates (other than the Class
A-1 Certificates) will be the 21-day period beginning on June 10, 1997 and
ending on and including June 30, 1997. The "Accrual Period" for the Class A-
1 Certificates and the Group II Certificates for a given Distribution Date
will be the actual number of days (based on a 360-day year) included in the
period commencing on the immediately preceding Distribution Date and ending
on the day immediately preceding such Distribution Date; provided, however,
that the initial Accrual Period for the Class A-1 Certificates and the Group
II Certificates will be the actual number of days included in the period
commencing on the Closing Date and ending on and including July 24, 1997.
The "Allocable Loss Amount" with respect to each Distribution Date and
each Certificate Group means the excess, if any, of (a) the aggregate of the
Certificate Principal Balances of all classes of Offered Certificates of such
Certificate Group (after giving effect to all distributions on such
Distribution Date) over (b) the Group Principal Balance of the related
Mortgage Loan Group as of the end of the preceding Due Period.
The "Aggregate Senior Certificate Principal Balance" means, with respect
to any Distribution Date and the Group I Certificates, the aggregate of the
Certificate Principal Balances of the Group I Senior Certificates, and, with
respect to any Distribution Date and the Group II Certificates, the
Certificate Principal Balance of the Class A-5 Certificates.
The "Call Option Date" with respect to each Mortgage Loan Group is the
first Distribution Date on which the Group Principal Balance of such Mortgage
Loan Group is less than or equal to 10% of the Maximum Collateral Amount for
such Mortgage Loan Group.
The "Certificate Principal Balance" of any class of Offered
Certificates, as of any Distribution Date, will be equal to the Certificate
Principal Balance thereof on the Closing Date (the "Original Certificate
Principal Balance") reduced by the sum of (i) all amounts actually
distributed in respect of principal of such class on all prior Distribution
Dates and (ii) with respect to any Mezzanine Certificates and any Class B
Certificates, all related Allocable Loss Amounts applied in reduction of
principal of such Certificates on all prior Distribution Dates.
The "Class A-4 Priority Excess Distribution Amount" with respect to any
Distribution Date is the lesser of (A) the product of (x) the applicable
Class A-4 Priority Percentage for such Distribution Date and (y) the Class
A-4 Pro Rata Excess Distribution Amount for such Distribution Date and (B)
the least of (x) General Excess Available Amount for the Group I
Certificates, (y) the amount, if any, by which the Aggregate Senior
Certificate Principal Balance for the Group I Certificates (after giving
effect to any reduction thereof pursuant to sections (C) and (D)(i) under "--
Allocation of Available Funds" above on such Distribution Date) exceeds the
Senior Optimal Principal Balance for the Group I Certificates for such
Distribution Date and (z) the Group I Overcollateralization Deficiency Amount
for such Distribution Date.
The "Class A-4 Priority General Distribution Amount" with respect to any
Distribution Date is the lesser of (A) the product of (x) the applicable
Class A-4 Priority Percentage for such Distribution Date and (y) the Class
A-4 Pro Rata General Distribution Amount for such Distribution Date and (B)
the Senior Principal Distribution Amount with respect to the Group I
Certificates for such Distribution Date.
The "Class A-4 Priority Percentage" with respect to each Distribution
Date is the applicable percentage specified below:
Distribution Date Priority Percentage
----------------- -------------------
July 1997 - June 2000 0%
July 2000 - June 2002 45%
July 2002 - June 2003 80%
July 2003 - June 2004 100%
July 2004 and thereafter 300%
The "Class A-4 Pro Rata Excess Distribution Amount" with respect to any
Distribution Date is an amount equal to the product of (x) a fraction, the
numerator of which is the Certificate Principal Balance of the Class A-4
Certificates immediately prior to such Distribution Date and the denominator
of which is the Aggregate Senior Certificate Principal Balance with respect
to the Group I Certificates immediately prior to such Distribution Date and
(y) the least of (1) the General Excess Available Amount for the Group I
Certificates, (2) the amount, if any, by which the Aggregate Senior
Certificate Principal Balance for the Group I Certificates (after giving
effect to any reduction thereof pursuant to sections (C) and (D)(i) under "--
Allocation of Available Funds" above on such Distribution Date) exceeds the
Senior Optimal Principal Balance for the Group I Certificates for such
Distribution Date and (3) the Group I Overcollateralization Deficiency Amount
for such Distribution Date.
The "Class A-4 Pro Rata General Distribution Amount" with respect to any
Distribution Date is an amount equal to the product of (x) a fraction, the
numerator of which is the Certificate Principal Balance of the Class A-4
Certificates immediately prior to such Distribution Date and the denominator
of which is the Aggregate Senior Certificate Principal Balance for the Group
I Certificates immediately prior to such Distribution Date and (y) the Senior
Principal Distribution Amount for the Group I Certificates for such
Distribution Date.
The "Class B Optimal Principal Balance" means (i) with respect to each
Certificate Group and any Distribution Date prior to the Stepdown Date or any
Distribution Date on which a Stepdown Trigger Event has occurred and is
continuing, zero, and (ii) with respect to each Certificate Group and any
other Distribution Date, the Group Principal Balance of the related Mortgage
Loan Group as of the last day of the Due Period that precedes such
Distribution Date minus the sum of (a) the aggregate of the Certificate
Principal Balances of the Senior Certificates and Mezzanine Certificates of
such Certificate Group (after taking into account any distributions made on
such Distribution Date in reduction of such Certificate Principal Balances
prior to such determination) and (b) the Overcollateralization Target Amount
for such Certificate Group for such Distribution Date; provided, however,
that the Class B Optimal Principal Balance for any Certificate Group shall
never be less than zero or greater than the Original Certificate Principal
Balance of the Class B Certificates of such Certificate Group.
The "Class M-1 Optimal Principal Balance" means (i) with respect to each
Certificate Group and any Distribution Date prior to the Stepdown Date or any
Distribution Date on which a Stepdown Trigger Event has occurred and is
continuing, zero, and (ii) with respect to each Certificate Group and any
other Distribution Date, the Group Principal Balance of the related Mortgage
Loan Group as of the last day of the Due Period that precedes such
Distribution Date minus the sum of (i) the aggregate of the Certificate
Principal Balances of the Senior Certificates of such Certificate Group
(after taking into account any distributions made on such Distribution Date
in reduction of the Certificate Principal Balances of such classes of Senior
Certificates prior to such determination) and (ii) the greater of (x) the sum
of (1)(a) in the case of the Group I Certificates, 16.50% of the Group
Principal Balance of the related Mortgage Loan Group as of the last day of
the related Due Period or (b) in the case of the Group II Certificates,
20.00% of the Group Principal Balance of the related Mortgage Loan Group as
of the last day of the related Due Period and (2) the Overcollateralization
Target Amount for such Certificate Group for such Distribution Date
(calculated without giving effect to the proviso in the definition thereof)
and (y) 0.50% of the related Maximum Collateral Amount; provided however,
that the Class M-1 Optimal Principal Balance for any Certificate Group shall
never be less than zero or greater than the Original Certificate Principal
Balance of the Class M-1 Certificates of such Certificate Group.
The "Class M-2 Optimal Principal Balance" means (i) with respect to each
Certificate Group and any Distribution Date prior to the Stepdown Date or any
Distribution Date on which a Stepdown Trigger Event has occurred and is
continuing, zero, and (ii) with respect to each Certificate Group and any
other Distribution Date, the Group Principal Balance of the related Mortgage
Loan Group as of as of the last day of the Due Period that precedes such
Distribution Date minus the sum of (i) the aggregate of the Certificate
Principal Balances of the Senior Certificates and the Class M-1 Certificates
of such Certificate Group (after taking into account any distributions made
on such Distribution Date in reduction of such Certificate Principal Balances
prior to such determination) and (ii) the greater of (x) the sum of (1)(a) in
the case of the Group I Certificates, 7.00% of the Group Principal Balance of
the related Mortgage Loan Group as of the last day of the related Due Period
or (b) in the case of the Group II Certificates, 8.50% of the Group Principal
Balance of the related Mortgage Loan Group as of the last day of the related
Due Period and (2) the Overcollateralization Target Amount for such Group for
such Distribution Date (calculated without giving effect to the proviso in
the definition thereof) and (y) 0.50% of the related Maximum Collateral
Amount; provided, however, that the Class M-2 Optimal Principal Balance for
any Certificate Group shall never be less than zero or greater than the
Original Certificate Principal Balance of the Class M-2 Certificates of such
Certificate Group.
The "Delinquency Percentage," with respect to any Distribution Date, the
related Due Period and each Mortgage Loan Group, is the fraction, expressed
as a percentage, the numerator of which is the aggregate of the Loan Balances
of all Mortgage Loans in such Mortgage Loan Group that are 60 or more days
Delinquent, in foreclosure or relating to REO Properties as of the close of
business on the last day of the related Due Period and the denominator of
which is the Group Principal Balance of such Mortgage Loan Group as of the
close of business on the last day of such Due Period.
A Mortgage Loan is "Delinquent" if any monthly payment due thereon is
not made by the close of business on the day such monthly payment is
scheduled to be due. A Mortgage Loan is "30 days Delinquent" if such
monthly payment has not been received by the close of business on the
corresponding day of the month immediately succeeding the month in which such
monthly payment was due or, if there was no such corresponding day (e.g., as
when a 30-day month follows a 31-day month in which a payment was due on the
31st day of such month), then on the last day of such immediately succeeding
month; and similarly for "60 days Delinquent", etc.
A "Due Period" (i) with respect to the initial Distribution Date is the
period from and including June 10, 1997 through and including June 30, 1997
and (ii) with respect to any subsequent Distribution Date is the calendar
month preceding the month in which such Distribution Date occurs.
The "General Excess Available Amount" means (i) with respect to each
Distribution Date and the Group I Certificates is the amount, if any, by
which the Group I Available Funds for such Distribution Date exceeds the
aggregate amount distributed on such Distribution Date pursuant to sections
(A), (B), (C) and (D)(i) under "--Allocation of Available Funds" above and
(ii) with respect to each Distribution Date and the Group II Certificates,
the amount, if any, by which the Group II Available Funds for such
Distribution Date exceeds the aggregate amount distributed on such
Distribution Date pursuant to sections (A), (B) and (D)(ii) under "--
Allocation of Available Funds" above.
The "Interest Distributable Amount" for any Distribution Date and each
class of Offered Certificates equals the sum of (i) the Monthly Interest
Distributable Amount for such class for such Distribution Date and (ii) the
Unpaid Interest Shortfall Amount for such class for such Distribution Date.
The "Interest Remittance Amount" for each Mortgage Loan Group and any
Distribution Date is (a) the product of (x) the Group Principal Balance of
such Mortgage Loan Group at the beginning of the calendar month preceding the
month in which such Distribution Date occurs and (y) one-twelfth of the
weighted average Net Mortgage Rate for such Mortgage Loan Group at the
beginning of the calendar month preceding the month in which such
Distribution Date occurs, less (b) the excess, if any, of the Prepayment
Interest Shortfalls for such Mortgage Loan Group for the related Due Period
over the Servicing Fee for such Due Period.
The "Loan Balance" of any Mortgage Loan is the outstanding principal
balance thereof calculated in accordance with the terms of the related
Mortgage Note; provided, however, that the Loan Balance for any Mortgage Loan
that has been liquidated through foreclosure sale, trustee's sale,
disposition of the related REO Property or taking of the related Mortgaged
Property by eminent domain shall be zero as of the last day of the Due Period
in which such Mortgage Loan becomes liquidated and at all times thereafter.
"Loss Reimbursement Deficiency" means, with respect to any Distribution
Date and the Class M-1 Certificates, Class M-2 Certificates or Class B
Certificates, the amount of Allocable Loss Amounts for the related Group
applied to the reduction of the Certificate Principal Balance of such class
and not reimbursed pursuant to "--Allocation of Available Funds" above as of
such Distribution Date.
The "Maximum Collateral Amount" means (i) with respect to the Group I
Certificates, the sum of (a) the Group Principal Balance of all Initial Group
I Mortgage Loans as of the Initial Cut-Off Date and (b) the Loan Balances of
all Subsequent Mortgage Loans as of the applicable Cut-Off Dates and
(ii) with respect to the Group II Certificates, the Group Principal Balance
of all Group II Mortgage Loans as of the Cut-Off Date.
The "Monthly Interest Distributable Amount" for any Distribution Date
and each class of Offered Certificates equals the amount of interest accrued
during the related Accrual Period at the related Pass-Through Rate on the
Certificate Principal Balance of such class immediately prior to such
Distribution Date (or, in the case of the first Distribution Date, on the
Closing Date).
The "Optimal Principal Balance" with respect to each Group and any
Distribution Date means the Class B Optimal Principal Balance, Class M-1
Optimal Principal Balance, Class M-2 Optimal Principal Balance or the Senior
Optimal Principal Balance, as the context requires.
An "Overcollateralization Deficiency Amount" with respect to any
Distribution Date and each Group equals the amount, if any, by which the
Overcollateralization Target Amount for such Group exceeds the related
Overcollateralized Amount on such Distribution Date (such Overcollateralized
Amount to be calculated after giving effect to all prior distributions on all
classes of Certificates on such Distribution Date pursuant to sections (A),
(B), (C) and (D) under "--Allocation of Available Funds" above with respect
to such Group).
The "Overcollateralization Target Amount" means (i) with respect to the
Group I Certificates and (a) any Distribution Date occurring prior to the
related Stepdown Date, an amount equal to (I) 1.5% of the related Maximum
Collateral Amount for the related Mortgage Loan Group if a Stepup Trigger
Event is not occurring and (II) 4.0% of such Maximum Collateral Amount if a
Stepup Trigger Event is occurring; and (b) with respect to any Distribution
Date on or after such Stepdown Date, an amount equal to (III) 3.0% of the
related Group Principal Balance as of the end of the related Due Period if a
Stepup Trigger Event is not occurring and (IV) 8% of such related Group
Principal Balance if a Stepup Trigger Event is occurring; provided, however,
that the Overcollateralization Target Amount for the Group I Certificates
shall in no event be less than 0.50% of the related Maximum Collateral
Amount; and (ii) with respect to the Group II Certificates and (x) any
Distribution Date occurring prior to the related Stepdown Date, an amount
equal to (I) 2.0% of the related Maximum Collateral Amount for the related
Mortgage Loan Group if a Stepup Trigger Event is not occurring and (II) 5.0%
of such Maximum Collateral Amount if a Stepup Trigger Event is occurring; and
(y) with respect to any Distribution Date on or after such Stepdown Date, an
amount equal to (III) 4.0% of the related Group Principal Balance as of the
end of the related Due Period if a Stepup Trigger Event is not occurring and
(IV) 10% of such related Group Principal Balance if a Stepup Trigger Event is
occurring; provided, however, that such Group's Overcollateralization Target
Amount shall in no event be less than 0.50% of the related Maximum Collateral
Amount.
The "Overcollateralized Amount" for each Certificate Group for any
Distribution Date is the amount, if any, by which (i) the related Group
Principal Balance on the last day of the immediately preceding Due Period
exceeds (ii) the aggregate Certificate Principal Balance of the Offered
Certificates of such Certificate Group as of such Distribution Date after
giving effect to distributions to be made on such Certificates on such
Distribution Date.
A "Principal Prepayment" with respect to any Distribution Date is any
mortgagor payment or other recovery of principal on a Mortgage Loan that is
received in advance of its scheduled Due Date and is not accompanied by an
amount representing scheduled interest due on any date or dates in any month
or months subsequent to the month of prepayment.
The "Principal Remittance Amount" for such Mortgage Loan Group for any
Distribution Date is (a) the sum of the amounts specified in clause (i),
clause (iii) (net of certain expenses and reimbursement obligations and to
the extent applied to Mortgage Loan principal), clause (vi), clause (vii) and
clause (ix) under "--Deposits into the Collection Account" above with respect
to such Mortgage Loan Group, in each case to the extent such amounts relate
to principal and are actually received in the related Due Period, less (b)
with respect to each Mortgage Loan in such Mortgage Loan Group that has
previously been purchased or replaced by the Servicer or Cityscape, all
amounts received thereon in any month subsequent to the month of such
purchase or substitution, as the case may be, to the extent such amounts
relate to principal and have been withdrawn from the Collection Account.
The "Pro Rata Pre-Funding Distribution Amount" means, as to the
Distribution Date immediately following the Due Period in which the end of
the Funding Period occurs, (i) the Unutilized Funding Amount, if such amount
is greater than or equal to $100,000 and (ii) zero, if such amount is less
than $100,000.
A "Realized Loss" (i) with respect to any defaulted Mortgage Loan that
is finally liquidated (a "Liquidated Loan") is the amount of loss realized
equal to the portion of the Loan Balance remaining unpaid after application
of all amounts recovered (net of amounts reimbursable to the Servicer for
related Advances, expenses and Servicing Fees) towards interest and principal
owing on the Mortgage Loan and (ii) with respect to certain Mortgage Loans
the principal balances or the scheduled payments of principal and interest of
which have been reduced in connection with bankruptcy proceedings, the amount
of such reduction.
A "Realized Loss Percentage" means, as to any Distribution Date and each
Mortgage Loan Group, the percentage equivalent of a fraction, the numerator
of which is the amount of cumulative Realized Losses on the Mortgage Loans in
such Mortgage Loan Group from the Initial Cut-Off Date through the end of the
related Due Period and the denominator of which is the Maximum Collateral
Amount of such Mortgage Loan Group.
The "Regular Pre-Funding Distribution Amount"" means, as to the
Distribution Date immediately following the Due Period in which the end of
the Funding Period occurs, (i) the Unutilized Funding Amount, if such amount
is less than $100,000 and (ii) zero, if such amount is greater than or equal
to $100,000.
The "Regular Principal Distribution Amount" means, with respect to each
Group and any Distribution Date, an amount equal to the lesser of:
(A) the aggregate of the Certificate Principal Balances of the
classes of Offered Certificates of such Group immediately prior to such
Distribution Date; and
(B) the sum of (i) each scheduled payment of principal collected on
the Mortgage Loans of the related Mortgage Loan Group by the Servicer in
the related Due Period, (ii) all partial and full principal prepayments
of such Mortgage Loans applied by the Servicer during such Due Period,
(iii) the principal portion of all Net Liquidation Proceeds, Insurance
Proceeds and Released Mortgaged Property Proceeds received with respect
to such Mortgage Loan Group during such Due Period, (iv) that portion of
the Purchase Price, representing principal of any repurchased Mortgage
Loan of such Mortgage Loan Group, (v) the principal portion of any
Substitution Adjustments with respect to such Mortgage Loan Group
required to be deposited in the Collection Account, (vi) in the case of
the Group I Certificates, on the Distribution Date immediately following
the Due Period in which the end of the Funding Period occurs, the
Regular Pre-Funding Distribution Amount, if any, and (vii) on the
Distribution Date on which the related Mortgage Loan Group or the Trust
is to be terminated in accordance with the Pooling and Servicing
Agreement, that portion of the Termination Price, in respect of
principal, that relates to such Mortgage Loan Group.
The "Rolling Delinquency Percentage" means, with respect to any
Distribution Date and each Mortgage Loan Group, the average of the
Delinquency Percentages for such Mortgage Loan Group with respect to the last
day of each of the three immediately preceding Due Periods.
The "Senior Credit Enhancement Percentage," with respect to each
Certificate Group and any Distribution Date, is the percentage obtained by
dividing (i) the sum of (a) the aggregate of the Certificate Principal
Balances of the Mezzanine Certificates and the Class B Certificates of such
Certificate Group and (b) the Overcollateralized Amount for such Certificate
Group, in each case after giving effect to the distributions of principal on
such Distribution Date, by (ii) the Group Principal Balance of the related
Mortgage Loan Group as of the end of the related Due Period.
The "Senior Optimal Principal Balance" means (i) with respect to each
Certificate Group and any Distribution Date prior to the Stepdown Date or any
Distribution Date on which a Stepdown Trigger Event has occurred and is
continuing, zero and (ii) with respect to each Certificate Group and any
other Distribution Date, the Group Principal Balance of the related Mortgage
Loan Group as of the last day of the Due Period that precedes such
Distribution Date minus the greater of (a) the sum of (1)(x) in the case of
the Group I Certificates, 29.50% of the Group Principal Balance of such
Mortgage Loan Group as of the last day of the related Due Period or (y) in
the case of the Group II Certificates, 39.00% of the Group Principal Balance
of such Mortgage Loan Group as of the last day of the related Due Period and
(2) the Overcollateralization Target Amount for such Certificate Group for
such Distribution Date (calculated without giving effect to the proviso in
the definition thereof) and (b) 0.50% of the related Maximum Collateral
Amount; provided, however, that any Certificate Group's Senior Optimal
Principal Balance shall never be less than zero or greater than the Aggregate
Senior Certificate Principal Balance for such Certificate Group as of the
Closing Date.
The "Senior Principal Distribution Amount" means, with respect to each
Distribution Date, the lesser of the (i) Regular Principal Distribution
Amount for such Distribution Date and (ii) the amount, if any, by which the
Aggregate Senior Certificate Principal Balance for such Distribution Date
(after giving effect to distributions made on such Distribution Date pursuant
to section (C) under "-- Allocation of Available Funds" above) exceeds the
Senior Optimal Principal Balance for such Distribution Date.
The "Stepdown Date" with respect to each Certificate Group means the
earlier of:
(X) the first Distribution Date occurring after June 2000 as to which
all of the following conditions exist:
(1) the Group Principal Balance of the related Mortgage
Loan Group has been reduced to an amount less than or equal
to 50% of the related Maximum Collateral Amount;
(2) no Stepdown Trigger Event is continuing with
respect to such Mortgage Loan Group; and
(3) the Trustee determines (before actual distributions
are made on such Distribution Date) that, if effect were
given to all distributions of principal to be made on such
date (assuming that the Stepdown Date has occurred), the
Aggregate Senior Certificate Principal Balance of such
Certificate Group would be reduced on such date to the
excess of (i) the Group Principal Balance of the related
Mortgage Loan Group as of the last day of the related Due
Period over (ii) the greater of (a) the sum of (1) (x) in
the case of the Group I Certificates, 29.50% of the Group
Principal Balance of the related Mortgage Loan Group as of
the last day of the related Due Period or (y) in the case of
the Group II Certificates, 39.00% of the Group Principal
Balance of the related Mortgage Loan Group as of the last
day of the related Due Period and (2) the related
Overcollateralization Target Amount for such Distribution
Date (such Overcollateralization Target Amount to be
calculated (A) as if such Distribution Date were occurring
on or after the related Stepdown Date and (B) without giving
effect to (I) in the case of the Group I Certificates, the
proviso in clause (i) of the definition of
"Overcollateralization Target Amount" or (II) in the case of
the Group II Certificates, the proviso in clause (ii) of
such definition) and (b) 0.50% of the related Maximum
Collateral Amount; and
(Y) the Distribution Date on which the Aggregate Senior Certificate
Principal Balance for such Certificate Group equals zero.
The "Stepdown Trigger Event" means, with respect to any Distribution
Date and each Mortgage Loan Group, that the Group Delinquency Percentage for
such Mortgage Loan Group exceeds 50% of the Senior Credit Enhancement
Percentage for such Certificate Group for such Distribution Date (assuming,
for purposes of calculating the Senior Credit Enhancement Percentage, that
distributions are made on such Distribution Date and no Stepdown Trigger
Event has occurred).
The "Stepup Rolling Delinquency Test," means with respect to each
Mortgage Loan Group, a determination as to whether for such Mortgage Loan
Group: (i) for any Distribution Date occurring in or prior to September 1998,
the related Rolling Delinquency Percentage is more than 13.5% or 14.0%, (ii)
for any subsequent Distribution Date occurring in or prior to December 1999,
the related Rolling Delinquency Percentage is more than 15.0% or 15.0% or
(iii) for any Distribution Date occurring in or after January 2000, the
related Rolling Delinquency Percentage is more than 17.0% or 17.0%, in each
case, with respect to the Group I Mortgage Loans and the Group II Mortgage
Loans, respectively.
A "Stepup Trigger Event" means, with respect to each Mortgage Loan
Group, the occurrence on any Distribution Date of either of the following:
(i) the Stepup Cumulative Loss Test is met or (ii) the Stepup Rolling
Delinquency Test is met.
The "Stepup Cumulative Loss Test" means, with respect to each Mortgage
Loan Group, a determination as to whether for such Mortgage Loan Group:
(i) for any Distribution Date occurring in or prior to June 1999, the related
Realized Loss Percentage is more than 1.44% or 1.66%, (ii) for any subsequent
Distribution Date occurring in or prior to June 2000, the related Realized
Loss Percentage is more than 2.48% or 2.85%, (iii) for any subsequent
Distribution Date occurring in or prior to June 2001, the related Realized
Loss Percentage is more than 3.30% or 3.80%, (iv) for any subsequent
Distribution Date occurring in or prior to June 2002, the related Realized
Loss Percentage is more than 3.92% or 4.51%, or (v) for any subsequent
Distribution Date occurring in or after July 2002, the related Realized Loss
Percentage is more than 4.13% or 4.75%, in each case, with respect to the
Group I Mortgage Loans and the Group II Mortgage Loans, respectively.
The "Trustee Fee" as of any Distribution Date shall be determined in
accordance with the rate agreed upon in writing between the Trustee and
Cityscape on the Closing Date.
The "Unpaid Interest Shortfall Amount" means (i) for each class of
Offered Certificates and the first Distribution Date, zero, and (ii) with
respect to each Class and any Distribution Date after the first Distribution
Date, the amount, if any, by which (a) the sum of (1) the Monthly Interest
Distributable Amount for such class for the immediately preceding
Distribution Date and (2) the outstanding Unpaid Interest Shortfall Amount,
if any, for such class for such preceding Distribution Date exceeds (b) the
aggregate amount distributed on such class in respect of interest pursuant to
clause (a) of this definition on such preceding Distribution Date, plus
interest on the amount of interest due but not paid on the Certificates of
such class on such preceding Distribution Date, to the extent permitted by
law, at the Pass-Through Rate for such class for the related Accrual Period.
CALCULATION OF ONE-MONTH LIBOR
On the second LIBOR Business Day (as defined below) preceding the
commencement of each Accrual Period following the initial Accrual Period
(each such date, a "LIBOR Determination Date"), the Trustee will determine
the London interbank offered rate for one-month United States dollar deposits
("One-Month LIBOR") for such Accrual Period for the Class A-1 Certificates
and the Group II Certificates on the basis of the offered rates of the
Reference Banks for one-month United States dollar deposits, as such rates
appear on the Telerate Page 3750, as of 11:00 a.m. (London time) on such
LIBOR Determination Date. As used in this section, "LIBOR Business Day"
means a day on which banks are open for dealing in foreign currency and
exchange in London and New York City; "Telerate Page 3750" means the display
page currently so designated on the Dow Jones Telerate Service (or such other
page as may replace that page on that service for the purpose of displaying
comparable rates or prices); and "Reference Banks" means leading banks
selected by the Trustee and engaged in transactions in Eurodollar deposits in
the international Eurocurrency market (i) with an established place of
business in London, (ii) whose quotations appear on the Telerate Page 3750 on
the LIBOR Determination Date in question, (iii) which have been designated as
such by the Trustee and (iv) not controlling, controlled by or under common
control with, the Depositor, Cityscape or any successor Servicer. The One-
Month LIBOR value for the initial Accrual Period will be 5.6875% per annum.
On each LIBOR Determination Date, One-Month LIBOR for the related
Accrual Period for the Class A-1 Certificates and the Group II Certificates
will be established by the Trustee as follows:
(a) If on such LIBOR Determination Date two or more Reference Banks
provide such offered quotations, One-Month LIBOR for the related Accrual
Period will be the arithmetic mean of such offered quotations (rounded
upwards if necessary to the nearest whole multiple of 0.0625%).
(b) If on such LIBOR Determination Date fewer than two Reference
Banks provide such offered quotations, One-Month LIBOR for the related
Accrual Period will be the higher of (x) One-Month LIBOR as determined
on the previous LIBOR Determination Date and (y) the Reserve Interest
Rate. The "Reserve Interest Rate" will be the rate per annum that the
Trustee determines to be either (i) the arithmetic mean (rounded upwards
if necessary to the nearest whole multiple of 0.0625%) of the one-month
United States dollar lending rates which New York City banks selected by
the Trustee are quoting on the relevant LIBOR Determination Date to the
principal London offices of leading banks in the London interbank market
or (ii) in the event that the Trustee can determine no such arithmetic
mean, the lowest one-month United States dollar lending rate which New
York City banks selected by the Trustee are quoting on such LIBOR
Determination Date to leading European banks.
The establishment of One-Month LIBOR on each LIBOR Determination Date by
the Trustee and the Trustee's calculation of the rate of interest applicable
to the Class A-1 Certificates and the Group II Certificates for the related
Accrual Period will (in the absence of manifest error) be final and binding.
EXAMPLE OF DISTRIBUTIONS
The following chart sets forth an example of distributions on the
Certificates for the first month of the Trust Fund's existence:
June 9, 1997 Initial Cut-Off Date for Initial Mortgage Loans.
June 10 to June 30, 1997 (A) Initial Due Period. The Servicer receives
(x) scheduled payments of principal and
interest and (y) Principal Prepayments and
interest thereon to the date of such
prepayment. For succeeding Distribution
Dates, the Due Period will commence on the
first day of the preceding calendar month
and end on the last day of such month.
June 30, 1997 (B) Initial Record Date. Each subsequent Record Date
will be the last Business Day of the month preceding
the month of the related Distribution Date.
July 14, 1997 (C) Determination Date (the fourteenth day of the month
of such Distribution Date or, if such fourteenth day
is not a Business Day, the preceding Business Day).
July 18, 1997 (D) Servicer Remittance Date.
July 25, 1997 (E) Distribution Date.
Succeeding monthly periods follow the pattern of (A) through (E).
(A) Principal Prepayments received during this period will be distributed to
holders of the Certificates on July 25, 1997 (to the extent not applied
in computing the Initial Cut-Off Date Principal Balance). When a
Mortgage Loan is prepaid in full, interest on the amount prepaid is
collected only from the last Due Date as to which the most recent
scheduled payment was made by the borrower to the date of prepayment.
(B) Distributions of principal and interest on July 25, 1997 will be made to
holders of the Certificates of record as of the close of business on the
Record Date.
(C) Determination Date.
(D) No later than each Servicer Remittance Date, the Servicer is required to
make Advances with respect to the Mortgage Loans.
(E) The Trustee will make distributions to holders of the Certificates on
the 25th day of the month following the month in which the related Due
Period ends, or if such day is not a Business Day, on the next Business
Day.
WEIGHTED AVERAGE LIVES
The timing of changes in the rate of Principal Prepayments on the
Mortgage Loans may significantly affect an investor's actual yield to
maturity, even if the average rate of Principal Prepayments is consistent
with such investor's expectation. In general, the earlier a Principal
Prepayment on the Mortgage Loans occurs, the greater the effect of such
Principal Prepayment on an investor's yield to maturity. The effect on an
investor's yield of Principal Prepayments occurring at a rate higher (or
lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Offered Certificates may not be
offset by a subsequent like decrease (or increase) in the rate of Principal
Prepayments.
The projected weighted average life of any class of Offered Certificates
is the average amount of time that will elapse from June 26, 1997 (the
"Closing Date") until each dollar of principal is scheduled to be repaid to
the investors in such class of Offered Certificates. Because it is expected
that there will be prepayments and defaults on the Mortgage Loans, the actual
weighted average lives of the classes of Offered Certificates are expected to
vary substantially from the weighted average remaining terms to stated
maturity of the Mortgage Loans as set forth herein under "The Mortgage Loan
Groups--General."
The "Assumed Final Maturity Date" for each class of Offered Certificates
is as set forth herein under "Description of the Certificates--General". For
the Class A-1 and Class A-2 Certificates, such date is the date on which the
"Original Certificate Principal Balance" set forth herein for such Class less
all amounts distributed to the related Certificateholders on account of
principal would be reduced to zero, assuming that no prepayments are received
on the Mortgage Loans, scheduled monthly payments of principal of and
interest on each of the Mortgage Loans are timely received, no excess
cashflow is used to make accelerated payments of principal to the
Certificateholders of such classes of Offered Certificates and the
Overcollaterization Target Amount is zero. The Assumed Final Maturity Date
for the other Group I Certificates and the Group II Certificates is the
thirteenth Distribution Date following the Due Period in which the Loan
Balances of all Group I Mortgage Loans and all Group II Mortgage Loans,
respectively, have been reduced to zero, assuming that the Mortgage Loans pay
in accordance with their terms. The weighted average life of each class of
Offered Certificates is likely to be shorter than would be the case if
payments actually made on the Mortgage Loans conformed to the foregoing
assumptions, and the final Distribution Date with respect to the Offered
Certificates could occur significantly earlier than the related Assumed Final
Maturity Date because (i) prepayments are likely to occur, (ii) excess
cashflow, if any, will be applied as principal of the Offered Certificates as
described herein, (iii) the Required Overcollateralization Amount is as
defined herein and (iv) the Majority Residual Certificateholders of each
Certificate Group and the Servicer may cause a termination of the related
Mortgage Loan Group as provided herein.
The model used in this Prospectus Supplement with respect to the
Mortgage Loans is the prepayment assumption (the "Prepayment Assumption")
which represents an assumed rate of prepayment each month relative to the
then outstanding principal balance of a pool of mortgage loans for the life
of such mortgage loans. With respect to the Group I Mortgage Loans, a
Prepayment Assumption (the "Group I Prepayment Assumption") assumes constant
prepayment rates of 4.8% per annum of the then outstanding principal balance
of the Mortgage Loans in the first month of the life of the Mortgage Loans
and an additional 1.745% per annum (i.e., 19.2% divided by 11) in each month
thereafter until the twelfth month. Beginning in the twelfth month and in
each month thereafter during the life of the Group I Mortgage Loans, the
Group I Prepayment Assumption assumes a constant prepayment rate of 24% per
annum. As used in the table below, 0% Group I Prepayment Assumption assumes
prepayment rates equal to 0% of the Group I Prepayment Assumption (i.e., no
prepayments). Correspondingly, 150% Group I Prepayment Assumption assumes
prepayment rates equal to 150% of the Group I Prepayment Assumption and so
forth. With respect to the Group II Mortgage Loans, the Prepayment
Assumption (the "Group II Prepayment Assumption") assumes a constant
prepayment rate per annum ("CPR") for the life of the Mortgage Loans. The
Group I and Group II Prepayment Assumptions do not purport to be an
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of mortgage loans, including the
Group I and Group II Mortgage Loans. The Depositor believes that no existing
statistics of which it is aware provide a reliable basis for holders of the
Offered Certificates to predict the amount or the timing of receipt of
prepayments on the Mortgage Loans.
Each of the Prepayment Scenarios in the table on page S-64 assumes the
respective percentages of Prepayment Assumptions described thereunder. For
example, Prepayment Scenario III assumes 75% of the Group I Prepayment
Assumption with respect to the Group I Mortgage Loans and a Group II
Prepayment Assumption of 21% CPR with respect to the Group II Mortgage Loans.
The tables on pages S-65 through S-75 were prepared on the basis of the
assumptions in the following paragraph and the tables set forth below. There
are certain differences between the loan characteristics included in such
assumptions and the characteristics of the actual Mortgage Loans. Any such
discrepancy may have an effect upon the percentages of Original Class
Principal Balances outstanding and weighted average lives of the Offered
Certificates set forth in the tables on pages S-65 through S-75. In
addition, since the actual Mortgage Loans in the Trust Fund will have
characteristics that differ from those assumed in preparing the tables set
forth below, the distributions of principal of the Offered Certificates may
be made earlier or later than indicated in the tables.
The percentages and weighted average lives in the tables on pages S-65
through S-75 were determined assuming that: (i) the Group I and Group II
Mortgage Loans consist of 8 and 4 sub-pools, respectively, of loans with Cut-
Off Date Principal Balances, Mortgage Rates, original and remaining terms to
maturity, original amortization terms and, in the case of the Group II
Mortgage Loans, weighted average Gross Margins, weighted average months to
roll and Periodic Caps as set forth in the table below, (ii) the Closing Date
for the Offered Certificates occurs on June 26, 1997 and the Offered
Certificates were sold to investors by the Underwriter on the Closing Date,
(iii) distributions on the Offered Certificates are made on the 25th day of
each month regardless of the day on which the Distribution Date actually
occurs, commencing in July 1997, in accordance with the priorities described
herein, (iv) the Pass-Through Rate for each class of Group I Certificates
(other than the Class A-1 Certificates) is as described on the cover hereof,
(v) the Accrual Period for the each class of Group I Certificates (other than
the Class A-1 Certificates) for each Distribution Date will consist of 30
days in a 360-day year consisting of twelve 30-day months (or 21 days, in the
case of the initial Distribution Date), (vi) the Accrual Period for each
Distribution Date for the Class A-1 Certificates and each class of Group II
Certificates will consist of the actual number of days from and including the
preceding Distribution Date (or the Closing Date in the case of the July 25,
1997 Distribution Date) to and including the day immediately preceding such
Distribution Date, (vii) the prepayment rates with respect to the Group I
Mortgage Loans are a multiple of the Group I Prepayment Assumption and with
respect to the Group II Mortgage Loans are constant prepayment rates, each as
stated in the "Prepayment Scenarios" table below, (viii) prepayments include
thirty days' interest thereon (or 21 days' interest in the case of
prepayments made during the initial Due Period), (ix) Cityscape is not
required to substitute or repurchase any or all of the Mortgage Loans
pursuant to the Pooling and Servicing Agreement and no optional termination
is exercised, except with respect to the entries identified by the row
heading "Weighted Average Life (years) to Call Option Date" in the tables
below, (x) each Certificate Group's Overcollateralization Target Amount is
set initially as specified in the Pooling and Servicing Agreement and
thereafter decreases in accordance with the provisions of the Pooling and
Servicing Agreement, (xi) scheduled payments for all Mortgage Loans are
received on the first day of each month (or in the case of the month of the
Closing Date, the day following the Initial Cut-Off Date), the principal
portion of such payments is computed prior to giving effect to prepayments
received in such month and there are no losses or delinquencies with respect
to such Mortgage Loans, (xii) all Mortgage Loans within a Mortgage Loan Group
prepay at the same rate and all such payments are treated as prepayments in
full of individual Mortgage Loans, with no shortfalls in collection of
interest, (xiii) such prepayments are received on the last day of each month
commencing in the month of the Closing Date, (xiv) One-Month LIBOR is at all
times 5.6875%, (xv) the Pass-Through Rate for the Class A-1 Certificates is
5.8275%, (xvi) the Pass-Through Rates for the Class A-5, Class M-1A, Class M-
2A and Class B-1A Certificates are 5.9275%, 6.1875%, 6.3875% and 6.7875%,
respectively, until the Distribution Date following the Call Option Date, at
which time such Pass-through Rates are assumed to be 6.1675%, 6.4375%,
6.7375% and 7.3375%, respectively, (xvii) the Mortgage Rate for each Group II
Mortgage Loan is adjusted on its next Adjustment Date (and on subsequent
Adjustment Dates, if necessary) to equal the sum of (a) the assumed level of
Six-Month LIBOR and (b) the respective Gross Margin (such sum being subject
to the applicable Periodic Rate Caps, Minimum Mortgage Rates and Maximum
Mortgage Rates), (xviii) with respect to the Group II Mortgage Loans, Six-
Month LIBOR is equal to 5.8750%; (xix) with respect to Group I, Sub-Pools 7
and 8 (specified in the table below) will be transferred to the Trust Fund in
July 1997 with principal payments on such Group I Mortgage Loans being
received by the Servicer in August 1997 and passed through to holders of the
Group I Certificates on the Distribution Date in September 1997; (xx)
sufficient funds will be available in the Capitalized Interest Account to
cover any shortfalls in interest due to the Pre-Funding Account and the
transfer of Group I Mortgage Loans described in clause (xviii); (xxi) no
reinvestment income from any Account is earned and available for
distribution; and (xxii) the amount on deposit in the Pre-Funding Account at
the end of the Pre-Funding Period is zero. Nothing contained in the
foregoing assumptions should be construed as a representation that the
Mortgage Loans will not experience delinquencies or losses.
PREPAYMENT SCENARIOS
Prepayment Scenario: Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI
Group I Prepayment Assumption 0% 50% 75% 100% 150% 200%
Group II Prepayment Assumption (CPR) 0% 10% 21% 25% 32% 42%
ASSUMED GROUP I MORTGAGE LOAN CHARACTERISTICS
Original Remaining Original
Term to Term to Amortization
Initial Cut-Off Date Mortgage Maturity Maturity Term
Sub-Pool Principal Balance Rate (Months) (Months) (Months)
1 $ 1,632,956.93 11.6513% 114 113 114
2 12,619,894.07 11.4890% 180 179 180
3 9,017,638.32 11.1736% 240 239 240
4 598,887.18 12.1553% 300 298 300
5 19,797,989.93 11.4740% 360 358 360
6 36,516,410.61 11.9642% 180 178 360
7* 12,126,027.10 11.4323% 273 272 273
8* 10,140,272.26 11.9642% 180 179 360
$102,450,076.40
_____________________
* Sub-Pools 7 and 8 represent the Group I Subsequent Mortgage Loans.
ASSUMED GROUP II MORTGAGE LOAN CHARACTERISTICS
Initial Cut-Off Original Remaining Original Weighted Weighted
Date Term to Term to Amortization Average Average
Sub- Principal Mortgage Maturity Maturity Term Gross Months Periodic
Pool Balance Rate (Months) (Months) (Months) Margin to Roll Cap
<C.>
1 $60,542,710.14 10.1594% 360 358 360 7.0893% 4 1.0%
2 3,399,176.51 10.5341% 360 357 360 6.9889% 3 1.5%
3 33,485,713.45 10.8317% 360 358 360 7.3618% 22 1.0%
4 122,323.50 11.1466% 360 358 360 7.8629% 22 1.5%
$97,549,923.60
Based on the foregoing assumptions, the following tables indicate the
projected weighted average lives of each class of Offered Certificates, and
set forth the percentages of the Original Certificate Principal Balance of
each such class that would be outstanding after each of the dates shown, at
various Prepayment Scenarios.
PERCENT OF ORIGINAL CLASS PRINCIPAL BALANCES OUTSTANDING*
Class A-1
Prepayment Scenario
Distribution Date Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI
Initial Percentage . . . . . 100% 100% 100% 100% 100% 100%
June 25, 1998 . . . . . . . . 94 73 63 52 31 9
June 25, 1999 . . . . . . . . 91 43 20 0 0 0
June 25, 2000 . . . . . . . . 88 16 0 0 0 0
June 25, 2001 . . . . . . . . 85 0 0 0 0 0
June 25, 2002 . . . . . . . . 81 0 0 0 0 0
June 25, 2003 . . . . . . . . 77 0 0 0 0 0
June 25, 2004 . . . . . . . . 73 0 0 0 0 0
June 25, 2005 . . . . . . . . 69 0 0 0 0 0
June 25, 2006 . . . . . . . . 65 0 0 0 0 0
June 25, 2007 . . . . . . . . 60 0 0 0 0 0
June 25, 2008 . . . . . . . . 55 0 0 0 0 0
June 25, 2009 . . . . . . . . 49 0 0 0 0 0
June 25, 2010 . . . . . . . . 42 0 0 0 0 0
June 25, 2011 . . . . . . . . 34 0 0 0 0 0
June 25, 2012 . . . . . . . . 0 0 0 0 0 0
June 25, 2013 . . . . . . . . 0 0 0 0 0 0
June 25, 2014 . . . . . . . . 0 0 0 0 0 0
June 25, 2015 . . . . . . . . 0 0 0 0 0 0
June 25, 2016 . . . . . . . . 0 0 0 0 0 0
June 25, 2017 . . . . . . . . 0 0 0 0 0 0
June 25, 2018 . . . . . . . . 0 0 0 0 0 0
June 25, 2019 . . . . . . . . 0 0 0 0 0 0
June 25, 2020 . . . . . . . . 0 0 0 0 0 0
June 25, 2021 . . . . . . . . 0 0 0 0 0 0
June 25, 2022 . . . . . . . . 0 0 0 0 0 0
June 25, 2023 . . . . . . . . 0 0 0 0 0 0
June 25, 2024 . . . . . . . . 0 0 0 0 0 0
June 25, 2025 . . . . . . . . 0 0 0 0 0 0
June 25, 2026 . . . . . . . . 0 0 0 0 0 0
June 25, 2027 . . . . . . . . 0 0 0 0 0 0
Weighted Average Life (years)
to Maturity . . . . . . . . 10.24 1.84 1.34 1.08 0.80 0.66
Weighted Average Life (years)
to Call Option Date . . . . 10.24 1.84 1.34 1.08 0.80 0.66
* Rounded to the nearest whole percentage.
PERCENT OF ORIGINAL CLASS PRINCIPAL BALANCES OUTSTANDING*
Class A-2
Prepayment Scenario
Distribution Date Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI
Initial Percentage . . . . . 100% 100% 100% 100% 100% 100%
June 25, 1998 . . . . . . . . 100 100 100 100 100 100
June 25, 1999 . . . . . . . . 100 100 100 99 43 0
June 25, 2000 . . . . . . . . 100 100 79 41 0 0
June 25, 2001 . . . . . . . . 100 91 46 18 0 0
June 25, 2002 . . . . . . . . 100 64 26 0 0 0
June 25, 2003 . . . . . . . . 100 47 11 0 0 0
June 25, 2004 . . . . . . . . 100 34 0 0 0 0
June 25, 2005 . . . . . . . . 100 27 0 0 0 0
June 25, 2006 . . . . . . . . 100 19 0 0 0 0
June 25, 2007 . . . . . . . . 100 12 0 0 0 0
June 25, 2008 . . . . . . . . 100 4 0 0 0 0
June 25, 2009 . . . . . . . . 100 0 0 0 0 0
June 25, 2010 . . . . . . . . 100 0 0 0 0 0
June 25, 2011 . . . . . . . . 100 0 0 0 0 0
June 25, 2012 . . . . . . . . 48 0 0 0 0 0
June 25, 2013 . . . . . . . . 22 0 0 0 0 0
June 25, 2014 . . . . . . . . 17 0 0 0 0 0
June 25, 2015 . . . . . . . . 11 0 0 0 0 0
June 25, 2016 . . . . . . . . 5 0 0 0 0 0
June 25, 2017 . . . . . . . . 0 0 0 0 0 0
June 25, 2018 . . . . . . . . 0 0 0 0 0 0
June 25, 2019 . . . . . . . . 0 0 0 0 0 0
June 25, 2020 . . . . . . . . 0 0 0 0 0 0
June 25, 2021 . . . . . . . . 0 0 0 0 0 0
June 25, 2022 . . . . . . . . 0 0 0 0 0 0
June 25, 2023 . . . . . . . . 0 0 0 0 0 0
June 25, 2024 . . . . . . . . 0 0 0 0 0 0
June 25, 2025 . . . . . . . . 0 0 0 0 0 0
June 25, 2026 . . . . . . . . 0 0 0 0 0 0
June 25, 2027 . . . . . . . . 0 0 0 0 0 0
Weighted Average Life (years)
to Maturity . . . . . . . . 15.62 6.53 4.20 3.10 1.98 1.51
Weighted Average Life (years)
to Call Option Date . . . . 15.62 6.53 4.20 3.10 1.98 1.51
* Rounded to the nearest whole percentage.
PERCENT OF ORIGINAL CLASS PRINCIPAL BALANCES OUTSTANDING*
Class A-3
Prepayment Scenario
Distribution Date Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI
Initial Percentage . . . . 100% 100% 100% 100% 100% 100%
June 25, 1998 . . . . . . . . 100 100 100 100 100 100
June 25, 1999 . . . . . . . . 100 100 100 100 100 85
June 25, 2000 . . . . . . . . 100 100 100 100 51 0
June 25, 2001 . . . . . . . . 100 100 100 100 45 0
June 25, 2002 . . . . . . . . 100 100 100 97 17 0
June 25, 2003 . . . . . . . . 100 100 100 70 8 0
June 25, 2004 . . . . . . . . 100 100 100 52 5 0
June 25, 2005 . . . . . . . . 100 100 91 49 5 0
June 25, 2006 . . . . . . . . 100 100 77 40 5 0
June 25, 2007 . . . . . . . . 100 100 64 31 4 0
June 25, 2008 . . . . . . . . 100 100 52 24 2 0
June 25, 2009 . . . . . . . . 100 94 42 18 0 0
June 25, 2010 . . . . . . . . 100 81 33 13 0 0
June 25, 2011 . . . . . . . . 100 68 26 9 0 0
June 25, 2012 . . . . . . . . 100 32 11 1 0 0
June 25, 2013 . . . . . . . . 100 20 6 0 0 0
June 25, 2014 . . . . . . . . 100 16 3 0 0 0
June 25, 2015 . . . . . . . . 100 13 1 0 0 0
June 25, 2016 . . . . . . . . 100 10 0 0 0 0
June 25, 2017 . . . . . . . . 96 7 0 0 0 0
June 25, 2018 . . . . . . . . 85 5 0 0 0 0
June 25, 2019 . . . . . . . . 73 3 0 0 0 0
June 25, 2020 . . . . . . . . 61 1 0 0 0 0
June 25, 2021 . . . . . . . . 54 0 0 0 0 0
June 25, 2022 . . . . . . . . 47 0 0 0 0 0
June 25, 2023 . . . . . . . . 39 0 0 0 0 0
June 25, 2024 . . . . . . . . 31 0 0 0 0 0
June 25, 2025 . . . . . . . . 21 0 0 0 0 0
June 25, 2026 . . . . . . . . 10 0 0 0 0 0
June 25, 2027 . . . . . . . . 0 0 0 0 0 0
Weighted Average Life (years)
to Maturity . . . . . . . . 24.72 15.09 11.63 8.60 4.09 2.25
Weighted Average Life (years)
to Call Option Date . . . . 22.86 14.15 10.11 7.13 3.79 2.25
* Rounded to the nearest whole percentage.
PERCENT OF ORIGINAL CLASS PRINCIPAL BALANCES OUTSTANDING*
Class A-4
Prepayment Scenario
Distribution Date Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI
Initial Percentage . . . . . 100% 100% 100% 100% 100% 100%
June 25, 1998 . . . . . . . . 100 100 100 100 100 100
June 25, 1999 . . . . . . . . 100 100 100 100 100 100
June 25, 2000 . . . . . . . . 100 100 100 100 100 17
June 25, 2001 . . . . . . . . 99 92 89 89 97 17
June 25, 2002 . . . . . . . . 98 84 80 78 79 17
June 25, 2003 . . . . . . . . 97 74 68 62 54 17
June 25, 2004 . . . . . . . . 94 64 54 46 34 9
June 25, 2005 . . . . . . . . 87 40 28 19 19 1
June 25, 2006 . . . . . . . . 79 25 14 7 9 0
June 25, 2007 . . . . . . . . 71 16 7 3 1 0
June 25, 2008 . . . . . . . . 63 10 3 1 0 0
June 25, 2009 . . . . . . . . 55 6 2 0 0 0
June 25, 2010 . . . . . . . . 46 3 1 0 0 0
June 25, 2011 . . . . . . . . 38 2 0 0 0 0
June 25, 2012 . . . . . . . . 0 0 0 0 0 0
June 25, 2013 . . . . . . . . 0 0 0 0 0 0
June 25, 2014 . . . . . . . . 0 0 0 0 0 0
June 25, 2015 . . . . . . . . 0 0 0 0 0 0
June 25, 2016 . . . . . . . . 0 0 0 0 0 0
June 25, 2017 . . . . . . . . 0 0 0 0 0 0
June 25, 2018 . . . . . . . . 0 0 0 0 0 0
June 25, 2019 . . . . . . . . 0 0 0 0 0 0
June 25, 2020 . . . . . . . . 0 0 0 0 0 0
June 25, 2021 . . . . . . . . 0 0 0 0 0 0
June 25, 2022 . . . . . . . . 0 0 0 0 0 0
June 25, 2023 . . . . . . . . 0 0 0 0 0 0
June 25, 2024 . . . . . . . . 0 0 0 0 0 0
June 25, 2025 . . . . . . . . 0 0 0 0 0 0
June 25, 2026 . . . . . . . . 0 0 0 0 0 0
June 25, 2027 . . . . . . . . 0 0 0 0 0 0
Weighted Average Life (years)
to Maturity . . . . . . . . 11.90 7.66 6.96 6.57 6.45 3.56
Weighted Average Life (years)
to Call Option Date . . . . 11.90 7.66 6.91 6.42 5.19 2.99
* Rounded to the nearest whole percentage.
PERCENT OF ORIGINAL CLASS PRINCIPAL BALANCES OUTSTANDING*
Class A-5
Prepayment Scenario
Distribution Date Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI
Initial Percentage . . . . . . 100% 100% 100% 100% 100% 100%
June 25, 1998 . . . . . . . . . 97 85 71 66 57 45
June 25, 1999 . . . . . . . . . 96 73 50 43 30 15
June 25, 2000 . . . . . . . . . 96 63 34 25 12 0
June 25, 2001 . . . . . . . . . 95 53 27 22 12 0
June 25, 2002 . . . . . . . . . 95 45 21 16 10 0
June 25, 2003 . . . . . . . . . 94 37 17 12 7 0
June 25, 2004 . . . . . . . . . 93 33 13 9 5 0
June 25, 2005 . . . . . . . . . 92 29 10 7 3 0
June 25, 2006 . . . . . . . . . 91 26 8 5 2 0
June 25, 2007 . . . . . . . . . 90 23 6 4 1 0
June 25, 2008 . . . . . . . . . 89 21 5 3 1 0
June 25, 2009 . . . . . . . . . 87 18 4 2 0 0
June 25, 2010 . . . . . . . . . 86 16 3 2 0 0
June 25, 2011 . . . . . . . . . 84 14 2 1 0 0
June 25, 2012 . . . . . . . . . 81 13 2 1 0 0
June 25, 2013 . . . . . . . . . 79 11 1 0 0 0
June 25, 2014 . . . . . . . . . 76 10 1 0 0 0
June 25, 2015 . . . . . . . . . 73 8 1 0 0 0
June 25, 2016 . . . . . . . . . 69 7 0 0 0 0
June 25, 2017 . . . . . . . . . 65 6 0 0 0 0
June 25, 2018 . . . . . . . . . 60 5 0 0 0 0
June 25, 2019 . . . . . . . . . 54 5 0 0 0 0
June 25, 2020 . . . . . . . . . 48 4 0 0 0 0
June 25, 2021 . . . . . . . . . 40 3 0 0 0 0
June 25, 2022 . . . . . . . . . 34 2 0 0 0 0
June 25, 2023 . . . . . . . . . 28 2 0 0 0 0
June 25, 2024 . . . . . . . . . 22 1 0 0 0 0
June 25, 2025 . . . . . . . . . 15 1 0 0 0 0
June 25, 2026 . . . . . . . . . 7 0 0 0 0 0
June 25, 2027 . . . . . . . . . 0 0 0 0 0 0
Weighted Average Life (years)
to Maturity . . . . . . . . . 20.90 6.68 3.29 2.70 1.92 1.07
Weighted Average Life (years)
to Call Option Date . . . . . 20.87 6.37 3.03 2.48 1.75 1.07
* Rounded to the nearest whole percentage.
PERCENT OF ORIGINAL CLASS PRINCIPAL BALANCES OUTSTANDING*
Class M-1F
Prepayment Scenario
Distribution Date Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI
Initial Percentage . . . . . 100% 100% 100% 100% 100% 100%
June 25, 1998 . . . . . . . . 100 100 100 100 100 100
June 25, 1999 . . . . . . . . 100 100 100 100 100 100
June 25, 2000 . . . . . . . . 100 100 100 100 100 100
June 25, 2001 . . . . . . . . 100 100 93 70 38 91
June 25, 2002 . . . . . . . . 100 100 75 53 24 37
June 25, 2003 . . . . . . . . 100 90 60 39 15 8
June 25, 2004 . . . . . . . . 100 77 48 29 9 0
June 25, 2005 . . . . . . . . 100 67 39 22 6 0
June 25, 2006 . . . . . . . . 100 57 31 16 1 0
June 25, 2007 . . . . . . . . 100 49 25 12 0 0
June 25, 2008 . . . . . . . . 100 42 20 9 0 0
June 25, 2009 . . . . . . . . 100 35 16 6 0 0
June 25, 2010 . . . . . . . . 100 30 12 4 0 0
June 25, 2011 . . . . . . . . 100 25 10 1 0 0
June 25, 2012 . . . . . . . . 74 11 2 0 0 0
June 25, 2013 . . . . . . . . 53 7 0 0 0 0
June 25, 2014 . . . . . . . . 49 6 0 0 0 0
June 25, 2015 . . . . . . . . 45 4 0 0 0 0
June 25, 2016 . . . . . . . . 40 2 0 0 0 0
June 25, 2017 . . . . . . . . 35 0 0 0 0 0
June 25, 2018 . . . . . . . . 31 0 0 0 0 0
June 25, 2019 . . . . . . . . 26 0 0 0 0 0
June 25, 2020 . . . . . . . . 22 0 0 0 0 0
June 25, 2021 . . . . . . . . 20 0 0 0 0 0
June 25, 2022 . . . . . . . . 17 0 0 0 0 0
June 25, 2023 . . . . . . . . 14 0 0 0 0 0
June 25, 2024 . . . . . . . . 11 0 0 0 0 0
June 25, 2025 . . . . . . . . 8 0 0 0 0 0
June 25, 2026 . . . . . . . . 1 0 0 0 0 0
June 25, 2027 . . . . . . . . 0 0 0 0 0 0
Weighted Average Life (years)
to Maturity . . . . . . . . 19.00 10.57 7.85 6.10 4.53 4.87
Weighted Average Life (years)
to Call Option Date . . . . 18.35 10.32 7.35 5.58 4.19 3.91
* Rounded to the nearest whole percentage.
PERCENT OF ORIGINAL CLASS PRINCIPAL BALANCES OUTSTANDING*
Class M-2F
Prepayment Scenario
Distribution Date Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI
Initial Percentage . . . . . 100% 100% 100% 100% 100% 100%
June 25, 1998 . . . . . . . . 100 100 100 100 100 100
June 25, 1999 . . . . . . . . 100 100 100 100 100 100
June 25, 2000 . . . . . . . . 100 100 100 100 100 100
June 25, 2001 . . . . . . . . 100 100 93 70 38 18
June 25, 2002 . . . . . . . . 100 100 75 53 24 8
June 25, 2003 . . . . . . . . 100 90 60 39 15 0
June 25, 2004 . . . . . . . . 100 77 48 29 9 0
June 25, 2005 . . . . . . . . 100 67 39 22 2 0
June 25, 2006 . . . . . . . . 100 57 31 16 0 0
June 25, 2007 . . . . . . . . 100 49 25 12 0 0
June 25, 2008 . . . . . . . . 100 42 20 7 0 0
June 25, 2009 . . . . . . . . 100 35 16 3 0 0
June 25, 2010 . . . . . . . . 100 30 12 0 0 0
June 25, 2011 . . . . . . . . 100 25 9 0 0 0
June 25, 2012 . . . . . . . . 74 11 0 0 0 0
June 25, 2013 . . . . . . . . 53 4 0 0 0 0
June 25, 2014 . . . . . . . . 49 2 0 0 0 0
June 25, 2015 . . . . . . . . 45 0 0 0 0 0
June 25, 2016 . . . . . . . . 40 0 0 0 0 0
June 25, 2017 . . . . . . . . 35 0 0 0 0 0
June 25, 2018 . . . . . . . . 31 0 0 0 0 0
June 25, 2019 . . . . . . . . 26 0 0 0 0 0
June 25, 2020 . . . . . . . . 22 0 0 0 0 0
June 25, 2021 . . . . . . . . 20 0 0 0 0 0
June 25, 2022 . . . . . . . . 17 0 0 0 0 0
June 25, 2023 . . . . . . . . 14 0 0 0 0 0
June 25, 2024 . . . . . . . . 11 0 0 0 0 0
June 25, 2025 . . . . . . . . 5 0 0 0 0 0
June 25, 2026 . . . . . . . . 0 0 0 0 0 0
June 25, 2027 . . . . . . . . 0 0 0 0 0 0
Weighted Average Life (years)
to Maturity . . . . . . . . 18.95 10.43 7.83 6.00 4.30 3.88
Weighted Average Life (years)
to Call Option Date . . . . 18.35 10.31 7.35 5.58 4.03 3.69
* Rounded to the nearest whole percentage.
PERCENT OF ORIGINAL CLASS PRINCIPAL BALANCES OUTSTANDING*
Class B-1F
Prepayment Scenario
Distribution Date Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI
Initial Percentage . . . . . 100% 100% 100% 100% 100% 100%
June 25, 1998 . . . . . . . . 100 100 100 100 100 100
June 25, 1999 . . . . . . . . 100 100 100 100 100 100
June 25, 2000 . . . . . . . . 100 100 100 100 100 100
June 25, 2001 . . . . . . . . 100 100 93 70 38 11
June 25, 2002 . . . . . . . . 100 100 75 53 20 0
June 25, 2003 . . . . . . . . 100 90 60 39 7 0
June 25, 2004 . . . . . . . . 100 77 48 28 0 0
June 25, 2005 . . . . . . . . 100 67 39 17 0 0
June 25, 2006 . . . . . . . . 100 57 30 9 0 0
June 25, 2007 . . . . . . . . 100 49 21 3 0 0
June 25, 2008 . . . . . . . . 100 42 14 0 0 0
June 25, 2009 . . . . . . . . 100 35 8 0 0 0
June 25, 2010 . . . . . . . . 100 28 3 0 0 0
June 25, 2011 . . . . . . . . 100 21 0 0 0 0
June 25, 2012 . . . . . . . . 74 2 0 0 0 0
June 25, 2013 . . . . . . . . 53 0 0 0 0 0
June 25, 2014 . . . . . . . . 49 0 0 0 0 0
June 25, 2015 . . . . . . . . 45 0 0 0 0 0
June 25, 2016 . . . . . . . . 40 0 0 0 0 0
June 25, 2017 . . . . . . . . 35 0 0 0 0 0
June 25, 2018 . . . . . . . . 30 0 0 0 0 0
June 25, 2019 . . . . . . . . 23 0 0 0 0 0
June 25, 2020 . . . . . . . . 17 0 0 0 0 0
June 25, 2021 . . . . . . . . 14 0 0 0 0 0
June 25, 2022 . . . . . . . . 10 0 0 0 0 0
June 25, 2023 . . . . . . . . 6 0 0 0 0 0
June 25, 2024 . . . . . . . . 1 0 0 0 0 0
June 25, 2025 . . . . . . . . 0 0 0 0 0 0
June 25, 2026 . . . . . . . . 0 0 0 0 0 0
June 25, 2027 . . . . . . . . 0 0 0 0 0 0
Weighted Average Life (years)
to Maturity . . . . . . . . 18.51 10.25 7.45 5.67 4.01 3.45
Weighted Average Life (years)
to Call Option Date . . . . 18.24 10.25 7.28 5.53 3.91 3.39
* Rounded to the nearest whole percentage.
PERCENT OF ORIGINAL CLASS PRINCIPAL BALANCES OUTSTANDING*
Class M-1A
Prepayment Scenario
Distribution Date Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI
Initial Percentage . . . . . 100% 100% 100% 100% 100% 100%
June 25, 1998 . . . . . . . . 100 100 100 100 100 100
June 25, 1999 . . . . . . . . 100 100 100 100 100 100
June 25, 2000 . . . . . . . . 100 100 100 100 100 100
June 25, 2001 . . . . . . . . 100 100 77 62 68 89
June 25, 2002 . . . . . . . . 100 100 60 46 28 51
June 25, 2003 . . . . . . . . 100 100 47 35 19 30
June 25, 2004 . . . . . . . . 100 92 37 26 13 17
June 25, 2005 . . . . . . . . 100 83 29 19 9 8
June 25, 2006 . . . . . . . . 100 74 23 14 6 2
June 25, 2007 . . . . . . . . 100 66 18 11 4 0
June 25, 2008 . . . . . . . . 100 58 14 8 1 0
June 25, 2009 . . . . . . . . 100 52 11 6 0 0
June 25, 2010 . . . . . . . . 100 46 8 4 0 0
June 25, 2011 . . . . . . . . 100 41 7 2 0 0
June 25, 2012 . . . . . . . . 100 36 5 0 0 0
June 25, 2013 . . . . . . . . 100 31 4 0 0 0
June 25, 2014 . . . . . . . . 100 28 2 0 0 0
June 25, 2015 . . . . . . . . 100 24 0 0 0 0
June 25, 2016 . . . . . . . . 100 21 0 0 0 0
June 25, 2017 . . . . . . . . 100 18 0 0 0 0
June 25, 2018 . . . . . . . . 100 15 0 0 0 0
June 25, 2019 . . . . . . . . 100 13 0 0 0 0
June 25, 2020 . . . . . . . . 100 11 0 0 0 0
June 25, 2021 . . . . . . . . 100 9 0 0 0 0
June 25, 2022 . . . . . . . . 95 7 0 0 0 0
June 25, 2023 . . . . . . . . 80 5 0 0 0 0
June 25, 2024 . . . . . . . . 63 3 0 0 0 0
June 25, 2025 . . . . . . . . 43 0 0 0 0 0
June 25, 2026 . . . . . . . . 21 0 0 0 0 0
June 25, 2027 . . . . . . . . 0 0 0 0 0 0
Weighted Average Life (years)
to Maturity . . . . . . . . 27.56 13.85 6.92 5.84 5.03 5.51
Weighted Average Life (years)
to Call Option Date . . . . 27.48 13.00 6.24 5.28 4.59 4.20
* Rounded to the nearest whole percentage.
PERCENT OF ORIGINAL CLASS PRINCIPAL BALANCES OUTSTANDING*
Class M-2A
Prepayment Scenario
Distribution Date Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI
Initial Percentage . . . . . 100% 100% 100% 100% 100% 100%
June 25, 1998 . . . . . . . . 100 100 100 100 100 100
June 25, 1999 . . . . . . . . 100 100 100 100 100 100
June 25, 2000 . . . . . . . . 100 100 100 100 100 100
June 25, 2001 . . . . . . . . 100 100 77 62 42 22
June 25, 2002 . . . . . . . . 100 100 60 46 28 13
June 25, 2003 . . . . . . . . 100 100 47 35 19 7
June 25, 2004 . . . . . . . . 100 92 37 26 13 0
June 25, 2005 . . . . . . . . 100 83 29 19 9 0
June 25, 2006 . . . . . . . . 100 74 23 14 4 0
June 25, 2007 . . . . . . . . 100 66 18 11 0 0
June 25, 2008 . . . . . . . . 100 58 14 8 0 0
June 25, 2009 . . . . . . . . 100 52 11 3 0 0
June 25, 2010 . . . . . . . . 100 46 8 0 0 0
June 25, 2011 . . . . . . . . 100 41 5 0 0 0
June 25, 2012 . . . . . . . . 100 36 2 0 0 0
June 25, 2013 . . . . . . . . 100 31 0 0 0 0
June 25, 2014 . . . . . . . . 100 28 0 0 0 0
June 25, 2015 . . . . . . . . 100 24 0 0 0 0
June 25, 2016 . . . . . . . . 100 21 0 0 0 0
June 25, 2017 . . . . . . . . 100 18 0 0 0 0
June 25, 2018 . . . . . . . . 100 15 0 0 0 0
June 25, 2019 . . . . . . . . 100 13 0 0 0 0
June 25, 2020 . . . . . . . . 100 11 0 0 0 0
June 25, 2021 . . . . . . . . 100 9 0 0 0 0
June 25, 2022 . . . . . . . . 95 6 0 0 0 0
June 25, 2023 . . . . . . . . 80 2 0 0 0 0
June 25, 2024 . . . . . . . . 63 0 0 0 0 0
June 25, 2025 . . . . . . . . 43 0 0 0 0 0
June 25, 2026 . . . . . . . . 21 0 0 0 0 0
June 25, 2027 . . . . . . . . 0 0 0 0 0 0
Weighted Average Life (years)
to Maturity . . . . . . . . 27.55 13.77 6.82 5.71 4.64 3.94
Weighted Average Life (years)
to Call Option Date . . . . 27.48 13.01 6.24 5.23 4.27 3.68
* Rounded to the nearest whole percentage.
PERCENT OF ORIGINAL CLASS PRINCIPAL BALANCES OUTSTANDING*
Class B-1A
Prepayment Scenario
Distribution Date Scenario I Scenario II Scenario III Scenario IV Scenario V Scenario VI
Initial Percentage . . . . . 100% 100% 100% 100% 100% 100%
June 25, 1998 . . . . . . . . 100 100 100 100 100 100
June 25, 1999 . . . . . . . . 100 100 100 100 100 100
June 25, 2000 . . . . . . . . 100 100 100 100 100 76
June 25, 2001 . . . . . . . . 100 100 77 62 42 21
June 25, 2002 . . . . . . . . 100 100 60 46 28 7
June 25, 2003 . . . . . . . . 100 100 47 35 17 0
June 25, 2004 . . . . . . . . 100 92 37 26 7 0
June 25, 2005 . . . . . . . . 100 83 29 16 1 0
June 25, 2006 . . . . . . . . 100 74 22 9 0 0
June 25, 2007 . . . . . . . . 100 66 14 4 0 0
June 25, 2008 . . . . . . . . 100 58 9 0 0 0
June 25, 2009 . . . . . . . . 100 52 4 0 0 0
June 25, 2010 . . . . . . . . 100 46 1 0 0 0
June 25, 2011 . . . . . . . . 100 41 0 0 0 0
June 25, 2012 . . . . . . . . 100 36 0 0 0 0
June 25, 2013 . . . . . . . . 100 31 0 0 0 0
June 25, 2014 . . . . . . . . 100 28 0 0 0 0
June 25, 2015 . . . . . . . . 100 24 0 0 0 0
June 25, 2016 . . . . . . . . 100 19 0 0 0 0
June 25, 2017 . . . . . . . . 100 14 0 0 0 0
June 25, 2018 . . . . . . . . 100 11 0 0 0 0
June 25, 2019 . . . . . . . . 100 7 0 0 0 0
June 25, 2020 . . . . . . . . 100 4 0 0 0 0
June 25, 2021 . . . . . . . . 100 1 0 0 0 0
June 25, 2022 . . . . . . . . 95 0 0 0 0 0
June 25, 2023 . . . . . . . . 80 0 0 0 0 0
June 25, 2024 . . . . . . . . 63 0 0 0 0 0
June 25, 2025 . . . . . . . . 43 0 0 0 0 0
June 25, 2026 . . . . . . . . 19 0 0 0 0 0
June 25, 2027 . . . . . . . . 0 0 0 0 0 0
Weighted Average Life (years)
to Maturity . . . . . . . . 27.52 13.39 6.51 5.43 4.34 3.52
Weighted Average Life (years)
to Call Option Date . . . . 27.48 12.99 6.23 5.20 4.16 3.40
* Rounded to the nearest whole percentage.
REPORTS TO HOLDERS OF THE CERTIFICATES
On each Distribution Date, the Trustee will forward to each holder of a
Certificate a statement generally setting forth:
(i) the amount of the distributions, separately identified, with
respect to the Offered Certificates of each Certificate Group;
(ii) the amount of such distributions allocable to principal,
separately identifying the aggregate amount of any Principal Prepayments
or other unscheduled recoveries of principal included therein for each
Certificate Group;
(iii) the amount of such distributions allocable to interest and
the calculation thereof;
(iv) the amount of any Unpaid Interest Shortfall Amount with
respect to each class of Offered Certificates, separately identified;
(v) the Overcollateralization Target Amount and
Overcollateralized Amount for each Certificate Group as of such
Distribution Date;
(vi) the Class Principal Balance of each class of Offered
Certificates after giving effect to the distribution of principal on
such Distribution Date;
(vii) the Group Principal Balance for each Mortgage Loan Group at
the end of the related Due Period;
(viii) the related amount of the Servicing Fee paid to or retained
by the Servicer with respect to each Mortgage Loan Group;
(ix) the amount of the Trustee Fee paid to the Trustee with
respect to each Mortgage Loan Group;
(x) the amount of Advances for the related Due Period with
respect to each Mortgage Loan Group;
(xi) with respect to each Mortgage Loan Group, the number and
aggregate Loan Balance of Mortgage Loans in such Mortgage Loan Group
that were (A) delinquent (exclusive of Mortgage Loans in foreclosure)
(1) 30 to 59 days, (2) 60 to 89 days and (3) 90 or more days, (B) in
foreclosure and delinquent (1) 30 to 59 days, (2) 60 to 89 days and (3)
90 or more days and (C) in bankruptcy as of the close of business on the
last day of the calendar month preceding such Distribution Date;
(xii) with respect to any Mortgage Loan that became an REO
Property during the preceding calendar month, the loan number, the Loan
Balance of such Mortgage Loan as of the close of business on the last
day of the related Due Period and the date of acquisition thereof;
(xiii) with respect to each Mortgage Loan Group, the total number
and principal balance of any REO Properties as of the close of business
on the last day of the preceding Due Period;
(xiv) with respect to each Mortgage Loan Group, the aggregate
amount of Realized Losses incurred during the preceding calendar month;
(xv) with respect to each Mortgage Loan Group, the cumulative
amount of Realized Losses;
(xvi) with respect to each Certificate Group, any
Overcollateralization Deficiency after giving effect to the distribution
of principal on such Distribution Date;
(xvii) with respect to each Group, the Allocable Loss Amounts, if
any, allocated to each class of the Mezzanine and Subordinate
Certificates of such Group;
(xviii) whether a Stepdown Trigger Event or Stepup Trigger Event has
occurred and is continuing;
(xix) the Optimal Principal Balance of each class of Offered
Certificates;
(xx) the Pass-Through Rate for each class of Offered Certificates
for such Distribution Date; and
(xxi) the amount on deposit in the Pre-Funding Account and in the
Capitalized Interest Account.
In addition, within a reasonable period of time after the end of each
calendar year, the Trustee will prepare and deliver to each holder of a
Certificate of record during the previous calendar year a statement
containing information necessary to enable holders of the Certificates to
prepare their tax returns. Such statements will not have been examined and
reported upon by an independent public accountant.
AMENDMENT
The Pooling and Servicing Agreement may be amended by Cityscape, the
Depositor, the Servicer and the Trustee, without the consent of the holders
of the Certificates, for any of the purposes set forth under "The Pooling and
Servicing Agreement--Amendment" in the Prospectus. In addition, the Pooling
and Servicing Agreement may be amended by Cityscape, the Depositor, the
Servicer and the Trustee and the holders of a majority in interest of any
class of Offered Certificates affected thereby for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions
of the Pooling and Servicing Agreement or of modifying in any manner the
rights of the holders of Offered Certificates; provided, however, that no
such amendment may (i) reduce in any manner the amount of, or delay the
timing of, distributions required to be made on any Offered Certificate
without the consent of the holder of such Certificate; (ii) adversely affect
in any material respect the interests of the holders of any class of the
Offered Certificates in a manner other than as described in clause (i) above,
without the consent of the holders of Offered Certificates of such class
evidencing Percentage Interests aggregating at least 66%; or (iii) reduce the
aforesaid percentage of aggregate outstanding principal amounts of Offered
Certificates, the holders of which are required to consent to any such
amendment, without the consent of the holders of all such Certificates.
OPTIONAL TERMINATION
The Majority Residual Certificateholders of each Certificate Group will
have the right to repurchase all remaining Mortgage Loans and REO Properties,
if any, in the related Mortgage Loan Group and thereby effect the early
retirement of the Certificates of the related Certificate Group, subject to
the Group Principal Balance of such Mortgage Loan Group at the time of
repurchase being less than or equal to 10% of the Maximum Collateral Amount
of such Mortgage Loan Group. In addition, on any Distribution Date on which
the Group Principal Balance of a Mortgage Loan Group is less than or equal to
5% of the Maximum Collateral Amount of such Mortgage Loan Group, the Servicer
will have a similar option with respect to such Mortgage Loan Group. In the
event that the option is exercised, the repurchase will be made at a price
equal to the sum of (i) the greater of (a) 100% of the Loan Balance of each
Mortgage Loan and REO Property in such Mortgage Loan Group and (b) the fair
market value (net of accrued interest) of the Mortgage Loans and REO
Properties in such Mortgage Loan Group determined as set forth in the Pooling
and Servicing Agreement, (ii) 30 days' interest thereon at a rate equal to
the applicable Mortgage Rate and (iii) the aggregate amount of (x) all
unreimbursed Advances related only to the Mortgage Loans in such Mortgage
Loan Group, (y) all unreimbursed out-of-pocket costs and expenses previously
incurred by the Servicer in the performance of its servicing obligations, to
the extent such costs and expenses relate to the Mortgage Loans and REO
Properties in such Mortgage Loan Group then held as part of the Trust Fund
and (z) any accrued and unpaid Servicing Fees related to such Mortgage Loan
Group. Proceeds from such repurchase will be included in Available Funds and
will be distributed to the holders of the Certificates of the related
Certificate Group in accordance with the Pooling and Servicing Agreement.
Any such repurchase of the Mortgage Loans and REO Properties in such Mortgage
Loan Group will result in the early retirement of the Certificates of the
related Certificate Group.
OPTIONAL PURCHASE OF DEFAULTED LOANS
As to any Mortgage Loan which is delinquent in payment by 90 days or
more, the Servicer may, at its option, purchase such Mortgage Loan from the
Trust Fund at a price equal to 100% of the Loan Balance thereof plus accrued
interest thereon at the applicable Mortgage Rate from the date through which
interest was last paid by the related Mortgagor through the day before the
Due Date in the calendar month in which such purchase occurs; provided,
however, that the total amount of such Mortgage Loans that may be purchased
by the Servicer described in this paragraph (not including Mortgage Loans
repurchased due to a breach of a representation or warranty under the Pooling
and Servicing Agreement) may not exceed 10% of the Aggregate Maximum
Collateral Amount.
EVENTS OF DEFAULT; SERVICER TERMINATION TRIGGER EVENT
Events of Default will consist, among other things, of: (i) any failure
by the Servicer to deposit in the Collection Account or Certificate Account
the required amounts or remit to the Trustee any payment (other than an
Advance required to be made under the terms of the Pooling and Servicing
Agreement) which continues unremedied for two Business Days; (ii) any failure
of the Servicer, on any Servicer Remittance Date, to make any Advance or to
cover any Prepayment Interest Shortfalls, as described herein, which failure
continues unremedied for one Business Day; (iii) any failure by the Servicer
to observe or perform in any material respect any other of its covenants or
agreements in the Pooling and Servicing Agreement, which continues unremedied
for 30 days after the first date on which (x) the Servicer has knowledge of
such failure or (y) written notice of such failure is given to the Servicer
by Cityscape, the Trustee, the Depositor or the holders of Offered
Certificates evidencing not less than 51% of the voting rights evidenced by
the Offered Certificates; (iv) insolvency, readjustment of debt, marshalling
of assets and liabilities or similar proceedings, and certain actions by or
on behalf of the Servicer indicating its insolvency or inability to pay its
obligations; or (v) any failure of the Servicer to maintain the stockholders'
equity set forth in the Pooling and Servicing Agreement. A "Servicer
Termination Trigger Event" shall occur with respect to any Mortgage Loan
Group if certain Realized Loss Percentages, as set forth in the Pooling and
Servicing Agreement, are experienced by such Mortgage Loan Group. As of any
date of determination, Voting Rights will be allocated among holders of the
Offered Certificates in proportion to the Class Principal Balances of their
respective classes on such date. Voting rights will be allocated among
holders of the Certificates of each class of Offered Certificates in
accordance with such holders' respective Percentage Interests in such class.
RIGHTS UPON EVENT OF DEFAULT OR SERVICER TERMINATION TRIGGER EVENT
So long as an Event of Default under the Pooling and Servicing Agreement
remains unremedied, the Trustee at the direction of the holders of Offered
Certificates evidencing not less than 51% of the voting rights of each
Certificate Group may terminate all of the rights and obligations of the
Servicer in its capacity as servicer with respect to either Mortgage Loan
Group or both Mortgage Loan Groups, as provided in the Pooling and Servicing
Agreement, and in and to the related Mortgage Loans and the proceeds thereof,
whereupon the Trustee will succeed to all of the responsibilities and duties
of the Servicer under the Pooling and Servicing Agreement, including the
obligation to make Advances. If a Servicer Termination Trigger Event occurs
and the Trustee receives instructions from the holders of Offered
Certificates evidencing not less than 51% of the voting rights of the Offered
Certificates of any Certificate Group, the Trustee shall terminate all of the
rights and obligations of the Servicer under the Pooling and Servicing
Agreement with respect to the related Mortgage Loan Group and in and to the
related Mortgage Loans and the proceeds thereof. No assurance can be given
that termination of the rights and obligations of the Servicer under the
Pooling and Servicing Agreement would not adversely affect the servicing of
the related Mortgage Loans, including the delinquency experience of such
Mortgage Loans.
No holder of an Offered Certificate, solely by virtue of such holder's
status as a holder of an Offered Certificate, will have any right under the
Pooling and Servicing Agreement to institute any proceeding with respect
thereto, unless such holder previously has given to the Trustee written
notice of default and unless the holders of Offered Certificates having not
less than 51% of the Voting Rights evidenced by the Offered Certificates so
agree and have offered reasonable indemnity to the Trustee.
THE TRUSTEE
First Bank National Association will be the Trustee under the Pooling
and Servicing Agreement. The Depositor and Cityscape may maintain other
banking relationships in the ordinary course of business with the Trustee.
Offered Certificates may be surrendered for final payment at the Corporate
Trust Office of the Trustee located at 180 East Fifth Street, St. Paul,
Minnesota 55101, Attention: Structured Finance/Cityscape 1997-C or at such
other addresses as the Trustee may designate from time to time.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Offered
Certificates against the purchase price of the Mortgage Loans transferred to
the Trust Fund.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat each Mortgage Loan Group forming part
of the Trust Fund (other than the Pre-Funding Account and the Capitalized
Interest Account relating to the Group I Mortgage Loans) as a "real estate
mortgage investment conduit" (a "REMIC") for federal income tax purposes. In
the opinion of Brown & Wood LLP, special tax counsel to the Trust and counsel
to the Underwriters, assuming compliance with the Pooling and Servicing
Agreement, each Mortgage Loan Group (other than the Pre-Funding Account and
the Capitalized Interest Account related to the Group I Mortgage Loans) will
qualify as a REMIC, the Offered Certificates of each Certificate Group will
constitute "regular interests" in the related REMIC and the Residual
Certificates of each Certificate Group will constitute the sole class of
"residual interests" in the related REMIC.
ORIGINAL ISSUE DISCOUNT
The Offered Certificates may be issued with original issue discount for
federal income tax purposes. For purposes of determining the amount and rate
of accrual of original issue discount and market discount, the Depositor
intends to assume that there will be prepayments on the Group I Mortgage
Loans at 100% of the Group I Prepayment Assumption and Principal Prepayments
on the Group II Mortgage Loans at a Group II Prepayment Assumption of 25%
CPR. No representation is made as to whether the Mortgage Loans will prepay
at that rate or any other rate. See "Yield, Prepayment and Maturity
Considerations" herein and "Certain Material Federal Income Tax Consequences"
in the Prospectus.
The Offered Certificates may be treated as being issued at a premium. In
such case, the holders of the Offered Certificates may elect under Section
171 of the Internal Revenue Code of 1986, as amended (the "Code"), to
amortize such premium under the constant yield method and to treat such
amortizable premium as an offset to interest income on the Offered
Certificates. Such election, however, would apply to all the
Certificateholder's debt instruments acquired on or after the first taxable
year in which the election is first made, and should only be made after
consulting with a tax adviser.
If the method for computing original issue discount described in the
Prospectus results in a negative amount for any period with respect to a
holder of a Certificate, such holder will be permitted to offset such amounts
only against the respective future income, if any, from such Certificate.
Although the tax treatment is uncertain, a holder of a Certificate may be
permitted to deduct a loss to the extent that such holder's respective
remaining basis in such Certificate exceeds the maximum amount of future
payments to which such holder is entitled, assuming no further Principal
Prepayments of the Mortgage Loans are received. Although the matter is not
free from doubt, any such loss might be treated as a capital loss.
SPECIAL TAX ATTRIBUTES OF THE OFFERED CERTIFICATES
As is described more fully under "Certain Material Federal Income Tax
Consequences" in the Prospectus, the Offered Certificates will represent
qualifying assets under Sections 856(c)(5)(A) and 7701(a)(19)(C)(v) of the
Code, and net interest income attributable to the Offered Certificates will
be "interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code, to the extent the assets of the
Trust Fund are assets described in such sections. The Offered Certificates
will represent qualifying assets under Section 860G(a)(3) if acquired by a
REMIC within the prescribed time periods of the Code.
PROHIBITED TRANSACTIONS TAX AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (the "Prohibited Transactions Tax"). In
general, subject to certain specified exceptions, a prohibited transaction
means the disposition of a Mortgage Loan, the receipt of income from a source
other than a Mortgage Loan or certain other permitted investments, the
receipt of compensation for services, or gain from the disposition of an
asset purchased with the payments on the Mortgage Loans for temporary
investment pending distribution on the Certificates. It is not anticipated
that the Trust Fund will engage in any prohibited transactions in which it
would recognize a material amount of net income.
In addition, certain contributions to a trust fund that elects to be
treated as a REMIC made after the day on which such trust fund issues all of
its interests could result in the imposition of a tax on the trust fund equal
to 100% of the value of the contributed property (the "Contributions Tax").
The Trust Fund will not accept contributions that would subject it to such
tax.
In addition, a trust fund that elects to be treated as a REMIC may also
be subject to federal income tax at the highest corporate rate on "net income
from foreclosure property," determined by reference to the rules applicable
to real estate investment trusts. "Net income from foreclosure property"
generally means gain from the sale of a foreclosure property other than
qualifying rents and other qualifying income for a real estate investment
trust. It is not anticipated that the Trust Fund will recognize net income
from foreclosure property subject to federal income tax.
BACKUP WITHHOLDING
Certain Certificate Owners may be subject to backup withholding at the
rate of 31% with respect to interest paid on the Offered Certificates if the
Certificate Owners, upon issuance, fail to supply the Trustee or their broker
with their taxpayer identification number, furnish an incorrect taxpayer
identification number, fail to report interest, dividends, or other
"reportable payments" (as defined in the Code) properly, or, under certain
circumstances, fail to provide the Trustee or their broker with a certified
statement, under penalty of perjury, that they are not subject to backup
withholding.
The Trustee will be required to report annually to the Internal Revenue
Service (the "IRS"), and to each Certificateholder of record, the amount of
interest paid (and OID accrued, if any) on the Offered Certificates (and the
amount of interest withheld for federal income taxes, if any) for each
calendar year, except as to exempt holders (generally, holders that are
corporations, certain tax-exempt organizations or nonresident aliens who
provide certification as to their status as nonresidents). As long as the
only holder of record of a class of Offered Certificates is Cede, as nominee
of DTC, the IRS and Certificate Owners of such Class will receive tax and
other information, including the amount of interest paid on such Certificates
owned, from Participants and Financial Intermediaries rather than from the
Trustee. (The Trustee, however, will respond to requests for necessary
information to enable Participants, Financial Intermediaries and certain
other persons to complete their reports.) Each non-exempt Certificate Owner
will be required to provide, under penalty of perjury, a certificate on IRS
form W-9 containing his or her name, address, correct federal taxpayer
identification number and a statement that he or she is not subject to backup
withholding. Should a nonexempt Certificate Owner fail to provide the
required certification, the Participants or Financial Intermediaries (or the
Paying Agent) will be required to withhold 31% of the interest (and
principal) otherwise payable to the holder, and remit the withheld amount to
the IRS as a credit against the holder's federal income tax liability.
Such amounts will be deemed distributed to the affected Certificate
Owner for all purposes of the related Certificates and the Pooling and
Servicing Agreement.
FEDERAL INCOME TAX CONSEQUENCES TO FOREIGN INVESTORS
The following information describes the United States federal income
tax treatment of holders that are not United States persons ("Foreign
Investors"). The term "Foreign Investor" means any person other than (i) a
citizen or resident of the United States, (ii) a corporation, partnership or
other entity organized in or under the laws of the United States or any state
or political subdivision thereof or (iii) an estate the income of which is
includible in gross income for United States federal income tax purposes,
regardless of its source or a trust if a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more United States trustees have authority to control all substantial
decisions of the trust.
The Code and Treasury regulations generally subject interest paid to a
Foreign Investor to a withholding tax at a rate of 30% (unless such rate were
changed by an applicable treaty). The withholding tax, however, is
eliminated with respect to certain "portfolio debt investments" issued to
Foreign Investors. Portfolio debt investments include debt instruments
issued in registered form for which the United States payor receives a
statement that the beneficial owner of the instrument is a Foreign Investor.
The Offered Certificates will be issued in registered form; therefore, if the
information required by the Code is furnished (as described below) and no
other exceptions to the withholding tax exemption are applicable, no
withholding tax will apply to the Offered Certificates.
For the Offered Certificates to constitute portfolio debt investments
exempt from the United States withholding tax, the withholding agent must
receive from the Certificate Owner an executed IRS Form W-8 signed under
penalty of perjury by the Certificate Owner stating that the Certificate
Owner is a Foreign Investor and providing such Certificate Owner's name and
address. The statement must be received by the withholding agent in the
calendar year in which the interest payment is made, or in either of the two
preceding calendar years.
A Certificate Owner that is a nonresident alien or foreign corporation
will not be subject to United States federal income tax on gain realized on
the sale, exchange, or redemption of such Offered Certificate, provided that
(i) such gain is not effectively connected with a trade or business carried
on by the Certificate Owner in the United States, (ii) in the case of a
Certificate Owner that is an individual, such Certificate Owner is not
present in the United States for 183 days or more during the taxable year in
which such sale, exchange or redemption occurs and (iii) in the case of gain
representing accrued interest, the conditions described in the immediately
preceding paragraph are satisfied.
For further information regarding the federal income tax consequences of
investing in the Offered Certificates, see "Certain Material Federal Income
Tax Consequences--REMIC Certificates" in the Prospectus.
STATE TAXES
The Depositor makes no representations regarding the tax consequences of
purchase, ownership or disposition of the Offered Certificates under the tax
laws of any state. Investors considering an investment in the Offered
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the
federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Offered Certificates.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), prohibits "parties in interest" with respect to an
employee benefit plan subject to ERISA and/or a plan or other arrangement
subject to the excise tax provisions set forth under Section 4975 of the Code
(each of the foregoing, a "Plan") from engaging in certain transactions
involving such Plan and its assets unless a statutory or administrative
exemption applies to the transaction. Section 4975 of the Code imposes
certain excise taxes on prohibited transactions involving plans described
under that Section; ERISA authorizes the imposition of civil penalties for
prohibited transactions involving plans not covered under Section 4975 of the
Code. Any Plan fiduciary which proposes to cause a Plan to acquire any of the
Offered Certificates should consult with its counsel with respect to the
potential consequences under ERISA and the Code of the Plan's acquisition and
ownership of such Certificates. See "ERISA Considerations" in the Prospectus.
Certain employee benefit plans, including governmental plans and certain
church plans, are not subject to ERISA's requirements. Accordingly, assets of
such plans may be invested in the Offered Certificates without regard to the
ERISA considerations described herein and in the Prospectus, subject to the
provisions of other applicable federal and state law. Any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the
Code may nonetheless be subject to the prohibited transaction rules set forth
in Section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's
general fiduciary requirements, including the requirement of investment
prudence and diversification and the requirement that a Plan's investments be
made in accordance with the documents governing the Plan. A fiduciary which
decides to invest the assets of a Plan in the Offered Certificates should
consider, among other factors, the extreme sensitivity of the investments to
the rate of principal payments (including prepayments) on the Mortgage Loans.
The U.S. Department of Labor (the "DOL") has granted to Greenwich
Capital Markets, Inc. an administrative exemption (Prohibited Transaction
Exemption 90-59; Exemption Application No. D-8374) (the "Exemption") from
certain of the prohibited transaction rules of ERISA and the related excise
tax provisions of Section 4975 of the Code with respect to the initial
purchase, the holding and the subsequent resale by Plans of certificates in
pass-through trusts that consist of certain receivables, loans and other
obligations that meet the conditions and requirements of the Exemption. The
Exemption applies to mortgage loans such as the Mortgage Loans in the Trust
Fund.
Among the conditions that must be satisfied for the Exemption to apply
are the following:
(1) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction
with an unrelated party;
(2) the rights and interest evidenced by the certificates acquired
by the Plan are not subordinated to the rights and interests evidenced
by other certificates of the trust fund;
(3) the certificates acquired by the Plan have received a rating at
the time of such acquisition that is one of the three highest generic
rating categories from Standard & Poor's, a division of The McGraw-Hill
Companies ("S&P"), Moody's Investors Service, Inc. ("Moody's"), Duff &
Phelps Credit Rating Co. ("DCR") or Fitch Investors Service, L.P.
("Fitch" and, together with S&P, Moody's and DCR, the "Exemption Rating
Agencies");
(4) the trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the
underwriters in connection with the distribution of the certificates
represents not more than reasonable compensation for underwriting the
certificates; the sum of all payments made to and retained by the seller
pursuant to the assignment of the loans to the trust fund represents not
more than the fair market value of such loans; the sum of all payments
made to and retained by the servicer and any other servicer represents
not more than reasonable compensation for such person's services under
the agreement pursuant to which the loans are pooled and reimbursements
of such person's reasonable expenses in connection therewith; and
(6) the Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities
and Exchange Commission under the Securities Act of 1933.
The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist solely of assets
of the type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been
rated in one of the three highest generic rating categories by an
Exception Rating Agency for at least one year prior to the Plan's
acquisition of certificates; and
(iii) certificates evidencing interests in such other
investment pools must have been purchased by investors other than
Plans for at least one year prior to any Plan's acquisition of
certificates.
Moreover, the Exemption provides relief from certain self-dealing/
conflict of interest prohibited transactions that may occur when the Plan
fiduciary causes a Plan to acquire certificates in a trust as to which the
fiduciary (or its affiliate) is an obligor on the receivables held in the
trust provided that, among other requirements, (i) in the case of an
acquisition in connection with the initial issuance of certificates, at least
fifty percent (50%) of each class of certificates in which Plans have
invested is acquired by persons independent of the Restricted Group; (ii)
such fiduciary (or its affiliate) is an obligor with respect to five percent
(5%) or less of the fair market value of the obligations contained in the
trust; (iii) the Plan's investment in certificates of any class does not
exceed twenty-five percent (25%) of all of the certificates of that class
outstanding at the time of the acquisition; and (iv) immediately after the
acquisition, no more than twenty-five percent (25%) of the assets of the Plan
with respect to which such person is a fiduciary are invested in certificates
representing an interest in one or more trusts containing assets sold or
serviced by the same entity. The Exemption does not apply to Plans sponsored
by either of the Underwriters, the Trustee, the Servicer, any obligor with
respect to Mortgage Loans included in the Trust Fund constituting more than
five percent of the aggregate unamortized principal balance of the assets in
the Trust Fund, or any affiliate of such parties (the "Restricted Group").
On May 23, 1997, the DOL published in the Federal Register a proposed
amendment to the Exemption which will extend exemptive relief to certain
mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing pass-through certificates. The amendment will
generally allow mortgage loans (the "Obligations") supporting payments to
certificateholders, and having a value equal to no more than twenty-five
percent (25%) of the total principal amount of the certificates being offered
by the trust, to be transferred to the trust within a 90-day or three-month
period following the closing date ("Pre-Funding Period"), instead of
requiring that all such Obligations be either identified or transferred on or
before the closing date. The relief, when granted as a final exemption, is
proposed to be made effective for transactions occurring on or after May 23,
1997, provided that the following conditions are met:
(1) The ratio of the amount allocated to the pre-funding account to
the total principal amount of the certificates being offered (the "Pre-
Funding Limit") must not exceed twenty-five percent (25%).
(2) All Obligations transferred after the closing date (the
"Additional Obligations") must meet the same terms and conditions for
eligibility as the original Obligations used to create the trust, which
terms and conditions have been approved by an Exemption Rating Agency.
(3) The transfer of such Additional Obligations to the trust during
the Pre-Funding Period must not result in the certificates to be covered
by the Exemption receiving a lower credit rating from an Exemption
Rating Agency upon termination of the Pre-Funding Period than the rating
that was obtained at the time of the initial issuance of the
certificates by the trust.
(4) Solely as a result of the use of pre-funding, the weighted
average annual percentage interest rate (the "Average Interest Rate")
for all of the Obligations in the trust at the end of the Pre-Funding
Period must not be more than 100 basis points lower than the average
interest rate for the Obligations which were transferred to the trust on
the closing date.
(5) Either:
(i) the characteristics of the Additional Obligations must be
monitored by an insurer or other credit support provider which is
independent of the depositor; or
(ii) an independent accountant retained by the depositor must
provide the depositor with a letter (with copies provided to each
Exemption Rating Agency rating the certificates, the related
underwriter and the related trustee) stating whether or not the
characteristics of the Additional Obligations conform to the
characteristics described in the related prospectus or prospectus
supplement and/or pooling and servicing agreement. In preparing
such letter, the independent accountant must use the same type of
procedures as were applicable to the Obligations which were
transferred to the trust as of the closing date.
(6) The Pre-Funding Period must end no later than three months or 90
days after the closing date or earlier in certain circumstances if the
Pre-Funding Account falls below the minimum level specified in the
pooling and servicing agreement or an event of default occurs.
(7) Amounts transferred to any Pre-Funding Account and/or
capitalized interest account used in connection with the pre-funding may
be invested only in investments which are permitted by the Exemption
Rating Agencies rating the certificates and must:
(i) be direct obligations of, or obligations fully guaranteed as
to timely payment of principal and interest by, the United States or
any agency or instrumentality thereof (provided that such
obligations are backed by the full faith and credit of the United
States); or
(ii) have been rated (or the obligor has been rated) in one
or the three highest generic rating categories by an Exemption
Rating Agency ("Permitted Investments").
(8) The related prospectus or prospectus supplement must describe:
(i) any pre-funding Account and/or capitalized interest account
used in connection with a pre-funding account;
(ii) the duration of the Pre-Funding Period;
(iii) the percentage and/or dollar amount of the Pre-Funding
Limit for the trust; and
(iv) that the amounts remaining in the Pre-Funding Account at
the end of the Pre-Funding Period will be remitted to
certificateholders as repayments of principal.
(9) The related pooling and servicing agreement must describe the
Permitted Investments for the Pre-Funding Account and/or capitalized
interest account and, if not disclosed in the related prospectus or
prospectus Supplement, the terms and conditions for eligibility of
Additional Obligations.
The Underwriters believe that all of the conditions for exemptive relief
under the proposed amendment to the Exemption with respect to pre-funding
have been or will be satisfied. Therefore, if the relief granted under the
final amendment conforms to that proposed by the DOL, the acquisition,
holding and transfer of the Offered Certificates would be eligible for relief
under the Exemption, as amended, and such relief would be applicable
retroactively to the Closing Date. Although there can be no assurance that
the final amendment will be identical to that proposed, the Underwriters do
not anticipate that any changes will be made which would adversely affect the
applicability of the Exemption to the purchase, transfer or holding of the
Offered Certificates by or on behalf of a Plan. However, any Plan investor
that proposes to acquire Offered Certificates in reliance upon the Exemption
should consult with its counsel and make its own determination as to the
applicability of the Exemption and the advisability of investing in Offered
Certificates in reliance upon the proposed pre-funding amendment.
BECAUSE THE CHARACTERISTICS OF THE CLASS M-1F, CLASS M-1A, CLASS M-2F,
CLASS M-2A, CLASS B-1F AND CLASS B-1A CERTIFICATES MAY NOT MEET THE
REQUIREMENTS OF PTCE 83-1, THE EXEMPTION OR ANY OTHER ISSUED EXEMPTION UNDER
ERISA, THE PURCHASE AND HOLDING OF CLASS M-1F, CLASS M-1A, CLASS M-2F, CLASS
M-2A, CLASS B-1F AND CLASS B-1A CERTIFICATES BY A PLAN OR BY INDIVIDUAL
RETIREMENT ACCOUNTS OR OTHER PLANS SUBJECT TO SECTION 4975 OF THE CODE MAY
RESULT IN PROHIBITED TRANSACTIONS OR THE IMPOSITION OF EXCISE TAXES OR CIVIL
PENALTIES. CONSEQUENTLY, INITIAL ACQUISITIONS AND TRANSFERS OF THE CLASS M-
1F, CLASS M-1A, CLASS M-2F, CLASS M-2A, CLASS B-1F AND CLASS B-1A
CERTIFICATES WILL NOT BE REGISTERED BY THE TRUSTEE UNLESS THE TRUSTEE
RECEIVES: (I) A REPRESENTATION FROM THE ACQUIROR OR TRANSFEREE OF SUCH
CERTIFICATE, TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT
PLAN SUBJECT TO SECTION 406 OF ERISA OR A PLAN OR ARRANGEMENT SUBJECT TO
SECTION 4975 OF THE CODE, NOR A PERSON ACTING ON BEHALF OF ANY SUCH PLAN OR
ARRANGEMENT NOR USING THE ASSETS OF ANY SUCH PLAN OR ARRANGEMENT TO EFFECT
SUCH TRANSFER OR (II) IF THE PURCHASER IS AN INSURANCE COMPANY, A
REPRESENTATION THAT THE PURCHASER IS AN INSURANCE COMPANY WHICH IS PURCHASING
SUCH CERTIFICATES WITH FUNDS CONTAINED IN AN "INSURANCE COMPANY GENERAL
ACCOUNT" (AS SUCH TERM IS DEFINED IN SECTION V(E) OF PROHIBITED TRANSACTION
CLASS EXEMPTION 95-60 ("PTCE 95-60")) AND THAT THE PURCHASE AND HOLDING OF
SUCH CERTIFICATES ARE COVERED UNDER PTCE 95-60. SUCH REPRESENTATION AS
DESCRIBED ABOVE SHALL BE DEEMED TO HAVE BEEN MADE TO THE TRUSTEE BY THE
ACQUIROR OR TRANSFEREE'S ACCEPTANCE OF A CLASS M-1F, CLASS M-1A, CLASS M-2F,
CLASS M-2A, CLASS B-1F OR CLASS B-1A CERTIFICATE. IN THE EVENT THAT SUCH
REPRESENTATION IS VIOLATED, SUCH ATTEMPTED TRANSFER OR ACQUISITION SHALL BE
VOID AND OF NO EFFECT.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of PTCE 83-1
described in the Prospectus and the Exemption, and the potential consequences
in their specific circumstances, prior to making an investment in the Offered
Certificates. Moreover, each Plan fiduciary should determine whether under
the general fiduciary standards of investment prudence and diversification,
an investment in the Offered Certificates is appropriate for the Plan, taking
into account the overall investment policy of the Plan and the composition of
the Plan's investment portfolio.
LEGAL INVESTMENT CONSIDERATIONS
The Certificates will not constitute "mortgage related securities" under
the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA").
Accordingly, many institutions with legal authority to invest in "mortgage
related securities" may not be legally authorized to invest in the
Certificates.
There may be restrictions on the ability of certain investors, including
depository institutions, either to purchase the Certificates or to purchase
Certificates representing more than a specified percentage of the investor's
assets. Investors should consult their own legal advisors in determining
whether and to what extent the Certificates constitute legal investments for
such investors.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement among the Depositor, Greenwich (an affiliate of the Depositor) and
Prudential Securities Incorporated, the Depositor has agreed to sell to the
Underwriters, and each of the Underwriters has severally agreed to purchase
from the Depositor, the principal balances of the Offered Certificates set
forth below opposite their respective names. In connection with the sale of
the Offered Certificates, the Underwriters may be deemed to have received
compensation from the Depositor in the form of underwriting discounts.
Class A-1 Class A-2 Class A-3 Class A-4 Class A-5
Underwriter Certificates Certificates Certificates Certificates Certificates
Greenwich Capital Markets, Inc. $25,740,000 $17,875,000 $8,084,700 $5,070,000 $51,042,550
Prudential Securities 13,860,000 9,625,000 4,353,300 2,730,000 27,484,450
Incorporated . . . . . . . .
Total . . . . . . . . . . . . $39,600,000 $27,500,000 $12,438,000 $7,800,000 $78,527,000
Class M-1F Class M-2F Class M-1A Class M-2A
Underwriter Certificates Certificates Certificates Certificates
Greenwich Capital Markets, Inc. . . $4,328,350 $3,163,550 $6,024,200 $3,645,850
Prudential Securities Incorporated
2,330,650 1,703,450 3,243,800 1,963,150
Total . . . . . . . . . . . . . . . $6,659,000 $4,867,000 $9,268,000 $5,609,000
Class B-1F Class B-1A
Underwriter Certificates Certificates
Greenwich Capital Markets, Inc. . . . . . . . . . . $2,330,949.40 $2,694,850.60
Prudential Securities Incorporated . . . . . . . . 1,255,126.60 1,451,073.40
Total . . . . . . . . . . . . . . . . . . . . . . . $3,586,076.00 $4,145,924.00
The Depositor has been advised by the Underwriters that they intend to
make a market in the Offered Certificates but have no obligation to do so.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue.
The Underwriters propose to offer the Offered Certificates in part
directly to purchasers at the initial public offering prices set forth on the
cover page of this Prospectus Supplement and in part to certain securities
dealers at such prices less concessions not to exceed 0.10%, 0.15%, 0.20%,
0.175%, 0.175%, 0.25, 0.28%, 0.25%, 0.28%, 0.325% and 0.325% of the
respective Certificate Principal Balances of the Class A-1, Class A-2, Class
A-3, Class A-4, Class A-5, Class M-1F, Class M-2F, Class M-1A, Class M-2A,
Class B-1F and Class B-1A Certificates. The Underwriters may allow, and such
dealers may reallow, concessions not to exceed 0.08%, 0.12%, 0.16%, 0.14%,
0.14%, 0.20%, 0.224%, 0.20%, 0.224%, 0.26% and 0.26% of the respective
Certificate Principal Balances of the Class A-1, Class A-2, Class A-3, Class
A-4, Class A-5, Class M-1F, Class M-2F, Class M-1A, Class M-2A, Class B-1F
and Class B-1A Certificates to certain brokers and dealers. After the
Offered Certificates are released for sale to the public, the offering price
and other selling terms may be varied by the Underwriters.
Until the distribution of the Offered Certificates is completed, rules
of the Commission may limit the ability of the Underwriters and certain
selling group members to bid for and purchase the Offered Certificates. As
an exception to these rules, the Underwriters are permitted to engage in
certain transactions that stabilize the price of the Offered Certificates.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Offered Certificates.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither the Depositor nor either of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the prices of the Offered
Certificates. In addition, neither the Depositor nor either of the
Underwriters makes any representation that the Underwriters will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
After the initial public offering of the Offered Certificates, the
public offering price and such concessions may be changed.
The Depositor has agreed to indemnify the Underwriters against, or make
contributions to the Underwriters with respect to, certain liabilities,
including liabilities under the Securities Act of 1933, as amended.
An affiliate of Greenwich and the Depositor has significant contractual
relations with Cityscape and provides periodic funding of its origination of
mortgage loans, including the Mortgage Loans. Accordingly, a portion of the
proceeds payable to Cityscape will be paid to such affiliate in connection
with the sale of the Mortgage Loans.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Offered
Certificates will be passed upon for the Depositor and for the Underwriters
by Brown & Wood LLP, New York, New York, and for Cityscape by Dewey
Ballantine, New York, New York.
RATINGS
It is a condition to the issuance of the Offered Certificates that (i)
the Group I Senior Certificates and the Group II Senior Certificates be rated
"AAA" by Standard & Poor's, a division of The McGraw-Hill Companies ("S&P"),
Duff & Phelps Credit Rating Co. ("DCR") and Fitch Investor Service, L.P.
("Fitch" and, together with S&P and DCR, the "Rating Agencies"), (ii) the
Class M-1F Certificates be rated "AA" by each of the Rating Agencies; (iii)
the Class M-1A Certificates be rated "AA+" by S&P and "AA" by DCR and Fitch,
(iv) the Class M-2F Certificates be rated "A" by each of the Rating Agencies,
(v) the Class M-2A Certificates be rated "A+" by S&P, "A" by Fitch and "A-"
by DCR, (vi) the Class B-1F Certificates be rated "BBB" by each of the Rating
Agencies and (vii) the Class B-1A Certificates be rated "BBB" by S&P and
Fitch and "BBB-" by DCR. No rating addresses whether Group I Subsequent
Mortgage Loans will be purchased by the Trust Fund, the amount of any such
Mortgage Loans to be so purchased, or the impact any such purchase might have
on the yields of the Offered Certificates.
The ratings on the Offered Certificates address the likelihood of the
receipt by the holders of the Offered Certificates of all distributions on
the Mortgage Loans to which they are entitled. The ratings on the Offered
Certificates also address the structural, legal and issuer-related aspects of
the Offered Certificates, including the nature of the Mortgage Loans. In
general, the ratings on the Offered Certificates address credit risk and not
prepayment risk. The ratings on the Offered Certificates do not represent
any assessment of the likelihood that principal prepayments of the Mortgage
Loans will be made by borrowers or the degree to which the rate of such
prepayments might differ from that originally anticipated. As a result, the
initial ratings assigned to the Offered Certificates do not address the
possibility that holders of the Offered Certificates might suffer a lower
than anticipated yield in the event of principal payments on the Offered
Certificates resulting from rapid prepayments of the Mortgage Loans or the
application of the General Excess Available Amount as described herein, or in
the event that a Mortgage Loan Group is terminated prior to the Assumed Final
Maturity Date of the related classes of Offered Certificates. The ratings on
the Group I Offered Certificates do not address the ability of the Trust to
acquire Group I Subsequent Mortgage Loans, any potential redemption with
respect thereto or the effect on yield resulting therefrom.
The Depositor has not engaged any rating agency other than the Rating
Agencies to provide ratings on the Offered Certificates. However, there can
be no assurance as to whether any other rating agency will rate the Offered
Certificates, or, if it does, what rating would be assigned by any such other
rating agency. Any rating on the Certificates by another rating agency, if
assigned at all, may be lower than the ratings assigned to the Offered
Certificates by the Rating Agencies.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating. In the event that the ratings
initially assigned to any of the Offered Certificates by the Rating Agencies
are subsequently lowered for any reason, no person or entity is obligated to
provide any additional support or credit enhancement with respect to such
Offered Certificates.
INDEX OF DEFINED TERMS
2/28 LIBOR Mortgage Loans . . . . . . . . . . . . . . . . . . . . . S-8, S-33
Accrual Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
Actuarial Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Additional Obligations . . . . . . . . . . . . . . . . . . . . . . . . S-83
Adjustment Date . . . . . . . . . . . . . . . . . . . . . . . . . . S-8, S-32
Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-46
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
Aggregate Senior Certificate Principal Balance . . . . . . . . . . . . S-54
Allocable Loss Amount . . . . . . . . . . . . . . . . . . . . . . . . . S-54
Assumed Final Maturity Date . . . . . . . . . . . . . . . . . . . . . . S-62
Available Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
Average Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . S-83
Average Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
Balloon Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Balloon Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Beneficial Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . S-47
Book-Entry Certificates . . . . . . . . . . . . . . . . . . . . . . . . S-47
Call Option Date . . . . . . . . . . . . . . . . . . . . . . . . . . . S-54
Capitalized Interest Account . . . . . . . . . . . . . . . . . . . S-9, S-51
Cede . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-18, S-47
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
Certificate Account . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
Certificate Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Certificate Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . S-47
Certificate Principal Balance . . . . . . . . . . . . . . . . . . . . i, S-54
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-46
Cityscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-1
Civil Relief Act . . . . . . . . . . . . . . . . . . . . . . . . . . . S-17
Class A-1 Available Funds Cap . . . . . . . . . . . . . . . . . . . . . . S-4
Class A-4 Priority Excess Distribution Amount . . . . . . . . . . . . . S-54
Class A-4 Priority General Distribution Amount . . . . . . . . . . . . S-54
Class A-4 Priority Percentage . . . . . . . . . . . . . . . . . . . . . S-54
Class A-4 Pro Rata Excess Distribution Amount . . . . . . . . . . . . . S-54
Class A-4 Pro Rata General Distribution Amount . . . . . . . . . . . . S-55
Class B Optimal Principal Balance . . . . . . . . . . . . . . . . . . . S-55
Class M-1 Optimal Principal Balance . . . . . . . . . . . . . . . . . . S-55
Class M-2 Optimal Principal Balance . . . . . . . . . . . . . . . . . . S-55
Closing Date . . . . . . . . . . . . . . . . . . . . . . . i, S-1, S-5, S-62
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-79
Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
Combined Loan-to-Value Ratio . . . . . . . . . . . . . . . . . . . . . . S-7
Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Contributions Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . S-80
CPR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Cut-Off Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Cut-Off Date Principal Balance . . . . . . . . . . . . . . . . . . . . S-25
DCR . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-82, S-87
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
Definitive Certificate . . . . . . . . . . . . . . . . . . . . . . . . S-47
Deleted Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . . . S-45
Delinquency Percentage . . . . . . . . . . . . . . . . . . . . . . . . S-56
Depositor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Depository . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-2, S-47
Distribution Account . . . . . . . . . . . . . . . . . . . . . . . . . S-51
Distribution Date . . . . . . . . . . . . . . . . . . . . . . . i, S-2, S-48
DOL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-82
DTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
Due Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-56
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-81
Exception . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-82
Exemption Rating Agencies . . . . . . . . . . . . . . . . . . . . . . . S-82
FHLMC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
Financial Intermediary . . . . . . . . . . . . . . . . . . . . . . . . S-47
First Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Fitch . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-82, S-87
FNMA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-16
Foreign Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . S-81
Foreign Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . S-81
Funding Period . . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-51
General Excess Available Amount . . . . . . . . . . . . . . . . . . . . S-56
Greenwich . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Gross Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
Gross Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8, S-32
Group I Certificates . . . . . . . . . . . . . . . . . . . . . . . S-1, S-46
Group I Initial Cut-Off Date Principal Balance . . . . . . . . . . S-5, S-25
Group I Mezzanine Certificates . . . . . . . . . . . . . . . . . . S-1, S-46
Group I Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . i, S-2
Group I Mortgage Rates . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Group I Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . S-2
Group I Prepayment Assumption . . . . . . . . . . . . . . . . . . . . . S-62
Group I Residual Certificates . . . . . . . . . . . . . . . . . . . S-1, S-46
Group I Senior Certificates . . . . . . . . . . . . . . . . . . . . S-1, S-46
Group I Subordinate Certificates . . . . . . . . . . . . . . . . . S-1, S-46
Group I Subsequent Mortgage Loans . . . . . . . . . . . . . . . i, S-2, S-25
Group II Mezzanine Certificates . . . . . . . . . . . . . . . . . . . . S-1
Group II Available Funds Cap . . . . . . . . . . . . . . . . . . . . . . S-4
Group II Certificates . . . . . . . . . . . . . . . . . . . . . . . S-1, S-46
Group II Initial Cut-Off Date Principal Balance . . . . . . . . . . S-5, S-32
Group II Mezzanine Certificates . . . . . . . . . . . . . . . . . . S-1, S-46
Group II Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . i, S-2
Group II Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . S-2
Group II Prepayment Assumption . . . . . . . . . . . . . . . . . . . . S-62
Group II Residual Certificates . . . . . . . . . . . . . . . . . . . . . S-1
Group II Senior Certificates . . . . . . . . . . . . . . . . . . . S-1, S-46
Group II Subordinate Certificates . . . . . . . . . . . . . . . . . S-1, S-46
Group Principal Balance . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Initial Cut-Off Date . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Initial Group I Mortgage Loans . . . . . . . . . . . . . . . . . . . . . S-6
Initial Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . i, S-2
Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . S-49
Interest Distributable Amount . . . . . . . . . . . . . . . . . . . . . S-56
Interest Remittance Amount . . . . . . . . . . . . . . . . . . . . . . S-56
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-80
LIBOR Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
LIBOR Determination Date . . . . . . . . . . . . . . . . . . . . . . . S-60
Lifetime Cap . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8, S-33
Liquidation Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . S-49
Loan Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-56
Loss Reimbursement Deficiency . . . . . . . . . . . . . . . . . . . . . S-56
Majority Residual Interestholders . . . . . . . . . . . . . . . . . . . S-11
Maximum Collateral Amount . . . . . . . . . . . . . . . . . . . . . . . S-56
Maximum Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . S-8, S-33
Mezzanine Certificates . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Minimum Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . S-9, S-33
Monthly Interest Distributable Amount . . . . . . . . . . . . . . . . . S-57
Moody's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-82
Mortgage Loan Group . . . . . . . . . . . . . . . . . . . . . . . . . i, S-5
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Mortgage Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10
Mortgage Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-25
Mortgagor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-13
Net income from foreclosure property . . . . . . . . . . . . . . . . . S-80
Net Mortgage Rate . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-45
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-83
Offered Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
One-Month LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-60
Optimal Principal Balance . . . . . . . . . . . . . . . . . . . . . . . S-57
Original Certificate Principal Balance . . . . . . . . . . . . . . . . . . i
Overcollateralization Deficiency Amount . . . . . . . . . . . . . . . . S-57
Overcollateralization Target Amount . . . . . . . . . . . . . . . . . . S-57
Overcollateralized Amount . . . . . . . . . . . . . . . . . . . . . . . S-57
Pass-Through Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Periodic Rate Cap . . . . . . . . . . . . . . . . . . . . . . . . . S-8, S-33
Permitted Investments . . . . . . . . . . . . . . . . . . . . . . . . . S-84
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-81
Pooling and Servicing Agreement . . . . . . . . . . . . . . . . . . S-2, S-46
Pre-Funded Amount . . . . . . . . . . . . . . . . . . . . . . . . . S-9, S-51
Pre-Funding Account . . . . . . . . . . . . . . . . . . . . . . i, S-9, S-51
Pre-Funding Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . S-83
Pre-Funding Period . . . . . . . . . . . . . . . . . . . . . . . . . . S-83
Prepayment Assumption . . . . . . . . . . . . . . . . . . . . . . . . . S-62
Prepayment Interest Shortfall . . . . . . . . . . . . . . . . . . S-10, S-45
Principal Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . S-57
Principal Remittance Amount . . . . . . . . . . . . . . . . . . . . . . S-57
Pro Rata Pre-Funding Distribution Amount . . . . . . . . . . . . . . . S-57
Prohibited Transactions Tax . . . . . . . . . . . . . . . . . . . . . . S-80
Prospectus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
PTCE 95-60 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-85
Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-45
Rating Agencies . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-87
Realized Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-58
Realized Loss Percentage . . . . . . . . . . . . . . . . . . . . . . . S-58
Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Reference Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
Regular Pre-Funding Distribution Amount . . . . . . . . . . . . . . . . S-58
Regular Principal Distribution Amount . . . . . . . . . . . . . . . S-3, S-58
REMIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-11, S-79
REO Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-23
Replacement Mortgage Loan . . . . . . . . . . . . . . . . . . . . . . . S-45
Reserve Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . S-61
Residual Certificates . . . . . . . . . . . . . . . . . . . . . . . S-1, S-46
Restricted Group . . . . . . . . . . . . . . . . . . . . . . . . . . . S-83
Rolling Delinquency Percentage . . . . . . . . . . . . . . . . . . . . S-58
S&P . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-11, S-82, S-87
Second Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-1
Senior Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
Senior Class Subordination Deficit . . . . . . . . . . . . . . . . . . S-53
Senior Credit Enhancement Percentage . . . . . . . . . . . . . . . . . S-58
Senior Optimal Principal Balance . . . . . . . . . . . . . . . . . . . S-58
Senior Principal Distribution Amount . . . . . . . . . . . . . . . . . S-59
Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-1
Servicer Remittance Date . . . . . . . . . . . . . . . . . . . . . . . S-46
Servicer Termination Trigger Event . . . . . . . . . . . . . . . . . . S-78
Servicing Fee . . . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-45
Simple Interest Loans . . . . . . . . . . . . . . . . . . . . . . . . . S-43
Six-Month LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . S-8, S-32
Stepdown Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-59
Stepdown Trigger Event . . . . . . . . . . . . . . . . . . . . . . . . S-59
Stepup Cumulative Loss Test . . . . . . . . . . . . . . . . . . . . . . S-60
Stepup Rolling Delinquency Test . . . . . . . . . . . . . . . . . . . . S-59
Stepup Trigger Event . . . . . . . . . . . . . . . . . . . . . . . . . S-60
Subordinate Certificates . . . . . . . . . . . . . . . . . . . . . . . . S-1
Subsequent Transfer Date . . . . . . . . . . . . . . . . . . . . . . . S-43
Telerate Page 3750 . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-1
Trustee Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-60
Trustee Fee Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4
Trustee's Mortgage File . . . . . . . . . . . . . . . . . . . . . . . . S-44
Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
Unpaid Interest Shortfall Amount . . . . . . . . . . . . . . . . . . . S-60
Unutilized Funding Amount . . . . . . . . . . . . . . . . . . . . . S-3, S-51
Upgrade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN CITYSCAPE HOME EQUITY LOAN TRUST
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY SERIES 1997-C
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT $39,600,000 CLASS A-1
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE VARIABLE PASS-THROUGH RATE
DEPOSITOR OR THE UNDERWRITERS. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN $27,500,000 CLASS A-2
OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH 6.78% PASS-THROUGH RATE
THEY RELATE OR AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, TO ANY PERSON IN ANY $12,438,000 CLASS A-3
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION 7.38% PASS-THROUGH RATE
WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY $7,800,000 CLASS A-4
SALE MADE HEREUNDER SHALL, UNDER ANY 7.00% PASS-THROUGH RATE
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY $78,527,000 CLASS A-5
TIME SUBSEQUENT TO THEIR RESPECTIVE DATES. VARIABLE PASS-THROUGH RATE
$6,659,000 CLASS M-1F
7.24% PASS-THROUGH RATE
TABLE OF CONTENTS
$4,867,000 CLASS M-2F
PAGE
7.48% PASS-THROUGH RATE
PROSPECTUS SUPPLEMENT
$9,268,000 CLASS M-1A
VARIABLE PASS-THROUGH RATE
Incorporation of Certain Documents by Reference
ii
$5,609,000 CLASS M-2A
Summary of Terms . . . . . . . . . . . S-1
VARIABLE PASS-THROUGH RATE
Risk Factors . . . . . . . . . . . . . S-13
Cityscape's Portfolio of Mortgage Loans S-18
$3,586,076 CLASS B-1F
Cityscape Corp. . . . . . . . . . . . . S-22
7.83% PASS-THROUGH RATE
The Mortgage Loan Groups . . . . . . . S-25
The Pooling and Servicing Agreement . . S-44
$4,145,924 CLASS B-1A
Description of the Certificates . . . . S-46
VARIABLE PASS-THROUGH RATE
Use of Proceeds . . . . . . . . . . . . S-79
Certain Material Federal Income Tax Consequences
S-79
State Taxes . . . . . . . . . . . . . . S-81
ERISA Considerations . . . . . . . . . S-81
Legal Investment Considerations . . . . S-85
Method of Distribution . . . . . . . . S-85
FINANCIAL ASSET SECURITIES CORP.
Legal Matters . . . . . . . . . . . . . S-87
(DEPOSITOR)
Ratings . . . . . . . . . . . . . . . . S-87
Index of Defined Terms . . . . . . . . S-88
---------------------------
PROSPECTUS
PROSPECTUS SUPPLEMENT
Prospectus Supplement or Current
Report on Form 8-K . . . . . . . . . . . 2
Incorporation of Certain Documents
by Reference . . . . . . . . . . . . . . 2
Available Information . . . . . . . . . 2 ----------------------------
Reports to Securityholders . . . . . . . 3
Summary of Terms . . . . . . . . . . . . 4 GREENWICH CAPITAL MARKETS, INC.
Risk Factors . . . . . . . . . . . . . . 11
The Trust Fund . . . . . . . . . . . . . 16
Use of Proceeds . . . . . . . . . . . . 22
The Depositor . . . . . . . . . . . . . 22
Loan Program . . . . . . . . . . . . . . 22 PRUDENTIAL SECURITIES
Description of the Securities. . . . . . 24 INCORPORATED
Credit Enhancement . . . . . . . . . . . 34
Yield and Preyment Considerations. . . . 40
The Agreements . . . . . . . . . . . . . 42 -------------------
Certain Legal Aspects of the Loans . . . 55
Certain Material Federal Income Tax June 24, 1997
Considerations . . . . . . . . . . . . . 67
State Tax Considerations . . . . . . . . 87
ERISA Considerations . . . . . . . . . . 87
Legal Investment . . . . . . . . . . . . 89
Method of Distribution . . . . . . . . . 90
Legal Matters . . . . . . . . . . . . . 91
Financial Information . . . . . . . . . 91
Rating . . . . . . . . . . . . . . . . . 91
PROSPECTUS
ASSET BACKED SECURITIES
(ISSUABLE IN SERIES)
FINANCIAL ASSET SECURITIES CORP.
DEPOSITOR
This Prospectus relates to the issuance of Asset Backed Certificates
(the "Certificates") and the Asset Backed Notes (the "Notes" and, together
with the Certificates, the "Securities"), which may be sold from time to time
in one or more series (each, a "Series") by Financial Asset Securities Corp.
(the "Depositor") on terms determined at the time of sale and described in
this Prospectus and the related Prospectus Supplement. The Securities of a
Series will evidence beneficial ownership of a trust fund (a "Trust Fund").
As specified in the related Prospectus Supplement, the Trust Fund for a
Series of Securities will include certain assets (the "Trust Fund Assets")
which will primarily consist of (i) closed-end and/or revolving home equity
loans (the "Home Equity Loans") secured primarily by subordinate liens onone-
to four-family residential properties, (ii) home improvement installment
sales contracts and installment loan agreements (the "Home Improvement
Contracts") that are either unsecured or secured primarily by subordinate
liens on one- to four-family residential properties, or by purchase money
security interests in the home improvements financed thereby (the "Home
Improvements") and/or (iii) Private Asset Backed Securities (as defined
herein). The Home Equity Loans and the Home Improvement Contracts are
collectively referred to herein as the "Loans". The Trust Fund Assets will
be acquired by the Depositor, either directly or indirectly, from one or more
institutions (each, a "Seller"), which may be affiliates of the Depositor,
and conveyed by the Depositor to the related Trust Fund. A Trust Fund also
may include insurance policies, reserve accounts, reinvestment income,
guaranties, obligations, agreements, letters of credit or other assets to the
extent described in the related Prospectus Supplement.
Each Series of Securities will be issued in one or more classes. Each
class of Securities of a Series will evidence beneficial ownership of a
specified percentage (which may be 0%) or portion of future interest payments
and a specified percentage (which may be 0%) or portion of future principal
payments on the Trust Fund Assets in the related Trust Fund. A Series of
Securities may include one or more classes that are senior in right of
payment to one or more other classes of Securities of such Series. One or
more classes of Securities of a Series may be entitled to receive
distributions of principal, interest or any combination thereof prior to one
or more other classes of Securities of such Series or after the occurrence of
specified events, in each case as specified in the related Prospectus
Supplement.
Distributions to Securityholders will be made monthly, quarterly, semi-
annually or at such other intervals and on the dates specified in the related
Prospectus Supplement. Distributions on the Securities of a Series will be
made from the assets of the related Trust Fund or Funds or other assets
pledged for the benefit of the Securityholders as specified in the related
Prospectus Supplement.
The related Prospectus Supplement will describe any insurance or
guarantee provided with respect to the related Series of Securities
including, without limitation, any insurance or guarantee provided by the
Department of Housing and Urban Development, the United States Department of
Veterans' Affairs or any private insurer or guarantor. The only obligations
of the Depositor with respect to a Series of Securities will be to obtain
certain representations and warranties from each Seller and to assign to the
Trustee for the related Series of Securities the Depositor's rights with
respect to such representations and warranties. The principal obligations of
the Master Servicer named in the related Prospectus Supplement with respect
to the related Series of Securities will be limited to obligations pursuant
to certain representations and warranties and to its contractual servicing
obligations, including any obligation it may have to advance delinquent
payments on the Trust Fund Assets in the related Trust Fund.
The yield on each class of Securities of a Series will be affected by,
among other things, the rate of payments of principal (including prepayments)
on the Trust Fund Assets in the related Trust Fund and the timing of receipt
of such payments as described herein and in the related Prospectus
Supplement. A Trust Fund may be subject to early termination under the
circumstances described herein and in the related Prospectus Supplement.
If specified in a Prospectus Supplement, one or more elections may be
made to treat the related Trust Fund or specified portions thereof as a "real
estate mortgage investment conduit" ("REMIC") for federal income tax
purposes. See "Certain Material Federal Income Tax Consequences."
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE
SECURITIES, SEE THE INFORMATION UNDER "RISK FACTORS" ON PAGE 11.
THE CERTIFICATES OF A GIVEN SERIES REPRESENT BENEFICIAL INTERESTS IN, AND THE
NOTES OF A GIVEN SERIES REPRESENT OBLIGATIONS OF, THE RELATED TRUST FUND ONLY
AND DO NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, ANY SELLER
OR ANY AFFILIATES THEREOF, EXCEPT TO THE EXTENT DESCRIBED IN THE RELATED
PROSPECTUS SUPPLEMENT. NEITHER THE SECURITIES NOR THE LOANS ARE INSURED
OR GUARANTEED BY ANY GOVERNMENTAL AGENCY, EXCEPT TO THE EXTENT DESCRIBED IN
THE RELATED PROSPECTUS SUPPLEMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prior to issuance there will have been no market for the Securities of
any Series and there can be no assurance that a secondary market for any
Securities will develop, or if it does develop, that it will continue. This
Prospectus may not be used to consummate sales of Securities of any Series
unless accompanied by a Prospectus Supplement. Offers of the Securities may
be made through one or more different methods, including offerings through
underwriters, as more fully described under "Method of Distribution" herein
and in the related Prospectus Supplement. All Securities will be distributed
by, or sold by underwriters managed by:
GREENWICH CAPITAL MARKETS, INC.
June 20, 1997
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the securities covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is
in addition to the obligation of dealers to deliver a Prospectus and
Prospectus Supplement when acting as underwriters and with respect to their
unsold allotments or subscriptions.
PROSPECTUS SUPPLEMENT OR CURRENT REPORT ON FORM 8-K
The Prospectus Supplement or Current Report on Form 8-K relating to the
Securities of each Series to be offered hereunder will, among other things,
set forth with respect to such Securities, as appropriate: (i) a description
of the class or classes of Securities and the Pass-Through Rate or method of
determining the rate or the amount of interest, if any, to be passed through
to each such class; (ii) the aggregate principal amount and Distribution
Dates relating to such Series and, if applicable, the initial and final
scheduled Distribution Dates for each class; (iii) information as to the
assets comprising the Trust Fund, including the general characteristics of
the Trust Fund Assets included therein and, if applicable, the insurance
policies, surety bonds, guaranties, letters of credit or other instruments or
agreements included in the Trust Fund or otherwise, and the amount and source
of any reserve account; (iv) the circumstances, if any, under which the Trust
Fund may be subject to early termination; (v) the method used to calculate
the amount of principal to be distributed with respect to each class of
Securities; (vi) the order of application of distributions to each of the
classes within such Series, whether sequential, pro rata, or otherwise; (vii)
the Distribution Dates with respect to such Series; (viii) additional
information with respect to the method of distribution of such Securities;
(ix) whether one or more REMIC elections will be made and designation of the
regular interests and residual interests; (x) the aggregate original
percentage ownership interest in the Trust Fund to be evidenced by each class
of Securities; (xi) information as to the Trustee; (xii) information as to
the nature and extent of subordination with respect to any class of
Securities that is subordinate in right of payment to any other class; and
(xiii) information as to the Master Servicer.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a Trust Fund
pursuant to Section 13(a), 14 or 15(d) of the Securities and Exchange Act of
1934, as amended (the "Exchange Act") prior to the termination of the
offering of Securities evidencing interests therein. Upon request by any
person to whom this Prospectus is delivered in connection with the offering
of one or more classes of Securities, the Depositor will provide or cause to
be provided without charge a copy of any such documents and/or reports
incorporated herein by reference, in each case to the extent such documents
or reports relate to such classes of Securities, other than the exhibits to
such documents (unless such exhibits are specifically incorporated by
reference in such documents). Requests to the Depositor should be directed
in writing to: Paul D. Stevelman, Assistant Secretary, Financial Asset
Securities Corp., 600 Steamboat Road, Greenwich, Connecticut 06830, telephone
number (203) 625-2756. The Depositor has determined that its financial
statements are not material to the offering of any Securities.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement under the Securities Act of 1933, as
amended, with respect to the Securities. This Prospectus, which forms a part
of the Registration Statement, and the Prospectus Supplement relating to each
Series of Securities contain summaries of the material terms of the documents
referred to herein and therein, but do not contain all of the information set
forth in the Registration Statement pursuant to the Rules and Regulations of
the Commission. For further information, reference is made to such
Registration Statement and the exhibits thereto. Such Registration Statement
and exhibits can be inspected and copied at prescribed rates at the public
reference facilities maintained by the Commission at its Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its Regional
Offices located as follows: Midwest Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511; and Northeast Regional Office, 7
World Trade Center, Suite 1300, New York, New York 10048. In addition, the
Securities and Exchange Commission (the "Commission") maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, including the Depositor, that file
electronically with the Commission.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon. This Prospectus and
any Prospectus Supplement with respect hereto do not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
Securities offered hereby and thereby nor an offer of the Securities to any
person in any state or other jurisdiction in which such offer would be
unlawful. The delivery of this Prospectus at any time does not imply that
information herein is correct as of any time subsequent to its date.
REPORTS TO SECURITYHOLDERS
Periodic and annual reports concerning the related Trust Fund for a
Series of Securities are required under an Agreement to be forwarded to
Securityholders. However, such reports will neither be examined nor reported
on by an independent public accountant. See "Description of the Securities--
Reports to Securityholders".
SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus and in the related
Prospectus Supplement with respect to the Series offered thereby and to the
related Agreement (as such term is defined below) which will be prepared in
connection with each Series of Securities. Unless otherwise specified,
capitalized terms used and not defined in this Summary of Terms have the
meanings given to them in this Prospectus and in the related Prospectus
Supplement.
Title of Securities Asset Backed Certificates (the "Certificates")
and Asset Backed Notes (the "Notes" and,
together with the Certificates, the
"Securities"), which are issuable in Series.
Depositor Financial Asset Securities Corp., a Delaware corporation, an
indirect limited purpose finance subsidiary of National
Westminster Bank Plc and an affiliate of Greenwich Capital
Markets, Inc. See "The Depositor" herein.
Trustee The trustee (the "Trustee") for each Series of Securities will
be specified in the related Prospectus Supplement. See "The
Agreements" herein for a description of the Trustee's rights and
obligations.
Master Servicer The entity or entities named as Master Servicer (the
"Master Servicer") will be specified in the related
Prospectus Supplement. See "The Agreements--Certain
Matters Regarding the Master Servicer and the
Depositor".
Trust Fund Assets Assets of the Trust Fund for a Series of Securities
will include certain assets (the "Trust Fund
Assets") which will primarily consist of (a) Loans
or (b) Private Asset Backed Securities, together
with payments in respect of such Trust Fund Assets
and certain other accounts, obligations or
agreements, in each case as specified in the related
Prospectus Supplement. The Loans will be collected
in a pool (each, a "Pool") as of the first day of
the month of the issuance of the related Series of
Securities or such other date specified in the
Prospectus Supplement (the "Cut-off Date"). Trust
Fund assets also may include insurance policies,
cash accounts, reinvestment income, guaranties,
letters of credit or other assets to the extent
described in the related Prospectus Supplement. See
"Credit Enhancement". In addition, if the related
Prospectus Supplement so provides, the related Trust
Funds' assets will include the funds on deposit in
an account (a "Pre-Funding Account") which will be
used to purchase additional Loans during the period
specified in the related Prospectus Supplement. See
"The Agreements--Pre-Funding Accounts".
A. Loans The Loans will consist of (i) closed-end loans (the "Closed-
End Loans") and/or revolving home equity loans or certain
balances therein (the "Revolving Credit Line Loans",
together with the Closed-End Loans, the "Home Equity
Loans"), and (ii) home improvement installment sales
contracts and installment loan agreements (the "Home
Improvement Contracts"). The Home Equity Loans and the Home
Improvement Contracts are collectively referred to herein as
the "Loans". All Loans will have been purchased by the
Depositor, either directly or through an affiliate, from one
or more Sellers.
As specified in the related Prospectus Supplement, the Home Equity
Loans will, and the Home Improvement Contracts may, be secured by
mortgages or deeds of trust or other similar security instruments
creating a lien on a mortgaged property (the "Mortgaged Property"),
which may be subordinated to one or more senior liens on the
Mortgaged Property, as described in the related Prospectus
Supplement. As specified in the related Prospectus Supplement, Home
Improvement Contracts may be unsecured or secured by purchase money
security interests in the Home Improvements financed thereby. The
Mortgaged Properties and the Home Improvements are collectively
referred to herein as the "Properties".
B. Private Asset-
Backed Securities Private Asset Backed Securities may include (a)
pass-through certificates representing
beneficial interests in certain loans and/or
(b) collateralized obligations secured by such
loans. Private Asset Backed Securities may
include stripped securities representing an
undivided interest in all or a part of either
the principal distributions (but not the
interest distributions) or the interest
distributions (but not the principal
distributions) or in some specified portion of
the principal and interest distributions (but
not all of such distributions) on certain
loans. Although individual loans underlying a
Private Asset Backed Security may be insured or
guaranteed by the United States or an agency or
instrumentality thereof, they need not be, and
the Private Asset Backed Securities themselves
will not be so insured or guaranteed. Payments
on the Private Asset Backed Securities will be
distributed directly to the Trustee as
registered owner of such Private Asset Backed
Securities. See "The Trust Fund--Private Asset
Backed Securities".
Description of
the Securities Each Security will represent a beneficial ownership
interest in, or will be secured by the assets of, a
Trust Fund created by the Depositor pursuant to an
Agreement among the Depositor, the Master Servicer
and the Trustee for the related Series. The
Securities of any Series may be issued in one or
more classes as specified in the related Prospectus
Supplement. A Series of Securities may include one
or more classes of senior Securities (collectively,
the "Senior Securities") and one or more classes of
subordinate Securities (collectively, the
"Subordinated Securities"). Certain Series or
classes of Securities may be covered by insurance
policies or other forms of credit enhancement, in
each case as described herein and in the related
Prospectus Supplement.
One or more classes of Securities of each Series (i) may be entitled
to receive distributions allocable only to principal, only to
interest or to any combination thereof; (ii) may be entitled to
receive distributions only of prepayments of principal throughout
the lives of the Securities or during specified periods; (iii) may
be subordinated in the right to receive distributions of scheduled
payments of principal, prepayments of principal, interest or any
combination thereof to one or more other classes of Securities of
such Series throughout the lives of the Securities or during
specified periods; (iv) may be entitled to receive such
distributions only after the occurrence of events specified in the
related Prospectus Supplement; (v) may be entitled to receive
distributions in accordance with a schedule or formula or on the
basis of collections from designated portions of the assets in the
related Trust Fund; (vi) as to Securities entitled to distributions
allocable to interest, may be entitled to receive interest at a
fixed rate or a rate that is subject to change from time to time;
and (vii) as to Securities entitled to distributions allocable to
interest, may be entitled to distributions allocable to interest
only after the occurrence of events specified in the related
Prospectus Supplement and may accrue interest until such events
occur, in each case as specified in the related Prospectus
Supplement. The timing and amounts of such distributions may vary
among classes, over time, or otherwise as specified in the related
Prospectus Supplement.
Distributions on
the Securities Distributions on the Securities entitled thereto
will be made monthly or at such other intervals and
on the dates specified in the related Prospectus
Supplement (each, a "Distribution Date") out of the
payments received in respect of the assets of the
related Trust Fund or Funds or other assets pledged
for the benefit of the Securities as specified in
the related Prospectus Supplement. The amount
allocable to payments of principal and interest on
any Distribution Date will be determined as
specified in the related Prospectus Supplement.
Allocations of distributions among Securityholders
of a single class shall be set forth in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
aggregate original principal balance of the Securities will not
exceed the aggregate distributions allocable to principal that such
Securities will be entitled to receive. If specified in the related
Prospectus Supplement, the Securities will have an aggregate
original principal balance equal to the aggregate unpaid principal
balance of the Trust Fund Assets as of the first day of the month of
creation of the Trust Fund and will bear interest in the aggregate
at a rate equal to the interest rate borne by the underlying Loans
(the "Loan Rate") and/or Private Asset Backed Securities, net of
the aggregate servicing fees and any other amounts specified in the
related Prospectus Supplement (the "Pass-Through Rate"). If
specified in the related Prospectus Supplement, the aggregate
original principal balance of the Securities and interest rates on
the classes of Securities will be determined based on the cash flow
on the Trust Fund Assets.
The rate at which interest will be passed through to holders of each
class of Securities entitled thereto may be a fixed rate or a rate
that is subject to change from time to time from the time and for
the periods, in each case as specified in the related Prospectus
Supplement. Any such rate may be calculated on a loan-by-loan,
weighted average, notional amount or other basis, in each case as
described in the related Prospectus Supplement.
Compensating
Interest If so specified in the related Prospectus Supplement, the
Master Servicer will be required to remit to the Trustee,
with respect to each Loan in the related Trust Fund as to
which a principal prepayment in full or a principal payment
which is in excess of the scheduled monthly payment and is
not intended to cure a delinquency was received during any
Due Period, an amount, from and to the extent of amounts
otherwise payable to the Master Servicer as servicing
compensation, equal to (i) the excess, if any, of (a) 30
days' interest on the principal balance of the related Loan
at the Loan Rate net of the per annum rate at which the
Master Servicer's servicing fee accrues, over (b) the amount
of interest actually received on such Loan during such Due
Period, net of the Master Servicer's servicing fee or (ii)
such other amount as described in the related Prospectus
Supplement. See "Description of the Securities--
Compensating Interest".
Credit Enhancement The assets in a Trust Fund or the Securities of
one or more classes in the related Series may
have the benefit of one or more types of credit
enhancement as described in the related
Prospectus Supplement. The protection against
losses afforded by any such credit support may
be limited. The type, characteristics and
amount of credit enhancement will be determined
based on the characteristics of the Loans
and/or Private Asset Backed Securities
underlying or comprising the Trust Fund Assets
and other factors and will be established on
the basis of requirements of each Rating Agency
rating the Securities of such Series. See
"Credit Enhancement."
A. Subordination The rights of the holders of the Subordinated
Securities of a Series to receive distributions with
respect to the assets in the related Trust Fund will
be subordinated to such rights of the holders of the
Senior Securities of the same Series to the extent
described in the related Prospectus Supplement.
This subordination is intended to enhance the
likelihood of regular receipt by holders of Senior
Securities of the full amount of monthly payments of
principal and interest due them. The protection
afforded to the holders of Senior Securities of a
Series by means of the subordination feature will be
accomplished by (i) the preferential right of such
holders to receive, prior to any distribution being
made in respect of the related Subordinated
Securities, the amounts of interest and/or principal
due them on each Distribution Date out of the funds
available for distribution on such date in the
related Security Account and, to the extent
described in the related Prospectus Supplement, by
the right of such holders to receive future
distributions on the assets in the related Trust
Fund that would otherwise have been payable to the
holders of Subordinated Securities; (ii) reducing
the ownership interest of the related Subordinated
Securities; (iii) a combination of clauses (i) and
(ii) above; or (iv) as otherwise described in the
related Prospectus Supplement. If so specified in
the related Prospectus Supplement, subordination may
apply only in the event of certain types of losses
not covered by other forms of credit support, such
as hazard losses not covered by standard hazard
insurance policies, losses due to the bankruptcy or
fraud of the borrower. The related Prospectus
Supplement will set forth information concerning,
among other things, the amount of subordination of a
class or classes of Subordinated Securities in a
Series, the circumstances in which such
subordination will be applicable, and the manner, if
any, in which the amount of subordination will
decrease over time.
B. Reserve Account One or more reserve accounts (each, a "Reserve
Account") may be established and maintained for
each Series. The related Prospectus Supplement
will specify whether or not such Reserve
Accounts will be included in the corpus of the
Trust Fund for such Series and will also
specify the manner of funding the related
Reserve Accounts and the conditions under which
the amounts in any such Reserve Accounts will
be used to make distributions to holders of
Securities of a particular class or released
from the related Reserve Account.
C. Special Hazard Insurance
Policy Certain classes of Securities may have the benefit of a
Special Hazard Insurance Policy. Certain physical risks
that are not otherwise insured against by standard hazard
insurance policies may be covered by a Special Hazard
Insurance Policy or Policies. Each Special Hazard Insurance
Policy will be limited in scope and will cover losses
pursuant to the provisions of each such Special Hazard
Insurance Policy as described in the related Prospectus
Supplement.
D. Bankruptcy Bond One or more bankruptcy bonds (each a
"Bankruptcy Bond") may be obtained covering
certain losses resulting from action which may
be taken by a bankruptcy court in connection
with a Loan. The level of coverage and the
limitations in scope of each Bankruptcy Bond
will be specified in the related Prospectus
Supplement.
E. Loan Pool
Insurance Policy A mortgage pool insurance policy or policies
may be obtained and maintained for Loans
relating to any Series, which shall be limited
in scope, covering defaults on the related
Loans in an initial amount equal to a specified
percentage of the aggregate principal balance
of all Loans included in the Pool as of the
Cut-off Date.
F. FHA Insurance If specified in the related Prospectus Supplement,
(i) all or a portion of the Loans in a Pool may be
insured by the Federal Housing Administration (the
"FHA") and/or (ii) all or a portion of the Loans may
be partially guaranteed by the Department of
Veterans' Affairs (the "VA"). See "Certain Legal
Considerations--Title I Program".
G. Cross-Support If specified in the related Prospectus Supplement,
the beneficial ownership of separate groups of
assets included in a Trust Fund may be evidenced by
separate classes of the related Series of
Securities. In such case, credit support may be
provided by a cross-support feature which requires
that distributions be made with respect to
Securities evidencing beneficial ownership of one or
more asset groups prior to distributions to
Subordinated Securities evidencing a beneficial
ownership interest in, or secured by, other asset
groups within the same Trust Fund.
If specified in the related Prospectus Supplement, the coverage
provided by one or more forms of credit support may apply
concurrently to two or more separate Trust Funds. If applicable,
the related Prospectus Supplement will identify the Trust Funds to
which such credit support relates and the manner of determining the
amount of the coverage provided thereby and of the application of
such coverage to the identified Trust Funds.
H. Other Arrangements Other arrangements as described in the
related Prospectus Supplement including,
but not limited to, one or more letters of
credit, surety bonds, other insurance or
third-party guarantees may be used to
provide coverage for certain risks of
defaults or various types of losses.
Advances The Master Servicer and, if applicable, each mortgage
servicing institution that services a Loan in a Pool on
behalf of the Master Servicer (a "Sub-Servicer") may be
obligated to advance amounts (each, an "Advance")
corresponding to delinquent interest and/or principal
payments on such Loan until the date, as specified in the
related Prospectus Supplement, following the date on which
the related Property is sold at a foreclosure sale or the
related Loan is otherwise liquidated. Any obligation to
make Advances may be subject to limitations as specified in
the related Prospectus Supplement. If so specified in the
related Prospectus Supplement, Advances may be drawn from a
cash account available for such purpose as described in such
Prospectus Supplement.
Any such obligation of the Master Servicer or a Sub-Servicer to make
Advances may be supported by the delivery to the Trustee of a
support letter from an affiliate of the Master Servicer or such
Sub-Servicer or an unaffiliated third party (a "Support Servicer")
guaranteeing the payment of such Advances by the Master Servicer or
Sub-Servicer, as the case may be, as specified in the related
Prospectus Supplement.
In the event the Master Servicer, Support Servicer or Sub-Servicer
fails to make a required Advance, the Trustee may be obligated to
advance such amounts otherwise required to be advanced by the Master
Servicer, Support Servicer or Sub-Servicer. See "Description of the
Securities--Advances."
Optional Termination The Master Servicer or the party specified
in the related Prospectus Supplement,
including the holder of the residual
interest in a REMIC, may have the option to
effect early retirement of a Series of
Securities through the purchase of the
Trust Fund Assets and other assets in the
related Trust Fund under the circumstances
and in the manner described in "The
Agreements--Termination; Optional
Termination" herein and in the related
Prospectus Supplement.
Legal Investment The Prospectus Supplement for each series of
Securities will specify which, if any, of the
classes of Securities offered thereby constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"). Classes of Securities that qualify as
"mortgage related securities" will be legal
investments for certain types of institutional
investors to the extent provided in SMMEA, subject,
in any case, to any other regulations which may
govern investments by such institutional investors.
Institutions whose investment activities are subject
to review by federal or state authorities should
consult with their counsel or the applicable
authorities to determine whether an investment in a
particular class of Securities (whether or not such
class constitutes a "mortgage related security")
complies with applicable guidelines, policy
statements or restrictions. See "Legal Investment."
Certain Material
Federal Income Tax
Consequences The material federal income tax consequences to
Securityholders will vary depending on whether one or
more elections are made to treat the Trust Fund or
specified portions thereof as a real estate mortgage
investment conduit ("REMIC") under the provisions of
the Internal Revenue Code of 1986, as amended (the
"Code"). The Prospectus Supplement for each Series of
Securities will specify whether such an election will be
made. See "Certain Material Federal Income Tax
Consequences".
ERISA Considerations A fiduciary of any employee benefit plan or
other retirement plan or arrangement
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
or the Code should carefully review with
its legal advisors whether the purchase or
holding of Securities could give rise to a
transaction prohibited or not otherwise
permissible under ERISA or the Code. See
"ERISA Considerations". Certain classes of
Securities may not be transferred unless
the Trustee and the Depositor are furnished
with a letter of representation or an
opinion of counsel to the effect that such
transfer will not result in a violation of
the prohibited transaction provisions of
ERISA and the Code and will not subject the
Trustee, the Depositor or the Master
Servicer to additional obligations. See
"Description of the Securities-General" and
"ERISA Considerations".
RISK FACTORS
Investors should consider, among other things, the following factors in
connection with the purchase of the Securities.
LIMITED LIQUIDITY
There will be no market for the Securities of any Series prior to the
issuance thereof, and there can be no assurance that a secondary market will
develop or, if it does develop, that it will provide Securityholders with
liquidity of investment or will continue for the life of the Securities of
such Series.
LIMITED ASSETS
The Depositor does not have, nor is it expected to have, any significant
assets. Unless otherwise specified in the related Prospectus Supplement, the
Securities of a Series will be payable solely from the Trust Fund for such
Securities and will not have any claim against or security interest in the
Trust Fund for any other Series. There will be no recourse to the Depositor
or any other person for any failure to receive distributions on the
Securities. Further, at the times set forth in the related Prospectus
Supplement, certain Trust Fund Assets and/or any balance remaining in the
Security Account immediately after making all payments due on the Securities
of such Series, after making adequate provision for future payments on
certain classes of Securities and after making any other payments specified
in the related Prospectus Supplement, may be promptly released or remitted to
the Depositor, the Servicer, any credit enhancement provider or any other
person entitled thereto and will no longer be available for making payments
to Securityholders. Consequently, holders of Securities of each Series must
rely solely upon payments with respect to the Trust Fund Assets and the other
assets constituting the Trust Fund for a Series of Securities, including, if
applicable, any amounts available pursuant to any credit enhancement for such
Series, for the payment of principal of and interest on the Securities of
such Series.
The Securities will not represent an interest in or obligation of the
Depositor, the Master Servicer or any of their respective affiliates. The
only obligations, if any, of the Depositor with respect to the Trust Fund
Assets or the Securities of any Series will be pursuant to certain
representations and warranties. The Depositor does not have, and is not
expected in the future to have, any significant assets with which to meet any
obligation to repurchase Trust Fund Assets with respect to which there has
been a breach of any representation or warranty. If, for example, the
Depositor were required to repurchase a Loan, its only sources of funds to
make such repurchase would be from funds obtained (i) from the enforcement of
a corresponding obligation, if any, on the part of the Seller or originator
of such Loan, or (ii) from a Reserve Account or similar credit enhancement
established to provide funds for such repurchases. The Master Servicer's
servicing obligations under the related Agreement may include its limited
obligation to make certain advances in the event of delinquencies on the
Loans, but only to the extent deemed recoverable. To the extent described in
the related Prospectus Supplement, the Depositor or Master Servicer will be
obligated under certain limited circumstances to purchase or act as a
remarketing agent with respect to a convertible Loan upon conversion to a
fixed rate.
CREDIT ENHANCEMENT
Although credit enhancement is intended to reduce the risk of delinquent
payments or losses to holders of Securities entitled to the benefit thereof,
the amount of such credit enhancement will be limited, as set forth in the
related Prospectus Supplement, and may decline and could be depleted under
certain circumstances prior to the payment in full of the related Series of
Securities, and as a result Securityholders may suffer losses. Moreover,
such credit enhancement may not cover all potential losses or risks. For
example, credit enhancement may or may not cover fraud or negligence by a
loan originator or other parties. See "Credit Enhancement".
PREPAYMENT AND YIELD CONSIDERATIONS
The timing of principal payments of the Securities of a Series will be
affected by a number of factors, including the following: (i) the extent of
prepayments of the Loans and, in the case of Private Asset Backed Securities,
the underlying loans related thereto, comprising the Trust Fund, which
prepayments may be influenced by a variety of factors, (ii) the manner of
allocating principal and/or payments among the classes of Securities of a
Series as specified in the related Prospectus Supplement, (iii) the exercise
by the party entitled thereto of any right of optional termination and (iv)
the rate and timing of payment defaults and losses incurred with respect to
the Trust Fund Assets. Prepayments of principal may also result from
repurchases of Trust Fund Assets due to material breaches of the Depositor's
or the Master Servicer's representations and warranties, as applicable. The
yield to maturity experienced by a holder of Securities may be affected by
the rate of prepayment of the Loans comprising or underlying the Trust Fund
Assets. See "Yield and Prepayment Considerations".
Interest payable on the Securities of a Series on a Distribution Date
will include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues over a period ending
two or more days prior to a Distribution Date, the effective yield to
Securityholders will be reduced from the yield that would otherwise be
obtainable if interest payable on the Security were to accrue through the day
immediately preceding each Distribution Date, and the effective yield (at
par) to Securityholders will be less than the indicated coupon rate. See
"Description of the Securities - Distributions of Interest".
BALLOON PAYMENTS
Certain of the Loans as of the Cut-off Date may not be fully amortizing
over their terms to maturity and, thus, will require substantial principal
payments (i.e., balloon payments) at their stated maturity. Loans with
balloon payments involve a greater degree of risk because the ability of a
borrower to make a balloon payment typically will depend upon its ability
either to timely refinance the loan or to timely sell the related Property.
The ability of a borrower to accomplish either of these goals will be
affected by a number of factors, including the level of available mortgage
rates at the time of sale or refinancing, the borrower's equity in the
related Property, the financial condition of the borrower and tax laws.
NATURE OF MORTGAGES
There are several factors that could adversely affect the value of
Properties such that the outstanding balance of the related Loans, together
with any senior financing on the Properties, if applicable, would equal or
exceed the value of the Properties. Among the factors that could adversely
affect the value of the Properties are an overall decline in the residential
real estate market in the areas in which the Properties are located or a
decline in the general condition of the Properties as a result of failure of
borrowers to maintain adequately the Properties or of natural disasters that
are not necessarily covered by insurance, such as earthquakes and floods. In
the case of Home Equity Loans, such decline could extinguish the value of the
interest of a junior mortgagee in the Property before having any effect on
the interest of the related senior mortgagee. If such a decline occurs, the
actual rates of delinquencies, foreclosures and losses on all Loans could be
higher than those currently experienced in the mortgage lending industry in
general.
Even assuming that the Properties provide adequate security for the
Loans, substantial delays could be encountered in connection with the
liquidation of defaulted Loans and corresponding delays in the receipt of
related proceeds by Securityholders could occur. An action to foreclose on a
Property securing a Loan is regulated by state statutes and rules and is
subject to many of the delays and expenses of other lawsuits if defenses or
counterclaims are interposed, sometimes requiring several years to complete.
Furthermore, in some states an action to obtain a deficiency judgment is not
permitted following a nonjudicial sale of a Property. In the event of a
default by a borrower, these restrictions, among other things, may impede the
ability of the Master Servicer to foreclose on or sell the Property or to
obtain liquidation proceeds sufficient to repay all amounts due on the
related Loan. In addition, the Master Servicer will be entitled to deduct
from related liquidation proceeds all expenses reasonably incurred in
attempting to recover amounts due on defaulted Loans and not yet repaid,
including payments to senior lienholders, legal fees and costs of legal
action, real estate taxes and maintenance and preservation expenses.
Liquidation expenses with respect to defaulted loans do not vary
directly with the outstanding principal balance of the loan at the time of
default. Therefore, assuming that a servicer took the same steps in
realizing upon a defaulted loan having a small remaining principal balance as
it would in the case of a defaulted loan having a large remaining principal
balance, the amount realized after expenses of liquidation would be smaller
as a percentage of the outstanding principal balance of the small loan than
would be the case with the defaulted loan having a large remaining principal
balance. Since the mortgages and deeds of trust securing the Home Equity
Loans will be primarily junior liens subordinate to the rights of the
mortgagee under the related senior mortgage(s) or deed(s) of trust, the
proceeds from any liquidation, insurance or condemnation proceeds will be
available to satisfy the outstanding balance of such junior lien only to the
extent that the claims of such senior mortgagees have been satisfied in full,
including any related foreclosure costs. In addition, a junior mortgagee may
not foreclose on the property securing a junior mortgage unless it forecloses
subject to any senior mortgage, in which case it must either pay the entire
amount due on any senior mortgage to the related senior mortgagee at or prior
to the foreclosure sale or undertake the obligation to make payments on any
such senior mortgage in the event the mortgagor is in default thereunder.
The Trust Fund will not have any source of funds to satisfy any senior
mortgages or make payments due to any senior mortgagees.
Applicable state laws generally regulate interest rates and other
charges, require certain disclosures, and require licensing of certain
originators and servicers of Loans. In addition, most states have other
laws, public policy and general principles of equity relating to the
protection of consumers, unfair and deceptive practices and practices which
may apply to the origination, servicing and collection of the Loans.
Depending on the provisions of the applicable law and the specific facts and
circumstances involved, violations of these laws, policies and principles may
limit the ability of the Master Servicer to collect all or part of the
principal of or interest on the Loans, may entitle the borrower to a refund
of amounts previously paid and, in addition, could subject the Master
Servicer to damages and administrative sanctions. See "Certain Legal Aspects
of the Loans".
ENVIRONMENTAL RISKS
Federal, state and local laws and regulations impose a wide range of
requirements on activities that may affect the environment, health and
safety. In certain circumstances, these laws and regulations impose
obligations on owners or operators of residential properties such as those
subject to the Loans. The failure to comply with such laws and regulations
may result in fines and penalties.
Under various federal, state and local laws and regulations, an owner or
operator of real estate may be liable for the costs of addressing hazardous
substances on, in or beneath such property and related costs. Such liability
could exceed the value of the property and the aggregate assets of the owner
or operator. In addition, persons who transport or dispose of hazardous
substances, or arrange for the transportation, disposal or treatment of
hazardous substances, at off-site locations may also be held liable if there
are releases or threatened releases of hazardous substances at such off-site
locations.
Under the laws of some states and under the federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"),
contamination of property may give rise to a lien on the property to assure
the payment of the costs of clean-up. In several states, such a lien has
priority over the lien of an existing mortgage against such property.
Under the laws of some states, and under CERCLA and the federal Solid
Waste Disposal Act, there is a possibility that a lender may be held liable
as an "owner" or "operator" for costs of addressing releases or threatened
releases of hazardous substances at a property, or releases of petroleum from
an underground storage tank, under certain circumstances. See "Certain Legal
Aspects of the Loans--Environmental Risks."
CERTAIN OTHER LEGAL CONSIDERATIONS REGARDING THE LOANS
The Loans may also be subject to federal laws, including:
(i) the Federal Truth in Lending Act and Regulation Z promulgated
thereunder, which require certain disclosures to the borrowers regarding
the terms of the Loans;
(ii) the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, which prohibit discrimination on the basis of
age, race, color, sex, religion, marital status, national origin,
receipt of public assistance or the exercise of any right under the
Consumer Credit Protection Act, in the extension of credit;
(iii) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience;
and
(iv) for Loans that were originated or closed after November 7,
1989, the Home Equity Loan Consumer Protection Act of 1988, which
requires additional application disclosures, limits changes that may be
made to the loan documents without the borrower's consent and restricts
a lender's ability to declare a default or to suspend or reduce a
borrower's credit limit to certain enumerated events.
The Riegle Act. Certain mortgage loans are subject to the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "Riegle
Act") which incorporates the Home Ownership and Equity Protection Act of
1994. These provisions impose additional disclosure and other requirements
on creditors with respect to non-purchase money mortgage loans with high
interest rates or high up-front fees and charges. The provisions of the
Riegle Act apply on a mandatory basis to all mortgage loans originated on or
after October 1, 1995. These provisions can impose specific statutory
liabilities upon creditors who fail to comply with their provisions and may
affect the enforceability of the related loans. In addition, any assignee of
the creditor would generally be subject to all claims and defenses that the
consumer could assert against the creditor, including, without limitation,
the right to rescind the mortgage loan.
The Home Improvement Contracts are also subject to the Preservation of
Consumers' Claims and Defenses regulations of the Federal Trade Commission
and other similar federal and state statutes and regulations (collectively,
the "Holder in Due Course Rules"), which protect the homeowner from defective
craftsmanship or incomplete work by a contractor. These laws permit the
obligor to withhold payment if the work does not meet the quality and
durability standards agreed to by the homeowner and the contractor. The
Holder in Due Course Rules have the effect of subjecting any assignee of the
seller in a consumer credit transaction to all claims and defenses which the
obligor in the credit sale transaction could assert against the seller of the
goods.
Violations of certain provisions of these federal laws may limit the
ability of the Master Servicer to collect all or part of the principal of or
interest on the Loans and in addition could subject the Trust Fund to damages
and administrative enforcement. See "Certain Legal Aspects of the Loans".
RATING OF THE SECURITIES
It will be a condition to the issuance of a class of Securities that
they be rated in one of the four highest rating categories by the Rating
Agency identified in the related Prospectus Supplement. Any such rating
would be based on among other things, the adequacy of the value of the Trust
Fund Assets and any credit enhancement with respect to such class and will
respect such Rating Agency's assessment solely of the likelihood that holders
of a class of Securities will receive payments to which such Securityholders
are entitled under the related Agreement. Such rating will not constitute an
assessment of the likelihood that principal prepayments on the related Loans
will be made, the degree to which the rate of such prepayments might differ
from that originally anticipated or the likelihood of early optional
termination of the Series of Securities. Such rating shall not be deemed a
recommendation to purchase, hold or sell Securities, inasmuch as it does not
address market price or suitability for a particular investor. Such rating
will not address the possibility that prepayment at higher or lower rates
than anticipated by an investor may cause such investor to experience a lower
than anticipated yield or that an investor purchasing a Security at a
significant premium might fail to recoup its initial investment under certain
prepayment scenarios.
There is also no assurance that any such rating will remain in effect
for any given period of time or that it may not be lowered or withdrawn
entirely by the Rating Agency in the future if in its judgment circumstances
in the future so warrant. In addition to being lowered or withdrawn due to
any erosion in the adequacy of the value of the Trust Fund Assets or any
credit enhancement with respect to a Series, such rating might also be
lowered or withdrawn, among other reasons, because of an adverse change in
the financial or other condition of a credit enhancement provider or a change
in the rating of such credit enhancement provider's long term debt.
The amount, type and nature of credit enhancement, if any, established
with respect to a class of Securities will be determined on the basis of
criteria established by each Rating Agency rating classes of such Series.
Such criteria are sometimes based upon an actuarial analysis of the behavior
of similar loans in a larger group. Such analysis is often the basis upon
which each Rating Agency determines the amount of credit enhancement required
with respect to each such class. There can be no assurance that the
historical data supporting any such actuarial analysis will accurately
reflect future experience nor any assurance that the data derived from a
large pool of similar loans accurately predicts the delinquency, foreclosure
or loss experience of any particular pool of Loans. No assurance can be
given that the values of any Properties have remained or will remain at their
levels on the respective dates of origination of the related Loans. If the
residential real estate markets should experience an overall decline in
property values such that the outstanding principal balances of the Loans in
a particular Trust Fund and any secondary financing on the related Properties
become equal to or greater than the value of the Properties, the rates of
delinquencies, foreclosures and losses could be higher than those now
generally experienced in the mortgage lending industry. In addition, adverse
economic conditions (which may or may not affect real property values) may
affect the timely payment by mortgagors of scheduled payments of principal
and interest on the Loans and, accordingly, the rates of delinquencies,
foreclosures and losses with respect to any Trust Fund. To the extent that
such losses are not covered by credit enhancement, such losses will be borne,
at least in part, by the holders of one or more classes of the Securities of
the related Series. See "Rating".
BOOK-ENTRY REGISTRATION
If issued in book-entry form, such registration may reduce the liquidity
of the Securities in the secondary trading market since investors may be
unwilling to purchase Securities for which they cannot obtain physical
certificates. Since transactions in Securities can be effected only through
the Depository Trust Company ("DTC"), participating organizations
("Participants"), Financial Intermediaries and certain banks, the ability of
a Securityholder to pledge a Security to persons or entities that do not
participate in the DTC system, or otherwise to take actions in respect of
such Securities, may be limited due to lack of a physical certificate
representing the Securities.
In addition, Securityholders may experience some delay in their receipt
of distributions of interest and principal on the Securities since
distributions are required to be forwarded by the Trustee to DTC and DTC will
then be required to credit such distributions to the accounts of Participants
which thereafter will be required to credit them to the accounts of
Securityholders either directly or indirectly through Financial
Intermediaries. See "Description of the Securities--Book-Entry Registration
of Securities".
PRE-FUNDING ACCOUNTS
If so provided in the related Prospectus Supplement, on the Closing Date
the Depositor will deposit an amount (the "Pre-Funded Amount") specified in
such Prospectus Supplement into the Pre-Funding Account. In no event shall
the Pre-Funded Amount exceed 25% of the initial aggregate principal amount of
the Certificates and/or Notes of the related Series of Securities. The Pre-
Funded Amount will be used to purchase Loans ("Subsequent Loans") in a period
from the Closing Date to a date not more than three months after the Closing
Date (such period, the "Funding Period") from the Depositor (which, in turn,
will acquire such Subsequent Loans from the Seller or Sellers specified in
the related Prospectus Supplement). To the extent that the entire Pre-Funded
Amount has not been applied to the purchase of Subsequent Loans by the end of
the related Funding Period, any amounts remaining in the Pre-Funding Account
will be distributed as a prepayment of principal to Certificateholders and/or
Noteholders on the Distribution Date immediately following the end of the
Funding Period, in the amounts and pursuant to the priorities set forth in
the related Prospectus Supplement.
LOWER CREDIT QUALITY TRUST FUND ASSETS
Certain of the Trust Fund Assets underlying or securing, as the case may
be, a Series of Securities may have been made to lower credit quality
borrowers who have marginal credit and fall into one of two categories:
customers with moderate income, limited assets and other income
characteristics which cause difficulty in borrowing from banks and other
traditional sources of lenders, and customers with a derogatory credit report
including a history of irregular employment, previous bankruptcy filings,
repossession of property, charged-off loans and garnishment of wages. The
average interest rate charged on such Trust Fund Assets made to these types
of borrowers is generally higher than that charged by lenders that typically
impose more stringent credit requirements. The payment experience on loans
made to these types of borrowers is likely to be different (i.e., greater
likelihood of later payments or defaults, less likelihood of prepayments)
from that on loans made to borrowers with higher credit quality, and is
likely to be more sensitive to changes in the economic climate in the areas
in which such borrowers reside. See "The Mortgage Pool" in the related
Prospectus Supplement.
DELINQUENT TRUST FUND ASSETS
No more than 5% (by principal balance) of the Trust Fund Assets for any
particular Series of Securities will be between 30 and 59 days past due as of
the related Cut-off Date.
OTHER CONSIDERATIONS
There is no assurance that the market value of the Trust Fund Assets or
any other assets of a Series will at any time be equal to or greater than the
principal amount of the Securities of such Series then outstanding, plus
accrued interest thereon. Moreover, upon an event of default under the
Agreement for a Series and a sale of the assets in the Trust Fund or upon a
sale of the assets of a Trust Fund for a Series of Securities, the Trustee,
the Master Servicer, the credit enhancer, if any, and any other service
provider specified in the related Prospectus Supplement generally will be
entitled to receive the proceeds of any such sale to the extent of unpaid
fees and other amounts owing to such persons under the related Agreement
prior to distributions to Securityholders. Upon any such sale, the proceeds
thereof may be insufficient to pay in full the principal of and interest on
the Securities of such Series.
- --------------------
/F1/ Whenever the terms "Pool", "Certificates" and "Notes" are used
in this Prospectus, such terms will be deemed to apply, unless the context
indicates otherwise, to one specific Pool and the Certificates representing
certain undivided interests in, or Notes secured by the assets of, a single
trust fund (the "Trust Fund") consisting primarily of the Loans in such Pool.
Similarly, the term "Pass-Through Rate" will refer to the Pass-Through Rate
borne by the Certificates or Notes of one specific Series and the term "Trust
Fund" will refer to one specific Trust Fund.
THE TRUST FUND
The Certificates of each Series will represent interests in the assets
of the related Trust Fund, and the Notes of each Series will be secured by
the pledge of the assets of the related Trust Fund. The Trust Fund for each
Series will be held by the Trustee for the benefit of the related
Securityholders. Each Trust Fund will consist of certain assets (the "Trust
Fund Assets") consisting of a pool (each, a "Pool") comprised of Loans or
Private Asset Backed Securities, in each case as specified in the related
Prospectus Supplement, together with payments in respect of such Trust Fund
Assets and certain other accounts, obligations or agreements, in each case as
specified in the related Prospectus Supplement./F1/ The Pool will be created
on the first day of the month of the issuance of the related Series of
Securities or such other date specified in the Prospectus Supplement (the
"Cut-off Date"). The Securities will be entitled to payment from the assets
of the related Trust Fund or Funds or other assets pledged for the benefit of
the Securityholders as specified in the related Prospectus Supplement and
will not be entitled to payments in respect of the assets of any other trust
fund established by the Depositor.
The Trust Fund Assets will be acquired by the Depositor, either directly
or through affiliates, from originators or sellers which may be affiliates of
the Depositor (the "Sellers"), and conveyed by the Depositor to the related
Trust Fund. Loans acquired by the Depositor will have been originated in
accordance with the underwriting criteria specified below under "Loan
Program-Underwriting Standards" or as otherwise described in a related
Prospectus Supplement. See "Loan Program--Underwriting Standards".
The Depositor will cause the Trust Fund Assets to be assigned to the
Trustee named in the related Prospectus Supplement for the benefit of the
holders of the Securities of the related Series. The Master Servicer named
in the related Prospectus Supplement will service the Trust Fund Assets,
either directly or through other servicing institutions ("Sub-Servicers"),
pursuant to a Pooling and Servicing Agreement among the Depositor, the Master
Servicer and the Trustee with respect to a Series of Certificates, or a
servicing agreement (each, a "Servicing Agreement") between the Trustee and
the Servicer with respect to a Series of Notes, and will receive a fee for
such services. See "Loan Program" and "The Pooling and Servicing Agreement".
With respect to Loans serviced by the Master Servicer through a Sub-Servicer,
the Master Servicer will remain liable for its servicing obligations under
the related Agreement as if the Master Servicer alone were servicing such
Loans.
As used herein, "Agreement" means, with respect to a Series of
Certificates, the Pooling and Servicing Agreement or Trust Agreement, and
with respect to a Series of Notes, the Indenture and the Servicing Agreement,
as the context requires.
If so specified in the related Prospectus Supplement, a Trust Fund
relating to a Series of Securities may be a business trust formed under the
laws of the state specified in the related Prospectus Supplement pursuant to
a trust agreement (each, a "Trust Agreement") between the Depositor and the
trustee of such Trust Fund.
With respect to each Trust Fund, prior to the initial offering of the
related Series of Securities, the Trust Fund will have no assets or
liabilities. No Trust Fund is expected to engage in any activities other
than acquiring, managing and holding of the related Trust Fund Assets and
other assets contemplated herein and in the related Prospectus Supplement and
the proceeds thereof, issuing Securities and making payments and
distributions thereon and certain related activities. No Trust Fund is
expected to have any source of capital other than its assets and any related
credit enhancement.
Unless otherwise specified in the related Prospectus Supplement, the
only obligations of the Depositor with respect to a Series of Securities will
be to obtain certain representations and warranties from the Sellers and to
assign to the Trustee for such Series of Securities the Depositor's rights
with respect to such representations and warranties. See "The Agreements--
Assignment of Trust Fund Assets". The obligations of the Master Servicer
with respect to the Loans will consist principally of its contractual
servicing obligations under the related Agreement (including its obligation
to enforce the obligations of the Sub-Servicers or Sellers, or both, as more
fully described herein under "Loan Program--Representations by Sellers;
Repurchases" and "The Agreements--Sub-Servicing of Loans", "--Assignment of
Trust Fund Assets") and its obligation, if any, to make certain cash advances
in the event of delinquencies in payments on or with respect to the Loans in
the amounts described herein under "Description of the Securities--Advances".
The obligations of the Master Servicer to make advances may be subject to
limitations, to the extent provided herein and in the related Prospectus
Supplement.
The following is a brief description of the assets expected to be
included in the Trust Funds. If specific information respecting the Trust
Fund Assets is not known at the time the related Series of Securities
initially is offered, more general information of the nature described below
will be provided in the related Prospectus Supplement, and specific
information will be set forth in a report on Form 8-K to be filed with the
Securities and Exchange Commission within fifteen days after the initial
issuance of such Securities (the "Detailed Description"). A copy of the
Agreement with respect to each Series of Securities will be attached to the
Form 8-K and will be available for inspection at the corporate trust office
of the Trustee specified in the related Prospectus Supplement. A schedule of
the Trust Fund Assets relating to such Series will be attached to the
Agreement delivered to the Trustee upon delivery of the Securities.
THE LOANS
General. For purposes hereof, "Home Equity Loans" includes "Closed-End
Loans" and "Revolving Credit Line Loans". The real property which secures
repayment of the Loans is referred to as "Properties". Unless otherwise
specified in the related Prospectus Supplement, the Loans will be secured by
mortgages or deeds of trust or other similar security instruments creating a
lien on a Property, which may be subordinated to one or more senior liens on
the related Properties, each as described in the related Prospectus
Supplement. As more fully described in the related Prospectus Supplement,
the Loans may be "conventional" loans or loans that are insured or guaranteed
by a governmental agency such as the FHA or VA.
The Properties relating to Loans will consist primarily of detached or
semi-detached one- to four-family dwelling units, townhouses, rowhouses,
individual condominium units, individual units in planned unit developments,
and certain other dwelling units ("Single Family Properties") or Small Mixed-
Used Properties (as defined herein) which consist of structures of not more
than three stories which include one- to four-family residential dwelling
units and space used for retail, professional or other commercial uses. Such
Properties may include vacation and second homes, investment properties and
leasehold interests. The Properties may be located in any one of the fifty
states, the District of Columbia, Guam, Puerto Rico or any other territory of
the United States.
The payment terms of the Loans to be included in a Trust Fund will be
described in the related
Prospectus Supplement and may include any of the following features (or
combination thereof) or other features,
all as described above or in the related Prospectus Supplement:
(a) Interest may be payable at a fixed rate, a rate adjustable from
time to time in relation to an index (which will be specified in the
related Prospectus Supplement), a rate that is fixed for a period of
time or under certain circumstances and is followed by an adjustable
rate, a rate that otherwise varies from time to time, or a rate that is
convertible from an adjustable rate to a fixed rate. Changes to an
adjustable rate may be subject to periodic limitations, maximum rates,
minimum rates or a combination of such limitations. Accrued interest
may be deferred and added to the principal of a loan for such periods
and under such circumstances as may be specified in the related
Prospectus Supplement. Loans may provide for the payment of interest at
a rate lower than the specified interest rate borne by such Mortgage
(the "Loan Rate") for a period of time or for the life of the Loan, and
the amount of any difference may be contributed from funds supplied by
the Seller of the Property or another source.
(b) Principal may be payable on a level debt service basis to fully
amortize the loan over its term, may be calculated on the basis of an
assumed amortization schedule that is significantly longer than the
original term to maturity or on an interest rate that is different from
the interest rate on the Loan or may not be amortized during all or a
portion of the original term. Payment of all or a substantial portion
of the principal may be due on maturity ("balloon payment"). Principal
may include interest that has been deferred and added to the principal
balance of the Loan.
(c) Monthly payments of principal and interest may be fixed for the
life of the loan, may increase over a specified period of time or may
change from period to period. Loans may include limits on periodic
increases or decreases in the amount of monthly payments and may include
maximum or minimum amounts of monthly payments.
(d) Prepayments of principal may be subject to a prepayment fee,
which may be fixed for the life of the loan or may decline over time,
and may be prohibited for the life of the loan or for certain periods
("lockout periods"). Certain loans may permit prepayments after
expiration of the applicable lockout period and may require the payment
of a prepayment fee in connection with any such subsequent prepayment.
Other loans may permit prepayments without payment of a fee unless the
prepayment occurs during specified time periods. The loans may include
"due on sale" clauses which permit the mortgagee to demand payment of
the entire loan in connection with the sale or certain transfers of the
related Property. Other loans may be assumable by persons meeting the
then applicable underwriting standards of the Seller.
As more fully described in the related Prospectus Supplement, interest
on each Revolving Credit Line Loan, excluding introduction rates offered from
time to time during promotional periods, is computed and payable monthly on
the average daily outstanding principal balance of such Loan. Principal
amounts on a Revolving Credit Line Loan may be drawn down (up to a maximum
amount as set forth in the related Prospectus Supplement) or repaid under
each Revolving Credit Line Loan from time to time, but may be subject to a
minimum periodic payment. Except to the extent provided in the related
Prospectus Supplement, the Trust Fund will not include any amounts borrowed
under a Revolving Credit Line Loan after the Cut-off Date. The full amount
of a Closed-End Loan is advanced at the inception of the loan and generally
is repayable in equal (or substantially equal) installments of an amount to
fully amortize such loan at its stated maturity. Except to the extent
provided in the related Prospectus Supplement, the original terms to stated
maturity of Closed-End Loan will not exceed 360 months. Under certain
circumstances, under either a Revolving Credit Line Loan or a Closed-End
Loan, a borrower may choose an interest only payment option and is obligated
to pay only the amount of interest which accrues on the loan during the
billing cycle. An interest only payment option may be available for a
specified period before the borrower must begin paying at least the minimum
monthly payment of a specified percentage of the average outstanding balance
of the loan.
The aggregate principal balance of Loans secured by Properties that are
owner-occupied will be disclosed in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the sole
basis for a representation that a given percentage of the Loans is secured by
Single Family Property that is owner-occupied will be either (i) the making
of a representation by the borrower at origination of the Loan either that
the underlying Property will be used by the borrower for a period of at least
six months every year or that the borrower intends to use the Property as a
primary residence or (ii) a finding that the address of the underlying
Property is the borrower's mailing address.
The Loans may include fixed-rate, closed-end mortgage loans having terms
to maturity of up to 30 years and secured by first-lien mortgages originated
on Properties containing one to four residential units and no more than three
income producing non-residential units ("Small Mixed-Use Properties"). At
least 50% of the units contained in a Small Mixed-Use Property will consist
of residential units. Income from such non-residential units will not exceed
40% of the adjusted gross income of the related borrower. The maximum Loan-
to-Value Ratio on Small Mixed-Use Properties will not exceed 65%. Small
Mixed-Use Properties may be owner occupied or investor properties and the
loan purpose may be a refinancing or a purchase.
Home Improvement Contracts. The Trust Fund Assets for a Series may
consist, in whole or part, of home improvement installment sales contracts
and installment loan agreements (the "Home Improvement Contracts") originated
by a home improvement contractor, a thrift or a commercial mortgage banker in
the ordinary course of business. As specified in the related Prospectus
Supplement, the Home Improvement Contracts will either be unsecured or
secured by the Mortgages primarily on Single Family Properties which are
generally subordinate to other mortgages on the same Property, or secured by
purchase money security interest in the Home Improvements financed thereby.
Except as otherwise specified in the related Prospectus Supplement, the Home
Improvement Contracts will be fully amortizing and may have fixed interest
rates or adjustable interest rates and may provide for other payment
characteristics as described below and in the related Prospectus Supplement.
Except as otherwise specified in the related Prospectus Supplement, the
home improvements (the "Home Improvements") securing the Home Improvement
Contracts will include, but are not limited to, replacement windows, house
siding, new roofs, swimming pools, satellite dishes, kitchen and bathroom
remodeling goods and solar heating panels.
The initial Loan-to-Value Ratio of a Home Improvement Contract is
computed in the manner described in the related Prospectus Supplement.
Additional Information. Each Prospectus Supplement will contain
information, as of the date of such Prospectus Supplement and to the extent
then specifically known to the Depositor, with respect to the Loans contained
in the related Pool, including (i) the aggregate outstanding principal
balance and the average outstanding principal balance of the Loans as of the
applicable Cut-off Date, (ii) the type of property securing the Loan (e.g.,
one- to four-family houses, individual units in condominium apartment
buildings, vacation and second homes or other real property), (iii) the
original terms to maturity of the Loans, (iv) the largest principal balance
and the smallest principal balance of any of the Loans, (v) the earliest
origination date and latest maturity date of any of the Loans, (vi) the
Loan-to-Value Ratios or Combined Loan-to-Value Ratios, as applicable, of the
Loans, (vii) the Loan Rates or annual percentage rates ("APR") or range of
Loan Rates or APR's borne by the Loans, and (viii) the geographical location
of the Loans on a state-by-state basis. If specific information respecting
the Loans is not known to the Depositor at the time the related Securities
are initially offered, more general information of the nature described above
will be provided in the related Prospectus Supplement, and specific
information will be set forth in the Detailed Description.
Except as otherwise specified in the related Prospectus Supplement, the
"Combined Loan-to-Value Ratio" of a Loan at any given time is the ratio,
expressed as a percentage, of (i) the sum of (a) the original principal
balance of the Loan (or, in the case of a Revolving Credit Line Loan, the
maximum amount thereof available) and (b) the outstanding principal balance
at the date of origination of the Loan of any senior mortgage loan(s) or, in
the case of any open-ended senior mortgage loan, the maximum available line
of credit with respect to such mortgage loan, regardless of any lesser amount
actually outstanding at the date of origination of the Loan, to (ii) the
Collateral Value of the related Property. Except as otherwise specified in
the related Prospectus Supplement, the "Collateral Value" of the Property,
other than with respect to certain Loans the proceeds of which were used to
refinance an existing mortgage loan (each, a "Refinance Loan"), is the lesser
of (a) the appraised value determined in an appraisal obtained by the
originator at origination of such Loan and (b) the sales price for such
Property. In the case of Refinance Loans, the "Collateral Value" of the
related Property is the appraised value thereof determined in an appraisal
obtained at the time of refinancing.
PRIVATE ASSET BACKED SECURITIES
General. Private Asset Backed Securities may consist of (a) pass-
through certificates or participation certificates evidencing an undivided
interest in a pool of home equity or home improvement loans, or (b)
collateralized mortgage obligations secured by home equity or home
improvement loans. Private Asset Backed Securities may include stripped
asset backed securities representing an undivided interest in all or a part
of either the principal distributions (but not the interest distributions) or
the interest distributions (but not the principal distributions) or in some
specified portion of the principal and interest distributions (but not all of
such distributions) on certain home equity or home improvement loans.
Private Asset Backed Securities will have been issued pursuant to a pooling
and servicing agreement, an indenture or similar agreement (a "PABS
Agreement"). The seller/servicer of the underlying Loans will have entered
into the PABS Agreement with the trustee under such PABS Agreement (the "PABS
Trustee"). The PABS Trustee or its agent, or a custodian, will possess the
loans underlying such Private Asset Backed Security. Loans underlying a
Private Asset Backed Security will be serviced by a servicer (the "PABS
Servicer") directly or by one or more subservicers who may be subject to the
supervision of the PABS Servicer. Except as otherwise specified in the
related Prospectus Supplement, the PABS Servicer will be a FNMA or FHLMC
approved servicer and, if FHA Loans underlie the Private Asset Backed
Securities, approved by HUD as an FHA mortgagee.
The issuer of the Private Asset Backed Securities (the "PABS Issuer")
will be a financial institution or other entity engaged generally in the
business of mortgage lending, a public agency or instrumentality of a state,
local or federal government, or a limited purpose corporation organized for
the purpose of, among other things, establishing trusts and acquiring and
selling housing loans to such trusts and selling beneficial interests in such
trusts. The PABS Issuer shall not be an affiliate of the Depositor. The
obligations of the PABS Issuer will generally be limited to certain
representations and warranties with respect to the assets conveyed by it to
the related trust. Except as otherwise specified in the related Prospectus
Supplement, the PABS Issuer will not have guaranteed any of the assets
conveyed to the related trust or any of the Private Asset Backed Securities
issued under the PABS Agreement. Additionally, although the loans underlying
the Private Asset Backed Securities may be guaranteed by an agency or
instrumentality of the United States, the Private Asset Backed Securities
themselves will not be so guaranteed.
Distributions of principal and interest will be made on the Private
Asset Backed Securities on the dates specified in the related Prospectus
Supplement. The Private Asset Backed Securities may be entitled to receive
nominal or no principal distributions or nominal or no interest
distributions. Principal and interest distributions will be made on the
Private Asset Backed Securities by the PABS Trustee or the PABS Servicer.
The PABS Issuer or the PABS Servicer may have the right to repurchase assets
underlying the Private Asset Backed Securities after a certain date or under
other circumstances as specified in the related Prospectus Supplement.
Underlying Loans. The home equity or home improvement loans underlying
the Private Asset Backed Securities may consist of fixed rate, level payment,
fully amortizing loans or graduated payment loans, buydown loans, adjustable
rate loans, or loans having balloon or other special payment features. Such
loans may be secured by single family property, multifamily property,
manufactured homes or by an assignment of the proprietary lease or occupancy
agreement relating to a specific dwelling within a cooperative and the
related shares issued by such cooperative. Except as otherwise specified in
the related Prospectus Supplement, the underlying loans will have the
following characterizations: (i) no loan will have had a Loan-to-Value Ratio
at origination in excess of 95%, (ii) each single family loan secured by a
mortgaged property that had a Loan-to-Value ratio in excess of 80% at
origination will be covered by a primary mortgage insurance policy, (iii)
each loan will have had an original term to stated maturity of not less than
5 years and not more than 40 years, (iv) no loan that was more than 89 days
delinquent as to the payment of principal or interest will have been eligible
for inclusion in the assets under the related PABS Agreement, (v) each loan
(other than a cooperative loan) will be required to be covered by a standard
hazard insurance policy (which may be a blanket policy), and (vi) each loan
(other than a cooperative loan or a contract secured by a manufactured home)
will be covered by a title insurance policy.
Credit Support Relating to Private Asset Backed Securities. Credit
support in the form of reserve funds, subordination of other private
certificates issued under the PABS Agreement, letters of credit, surety
bonds, insurance policies or other types of credit support may be provided
with respect to the loans underlying the Private Asset Backed Securities
themselves.
Rating of Private Asset Backed Securities. The PABS upon their issuance
will have been assigned a rating in one of the four highest rating categories
by at least one nationally recognized statistical rating agency.
Additional Information. The Prospectus Supplement for a Series for
which the Trust Fund includes Private Asset Backed Securities will specify
(i) the aggregate approximate principal amount and type of the Private Asset
Backed Securities to be included in the Trust Fund, (ii) certain
characteristics of the loans which comprise the underlying assets for the
Private Asset Backed Securities including (A) the payment features of such
loans, (B) the approximate aggregate principal balance, if known, of
underlying loans insured or guaranteed by a governmental entity, (C) the
servicing fee or range of servicing fees with respect to the loans, and (D)
the minimum and maximum stated maturities of the underlying loans at
origination, (iii) the maximum original term-to-stated maturity of the
Private Asset Backed Securities, (iv) the weighted average term-to-stated
maturity of the Private Asset Backed Securities, (v) the pass-through or
certificate rate of the Private Asset Backed Securities, (vi) the weighted
average pass-through or certificate rate of the Private Asset Backed
Securities, (vii) the PABS Issuer, the PABS Servicer (if other than the PABS
Issuer) and the PABS Trustee for such Private Asset Backed Securities, (viii)
certain characteristics of credit support, if any, such as reserve funds,
insurance policies, surety bonds, letters of credit or guaranties relating to
the loans underlying the Private Asset Backed Securities or to such Private
Asset Backed Securities themselves, (ix) the term on which the underlying
loans for such Private Asset Backed Securities may, or are required to, be
purchased prior to their stated maturity or the stated maturity of the
Private Asset Backed Securities, (x) the terms on which loans may be
substituted for those originally underlying the Private Asset Backed
Securities and (xi) to the extent provided in a periodic report to the
Trustee in its capacity as holder of the PABS, certain information regarding
the status of the credit support, if any, relating to the PABS.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Securities will be
applied by the Depositor to the purchase of Trust Fund Assets or will be used
by the Depositor for general corporate purposes. The Depositor expects to
sell Securities in Series from time to time, but the timing and amount of
offerings of Securities will depend on a number of factors, including the
volume of Trust Fund Assets acquired by the Depositor, prevailing interest
rates, availability of funds and general market conditions.
THE DEPOSITOR
Financial Asset Securities Corp., the Depositor, is a Delaware
corporation organized on August 2, 1995 for the limited purpose of acquiring,
owning and transferring Trust Fund Assets and selling interests therein or
bonds secured thereby. It is an indirect limited purpose finance subsidiary
of National Westminster Bank Plc and an affiliate of Greenwich Capital
Markets, Inc., a registered securities broker-dealer. The Depositor
maintains its principal office at 600 Steamboat Road, Greenwich, Connecticut
06830. Its telephone number is (203) 625-2700.
Neither the Depositor nor any of the Depositor's affiliates will insure
or guarantee distributions on the Securities of any Series.
LOAN PROGRAM
The Loans will have been purchased by the Depositor, either directly or
through affiliates, from Sellers. Unless otherwise specified in the related
Prospectus Supplement, the Loans so acquired by the Depositor will have been
originated in accordance with the underwriting criteria specified below under
"Underwriting Standards".
UNDERWRITING STANDARDS
Each Seller will represent and warrant that all Loans originated and/or
sold by it to the Depositor or one of its affiliates will have been
underwritten in accordance with standards consistent with those utilized by
mortgage lenders generally during the period of origination for similar types
of loans. As to any Loan insured by the FHA or partially guaranteed by the
VA, the Seller will represent that it has complied with underwriting policies
of the FHA or the VA, as the case may be.
Underwriting standards are applied by or on behalf of a lender to
evaluate the borrower's credit standing and repayment ability, and the value
and adequacy of the Property as collateral. In general, a prospective
borrower applying for a Loan is required to fill out a detailed application
designed to provide to the underwriting officer pertinent credit information,
including the principal balance and payment history with respect to any
senior mortgage, if any, which, unless otherwise specified in the related
Prospectus Supplement, the borrower's income will be verified by the Seller.
As part of the description of the borrower's financial condition, the
borrower generally is required to provide a current list of assets and
liabilities and a statement of income and expenses, as well as an
authorization to apply for a credit report which summarizes the borrower's
credit history with local merchants and lenders and any record of bankruptcy.
In most cases, an employment verification is obtained from an independent
source (typically the borrower's employer) which verification reports the
length of employment with that organization, the current salary, and whether
it is expected that the borrower will continue such employment in the future.
If a prospective borrower is self-employed, the borrower may be required to
submit copies of signed tax returns. The borrower may also be required to
authorize verification of deposits at financial institutions where the
borrower has demand or savings accounts.
In determining the adequacy of the property to be used as collateral, an
appraisal will generally be made of each property considered for financing.
The appraiser is generally required to inspect the property, issue a report
on its condition and, if applicable, verify that construction, if new, has
been completed. The appraisal is based on the market value of comparable
homes, the estimated rental income (if considered applicable by the
appraiser) and the cost of replacing the home. The value of the property
being financed, as indicated by the appraisal, must be such that it currently
supports, and is anticipated to support in the future, the outstanding loan
balance.
Once all applicable employment, credit and property information is
received, a determination generally is made as to whether the prospective
borrower has sufficient monthly income available (i) to meet the borrower's
monthly obligations on the proposed mortgage loan (generally determined on
the basis of the monthly payments due in the year of origination) and other
expenses related to the property (such as property taxes and hazard
insurance) and (ii) to meet monthly housing expenses and other financial
obligations and monthly living expenses. The underwriting standards applied
by Sellers, particularly with respect to the level of loan documentation and
the mortgagor's income and credit history, may be varied in appropriate cases
where factors such as low Combined Loan-to-Value Ratios or other favorable
credit exist.
QUALIFICATIONS OF SELLERS
Unless otherwise specified in the related Prospectus Supplement, each
Seller will be required to satisfy the qualifications set forth herein. Each
Seller must be an institution experienced in originating and servicing loans
of the type contained in the related Pool in accordance with accepted
practices and prudent guidelines, and must maintain satisfactory facilities
to originate and service those loans. Unless otherwise specified in the
related Prospectus Supplement, each Seller will be a seller/servicer approved
by either FNMA or FHLMC.
REPRESENTATIONS BY SELLERS; REPURCHASES OR SUBSTITUTIONS
Each Seller will have made representations and warranties in respect of
the Loans sold by such Seller and evidenced by all, or a part, of a Series of
Securities. Except as otherwise specified in the related Prospectus
Supplement, such representations and warranties include, among other things:
(i) that title insurance (or in the case of Properties located in areas where
such policies are generally not available, an attorney's certificate of
title) and any required hazard insurance policy (or certificate of title as
applicable) remained in effect on the date of purchase of the Loan from the
Seller by or on behalf of the Depositor; (ii) that the Seller had good title
to each such Loan and such Loan was subject to no offsets, defenses,
counterclaims or rights of rescission except to the extent that any buydown
agreement described herein may forgive certain indebtedness of a borrower;
(iii) that each Loan constituted a valid lien on the Property (subject only
to permissible liens disclosed, if applicable, title insurance exceptions, if
applicable, and certain other exceptions described in the Agreement) and that
the Property was free from damage and was in acceptable condition; (iv) that
there were no delinquent tax or assessment liens against the Property;
(v) that no required payment on a Loan was more than thirty days' delinquent;
and (vi) that each Loan was made in compliance with, and is enforceable
under, all applicable local, state and federal laws and regulations in all
material respects.
If so specified in the related Prospectus Supplement, the
representations and warranties of a Seller in respect of a Loan will be made
not as of the Cut-off Date but as of the date on which such Seller sold the
Loan to the Depositor or one of its affiliates. Under such circumstances, a
substantial period of time may have elapsed between such date and the date of
initial issuance of the Series of Securities evidencing an interest in such
Loan. Since the representations and warranties of a Seller do not address
events that may occur following the sale of a Loan by such Seller, its
repurchase obligation described below will not arise if the relevant event
that would otherwise have given rise to such an obligation with respect to a
Loan occurs after the date of sale of such Loan by such Seller to the
Depositor or its affiliates. However, the Depositor will not include any
Loan in the Trust Fund for any Series of Securities if anything has come to
the Depositor's attention that would cause it to believe that the
representationes and warranties of a Seller will not be accurate and complete
in all material respects in respect of such Loan as of the date of initial
issuance of the related Series of Securities. If the Master Servicer is also
a Seller of Loans with respect to a particular Series, such representations
will be in addition to the representations and warranties made by the Master
Servicer in its capacity as a Master Servicer.
The Master Servicer or the Trustee, if the Master Servicer is the
Seller, will promptly notify the relevant Seller of any breach of any
representation or warranty made by it in respect of a Loan which materially
and adversely affects the interests of the Securityholders in such Loan.
Unless otherwise specified in the related Prospectus Supplement, if such
Seller cannot cure such breach within 90 days following notice from the
Master Servicer or the Trustee, as the case may be, then such Seller will be
obligated either (i) to repurchase such Loan from the Trust Fund at a price
(the "Purchase Price") equal to 100% of the unpaid principal balance thereof
as of the date of the repurchase plus accrued interest thereon to the first
day of the month following the month of repurchase at the Loan Rate (less any
Advances or amount payable as related servicing compensation if the Seller is
the Master Servicer) or (ii) to substitute for such Loan a replacement loan
that satisfies certain requirements set forth in the Agreement. If a REMIC
election is to be made with respect to a Trust Fund, unless otherwise
specified in the related Prospectus Supplement, the Master Servicer or a
holder of the related residual certificate generally will be obligated to pay
any prohibited transaction tax which may arise in connection with any such
repurchase or substitution and the Trustee must have received a satisfactory
opinion of counsel that such repurchase or substitution will not cause the
Trust Fund to lose its status as a REMIC or otherwise subject the Trust Fund
to a prohibited transaction tax. The Master Servicer may be entitled to
reimbursement for any such payment from the assets of the related Trust Fund
or from any holder of the related residual certificate. See "Description of
the Securities--General". Except in those cases in which the Master Servicer
is the Seller, the Master Servicer will be required under the applicable
Agreement to enforce this obligation for the benefit of the Trustee and the
holders of the Securities, following the practices it would employ in its
good faith business judgment were it the owner of such Loan. This repurchase
or substitution obligation will constitute the sole remedy available to
holders of Securities or the Trustee for a breach of representation by a
Seller.
Neither the Depositor nor the Master Servicer (unless the Master
Servicer is the Seller) will be obligated to purchase or substitute a Loan if
a Seller defaults on its obligation to do so, and no assurance can be given
that Sellers will carry out their respective repurchase or substitution
obligations with respect to Loans. However, to the extent that a breach of a
representation and warranty of a Seller may also constitute a breach of a
representation made by the Master Servicer, the Master Servicer may have a
repurchase or substitution obligation as described below under "The
Agreements--Assignment of Trust Fund Assets".
DESCRIPTION OF THE SECURITIES
Each Series of Certificates will be issued pursuant to separate
agreements (each, a "Pooling and Servicing Agreement" or a "Trust Agreement")
among the Depositor, the Servicer, if the Series relates to Loans, and the
Trustee. A form of Pooling and Servicing Agreement and Trust Agreement has
been filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. Each Series of Notes will be issued pursuant to an
indenture (the "Indenture") between the related Trust Fund and the entity
named in the related Prospectus Supplement as trustee (the "Trustee") with
respect to such Series. A form of Indenture has been filed as an exhibit to
the Registration Statement of which this Prospectus forms a part. A Series
may consist of both Notes and Certificates. Each Agreement, dated as of the
related Cut-off Date, will be among the Depositor, the Master Servicer and
the Trustee for the benefit of the holders of the Securities of such Series.
The provisions of each Agreement will vary depending upon the nature of the
Securities to be issued thereunder and the nature of the related Trust Fund.
The following summaries describe certain provisions which may appear in each
Agreement. The Prospectus Supplement for a Series of Securities will
describe any provision of the Agreement relating to such Series that mainly
differs from the description thereof contained in this Prospectus. The
summaries do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all of the provisions of the Agreement for
each Series of Securities and the applicable Prospectus Supplement. The
Depositor will provide a copy of the Agreement (without exhibits) relating to
any Series without charge upon written request of a holder of record of a
Security of such Series addressed to Financial Asset Securities Corp., 600
Steamboat Road, Greenwich, Connecticut 06830, Attention: Asset Backed Finance
Group.
GENERAL
Unless otherwise specified in the related Prospectus Supplement, the
Certificates of each Series will be issued in book-entry or fully registered
form, in the authorized denominations specified in the related Prospectus
Supplement, will evidence specified beneficial ownership interests in the
related Trust Fund created pursuant to each Agreement and will not be
entitled to payments in respect of the assets included in any other Trust
Fund established by the Depositor. Unless otherwise specified in the related
Prospectus Supplement, the Notes of each Series will be issued in book-entry
or fully registered form, in the authorized denominations specified in the
related Prospectus Supplement, will be secured by the pledge of the assets of
the related Trust Fund and will not be entitled to payments in respect of the
assets included in any other Trust Fund established by the Depositor. The
Securities will not represent obligations of the Depositor or any affiliate
of the Depositor. Certain of the Loans may be guaranteed or insured as set
forth in the related Prospectus Supplement. Each Trust Fund will consist of,
to the extent provided in the Agreement, (i) the Trust Fund Assets, as from
time to time are subject to the related Agreement (exclusive of any amounts
specified in the related Prospectus Supplement ("Retained Interest")),
including all payments of interest and principal received with respect to the
Loans after the Cut-off Date (to the extent not applied in computing the
Cut-off Date Principal Balance); (ii) such assets as from time to time are
required to be deposited in the related Security Account, as described below
under "The Agreements--Payments on Loans; Deposits to Security Account";
(iii) property which secured a Loan and which is acquired on behalf of the
Securityholders by foreclosure or deed in lieu of foreclosure and (iv) any
insurance policies or other forms of credit enhancement required to be
maintained pursuant to the related Agreement. If so specified in the related
Prospectus Supplement, a Trust Fund may also include one or more of the
following: reinvestment income on payments received on the Trust Fund
Assets, a Reserve Account, a mortgage pool insurance policy, a Special Hazard
Insurance Policy, a Bankruptcy Bond, one or more letters of credit, a surety
bond, guaranties or similar instruments or other agreements.
Each Series of Securities will be issued in one or more classes. Each
class of Securities of a Series will evidence beneficial ownership of a
specified percentage (which may be 0%) or portion of future interest payments
and a specified percentage (which may be 0%) or portion of future principal
payments on the Trust Fund Assets in the related Trust Fund. A Series of
Securities may include one or more classes that are senior in right to
payment to one or more other classes of Securities of such Series. One or
more classes of Securities of a Series may be entitled to receive
distributions of principal, interest or any combination thereof.
Distributions on one or more classes of a Series of Securities may be made
prior to one or more other classes, after the occurrence of specified events,
in accordance with a schedule or formula, on the basis of collections from
designated portions of the Trust Fund Assets in the related Trust Fund or on
a different basis, in each case as specified in the related Prospectus
Supplement. The timing and amounts of such distributions may vary among
classes or over time as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement,
distributions of principal and interest (or, where applicable, of principal
only or interest only) on the related Securities will be made by the Trustee
on each Distribution Date (i.e., monthly or at such other intervals and on
the dates as are specified in the Prospectus Supplement) in proportion to the
percentages specified in the related Prospectus Supplement. Distributions
will be made to the persons in whose names the Securities are registered at
the close of business on the dates specified in the related Prospectus
Supplement (each, a "Record Date"). Distributions will be made in the manner
specified in the Prospectus Supplement to the persons entitled thereto at the
address appearing in the register maintained for holders of Securities (the
"Security Register"); provided, however, that the final distribution in
retirement of the Securities will be made only upon presentation and
surrender of the Securities at the office or agency of the Trustee or other
person specified in the notice to Securityholders of such final distribution.
The Securities will be freely transferable and exchangeable at the
Corporate Trust Office of the Trustee as set forth in the related Prospectus
Supplement. No service charge will be made for any registration of exchange
or transfer of Securities of any Series but the Trustee may require payment
of a sum sufficient to cover any related tax or other governmental charge.
Under current law the purchase and holding of a class of Securities
entitled only to a specified percentage of payments of either interest or
principal or a notional amount of other interest or principal on the related
Loans or a class of Securities entitled to receive payments of interest and
principal on the Loans only after payments to other classes or after the
occurrence of certain specified events by or on behalf of any employee
benefit plan or other retirement arrangement (including individual retirement
accounts and annuities, Keogh plans and collective investment funds in which
such plans, accounts or arrangements are invested) subject to provisions of
ERISA or the Code may result in prohibited transactions within the meaning of
ERISA and the Code. See "ERISA Considerations". Unless otherwise specified
in the related Prospectus Supplement, the transfer of Securities of such a
class will not be registered unless the transferee (i) represents that it is
not, and is not purchasing on behalf of, any such plan, account or
arrangement or (ii) provides an opinion of counsel satisfactory to the
Trustee and the Depositor that the purchase of Securities of such a class by
or on behalf of such plan, account or arrangement is permissible under
applicable law and will not subject the Trustee, the Master Servicer or the
Depositor to any obligation or liability in addition to those undertaken in
the Agreements.
As to each Series, an election may be made to treat the related Trust
Fund or designated portions thereof as a "real estate mortgage investment
conduit" or "REMIC" as defined in the Code. The related Prospectus
Supplement will specify whether a REMIC election is to be made.
Alternatively, the Agreement for a Series may provide that a REMIC election
may be made at the discretion of the Depositor or the Master Servicer and may
only be made if certain conditions are satisfied. As to any such Series, the
terms and provisions applicable to the making of a REMIC election, as well as
any material federal income tax consequences to Securityholders not otherwise
described herein, will be set forth in the related Prospectus Supplement. If
such an election is made with respect to a Series, one of the classes will be
designated as evidencing the sole class of "residual interests" in the
related REMIC, as defined in the Code. All other classes of Securities in
such a Series will constitute "regular interests" in the related REMIC, as
defined in the Code. As to each Series with respect to which a REMIC
election is to be made, the Master Servicer or a holder of the related
residual certificate will be obligated to take all actions required in order
to comply with applicable laws and regulations and will be obligated to pay
any prohibited transaction taxes. The Master Servicer, to the extent set
forth in the related Prospectus Supplement, will be entitled to reimbursement
for any such payment from the assets of the Trust Fund or from any holder of
the related residual certificate.
DISTRIBUTIONS ON SECURITIES
General. In general, the method of determining the amount of
distributions on a particular Series of Securities will depend on the type of
credit support, if any, that is used with respect to such Series. See
"Credit Enhancement". Set forth below are descriptions of various methods
that may be used to determine the amount of distributions on the Securities
of a particular Series. The Prospectus Supplement for each Series of
Securities will describe the method to be used in determining the amount of
distributions on the Securities of such Series.
Distributions allocable to principal and interest on the Securities will
be made by the Trustee out of, and only to the extent of, funds in the
related Security Account, including any funds transferred from any Reserve
Account (a "Reserve Account"). As between Securities of different classes
and as between distributions of principal (and, if applicable, between
distributions of Principal Prepayments, as defined below, and scheduled
payments of principal) and interest, distributions made on any Distribution
Date will be applied as specified in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
distributions to any class of Securities will be made pro rata to all
Securityholders of that class.
Available Funds. All distributions on the Securities of each Series on
each Distribution Date will be made from the Available Funds described below,
in accordance with the terms described in the related Prospectus Supplement
and specified in the Agreement. Unless otherwise provided in the related
Prospectus Supplement, "Available Funds" for each Distribution Date will
equal the sum of the following amounts:
(i) the aggregate of all previously undistributed payments on
account of principal (including Principal Prepayments, if any, and
prepayment penalties, if so provided in the related Prospectus
Supplement) and interest on the Loans in the related Trust Fund
(including Liquidation Proceeds and Insurance Proceeds and amounts drawn
under letters of credit or other credit enhancement instruments as
permitted thereunder and as specified in the related Agreement) received
by the Master Servicer after the Cut-off Date and on or prior to the day
of the month of the related Distribution Date specified in the related
Prospectus Supplement (the "Determination Date") except
(a) all payments which were due on or before the Cut-off Date;
(b) all Liquidation Proceeds and all Insurance Proceeds, all
Principal Prepayments and all other proceeds of any Loan purchased
by the Depositor, Master Servicer, any Sub-Servicer or any Seller
pursuant to the Agreement that were received after the prepayment
period specified in the related Prospectus Supplement and all
related payments of interest representing interest for any period
after the interest accrual period;
(c) all scheduled payments of principal and interest due on a
date or dates subsequent to the Due Period relating to such
Distribution Date;
(d) amounts received on particular Loans as late payments of
principal or interest or other amounts required to be paid by
borrowers, but only to the extent of any unreimbursed advance in
respect thereof made by the Master Servicer (including the related
Sub-Servicers, Support Servicers or the Trustee);
(e) amounts representing reimbursement, to the extent permitted
by the Agreement and as described under "Advances" below, for
advances made by the Master Servicer, Sub-Servicers, Support
Servicers or the Trustee that were deposited into the Security
Account, and amounts representing reimbursement for certain other
losses and expenses incurred by the Master Servicer or the Depositor
and described below;
(f) that portion of each collection of interest on a particular
Loan in such Trust Fund which represents servicing compensation
payable to the Master Servicer or Retained Interest which is to be
retained from such collection or is permitted to be retained from
related Insurance Proceeds, Liquidation Proceeds or proceeds of
Loans purchased pursuant to the Agreement;
(ii) the amount of any advance made by the Master Servicer, Sub
Servicer, Support Servicer or Trustee as described under "Advances"
below and deposited by it in the Security Account;
(iii) if applicable, amounts withdrawn from a Reserve Account;
(iv) if applicable, amounts provided under a letter of credit,
insurance policy, surety bond or other third-party guaranties; and
(v) if applicable, the amount of prepayment interest shortfall.
Distributions of Interest. Unless otherwise specified in the related
Prospectus Supplement, interest will accrue on the aggregate Security
Principal Balance (or, in the case of Securities (i) entitled only to
distributions allocable to interest, the aggregate notional principal balance
or (ii) which, under certain circumstances, allow for the accrual of interest
otherwise scheduled for payment to remain unpaid until the occurrence of
certain events specified in the related Prospectus Supplement) of each class
of Securities entitled to interest from the date, at the Pass-Through Rate
(which may be a fixed rate or rate adjustable as specified in such Prospectus
Supplement) and for the periods specified in such Prospectus Supplement. To
the extent funds are available therefor, interest accrued during each such
specified period on each class of Securities entitled to interest (other than
a class of Securities that provides for interest that accrues, but is not
currently payable, referred to hereafter as "Accrual Securities") will be
distributable on the Distribution Dates specified in the related Prospectus
Supplement until the aggregate Security Principal Balance of the Securities
of such class has been distributed in full or, in the case of Securities
entitled only to distributions allocable to interest, until the aggregate
notional principal balance of such Securities is reduced to zero or for the
period of time designated in the related Prospectus Supplement. The original
Security Principal Balance of each Security will equal the aggregate
distributions allocable to principal to which such Security is entitled.
Unless otherwise specified in the related Prospectus Supplement,
distributions allocable to interest on each Security that is not entitled to
distributions allocable to principal will be calculated based on the notional
principal balance of such Security. The notional principal balance of a
Security will not evidence an interest in or entitlement to distributions
allocable to principal but will be used solely for convenience in expressing
the calculation of interest and for certain other purposes.
Interest payable on the Securities of a Series on a Distribution Date
will include all interest accrued during the period specified in the related
Prospectus Supplement. In the event interest accrues over a period ending
two or more days prior to a Distribution Date, the effective yield to
Securityholders will be reduced from the yield that would otherwise be
obtainable if interest payable on the Security were to accrue through the day
immediately preceding each Distribution Date, and the effective yield (at
par) to Securityholders will be less than the indicated coupon rate.
With respect to any class of Accrual Securities, if specified in the
related Prospectus Supplement, any interest that has accrued but is not paid
on a given Distribution Date will be added to the aggregate Security
Principal Balance of such class of Securities on that Distribution Date.
Distributions of interest on any class of Accrual Securities will commence
only after the occurrence of the events specified in the related Prospectus
Supplement. Prior to such time, the beneficial ownership interest of such
class of Accrual Securities in the Trust Fund, as reflected in the aggregate
Security Principal Balance of such class of Accrual Securities, will increase
on each Distribution Date by the amount of interest that accrued on such
class of Accrual Securities during the preceding interest accrual period but
that was not required to be distributed to such class on such Distribution
Date. Any such class of Accrual Securities will thereafter accrue interest
on its outstanding Security Principal Balance as so adjusted.
Distributions of Principal. The related Prospectus Supplement will
specify the method by which the amount of principal to be distributed on the
Securities on each Distribution Date will be calculated and the manner in
which such amount will be allocated among the classes of Securities entitled
to distributions of principal. The aggregate Security Principal Balance of
any class of Securities entitled to distributions of principal generally will
be the aggregate original Security Principal Balance of such class of
Securities specified in such Prospectus Supplement, reduced by all
distributions reported to the holders of such Securities as allocable to
principal and, (i) in the case of Accrual Securities, increased by all
interest accrued but not then distributable on such Accrual Securities and
(ii) in the case of adjustable rate Securities, subject to the effect of
negative amortization, if applicable.
If so provided in the related Prospectus Supplement, one or more classes
of Securities will be entitled to receive all or a disproportionate
percentage of the payments of principal which are received from borrowers in
advance of their scheduled due dates and are not accompanied by amounts
representing scheduled interest due after the month of such payments
("Principal Prepayments") in the percentages and under the circumstances or
for the periods specified in such Prospectus Supplement. Any such allocation
of Principal Prepayments to such class or classes of Securityholders will
have the effect of accelerating the amortization of such Securities while
increasing the interests evidenced by other Securities in the Trust Fund.
Increasing the interests of the other Securities relative to that of certain
Securities allocated by the principal prepayments is intended to preserve the
availability of the subordination provided by such other Securities. See
"Credit Enhancement-Subordination".
Unscheduled Distributions. The Securities will be subject to receipt of
distributions before the next scheduled Distribution Date under the
circumstances and in the manner described below and in such Prospectus
Supplement. If applicable, the Trustee will be required to make such
unscheduled distributions on the day and in the amount specified in the
related Prospectus Supplement if, due to substantial payments of principal
(including Principal Prepayments) on the Trust Fund Assets, the Trustee or
the Master Servicer determines that the funds available or anticipated to be
available from the Security Account and, if applicable, any Reserve Account,
may be insufficient to make required distributions on the Securities on such
Distribution Date. Unless otherwise specified in the related Prospectus
Supplement, the amount of any such unscheduled distribution that is allocable
to principal will not exceed the amount that would otherwise have been
required to be distributed as principal on the Securities on the next
Distribution Date. Unless otherwise specified in the related Prospectus
Supplement, the unscheduled distributions will include interest at the
applicable Pass-Through Rate (if any) on the amount of the unscheduled
distribution allocable to principal for the period and to the date specified
in such Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
distributions allocable to principal in any unscheduled distribution will be
made in the same priority and manner as distributions of principal on the
Securities would have been made on the next Distribution Date, and with
respect to Securities of the same class, unscheduled distributions of
principal will be made on the same basis as such distributions would have
been made on the next Distribution Date on a pro rata basis. Notice of any
unscheduled distribution will be given by the Trustee prior to the date of
such distribution.
ADVANCES
To the extent provided in the related Prospectus Supplement, the Master
Servicer will be required to advance on or before each Distribution Date
(from its own funds, funds advanced by Sub-Servicers or Support Servicers or
funds held in the Security Account for future distributions to the holders of
such Securities), an amount equal to the aggregate of payments of interest
and/or principal that were delinquent on the related Determination Date and
were not advanced by any Sub-Servicer, subject to the Master Servicer's
determination that such advances will be recoverable out of late payments by
borrowers, Liquidation Proceeds, Insurance Proceeds or otherwise. In
addition, to the extent provided in the related Prospectus Supplement, a cash
account may be established to provide for Advances to be made in the event of
certain Trust Fund Assets payment defaults or collection shortfalls.
In making Advances, the Master Servicer will endeavor to maintain a
regular flow of scheduled interest and principal payments to holders of the
Securities, rather than to guarantee or insure against losses. If Advances
are made by the Master Servicer from cash being held for future distribution
to Securityholders, the Master Servicer will replace such funds on or before
any future Distribution Date to the extent that funds in the applicable
Security Account on such Distribution Date would be less than the amount
required to be available for distributions to Securityholders on such date.
Any Master Servicer funds advanced will be reimbursable to the Master
Servicer out of recoveries on the specific Loans with respect to which such
Advances were made (e.g., late payments made by the related borrower, any
related Insurance Proceeds, Liquidation Proceeds or proceeds of any Loan
purchased by a Sub-Servicer or a Seller under the circumstances described
hereinabove). Advances by the Master Servicer (and any advances by a
Sub-Servicer or a Support Servicer) also will be reimbursable to the Master
Servicer (or Sub-Servicer or a Support Servicer) from cash otherwise
distributable to Securityholders (including the holders of Senior Securities)
to the extent that the Master Servicer determines that any such Advances
previously made are not ultimately recoverable as described above. To the
extent provided in the related Prospectus Supplement, the Master Servicer
also will be obligated to make Advances, to the extent recoverable out of
Insurance Proceeds, Liquidation Proceeds or otherwise, in respect of certain
taxes and insurance premiums not paid by borrowers on a timely basis. Funds
so advanced are reimbursable to the Master Servicer to the extent permitted
by the Agreement. The obligations of the Master Servicer to make advances
may be supported by a cash advance reserve fund, a surety bond or other
arrangement, in each case as described in such Prospectus Supplement.
The Master Servicer or Sub-Servicer may enter into an agreement (a
"Support Agreement") with a Support Servicer pursuant to which the Support
Servicer agrees to provide funds on behalf of the Master Servicer or Sub-
Servicer in connection with the obligation of the Master Servicer or Sub-
Servicer, as the case may be, to make Advances. The Support Agreement will
be delivered to the Trustee and the Trustee will be authorized to accept a
substitute Support Agreement in exchange for an original Support Agreement,
provided that such substitution of the Support Agreement will not adversely
affect the rating or ratings then in effect on the Securities.
Unless otherwise specified in the related Prospectus Supplement, in the
event the Master Servicer, a Sub-Servicer or a Support Servicer fails to make
a required Advance, the Trustee will be obligated to make such Advance in its
capacity as successor servicer. If the Trustee makes such an Advance, it
will be entitled to be reimbursed for such Advance to the same extent and
degree as the Master Servicer, a Sub-Servicer or a Support Servicer is
entitled to be reimbursed for Advances. See "Description of the Securities--
Distributions on Securities" herein.
COMPENSATING INTEREST
If so specified in the related Prospectus Supplement, the Master
Servicer will be required to remit to the Trustee, with respect to each Loan
in the related Trust Fund as to which a principal prepayment in full or a
principal payment which is in excess of the scheduled monthly payment and is
not intended to cure a delinquency was received during any Due Period, an
amount, from and to the extent of amounts otherwise payable to the Master
Servicer as servicing compensation, equal to the excess, if any, of (a) 30
days' interest on the principal balance of the related Loan at the Loan Rate
net of the per annum rate at which the Master Servicer's servicing fee
accrues, over (b) the amount of interest actually received on such Loan
during such Due Period, net of the Master Servicer's servicing fee.
REPORTS TO SECURITYHOLDERS
Prior to or concurrently with each distribution on a Distribution Date,
the Master Servicer or the Trustee will furnish to each Securityholder of
record of the related Series a statement setting forth, to the extent
applicable to such Series of Securities, among other things:
(i) the amount of such distribution allocable to principal,
separately identifying the aggregate amount of any Principal Prepayments
and any applicable prepayment penalties included therein;
(ii) the amount of such distribution allocable to interest;
(iii) the amount of any Advance;
(iv) the aggregate amount (a) otherwise allocable to the
Subordinated Securityholders on such Distribution Date, and (b)
withdrawn from the Reserve Fund, if any, that is included in the amounts
distributed to the Senior Securityholders;
(v) the outstanding principal balance or notional principal balance
of such class after giving effect to the distribution of principal on
such Distribution Date;
(vi) the percentage of principal payments on the Loans (excluding
prepayments), if any, which such class will be entitled to receive on
the following Distribution Date;
(vii) the percentage of Principal Prepayments on the Loans, if
any, which such class will be entitled to receive on the following
Distribution Date;
(viii) the related amount of the servicing compensation retained or
withdrawn from the Security Account by the Master Servicer, and the
amount of additional servicing compensation received by the Master
Servicer attributable to penalties, fees, excess Liquidation Proceeds
and other similar charges and items;
(ix) the number and aggregate principal balances of Loans (A)
delinquent (exclusive of Loans in foreclosure) (1) 31 to 60 days, (2) 61
to 90 days and (3) 91 or more days and (B) in foreclosure and delinquent
(1) 31 to 60 days, (2) 61 to 90 days and (3) 91 or more days, as of the
close of business on the last day of the calendar month preceding such
Distribution Date;
(x) the book value of any real estate acquired through foreclosure
or grant of a deed in lieu of foreclosure;
(xi) if a class is entitled only to a specified portion of
payments of interest on the Loans in the related Pool, the Pass-Through
Rate, if adjusted from the date of the last statement, of the Loans
expected to be applicable to the next distribution to such class;
(xii) if applicable, the amount remaining in any Reserve Account
at the close of business on the Distribution Date;
(xiii) the Pass-Through Rate as of the day prior to the immediately
preceding Distribution Date;
and
(xiv) any amounts remaining under letters of credit, pool policies
or other forms of credit enhancement.
Where applicable, any amount set forth above may be expressed as a
dollar amount per single Security of the relevant class having the Percentage
Interest specified in the related Prospectus Supplement. The report to
Securityholders for any Series of Securities may include additional or other
information of a similar nature to that specified above.
In addition, within a reasonable period of time after the end of each
calendar year, the Master Servicer or the Trustee will mail to each
Securityholder of record at any time during such calendar year a report (a)
as to the aggregate of amounts reported pursuant to (i) and (ii) above for
such calendar year or, in the event such person was a Securityholder of
record during a portion of such calendar year, for the applicable portion of
such year and (b) such other customary information as may be deemed necessary
or desirable for Securityholders to prepare their tax returns.
BOOK-ENTRY REGISTRATION OF SECURITIES
As described in the Prospectus Supplement, if not issued in fully
registered form, each class of Securities will be registered as book-entry
certificates (the "Book-Entry Securities"). Persons acquiring beneficial
ownership interests in the Securities ("Security Owners") will hold their
Securities through the Depository Trust Company ("DTC") in the United States,
or Cedel Bank, societe anonyme ("CEDEL") or the Euroclear System
("Euroclear") (in Europe) if they are participants ("Participants") of such
systems, or indirectly through organizations which are Participants in such
systems. The Book-Entry Securities will be issued in one or more
certificates which equal the aggregate principal balance of the Securities
and will initially be registered in the name of Cede & Co., the nominee of
DTC. CEDEL and Euroclear will hold omnibus positions on behalf of their
Participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositaries which in turn
will hold such positions in customers' securities accounts in the
depositaries' names on the books of DTC. Citibank, N.A. will act as
depositary for CEDEL and the Brussels, Belgium branch of Morgan Guarantee
Trust Company of New York ("Morgan") will act as depositary for Euroclear (in
such capacities, individually the "Relevant Depositary" and collectively the
"European Depositaries"). Except as described below, no Security Owner will
be entitled to receive a physical certificate representing such Security (a
"Definitive Security"). Unless and until Definitive Securities are issued,
it is anticipated that the only "Securityholders" of the Securities will be
Cede & Co., as nominee of DTC. Security Owners are only permitted to
exercise their rights indirectly through Participants and DTC.
The Security Owner's ownership of a Book-Entry Security will be recorded
on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Security Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Security will be recorded on the
records of DTC (or of a participating firm that acts as agent for the
Financial Intermediary, whose interest will in turn be recorded on the
records of DTC, if the Security Owner's Financial Intermediary is not a
Participant and on the records of CEDEL or Euroclear, as appropriate).
Security Owners will receive all distributions of principal of, and
interest on, the Securities from the Trustee through DTC and Participants.
While the Securities are outstanding (except under the circumstances
described below), under the rules, regulations and procedures creating and
affecting DTC and its operations (the "Rules"), DTC is required to make
book-entry transfers among Participants on whose behalf it acts with respect
to the Securities and is required to receive and transmit distributions of
principal of, and interest on, the Securities. Participants and indirect
participants with whom Security Owners have accounts with respect to
Securities are similarly required to make book-entry transfers and receive
and transmit such distributions on behalf of their respective Security
Owners. Accordingly, although Security Owners will not possess certificates,
the Rules provide a mechanism by which Security Owners will receive
distributions and will be able to transfer their interest.
Security Owners will not receive or be entitled to receive certificates
representing their respective interests in the Securities, except under the
limited circumstances described below. Unless and until Definitive
Securities are issued, Security Owners who are not Participants may transfer
ownership of Securities only through Participants and indirect participants
by instructing such Participants and indirect participants to transfer
Securities, by book-entry transfer, through DTC for the account of the
purchasers of such Securities, which account is maintained with their
respective Participants. Under the Rules and in accordance with DTC's normal
procedures, transfers of ownership of Securities will be executed through DTC
and the accounts of the respective Participants at DTC will be debited and
credited. Similarly, the Participants and indirect participants will make
debits or credits, as the case may be, on their records on behalf of the
selling and purchasing Security Owners.
Because of time zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be
made during subsequent securities settlement processing and dated the
business day following the DTC settlement date. Such credits or any
transactions in such securities settled during such processing will be
reported to the relevant Euroclear or CEDEL Participants on such business
day. Cash received in CEDEL or Euroclear as a result of sales of securities
by or through a CEDEL Participant (as defined herein) or Euroclear
Participant (as defined herein) to a DTC Participant will be received with
value on the DTC settlement date but will be available in the relevant CEDEL
or Euroclear cash account only as of the business day following settlement in
DTC.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC
in accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(European time). The relevant European international clearing system will,
if the transaction meets its settlement requirements, deliver instructions to
the Relevant Depositary to take action to effect final settlement on its
behalf by delivering or receiving securities in DTC, and making or receiving
payment in accordance with normal procedures for same day funds settlement
applicable to DTC. CEDEL Participants and Euroclear Participants may not
deliver instructions directly to the European Depositaries.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participating organizations
("CEDEL Participants") and facilitates the clearance and settlement of
securities transactions between CEDEL Participants through electronic
book-entry changes in accounts of CEDEL Participants, thereby eliminating the
need for physical movement of certificates. Transactions may be settled in
CEDEL in any of 28 currencies, including United States dollars. CEDEL
provides to its CEDEL Participants, among other things, services for
safekeeping, administration, clearance and settlement of internationally
traded securities and securities lending and borrowing. CEDEL interfaces
with domestic markets in several countries. As a professional depository,
CEDEL is subject to regulation by the Luxembourg Monetary Institute. CEDEL
participants are recognized financial institutions around the world,
including underwriters, securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. Indirect
access to CEDEL is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities
and cash. Transactions may be settled in any of 32 currencies, including
United States dollars. Euroclear includes various other services, including
securities lending and borrowing and interfaces with domestic markets in
several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the Brussels,
Belgium office of Morgan, under contract with Euroclear Clearance Systems
S.C., a Belgian cooperative corporation (the "Cooperative"). All operations
are conducted by Morgan, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including
central banks), securities brokers and dealers and other professional
financial intermediaries. Indirect access to Euroclear is also available to
other firms that clear through or maintain a custodial relationship with a
Euroclear Participant, either directly or indirectly.
Morgan is the Belgian branch of a New York banking corporation which is
a member bank of the Federal Reserve System. As such, it is regulated and
examined by the Board of Governors of the Federal Reserve System and the New
York State Banking Department, as well as the Belgian Banking Commission.
Securities clearance accounts and cash accounts with Morgan are governed
by the Terms and Conditions Governing Use of Euroclear and the related
Operating Procedures of the Euroclear System and applicable Belgian law
(collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities
and cash from Euroclear, and receipts of payments with respect to securities
in Euroclear. All securities in Euroclear are held on a fungible basis
without attribution of specific certificates to specific securities clearance
accounts. The Euroclear Operator acts under the Terms and Conditions only on
behalf of Euroclear Participants, and has no record of or relationship with
persons holding through Euroclear Participants.
Under a book-entry format, beneficial owners of the Book-Entry
Securities may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede. Distributions with
respect to Securities held through CEDEL or Euroclear will be credited to the
cash accounts of CEDEL Participants or Euroclear Participants in accordance
with the relevant system's rules and procedures, to the extent received by
the Relevant Depositary. Such distributions will be subject to tax reporting
in accordance with relevant United States tax laws and regulations. See
"Certain Material Federal Income Tax Consequences--Tax Treatment of Foreign
Investors" and "--Tax Consequences to Holders of Notes--Backup Withholding"
herein. Because DTC can only act on behalf of Financial Intermediaries, the
ability of a beneficial owner to pledge Book-Entry Securities to persons or
entities that do not participate in the Depository system, or otherwise take
actions in respect of such Book-Entry Securities, may be limited due to the
lack of physical certificates for such Book-Entry Securities. In addition,
issuance of the Book-Entry Securities in book-entry form may reduce the
liquidity of such Securities in the secondary market since certain potential
investors may be unwilling to purchase Securities for which they cannot
obtain physical certificates.
Monthly and annual reports on the Trust will be provided to CEDE, as
nominee of DTC, and may be made available by CEDE to beneficial owners upon
request, in accordance with the rules, regulations and procedures creating
and affecting the Depository, and to the Financial Intermediaries to whose
DTC accounts the Book-Entry Securities of such beneficial owners are
credited.
DTC has advised the Trustee that, unless and until Definitive Securities
are issued, DTC will take any action permitted to be taken by the holders of
the Book-Entry Securities under the applicable Agreement only at the
direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Securities are credited, to the extent that such actions are taken
on behalf of Financial Intermediaries whose holdings include such Book-Entry
Securities. CEDEL or the Euroclear Operator, as the case may be, will take
any other action permitted to be taken by a Securityholder under the
Agreement on behalf of a CEDEL Participant or Euroclear Participant only in
accordance with its relevant rules and procedures and subject to the ability
of the Relevant Depositary to effect such actions on its behalf through DTC.
DTC may take actions, at the direction of the related Participants, with
respect to some Securities which conflict with actions taken with respect to
other Securities.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all beneficial
owners of the occurrence of such event and the availability through DTC of
Definitive Securities. Upon surrender by DTC of the global certificate or
certificates representing the Book-Entry Securities and instructions for
re-registration, the Trustee will issue Definitive Securities, and thereafter
the Trustee will recognize the holders of such Definitive Securities as
Securityholders under the applicable Agreement.
Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Securities among participants
of DTC, CEDEL and Euroclear, they are under no obligation to perform or
continue to perform such procedures and such procedures may be discontinued
at any time.
None of the Servicer, the Depositor or the Trustee will have any
responsibility for any aspect of the records relating, to or payments made
on account of beneficial ownership interests of the Book-Entry Securities
held by Cede & Co., as nominee for DTC, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
CREDIT ENHANCEMENT
GENERAL
Credit enhancement may be provided with respect to one or more classes
of a Series of Securities or with respect to the Trust Fund Assets in the
related Trust Fund. Credit enhancement may be in the form of a limited
financial guaranty policy issued by an entity named in the related Prospectus
Supplement, the subordination of one or more classes of the Securities of
such Series, the establishment of one or more Reserve Accounts, the use of a
cross-support feature, use of a mortgage pool insurance policy, FHA
Insurance, VA Guarantee, bankruptcy bond, special hazard insurance policy,
surety bond, letter of credit, guaranteed investment contract or another
method of credit enhancement described in the related Prospectus Supplement,
or any combination of the foregoing. Unless otherwise specified in the
related Prospectus Supplement, credit enhancement will not provide protection
against all risks of loss and will not guarantee repayment of the entire
principal balance of the Securities and interest thereon. If losses occur
which exceed the amount covered be credit enhancement or which are not
covered by the credit enhancement, Securityholders will bear their allocable
share of deficiencies.
SUBORDINATION
Protection afforded to holders of one or more classes of Securities of a
Series by means of the subordination feature may be accomplished by the
preferential right of holders of one or more other classes of such Series
(the "Senior Securities") to distributions in respect of scheduled principal,
Principal Prepayments, interest or any combination thereof that otherwise
would have been payable to holders of Subordinated Securities under the
circumstances and to the extent specified in the related Prospectus
Supplement. Protection may also be afforded to the holders of Senior
Securities of a Series by: (i) reducing the ownership interest of the related
Subordinated Securities; (ii) a combination of the immediately preceding
sentence and clause (i) above; or (iii) as otherwise described in the related
Prospectus Supplement. Delays in receipt of scheduled payments on the Loans
and losses on defaulted Loans may be borne first by the various classes of
Subordinated Securities and thereafter by the various classes of Senior
Securities, in each case under the circumstances and subject to the
limitations specified in such related Prospectus Supplement. The aggregate
distributions in respect of delinquent payments on the Loans over the lives
of the Securities or at any time, the aggregate losses in respect of
defaulted Loans which must be borne by the Subordinated Securities by virtue
of subordination and the amount of the distributions otherwise distributable
to the Subordinated Securityholders that will be distributable to Senior
Securityholders on any Distribution Date may be limited as specified in the
related Prospectus Supplement. If aggregate distributions in respect of
delinquent payments on the Loans or aggregate losses in respect of such Loans
were to exceed an amount specified in the related Prospectus Supplement,
holders of Senior Securities would experience losses on the Securities.
In addition to or in lieu of the foregoing, if so specified in the
related Prospectus Supplement, all or any portion of distributions otherwise
payable to holders of Subordinated Securities on any Distribution Date may
instead be deposited into one or more Reserve Accounts established with the
Trustee or distributed to holders of Senior Securities. Such deposits may be
made on each Distribution Date, for specified periods or until the balance in
the Reserve Account has reached a specified amount and, following payments
from the Reserve Account to holders of Senior Securities or otherwise,
thereafter to the extent necessary to restore the balance in the Reserve
Account to required levels, in each case as specified in the related
Prospectus Supplement. Amounts on deposit in the Reserve Account may be
released to the holders of certain classes of Securities at the times and
under the circumstances specified in such Prospectus Supplement.
Various classes of Senior Securities and Subordinated Securities may
themselves be subordinate in their right to receive certain distributions to
other classes of Senior and Subordinated Securities, respectively, through a
cross support mechanism or otherwise.
As between classes of Senior Securities and as between classes of
Subordinated Securities, distributions may be allocated among such classes
(i) in the order of their scheduled final distribution dates, (ii) in
accordance with a schedule or formula, (iii) in relation to the occurrence of
events, or (iv) otherwise, in each case as specified in the related
Prospectus Supplement. As between classes of Subordinated Securities,
payments to holders of Senior Securities on account of delinquencies or
losses and payments to any Reserve Account will be allocated as specified in
the related Prospectus Supplement.
SPECIAL HAZARD INSURANCE POLICIES
A separate Special Hazard Insurance Policy may be obtained for the Pool
and issued by the insurer (the "Special Hazard Insurer") named in the related
Prospectus Supplement. Each Special Hazard Insurance Policy will, subject to
limitations described below, protect holders of the related Securities from
(i) loss by reason of damage to Properties caused by certain hazards
(including earthquakes and, to a limited extent, tidal waves and related
water damage or as otherwise specified in the related Prospectus Supplement)
not insured against under the standard form of hazard insurance policy for
the respective states in which the Properties are located or under a flood
insurance policy if the Property is located in a federally designated flood
area, and (ii) loss caused by reason of the application of the coinsurance
clause contained in hazard insurance policies. See "The Agreements-Hazard
Insurance". Each Special Hazard Insurance Policy will not cover losses
occasioned by fraud or conversion by the Trustee or Master Servicer, war,
insurrection, civil war, certain governmental action, errors in design,
faulty workmanship or materials (except under certain circumstances), nuclear
or chemical reactions, flood (if the Property is located in a federally
designated flood area), nuclear or chemical contamination and certain other
risks. The amount of coverage under any Special Hazard Insurance Policy will
be specified in the related Prospectus Supplement. Each Special Hazard
Insurance Policy will provide that no claim may be paid unless hazard and, if
applicable, flood insurance on the Property securing the Loan have been kept
in force and other protection and preservation expenses have been paid.
Subject to the foregoing limitations, and unless otherwise specified in
the related Prospectus Supplement, each Special Hazard Insurance Policy will
provide that where there has been damage to Property securing a foreclosed
Loan (title to which has been acquired by the insured) and to the extent such
damage is not covered by the hazard insurance policy or flood insurance
policy, if any, maintained by the borrower or the Master Servicer, the
Special Hazard Insurer will pay the lesser of (i) the cost of repair or
replacement of such property or (ii) upon transfer of the Property to the
Special Hazard Insurer, the unpaid principal balance of such Loan at the time
of acquisition of such Property by foreclosure or deed in lieu of
foreclosure, plus accrued interest to the date of claim settlement and
certain expenses incurred by the Master Servicer with respect to such
Property. If the unpaid principal balance of a Loan plus accrued interest
and certain expenses is paid by the Special Hazard Insurer, the amount of
further coverage under the related Special Hazard Insurance Policy will be
reduced by such amount less any net proceeds from the sale of the Property.
Any amount paid as the cost of repair of the Property will further reduce
coverage by such amount.
The Master Servicer may deposit cash, an irrevocable letter of credit or
any other instrument acceptable to each Rating Agency rating the Securities
of the related Series in a special trust account to provide protection in
lieu of or in addition to that provided by a Special Hazard Insurance Policy.
The amount of any Special Hazard Insurance Policy or of the deposit to the
special trust account relating to such Securities in lieu thereof may be
reduced so long as any such reduction will not result in a downgrading of the
rating of such Securities by any such Rating Agency.
BANKRUPTCY BONDS
A bankruptcy bond ("Bankruptcy Bond") for proceedings under the federal
Bankruptcy Code may be issued by an insurer named in such Prospectus
Supplement. Each Bankruptcy Bond will cover certain losses resulting from a
reduction by a bankruptcy court of scheduled payments of principal and
interest on a Loan or a reduction by such court of the principal amount of a
Loan and will cover certain unpaid interest on the amount of such a principal
reduction from the date of the filing of a bankruptcy petition. The required
amount of coverage under each Bankruptcy Bond will be set forth in the
related Prospectus Supplement. The Master Servicer may deposit cash, an
irrevocable letter of credit or any other instrument acceptable to each
Rating Agency rating the Securities of the related Series in a special trust
account to provide protection in lieu of or in addition to that provided by a
Bankruptcy Bond. Coverage under a Bankruptcy Bond may be cancelled or
reduced by the Master Servicer if such cancellation or reduction would not
adversely affect the then current rating or ratings of the related
Securities. See "Certain Legal Aspects of the Loans-Anti-Deficiency
Legislation and Other Limitations on Lenders".
RESERVE ACCOUNTS
Credit support with respect to a Series of Securities may be provided by
the establishment and maintenance with the Trustee for such Series of
Securities, in trust, of one or more Reserve Accounts for such Series. The
related Prospectus Supplement will specify whether or not any such Reserve
Accounts will be included in the Trust Fund for such Series.
The Reserve Account for a Series will be funded (i) by the deposit
therein of cash, United States Treasury securities, instruments evidencing
ownership of principal or interest payments thereon, letters of credit,
demand notes, certificates of deposit or a combination thereof in the
aggregate amount specified in the related Prospectus Supplement, (ii) by the
deposit therein from time to time of certain amounts, as specified in the
related Prospectus Supplement to which the Subordinate Securityholders, if
any, would otherwise be entitled or (iii) in such other manner as may be
specified in the related Prospectus Supplement.
Any amounts on deposit in the Reserve Account and the proceeds of any
other instrument upon maturity will be held in cash or will be invested in
Permitted Investments which may include obligations of the United States and
certain agencies thereof, certificates of deposit, certain commercial paper,
time deposits and bankers acceptances sold by eligible commercial banks and
certain repurchase agreements of United States government securities with
eligible commercial banks. If a letter of credit is deposited with the
Trustee, such letter of credit will be irrevocable. Any instrument deposited
therein will name the Trustee, in its capacity as trustee for the holders of
the Securities, as beneficiary and will be issued by an entity acceptable to
each Rating Agency that rates the Securities. Additional information with
respect to such instruments deposited in the Reserve Accounts will be set
forth in the related Prospectus Supplement.
Any amounts so deposited and payments on instruments so deposited will
be available for withdrawal from the Reserve Account for distribution to the
holders of Securities for the purposes, in the manner and at the times
specified in the related Prospectus Supplement.
POOL INSURANCE POLICIES
A separate pool insurance policy ("Pool Insurance Policy") may be
obtained for the Pool and issued by the insurer (the "Pool Insurer") named in
the related Prospectus Supplement. Each Pool Insurance Policy will, subject
to the limitations described below, cover loss by reason of default in
payment on Loans in the Pool in an amount equal to a percentage specified in
such Prospectus Supplement of the aggregate principal balance of such Loans
on the Cut-off Date which are not covered as to their entire outstanding
principal balances by Primary Mortgage Insurance Policies. As more fully
described below, the Master Servicer will present claims thereunder to the
Pool Insurer on behalf of itself, the Trustee and the holders of the
Securities. The Pool Insurance Policies, however, are not blanket policies
against loss, since claims thereunder may only be made respecting particular
defaulted Loans and only upon satisfaction of certain conditions precedent
described below. Unless otherwise specified in the related Prospectus
Supplement, the Pool Insurance Policies will not cover losses due to a
failure to pay or denial of a claim under a Primary Mortgage Insurance
Policy.
Unless otherwise specified in the related Prospectus Supplement, the
Pool Insurance Policy will provide that no claims may be validly presented
unless (i) any required Primary Mortgage Insurance Policy is in effect for
the defaulted Loan and a claim thereunder has been submitted and settled;
(ii) hazard insurance on the related Property has been kept in force and real
estate taxes and other protection and preservation expenses have been paid;
(iii) if there has been physical loss or damage to the Property, it has been
restored to its physical condition (reasonable wear and tear excepted) at the
time of issuance of the policy; and (iv) the insured has acquired good and
merchantable title to the Property free and clear of liens except certain
permitted encumbrances. Upon satisfaction of these conditions, the Pool
Insurer will have the option either (a) to purchase the property securing the
defaulted Loan at a price equal to the principal balance thereof plus accrued
and unpaid interest at the Loan Rate to the date of purchase and certain
expenses incurred by the Master Servicer on behalf of the Trustee and
Securityholders, or (b) to pay the amount by which the sum of the principal
balance of the defaulted Loan plus accrued and unpaid interest at the Loan
Rate to the date of payment of the claim and the aforementioned expenses
exceeds the proceeds received from an approved sale of the Property, in
either case net of certain amounts paid or assumed to have been paid under
the related Primary Mortgage Insurance Policy. If any Property securing a
defaulted Loan is damaged and proceeds, if any, from the related hazard
insurance policy or the applicable Special Hazard Insurance Policy are
insufficient to restore the damaged Property to a condition sufficient to
permit recovery under the Pool Insurance Policy, the Master Servicer will not
be required to expend its own funds to restore the damaged Property unless it
determines that (i) such restoration will increase the proceeds to
securityholders on liquidation of the Loan after reimbursement of the Master
Servicer for its expenses and (ii) such expenses will be recoverable by it
through proceeds of the sale of the Property or proceeds of the related Pool
Insurance Policy or any related Primary Mortgage Insurance Policy.
Unless otherwise specified in the related Prospectus Supplement, the
Pool Insurance Policy will not insure (and many Primary Mortgage Insurance
Policies do not insure) against loss sustained by reason of a default arising
from, among other things, (i) fraud or negligence in the origination or
servicing of a Loan, including misrepresentation by the borrower, the
originator or persons involved in the origination thereof, or (ii) failure to
construct a Property in accordance with plans and specifications. A failure
of coverage attributable to one of the foregoing events might result in a
breach of the related Seller's representations described above, and, in such
events might give rise to an obligation on the part of such Seller to
purchase the defaulted Loan if the breach cannot be cured by such Seller. No
Pool Insurance Policy will cover (and many Primary Mortgage Insurance
Policies do not cover) a claim in respect of a defaulted Loan occurring when
the servicer of such Loan, at the time of default or thereafter, was not
approved by the applicable insurer.
Unless otherwise specified in the related Prospectus Supplement, the
original amount of coverage under each Pool Insurance Policy will be reduced
over the life of the related Securities by the aggregate dollar amount of
claims paid less the aggregate of the net amounts realized by the Pool
Insurer upon disposition of all foreclosed properties. The amount of claims
paid may include certain expenses incurred by the Master Servicer as well as
accrued interest on delinquent Loans to the date of payment of the claim.
Accordingly, if aggregate net claims paid under any Pool Insurance Policy
reach the original policy limit, coverage under that Pool Insurance Policy
will be exhausted and any further losses will be borne by the
Securityholders.
FHA INSURANCE; VA GUARANTEES
Loans designated in the related Prospectus Supplement as insured by the
FHA will be insured by the FHA as authorized under the United States Housing
Act of 1934, as amended. In addition to the Title I Program of the FHA, see
"Certain Legal Considerations -- Title I Program", certain Loans will be
insured under various FHA programs including the standard FHA 203(b) program
to finance the acquisition of one- to four-family housing units and the FHA
245 graduated payment mortgage program. These programs generally limit the
principal amount and interest rates of the mortgage loans insured.
The insurance premiums for Loans insured by the FHA are collected by
lenders approved by the Department of Housing and Urban Development ("HUD")
or by the Master Servicer or any Sub-Servicer and are paid to the FHA. The
regulations governing FHA single-family mortgage insurance programs provide
that insurance benefits are payable either upon foreclosure (or other
acquisition of possession) and conveyance of the mortgaged premises to the
United States of America or upon assignment of the defaulted Loan to the
United States of America. With respect to a defaulted FHA-insured Loan, the
Master Servicer or any Sub-Servicer is limited in its ability to initiate
foreclosure proceedings. When it is determined, either by the Master
Servicer or any Sub-Servicer or HUD, that default was caused by circumstances
beyond the mortgagor's control, the Master Servicer or any Sub-Servicer is
expected to make an effort to avoid foreclosure by entering, if feasible,
into one of a number of available forms of forbearance plans with the
mortgagor. Such plans may involve the reduction or suspension of regular
mortgage payments for a specified period, with such payments to be made upon
or before the maturity date of the mortgage, or the recasting of payments due
under the mortgage up to or, other than Loans originated under the Title I
Program of the FHA, beyond the maturity date. In addition, when a default
caused by such circumstances is accompanied by certain other criteria, HUD
may provide relief by making payments to the Master Servicer or any Sub-
Servicer in partial or full satisfaction of amounts due under the Loan (which
payments are to be repaid by the mortgagor to HUD) or by accepting assignment
of the loan from the Master Servicer or any Sub-Servicer. With certain
exceptions, at least three full monthly installments must be due and unpaid
under the Loan, and HUD must have rejected any request for relief from the
mortgagor before the Master Servicer or any Sub-Servicer may initiate
foreclosure proceedings.
HUD has the option, in most cases, to pay insurance claims in cash or in
debentures issued by HUD. Currently, claims are being paid in cash, and
claims have not been paid in debentures since 1965. HUD debentures issued in
satisfaction of FHA insurance claims bear interest at the applicable HUD
debentures interest rate. The Master Servicer or any Sub-Servicer of each
FHA-insured Single Family Loan will be obligated to purchase any such
debenture issued in satisfaction of such Loan upon default for an amount
equal to the principal amount of any such debenture.
Other than in relation to the Title I Program of the FHA, the amount of
insurance benefits generally paid by the FHA is equal to the entire unpaid
principal amount of the defaulted Loan adjusted to reimburse the Master
Servicer or Sub-Servicer for certain costs and expenses and to deduct certain
amounts received or retained by the Master Servicer or Sub-Servicer after
default. When entitlement to insurance benefits results from foreclosure (or
other acquisition of possession) and conveyance to HUD, the Master Servicer
or Sub-Servicer is compensated for no more than two-thirds of its foreclosure
costs, and is compensated for interest accrued and unpaid prior to such date
but in general only to the extent it was allowed pursuant to a forbearance
plan approved by HUD. When entitlement to insurance benefits results from
assignment of the Loan to HUD, the insurance payment includes full
compensation for interest accrued and unpaid to the assignment date. The
insurance payment itself, upon foreclosure of an FHA-insured Loan, bears
interest from a date 30 days after the borrower's first uncorrected failure
to perform any obligation to make any payment due under the mortgage and,
upon assignment, from the date of assignment to the date of payment of the
claim, in each case at the same interest rate as the applicable HUD debenture
interest rate as described above.
Loans designated in the related Prospectus Supplement as guaranteed by
the VA will be partially guaranteed by the VA under the Serviceman's
Readjustment Act of 1944, as amended (a "VA Guaranty Policy"). The
Serviceman's Readjustment Act of 1944, as amended, permits a veteran (or in
certain instances the spouse of a veteran) to obtain a mortgage loan
guarantee by the VA covering mortgage financing of the purchase of a one- to
four-family dwelling unit at interest rates permitted by the VA. The program
has no mortgage loan limits, requires no down payment from the purchaser and
permits the guarantee of mortgage loans of up to 30 years' duration.
However, no Loan guaranteed by the VA will have an original principal amount
greater than five times the partial VA guarantee for such Loan.
The maximum guarantee that may be issued by the VA under a VA guaranteed
mortgage loan depends upon the original principal amount of the mortgage
loan, as further described in 38 United States Code Section 1803(a), as
amended. As of January 1, 1990, the maximum guarantee that may be issued by
the VA under a VA guaranteed mortgage loan of more than $144,000 is the
lesser of 25% of the original principal amount of the mortgage loan and
$46,000. The liability on the guarantee is reduced or increased pro rata
with any reduction or increase in the amount of indebtedness, but in no event
will the amount payable on the guarantee exceed the amount of the original
guarantee. The VA may, at its option and without regard to the guarantee,
make full payment to a mortgage holder of unsatisfied indebtedness on a
mortgage upon its assignment to the VA.
With respect to a defaulted VA guaranteed Loan, the Master Servicer or
Sub-Servicer is, absent exceptional circumstances, authorized to announce its
intention to foreclose only when the default has continued for three months.
Generally, a claim for the guarantee is submitted after liquidation of the
Property.
The amount payable under the guarantee will be the percentage of the VA-
insured Loan originally guaranteed applied to indebtedness outstanding as of
the applicable date of computation specified in the VA regulations. Payments
under the guarantee will be equal to the unpaid principal amount of the Loan,
interest accrued on the unpaid balance of the Loan to the appropriate date of
computation and limited expenses of the mortgagee, but in each case only to
the extent that such amounts have not been recovered through liquidation of
the Property. The amount payable under the guarantee may in no event exceed
the amount of the original guarantee.
CROSS-SUPPORT
The beneficial ownership of separate groups of assets included in a
Trust Fund may be evidenced by separate classes of the related Series of
Securities. In such case, credit support may be provided by a cross-support
feature which requires that distributions be made with respect to Securities
evidencing a beneficial ownership interest in, or secured by, other asset
groups within the same Trust Fund. The related Prospectus Supplement for a
Series which includes a cross-support feature will describe the manner and
conditions for applying such cross-support feature.
The coverage provided by one or more forms of credit support may apply
concurrently to two or more related Trust Funds. If applicable, the related
Prospectus Supplement will identify the Trust Funds to which such credit
support relates and the manner of determining the amount of the coverage
provided thereby and of the application of such coverage to the identified
Trust Funds.
OTHER INSURANCE, SURETY BONDS, GUARANTIES, LETTERS OF CREDIT AND SIMILAR
INSTRUMENTS OR AGREEMENTS
A Trust Fund may also include insurance, guaranties, surety bonds,
letters of credit or similar arrangements for the purpose of (i) maintaining
timely payments or providing additional protection against losses on the
assets included in such Trust Fund, (ii) paying administrative expenses or
(iii) establishing a minimum reinvestment rate on the payments made in
respect of such assets or principal payment rate on such assets. Such
arrangements may include agreements under which Securityholders are entitled
to receive amounts deposited in various accounts held by the Trustee upon the
terms specified in such Prospectus Supplement.
YIELD AND PREPAYMENT CONSIDERATIONS
The yields to maturity and weighted average lives of the Securities will
be affected primarily by the amount and timing of principal payments received
on or in respect of the Trust Fund Assets included in the related Trust Fund.
With respect to a Trust Fund which includes Private Asset Backed Securities,
the possible effects of the amount and timing of principal payments received
with respect to the underlying mortgage loans will be described in the
related Prospectus Supplement. The original terms to maturity of the Loans
in a given Pool will vary depending upon the type of Loans included therein.
Each Prospectus Supplement will contain information with respect to the type
and maturities of the Loans in the related Pool. Unless otherwise specified
in the related Prospectus Supplement, Loans may be prepaid without penalty in
full or in part at any time. The prepayment experience on the Loans in a
Pool will affect the life of the related Series of Securities.
The rate of prepayment on the Loans cannot be predicted. Home equity
loans and home improvement contracts have been originated in significant
volume only during the past few years and the Depositor is not aware of any
publicly available studies or statistics on the rate of prepayment of such
loans. Generally, home equity loans and home improvement contracts are not
viewed by borrowers as permanent financing. Accordingly, the Loans may
experience a higher rate of prepayment than traditional first mortgage loans.
On the other hand, because home equity loans such as the Revolving Credit
Line Loans generally are not fully amortizing, the absence of voluntary
borrower prepayments could cause rates of principal payments lower than, or
similar to, those of traditional fully-amortizing first mortgages. The
prepayment experience of the related Trust Fund may be affected by a wide
variety of factors, including general economic conditions, prevailing
interest rate levels, the availability of alternative financing and homeowner
mobility and the frequency and amount of any future draws on any Revolving
Credit Line Loans. Other factors that might be expected to affect the
prepayment rate of a pool of home equity mortgage loans or home improvement
contracts include the amounts of, and interest rates on, the underlying
senior mortgage loans, and the use of first mortgage loans as long-term
financing for home purchase and subordinate mortgage loans as shorter-term
financing for a variety of purposes, including home improvement, education
expenses and purchases of consumer durables such as automobiles.
Accordingly, the Loans may experience a higher rate of prepayment than
traditional fixed-rate mortgage loans. In addition, any future limitations
on the right of borrowers to deduct interest payments on home equity loans
for federal income tax purposes may further increase the rate of prepayments
of the Loans. The enforcement of a "due-on-sale" provision (as described
below) will have the same effect as a prepayment of the related Loan. See
"Certain Legal Aspects of the Loans--Due-on-Sale Clauses". The yield to an
investor who purchases Securities in the secondary market at a price other
than par will vary from the anticipated yield if the rate of prepayment on
the Loans is actually different than the rate anticipated by such investor at
the time such Securities were purchased.
Collections on Revolving Credit Line Loans may vary because, among other
things, borrowers may (i) make payments during any month as low as the
minimum monthly payment for such month or, during the interest-only period
for certain Revolving Credit Line Loans and, in more limited circumstances,
Closed-End Loans, with respect to which an interest-only payment option has
been selected, the interest and the fees and charges for such month or (ii)
make payments as high as the entire outstanding principal balance plus
accrued interest and the fees and charges thereon. It is possible that
borrowers may fail to make the required periodic payments. In addition,
collections on the Loans may vary due to seasonal purchasing and the payment
habits of borrowers.
Unless otherwise specified in the related Prospectus Supplement, the
Loans will contain due-on-sale provisions permitting the mortgagee to
accelerate the maturity of the loan upon sale or certain transfers by the
borrower. Loans insured by the FHA, and Single Family Loans partially
guaranteed by the VA, are assumable with the consent of the FHA and the VA,
respectively. Thus, the rate of prepayments on such Loans may be lower than
that of conventional Loans bearing comparable interest rates. Unless
otherwise specified in the related Prospectus Supplement, the Master Servicer
generally will enforce any due-on-sale or due-on-encumbrance clause, to the
extent it has knowledge of the conveyance or further encumbrance or the
proposed conveyance or proposed further encumbrance of the Property and
reasonably believes that it is entitled to do so under applicable law;
provided, however, that the Master Servicer will not take any enforcement
action that would impair or threaten to impair any recovery under any related
insurance policy. See "The Agreements-Collection Procedures" and "Certain
Legal Aspects of the Loans" for a description of certain provisions of each
Agreement and certain legal developments that may affect the prepayment
experience on the Loans.
The rate of prepayments with respect to conventional mortgage loans has
fluctuated significantly in recent years. If prevailing rates fall
significantly below the Loan Rates borne by the Loans, such Loans may be
subject to higher prepayment rates than if prevailing interest rates remain
at or above such Loan Rates. Conversely, if prevailing interest rates rise
appreciably above the Loan Rates borne by the Loans, such Loans may
experience a lower prepayment rate than if prevailing rates remain at or
below such Loan Rates. However, there can be no assurance that such will be
the case.
When a full prepayment is made on a Loan, the borrower is charged
interest on the principal amount of the Loan so prepaid only for the number
of days in the month actually elapsed up to the date of the prepayment,
rather than for a full month. Unless the Master Servicer remits amounts
otherwise payable to it as servicing compensation, see "Description of the
Securities-Compensating Interest", the effect of prepayments in full will be
to reduce the amount of interest passed through in the following month to
holders of Securities because interest on the principal amount of any Loan so
prepaid will be paid only to the date of prepayment. Partial prepayments in
a given month may be applied to the outstanding principal balances of the
Loans so prepaid on the first day of the month of receipt or the month
following receipt. In the latter case, partial prepayments will not reduce
the amount of interest passed through in such month. Unless otherwise
specified in the related Prospectus Supplement, neither full nor partial
prepayments will be passed through until the month following receipt.
Even assuming that the Properties provide adequate security for the
Loans, substantial delays could be encountered in connection with the
liquidation of defaulted Loans and corresponding delays in the receipt of
related proceeds by Securityholders could occur. An action to foreclose on a
Property securing a Loan is regulated by state statutes and rules and is
subject to many of the delays and expenses of other lawsuits if defenses or
counterclaims are interposed, sometimes requiring several years to complete.
Furthermore, in some states an action to obtain a deficiency judgment is not
permitted following a nonjudicial sale of a property. In the event of a
default by a borrower, these restrictions among other things, may impede the
ability of the Master Servicer to foreclose on or sell the Property or to
obtain liquidation proceeds sufficient to repay all amounts due on the
related Loan. In addition, the Master Servicer will be entitled to deduct
from related liquidation proceeds all expenses reasonably incurred in
attempting to recover amounts due on defaulted Loans and not yet repaid,
including payments to senior lienholders, legal fees and costs of legal
action, real estate taxes and maintenance and preservation expenses.
Liquidation expenses with respect to defaulted mortgage loans do not
vary directly with the outstanding principal balance of the loan at the time
of default. Therefore, assuming that a servicer took the same steps in
realizing upon a defaulted mortgage loan having a small remaining principal
balance as it would in the case of a defaulted mortgage loan having a large
remaining principal balance, the amount realized after expenses of
liquidation would be smaller as a percentage of the remaining principal
balance of the small mortgage loan than would be the case with the other
defaulted mortgage loan having a large remaining principal balance.
Applicable state laws generally regulate interest rates and other
charges, require certain disclosures, and require licensing of certain
originators and servicers of Loans. In addition, most have other laws,
public policy and general principles of equity relating to the protection of
consumers, unfair and deceptive practices and practices which may apply to
the origination, servicing and collection of the Loans. Depending on the
provisions of the applicable law and the specific facts and circumstances
involved, violations of these laws, policies and principles may limit the
ability of the Master Servicer to collect all or part of the principal of or
interest on the Loans, may entitle the borrower to a refund of amounts
previously paid and, in addition, could subject the Master Servicer to
damages and administrative sanctions.
If the rate at which interest is passed through to the holders of
Securities of a Series is calculated on a Loan-by-Loan basis,
disproportionate principal prepayments among Loans with different Loan Rates
will affect the yield on such Securities. In most cases, the effective yield
to Securityholders will be lower than the yield otherwise produced by the
applicable Pass-Through Rate and purchase price, because while interest will
accrue on each Loan from the first day of the month (unless otherwise
specified in the related Prospectus Supplement), the distribution of such
interest will not be made earlier than the month following the month of
accrual.
Under certain circumstances, the Master Servicer, the holders of the
residual interests in a REMIC or any person specified in the related
Prospectus Supplement may have the option to purchase the assets of a Trust
Fund thereby effecting earlier retirement of the related Series of
Securities. See "The Agreements--Termination; Optional Termination".
Factors other than those identified herein and in the related Prospectus
Supplement could significantly affect principal prepayments at any time and
over the lives of the Securities. The relative contribution of the various
factors affecting prepayment may also vary from time to time. There can be
no assurance as to the rate of payment of principal of the Trust Fund Assets
at any time or over the lives of the Securities.
The Prospectus Supplement relating to a Series of Securities will
discuss in greater detail the effect of the rate and timing of principal
payments (including prepayments), delinquencies and losses on the yield,
weighted average lives and maturities of such Securities.
THE AGREEMENTS
Set forth below is a summary of certain provisions of each Agreement
which are not described elsewhere in this Prospectus. The summary does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the provisions of each Agreement. Where particular provisions
or terms used in the Agreements are referred to, such provisions or terms are
as specified in the Agreements. Except as otherwise specified, the Agreement
described herein contemplates a Trust Fund comprised of Loans. The
provisions of an Agreement with respect to a Trust Fund which consists of or
includes Private Asset Backed Securities may contain provisions similar to
those described herein but will be more fully described in the related
Prospectus Supplement.
ASSIGNMENT OF THE TRUST FUND ASSETS
Assignment of the Loans. At the time of issuance of the Securities of a
Series, the Depositor will cause the Loans comprising the related Trust Fund
to be assigned to the Trustee, together with all principal and interest
received by or on behalf of the Depositor on or with respect to such Loans
after the Cut-off Date, other than principal and interest due on or before
the Cut-off Date and other than any Retained Interest specified in the
related Prospectus Supplement. The Trustee will, concurrently with such
assignment, deliver the Securities to the Depositor in exchange for the
Loans. Each Loan will be identified in a schedule appearing as an exhibit to
the related Agreement. Such schedule will include information as to the
outstanding principal balance of each Loan after application of payments due
on or before the Cut-off Date, as well as information regarding the Loan Rate
or APR, the current scheduled monthly payment of principal and interest, the
maturity of the Loan, the Combined Loan-to-Value Ratios at origination and
certain other information.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor will as to each Home Improvement Contract, deliver or cause to be
delivered to the Trustee the original Home Improvement Contract and copies of
documents and instruments related to each Home Improvement Contract and,
other than in the case of unsecured Home Improvement Contracts, the security
interest in the Property securing such Home Improvement Contract. In order
to give notice of the right, title and interest of Securityholders to the
Home Improvement Contracts, the Depositor will cause a UCC-1 financing
statement to be executed by the Depositor or the Seller identifying the
Trustee as the secured party and identifying all Home Improvement Contracts
as collateral. Unless otherwise specified in the related Prospectus
Supplement, the Home Improvement Contracts will not be stamped or otherwise
marked to reflect their assignment to the Trustee. Therefore, if, through
negligence, fraud or otherwise, a subsequent purchaser were able to take
physical possession of the Home Improvement Contracts without notice of such
assignment, the interest of Securityholders in the Home Improvement Contracts
could be defeated. See "Certain Legal Aspects of the Loans--The Home
Improvement Contracts."
Unless otherwise specified in the related Prospectus Supplement, the
Agreement will require that, within the time period specified therein, the
Depositor will also deliver or cause to be delivered to the Trustee (or to
the custodian hereinafter referred to) as to each Home Equity Loan, among
other things, (i) the mortgage note or contract endorsed without recourse in
blank or to the order of the Trustee, (ii) the mortgage, deed of trust or
similar instrument (a "Mortgage") with evidence of recording indicated
thereon (except for any Mortgage not returned from the public recording
office, in which case the Depositor will deliver or cause to be delivered a
copy of such Mortgage together with a certificate that the original of such
Mortgage was delivered to such recording office), (iii) an assignment of the
Mortgage to the Trustee, which assignment will be in recordable form in the
case of a Mortgage assignment, and (iv) such other security documents,
including those relating to any senior interests in the Property, as may be
specified in the related Prospectus Supplement. Unless otherwise specified
in the related Prospectus Supplement, the Depositor will promptly cause the
assignments of the related Loans to be recorded in the appropriate public
office for real property records, except in states in which, in the opinion
of counsel acceptable to the Trustee, such recording is not required to
protect the Trustee's interest in such Loans against the claim of any
subsequent transferee or any successor to or creditor of the Depositor or the
originator of such Loans.
The Trustee (or the custodian hereinafter referred to) will review such
Loan documents within the time period specified in the related Prospectus
Supplement after receipt thereof, and the Trustee will hold such documents in
trust for the benefit of the Securityholders. Unless otherwise specified in
the related Prospectus Supplement, if any such document is found to be
missing or defective in any material respect, the Trustee (or such custodian)
will notify the Master Servicer and the Depositor, and the Master Servicer
will notify the related Seller. If the Seller cannot cure the omission or
defect within a specified number of days after receipt of such notice (or
such other period as may be specified in the related Prospectus Supplement),
the Seller will be obligated either (i) to purchase the related Loan from the
Trust at the Purchase Price or (ii) to remove such Loan from the Trust Fund
and substitute in its place one or more other Loans. There can be no
assurance that a Seller will fulfill this purchase or substitution
obligation. Although the Master Servicer may be obligated to enforce such
obligation to the extent described above under "Loan Program-Representations
by Sellers; Repurchases", neither the Master Servicer nor the Depositor will
be obligated to purchase or replace such Loan if the Seller defaults on its
obligation, unless such breach also constitutes a breach of the
representations or warranties of the Master Servicer or the Depositor, as the
case may be. Unless otherwise specified in the related Prospectus
Supplement, this purchase obligation constitutes the sole remedy available to
the Securityholders or the Trustee for omission of, or a material defect in,
a constituent document.
The Trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review
the documents relating to the Loans as agent of the Trustee.
The Master Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the Agreement. Upon a breach of any such representation
of the Master Servicer which materially and adversely affects the interests
of the Securityholders in a Loan, the Master Servicer will be obligated
either to cure the breach in all material respects or to purchase or replace
the Loan at the Purchase Price. Unless otherwise specified in the related
Prospectus Supplement, this obligation to cure, purchase or substitute
constitutes the sole remedy available to the Securityholders or the Trustee
for such a breach of representation by the Master Servicer.
Assignment of Private Asset Backed Securities. The Depositor will cause
Private Asset Backed Securities to be registered in the name of the Trustee.
The Trustee (or the custodian) will have possession of any certificated
Private Asset Backed Securities. Unless otherwise specified in the related
Prospectus Supplement, the Trustee will not be in possession of or be
assignee of record of any underlying assets for a Private Asset Backed
Security. See "The Trust Fund-Private Asset Backed Securities" herein. Each
Private Asset Backed Security will be identified in a schedule appearing as
an exhibit to the related Agreement which will specify the original principal
amount, outstanding principal balance as of the Cut-off Date, annual pass-
through rate or interest rate and maturity date and certain other pertinent
information for each Private Asset Backed Security conveyed to the Trustee.
Notwithstanding the foregoing provisions, with respect to a Trust Fund
for which a REMIC election is to be made, no purchase or substitution of a
Loan will be made if such purchase or substitution would result in a
prohibited transaction tax under the Code.
PAYMENTS ON LOANS; DEPOSITS TO SECURITY ACCOUNT
Each Sub-Servicer servicing a Loan pursuant to a Sub-Servicing Agreement
(as defined below under "-Sub-Servicing of Loans") will establish and
maintain an account (the "Sub-Servicing Account") which meets the following
requirements and is otherwise acceptable to the Master Servicer. A Sub-
Servicing Account must be established with a Federal Home Loan Bank or with a
depository institution (including the Sub-Servicer itself) whose accounts are
insured by either the Bank Insurance Fund (the "BIF") of the FDIC or the
Savings Association Insurance Fund (as successor to the Federal Savings and
Loan Insurance Corporation ("SAIF")) of the FDIC. If a Sub-Servicing Account
is maintained at an institution that is a Federal Home Loan Bank or an FDIC-
insured institution and, in either case, the amount on deposit in the Sub-
Servicing Account exceeds the FDIC insurance coverage amount, then such
excess amount must be remitted to the Master Servicer within one business day
of receipt. In addition, the Sub-Servicer must maintain a separate account
for escrow and impound funds relating to the Loans. Each Sub-Servicer is
required to deposit into its Sub-Servicing Account on a daily basis all
amounts described below under "-Sub-Servicing of Loans" that are received by
it in respect of the Loans, less its servicing or other compensation. On or
before the date specified in the Sub-Servicing Agreement, the Sub-Servicer
will remit or cause to be remitted to the Master Servicer or the Trustee all
funds held in the Sub-Servicing Account with respect to Loans that are
required to be so remitted. The Sub-Servicer may also be required to advance
on the scheduled date of remittance an amount corresponding to any monthly
installment of interest and/or principal, less its servicing or other
compensation, on any Loan for which payment was not received from the
mortgagor. Unless otherwise specified in the related Prospectus Supplement,
any such obligation of the Sub-Servicer to advance will continue up to and
including the first of the month following the date on which the related
Property is sold at a foreclosure sale or is acquired on behalf of the
Securityholders by deed in lieu of foreclosure, or until the related Loan is
liquidated.
The Master Servicer will establish and maintain or cause to be
established and maintained with respect to the related Trust Fund a separate
account or accounts for the collection of payments on the related Trust Fund
Assets in the Trust Fund (the "Security Account") must be either (i)
maintained with a depository institution the debt obligations of which (or in
the case of a depository institution that is the principal subsidiary of a
holding company, the obligations of which) are rated in one of the two
highest rating categories by the Rating Agency or Rating Agencies that rated
one or more classes of the related Series of Securities, (ii) an account or
accounts the deposits in which are fully insured by either the BIF or SAIF,
(iii) an account or accounts the deposits in which are insured by the BIF or
SAIF (to the limits established by the FDIC), and the uninsured deposits in
which are otherwise secured such that, as evidenced by an opinion of counsel,
the Securityholders have a claim with respect to the funds in the Security
Account or a perfected first priority security interest against any
collateral securing such funds that is superior to the claims of any other
depositors or general creditors of the depository institution with which the
Security Account is maintained, or (iv) an account or accounts otherwise
acceptable to each Rating Agency. The collateral eligible to secure amounts
in the Security Account is limited to United States government securities and
other high-quality investments ("Permitted Investments"). A Security Account
may be maintained as an interest bearing account or the funds held therein
may be invested pending each succeeding Distribution Date in Permitted
Investments. Unless otherwise specified in the related Prospectus
Supplement, the Master Servicer or its designee will be entitled to receive
any such interest or other income earned on funds in the Security Account as
additional compensation and will be obligated to deposit in the Security
Account the amount of any loss immediately as realized. The Security Account
may be maintained with the Master Servicer or with a depository institution
that is an affiliate of the Master Servicer, provided it meets the standards
set forth above.
The Master Servicer will deposit or cause to be deposited in the
Security Account for each Trust Fund on a daily basis, to the extent
applicable and provided in the Agreement, the following payments and
collections received or advances made by or on behalf of it subsequent to the
Cut-off Date (other than payments due on or before the Cut-off Date and
exclusive of any amounts representing Retained Interest):
(i) all payments on account of principal, including Principal
Prepayments and any applicable prepayment penalties, on the Loans;
(ii) all payments on account of interest on the Loans, net of
applicable servicing compensation;
(iii) all proceeds (net of unreimbursed payments of property taxes,
insurance premiums and similar items ("Insured Expenses") incurred, and
unreimbursed advances made, by the related Sub-Servicer, if any) of the
hazard insurance policies and any Primary Mortgage Insurance Policies,
to the extent such proceeds are not applied to the restoration of the
property or released to the Mortgagor in accordance with the Master
Servicer's normal servicing procedures (collectively, "Insurance
Proceeds") and all other cash amounts (net of unreimbursed expenses
incurred in connection with liquidation or foreclosure ("Liquidation
Expenses") and unreimbursed advances made, by the related Sub-Servicer,
if any) received and retained in connection with the liquidation of
defaulted Loans, by foreclosure or otherwise ("Liquidation Proceeds"),
together with any net proceeds received on a monthly basis with respect
to any properties acquired on behalf of the Securityholders by
foreclosure or deed in lieu of foreclosure;
(iv) all proceeds of any Loan or property in respect thereof
purchased by the Master Servicer, the Depositor, any Sub-Servicer or any
Seller as described under "Loan Program-Representations by Sellers;
Repurchases" or "-Assignment of Trust Fund Assets" above and all
proceeds of any Loan repurchased as described under "-Termination;
Optional Termination" below;
(v) all payments required to be deposited in the Security Account
with respect to any deductible clause in any blanket insurance policy
described under "-Hazard Insurance" below;
(vi) any amount required to be deposited by the Master Servicer in
connection with losses realized on investments for the benefit of the
Master Servicer of funds held in the Security Account; and
(vii) all other amounts required to be deposited in the Security
Account pursuant to the Agreement.
PRE-FUNDING ACCOUNT
If so provided in the related Prospectus Supplement, the Master Servicer
will establish and maintain a Pre-Funding Account, in the name of the related
Trustee on behalf of the related Securityholders, into which the Depositor
will deposit the Pre-Funded Amount on the related Closing Date. The Pre-
Funded Amount will not exceed 25% of the initial aggregate principal amount
of the Certificates and Notes of the related Series. The Pre-Funded Amount
will be used by the related Trustee to purchase Subsequent Loans from the
Depositor from time to time during the Funding Period. The Funding Period,
if any, for a Trust Fund will begin on the related Closing Date and will end
on the date specified in the related Prospectus Supplement, which in no event
will be later than the date that is three months after the Closing Date. Any
amounts remaining in the Pre-Funding Account at the end of the Funding Period
will be distributed to the related Securityholders in the manner and priority
specified in the related Prospectus Supplement, as a prepayment of principal
of the related Securities.
SUB-SERVICING OF LOANS
Each Seller of a Loan or any other servicing entity may act as the Sub-
Servicer for such Loan pursuant to an agreement (each, a "Sub-Servicing
Agreement"), which will not contain any terms inconsistent with the related
Agreement. While each Sub-Servicing Agreement will be a contract solely
between the Master Servicer and the Sub-Servicer, the Agreement pursuant to
which a Series of Securities is issued will provide that, if for any reason
the Master Servicer for such Series of Securities is no longer the Master
Servicer of the related Loans, the Trustee or any successor Master Servicer
must recognize the Sub-Servicer's rights and obligations under such Sub-
Servicing Agreement.
With the approval of the Master Servicer, a Sub-Servicer may delegate
its servicing obligations to third-party servicers, but such Sub-Servicer
will remain obligated under the related Sub-Servicing Agreement. Each Sub-
Servicer will be required to perform the customary functions of a servicer of
mortgage loans. Such functions generally include collecting payments from
mortgagors or obligors and remitting such collections to the Master Servicer;
maintaining hazard insurance policies as described herein and in any related
Prospectus Supplement, and filing and settling claims thereunder, subject in
certain cases to the right of the Master Servicer to approve in advance any
such settlement; maintaining escrow or impoundment accounts of mortgagors or
obligors for payment of taxes, insurance and other items required to be paid
by the mortgagor or obligor pursuant to the related Loan; processing
assumptions or substitutions, although, the Master Servicer is generally
required to exercise due-on-sale clauses to the extent such exercise is
permitted by law and would not adversely affect insurance coverage;
attempting to cure delinquencies; supervising foreclosures; inspecting and
managing Properties under certain circumstances; maintaining accounting
records relating to the Loans; and, to the extent specified in the related
Prospectus Supplement, maintaining additional insurance policies or credit
support instruments and filing and settling claims thereunder. A Sub-
Servicer will also be obligated to make advances in respect of delinquent
installments of interest and/or principal on Loans, as described more fully
above under "-Payments on Loans; Deposits to Security Account", and in
respect of certain taxes and insurance premiums not paid on a timely basis by
mortgagors or obligors.
As compensation for its servicing duties, each Sub-Servicer will be
entitled to a monthly servicing fee (to the extent the scheduled payment on
the related Loan has been collected) in the amount set forth in the related
Prospectus Supplement. Each Sub-Servicer is also entitled to collect and
retain, as part of its servicing compensation, any prepayment or late charges
provided in the Mortgage Note or related instruments. Each Sub-Servicer will
be reimbursed by the Master Servicer for certain expenditures which it makes,
generally to the same extent the Master Servicer would be reimbursed under
the Agreement. The Master Servicer may purchase the servicing of Loans if
the Sub-Servicer elects to release the servicing of such Loans to the Master
Servicer. See "-Servicing and Other Compensation and Payment of Expenses".
Each Sub-Servicer may be required to agree to indemnify the Master
Servicer for any liability or obligation sustained by the Master Servicer in
connection with any act or failure to act by the Sub-Servicer in its
servicing capacity. Each Sub-Servicer will be required to maintain a
fidelity bond and an errors and omissions policy with respect to its
officers, employees and other persons acting on its behalf or on behalf of
the Master Servicer.
Each Sub-Servicer will be required to service each Loan pursuant to the
terms of the Sub-Servicing Agreement for the entire term of such Loan, unless
the Sub-Servicing Agreement is earlier terminated by the Master Servicer or
unless servicing is released to the Master Servicer. The Master Servicer may
terminate a Sub-Servicing Agreement without cause, upon written notice to the
Sub-Servicer in the manner specified in such Sub-Servicing Agreement.
The Master Servicer may agree with a Sub-Servicer to amend a Sub-
Servicing Agreement or, upon termination of the Sub-Servicing Agreement, the
Master Servicer may act as servicer of the related Loans or enter into new
Sub-Servicing Agreements with other Sub-Servicers. If the Master Servicer
acts as servicer, it will not assume liability for the representations and
warranties of the Sub-Servicer which it replaces. Each Sub-Servicer must be
a Seller or meet the standards for becoming a Seller or have such servicing
experience as to be otherwise satisfactory to the Master Servicer and the
Depositor. The Master Servicer will make reasonable efforts to have the new
Sub-Servicer assume liability for the representations and warranties of the
terminated Sub-Servicer, but no assurance can be given that such an
assumption will occur. In the event of such an assumption, the Master
Servicer may in the exercise of its business judgment release the terminated
Sub-Servicer from liability in respect of such representations and
warranties. Any amendments to a Sub-Servicing Agreement or new Sub-Servicing
Agreements may contain provisions different from those which are in effect in
the original Sub-Servicing Agreement. However, each Agreement will provide
that any such amendment or new agreement may not be inconsistent with or
violate such Agreement.
COLLECTION PROCEDURES
The Master Servicer, directly or through one or more Sub-Servicers, will
make reasonable efforts to collect all payments called for under the Loans
and will, consistent with each Agreement and any Pool Insurance Policy,
Primary Mortgage Insurance Policy, FHA Insurance, VA Guaranty Policy and
Bankruptcy Bond or alternative arrangements, follow such collection
procedures as are customary with respect to loans that are comparable to the
Loans. Consistent with the above, the Master Servicer may, in its
discretion, (i) waive any assumption fee, late payment or other charge in
connection with a Loan and (ii) to the extent not inconsistent with the
coverage of such Loan by a Pool Insurance Policy, Primary Mortgage Insurance
Policy, FHA Insurance, VA Guaranty or Bankruptcy Bond or alternative
arrangements, if applicable, arrange with a borrower a schedule for the
liquidation of delinquencies running for no more than 125 days after the
applicable due date for each payment. Both the Sub-Servicer and the Master
Servicer may be obligated to make Advances during any period of such an
arrangement.
Except as otherwise specified in the related Prospectus Supplement, in
any case in which property securing a Loan has been, or is about to be,
conveyed by the mortgagor or obligor, the Master Servicer will, to the extent
it has knowledge of such conveyance or proposed conveyance, exercise or cause
to be exercised its rights to accelerate the maturity of such Loan under any
due-on-sale clause applicable thereto, but only if the exercise of such
rights is permitted by applicable law. If these conditions are not met or if
the Master Servicer reasonably believes it is unable under applicable law to
enforce such due-on-sale clause, or the Master Servicer will enter into or
cause to be entered into an assumption and modification agreement with the
person to whom such property has been or is about to be conveyed, pursuant to
which such person becomes liable for repayment of the Loan and, to the extent
permitted by applicable law, the mortgagor remains liable thereon. Any fee
collected by or on behalf of the Master Servicer for entering into an
assumption agreement will be retained by or on behalf of the Master Servicer
as additional servicing compensation. See "Certain Legal Aspects of the
Loans-Due-on-Sale Clauses". In connection with any such assumption, the
terms of the related Loan may not be changed.
HAZARD INSURANCE
Except as otherwise specified in the related Prospectus Supplement, the
Master Servicer will require the mortgagor or obligor on each Loan to
maintain a hazard insurance policy providing for no less than the coverage of
the standard form of fire insurance policy with extended coverage customary
for the type of Property in the state in which such Property is located. All
amounts collected by the Master Servicer under any hazard policy (except for
amounts to be applied to the restoration or repair of the Property or
released to the mortgagor or obligor in accordance with the Master Servicer's
normal servicing procedures) will be deposited in the related Security
Account. In the event that the Master Servicer maintains a blanket policy
insuring against hazard losses on all the Loans comprising part of a Trust
Fund, it will conclusively be deemed to have satisfied its obligation
relating to the maintenance of hazard insurance. Such blanket policy may
contain a deductible clause, in which case the Master Servicer will be
required to deposit from its own funds into the related Security Account the
amounts which would have been deposited therein but for such clause.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements securing a Loan
by fire, lightning, explosion, smoke, windstorm and hail, riot, strike and
civil commotion, subject to the conditions and exclusions particularized in
each policy. Although the policies relating to the Loans may have been
underwritten by different insurers under different state laws in accordance
with different applicable forms and therefore may not contain identical terms
and conditions, the basic terms thereof are dictated by respective state
laws, and most such policies typically do not cover any physical damage
resulting from the following: war, revolution, governmental actions, floods
and other water-related causes, earth movement (including earthquakes,
landslides and mud flows), nuclear reactions, wet or dry rot, vermin,
rodents, insects or domestic animals, theft and, in certain cases, vandalism.
The foregoing list is merely indicative of certain kinds of uninsured risks
and is not intended to be all inclusive. If the Property securing a Loan is
located in a federally designated special flood area at the time of
origination, the Master Servicer will require the mortgagor or obligor to
obtain and maintain flood insurance.
The hazard insurance policies covering properties securing the Loans
typically contain a clause which in effect requires the insured at all time
to carry insurance of a specified percentage of the full replacement value of
the insured property in order to recover the full amount of any partial loss.
If the insured's coverage falls below this specified percentage, then the
insurer's liability in the event of partial loss will not exceed the larger
of (i) the actual cash value (generally defined as replacement cost at the
time and place of loss, less physical depreciation) of the improvements
damaged or destroyed or (ii) such proportion of the loss as the amount of
insurance carried bears to the specified percentage of the full replacement
cost of such improvements. Since the amount of hazard insurance the Master
Servicer may cause to be maintained on the improvements securing the Loans
declines as the principal balances owing thereon decrease, and since improved
real estate generally has appreciated in value over time in the past, the
effect of this requirement in the event of partial loss may be that hazard
insurance proceeds will be insufficient to restore fully the damaged
property. If specified in the related Prospectus Supplement, a special
hazard insurance policy will be obtained to insure against certain of the
uninsured risks described above. See "Credit Enhancement-Special Hazard
Insurance Policies".
If the Property securing a defaulted Loan is damaged and proceeds, if
any, from the related hazard insurance policy are insufficient to restore the
damaged Property, the Master Servicer is not required to expend its own funds
to restore the damaged Property unless it determines (i) that such
restoration will increase the proceeds to Securityholders on liquidation of
the Loan after reimbursement of the Master Servicer for its expenses and (ii)
that such expenses will be recoverable by it from related Insurance Proceeds
or Liquidation Proceeds.
If recovery on a defaulted Loan under any related Insurance Policy is
not available for the reasons set forth in the preceding paragraph, or if the
defaulted Loan is not covered by an Insurance Policy, the Master Servicer
will be obligated to follow or cause to be followed such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
Loan. If the proceeds of any liquidation of the Property securing the
defaulted Loan are less than the principal balance of such Loan plus interest
accrued thereon that is payable to Securityholders, the Trust Fund will
realize a loss in the amount of such difference plus the aggregate of
expenses incurred by the Master Servicer in connection with such proceedings
and which are reimbursable under the Agreement. In the unlikely event that
any such proceedings result in a total recovery which is, after reimbursement
to the Master Servicer of its expenses, in excess of the principal balance of
such Loan plus interest accrued thereon that is payable to Securityholders,
the Master Servicer will be entitled to withdraw or retain from the Security
Account amounts representing its normal servicing compensation with respect
to such Loan and, unless otherwise specified in the related Prospectus
Supplement, amounts representing the balance of such excess, exclusive of any
amount required by law to be forwarded to the related borrower, as additional
servicing compensation.
Unless otherwise specified in the related Prospectus Supplement, if the
Master Servicer or its designee recovers Insurance Proceeds which, when added
to any related Liquidation Proceeds and after deduction of certain expenses
reimbursable to the Master Servicer, exceed the principal balance of such
Loan plus interest accrued thereon that is payable to Securityholders, the
Master Servicer will be entitled to withdraw or retain from the Security
Account amounts representing its normal servicing compensation with respect
to such Loan. In the event that the Master Servicer has expended its own
funds to restore the damaged Property and such funds have not been reimbursed
under the related hazard insurance policy, it will be entitled to withdraw
from the Security Account out of related Liquidation Proceeds or Insurance
Proceeds in an amount equal to such expenses incurred by it, in which event
the Trust Fund may realize a loss up to the amount so charged. Since
Insurance Proceeds cannot exceed deficiency claims and certain expenses
incurred by the Master Servicer, no such payment or recovery will result in a
recovery to the Trust Fund which exceeds the principal balance of the
defaulted Loan together with accrued interest thereon. See "Credit
Enhancement".
REALIZATION UPON DEFAULTED LOANS
Primary Mortgage Insurance Policies. The Master Servicer will maintain
or cause each Sub-Servicer to maintain, as the case may be, in full force and
effect, to the extent specified in the related Prospectus Supplement, a
Primary Mortgage Insurance Policy with regard to each Loan for which such
coverage is required. The Master Servicer will not cancel or refuse to renew
any such Primary Mortgage Insurance Policy in effect at the time of the
initial issuance of a Series of Securities that is required to be kept in
force under the applicable Agreement unless the replacement Primary Mortgage
Insurance Policy for such cancelled or nonrenewed policy is maintained with
an insurer whose claims-paying ability is sufficient to maintain the current
rating of the classes of Securities of such Series that have been rated.
Although the terms and conditions of primary mortgage insurance vary,
the amount of a claim for benefits under a Primary Mortgage Insurance Policy
covering a Loan will consist of the insured percentage of the unpaid
principal amount of the covered Loan and accrued and unpaid interest thereon
and reimbursement of certain expenses, less (i) all rents or other payments
collected or received by the insured (other than the proceeds of hazard
insurance) that are derived from or in any way related to the Property, (ii)
hazard insurance proceeds in excess of the amount required to restore the
Property and which have not been applied to the payment of the Loan, (iii)
amounts expended but not approved by the issuer of the related Primary
Mortgage Insurance Policy (the "Primary Insurer"), (iv) claim payments
previously made by the Primary Insurer and (v) unpaid premiums.
Primary Mortgage Insurance Policies reimburse certain losses sustained
by reason of defaults in payments by borrowers. Primary Mortgage Insurance
Policies will not insure against, and exclude from coverage, a loss sustained
by reason of a default arising from or involving certain matters, including
(i) fraud or negligence in origination or servicing of the Loans, including
misrepresentation by the originator, borrower or other persons involved in
the origination of the Loans; (ii) failure to construct the Property subject
to the Loan in accordance with specified plans; (iii) physical damage to the
Property; and (iv) the related Master Servicer or Sub-servicer not being
approved as a servicer by the Primary Insurer.
Recoveries Under a Primary Mortgage Insurance Policy. As conditions
precedent to the filing of or payment of a claim under a Primary Mortgage
Insurance Policy covering a Loan, the insured will be required to (i) advance
or discharge (a) all hazard insurance policy premiums and (b) as necessary
and approved in advance by the Primary Insurer, (1) real estate property
taxes, (2) all expenses required to maintain the related Property in at least
as good a condition as existed at the effective date of such Primary Mortgage
Insurance Policy, ordinary wear and tear excepted, (3) Property sales
expenses, (4) any outstanding liens (as defined in such Primary Mortgage
Insurance Policy) on the Property and (5) foreclosure costs, including court
costs and reasonable attorneys' fees; (ii) in the event of any physical loss
or damage to the Property, to have the Property restored and repaired to at
least as good a condition as existed at the effective date of such Primary
Mortgage Insurance Policy, ordinary wear and tear excepted; and (iii) tender
to the Primary Insurer good and merchantable title to and possession of the
Property.
In those cases in which a Loan is serviced by a Sub-Servicer, the Sub-
Servicer, on behalf of itself, the Trustee and Securityholders, will present
claims to the Primary Insurer, and all collection thereunder will be
deposited in the Sub-Servicing Account. In all other cases, the Master
Servicer, on behalf of itself, the Trustee and the Securityholders, will
present claims to the insurer under each Primary Mortgage Insurance Policy,
and will take such reasonable steps as are necessary to receive payment or to
permit recovery thereunder with respect to defaulted Loans. As set forth
above, all collections by or on behalf of the Master Servicer under any
Primary Mortgage Insurance Policy and, when the Property has not been
restored, the hazard insurance policy, are to be deposited in the Security
Account, subject to withdrawal as heretofore described.
If the Property securing a defaulted Loan is damaged and proceeds, if
any, from the related hazard insurance policy are insufficient to restore the
damaged Property to a condition sufficient to permit recovery under the
related Primary Mortgage Insurance Policy, if any, the Master Servicer is not
required to expend its own funds to restore the damaged Property unless it
determines (i) that such restoration will increase the proceeds to
Securityholders on liquidation of the Loan after reimbursement of the Master
Servicer for its expenses and (ii) that such expenses will be recoverable by
it from related Insurance Proceeds or Liquidation Proceeds.
If recovery on a defaulted Loan under any related Primary Mortgage
Insurance Policy is not available for the reasons set forth in the preceding
paragraph, or if the defaulted Loan is not covered by a Primary Mortgage
Insurance Policy, the Master Servicer will be obligated to follow or cause to
be followed such normal practices and procedures as it deems necessary or
advisable to realize upon the defaulted Loan. If the proceeds of any
liquidation of the Property securing the defaulted Loan are less than the
principal balance of such Loan plus interest accrued thereon that is payable
to Securityholders, the Trust Fund will realize a loss in the amount of such
difference plus the aggregate of expenses incurred by the Master Servicer in
connection with such proceedings and which are reimbursable under the
Agreement. In the unlikely event that any such proceedings result in a total
recovery which is, after reimbursement to the Master Servicer of its
expenses, in excess of the principal balance of such Loan plus interest
accrued thereon that is payable to Securityholders, the Master Servicer will
be entitled to withdraw or retain from the Security Account amounts
representing its normal servicing compensation with respect to such Loan and,
except as otherwise specified in the Prospectus Supplement, amounts
representing the balance of such excess, exclusive of any amount required by
law to be forwarded to the related borrower, as additional servicing
compensation.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
Unless otherwise specified in the related Prospectus Supplement, the
Master Servicer's primary servicing compensation with respect to a Series of
Securities will come from the monthly payment to it, out of each interest
payment on a Loan, of an amount equal to the percentage per annum specified
in the related Prospectus Supplement of the outstanding principal balance
thereof. Since the Master Servicer's primary compensation is a percentage of
the outstanding principal balance of each Loan, such amounts will decrease as
the Loans amortize. In addition to primary compensation, the Master Servicer
or the Sub-Servicers may be entitled to retain all assumption fees and late
payment charges, to the extent collected from borrowers, and, if so provided
in the related Prospectus Supplement, any prepayment penalties and any
interest or other income which may be earned on funds held in the Security
Account or any Sub-Servicing Account. Unless otherwise specified in the
related Prospectus Supplement, any Sub-Servicer will receive a portion of the
Master Servicer's primary compensation as its sub-servicing compensation.
In addition to amounts payable to any Sub-Servicer, the Master Servicer
will, unless otherwise specified in the related Prospectus Supplement, pay
from its servicing compensation certain expenses incurred in connection with
its servicing of the Loans, including, without limitation, payment of any
premium for any insurance policy, guaranty, surety or other form of credit
enhancement as specified in the related Prospectus Supplement, payment of the
fees and disbursements of the Trustee and independent accountants, payment of
expenses incurred in connection with distributions and reports to
Securityholders, and payment of any other expenses described in the related
Prospectus Supplement.
EVIDENCE AS TO COMPLIANCE
Each Agreement will provide that on or before a specified date in each
year, a firm of independent public accountants will furnish a statement to
the Trustee to the effect that, on the basis of the examination by such firm
conducted substantially in compliance with the Uniform Single Audit Program
for Mortgage Bankers or the Audit Program for Mortgages serviced for FHLMC,
the servicing by or on behalf of the Master Servicer of mortgage loans or
private asset backed securities, or under pooling and servicing agreements
substantially similar to each other (including the related Agreement) was
conducted in compliance with such agreements except for any significant
exceptions or errors in records that, in the opinion of the firm, the Audit
Program for Mortgages serviced for FHLMC, or the Uniform Single Audit Program
for Mortgage Bankers, it is required to report. In rendering its statement
such firm may rely, as to matters relating to the direct servicing of Loans
or Private Asset Backed Securities by Sub-Servicers, upon comparable
statements for examinations conducted substantially in compliance with the
Uniform Single Audit Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FHLMC (rendered within one year of such statement) of
firms of independent public accountants with respect to the related Sub-
Servicer.
Each Agreement will also provide for delivery to the Trustee, on or
before a specified date in each year, of an annual statement signed by two
officers of the Master Servicer to the effect that the Master Servicer has
fulfilled its obligations under the Agreement throughout the preceding year.
Copies of the annual accountants' statement and the statement of
officers of the Master Servicer may be obtained by Securityholders of the
related Series without charge upon written request to the Master Servicer at
the address set forth in the related Prospectus Supplement.
CERTAIN MATTERS REGARDING THE MASTER SERVICER AND THE DEPOSITOR
The Master Servicer under each Agreement will be named in the related
Prospectus Supplement. The entity serving as Master Servicer may have normal
business relationships with the Depositor or the Depositor's affiliates.
Each Agreement will provide that the Master Servicer may not resign from
its obligations and duties under the Agreement except upon a determination
that its duties thereunder are no longer permissible under applicable law.
The Master Servicer may, however, be removed from its obligations and duties
as set forth in the Agreement. No such resignation will become effective
until the Trustee or a successor servicer has assumed the Master Servicer's
obligations and duties under the Agreement.
Each Agreement will further provide that neither the Master Servicer,
the Depositor nor any director, officer, employee, or agent of the Master
Servicer or the Depositor will be under any liability to the related Trust
Fund or Securityholders for any action taken or for refraining from the
taking of any action in good faith pursuant to the Agreement, or for errors
in judgment; provided, however, that neither the Master Servicer, the
Depositor nor any such person will be protected against any liability which
would otherwise be imposed by reason of wilful misfeasance or gross
negligence in the performance of duties thereunder or by reasons of reckless
disregard of obligations and duties thereunder. To the extent provided in
the related Agreement, the Master Servicer, the Depositor and any director,
officer, employee or agent of the Master Servicer or the Depositor may be
entitled to indemnification by the related Trust Fund and may be held
harmless against any loss, liability or expense incurred in connection with
any legal action relating to the Agreement or the Securities, other than any
loss, liability or expense related to any specific Loan or Loans (except any
such loss, liability or expense otherwise reimbursable pursuant to the
Agreement) and any loss, liability or expense incurred by reason of willful
misfeasance or gross negligence in the performance of duties thereunder or by
reason of reckless disregard of obligations and duties thereunder. In
addition, each Agreement will provide that neither the Master Servicer nor
the Depositor will be under any obligation to appear in, prosecute or defend
any legal action which is not incidental to its respective responsibilities
under the Agreement and which in its opinion may involve it in any expense or
liability. The Master Servicer or the Depositor may, however, in its
discretion undertake any such action which it may deem necessary or desirable
with respect to the Agreement and the rights and duties of the parties
thereto and the interests of the Securityholders thereunder. In such event,
the legal expenses and costs of such action and any liability resulting
therefrom will be expenses, costs and liabilities of the Trust Fund and the
Master Servicer or the Depositor, as the case may be, will be entitled to be
reimbursed therefor out of funds otherwise distributable to Securityholders.
Except as otherwise specified in the related Prospectus Supplement, any
person into which the Master Servicer may be merged or consolidated, or any
person resulting from any merger or consolidation to which the Master
Servicer is a party, or any person succeeding to the business of the Master
Servicer, will be the successor of the Master Servicer under each Agreement.
EVENTS OF DEFAULT; RIGHTS UPON EVENT OF DEFAULT
Pooling and Servicing Agreement; Servicing Agreement. Except as
otherwise specified in the related Prospectus Supplement, Events of Default
under each Agreement will consist of (i) any failure by the Master Servicer
to distribute or cause to be distributed to Securityholders of any class any
required payment (other than an Advance) which continues unremedied for five
business days after the giving of written notice of such failure to the
Master Servicer by the Trustee or the Depositor, or to the Master Servicer,
the Depositor and the Trustee by the holders of Securities of such class
evidencing not less than 25% of the aggregate Percentage Interests evidenced
by such class; (ii) any failure by the Master Servicer to make an Advance as
required under the Agreement, unless cured as specified therein; (iii) any
failure by the Master Servicer duly to observe or perform in any material
respect any of its other covenants or agreements in the Agreement which
continues unremedied for thirty days after the giving of written notice of
such failure to the Master Servicer by the Trustee or the Depositor, or to
the Master Servicer, the Depositor and the Trustee by the holders of
Securities of any class evidencing not less than 25% of the aggregate
Percentage Interests constituting such class; and (iv) certain events of
insolvency, readjustment of debt, marshalling of assets and liabilities or
similar proceeding and certain actions by or on behalf of the Master Servicer
indicating its insolvency, reorganization or inability to pay its
obligations.
If specified in the related Prospectus Supplement, the Agreement will
permit the Trustee to sell the Trust Fund Assets and the other assets of the
Trust Fund in the event that payments in respect thereto are insufficient to
make payments required in the Agreement. The assets of the Trust Fund will
be sold only under the circumstances and in the manner specified in the
related Prospectus Supplement.
So long as an Event of Default under an Agreement remains unremedied,
the Depositor or the Trustee may, and at the direction of holders of
Securities of any class evidencing not less than 51% of the aggregate
Percentage Interests constituting such class and under such other
circumstances as may be specified in such Agreement, the Trustee shall,
terminate all of its rights and obligations of the Master Servicer under the
Agreement relating to such Trust Fund and in and to the Trust Fund Assets,
whereupon the Trustee will succeed to all of the responsibilities, duties and
liabilities of the Master Servicer under the Agreement, including, if
specified in the related Prospectus Supplement, the obligation to make
advances, and will be entitled to similar compensation arrangements. In the
event that the Trustee is unwilling or unable so to act, it may appoint, or
petition a court of competent jurisdiction for the appointment of, a mortgage
loan servicing institution with a net worth of a least $10,000,000 to act as
successor to the Master Servicer under the Agreement. Pending such
appointment, the Trustee is obligated to act in such capacity. The Trustee
and any such successor may agree upon the servicing compensation to be paid,
which in no event may be greater than the compensation payable to the Master
Servicer under the Agreement.
No Securityholder, solely by virtue of such holder's status as a
Securityholder, will have any right under any Agreement to institute any
proceeding with respect to such Agreement, unless such holder previously has
given to the Trustee written notice of default and unless the holders of
Securities of any class of such Series evidencing not less than 25% of the
aggregate Percentage Interests constituting such class have made written
request upon the Trustee to institute such proceeding in its own name as
Trustee thereunder and have offered to the Trustee reasonable indemnity, and
the Trustee for 60 days has neglected or refused to institute any such
proceeding.
Indenture. Except as otherwise specified in the related Prospectus
Supplement, Events of Default under the Indenture for each Series of Notes
include: (i) a default for five (5) days or more in the payment of any
principal of or interest on any Note of such Series; (ii) failure to perform
any other covenant of the Depositor or the Trust Fund in the Indenture which
continues for a period of thirty (30) days after notice thereof is given in
accordance with the procedures described in the related Prospectus
Supplement; (iii) any representation or warranty made by the Depositor or the
Trust Fund in the Indenture or in any certificate or other writing delivered
pursuant thereto or in connection therewith with respect to or affecting such
Series having been incorrect in a material respect as of the time made, and
such breach is not cured within thirty (30) days after notice thereof is
given in accordance with the procedures described in the related Prospectus
Supplement; (iv) certain events of bankruptcy, insolvency, receivership or
liquidation of the Depositor or the Trust Fund; or (v) any other Event of
Default provided with respect to Notes of that Series.
If an Event of Default with respect to the Notes of any Series at the
time outstanding occurs and is continuing, either the Trustee or the holders
of a majority of the then aggregate outstanding amount of the Notes of such
Series may declare the principal amount (or, if the Notes of that Series have
a Pass-Through Rate of 0%, such portion of the principal amount as may be
specified in the terms of that Series, as provided in the related Prospectus
Supplement) of all the Notes of such Series to be due and payable
immediately. Such declaration may, under certain circumstances, be rescinded
and annulled by the holders of more than 50% of the Percentage Interests of
the Notes of such Series.
If, following an Event of Default with respect to any Series of Notes,
the Notes of such Series have been declared to be due and payable, the
Trustee may, in its discretion, notwithstanding such acceleration, elect to
maintain possession of the collateral securing the Notes of such Series and
to continue to apply distributions on such collateral as if there had been no
declaration of acceleration if such collateral continues to provide
sufficient funds for the payment of principal of and interest on the Notes of
such Series as they would have become due if there had not been such a
declaration. In addition, the Trustee may not sell or otherwise liquidate
the collateral securing the Notes of a Series following an Event of Default,
unless (a) the holders of 100% of the Percentage Interests of the Notes of
such Series consent to such sale, (b) the proceeds of such sale or
liquidation are sufficient to pay in full the principal of and accrued
interest, due and unpaid, on the outstanding Notes of such Series at the date
of such sale or (c) the Trustee determines that such collateral would not be
sufficient on an ongoing basis to make all payments on such Notes as such
payments would have become due if such Notes had not been declared due and
payable, and the Trustee obtains the consent of the holders of 662/3% of the
Percentage Interests of the Notes of such Series.
Except as otherwise specified in the related Prospectus Supplement, in
the event the principal of the Notes of a Series is declared due and payable,
as described above, the holders of any such Notes issued at a discount from
par may be entitled to receive no more than an amount equal to the unpaid
principal amount thereof less the amount of such discount which is
unamortized.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing with
respect to a Series of Notes, the Trustee shall be under no obligation to
exercise any of the rights or powers under the Indenture at the request or
direction of any of the holders of Notes of such Series, unless such holders
offered to the Trustee security or indemnity satisfactory to it against the
costs, expenses and liabilities which might be incurred by it in complying
with such request or direction. Subject to such provisions for
indemnification and certain limitations contained in the Indenture, the
holders of a majority of the then aggregate outstanding amount of the Notes
of such Series shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee with respect to the
Notes of such Series, and the holders of a majority of the then aggregate
outstanding amount of the Notes of such Series may, in certain cases, waive
any default with respect thereto, except a default in the payment of
principal or interest or a default in respect of a covenant or provision of
the Indenture that cannot be modified without the waiver or consent of all
the holders of the outstanding Notes of such Series affected thereby.
AMENDMENT
Except as otherwise specified in the related Prospectus Supplement, each
Agreement may be amended by the Depositor, the Master Servicer and the
Trustee, without the consent of any of the Securityholders, (i) to cure any
ambiguity; (ii) to correct or supplement any provision therein which may be
defective or inconsistent with any other provision therein; or (iii) to make
any other revisions with respect to matters or questions arising under the
Agreement which are not inconsistent with the provisions thereof, provided
that such action will not adversely affect in any material respect the
interests of any Securityholder. In addition, to the extent provided in the
related Agreement, an Agreement may be amended without the consent of any of
the Securityholders, to change the manner in which the Security Account is
maintained, provided that any such change does not adversely affect the then
current rating on the class or classes of Securities of such Series that have
been rated. In addition, if a REMIC election is made with respect to a Trust
Fund, the related Agreement may be amended to modify, eliminate or add to any
of its provisions to such extent as may be necessary to maintain the
qualification of the related Trust Fund as a REMIC, provided that the Trustee
has received an opinion of counsel to the effect that such action is
necessary or helpful to maintain such qualification. Except as otherwise
specified in the related Prospectus Supplement, each Agreement may also be
amended by the Depositor, the Master Servicer and the Trustee with consent of
holders of Securities of such Series evidencing not less than 66% of the
aggregate Percentage Interests of each class affected thereby for the purpose
of adding any provisions to or changing in an manner or eliminating any of
the provisions of the Agreement or of modifying in any manner the rights of
the holders of the related Securities; provided, however, that no such
amendment may (i) reduce in any manner the amount of or delay the timing of,
payments received on Loans which are required to be distributed on any
Security without the consent of the holder of such Security, or (ii) reduce
the aforesaid percentage of Securities of any class of holders which are
required to consent to any such amendment without the consent of the holders
of all Securities of such class covered by such Agreement then outstanding.
If a REMIC election is made with respect to a Trust Fund, the Trustee will
not be entitled to consent to an amendment to the related Agreement without
having first received an opinion of counsel to the effect that such amendment
will not cause such Trust Fund to fail to qualify as a REMIC.
TERMINATIONS; OPTIONAL TERMINATION
Pooling and Servicing Agreement; Trust Agreement. Unless otherwise
specified in the related Agreement, the obligations created by each Pooling
and Servicing Agreement and Trust Agreement for each Series of Securities
will terminate upon the payment to the related Securityholders of all amounts
held in the Security Account or by the Master Servicer and required to be
paid to them pursuant to such Agreement following the later of (i) the final
payment of or other liquidation of the last of the Trust Fund Assets subject
thereto or the disposition of all property acquired upon foreclosure of any
such Trust Fund Assets remaining in the Trust Fund and (ii) the purchase by
the Master Servicer or, if REMIC treatment has been elected and if specified
in the related Prospectus Supplement, by the holder of the residual interest
in the REMIC (see "Certain Material Federal Income Tax Consequences" below),
from the related Trust Fund of all of the remaining Trust Fund Assets and all
property acquired in respect of such Trust Fund Assets.
Unless otherwise specified by the related Prospectus Supplement, any
such purchase of Trust Fund Assets and property acquired in respect of Trust
Fund Assets evidenced by a Series of Securities will be made at the option of
the Master Servicer or, if applicable, such holder of the REMIC residual
interest, at a price, and in accordance with the procedures, specified in the
related Prospectus Supplement. The exercise of such right will effect early
retirement of the Securities of that Series, but the right of the Master
Servicer or, if applicable, such holder of the REMIC residual interest, to so
purchase is subject to the principal balance of the related Trust Fund Assets
being less than the percentage specified in the related Prospectus Supplement
of the aggregate principal balance of the Trust Fund Assets at the Cut-off
Date for the Series. The foregoing is subject to the provision that if a
REMIC election is made with respect to a Trust Fund, any repurchase pursuant
to clause (ii) above will be made only in connection with a "qualified
liquidation" of the REMIC within the meaning of Section 860F(g)(4) of the
Code.
Indenture. The Indenture will be discharged with respect to a Series of
Notes (except with respect to certain continuing rights specified in the
Indenture) upon the delivery to the Trustee for cancellation of all the Notes
of such Series or, with certain limitations, upon deposit with the Trustee of
funds sufficient for the payment in full of all of the Notes of such Series.
In addition to such discharge with certain limitations, the Indenture
will provide that, if so specified with respect to the Notes of any Series,
the related Trust Fund will be discharged from any and all obligations in
respect of the Notes of such Series (except for certain obligations relating
to temporary Notes and exchange of Notes, to register the transfer of or
exchange Notes of such Series, to replace stolen, lost or mutilated Notes of
such Series, to maintain paying agencies and to hold monies for payment in
trust) upon the deposit with the Trustee, in trust, of money and/or direct
obligations of or obligations guaranteed by the United States of America
which through the payment of interest and principal in respect thereof in
accordance with their terms will provide money in an amount sufficient to pay
the principal of and each installment of interest on the Notes of such Series
on the last scheduled Distribution Date for such Notes and any installment of
interest on such Notes in accordance with the terms of the Indenture and the
Notes of such Series. In the event of any such defeasance and discharge of
Notes of such Series, holders of Notes of such Series would be able to look
only to such money and/or direct obligations for payment of principal and
interest, if any, on their Notes until maturity.
THE TRUSTEE
The Trustee under each Agreement will be named in the applicable
Prospectus Supplement. The commercial bank or trust company serving as
Trustee may have normal banking relationships with the Depositor, the Master
Servicer and any of their respective affiliates.
CERTAIN LEGAL ASPECTS OF THE LOANS
The following discussion contains summaries, which are general in
nature, of certain legal matters relating to the Loans. Because such legal
aspects are governed primarily by applicable state law (which laws may differ
substantially), the summaries do not purport to be complete nor to reflect
the laws of any particular state, nor to encompass the laws of all states in
which the security for the Loans is situated. The summaries are qualified in
their entirety by reference to the applicable federal laws and the
appropriate laws of the states in which Loans may be originated.
GENERAL
The Loans for a Series may be secured by deeds of trust, mortgages,
security deeds or deeds to secure debt, depending upon the prevailing
practice in the state in which the property subject to the loan is located.
A mortgage creates a lien upon the real property encumbered by the mortgage,
which lien is generally not prior to the lien for real estate taxes and
assessments. Priority between mortgages depends on their terms and generally
on the order of recording with a state or county office. There are two
parties to a mortgage, the mortgagor, who is the borrower and owner of the
mortgaged property, and the mortgagee, who is the lender. Under the mortgage
instrument, the mortgagor delivers to the mortgagee a note or bond and the
mortgage. Although a deed of trust is similar to a mortgage, a deed of trust
formally has three parties, the borrower-property owner called the trustor
(similar to a mortgagor), a lender (similar to a mortgagee) called the
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid,
in trust, generally with a power of sale, to the trustee to secure payment of
the obligation. A security deed and a deed to secure debt are special types
of deeds which indicate on their face that they are granted to secure an
underlying debt. By executing a security deed or deed to secure debt, the
grantor conveys title to, as opposed to merely creating a lien upon, the
subject property to the grantee until such time as the underlying debt is
repaid. The trustee's authority under a deed of trust, the mortgagee's
authority under a mortgage and the grantee's authority under a security deed
or deed to secure debt are governed by law and, with respect to some deeds of
trust, the directions of the beneficiary.
FORECLOSURE/REPOSSESSION
Foreclosure of a deed of trust is generally accomplished by a non-
judicial sale under a specific provision in the deed of trust which
authorizes the trustee to sell the property at public auction upon any
default by the borrower under the terms of the note or deed of trust. In
addition to any notice requirements contained in a deed of trust, in some
states, the trustee must record a notice of default and send a copy to the
borrower-trustor, to any person who has recorded a request for a copy of any
notice of default and notice of sale, to any successor in interest to the
borrower-trustor, to the beneficiary of any junior deed of trust and to
certain other persons. In general, the borrower, or any other person having
a junior encumbrance on the real estate, may, during a statutorily prescribed
reinstatement period, cure a monetary default by paying the entire amount in
arrears plus other designated costs and expenses incurred in enforcing the
obligation. Generally, state law controls the amount of foreclosure expenses
and costs, including attorney's fees, which may be recovered by a lender.
After the reinstatement period has expired without the default having been
cured, the borrower or junior lienholder no longer has the right to reinstate
the loan and must pay the loan in full to prevent the scheduled foreclosure
sale. If the deed of trust is not reinstated, a notice of sale must be
posted in a public place and, in most states, published for a specific period
of time in one or more newspapers. In addition, some state laws require that
a copy of the notice of sale be posted on the property and sent to all
parties having an interest in the real property.
Foreclosure of a mortgage is generally accomplished by judicial action.
The action is initiated by the service of legal pleadings upon all parties
having an interest in the real property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. Judicial foreclosure proceedings are often not contested by any of
the parties. When the mortgagee's right to foreclosure is contested, the
legal proceedings necessary to resolve the issue can be time consuming.
After the completion of a judicial foreclosure proceeding, the court
generally issues a judgment of foreclosure and appoints a referee or other
court officer to conduct the sale of the property. In some states, mortgages
may also be foreclosed by advertisement, pursuant to a power of sale provided
in the mortgage.
Although foreclosure sales are typically public sales, frequently no
third party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings and
a requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the
trustee or referee for an amount equal to the principal amount outstanding
under the loan, accrued and unpaid interest and the expenses of foreclosure
in which event the mortgagor's debt will be extinguished or the lender may
purchase for a lesser amount in order to preserve its right against a
borrower to seek a deficiency judgment in states where such judgment is
available. Thereafter, subject to the right of the borrower in some states
to remain in possession during the redemption period, the lender will assume
the burden of ownership, including obtaining hazard insurance and making such
repairs at its own expense as are necessary to render the property suitable
for sale. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the
sale of the property may not equal the lender's investment in the property.
Any loss may be reduced by the receipt of any mortgage guaranty insurance
proceeds.
Courts have imposed general equitable principles upon foreclosure, which
are generally designed to mitigate the legal consequences to the borrower of
the borrower's defaults under the loan documents. Some courts have been
faced with the issue of whether federal or state constitutional provisions
reflecting due process concerns for fair notice require that borrowers under
deeds of trust receive notice longer than that prescribed by statute. For the
most part, these cases have upheld the notice provisions as being reasonable
or have found that the sale by a trustee under a deed of trust does not
involve sufficient state action to afford constitutional protection to the
borrower.
When the beneficiary under a junior mortgage or deed of trust cures the
default and reinstates or redeems by paying the full amount of the senior
mortgage or deed of trust, the amount paid by the beneficiary so to cure or
redeem becomes a part of the indebtedness secured by the junior mortgage or
deed of trust. See "Junior Mortgages; Rights of Senior Mortgagees".
ENVIRONMENTAL RISKS
Federal, state and local laws and regulations impose a wide range of
requirements on activities that may affect the environment, health and
safety. These include laws and regulations governing air pollutant
emissions, hazardous and toxic substances, impacts to wetlands, leaks from
underground storage tanks, and the management, removal and disposal of lead-
and asbestos-containing materials. In certain circumstances, these laws and
regulations impose obligations on the owners or operators of residential
properties such as those subject to the Loans. The failure to comply with
such laws and regulations may result in fines and penalties.
Moreover, under various federal, state and local laws and regulations,
an owner or operator of real estate may be liable for the costs of addressing
hazardous substances on, in or beneath such property and related costs. Such
liability may be imposed without regard to whether the owner or operator knew
of, or was responsible for, the presence of such substances, and could exceed
the value of the property and the aggregate assets of the owner or operator.
In addition, persons who transport or dispose of hazardous substances, or
arrange for the transportation, disposal or treatment of hazardous
substances, at off-site locations may also be held liable if there are
releases or threatened releases of hazardous substances at such off-site
locations.
In addition, under the laws of some states and under the federal
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), contamination of property may give rise to a lien on the property
to assure the payment of the costs of clean-up. In several states, such a
lien has priority over the lien of an existing mortgage against such
property. Under CERCLA, such a lien is subordinate to pre-existing,
perfected security interests.
Under the laws of some states, and under CERCLA, there is a possibility
that a lender may be held liable as an "owner or operator" for costs of
addressing releases or threatened releases of hazardous substances at a
property, regardless of whether or not the environmental damage or threat was
caused by a current or prior owner or operator. CERCLA and some state laws
provide an exemption from the definition of "owner or operator" for a secured
creditor who, without "participating in the management" of a facility, holds
indicia of ownership primarily to protect its security interest in the
facility. The Solid Waste Disposal Act ("SWDA") provides similar protection
to secured creditors in connection with liability for releases of petroleum
from certain underground storage tanks. However, if a lender "participates
in the management" of the facility in question or is found not to have held
its interest primarily to protect a security interest, the lender may forfeit
its secured creditor exemption status.
A regulation promulgated by the U.S. Environmental Protection Agency
("EPA") in April 1992 attempted to clarify the activities in which lenders
could engage both prior to and subsequent to foreclosure of a security
interest without forfeiting the secured creditor exemption under CERCLA. The
rule was struck down in 1994 by the United States Court of Appeals for the
District of Columbia Circuit in Kelley ex rel State of Michigan v.
Environmental Protection Agency, 15 F.3d 1100 (D.C Cir. 1994), reh'g denied,
25 F.3d 1088, cert. denied sub nom. Am. Bankers Ass'n v. Kelley, 115 S.Ct.
900 (1995). Another EPA regulation promulgated in 1995 clarifies the
activities in which lenders may engage without forfeiting the secured
creditor exemption under the underground storage tank provisions of the SWDA.
That regulation has not been struck down.
On September 30, 1996, Congress amended both CERCLA and the SWDA to
provide additional clarification regarding the scope of the lender liability
exemptions under the two statutes. Among other things, the 1996 amendments
specify the circumstances under which a lender will be protected by the
CERCLA and SWDA exemptions, both while the borrower is still in possession of
the secured property and following foreclosure on the secured property.
Generally, the amendments state that a lender who holds indicia of
ownership primarily to protect a security interest in a facility will be
considered to participate in management only if, while the borrower is still
in possession of the facility encumbered by the security interest, the lender
(i) exercises decision-making control over environmental compliance related
to the facility such that the lender has undertaken responsibility for
hazardous substance handling or disposal practices related to the facility or
(ii) exercises control at a level comparable to that of a manager of the
facility such that the lender has assumed or manifested responsibility for
(x) overall management of the facility encompassing daily-decision making
with respect to environmental compliance or (y) overall or substantially all
of the operational functions (as distinguished from financial or
administrative functions) of the facility other than the function of
environmental compliance. The amendments also specify certain activities
that are not considered to be "participation in management", including
monitoring or enforcing the terms of the extension of credit or security
interest, inspecting the facility, and requiring a lawful means of addressing
the release or threatened release of a hazardous substance.
The 1996 amendments also specify that a lender who did not participate
in management of a facility prior to foreclosure will not be considered an
"owner or operator", even if the lender forecloses on the facility and after
foreclosure sells or liquidates the facility, maintains business activities,
winds up operations, undertakes an appropriate response action, or takes any
other measure to preserve, protect, or prepare the facility prior to sale or
disposition, if the lender seeks to sell or otherwise divest the facility at
the earliest practicable, commercially reasonable time, on commercially
reasonable terms, taking into account market conditions and legal and
regulatory requirements.
The CERCLA and SWDA lender liability amendments specifically address the
potential liability of lenders who hold mortgages or similar conventional
security interests in real property, such as the Trust Fund does in
connection with the Home Equity Loans and the Home Improvement Contracts.
The amendments do not clearly address the potential liability of lenders who
retain legal title to a property and enter into an agreement with the
purchaser for the payment of the purchase price and interest over the term of
the contract, such as the Trust Fund does in connection with the Installment
Contracts.
If a lender (including a lender under an Installment Contract) is or
becomes liable under CERCLA, it may be authorized to bring a statutory action
for contribution against any other "responsible parties", including a
previous owner or operator. However, such persons or entities may be
bankrupt or otherwise judgment proof, and the costs associated with
environmental cleanup and related actions may be substantial. Moreover, some
state laws imposing liability for addressing hazardous substances do not
contain exemptions from liability for lenders. Whether the costs of
addressing a release or threatened release at a property pledged as
collateral for one of the Loans (or at a property subject to an Installment
Contract), would be imposed on the Trust Fund, and thus occasion a loss to
the Securityholders, therefore depends on the specific factual and legal
circumstances at issue.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure of
a mortgage, the borrower and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. In some
states, redemption may occur only upon payment of the entire principal
balance of the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower pays only a
portion of the sums due. The effect of a statutory right of redemption would
defeat the title of any purchaser from the lender subsequent to foreclosure
or sale under a deed of trust. Consequently, the practical effect of the
redemption right is to force the lender to retain the property and pay the
expenses of ownership until the redemption period has run. In some states,
there is no right to redeem property after a trustee's sale under a deed of
trust.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Certain states have adopted statutory prohibitions restricting the right
of the beneficiary or mortgagee to obtain a deficiency judgment against
borrowers financing the purchase of their residence or following sale under a
deed of trust or certain other foreclosure proceedings. A deficiency
judgment is a personal judgment against the borrower equal in most cases to
the difference between the amount due to the lender and the fair market value
of the real property sold at the foreclosure sale. Other statutes require
the beneficiary or mortgagee to exhaust the security afforded under a deed of
trust or mortgage by foreclosure in an attempt to satisfy the full debt
before bringing a personal action against the borrower. In certain other
states, the lender has the option of bringing a personal action against the
borrower on the debt without first exhausting such security; however, in some
of these states, the lender, following judgment on such personal action, may
be deemed to have elected a remedy and may be precluded from exercising
remedies with respect to the security. Consequently, the practical effect of
the election requirement, when applicable, is that lenders will usually
proceed first against the security rather than bringing a personal action
against the borrower. Finally, other statutory provisions limit any
deficiency judgment against the former borrower following a foreclosure sale
to the excess of the outstanding debt over the fair market value of the
property at the time of the public sale. The purpose of these statutes is
generally to prevent a beneficiary or a mortgagee from obtaining a large
deficiency judgment against the former borrower as a result of low or no bids
at the foreclosure sale.
In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the federal bankruptcy
laws, the federal Soldiers' and Sailors' Civil Relief Act of 1940 and state
laws affording relief to debtors, may interfere with or affect the ability of
the secured mortgage lender to realize upon its security. For example, in a
proceeding under the federal Bankruptcy Code, a lender may not foreclose on
the Property without the permission of the bankruptcy court. The
rehabilitation plan proposed by the debtor may provide, if the Property is
not the debtor's principal residence and the court determines that the value
of the Property is less than the principal balance of the mortgage loan, for
the reduction of the secured indebtedness to the value of the Property as of
the date of the commencement of the bankruptcy, rendering the lender a
general unsecured creditor for the difference, and also may reduce the
monthly payments due under such mortgage loan, change the rate of interest
and alter the mortgage loan repayment schedule. The effect of any such
proceedings under the federal Bankruptcy Code, including but not limited to
any automatic stay, could result in delays in receiving payments on the Loans
underlying a Series of Securities and possible reductions in the aggregate
amount of such payments.
The federal tax laws provide priority to certain tax liens over the lien
of a mortgage or secured party. Numerous federal and state consumer
protection laws impose substantive requirements upon mortgage lenders in
connection with the origination, servicing and enforcement of loans secured
by Single Family Properties. These laws include the federal Truth-in-Lending
Act, Real Estate Settlement Procedures Act, Equal Credit Opportunity Act,
Fair Credit Billing Act, Fair Credit Reporting Act and related statutes and
regulations. These federal and state laws impose specific statutory
liabilities upon lenders who fail to comply with the provisions of the law.
In some cases, this liability may affect assignees of the loans or contracts.
DUE-ON-SALE CLAUSES
Unless otherwise specified in the related Prospectus Supplement, each
conventional Loan will contain a due-on-sale clause which will provide that
if the mortgagor or obligor sells, transfers or conveys the Property, the
loan or contract may be accelerated by the mortgagee or secured party. The
Garn-St. Germain Depository Institutions Act of 1982 (the "Garn-St. Germain
Act"), subject to certain exceptions, preempts state constitutional,
statutory and case law prohibiting the enforcement of due-on-sale clauses.
As a result, due-on-sale clauses have become generally enforceable except in
those states whose legislatures exercised their authority to regulate the
enforceability of such clauses with respect to mortgage loans that were (i)
originated or assumed during the "window period" under the Garn-St. Germain
Act which ended in all cases not later than October 15, 1982, and (ii)
originated by lenders other than national banks, federal savings institutions
and federal credit unions. FHLMC has taken the position in its published
mortgage servicing standards that, out of a total of eleven "window period
states," five states (Arizona, Michigan, Minnesota, New Mexico and Utah) have
enacted statutes extending, on various terms and for varying periods, the
prohibition on enforcement of due-on-sale clauses with respect to certain
categories of window period loans. Also, the Garn-St. Germain Act does
"encourage" lenders to permit assumption of loans at the original rate of
interest or at some other rate less than the average of the original rate and
the market rate.
As to loans secured by an owner-occupied residence, the Garn-St. Germain
Act sets forth nine specific instances in which a mortgagee covered by the
Act may not exercise its rights under a due-on-sale clause, notwithstanding
the fact that a transfer of the property may have occurred. The inability to
enforce a due-on-sale clause may result in transfer of the related Property
to an uncreditworthy person, which could increase the likelihood of default
or may result in a mortgage bearing an interest rate below the current market
rate being assumed by a new home buyer, which may affect the average life of
the Loans and the number of Loans which may extend to maturity.
In addition, under federal bankruptcy law, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under certain
circumstances, be eliminated in any modified mortgage resulting from such
bankruptcy proceeding.
ENFORCEABILITY OF PREPAYMENT AND LATE PAYMENT FEES
Forms of notes, mortgages and deeds of trust used by lenders may contain
provisions obligating the borrower to pay a late charge if payments are not
timely made, and in some circumstances may provide for prepayment fees or
penalties if the obligation is paid prior to maturity. In certain states,
there are or may be specific limitations upon the late charges which a lender
may collect from a borrower for delinquent payments. Certain states also
limit the amounts that a lender may collect from a borrower as an additional
charge if the loan is prepaid. Late charges and prepayment fees are
typically retained by servicers as additional servicing compensation.
EQUITABLE LIMITATIONS ON REMEDIES
In connection with lenders' attempts to realize upon their security,
courts have invoked general equitable principles. The equitable principles
are generally designed to relieve the borrower from the legal effect of his
defaults under the loan documents. Examples of judicial remedies that have
been fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes of the borrower's
default and the likelihood that the borrower will be able to reinstate the
loan. In some cases, courts have substituted their judgment for the lender's
judgment and have required that lenders reinstate loans or recast payment
schedules in order to accommodate borrowers who are suffering from temporary
financial disability. In other cases, courts have limited the right of a
lender to realize upon his security if the default under the security
agreement is not monetary, such as the borrower's failure to adequately
maintain the property or the borrower's execution of secondary financing
affecting the property. Finally, some courts have been faced with the issue
of whether or not federal or state constitutional provisions reflecting due
process concerns for adequate notice require that borrowers under security
agreements receive notices in addition to the statutorily-prescribed
minimums. For the most part, these cases have upheld the notice provisions
as being reasonable or have found that, in some cases involving the sale by a
trustee under a deed of trust or by a mortgagee under a mortgage having a
power of sale, there is insufficient state action to afford constitutional
protections to the borrower.
Most conventional single-family mortgage loans may be prepaid in full or
in part without penalty. The regulations of the Federal Home Loan Bank Board
(the "FHLBB") prohibit the imposition of a prepayment penalty or equivalent
fee in connection with the acceleration of a loan by exercise of a due-on-
sale clause. A mortgagee to whom a prepayment in full has been tendered may
be compelled to give either a release of the mortgage or an instrument
assigning the existing mortgage. The absence of a restraint on prepayment,
particularly with respect to Loans having higher mortgage rates, may increase
the likelihood of refinancing or other early retirements of the Loans.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("Title V") provides that state usury
limitations shall not apply to certain types of residential first mortgage
loans originated by certain lenders after March 31, 1980. The Office of
Thrift Supervision, as successor to the Federal Home Loan Bank Board, is
authorized to issue rules and regulations and to publish interpretations
governing implementation of Title V. The statute authorized the states to
reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision which expressly rejects an application of the
federal law. Fifteen states adopted such a law prior to the April 1, 1993
deadline. In addition, even where Title V is not so rejected, any state is
authorized by the law to adopt a provision limiting discount points or other
charges on mortgage loans covered by Title V. Certain states have taken
action to reimpose interest rate limits and/or to limit discount points or
other charges.
THE HOME IMPROVEMENT CONTRACTS
General. The Home Improvement Contracts, other than those Home
Improvement Contracts that are unsecured or secured by mortgages on real
estate (such Home Improvement Contracts are hereinafter referred to in this
section as "contracts") generally are "chattel paper" or constitute "purchase
money security interests" each as defined in the Uniform Commercial Code (the
"UCC"). Pursuant to the UCC, the sale of chattel paper is treated in a
manner similar to perfection of a security interest in chattel paper. Under
the related Agreement, the Depositor will transfer physical possession of the
contracts to the Trustee or a designated custodian or may retain possession
of the contracts as custodian for the Trustee. In addition, the Depositor
will make an appropriate filing of a UCC-1 financing statement in the
appropriate states to give notice of the Trustee's ownership of the
contracts. Unless otherwise specified in the related Prospectus Supplement,
the contracts will not be stamped or otherwise marked to reflect their
assignment from the Depositor to the Trustee. Therefore, if through
negligence, fraud or otherwise, a subsequent purchaser were able to take
physical possession of the contracts without notice of such assignment, the
Trustee's interest in the contracts could be defeated.
Security Interests in Home Improvements. The contracts that are secured
by the Home Improvements financed thereby grant to the originator of such
contracts a purchase money security interest in such Home Improvements to
secure all or part of the purchase price of such Home Improvements and
related services. A financing statement generally is not required to be
filed to perfect a purchase money security interest in consumer goods. Such
purchase money security interests are assignable. In general, a purchase
money security interest grants to the holder a security interest that has
priority over a conflicting security interest in the same collateral and the
proceeds of such collateral. However, to the extent that the collateral
subject to a purchase money security interest becomes a fixture, in order for
the related purchase money security interest to take priority over a
conflicting interest in the fixture, the holder's interest in such Home
Improvement must generally be perfected by a timely fixture filing. In
general, a security interest does not exist under the UCC in ordinary
building material incorporated into an improvement on land. Home Improvement
Contracts that finance lumber, bricks, other types of ordinary building
material or other goods that are deemed to lose such characterization upon
incorporation of such materials into the related property, will not be
secured by a purchase money security interest in the Home Improvement being
financed.
Enforcement of Security Interest in Home Improvements. So long as the
Home Improvement has not become subject to the real estate law, a creditor
can repossess a Home Improvement securing a contract by voluntary surrender,
by "self-help" repossession that is "peaceful" (i.e., without breach of the
peace) or, in the absence of voluntary surrender and the ability to repossess
without breach of the peace, by judicial process. The holder of a contract
must give the debtor a number of days' notice, which varies from 10 to 30
days depending on the state, prior to commencement of any repossession. The
UCC and consumer protection laws in most states place restrictions on
repossession sales, including requiring prior notice to the debtor and
commercial reasonableness in effecting such a sale. The law in most states
also requires that the debtor be given notice of any sale prior to resale of
the unit that the debtor may redeem at or before such resale.
Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the property securing the debtor's loan. However, some states
impose prohibitions or limitations on deficiency judgments, and in many cases
the defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
Consumer Protection Laws. The so-called "Holder-in-Due Course" rule of
the Federal Trade Commission is intended to defeat the ability of the
transferor of a consumer credit contract which is the seller of goods which
gave rise to the transaction (and certain related lenders and assignees) to
transfer such contract free of notice of claims by the debtor thereunder.
The effect of this rule is to subject the assignee of such a contract to all
claims and defenses which the debtor could assert against the seller of
goods. Liability under this rule is limited to amounts paid under a
contract; however, the obligor also may be able to assert the rule to set off
remaining amounts due as a defense against a claim brought by the Trustee
against such obligor. Numerous other federal and state consumer protection
laws impose requirements applicable to the origination and lending pursuant
to the contracts, including the Truth in Lending Act, the Federal Trade
Commission Act, the Fair Credit Billing Act, the Fair Credit Reporting Act,
the Equal Credit Opportunity Act, the Fair Debt Collection Practices Act and
the Uniform Consumer Credit Code. In the case of some of these laws, the
failure to comply with their provisions may affect the enforceability of the
related contract.
Applicability of Usury Laws. Title V of the Depository Institutions
Deregulation and Monetary Control Act of 1980, as amended ("Title V"),
provides that, subject to the following conditions, state usury limitations
shall not apply to any contract which is secured by a first lien on certain
kinds of consumer goods. The contracts would be covered if they satisfy
certain conditions, among other things, governing the terms of any
prepayments, late charges and deferral fees and requiring a 30-day notice
period prior to instituting any action leading to repossession of the related
unit.
Title V authorized any state to reimpose limitations on interest rates
and finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen
states adopted such a law prior to the April 1, 1983 deadline. In addition,
even where Title V was not so rejected, any state is authorized by the law to
adopt a provision limiting discount points or other charges on loans covered
by Title V.
INSTALLMENT CONTRACTS
The Loans may also consist of installment contracts. Under an
installment contract ("Installment Contract") the seller (hereinafter
referred to in this section as the "lender") retains legal title to the
property and enters into an agreement with the purchaser hereinafter referred
to in this section as the "borrower") for the payment of the purchase price,
plus interest, over the term of such contract. Only after full performance
by the borrower of the contract is the lender obligated to convey title to
the property to the purchaser. As with mortgage or deed of trust financing,
during the effective period of the Installment Contract, the borrower is
generally responsible for maintaining the property in good condition and for
paying real estate taxes, assessments and hazard insurance premiums
associated with the property.
The method of enforcing the rights of the lender under an Installment
Contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to the terms. The terms of Installment Contracts
generally provide that upon a default by the borrower, the borrower loses his
or her right to occupy the property, the entire indebtedness is accelerated,
and the buyer's equitable interest in the property is forfeited. The lender
in such a situation does not have to foreclose in order to obtain title to
the property, although in some cases a quiet title action is in order if the
borrower has filed the Installment Contract in local land records and an
ejectment action may be necessary to recover possession. In a few states,
particularly in cases of borrower default during the early years of an
Installment Contract, the courts will permit ejectment of the buyer and a
forfeiture of his or her interest in the property. However, most state
legislatures have enacted provisions by analogy to mortgage law protecting
borrowers under Installment Contracts from the harsh consequences of
forfeiture. Under such statutes, a judicial or nonjudicial foreclosure may
be required, the lender may be required to give notice of default and the
borrower may be granted some grace period during which the Installment
Contract may be reinstated upon full payment of the default amount and the
borrower may have a post-foreclosure statutory redemption right. In other
states, courts in equity may permit a borrower with significant investment in
the property under an Installment Contract for the sale of real estate to
share in the proceeds of sale of the property after the indebtedness is
repaid or may otherwise refuse to enforce the forfeiture clause.
Nevertheless, generally speaking, the lender's procedures for obtaining
possession and clear title under an Installment Contract in a given state are
simpler and less time-consuming and costly than are the procedures for
foreclosing and obtaining clear title to a property subject to one or more
liens.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT
Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended (the "Relief Act"), a borrower who enters military
service after the origination of such borrower's Loan (including a borrower
who is a member of the National Guard or is in reserve status at the time of
the origination of the Loan and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such
borrower's active duty status, unless a court orders otherwise upon
application of the lender. It is possible that such interest rate limitation
could have an effect, for an indeterminate period of time, on the ability of
the Master Servicer to collect full amounts of interest on certain of the
Loans. Any shortfall in interest collections resulting from the application
of the Relief Act could result in losses to the Securityholders. The Relief
Act also imposes limitations which would impair the ability of the Master
Servicer to foreclose on an affected Loan during the borrower's period of
active duty status. Moreover, the Relief Act permits the extension of a
Loan's maturity and the re-adjustment of its payment schedule beyond the
completion of military service. Thus, in the event that such a Loan goes
into default, there may be delays and losses occasioned by the inability to
realize upon the Property in a timely fashion.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES
To the extent that the Loans comprising the Trust Fund for a Series are
secured by mortgages which are junior to other mortgages held by other
lenders or institutional investors, the rights of the Trust Fund (and
therefore the Securityholders), as mortgagee under any such junior mortgage,
are subordinate to those of any mortgagee under any senior mortgage. The
senior mortgagee has the right to receive hazard insurance and condemnation
proceeds and to cause the property securing the Loan to be sold upon default
of the mortgagor, thereby extinguishing the junior mortgagee's lien unless
the junior mortgagee asserts its subordinate interest in the property in
foreclosure litigation and, possibly, satisfies the defaulted senior
mortgage. A junior mortgagee may satisfy a defaulted senior loan in full
and, in some states, may cure such default and bring the senior loan current,
in either event adding the amounts expended to the balance due on the junior
loan. In most states, absent a provision in the mortgage or deed of trust,
no notice of default is required to be given to a junior mortgagee.
The standard form of the mortgage used by most institutional lenders
confers on the mortgagee the right both to receive all proceeds collected
under any hazard insurance policy and all awards made in connection with
condemnation proceedings, and to apply such proceeds and awards to any
indebtedness secured by the mortgage, in such order as the mortgagee may
determine. Thus, in the event improvements on the property are damaged or
destroyed by fire or other casualty, or in the event the property is taken by
condemnation, the mortgagee or beneficiary under underlying senior mortgages
will have the prior right to collect any insurance proceeds payable under a
hazard insurance policy and any award of damages in connection with the
condemnation and to apply the same to the indebtedness secured by the senior
mortgages. Proceeds in excess of the amount of senior mortgage indebtedness,
in most cases, may be applied to the indebtedness of a junior mortgage.
Another provision sometimes found in the form of the mortgage or deed of
trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste thereof, and to appear in and defend any action or proceeding
purporting to affect the property or the rights of the mortgagee under the
mortgage. Upon a failure of the mortgagor to perform any of these
obligations, the mortgagee is given the right under certain mortgages to
perform the obligation itself, at its election, with the mortgagor agreeing
to reimburse the mortgagee for any sums expended by the mortgagee on behalf
of the mortgagor. All sums so expended by the mortgagee become part of the
indebtedness secured by the mortgage.
The form of credit line trust deed or mortgage generally used by most
institutional lenders which make Revolving Credit Line Loans typically
contains a "future advance" clause, which provides, in essence, that
additional amounts advanced to or on behalf of the borrower by the
beneficiary or lender are to be secured by the deed of trust or mortgage.
Any amounts so advanced after the Cut-off Date with respect to any mortgage
will not be included in the Trust Fund. The priority of the lien securing
any advance made under the clause may depend in most states on whether the
deed of trust or mortgage is called and recorded as a credit line deed of
trust or mortgage. If the beneficiary or lender advances additional amounts,
the advance is entitled to receive the same priority as amounts initially
advanced under the trust deed or mortgage, notwithstanding the fact that
there may be junior trust deeds or mortgages and other liens which intervene
between the date of recording of the trust deed or mortgage and the date of
the future advance, and notwithstanding that the beneficiary or lender had
actual knowledge of such intervening junior trust deeds or mortgages and
other liens at the time of the advance. In most states, the trust deed or
mortgage lien securing mortgage loans of the type which includes home equity
credit lines applies retroactively to the date of the original recording of
the trust deed or mortgage, provided that the total amount of advances under
the home equity credit line does not exceed the maximum specified principal
amount of the recorded trust deed or mortgage, except as to advances made
after receipt by the lender of a written notice of lien from a judgment lien
creditor of the trustor.
THE TITLE I PROGRAM
General. Certain of the Loans contained in a Trust Fund may be loans
insured under the FHA Title I Credit Insurance program created pursuant to
Sections 1 and 2(a) of the National Housing Act of 1934 (the "Title I
Program"). Under the Title I Program, the FHA is authorized and empowered to
insure qualified lending institutions against losses on eligible loans. The
Title I Program operates as a coinsurance program in which the FHA insures up
to 90% of certain losses incurred on an individual insured loan, including
the unpaid principal balance of the loan, but only to the extent of the
insurance coverage available in the lender's FHA insurance coverage reserve
account. The owner of the loan bears the uninsured loss on each loan.
The types of loans which are eligible for insurance by the FHA under the
Title I Program include property improvement loans ("Property Improvement
Loans" or "Title I Loans"). A Property Improvement Loan or Title I Loan
means a loan made to finance actions or items that substantially protect or
improve the basic livability or utility of a property and includes single
family improvement loans.
There are two basic methods of lending or originating such loans which
include a "direct loan" or a "dealer loan". With respect to a direct loan,
the borrower makes application directly to a lender without any assistance
from a dealer, which application may be filled out by the borrower or by a
person acting at the direction of the borrower who does not have a financial
interest in the loan transaction, and the lender may disburse the loan
proceeds solely to the borrower or jointly to the borrower and other parties
to the transaction. With respect to a dealer loan, the dealer, who has a
direct or indirect financial interest in the loan transaction, assists the
borrower in preparing the loan application or otherwise assists the borrower
in obtaining the loan from the lender. The lender may disburse proceeds
solely to the dealer or the borrower or jointly to the borrower and the
dealer or other parties to the transaction. With respect to a dealer Title I
Loan, a dealer may include a seller, a contractor or supplier of goods or
services.
Loans insured under the Title I Program are required to have fixed
interest rates and generally provide for equal installment payments due
weekly, biweekly, semi-monthly or monthly, except that a loan may be payable
quarterly or semi-annually where a borrower has an irregular flow of income.
The first or last payments (or both) may vary in amount but may not exceed
150% of the regular installment payment, and the first payment may be due no
later than two months from the date of the loan. The note must contain a
provision permitting full or partial prepayment of the loan. The interest
rate must be negotiated and agreed to by the borrower and the lender and must
be fixed for the term of the loan and recited in the note. Interest on an
insured loan must accrue from the date of the loan and be calculated
according to the actuarial method. The lender must assure that the note and
all other documents evidencing the loan are in compliance with applicable
federal, state and local laws.
Each insured lender is required to use prudent lending standards in
underwriting individual loans and to satisfy the applicable loan underwriting
requirements under the Title I Program prior to its approval of the loan and
disbursement of loan proceeds. Generally, the lender must exercise prudence
and diligence to determine whether the borrower and any co-maker is solvent
and an acceptable credit risk, with a reasonable ability to make payments on
the loan obligation. The lender's credit application and review must
determine whether the borrower's income will be adequate to meet the periodic
payments required by the loan, as well as the borrower's other housing and
recurring expenses, which determination must be made in accordance with the
expense-to-income ratios published by the Secretary of HUD unless the lender
determines and documents in the loan file the existence of compensating
factors concerning the borrower's creditworthiness which support approval of
the loan.
Under the Title I Program, the FHA does not review or approve for
qualification for insurance the individual loans insured thereunder at the
time of approval by the lending institution (as is typically the case with
other federal loan programs). If, after a loan has been made and reported
for insurance under the Title I Program, the lender discovers any material
misstatement of fact or that the loan proceeds have been misused by the
borrower, dealer or any other party, it shall promptly report this to the
FHA. In such case, provided that the validity of any lien on the property
has not been impaired, the insurance of the loan under the Title I Program
will not be affected unless such material misstatements of fact or misuse of
loan proceeds was caused by (or was knowingly sanctioned by) the lender or
its employees.
Requirements for Title I Loans. The maximum principal amount for Title
I Loans must not exceed the actual cost of the project plus any applicable
fees and charges allowed under the Title I Program; provided that such
maximum amount does not exceed $25,000 (or the current applicable amount) for
a single family property improvement loan. Generally, the term of a Title I
Loan may not be less than six months nor greater than 20 years and 32 days.
A borrower may obtain multiple Title I Loans with respect to multiple
properties, and a borrower may obtain more than one Title I Loan with respect
to a single property, in each case as long as the total outstanding balance
of all Title I Loans in the same property does not exceed the maximum loan
amount for the type of Title I Loan thereon having the highest permissible
loan amount.
Borrower eligibility for a Title I Loan requires that the borrower have
at least a one-half interest in either fee simple title to the real property,
a lease thereof for a term expiring at least six months after the final
maturity of the Title I Loan or a recorded land installment contract for the
purchase of the real property. In the case of a Title I Loan with a total
principal balance in excess of $15,000, if the property is not occupied by
the owner, the borrower must have equity in the property being improved at
least equal to the principal amount of the loan, as demonstrated by a current
appraisal. Any Title I Loan in excess of $7,500 must be secured by a
recorded lien on the improved property which is evidenced by a mortgage or
deed of trust executed by the borrower and all other owners in fee simple.
The proceeds from a Title I Loan may be used only to finance property
improvements which substantially protect or improve the basic livability or
utility of the property as disclosed in the loan application. The Secretary
of HUD has published a list of items and activities which cannot be financed
with proceeds from any Title I Loan and from time to time the Secretary of
HUD may amend such list of items and activities. With respect to any dealer
Title I Loan, before the lender may disburse funds, the lender must have in
its possession a completion certificate on a HUD approved form, signed by the
borrower and the dealer. With respect to any direct Title I Loan, the lender
is required to obtain, promptly upon completion of the improvements but not
later than 6 months after disbursement of the loan proceeds with one 6 month
extension if necessary, a completion certificate, signed by the borrower.
The lender is required to conduct an on-site inspection on any Title I Loan
where the principal obligation is $7,500 or more, and on any direct Title I
Loan where the borrower fails to submit a completion certificate.
FHA Insurance Coverage. Under the Title I Program, the FHA establishes
an insurance coverage reserve account for each lender which has been granted
a Title I contract of insurance. The amount of insurance coverage in this
account is a maximum of 10% of the amount disbursed, advanced or expended by
the lender in originating or purchasing eligible loans registered with the
FHA for Title I insurance, with certain adjustments. The balance in the
insurance coverage reserve account is the maximum amount of insurance claims
the FHA is required to pay to the Title I lender. Loans to be insured under
the Title I Program will be registered for insurance by the FHA and the
insurance coverage attributable to such loans will be included in the
insurance coverage reserve account for the originating or purchasing lender
following the receipt and acknowledgment by the FHA of a loan report on the
prescribed form pursuant to the Title I regulations. For each eligible loan
reported and acknowledged for insurance, the FHA charges a fee (the
"Premium"). For loans having a maturity of 25 months or less, the FHA bills
the lender for the entire Premium in an amount equal to the product of 0.50%
of the original loan amount and the loan term. For home improvement loans
with a maturity greater than 25 months, each year that a loan is outstanding
the FHA bills the lender for a Premium in an amount equal to 0.50% of the
original loan amount. If a loan is prepaid during the year, the FHA will not
refund or abate the Premium paid for such year.
Under the Title I Program the FHA will reduce the insurance coverage
available in the lender's FHA insurance coverage reserve account with respect
to loans insured under the lender's contract of insurance by (i) the amount
of the FHA insurance claims approved for payment relating to such insured
loans and (ii) the amount of insurance coverage attributable to insured loans
sold by the lender, and such insurance coverage may be reduced for any FHA
insurance claims rejected by the FHA. The balance of the lender's FHA
insurance coverage reserve account will be further adjusted as required under
Title I or by the FHA, and the insurance coverage therein may be earmarked
with respect to each or any eligible loans insured thereunder, if a
determination is made by the Secretary of HUD that it is in its interest to
do so. Originations and acquisitions of new eligible loans will continue to
increase a lender's insurance coverage reserve account balance by 10% of the
amount disbursed, advanced or expended in originating or acquiring such
eligible loans registered with the FHA for insurance under the Title I
Program. The Secretary of HUD may transfer insurance coverage between
insurance coverage reserve accounts with earmarking with respect to a
particular insured loan or group of insured loans when a determination is
made that it is in the Secretary's interest to do so.
The lender may transfer (except as collateral in a bona fide
transaction) insured loans and loans reported for insurance only to another
qualified lender under a valid Title I contract of insurance. Unless an
insured loan is transferred with recourse or with a guaranty or repurchase
agreement, the FHA, upon receipt of written notification of the transfer of
such loan in accordance with the Title I regulations, will transfer from the
transferor's insurance coverage reserve account to the transferee's insurance
coverage reserve account an amount, if available, equal to 10% of the actual
purchase price or the net unpaid principal balance of such loan (whichever is
less). However, under the Title I Program not more than $5,000 in insurance
coverage shall be transferred to or from a lender's insurance coverage
reserve account during any October 1 to September 30 period without the prior
approval of the Secretary of HUD. Amounts which may be recovered by the
Secretary of HUD after payment of an insurance claim are not added to the
amount of insurance coverage in the related lender's insurance coverage
reserve account.
Claims Procedures Under Title I. Under the Title I Program the lender
may accelerate an insured loan following a default on such loan only after
the lender or its agent has contacted the borrower in a face-to-face meeting
or by telephone to discuss the reasons for the default and to seek its cure.
If the borrower does not cure the default or agree to a modification
agreement or repayment plan, the lender will notify the borrower in writing
that, unless within 30 days the default is cured or the borrower enters into
a modification agreement or repayment plan, the loan will be accelerated and
that, if the default persists, the lender will report the default to an
appropriate credit agency. The lender may rescind the acceleration of
maturity after full payment is due and reinstate the loan only if the
borrower brings the loan current, executes a modification agreement or agrees
to an acceptable repayment plan.
Following acceleration of maturity upon a secured Title I Loan, the
lender may either (a) proceed against the property under any security
instrument, or (b) make a claim under the lender's contract of insurance. If
the lender chooses to proceed against the property under a security
instrument (or if it accepts a voluntary conveyance or surrender of the
property), the lender may file an insurance claim only with the prior
approval of the Secretary of HUD.
When a lender files an insurance claim with the FHA under the Title I
Program, the FHA reviews the claim, the complete loan file and documentation
of the lender's efforts to obtain recourse against any dealer who has agreed
thereto, certification of compliance with applicable state and local laws in
carrying out any foreclosure or repossession, and evidence that the lender
has properly filed proofs of claims, where the borrower is bankrupt or
deceased. Generally, a claim for reimbursement for loss on any Title I Loan
must be filed with the FHA no later than 9 months after the date of default
of such loan. Concurrently with filing the insurance claim, the lender shall
assign to the United States of America the lender's entire interest in the
loan note (or a judgment in lien of the note), in any security held and in
any claim filed in any legal proceedings. If, at the time the note is
assigned to the United States, the Secretary has reason to believe that the
note is not valid or enforceable against the borrower, the FHA may deny the
claim and reassign the note to the lender. If either such defect is
discovered after the FHA has paid a claim, the FHA may require the lender to
repurchase the paid claim and to accept a reassignment of the loan note. If
the lender subsequently obtains a valid and enforceable judgment against the
borrower, the lender may resubmit a new insurance claim with an assignment of
the judgment. Although the FHA may contest any insurance claim and make a
demand for repurchase of the loan at any time up to two years from the date
the claim was certified for payment and may do so thereafter in the event of
fraud or misrepresentation on the part of the lender, the FHA has expressed
an intention to limit the period of time within which it will take such
action to one year from the date the claim was certified for payment.
Under the Title I Program the amount of an FHA insurance claim payment,
when made, is equal to the Claimable Amount, up to the amount of insurance
coverage in the lender's insurance coverage reserve account. For the
purposes hereof, the "Claimable Amount" means an amount equal to 90% of the
sum of: (a) the unpaid loan obligation (net unpaid principal and the
uncollected interest earned to the date of default) with adjustments thereto
if the lender has proceeded against property securing such loan; (b) the
interest on the unpaid amount of the loan obligation from the date of default
to the date of the claim's initial submission for payment plus 15 calendar
days (but not to exceed 9 months from the date of default), calculated at the
rate of 7% per annum; (c) the uncollected court costs; (d) the attorney's
fees not to exceed $500; and (e) the expenses for recording the assignment of
the security to the United States.
The Secretary of HUD may deny a claim for insurance in whole or in part
for any violations of the regulations governing the Title I Program; however,
the Secretary of HUD may waive such violations if it determines that
enforcement of the regulations would impose an injustice upon a lender which
has substantially complied with the regulations in good faith.
OTHER LEGAL CONSIDERATIONS
The Loans are also subject to federal laws, including: (i) Regulation Z,
which requires certain disclosures to the borrowers regarding the terms of
the Loans; (ii) the Equal Opportunity Act and Regulation B promulgated
thereunder, which prohibit discrimination on the basis of age, race, color,
sex, religion, marital status, national origin, receipt of public assistance
or the exercise of any right under the Consumer Credit Protection Act, in the
extension of credit; and (iii) the Fair Credit Reporting Act, which regulates
the use and reporting of information related to the borrower's credit
experience. Violations of certain provisions of these federal laws may limit
the ability of the Sellers to collect all or part of the principal of or
interest on the Loans and in addition could subject the Sellers to damages
and administrative enforcement.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of certain anticipated material federal
income tax consequences of the purchase, ownership, and disposition of the
Securities and is based on the opinion of Brown & Wood LLP, special counsel
to the Depositor (in such capacity, "Tax Counsel"). The summary is based
upon the provisions of the Code, the regulations promulgated thereunder,
including, where applicable, proposed regulations, and the judicial and
administrative rulings and decisions now in effect, all of which are subject
to change or possible differing interpretations. The statutory provisions,
regulations, and interpretations on which this interpretation is based are
subject to change, and such a change could apply retroactively.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances. This summary focuses primarily upon investors who will hold
Securities as "capital assets" (generally, property held for investment)
within the meaning of Section 1221 of the Code. Prospective investors may
wish to consult their own tax advisers concerning the federal, state, local
and any other tax consequences as relates specifically to such investors in
connection with the purchase, ownership and disposition of the Securities.
The federal income tax consequences to holders will vary depending on
whether (i) the Securities of a Series are classified as indebtedness; (ii)
an election is made to treat the Trust Fund relating to a particular Series
of Securities as a real estate mortgage investment conduit ("REMIC") under
the Internal Revenue Code of 1986, as amended (the "Code"); (iii) the
Securities represent an ownership interest in some or all of the assets
included in the Trust Fund for a Series; or (iv) an election is made to treat
the Trust Fund relating to a particular Series of Certificates as a
partnership. The Prospectus Supplement for each Series of Securities will
specify how the Securities will be treated for federal income tax purposes
and will discuss whether a REMIC election, if any, will be made with respect
to such Series.
TAXATION OF DEBT SECURITIES
Status as Real Property Loans. Except to the extent otherwise provided
in the related Prospectus Supplement, if the Securities are regular interests
in a REMIC ("Regular Interest Securities") or represent interests in a
grantor trust, Tax Counsel is of the opinion that: (i) Securities held by a
domestic building and loan association will constitute "loans... secured by
an interest in real property" within the meaning of Code section
7701(a)(19)(C)(v); and (ii) Securities held by a real estate investment trust
will constitute "real estate assets" within the meaning of Code section
856(c)(5)(A) and interest on Securities will be considered "interest on
obligations secured by mortgages on real property or on interests in real
property" within the meaning of Code section 856(c)(3)(B).
Interest and Acquisition Discount. In the opinion of Tax Counsel,
Regular Interest Securities are generally taxable to holders in the same
manner as evidences of indebtedness issued by the REMIC. Stated interest on
the Regular Interest Securities will be taxable as ordinary income and taken
into account using the accrual method of accounting, regardless of the
holder's normal accounting method. Interest (other than original issue
discount) on Securities (other than Regular Interest Securities) that are
characterized as indebtedness for federal income tax purposes will be
includible in income by holders thereof in accordance with their usual
methods of accounting. Securities characterized as debt for federal income
tax purposes and Regular Interest Securities will be referred to hereinafter
collectively as "Debt Securities."
Tax Counsel is of the opinion that Debt Securities that are Compound
Interest Securities will, and certain of the other Debt Securities issued at
a discount may, be issued with "original issue discount" ("OID"). The
following discussion is based in part on the rules governing OID which are
set forth in Sections 1271-1275 of the Code and the Treasury regulations
issued thereunder on February 2, 1994 (the "OID Regulations"). A holder
should be aware, however, that the OID Regulations do not adequately address
certain issues relevant to prepayable securities, such as the Debt
Securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a Debt Security and its issue price. In the
opinion of Tax Counsel, a holder of a Debt Security must include such OID in
gross income as ordinary interest income as it accrues under a method taking
into account an economic accrual of the discount. In general, OID must be
included in income in advance of the receipt of the cash representing that
income. The amount of OID on a Debt Security will be considered to be zero
if it is less than a de minimis amount determined under the Code.
The issue price of a Debt Security is the first price at which a
substantial amount of Debt Securities of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than
a substantial amount of a particular class of Debt Securities is sold for
cash on or prior to the Closing Date, the issue price for such class will be
treated as the fair market value of such class on the Closing Date. The
issue price of a Debt Security also includes the amount paid by an initial
Debt Security holder for accrued interest that relates to a period prior to
the issue date of the Debt Security. The stated redemption price at maturity
of a Debt Security includes the original principal amount of the Debt
Security, but generally will not include distributions of interest if such
distributions constitute "qualified stated interest."
Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or qualified variable rate (as
described below) provided that such interest payments are unconditionally
payable at intervals of one year or less during the entire term of the Debt
Security. The OID Regulations state that interest payments are
unconditionally payable only if a late payment or nonpayment is expected to
be penalized or reasonable remedies exist to compel payment. Certain Debt
Securities may provide for default remedies in the event of late payment or
nonpayment of interest. In the opinion of Tax Counsel, the interest on such
Debt Securities will be unconditionally payable and constitute qualified
stated interest, not OID. However, absent clarification of the OID
Regulations, where Debt Securities do not provide for default remedies, the
interest payments will be included in the Debt Security's stated redemption
price at maturity and taxed as OID. Interest is payable at a single fixed
rate only if the rate appropriately takes into account the length of the
interval between payments. Distributions of interest on Debt Securities with
respect to which deferred interest will accrue, will not constitute qualified
stated interest payments, in which case the stated redemption price at
maturity of such Debt Securities includes all distributions of interest as
well as principal thereon. Where the interval between the issue date and the
first Distribution Date on a Debt Security is either longer or shorter than
the interval between subsequent Distribution Dates, all or part of the
interest foregone, in the case of the longer interval, and all of the
additional interest, in the case of the shorter interval, will be included in
the stated redemption price at maturity and tested under the de minimis rule
described below. In the case of a Debt Security with a long first period
which has non-de minimis OID, all stated interest in excess of interest
payable at the effective interest rate for the long first period will be
included in the stated redemption price at maturity and the Debt Security
will generally have OID. Holders of Debt Securities should consult their own
tax advisors to determine the issue price and stated redemption price at
maturity of a Debt Security.
Under the de minimis rule, OID on a Debt Security will be considered to
be zero if such OID is less than 0.25% of the stated redemption price at
maturity of the Debt Security multiplied by the weighted average maturity of
the Debt Security. For this purpose, the weighted average maturity of the
Debt Security is computed as the sum of the amounts determined by multiplying
the number of full years (i.e., rounding down partial years) from the issue
date until each distribution in reduction of stated redemption price at
maturity is scheduled to be made by a fraction, the numerator of which is the
amount of each distribution included in the stated redemption price at
maturity of the Debt Security and the denominator of which is the stated
redemption price at maturity of the Debt Security. Holders generally must
report de minimis OID pro rata as principal payments are received, and such
income will be capital gain if the Debt Security is held as a capital asset.
However, accrual method holders may elect to accrue all de minimis OID as
well as market discount under a constant interest method.
Debt Securities may provide for interest based on a qualified variable
rate. Under the OID Regulations, interest is treated as payable at a
qualified variable rate and not as contingent interest if, generally, (i)
such interest is unconditionally payable at least annually, (ii) the issue
price of the debt instrument does not exceed the total noncontingent
principal payments and (iii) interest is based on a "qualified floating
rate," an "objective rate," or a combination of "qualified floating rates"
that do not operate in a manner that significantly accelerates or defers
interest payments on such Debt Security. In the case of Compound Interest
Securities, certain Interest Weighted Securities, and certain of the other
Debt Securities, none of the payments under the instrument will be considered
qualified stated interest, and thus the aggregate amount of all payments will
be included in the stated redemption price.
The Internal Revenue Services (the "IRS") recently issued regulations
(the "Contingent Regulations") governing the calculation of OID on
instruments having contingent interest payments. The Contingent Regulations
represent the only guidance regarding the views of the IRS with respect to
contingent interest instruments and specifically do not apply for purposes of
calculating OID on debt instruments subject to Code Section 1272(a)(6), such
as the Debt Security. Additionally, the OID Regulations do not contain
provisions specifically interpreting Code Section 1272(a)(6). Until the
Treasury issues guidance to the contrary, the Trustee intends to base its
computation on Code Section 1272(a)(6) and the OID Regulations as described
in this Prospectus. However, because no regulatory guidance currently exists
under Code Section 1272(a)(6), there can be no assurance that such
methodology represents the correct manner of calculating OID.
The holder of a Debt Security issued with OID must include in gross
income, for all days during its taxable year on which it holds such Debt
Security, the sum of the "daily portions" of such original issue discount.
The amount of OID includible in income by a holder will be computed by
allocating to each day during a taxable year a pro rata portion of the
original issue discount that accrued during the relevant accrual period. In
the case of a Debt Security that is not a Regular Interest Security and the
principal payments on which are not subject to acceleration resulting from
prepayments on the Loans, the amount of OID includible in income of a holder
for an accrual period (generally the period over which interest accrues on
the debt instrument) will equal the product of the yield to maturity of the
Debt Security and the adjusted issue price of the Debt Security, reduced by
any payments of qualified stated interest. The adjusted issue price is the
sum of its issue price plus prior accruals or OID, reduced by the total
payments made with respect to such Debt Security in all prior periods, other
than qualified stated interest payments.
The amount of OID to be included in income by a holder of a debt
instrument, such as certain Classes of the Debt Securities, that is subject
to acceleration due to prepayments on other debt obligations securing such
instruments (a "Pay-Through Security"), is computed by taking into account
the anticipated rate of prepayments assumed in pricing the debt instrument
(the "Prepayment Assumption"). The amount of OID that will accrue during an
accrual period on a Pay-Through Security is the excess (if any) of the sum of
(a) the present value of all payments remaining to be made on the Pay-Through
Security as of the close of the accrual period and (b) the payments during
the accrual period of amounts included in the stated redemption price of the
Pay-Through Security, over the adjusted issue price of the Pay-Through
Security at the beginning of the accrual period. The present value of the
remaining payments is to be determined on the basis of three factors: (i)
the original yield to maturity of the Pay-Through Security (determined on the
basis of compounding at the end of each accrual period and properly adjusted
for the length of the accrual period), (ii) events which have occurred before
the end of the accrual period and (iii) the assumption that the remaining
payments will be made in accordance with the original Prepayment Assumption.
The effect of this method is to increase the portions of OID required to be
included in income by a holder to take into account prepayments with respect
to the Loans at a rate that exceeds the Prepayment Assumption, and to
decrease (but not below zero for any period) the portions of original issue
discount required to be included in income by a holder of a Pay-Through
Security to take into account prepayments with respect to the Loans at a rate
that is slower than the Prepayment Assumption. Although original issue
discount will be reported to holders of Pay-Through Securities based on the
Prepayment Assumption, no representation is made to holders that Loans will
be prepaid at that rate or at any other rate.
The Depositor may adjust the accrual of OID on a Class of Regular
Interest Securities (or other regular interests in a REMIC) in a manner that
it believes to be appropriate, to take account of realized losses on the
Loans, although the OID Regulations do not provide for such adjustments. If
the Internal Revenue Service were to require that OID be accrued without such
adjustments, the rate of accrual of OID for a Class of Regular Interest
Securities could increase.
Certain classes of Regular Interest Securities may represent more than
one class of REMIC regular interests. Unless otherwise provided in the
related Prospectus Supplement, the Trustee intends, based on the OID
Regulations, to calculate OID on such Securities as if, solely for the
purposes of computing OID, the separate regular interests were a single debt
instrument.
A subsequent holder of a Debt Security will also be required to include
OID in gross income, but such a holder who purchases such Debt Security for
an amount that exceeds its adjusted issue price will be entitled (as will an
initial holder who pays more than a Debt Security's issue price) to offset
such OID by comparable economic accruals of portions of such excess.
Effects of Defaults and Delinquencies. In the opinion of Tax Counsel,
holders will be required to report income with respect to the related
Securities under an accrual method without giving effect to delays and
reductions in distributions attributable to a default or delinquency on the
Loans, except possibly to the extent that it can be established that such
amounts are uncollectible. As a result, the amount of income (including OID)
reported by a holder of such a Security in any period could significantly
exceed the amount of cash distributed to such holder in that period. The
holder will eventually be allowed a loss (or will be allowed to report a
lesser amount of income) to the extent that the aggregate amount of
distributions on the Securities is deduced as a result of a Loan default.
However, the timing and character of such losses or reductions in income are
uncertain and, accordingly, holders of Securities should consult their own
tax advisors on this point.
Interest Weighted Securities. It is not clear how income should be
accrued with respect to Regular Interest Securities or Stripped Securities
(as defined under "--Tax Status as a Grantor Trust; General" herein) the
payments on which consist solely or primarily of a specified portion of the
interest payments on qualified mortgages held by the REMIC or on Loans
underlying Pass-Through Securities ("Interest Weighted Securities"). The
Issuer intends to take the position that all of the income derived from an
Interest Weighted Security should be treated as OID and that the amount and
rate of accrual of such OID should be calculated by treating the Interest
Weighted Security as a Compound Interest Security. However, in the case of
Interest Weighted Securities that are entitled to some payments of principal
and that are Regular Interest Securities the Internal Revenue Service could
assert that income derived from an Interest Weighted Security should be
calculated as if the Security were a security purchased at a premium equal to
the excess of the price paid by such holder for such Security over its stated
principal amount, if any. Under this approach, a holder would be entitled to
amortize such premium only if it has in effect an election under Section 171
of the Code with respect to all taxable debt instruments held by such holder,
as described below. Alternatively, the Internal Revenue Service could assert
that an Interest Weighted Security should be taxable under the rules
governing bonds issued with contingent payments. Such treatment may be more
likely in the case of Interest Weighted Securities that are Stripped
Securities as described below. See "--Tax Status as a Grantor Trust--
Discount or Premium on Pass-Through Securities."
Variable Rate Debt Securities. In the opinion of Tax Counsel, in the
case of Debt Securities bearing interest at a rate that varies directly,
according to a fixed formula, with an objective index, it appears that (i)
the yield to maturity of such Debt Securities and (ii) in the case of
Pay-Through Securities, the present value of all payments remaining to be
made on such Debt Securities, should be calculated as if the interest index
remained at its value as of the issue date of such Securities. Because the
proper method of adjusting accruals of OID on a variable rate Debt Security
is uncertain, holders of variable rate Debt Securities should consult their
own tax advisers regarding the appropriate treatment of such Securities for
federal income tax purposes.
Market Discount. In the opinion of Tax Counsel, a purchaser of a
Security may be subject to the market discount rules of Sections 1276-1278 of
the Code. A Holder that acquires a Debt Security with more than a prescribed
de minimis amount of "market discount" (generally, the excess of the
principal amount of the Debt Security over the purchaser's purchase price)
will be required to include accrued market discount in income as ordinary
income in each month, but limited to an amount not exceeding the principal
payments on the Debt Security received in that month and, if the Securities
are sold, the gain realized. Such market discount would accrue in a manner
to be provided in Treasury regulations but, until such regulations are
issued, such market discount would in general accrue either (i) on the basis
of a constant yield (in the case of a Pay-Through Security, taking into
account a prepayment assumption) or (ii) in the ratio of (a) in the case of
Securities (or in the case of a Pass-Through Security, as set forth below,
the Loans underlying such Security) not originally issued with original issue
discount, stated interest payable in the relevant period to total stated
interest remaining to be paid at the beginning of the period or (b) in the
case of Securities (or, in the case of a Pass-Through Security, as described
below, the Loans underlying such Security) originally issued at a discount,
OID in the relevant period to total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination
date of the Debt Security (or, in the case of a Pass-Through Security, the
Loans), the excess of interest paid or accrued to purchase or carry a
Security (or, in the case of a Pass-Through Security, as described below, the
underlying Loans) with market discount over interest received on such
Security is allowed as a current deduction only to the extent such excess is
greater than the market discount that accrued during the taxable year in
which such interest expense was incurred. In general, the deferred portion
of any interest expense will be deductible when such market discount is
included in income, including upon the sale, disposition, or repayment of the
Security (or in the case of a Pass-Through Security, an underlying Loan). A
holder may elect to include market discount in income currently as it
accrues, on all market discount obligations acquired by such holder during
the taxable year such election is made and thereafter, in which case the
interest deferral rule will not apply.
Premium. In the opinion of Tax Counsel, a holder who purchases a Debt
Security (other than an Interest Weighted Security to the extent described
above) at a cost greater than its stated redemption price at maturity,
generally will be considered to have purchased the Security at a premium,
which it may elect to amortize as an offset to interest income on such
Security (and not as a separate deduction item) on a constant yield method.
The legislative history of the 1986 Act indicates that premium is to be
accrued in the same manner as market discount. Accordingly, it appears that
the accrual of premium on a class of Pay-Through Securities will be
calculated using the prepayment assumption used in pricing such class. If a
holder makes an election to amortize premium on a Debt Security, such
election will apply to all taxable debt instruments (including all REMIC
regular interests and all pass-through certificates representing ownership
interests in a trust holding debt obligations) held by the holder at the
beginning of the taxable year in which the election is made, and to all
taxable debt instruments acquired thereafter by such holder, and will be
irrevocable without the consent of the IRS. Purchasers who pay a premium for
the Securities should consult their tax advisers regarding the election to
amortize premium and the method to be employed.
Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a holder of a Debt Security to elect to accrue all
interest, discount (including de minimis market or original issue discount)
and premium in income as interest, based on a constant yield method for Debt
Securities acquired on or after April 4, 1994. If such an election were to
be made with respect to a Debt Security with market discount, the holder of
the Debt Security would be deemed to have made an election to include in
income currently market discount with respect to all other debt instruments
having market discount that such holder of the Debt Security acquires during
the year of the election or thereafter. Similarly, a holder of a Debt
Security that makes this election for a Debt Security that is acquired at a
premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
holder owns or acquires. The election to accrue interest, discount and
premium on a constant yield method with respect to a Debt Security is
irrevocable.
TAXATION OF THE REMIC AND ITS HOLDERS
General. In the opinion of Tax Counsel, if a REMIC election is made
with respect to a Series of Securities, then the arrangement by which the
Securities of that Series are issued will be treated as a REMIC as long as
all of the provisions of the applicable Agreement are complied with and the
statutory and regulatory requirements are satisfied. Securities will be
designated as "Regular Interests" or "Residual Interests" in a REMIC, as
specified in the related Prospectus Supplement.
Except to the extent specified otherwise in a Prospectus Supplement, if
a REMIC election is made with respect to a Series of Securities, in the
opinion of Tax Counsel (i) Securities held by a domestic building and loan
association will constitute "a regular or a residual interest in a REMIC"
within the meaning of Code Section 7701(a)(19)(C)(xi) (assuming that at least
95% of the REMIC's assets consist of cash, government securities, "loans
secured by an interest in real property," and other types of assets described
in Code Section 7701(a)(19)(C)); and (ii) Securities held by a real estate
investment trust will constitute "real estate assets" within the meaning of
Code Section 856(c)(6)(B), and income with respect to the Securities will be
considered "interest on obligations secured by mortgages on real property or
on interests in real property" within the meaning of Code Section
856(c)(3)(B) (assuming, for both purposes, that at least 95% of the REMIC's
assets are qualifying assets). If less than 95% of the REMIC's assets
consist of assets described in clause (i) or (ii) above, then a Security will
qualify for the tax treatment described in clause (i) or (ii) in the
proportion that such REMIC assets are qualifying assets.
REMIC EXPENSES; SINGLE CLASS REMICS
As a general rule, in the opinion of Tax Counsel, all of the expenses of
a REMIC will be taken into account by holders of the Residual Interest
Securities. In the case of a "single class REMIC," however, the expenses
will be allocated, under Treasury regulations, among the holders of the
Regular Interest Securities and the holders of the Residual Interest
Securities on a daily basis in proportion to the relative amounts of income
accruing to each holder on that day. In the case of a holder of a Regular
Interest Security who is an individual or a "pass-through interest holder"
(including certain pass-through entities but not including real estate
investment trusts), such expenses will be deductible only to the extent that
such expenses, plus other "miscellaneous itemized deductions" of the holder,
exceed 2% of such Holder's adjusted gross income. In addition, for taxable
years beginning after December 31, 1990, the amount of itemized deductions
otherwise allowable for the taxable year for an individual whose adjusted
gross income exceeds the applicable amount (which amount will be adjusted for
inflation for taxable years beginning after 1990) will be reduced by the
lesser of (i) 3% of the excess of adjusted gross income over the applicable
amount, or (ii) 80% of the amount of itemized deductions otherwise allowable
for such taxable year. The reduction or disallowance of this deduction may
have a significant impact on the yield of the Regular Interest Security to
such a holder. In general terms, a single class REMIC is one that either (i)
would qualify, under existing Treasury regulations, as a grantor trust if it
were not a REMIC (treating all interests as ownership interests, even if they
would be classified as debt for federal income tax purposes) or (ii) is
similar to such a trust and which is structured with the principal purpose of
avoiding the single class REMIC rules. Unless otherwise specified in the
related Prospectus Supplement, the expenses of the REMIC will be allocated to
holders of the related residual interest securities.
TAXATION OF THE REMIC
General. Although a REMIC is a separate entity for federal income tax
purposes, in the opinion of Tax Counsel, a REMIC is not generally subject to
entity-level tax. Rather, the taxable income or net loss of a REMIC is taken
into account by the holders of residual interests. As described above, the
regular interests are generally taxable as debt of the REMIC.
Calculation of REMIC Income. In the opinion of Tax Counsel, the taxable
income or net loss of a REMIC is determined under an accrual method of
accounting and in the same manner as in the case of an individual, with
certain adjustments. In general, the taxable income or net loss will be the
difference between (i) the gross income produced by the REMIC's assets,
including stated interest and any original issue discount or market discount
on loans and other assets, and (ii) deductions, including stated interest and
original issue discount accrued on Regular Interest Securities, amortization
of any premium with respect to Loans, and servicing fees and other expenses
of the REMIC. A holder of a Residual Interest Security that is an individual
or a "pass-through interest holder" (including certain pass-through entities,
but not including real estate investment trusts) will be unable to deduct
servicing fees payable on the loans or other administrative expenses of the
REMIC for a given taxable year, to the extent that such expenses, when
aggregated with such holder's other miscellaneous itemized deductions for
that year, do not exceed two percent of such holder's adjusted gross income.
For purposes of computing its taxable income or net loss, the REMIC
should have an initial aggregate tax basis in its assets equal to the
aggregate fair market value of the regular interests and the residual
interests on the Startup Day (generally, the day that the interests are
issued). That aggregate basis will be allocated among the assets of the
REMIC in proportion to their respective fair market values.
The OID provisions of the Code apply to loans of individuals originated
on or after March 2, 1984, and the market discount provisions apply to loans
originated after July 18, 1984. Subject to possible application of the de
minimis rules, the method of accrual by the REMIC of OID income on such loans
will be equivalent to the method under which holders of Pay-Through
Securities accrue original issue discount (i.e., under the constant yield
method taking into account the Prepayment Assumption). The REMIC will deduct
OID on the Regular Interest Securities in the same manner that the holders of
the Regular Interest Securities include such discount in income, but without
regard to the de minimis rules. See "Taxation of Debt Securities" above.
However, a REMIC that acquires loans at a market discount must include such
market discount in income currently, as it accrues, on a constant interest
basis.
To the extent that the REMIC's basis allocable to loans that it holds
exceeds their principal amounts, the resulting premium, if attributable to
mortgages originated after September 27, 1985, will be amortized over the
life of the loans (taking into account the Prepayment Assumption) on a
constant yield method. Although the law is somewhat unclear regarding
recovery of premium attributable to loans originated on or before such date,
it is possible that such premium may be recovered in proportion to payments
of loan principal.
Prohibited Transactions and Contributions Tax. The REMIC will be
subject to a 100% tax on any net income derived from a "prohibited
transaction." For this purpose, net income will be calculated without taking
into account any losses from prohibited transactions or any deductions
attributable to any prohibited transaction that resulted in a loss. In
general, prohibited transactions include: (i) subject to limited exceptions,
the sale or other disposition of any qualified mortgage transferred to the
REMIC; (ii) subject to a limited exception, the sale or other disposition of
a cash flow investment; (iii) the receipt of any income from assets not
permitted to be held by the REMIC pursuant to the Code; or (iv) the receipt
of any fees or other compensation for services rendered by the REMIC. It is
anticipated that a REMIC will not engage in any prohibited transactions in
which it would recognize a material amount of net income. In addition,
subject to a number of exceptions, a tax is imposed at the rate of 100% on
amounts contributed to a REMIC after the close of the three-month period
beginning on the Startup Day. The holders of Residual Interest Securities
will generally be responsible for the payment of any such taxes imposed on
the REMIC. To the extent not paid by such holders or otherwise, however,
such taxes will be paid out of the Trust Fund and will be allocated pro rata
to all outstanding classes of Securities of such REMIC.
TAXATION OF HOLDERS OF RESIDUAL INTEREST SECURITIES
In the opinion of Tax Counsel, the holder of a Certificate representing
a residual interest (a "Residual Interest Security") will take into account
the "daily portion" of the taxable income or net loss of the REMIC for each
day during the taxable year on which such holder held the Residual Interest
Security. The daily portion is determined by allocating to each day in any
calendar quarter its ratable portion of the taxable income or net loss of the
REMIC for such quarter, and by allocating that amount among the holders (on
such day) of the Residual Interest Securities in proportion to their
respective holdings on such day.
In the opinion of Tax Counsel, the holder of a Residual Interest
Security must report its proportionate share of the taxable income of the
REMIC whether or not it receives cash distributions from the REMIC
attributable to such income or loss. The reporting of taxable income without
corresponding distributions could occur, for example, in certain REMIC issues
in which the loans held by the REMIC were issued or acquired at a discount,
since mortgage prepayments cause recognition of discount income, while the
corresponding portion of the prepayment could be used in whole or in part to
make principal payments on REMIC Regular Interests issued without any
discount or at an insubstantial discount (if this occurs, it is likely that
cash distributions will exceed taxable income in later years). Taxable
income may also be greater in earlier years of certain REMIC issues as a
result of the fact that interest expense deductions, as a percentage of
outstanding principal on REMIC Regular Interest Securities, will typically
increase over time as lower yielding Securities are paid, whereas interest
income with respect to loans will generally remain constant over time as a
percentage of loan principal.
In any event, because the holder of a residual interest is taxed on the
net income of the REMIC, the taxable income derived from a Residual Interest
Security in a given taxable year will not be equal to the taxable income
associated with investment in a corporate bond or stripped instrument having
similar cash flow characteristics and pretax yield. Therefore, the after-tax
yield on the Residual Interest Security may be less than that of such a bond
or instrument.
Limitation on Losses. In the opinion of Tax Counsel, the amount of the
REMIC's net loss that a holder may take into account currently is limited to
the holder's adjusted basis at the end of the calendar quarter in which such
loss arises. A holder's basis in a Residual Interest Security will initially
equal such holder's purchase price, and will subsequently be increased by the
amount of the REMIC's taxable income allocated to the holder, and decreased
(but not below zero) by the amount of distributions made and the amount of
the REMIC's net loss allocated to the holder. Any disallowed loss may be
carried forward indefinitely, but may be used only to offset income of the
REMIC generated by the same REMIC. The ability of holders of Residual
Interest Securities to deduct net losses may be subject to additional
limitations under the Code, as to which such holders should consult their tax
advisers.
Distributions. In the opinion of Tax Counsel, distributions on a
Residual Interest Security (whether at their scheduled times or as a result
of prepayments) will generally not result in any additional taxable income or
loss to a holder of a Residual Interest Security. If the amount of such
payment exceeds a holder's adjusted basis in the Residual Interest Security,
however, the holder will recognize gain (treated as gain from the sale of the
Residual Interest Security) to the extent of such excess.
Sale or Exchange. In the opinion of Tax Counsel, a holder of a Residual
Interest Security will recognize gain or loss on the sale or exchange of a
Residual Interest Security equal to the difference, if any, between the
amount realized and such holder's adjusted basis in the Residual Interest
Security at the time of such sale or exchange. Except to the extent provided
in regulations, which have not yet been issued, any loss upon disposition of
a Residual Interest Security will be disallowed if the selling holder
acquires any residual interest in a REMIC or similar mortgage pool within six
months before or after such disposition.
Excess Inclusions. In the opinion of Tax Counsel, the portion of the
REMIC taxable income of a holder of a Residual Interest Security consisting
of "excess inclusion" income may not be offset by other deductions or losses,
including net operating losses, on such holder's federal income tax return.
Further, if the holder of a Residual Interest Security is an organization
subject to the tax on unrelated business income imposed by Code Section 511,
such holder's excess inclusion income will be treated as unrelated business
taxable income of such holder. In addition, under Treasury regulations yet
to be issued, if a real estate investment trust, a regulated investment
company, a common trust fund, or certain cooperatives were to own a Residual
Interest Security, a portion of dividends (or other distributions) paid by
the real estate investment trust (or other entity) would be treated as excess
inclusion income. If a Residual Security is owned by a foreign person excess
inclusion income is subject to tax at a rate of 30% which may not be reduced
by treaty, is not eligible for treatment as "portfolio interest" and is
subject to certain additional limitations. See "Tax Treatment of Foreign
Investors." The Small Business Job Protection Act of 1996 has eliminated the
special rule permitting Section 593 institutions ("thrift institutions") to
use net operating losses and other allowable deductions to offset their
excess inclusion income from REMIC residual certificates that have
"significant value" within the meaning of the REMIC Regulations, effective
for taxable years beginning after December 31, 1995, except with respect to
residual certificates continuously held by a thrift institution since
November 1, 1995.
In addition, the Small Business Job Protection Act of 1996 provides
three rules for determining the effect on excess inclusions on the
alternative minimum taxable income of a residual holder. First, alternative
minimum taxable income for such residual holder is determined without regard
to the special rule that taxable income cannot be less than excess
inclusions. Second, a residual holder's alternative minimum taxable income
for a tax year cannot be less than excess inclusions for the year. Third,
the amount of any alternative minimum tax net operating loss deductions must
be computed without regard to any excess inclusions. These rules are
effective for tax years beginning after December 31, 1986, unless a residual
holder elects to have such rules apply only to tax years beginning after
August 20, 1996.
The excess inclusion portion of a REMIC's income is generally equal to
the excess, if any, of REMIC taxable income for the quarterly period
allocable to a Residual Interest Security, over the daily accruals for such
quarterly period of (i) 120% of the long term applicable federal rate on the
Startup Day multiplied by (ii) the adjusted issue price of such Residual
Interest Security at the beginning of such quarterly period. The adjusted
issue price of a Residual Interest at the beginning of each calendar quarter
will equal its issue price (calculated in a manner analogous to the
determination of the issue price of a Regular Interest), increased by the
aggregate of the daily accruals for prior calendar quarters, and decreased
(but not below zero) by the amount of loss allocated to a holder and the
amount of distributions made on the Residual Interest Security before the
beginning of the quarter. The long-term federal rate, which is announced
monthly by the Treasury Department, is an interest rate that is based on the
average market yield of outstanding marketable obligations of the United
States government having remaining maturities in excess of nine years.
Under the REMIC Regulations, in certain circumstances, transfers of
Residual Securities may be disregarded. See "--Restrictions on Ownership and
Transfer of Residual Interest Securities" and "--Tax Treatment of Foreign
Investors" below.
Restrictions on Ownership and Transfer of Residual Interest Securities.
As a condition to qualification as a REMIC, reasonable arrangements must be
made to prevent the ownership of a REMIC residual interest by any
"Disqualified Organization." Disqualified Organizations include the United
States, any State or political subdivision thereof, any foreign government,
any international organization, or any agency or instrumentality of any of
the foregoing, a rural electric or telephone cooperative described in Section
1381(a)(2)(C) of the Code, or any entity exempt from the tax imposed by
Sections 1-1399 of the Code, if such entity is not subject to tax on its
unrelated business income. Accordingly, the applicable Pooling and Servicing
Agreement will prohibit Disqualified Organizations from owning a Residual
Interest Security. In addition, no transfer of a Residual Interest Security
will be permitted unless the proposed transferee shall have furnished to the
Trustee an affidavit representing and warranting that it is neither a
Disqualified Organization nor an agent or nominee acting on behalf of a
Disqualified Organization.
If a Residual Interest Security is transferred to a Disqualified
Organization after March 31, 1988 (in violation of the restrictions set forth
above), a substantial tax will be imposed on the transferor of such Residual
Interest Security at the time of the transfer. In addition, if a
Disqualified Organization holds an interest in a pass-through entity after
March 31, 1988 (including, among others, a partnership, trust, real estate
investment trust, regulated investment company, or any person holding as
nominee), that owns a Residual Interest Security, the pass-through entity
will be required to pay an annual tax on its allocable share of the excess
inclusion income of the REMIC.
Under the REMIC Regulations, if a Residual Interest Security is a
"noneconomic residual interest," as described below, a transfer of a Residual
Interest Security to a United States person will be disregarded for all
Federal tax purposes unless no significant purpose of the transfer was to
impede the assessment or collection of tax. A Residual Interest Security is
a "noneconomic residual interest" unless, at the time of the transfer (i) the
present value of the expected future distributions on the Residual Interest
Security at least equals the product of the present value of the anticipated
excess inclusions and the highest rate of tax for the year in which the
transfer occurs, and (ii) the transferor reasonably expects that the
transferee will receive distributions from the REMIC at or after the time at
which the taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. If a transfer of a Residual
Interest is disregarded, the transferor would be liable for any Federal
income tax imposed upon taxable income derived by the transferee from the
REMIC. The REMIC Regulations provide no guidance as to how to determine if a
significant purpose of a transfer is to impede the assessment or collection
of tax. A similar type of limitation exists with respect to certain
transfers of residual interests by foreign persons to United States persons.
See "--Tax Treatment of Foreign Investors."
Mark to Market Rules. Prospective purchasers of a REMIC Residual
Interest Security should be aware that the IRS recently finalized regulations
(the "Mark-to-Market Regulations") which provide that a REMIC Residual
Interest Security acquired after January 3, 1995 cannot be marked-to-market.
Prospective purchasers of a REMIC Residual Interest Security should consult
their tax advisors regarding the possible application of the Mark to Market
Regulations.
ADMINISTRATIVE MATTERS
The REMIC's books must be maintained on a calendar year basis and the
REMIC must file an annual federal income tax return. The REMIC will also be
subject to the procedural and administrative rules of the Code applicable to
partnerships, including the determination of any adjustments to, among other
things, items of REMIC income, gain, loss, deduction, or credit, by the IRS
in a unified administrative proceeding.
TAX STATUS AS A GRANTOR TRUST
General. As further specified in the related Prospectus Supplement, if
a REMIC election is not made and the Trust Fund is not structured as a
partnership, then, in the opinion of Tax Counsel, the Trust Fund relating to
a Series of Securities will be classified for federal income tax purposes as
a grantor trust under Subpart E, Part 1 of Subchapter J of the Code and not
as an association taxable as a corporation (the Securities of such Series,
"Pass-Through Securities"). In some Series there will be no separation of
the principal and interest payments on the Loans. In such circumstances, a
holder will be considered to have purchased a pro rata undivided interest in
each of the Loans. In other cases ("Stripped Securities"), sale of the
Securities will produce a separation in the ownership of all or a portion of
the principal payments from all or a portion of the interest payments on the
Loans.
In the opinion of Tax Counsel, each holder must report on its federal
income tax return its share of the gross income derived from the Loans (not
reduced by the amount payable as fees to the Trustee and the Servicer and
similar fees (collectively, the "Servicing Fee")), at the same time and in
the same manner as such items would have been reported under the Holder's tax
accounting method had it held its interest in the Loans directly, received
directly its share of the amounts received with respect to the Loans, and
paid directly its share of the Servicing Fees. In the case of Pass-Through
Securities other than Stripped Securities, such income will consist of a pro
rata share of all of the income derived from all of the Loans and, in the
case of Stripped Securities, such income will consist of a pro rata share of
the income derived from each stripped bond or stripped coupon in which the
holder owns an interest. The holder of a Security will generally be entitled
to deduct such Servicing Fees under Section 162 or Section 212 of the Code to
the extent that such Servicing Fees represent "reasonable" compensation for
the services rendered by the Trustee and the Servicer (or third parties that
are compensated for the performance of services). In the case of a
noncorporate holder, however, Servicing Fees (to the extent not otherwise
disallowed, e.g., because they exceed reasonable compensation) will be
deductible in computing such holder's regular tax liability only to the
extent that such fees, when added to other miscellaneous itemized deductions,
exceed 2% of adjusted gross income and may not be deductible to any extent in
computing such holder's alternative minimum tax liability. In addition, for
taxable years beginning after December 31, 1990, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount (which amount will be
adjusted for inflation in taxable years beginning after 1990) will be reduced
by the lesser of (i) 3% of the excess of adjusted gross income over the
applicable amount or (ii) 80% of the amount of itemized deductions otherwise
allowable for such taxable year.
Discount or Premium on Pass-Through Securities. In the opinion of Tax
Counsel, the holder's purchase price of a Pass-Through Security is to be
allocated among the Loans in proportion to their fair market values,
determined as of the time of purchase of the Securities. In the typical
case, the Trustee (to the extent necessary to fulfill its reporting
obligations) will treat each Loan as having a fair market value proportional
to the share of the aggregate principal balances of all of the Loans that it
represents, since the Securities, unless otherwise specified in the related
Prospectus Supplement, will have a relatively uniform interest rate and other
common characteristics. To the extent that the portion of the purchase price
of a Pass-Through Security allocated to a Loan (other than to a right to
receive any accrued interest thereon and any undistributed principal
payments) is less than or greater than the portion of the principal balance
of the Loan allocable to the Security, the interest in the Loan allocable to
the Pass-Through Security will be deemed to have been acquired at a discount
or premium, respectively.
The treatment of any discount will depend on whether the discount
represents OID or market discount. In the case of a Loan with OID in excess
of a prescribed de minimis amount or a Stripped Security, a holder of a
Security will be required to report as interest income in each taxable year
its share of the amount of OID that accrues during that year in the manner
described above. OID with respect to a Loan could arise, for example, by
virtue of the financing of points by the originator of the Loan, or by virtue
of the charging of points by the originator of the Loan in an amount greater
than a statutory de minimis exception, in circumstances under which the
points are not currently deductible pursuant to applicable Code provisions.
Any market discount or premium on a Loan will be includible in income,
generally in the manner described above, except that in the case of Pass-
Through Securities, market discount is calculated with respect to the Loans
underlying the Certificate, rather than with respect to the Security. A
holder that acquires an interest in a Loan originated after July 18, 1984
with more than a de minimis amount of market discount (generally, the excess
of the principal amount of the Loan over the purchaser's allocable purchase
price) will be required to include accrued market discount in income in the
manner set forth above. See "--Taxation of Debt Securities; Market Discount"
and "--Premium" above.
In the case of market discount on a Pass-Through Security attributable
to Loans originated on or before July 18, 1984, the holder generally will be
required to allocate the portion of such discount that is allocable to a loan
among the principal payments on the Loan and to include the discount
allocable to each principal payment in ordinary income at the time such
principal payment is made. Such treatment would generally result in discount
being included in income at a slower rate than discount would be required to
be included in income using the method described in the preceding paragraph.
Stripped Securities. A Stripped Security may represent a right to
receive only a portion of the interest payments on the Loans, a right to
receive only principal payments on the Loans, or a right to receive certain
payments of both interest and principal. Certain Stripped Securities ("Ratio
Strip Securities") may represent a right to receive differing percentages of
both the interest and principal on each Loan. Pursuant to Section 1286 of
the Code, the separation of ownership of the right to receive some or all of
the interest payments on an obligation from ownership of the right to receive
some or all of the principal payments results in the creation of "stripped
bonds" with respect to principal payments and "stripped coupons" with respect
to interest payments. Section 1286 of the Code applies the OID rules to
stripped bonds and stripped coupons. For purposes of computing original
issue discount, a stripped bond or a stripped coupon is treated as a debt
instrument issued on the date that such stripped interest is purchased with
an issue price equal to its purchase price or, if more than one stripped
interest is purchased, the ratable share of the purchase price allocable to
such stripped interest.
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e., 1% interest on the Loan
principal balance) or the Securities are initially sold with a de minimis
discount (assuming no prepayment assumption is required), any non-de minimis
discount arising from a subsequent transfer of the Securities should be
treated as market discount. The IRS appears to require that reasonable
servicing fees be calculated on a Loan by Loan basis, which could result in
some Loans being treated as having more than 100 basis points of interest
stripped off.
The Code, OID Regulations and judicial decisions provide no direct
guidance as to how the interest and original issue discount rules are to
apply to Stripped Securities and other Pass-Through Securities. Under the
method described above for Pay-Through Securities (the "Cash Flow Bond
Method"), a prepayment assumption is used and periodic recalculations are
made which take into account with respect to each accrual period the effect
of prepayments during such period. However, the 1986 Act does not, absent
Treasury regulations, appear specifically to cover instruments such as the
Stripped Securities which technically represent ownership interests in the
underlying Loans, rather than being debt instruments "secured by" those
loans. Nevertheless, it is believed that the Cash Flow Bond Method is a
reasonable method of reporting income for such Securities, and it is expected
that OID will be reported on that basis unless otherwise specified in the
related Prospectus Supplement. In applying the calculation to Pass-Through
Securities, the Trustee will treat all payments to be received by a holder
with respect to the underlying Loans as payments on a single installment
obligation. The IRS could, however, assert that original issue discount must
be calculated separately for each Loan underlying a Security.
Under certain circumstances, if the Loans prepay at a rate faster than
the Prepayment Assumption, the use of the Cash Flow Bond Method may
accelerate a holder's recognition of income. If, however, the Loans prepay
at a rate slower than the Prepayment Assumption, in some circumstances the
use of this method may decelerate a holder's recognition of income.
In the case of a Stripped Security that is an Interest Weighted
Security, the Trustee intends, absent contrary authority, to report income to
Security holders as OID, in the manner described above for Interest Weighted
Securities.
Possible Alternative Characterizations. The characterizations of the
Stripped Securities described above are not the only possible interpretations
of the applicable Code provisions. Among other possibilities, the Internal
Revenue Service could contend that (i) in certain Series, each non-Interest
Weighted Security is composed of an unstripped undivided ownership interest
in Loans and an installment obligation consisting of stripped principal
payments; (ii) the non-Interest Weighted Securities are subject to the
contingent payment provisions of the Proposed Regulations; or (iii) each
Interest Weighted Stripped Security is composed of an unstripped undivided
ownership interest in Loans and an installment obligation consisting of
stripped interest payments.
Given the variety of alternatives for treatment of the Stripped
Securities and the different federal income tax consequences that result from
each alternative, potential purchasers are urged to consult their own tax
advisers regarding the proper treatment of the Securities for federal income
tax purposes.
Character as Qualifying Loans. In the case of Stripped Securities,
there is no specific legal authority existing regarding whether the character
of the Securities, for federal income tax purposes, will be the same as the
Loans. The IRS could take the position that the Loans character is not
carried over to the Securities in such circumstances. Pass-Through
Securities will be, and, although the matter is not free from doubt, Stripped
Securities should be considered to represent "real estate assets" within the
meaning of Section 856(c)(6)(B) of the Code, and "loans secured by an
interest in real property" within the meaning of Section 7701(a)(19)(C)(v) of
the Code; and interest income attributable to the Securities should be
considered to represent "interest on obligations secured by mortgages on real
property or on interests in real property" within the meaning of Section
856(c)(3)(B) of the Code. Reserves or funds underlying the Securities may
cause a proportionate reduction in the above-described qualifying status
categories of Securities.
SALE OR EXCHANGE
Subject to the discussion below with respect to Trust Funds as to which
a partnership election is made, in the opinion of Tax Counsel, a holder's tax
basis in its Security is the price such holder pays for a Security, plus
amounts of original issue or market discount included in income and reduced
by any payments received (other than qualified stated interest payments) and
any amortized premium. Gain or loss recognized on a sale, exchange, or
redemption of a Security, measured by the difference between the amount
realized and the Security's basis as so adjusted, will generally be capital
gain or loss, assuming that the Security is held as a capital asset. In the
case of a Security held by a bank, thrift, or similar institution described
in Section 582 of the Code, however, gain or loss realized on the sale or
exchange of a Regular Interest Security will be taxable as ordinary income or
loss. In addition, gain from the disposition of a Regular Interest Security
that might otherwise be capital gain will be treated as ordinary income to
the extent of the excess, if any, of (i) the amount that would have been
includible in the holder's income if the yield on such Regular Interest
Security had equaled 110% of the applicable federal rate as of the beginning
of such holder's holding period, over the amount of ordinary income actually
recognized by the holder with respect to such Regular Interest Security. For
taxable years beginning after December 31, 1993, the maximum tax rate on
ordinary income for individual taxpayers is 39.6% and the maximum tax rate on
long-term capital gains reported after December 31, 1990 for such taxpayers
is 28%. The maximum tax rate on both ordinary income and long-term capital
gains of corporate taxpayers is 35%.
MISCELLANEOUS TAX ASPECTS
Backup Withholding. Subject to the discussion below with respect to
Trust Funds as to which a partnership election is made, a holder, other than
a holder of a REMIC Residual Security, may, under certain circumstances, be
subject to "backup withholding" at a rate of 31% with respect to
distributions or the proceeds of a sale of certificates to or through brokers
that represent interest or original issue discount on the Securities. This
withholding generally applies if the holder of a Security (i) fails to
furnish the Trustee with its taxpayer identification number ("TIN"); (ii)
furnishes the Trustee an incorrect TIN; (iii) fails to report properly
interest, dividends or other "reportable payments" as defined in the Code; or
(iv) under certain circumstances, fails to provide the Trustee or such
holder's securities broker with a certified statement, signed under penalty
of perjury, that the TIN provided is its correct number and that the holder
is not subject to backup withholding. Backup withholding will not apply,
however, with respect to certain payments made to holders, including payments
to certain exempt recipients (such as exempt organizations) and to certain
Nonresidents (as defined below). Holders should consult their tax advisers
as to their qualification for exemption from backup withholding and the
procedure for obtaining the exemption.
The Trustee will report to the holders and to the Servicer for each
calendar year the amount of any "reportable payments" during such year and
the amount of tax withheld, if any, with respect to payments on the
Securities.
TAX TREATMENT OF FOREIGN INVESTORS
Subject to the discussion below with respect to Trust Funds as to which
a partnership election is made, under the Code, unless interest (including
OID) paid on a Security (other than a Residual Interest Security) is
considered to be "effectively connected" with a trade or business conducted
in the United States by a nonresident alien individual, foreign partnership
or foreign corporation ("Nonresidents"), in the opinion of Tax Counsel, such
interest will normally qualify as portfolio interest (except where (i) the
recipient is a holder, directly or by attribution, of 10% or more of the
capital or profits interest in the issuer, or (ii) the recipient is a
controlled foreign corporation to which the issuer is a related person) and
will be exempt from federal income tax. Upon receipt of appropriate
ownership statements, the issuer normally will be relieved of obligations to
withhold tax from such interest payments. These provisions supersede the
generally applicable provisions of United States law that would otherwise
require the issuer to withhold at a 30% rate (unless such rate were reduced
or eliminated by an applicable tax treaty) on, among other things, interest
and other fixed or determinable, annual or periodic income paid to
Nonresidents. Holders of Pass-Through Securities and Stripped Securities,
including Ratio Strip Securities, however, may be subject to withholding to
the extent that the Loans were originated on or before July 18, 1984.
Interest and OID of holders who are foreign persons are not subject to
withholding if they are effectively connected with a United States business
conducted by the holder. They will, however, generally be subject to the
regular United States income tax.
Payments to holders of Residual Interest Securities who are foreign
persons will generally be treated as interest for purposes of the 30% (or
lower treaty rate) United States withholding tax. Holders should assume that
such income does not qualify for exemption from United States withholding tax
as "portfolio interest." It is clear that, to the extent that a payment
represents a portion of REMIC taxable income that constitutes excess
inclusion income, a holder of a Residual Interest Security will not be
entitled to an exemption from or reduction of the 30% (or lower treaty rate)
withholding tax rule. If the payments are subject to United States
withholding tax, they generally will be taken into account for withholding
tax purposes only when paid or distributed (or when the Residual Interest
Security is disposed of). The Treasury has statutory authority, however, to
promulgate regulations which would require such amounts to be taken into
account at an earlier time in order to prevent the avoidance of tax. Such
regulations could, for example, require withholding prior to the distribution
of cash in the case of Residual Interest Securities that do not have
significant value. Under the REMIC Regulations, if a Residual Interest
Security has tax avoidance potential, a transfer of a Residual Interest
Security to a Nonresident will be disregarded for all Federal tax purposes.
A Residual Interest Security has tax avoidance potential unless, at the time
of the transfer the transferor reasonably expects that the REMIC will
distribute to the transferee residual interest holder amounts that will equal
at least 30% of each excess inclusion, and that such amounts will be
distributed at or after the time at which the excess inclusions accrue and
not later than the calendar year following the calendar year of accrual. If
a Nonresident transfers a Residual Interest Security to a United States
person, and if the transfer has the effect of allowing the transferor to
avoid tax on accrued excess inclusions, then the transfer is disregarded and
the transferor continues to be treated as the owner of the Residual Interest
Security for purposes of the withholding tax provisions of the Code. See "--
Excess Inclusions."
TAX CHARACTERIZATION OF THE TRUST AS A PARTNERSHIP
Tax Counsel is of the opinion that a Trust Fund structured as a
partnership will not be an association (or publicly traded partnership)
taxable as a corporation for federal income tax purposes. This opinion is
based on the assumption that the terms of the Trust Agreement and related
documents will be complied with, and on counsel's conclusions that the nature
of the income of the Trust Fund will exempt it from the rule that certain
publicly traded partnerships are taxable as corporations or the issuance of
the Certificates has been structured as a private placement under an IRS safe
harbor, so that the Trust Fund will not be characterized as a publicly traded
partnership taxable as a corporation.
If the Trust Fund were taxable as a corporation for federal income tax
purposes, in the opinion of Tax Counsel, the Trust Fund would be subject to
corporate income tax on its taxable income. The Trust Fund's taxable income
would include all its income, possibly reduced by its interest expense on the
Notes. Any such corporate income tax could materially reduce cash available
to make payments on the Notes and distributions on the Certificates, and
Certificateholders could be liable for any such tax that is unpaid by the
Trust Fund.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Treatment of the Notes as Indebtedness. The Trust Fund will agree, and
the Noteholders will agree by their purchase of Notes, to treat the Notes as
debt for federal income tax purposes. In such a circumstance, Tax Counsel
is, except as otherwise provided in the related Prospectus Supplement, of the
opinion that the Notes will be classified as debt for federal income tax
purposes. The discussion below assumes this characterization of the Notes is
correct.
OID, Indexed Securities, etc. The discussion below assumes that all
payments on the Notes are denominated in U.S. dollars, and that the Notes are
not Indexed Securities or Strip Notes. Moreover, the discussion assumes that
the interest formula for the Notes meets the requirements for "qualified
stated interest" under the OID regulations, and that any OID on the Notes
(i.e., any excess of the principal amount of the Notes over their issue
price) does not exceed a de minimis amount (i.e., 0.25% of their principal
amount multiplied by the number of full years included in their term), all
within the meaning of the OID regulations. If these conditions are not
satisfied with respect to any given series of Notes, additional tax
considerations with respect to such Notes will be disclosed in the applicable
Prospectus Supplement.
Interest Income on the Notes. Based on the above assumptions, except as
discussed in the following paragraph, in the opinion of Tax Counsel, the
Notes will not be considered issued with OID. The stated interest thereon
will be taxable to a Noteholder as ordinary interest income when received or
accrued in accordance with such Noteholder's method of tax accounting. Under
the OID regulations, a holder of a Note issued with a de minimis amount of
OID must include such OID in income, on a pro rata basis, as principal
payments are made on the Note. It is believed that any prepayment premium
paid as a result of a mandatory redemption will be taxable as contingent
interest when it becomes fixed and unconditionally payable. A purchaser who
buys a Note for more or less than its principal amount will generally be
subject, respectively, to the premium amortization or market discount rules
of the Code.
A holder of a Note that has a fixed maturity date of not more than one
year from the issue date of such Note (a "Short-Term Note") may be subject to
special rules. An accrual basis holder of a Short-Term Note (and certain
cash method holders, including regulated investment companies, as set forth
in Section 1281 of the Code) generally would be required to report interest
income as interest accrues on a straight-line basis over the term of each
interest period. Other cash basis holders of a Short-Term Note would, in
general, be required to report interest income as interest is paid (or, if
earlier, upon the taxable disposition of the Short-Term Note). However, a
cash basis holder of a Short-Term Note reporting interest income as it is
paid may be required to defer a portion of any interest expense otherwise
deductible on indebtedness incurred to purchase or carry the Short-Term Note
until the taxable disposition of the Short-Term Note. A cash basis taxpayer
may elect under Section 1281 of the Code to accrue interest income on all
nongovernment debt obligations with a term of one year or less, in which case
the taxpayer would include interest on the Short-Term Note in income as it
accrues, but would not be subject to the interest expense deferral rule
referred to in the preceding sentence. Certain special rules apply if a
Short-Term Note is purchased for more or less than its principal amount.
Sale or Other Disposition. In the opinion of Tax Counsel, if a
Noteholder sells a Note, the holder will recognize gain or loss in an amount
equal to the difference between the amount realized on the sale and the
holder's adjusted tax basis in the Note. The adjusted tax basis of a Note to
a particular Noteholder will equal the holder's cost for the Note, increased
by any market discount, acquisition discount, OID and gain previously
included by such Noteholder in income with respect to the Note and decreased
by the amount of bond premium (if any) previously amortized and by the amount
of principal payments previously received by such Noteholder with respect to
such Note. Any such gain or loss will be capital gain or loss if the Note
was held as a capital asset, except for gain representing accrued interest
and accrued market discount not previously included in income. Capital
losses generally may be used only to offset capital gains.
Foreign Holders. In the opinion of Tax Counsel, interest payments made
(or accrued) to a Noteholder who is a nonresident alien, foreign corporation
or other non-United States person (a "foreign person") generally will be
considered "portfolio interest", and generally will not be subject to United
States federal income tax and withholding tax, if the interest is not
effectively connected with the conduct of a trade or business within the
United States by the foreign person and the foreign person (i) is not
actually or constructively a "10 percent shareholder" of the Trust or the
Seller (including a holder of 10% of the outstanding Certificates) or a
"controlled foreign corporation" with respect to which the Trust or the
Seller is a "related person" within the meaning of the Code and (ii) provides
the Owner Trustee or other person who is otherwise required to withhold U.S.
tax with respect to the Notes with an appropriate statement (on Form W-8 or a
similar form), signed under penalties of perjury, certifying that the
beneficial owner of the Note is a foreign person and providing the foreign
person's name and address. If a Note is held through a securities clearing
organization or certain other financial institutions, the organization or
institution may provide the relevant signed statement to the withholding
agent; in that case, however, the signed statement must be accompanied by a
Form W-8 or substitute form provided by the foreign person that owns the
Note. If such interest is not portfolio interest, then it will be subject to
United States federal income and withholding tax at a rate of 30 percent,
unless reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Note by a foreign person will be exempt from United
States federal income and withholding tax, provided that (i) such gain is not
effectively connected with the conduct of a trade or business in the United
States by the foreign person and (ii) in the case of an individual foreign
person, the foreign person is not present in the United States for 183 days
or more in the taxable year.
Backup Withholding. Each holder of a Note (other than an exempt holder
such as a corporation, tax-exempt organization, qualified pension and
profit-sharing trust, individual retirement account or nonresident alien who
provides certification as to status as a nonresident) will be required to
provide, under penalties of perjury, a certificate containing the holder's
name, address, correct federal taxpayer identification number and a statement
that the holder is not subject to backup withholding. Should a nonexempt
Noteholder fail to provide the required certification, the Trust Fund will be
required to withhold 31 percent of the amount otherwise payable to the
holder, and remit the withheld amount to the IRS as a credit against the
holder's federal income tax liability.
Possible Alternative Treatments of the Notes. If, contrary to the
opinion of Tax Counsel, the IRS successfully asserted that one or more of the
Notes did not represent debt for federal income tax purposes, the Notes might
be treated as equity interests in the Trust Fund. If so treated, the Trust
Fund might be treated as a publicly traded partnership that would not be
taxable as a corporation because it would meet certain qualifying income
tests. Nonetheless, treatment of the Notes as equity interests in such a
publicly traded partnership could have adverse tax consequences to certain
holders. For example, income to certain tax-exempt entities (including
pension funds) would be "unrelated business taxable income", income to
foreign holders generally would be subject to U.S. tax and U.S. tax return
filing and withholding requirements, and individual holders might be subject
to certain limitations on their ability to deduct their share of the Trust
Fund's expenses.
TAX CONSEQUENCES TO HOLDERS OF THE CERTIFICATES
Treatment of the Trust Fund as a Partnership. The Trust Fund and the
Servicer will agree, and the Certificateholders will agree by their purchase
of Certificates, to treat the Trust Fund as a partnership for purposes of
federal and state income tax, franchise tax and any other tax measured in
whole or in part by income, with the assets of the partnership being the
assets held by the Trust Fund, the partners of the partnership being the
Certificateholders, and the Notes being debt of the partnership. However,
the proper characterization of the arrangement involving the Trust Fund, the
Certificates, the Notes, the Trust Fund and the Servicer is not clear because
there is no authority on transactions closely comparable to that contemplated
herein.
A variety of alternative characterizations are possible. For example,
because the Certificates have certain features characteristic of debt, the
Certificates might be considered debt of the Trust Fund. Any such
characterization would not result in materially adverse tax consequences to
Certificateholders as compared to the consequences from treatment of the
Certificates as equity in a partnership, described below. The following
discussion assumes that the Certificates represent equity interests in a
partnership.
Indexed Securities, etc. The following discussion assumes that all
payments on the Certificates are denominated in U.S. dollars, none of the
Certificates are Indexed Securities or Strip Certificates, and that a Series
of Securities includes a single class of Certificates. If these conditions
are not satisfied with respect to any given Series of Certificates,
additional tax considerations with respect to such Certificates will be
disclosed in the applicable Prospectus Supplement.
Partnership Taxation. If the Trust Fund is a partnership, in the
opinion of Tax Counsel, the Trust Fund will not be subject to federal income
tax. Rather, in the opinion of Tax Counsel, each Certificateholder will be
required to separately take into account such holder's allocated share of
income, gains, losses, deductions and credits of the Trust Fund. The Trust
Fund's income will consist primarily of interest and finance charges earned
on the Loans (including appropriate adjustments for market discount, OID and
bond premium) and any gain upon collection or disposition of Loans. The
Trust Fund's deductions will consist primarily of interest accruing with
respect to the Notes, servicing and other fees, and losses or deductions upon
collection or disposition of Loans.
In the opinion of Tax Counsel, the tax items of a partnership are
allocable to the partners in accordance with the Code, Treasury regulations
and the partnership agreement (here, the Trust Agreement and related
documents). The Trust Agreement will provide, in general, that the
Certificateholders will be allocated taxable income of the Trust Fund for
each month equal to the sum of (i) the interest that accrues on the
Certificates in accordance with their terms for such month, including
interest accruing at the Pass-Through Rate for such month and interest on
amounts previously due on the Certificates but not yet distributed; (ii) any
Trust Fund income attributable to discount on the Loans that corresponds to
any excess of the principal amount of the Certificates over their initial
issue price (iii) prepayment premium payable to the Certificateholders for
such month; and (iv) any other amounts of income payable to the
Certificateholders for such month. Such allocation will be reduced by any
amortization by the Trust Fund of premium on Loans that corresponds to any
excess of the issue price of Certificates over their principal amount. All
remaining taxable income of the Trust Fund will be allocated to the
Depositor. Based on the economic arrangement of the parties, in the opinion
of Tax Counsel, this approach for allocating Trust Fund income should be
permissible under applicable Treasury regulations, although no assurance can
be given that the IRS would not require a greater amount of income to be
allocated to Certificateholders. Moreover, in the opinion of Tax Counsel,
even under the foregoing method of allocation, Certificateholders may be
allocated income equal to the entire Pass-Through Rate plus the other items
described above even though the Trust Fund might not have sufficient cash to
make current cash distributions of such amount. Thus, cash basis holders
will in effect be required to report income from the Certificates on the
accrual basis and Certificateholders may become liable for taxes on Trust
Fund income even if they have not received cash from the Trust Fund to pay
such taxes. In addition, because tax allocations and tax reporting will be
done on a uniform basis for all Certificateholders but Certificateholders may
be purchasing Certificates at different times and at different prices,
Certificateholders may be required to report on their tax returns taxable
income that is greater or less than the amount reported to them by the Trust
Fund.
In the opinion of Tax Counsel, all of the taxable income allocated to a
Certificateholder that is a pension, profit sharing or employee benefit plan
or other tax-exempt entity (including an individual retirement account) will
constitute "unrelated business taxable income" generally taxable to such a
holder under the Code.
In the opinion of Tax Counsel, an individual taxpayer's share of
expenses of the Trust Fund (including fees to the Servicer but not interest
expense) would be miscellaneous itemized deductions. Such deductions might
be disallowed to the individual in whole or in part and might result in such
holder being taxed on an amount of income that exceeds the amount of cash
actually distributed to such holder over the life of the Trust Fund.
The Trust Fund intends to make all tax calculations relating to income
and allocations to Certificateholders on an aggregate basis. If the IRS were
to require that such calculations be made separately for each Loan, the Trust
Fund might be required to incur additional expense but it is believed that
there would not be a material adverse effect on Certificateholders.
Discount and Premium. It is believed that the Loans were not issued
with OID, and, therefore, the Trust should not have OID income. However, the
purchase price paid by the Trust Fund for the Loans may be greater or less
than the remaining principal balance of the Loans at the time of purchase.
If so, in the opinion of Tax Counsel, the Loan will have been acquired at a
premium or discount, as the case may be. (As indicated above, the Trust Fund
will make this calculation on an aggregate basis, but might be required to
recompute it on a Loan by Loan basis.)
If the Trust Fund acquires the Loans at a market discount or premium,
the Trust Fund will elect to include any such discount in income currently as
it accrues over the life of the Loans or to offset any such premium against
interest income on the Loans. As indicated above, a portion of such market
discount income or premium deduction may be allocated to Certificateholders.
Section 708 Termination. In the opinion of Tax Counsel, under Section
708 of the Code, the Trust Fund will be deemed to terminate for federal
income tax purposes if 50% or more of the capital and profits interests in
the Trust Fund are sold or exchanged within a 12-month period. If such a
termination occurs, the Trust Fund will be considered to distribute its
assets to the partners, who would then be treated as recontributing those
assets to the Trust Fund as a new partnership. The Trust Fund will not
comply with certain technical requirements that might apply when such a
constructive termination occurs. As a result, the Trust Fund may be subject
to certain tax penalties and may incur additional expenses if it is required
to comply with those requirements. Furthermore, the Trust Fund might not be
able to comply due to lack of data.
Disposition of Certificates. Generally, in the opinion of Tax Counsel,
capital gain or loss will be recognized on a sale of Certificates in an
amount equal to the difference between the amount realized and the seller's
tax basis in the Certificates sold. A Certificateholder's tax basis in a
Certificate will generally equal the holder's cost increased by the holder's
share of Trust Fund income (includible in income) and decreased by any
distributions received with respect to such Certificate. In addition, both
the tax basis in the Certificates and the amount realized on a sale of a
Certificate would include the holder's share of the Notes and other
liabilities of the Trust Fund. A holder acquiring Certificates at different
prices may be required to maintain a single aggregate adjusted tax basis in
such Certificates, and, upon sale or other disposition of some of the
Certificates, allocate a portion of such aggregate tax basis to the
Certificates sold (rather than maintaining a separate tax basis in each
Certificate for purposes of computing gain or loss on a sale of that
Certificate).
Any gain on the sale of a Certificate attributable to the holder's share
of unrecognized accrued market discount on the Receivables would generally be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Trust Fund does not expect to have any other
assets that would give rise to such special reporting requirements. Thus, to
avoid those special reporting requirements, the Trust Fund will elect to
include market discount in income as it accrues.
If a Certificateholder is required to recognize an aggregate amount of
income (not including income attributable to disallowed itemized deductions
described above) over the life of the Certificates that exceeds the aggregate
cash distributions with respect thereto, such excess will generally give rise
to a capital loss upon the retirement of the Certificates.
Allocations Between Transferors and Transferees. In general, the Trust
Fund's taxable income and losses will be determined monthly and the tax items
for a particular calendar month will be apportioned among the
Certificateholders in proportion to the principal amount of Certificates
owned by them as of the close of the last day of such month. As a result, a
holder purchasing Certificates may be allocated tax items (which will affect
its tax liability and tax basis) attributable to periods before the actual
transaction.
The use of such a monthly convention may not be permitted by existing
regulations. If a monthly convention is not allowed (or only applies to
transfers of less than all of the partner's interest), taxable income or
losses of the Trust Fund might be reallocated among the Certificateholders.
The Trust Fund's method of allocation between transferors and transferees may
be revised to conform to a method permitted by future regulations.
Section 754 Election. In the event that a Certificateholder sells its
Certificates at a profit (loss), the purchasing Certificateholder will have a
higher (lower) basis in the Certificates than the selling Certificateholder
had. The tax basis of the Trust Fund's assets will not be adjusted to
reflect that higher (or lower) basis unless the Trust Fund were to file an
election under Section 754 of the Code. In order to avoid the administrative
complexities that would be involved in keeping accurate accounting records,
as well as potentially onerous information reporting requirements, the Trust
Fund will not make such election. As a result, Certificateholders might be
allocated a greater or lesser amount of Trust Fund income than would be
appropriate based on their own purchase price for Certificates.
Administrative Matters. The Owner Trustee is required to keep or have
kept complete and accurate books of the Trust Fund. Such books will be
maintained for financial reporting and tax purposes on an accrual basis and
the fiscal year of the Trust will be the calendar year. The Trustee will
file a partnership information return (IRS Form 1065) with the IRS for each
taxable year of the Trust Fund and will report each Certificateholder's
allocable share of items of Trust Fund income and expense to holders and the
IRS on Schedule K-1. The Trust Fund will provide the Schedule K-l
information to nominees that fail to provide the Trust Fund with the
information statement described below and such nominees will be required to
forward such information to the beneficial owners of the Certificates.
Generally, holders must file tax returns that are consistent with the
information return filed by the Trust Fund or be subject to penalties unless
the holder notifies the IRS of all such inconsistencies .
Under Section 6031 of the Code, any person that holds Certificates as a
nominee at any time during a calendar year is required to furnish the Trust
Fund with a statement containing certain information on the nominee, the
beneficial owners and the Certificates so held. Such information includes
(i) the name, address and taxpayer identification number of the nominee and
(ii) as to each beneficial owner (x) the name, address and identification
number of such person, (y) whether such person is a United States person, a
tax-exempt entity or a foreign government, an international organization, or
any wholly owned agency or instrumentality of either of the foregoing, and
(z) certain information on Certificates that were held, bought or sold on
behalf of such person throughout the year. In addition, brokers and
financial institutions that hold Certificates through a nominee are required
to furnish directly to the Trust Fund information as to themselves and their
ownership of Certificates. A clearing agency registered under Section 17A of
the Exchange Act is not required to furnish any such information statement to
the Trust Fund. The information referred to above for any calendar year must
be furnished to the Trust Fund on or before the following January 31.
Nominees, brokers and financial institutions that fail to provide the Trust
Fund with the information described above may be subject to penalties.
The Depositor will be designated as the tax matters partner in the
related Trust Agreement and, as such, will be responsible for representing
the Certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire before three years after the date on which
the partnership information return is filed. Any adverse determination
following an audit of the return of the Trust Fund by the appropriate taxing
authorities could result in an adjustment of the returns of the
Certificateholders, and, under certain circumstances, a Certificateholder may
be precluded from separately litigating a proposed adjustment to the items of
the Trust Fund. An adjustment could also result in an audit of a
Certificateholder's returns and adjustments of items not related to the
income and losses of the Trust Fund.
Tax Consequences to Foreign Certificateholders. It is not clear whether
the Trust Fund would be considered to be engaged in a trade or business in
the United States for purposes of federal withholding taxes with respect to
non-U.S. persons because there is no clear authority dealing with that issue
under facts substantially similar to those described herein. Although it is
not expected that the Trust Fund would be engaged in a trade or business in
the United States for such purposes, the Trust Fund will withhold as if it
were so engaged in order to protect the Trust Fund from possible adverse
consequences of a failure to withhold. The Trust Fund expects to withhold on
the portion of its taxable income that is allocable to foreign
Certificateholders pursuant to Section 1446 of the Code, as if such income
were effectively connected to a U.S. trade or business, at a rate of 35% for
foreign holders that are taxable as corporations and 39.6% for all other
foreign holders. Subsequent adoption of Treasury regulations or the issuance
of other administrative pronouncements may require the Trust to change its
withholding procedures. In determining a holder's withholding status, the
Trust Fund may rely on IRS Form W-8, IRS Form W-9 or the holder's
certification of nonforeign status signed under penalties of perjury.
Each foreign holder might be required to file a U.S. individual or
corporate income tax return (including, in the case of a corporation, the
branch profits tax) on its share of the Trust Fund's income. Each foreign
holder must obtain a taxpayer identification number from the IRS and submit
that number to the Trust on Form W-8 in order to assure appropriate crediting
of the taxes withheld. A foreign holder generally would be entitled to file
with the IRS a claim for refund with respect to taxes withheld by the Trust
Fund taking the position that no taxes were due because the Trust Fund was
not engaged in a U.S. trade or business. However, interest payments made (or
accrued) to a Certificateholder who is a foreign person generally will be
considered guaranteed payments to the extent such payments are determined
without regard to the income of the Trust Fund. If these interest payments
are properly characterized as guaranteed payments, then the interest will not
be considered "portfolio interest." As a result, Certificateholders will be
subject to United States federal income tax and withholding tax at a rate of
30 percent, unless reduced or eliminated pursuant to an applicable treaty.
In such case, a foreign holder would only be entitled to claim a refund for
that portion of the taxes in excess of the taxes that should be withheld with
respect to the guaranteed payments.
Backup Withholding. Distributions made on the Certificates and proceeds
from the sale of the Certificates will be subject to a "backup" withholding
tax of 31% if, in general, the Certificateholder fails to comply with certain
identification procedures, unless the holder is an exempt recipient under
applicable provisions of the Code.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Certain
Material Federal Income Tax Considerations," potential investors should
consider the state and local income tax consequences of the acquisition,
ownership, and disposition of the Securities. State and local income tax law
may differ substantially from the corresponding federal law, and this
discussion does not purport to describe any aspect of the income tax laws of
any state or locality. Therefore, potential investors should consult their
own tax advisors with respect to the various state and local tax consequences
of an investment in the Securities.
ERISA CONSIDERATIONS
The following describes certain considerations under ERISA and the Code,
which apply only to Securities of a Series that are not divided into
subclasses. If Securities are divided into subclasses the related Prospectus
Supplement will contain information concerning considerations relating to
ERISA and the Code that are applicable to such Securities.
ERISA imposes requirements on employee benefit plans (and on certain
other retirement plans and arrangements, including individual retirement
accounts and annuities, Keogh plans and collective investment funds and
separate accounts in which such plans, accounts or arrangements are invested)
(collectively "Plans") subject to ERISA and on persons who are fiduciaries
with respect to such Plans. Generally, ERISA applies to investments made by
Plans. Among other things, ERISA requires that the assets of Plans be held
in trust and that the trustee, or other duly authorized fiduciary, have
exclusive authority and discretion to manage and control the assets of such
Plans. ERISA also imposes certain duties on persons who are fiduciaries of
Plans. Under ERISA, any person who exercises any authority or control
respecting the management or disposition of the assets of a Plan is
considered to be a fiduciary of such Plan (subject to certain exceptions not
here relevant). Certain employee benefit plans, such as governmental plans
(as defined in ERISA Section 3(32)) and, if no election has been made under
Section 410(d) of the Code, church plans (as defined in ERISA Section 3(33)),
are not subject to ERISA requirements. Accordingly, assets of such plans may
be invested in Securities without regard to the ERISA considerations
described above and below, subject to the provisions of applicable state law.
Any such plan which is qualified and exempt from taxation under Code Sections
401(a) and 501(a), however, is subject to the prohibited transaction rules
set forth in Code Section 503.
On November 13, 1986, the United States Department of Labor (the "DOL")
issued final regulations concerning the definition of what constitutes the
assets of a Plan. (Labor Reg. Section 2510.3-101) Under this regulation, the
underlying assets and properties of corporations, partnerships and certain
other entities in which a Plan makes an "equity" investment could be deemed
for purposes of ERISA to be assets of the investing Plan in certain
circumstances. However, the regulation provides that, generally, the assets
of a corporation or partnership in which a Plan invests will not be deemed
for purposes of ERISA to be assets of such Plan if the equity interest
acquired by the investing Plan is a publicly-offered security. A
publicly-offered security, as defined in the Labor Reg. Section 2510.3-101,
is a security that is widely held, freely transferable and registered under
the Securities Exchange Act of 1934, as amended.
In addition to the imposition of general fiduciary standards of
investment prudence and diversification, ERISA prohibits a broad range of
transactions involving Plan assets and persons ("Parties in Interest") having
certain specified relationships to a Plan and imposes additional prohibitions
where Parties in Interest are fiduciaries with respect to such Plan. Because
the Loans may be deemed Plan assets of each Plan that purchases Securities,
an investment in the Securities by a Plan might be a prohibited transaction
under ERISA Sections 406 and 407 and subject to an excise tax under Code
Section 4975 unless a statutory or administrative exemption applies.
In Prohibited Transaction Exemption 83-1 ("PTE 83-1"), which amended
Prohibited Transaction Exemption 81-7, the DOL exempted from ERISA's
prohibited transaction rules certain transactions relating to the operation
of residential mortgage pool investment trusts and the purchase, sale and
holding of "mortgage pool pass-through certificates" in the initial issuance
of such certificates. PTE 83-1 permits, subject to certain conditions,
transactions which might otherwise be prohibited between Plans and Parties in
Interest with respect to those Plans related to the origination, maintenance
and termination of mortgage pools consisting of mortgage loans secured by
first or second mortgages or deeds of trust on single-family residential
property, and the acquisition and holding of certain mortgage pool pass-
through certificates representing an interest in such mortgage pools by
Plans. If the general conditions (discussed below) of PTE 83-1 are
satisfied, investments by a Plan in Securities that represent interests in a
Pool consisting of Loans ("Single Family Securities") will be exempt from the
prohibitions of ERISA Sections 406(a) and 407 (relating generally to
transactions with Parties in Interest who are not fiduciaries) if the Plan
purchases the Single Family Securities at no more than fair market value and
will be exempt from the prohibitions of ERISA Sections 406(b)(1) and (2)
(relating generally to transactions with fiduciaries) if, in addition, the
purchase is approved by an independent fiduciary, no sales commission is paid
to the pool sponsor, the Plan does not purchase more than 25% of all Single
Family Securities, and at least 50% of all Single Family Securities are
purchased by persons independent of the pool sponsor or pool trustee. PTE
83-1 does not provide an exemption for transactions involving Subordinate
Securities. Accordingly, unless otherwise provided in the related Prospectus
Supplement, no transfer of a Subordinate Security or a Security which is not
a Single Family Security may be made to a Plan.
The discussion in this and the next succeeding paragraph applies only to
Single Family Securities. The Depositor believes that, for purposes of PTE
83-1, the term "mortgage pass-through certificate" would include: (i)
Securities issued in a Series consisting of only a single class of
Securities; and (ii) Securities issued in a Series in which there is only one
class of Trust Securities; provided that the Securities in the case of clause
(i), or the Securities in the case of clause (ii), evidence the beneficial
ownership of both a specified percentage of future interest payments (greater
than 0%) and a specified percentage (greater than 0%) of future principal
payments on the Loans. It is not clear whether a class of Securities that
evidences the beneficial ownership in a Trust Fund divided into Loan groups,
beneficial ownership of a specified percentage of interest payments only or
principal payments only, or a notional amount of either principal or interest
payments, or a class of Securities entitled to receive payments of interest
and principal on the Loans only after payments to other classes or after the
occurrence of certain specified events would be a "mortgage pass-through
certificate" for purposes of PTE 83-1.
PTE 83-1 sets forth three general conditions which must be satisfied for
any transaction to be eligible for exemption: (i) the maintenance of a system
of insurance or other protection for the pooled mortgage loans and property
securing such loans, and for indemnifying Securityholders against reductions
in pass-through payments due to property damage or defaults in loan payments
in an amount not less than the greater of one percent of the aggregate
principal balance of all covered pooled mortgage loans or the principal
balance of the largest covered pooled mortgage loan; (ii) the existence of a
pool trustee who is not an affiliate of the pool sponsor; and (iii) a
limitation on the amount of the payment retained by the pool sponsor,
together with other funds inuring to its benefit, to not more than adequate
consideration for selling the mortgage loans plus reasonable compensation for
services provided by the pool sponsor to the Pool. The Depositor believes
that the first general condition referred to above will be satisfied with
respect to the Securities in a Series issued without a subordination feature,
or the Securities only in a Series issued with a subordination feature,
provided that the subordination and Reserve Account, subordination by
shifting of interests, the pool insurance or other form of credit enhancement
described herein (such subordination, pool insurance or other form of credit
enhancement being the system of insurance or other protection referred to
above) with respect to a Series of Securities is maintained in an amount not
less than the greater of one percent of the aggregate principal balance of
the Loans or the principal balance of the largest Loan. See "Description of
the Securities" herein. In the absence of a ruling that the system of
insurance or other protection with respect to a Series of Securities
satisfies the first general condition referred to above, there can be no
assurance that these features will be so viewed by the DOL. The Trustee will
not be affiliated with the Depositor.
Each Plan fiduciary who is responsible for making the investment
decisions whether to purchase or commit to purchase and to hold Single Family
Securities must make its own determination as to whether the first and third
general conditions, and the specific conditions described briefly in the
preceding paragraph, of PTE 83-1 have been satisfied, or as to the
availability of any other prohibited transaction exemptions. Each Plan
fiduciary should also determine whether, under the general fiduciary
standards of investment prudence and diversification, an investment in the
Securities is appropriate for the Plan, taking into account the overall
investment policy of the Plan and the composition of the Plan's investment
portfolio.
On September 6, 1990 the DOL issued to Greenwich Capital Markets, Inc.,
an individual exemption (Prohibited Transaction Exemption 90-59; Exemption
Application No. D-8374, 55 Fed. Reg. 36724) (the "Underwriter Exemption")
which applies to certain sales and servicing of "certificates" that are
obligations of a "trust" with respect to which Greenwich Capital Markets,
Inc. is the underwriter, manager or co-manager of an underwriting syndicate.
The Underwriter Exemption provides relief which is generally similar to that
provided by PTE 83-1, but is broader in several respects.
The Underwriter Exemption contains several requirements, some of which
differ from those in PTE 83-l. The Underwriter Exemption contains an
expanded definition of "certificate" which includes an interest which
entitles the holder to pass-through payments of principal, interest and/or
other payments. The Underwriter Exemption contains an expanded definition of
"trust" which permits the trust corpus to consist of secured consumer
receivables. The definition of "trust", however, does not include any
investment pool unless, inter alia, (i) the investment pool consists only of
assets of the type which have been included in other investment pools, (ii)
certificates evidencing interests in such other investment pools have been
purchased by investors other than Plans for at least one year prior to the
Plan's acquisition of certificates pursuant to the Underwriter Exemption, and
(iii) certificates in such other investment pools have been rated in one of
the three highest generic rating categories of the four credit rating
agencies noted below. Generally, the Underwriter Exemption holds that the
acquisition of the certificates by a Plan must be on terms (including the
price for the certificates) that are at least as favorable to the Plan as
they would be in an arm's length transaction with an unrelated party. The
Underwriter Exemption requires that the rights and interests evidenced by the
certificates not be "subordinated" to the rights and interests evidenced by
other certificates of the same trust. The Underwriter Exemption requires
that certificates acquired by a Plan have received a rating at the time of
their acquisition that is in one of the three highest generic rating
categories of Standard & Poor's Corporation, Moody's Investors Service, Inc.,
Duff & Phelps Inc. or Fitch Investors Service, Inc. The Underwriter
Exemption specifies that the pool trustee must not be an affiliate of the
pool sponsor, nor an affiliate of the Underwriter, the pool servicer, any
obligor with respect to mortgage loans included in the trust constituting
more than five percent of the aggregate unamortized principal balance of the
assets in the trust, or any affiliate of such entities. Finally, the
Underwriter Exemption stipulates that any Plan investing in the certificates
must be an "accredited investor" as defined in Rule 501(a)(1) of Regulation D
of the Securities and Exchange Commission under the Securities Act of 1933.
Any Plan fiduciary which proposes to cause a Plan to purchase Securities
should consult with their counsel concerning the impact of ERISA and the
Code, the applicability of PTE 83-1 and the Underwriter Exemption, and the
potential consequences in their specific circumstances, prior to making such
investment. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment procedure and diversification an
investment in the Securities is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
LEGAL INVESTMENT
The Prospectus Supplement for each series of Securities will specify
which, if any, of the classes of Securities offered thereby constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Classes of Securities that qualify as
"mortgage related securities" will be legal investments for persons, trusts,
corporations, partnerships, associations, business trusts, and business
entities (including depository institutions, life insurance companies and
pension funds) created pursuant to or existing under the laws of the United
States or of any state (including the District of Columbia and Puerto Rico)
whose authorized investments are subject to state regulations to the same
extent as, under applicable law, obligations issued by or guaranteed as to
principal and interest by the United States or any such entities. Under
SMMEA, if a state enacted legislation prior to October 4, 1991 specifically
limiting the legal investment authority of any such entities with respect to
"mortgage related securities", securities will constitute legal investments
for entities subject to such legislation only to the extent provided therein.
Approximately twenty-one states adopted such legislation prior to the October
4, 1991 deadline. SMMEA provides, however, that in no event will the
enactment of any such legislation affect the validity of any contractual
commitment to purchase, hold or invest in securities, or require the sale or
other disposition of securities, so long as such contractual commitment was
made or such securities were acquired prior to the enactment of such
legislation.
SMMEA also amended the legal investment authority of federally-chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal in Securities
without limitations as to the percentage of their assets represented thereby,
federal credit unions may invest in mortgage related securities, and national
banks may purchase certificates for their own account without regard to the
limitations generally applicable to investment securities set forth in 12
U.S.C. 24 (Seventh), subject in each case to such regulations as the
applicable federal authority may prescribe. In this connection, federal
credit unions should review the National Credit Union Administration ("NCUA")
Letter to Credit Unions No. 96, as modified by Letter to Credit Unions No.
108, which includes guidelines to assist federal credit unions in making
investment decisions for mortgage related securities and the NCUA's
regulation "Investment and Deposit Activities" (12 C.F.R. Part 703), which
sets forth certain restrictions on investment by federal credit unions in
mortgage related securities.
All depository institutions considering an investment in the Securities
(whether or not the class of Securities under consideration for purchase
constitutes a "mortgage related security") should review the Federal
Financial Institutions Examination Council's Supervisory Policy Statement on
the Securities Activities (to the extent adopted by their respective
regulators) (the "Policy Statement") setting forth, in relevant part, certain
securities trading and sales practices deemed unsuitable for an institution's
investment portfolio, and guidelines for (and restrictions on) investing in
mortgage derivative products, including "mortgage related securities", which
are "high-risk mortgage securities" as defined in the Policy Statement.
According to the Policy Statement such "high-risk mortgage securities"
include securities such as Securities not entitled to distributions allocated
to principal or interest, or Subordinated Securities. Under the Policy
Statement, it is the responsibility of each depository institution to
determine, prior to purchase (and at stated intervals thereafter), whether a
particular mortgage derivative product is a "high-risk mortgage security",
and whether the purchase (or retention) of such a product would be consistent
with the Policy Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders guidelines or agreements generally
governing investments made by a particular investor, including, but not
limited to "prudent investor" provisions which may restrict or prohibit
investment in securities which are not "interest bearing" or "income paying".
There may be other restrictions on the ability of certain investors,
including depositors institutions, either to purchase Securities or to
purchase Securities representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Securities constitute legal
investments for such investors.
METHOD OF DISTRIBUTION
The Securities offered hereby and by the Prospectus Supplement will be
offered in Series. The distribution of the Securities may be effected from
time to time in one or more transactions, including negotiated transactions,
at a fixed public offering price or at varying prices to be determined at the
time of sale or at the time of commitment therefor. If so specified in the
related Prospectus Supplement, the Securities will be distributed in a firm
commitment underwriting, subject to the terms and conditions of the
underwriting agreement, by Greenwich Capital Markets, Inc. ("GCM") acting as
underwriter with other underwriters, if any, named therein. In such event,
the related Prospectus Supplement may also specify that the underwriters will
not be obligated to pay for any Securities agreed to be purchased by
purchasers pursuant to purchase agreements acceptable to the Depositor. In
connection with the sale of the Securities, underwriters may receive
compensation from the Depositor or from purchasers of the Securities in the
form of discounts, concessions or commissions. The related Prospectus
Supplement will describe any such compensation paid by the Depositor.
Alternatively, the related Prospectus Supplement may specify that the
Securities will be distributed by GCM acting as agent or in some cases as
principal with respect to Securities that it has previously purchased or
agreed to purchase. If GCM acts as agent in the sale of Securities, GCM will
receive a selling commission with respect to each Series of Securities,
depending on market conditions, expressed as a percentage of the aggregate
principal balance of the related Trust Fund Assets as of the Cut-off Date.
The exact percentage for each Series of Securities will be disclosed in the
related Prospectus Supplement. To the extent that GCM elects to purchase
Securities as principal, GCM may realize losses or profits based upon the
difference between its purchase price and the sales price. The Prospectus
Supplement with respect to any Series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the Depositor and purchasers of
Securities of such Series.
The Depositor will indemnify GCM and any underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933, or
will contribute to payments GCM and any underwriters may be required to make
in respect thereof.
In the ordinary course of business, GCM and the Depositor may engage in
various securities and financing transactions, including repurchase
agreements to provide interim financing of the Depositor's loans or private
asset backed securities, pending the sale of such loans or private asset
backed securities, or interests therein, including the Securities.
The Depositor anticipates that the Securities will be sold primarily to
institutional investors. Purchasers of Securities, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 in connection
with reoffers and sales by them of Securities. Holders of Securities should
consult with their legal advisors in this regard prior to any such reoffer or
sale.
LEGAL MATTERS
The legality of the Securities of each Series, including certain
material federal income tax consequences with respect thereto, will be passed
upon for the Depositor by Brown & Wood LLP, New York, New York 10048.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Securities and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related Series of
Securities. Accordingly, no financial statements with respect to any Trust
Fund will be included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of the Securities of each Series
offered hereby and by the Prospectus Supplement that they shall have been
rated in one of the four highest rating categories by the nationally
recognized statistical rating agency or agencies (each, a "Rating Agency")
specified in the related Prospectus Supplement.
Any such rating would be based on, among other things, the adequacy of
the value of the Trust Fund Assets and any credit enhancement with respect to
such class and will reflect such Rating Agency's assessment solely of the
likelihood that holders of a class of Securities of such class will receive
payments to which such Securityholders are entitled under the related
Agreement. Such rating will not constitute an assessment of the likelihood
that principal prepayments on the related Loans will be made, the degree to
which the rate of such prepayments might differ from that originally
anticipated or the likelihood of early optional termination of the Series of
Securities. Such rating should not be deemed a recommendation to purchase,
hold or sell Securities, inasmuch as it does not address market price or
suitability for a particular investor. Such rating will not address the
possibility that prepayment at higher or lower rates than anticipated by an
investor may cause such investor to experience a lower than anticipated yield
or that an investor purchasing a Security at a significant premium might fail
to recoup its initial investment under certain prepayment scenarios.
There is also no assurance that any such rating will remain in effect
for any given period of time or that it may not be lowered or withdrawn
entirely by the Rating Agency in the future if in its judgment circumstances
in the future so warrant. In addition to being lowered or withdrawn due to
any erosion in the adequacy of the value of the Trust Fund Assets or any
credit enhancement with respect to a Series, such rating might also be
lowered or withdrawn among other reasons, because of an adverse change in the
financial or other condition of a credit enhancement provider or a change in
the rating of such credit enhancement provider's long term debt.
The amount, type and nature of credit enhancement, if any, established
with respect to a Series of Securities will be determined on the basis of
criteria established by each Rating Agency rating classes of such Series.
Such criteria are sometimes based upon an actuarial analysis of the behavior
of mortgage loans in a larger group. Such analysis is often the basis upon
which each Rating Agency determines the amount of credit enhancement required
with respect to each such class. There can be no assurance that the
historical data supporting any such actuarial analysis will accurately
reflect future experience nor any assurance that the data derived from a
large pool of mortgage loans accurately predicts the delinquency, foreclosure
or loss experience of any particular pool of Loans. No assurance can be
given that values of any Properties have remained or will remain at their
levels on the respective dates of origination of the related Loans. If the
residential real estate markets should experience an overall decline in
property values such that the outstanding principal balances of the Loans in
a particular Trust Fund and any secondary financing on the related Properties
become equal to or greater than the value of the Properties, the rates of
delinquencies, foreclosures and losses could be higher than those now
generally experienced in the mortgage lending industry. In additional,
adverse economic conditions (which may or may not affect real property
values) may affect the timely payment by mortgagors of scheduled payments of
principal and interest on the Loans and, accordingly, the rates of
delinquencies, foreclosures and losses with respect to any Trust Fund. To
the extent that such losses are not covered by credit enhancement, such
losses will be borne, at least in part, by the holders of one or more classes
of the Securities of the related Series.