AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 2005
Registration No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Aames Capital Corporation Aames Capital Acceptance Corporation
- ------------------------------------------------------------------ ----------------------------------------------------------
(Exact Name Of Registrant As Specified In Its Charter) (Exact Name Of Registrant As Specified In Its Charter)
California 95-4438859 Delaware 95-4619902
- -------------------------- ------------------------------------ ----------------------------------------------------------
(State Of Incorporation) (I.R.S. Employer (State Of Incorporation) (I.R.S. Employer
Identification No.) Identification No.)
-----------------
350 South Grand Avenue 350 South Grand Avenue
Los Angeles, California 90071 Los Angeles, California 90071
323/210-5000 323/210-5270
(Address, Including Zip Code, And Telephone Number, (Address, Including Zip Code, And Telephone Number,
Including Area Code, Of Registrant's Principal Including Area Code, Of Registrant's Principal
Executive Offices) Executive Offices)
John F. Madden, Jr., Esq. John F. Madden, Jr., Esq.
Aames Capital Corporation Aames Capital Acceptance Corporation
350 South Grand Avenue, 43rd Floor 350 South Grand Avenue, 43rd Floor
Los Angeles, California 90071 Los Angeles,California 90071
323/210-5000 323/210-5000
(Name, Address, Including Zip Code, And Telephone (Name, Address, Including Zip Code, And Telephone
Number, Including Area Code, Of Agent For Service) Number, Including Area Code, Of Agent For Service)
-----------------
Copy to:
Evan M. Drutman, Esq.
Greenberg Traurig, LLP
MetLife Building
200 Park Avenue
New York, New York 10166
Approximate date of commencement of proposed sale to the public: From time to
time after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM
TITLE OF SECURITIES TO BE AMOUNT TO BE AGGREGATE OFFERING PROPOSED MAXIMUM AMOUNT OF
REGISTERED REGISTERED PRICE PER UNIT (1) AGGREGATE OFFERING PRICE REGISTRATION FEE(2)
- -----------------------------------------------------------------------------------------------------------------------------------
Asset-Backed Certificates and Asset- $1,000,000 100% $1,000,000 $117.70
Backed Notes
===================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
(2) Calculated pursuant to Rule 457(a) of the Securities Act of 1933, as
amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
INTRODUCTORY NOTE
This Registration Statement contains (i) a form of Prospectus relating to
the offering of a series of Mortgage Pass-Through Certificates and Mortgage
Backed Notes by various Aames Mortgage Investment Trusts created from time to
time by Aames Capital Corporation or Aames Capital Acceptance Corporation and
(ii) two forms of Prospectus Supplement relating to the offering by an Aames
Mortgage Investment Trust of the particular series of Mortgage Pass-Through
Certificates or of Mortgage Backed Notes described therein. Each form of
Prospectus Supplement relates only to the securities described therein and is a
form which, among others, may be used by Aames Capital Corporation or Aames
Capital Acceptance Corporation to offer Mortgage Pass-Through Certificates
and/or Mortgage Backed Notes under this Registration Statement.
SUBJECT TO COMPLETION
DATED SEPTEMBER 30, 2005
PROSPECTUS SUPPLEMENT
(To Prospectus dated [Month] [Day], 20___)
$[________________] (APPROXIMATE)
[Aames Investment Corporation--Logo Omitted]
AAMES MORTGAGE INVESTMENT TRUST 20___-__
Mortgage Backed Notes
Aames Investment Corporation
SELLER
[Master Servicer]
MASTER SERVICER
Aames Capital Acceptance Corporation
DEPOSITOR
--------------------------------------------
----------------------------------------- The issuer is offering the
|CONSIDER CAREFULLY THE RISK FACTORS | following classes of notes
|BEGINNING ON PAGE S-__ OF THIS | pursuant to this prospectus
|PROSPECTUS SUPPLEMENT AND ON PAGE __ IN | supplement and the accompanying
|THE PROSPECTUS. | prospectus:
| | -------------------------------------------------------------------------------------
|The notes represent obligations of the | | CLASS CLASS |
|trust only and do not represent an | | PRINCIPAL INTEREST PRINCIPAL INTEREST |
|interest in or obligation of Aames | | CLASS AMOUNT(1) RATE(2)(3)(4) CLASS AMOUNT(1) RATE(2)(3)(4)|
|Capital Acceptance Corp., Aames Invest- | |-------------- ------------- ------------- -------------- ------------- -------------|
|ment Corporation,[_________________], | | Class 1A1 $[_________] Variable Class M6 $[_________] Variable |
|or any of their affiliates. | |-------------- ------------- ------------- -------------- ------------- -------------|
| | | Class 1A2 $[_________] Variable Class M7 $[_________] Variable |
|This prospectus supplement may be used | |-------------- ------------- ------------- -------------- ------------- -------------|
|to offer and sell the notes only if | | Class 1A3 $[_________] Variable Class M8 $[_________] Variable |
|accompanied by the prospectus | |-------------- ------------- ------------- -------------- ------------- -------------|
----------------------------------------- | Class 2A1 $[_________] Variable Class M9 $[_________] Variable |
|-------------- ------------- ------------- -------------- ------------- -------------|
| Class M1 $[_________] Variable Class B1 $[_________] Variable |
|-------------- ------------- ------------- -------------- ------------- -------------|
| Class M2 $[_________] Variable Class B2 $[_________] Variable |
|-------------- ------------- ------------- -------------- ------------- -------------|
| Class M3 $[_________] Variable Class B3 $[_________] Variable |
|-------------- ------------- ------------- -------------- ------------- -------------|
| Class M4 $[_________] Variable Class B4 $[_________] Variable |
|-------------- ------------- ------------- -------------- ------------- -------------|
| Class M5 $[_________] Variable |
-------------------------------------------------------------------------------------
(1) These amounts are approximate, as described in this prospectus supplement.
(2) The interest rates on these classes of notes are variable, as described
under "Summary of Terms -- The Offered Notes -- Payments on the Notes --
Interest Payments" in this prospectus supplement.
(3) Subject to the applicable net funds cap and a fixed rate cap, as described
in this prospectus supplement.
(4) Subject to a stepped up interest rate if the option to purchase the
mortgage loans is not exercised by Aames Investment Acceptance Corporation,
as described in this prospectus supplement.
THE TRUST -
o The assets of the trust will primarily consist of two pools of
conventional, first lien, adjustable rate, fully amortizing,
residential mortgage loans. The mortgage loans were originated in
accordance with underwriting guidelines that are not as strict as
Fannie Mae and Freddie Mac guidelines. As a result, the mortgage loans
may experience higher rates of delinquency, foreclosure and bankruptcy
than if they had been underwritten in accordance with higher standards.
CREDIT ENHANCEMENT-
o excess interest and overcollateralization
o limited cross-collateralization
o subordination of the Class M1, Class M2, Class M3, Class M4, Class M5,
Class M6, Class M7, Class M8, Class M9, Class B1, Class B2, Class B3
and Class B4 Notes
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS
ACCURATE OR COMPLETE. 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.
[UNDERWRITER], [UNDERWRITER], [UNDERWRITER], [UNDERWRITER], [UNDERWRITER],
[UNDERWRITER], [UNDERWRITER], [UNDERWRITER] and [UNDERWRITER] as underwriters,
will offer the notes listed above at varying prices to be determined at the time
of sale.
The underwriters will deliver to purchasers of the offered notes in book-entry
form only through the facilities of The Depository Trust Company, Clearstream
and Euroclear, in each case, on or about [Month] [Day], 20___.
Underwriters:
[UNDERWRITER] [UNDERWRITER]
(CO-LEAD MANAGER) (CO-LEAD MANAGER)
Co-Managers:
[UNDERWRITER] [UNDERWRITER]
[UNDERWRITER] [UNDERWRITER]
[UNDERWRITER] [UNDERWRITER]
The date of this prospectus supplement is [Month] [Day], 20___
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS:
We provide information to you about the notes offered by this prospectus
supplement in two separate documents that progressively provide more detail: (1)
the accompanying prospectus, which provides general information, some of which
may not apply to your notes and (2) this prospectus supplement, which describes
the specific terms of your notes.
IF INFORMATION VARIES BETWEEN THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS, YOU SHOULD RELY ON THE INFORMATION IN THIS PROSPECTUS
SUPPLEMENT.
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the notes in any state where the offer is not permitted. We
do not claim that the information in this prospectus supplement and prospectus
is accurate as of any date other than the dates stated on their respective
covers.
---------------
Dealers will deliver a prospectus supplement and prospectus when acting as
underwriters of the notes and with respect to their unsold allotments or
subscriptions. In addition, all dealers selling the notes will be required to
deliver a prospectus supplement and prospectus for ninety days following the
date of this prospectus supplement.
---------------
We include cross-references in this prospectus supplement and the accompanying
prospectus to captions in these materials where you can find further related
discussions. The following tables of contents provide the pages on which these
captions are located.
ii
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Summary of Terms...........................S-1 Collection of Taxes, Assessments and
Parties................................S-1 Similar Items.....................S-56
The Offered Notes..........................S-2 Insurance Coverage.....................S-56
The Mortgage Loans.....................S-5 Evidence as to Compliance..............S-56
Financing..............................S-6 Master Servicer Default; Servicer Default..S-57
Tax Status.............................S-6 Master Servicer Resignation;
ERISA Considerations...................S-7 Servicer Resignation...............S-57
Legal Investment Considerations........S-7 Pledge of Servicing Rights.............S-58
Ratings of the Notes...................S-7 The Mortgage Loan Purchase Agreement
Risk Factors...............................S-8 and the Transfer and Servicing
Description of the Notes...................S-21 Agreement.........................S-58
General................................S-21 General................................S-58
Book-Entry Registration................S-22 Assignment of Mortgage Loans...........S-58
Payments of Interest...................S-26 Representations and Warranties.........S-58
Determination of LIBOR.................S-33 Administration.........................S-59
Payments of Principal..................S-33 Amendment..............................S-59
Credit Enhancement.....................S-39 Voting Rights..........................S-60
Maturity Date..........................S-41 The Trust Agreement and the Indenture......S-60
Optional Purchase of the Mortgage LoansS-42 General................................S-60
The Ownership Certificate..............S-42 The Trust..............................S-60
Trust Administrator....................S-42 The Owner Trustee......................S-60
Description of the Mortgage Pools..........S-42 The Indenture Trustee..................S-61
General................................S-43 Certain Matters Under The Agreements...S-61
Adjustable Rate Mortgage Loans.........S-44 Amendment..............................S-62
The Index..............................S-45 Yield, Prepayment and Weighted Average
The Mortgage Loans.....................S-45 Life..............................S-62
Pool 1 Mortgage Loans..................S-45 General................................S-63
Pool 2 Mortgage Loans..................S-46 Overcollateralization..................S-65
Additional Information.....................S-47 Subordination of the Subordinate Notes.S-65
The Seller and the Underwriting Guidelines.S-47 Weighted Average Life..................S-65
The Seller.............................S-47 Material Federal Income Tax Considerations.S-79
Underwriting Guidelines................S-47 Tax Classification of the Trust and of
Events Related to Prior SecuritizationsS-50 the Notes..........................S-79
The Master Servicer........................S-50 Tax Consequences to Holders of
The Servicer...............................S-51 the Notes.........................S-79
The Servicer...........................S-51 State and Local Income Tax
Collections, Delinquencies Considerations....................S-80
and Foreclosure ....... ..........S-51 Legal Investment Considerations............S-80
Mortgage Loan Delinquency and ERISA Considerations.......................S-81
Foreclosure Experience............S-52 General................................S-81
Servicing of the Mortgage Loans............S-53 Purchases of the Notes.................S-81
General................................S-53 Use of Proceeds............................S-82
Servicing Compensation and Payment Underwriting...............................S-83
of Expenses.......................S-54 Legal Matters..............................S-84
Prepayment Interest Shortfalls.........S-55 Ratings....................................S-84
Advances...............................S-55 Index of Principal Terms...................S-86
Collection Procedures..................S-56
Optional Purchase of Defaulted Loans...S-56 Annex A -- Global Clearance, Settlement
and Tax Documentation Procedures ..S-A-1
Annex B -- Certain Characteristics of
the Mortgage Loans ...............S-B-1
iii
PROSPECTUS
PAGE
Incorporation of Certain Documents by Reference ..................................................................
Risk Factors......................................................................................................
Use Of Proceeds...................................................................................................
Aames Capital Acceptance Corporation..............................................................................
Aames Capital Corporation.........................................................................................
The Originators...................................................................................................
Description of the Securities.....................................................................................
Reports to Securityholders........................................................................................
Credit Enhancement................................................................................................
The Agreements....................................................................................................
Certain Legal Aspects Of the Mortgage Loansand Related Matters....................................................
Use Of Proceeds...................................................................................................
Federal Income Tax Consequences...................................................................................
State and Local Tax Considerations................................................................................
ERISA Considerations..............................................................................................
Legal Investment Matters..........................................................................................
Plan of Distribution..............................................................................................
Legal Matters.....................................................................................................
iv
SUMMARY OF TERMS
o This summary highlights selected information from this document and
does not contain all of the information that you need to consider in making your
investment decision. To understand all of the terms of the offering of the
notes, it is necessary that you read carefully this entire document and the
accompanying prospectus.
o While this summary contains an overview of certain calculations, cash
flow priorities and other information to aid your understanding, you should read
carefully the full description of these calculations, cash flow priorities and
other information in this prospectus supplement and the accompanying prospectus
before making any investment decision.
o Some of the information that follows consists of forward-looking
statements relating to future economic performance or projections and other
financial items. Forward-looking statements are subject to a variety of risks
and uncertainties, such as general economic and business conditions and
regulatory initiatives and compliance, many of which are beyond the control of
the parties participating in this transaction. Accordingly, what actually
happens may be very different from the projections included herein.
o Whenever we refer to a percentage of some or all of the mortgage loans
in the trust, that percentage has been calculated on the basis of the total
scheduled principal balance of those mortgage loans as of [CUT-OFF DATE] unless
we specify otherwise. We explain in this prospectus supplement under
"Description of the Notes--Payments of Principal" how the scheduled principal
balance of a mortgage loan is determined. Whenever we refer in this summary of
terms or in the risk factors section of this prospectus supplement to the total
principal balance of any mortgage loans, we mean the total of their scheduled
principal balances unless we specify otherwise.
PARTIES TRUST ADMINISTRATOR
SELLER AND ORIGINATOR [TRUST ADMINISTRATOR] will perform
certain administrative functions on
Aames Investment Corporation originated, behalf of the owner trustee and the
through its subsidiaries, the mortgage trust under the trust agreement,
loans and will sell the mortgage loans indenture and the transfer and servicing
to the depositor. agreement.
DEPOSITOR MASTER SERVICER
Aames Capital Acceptance Corp., will [MASTER SERVICER] will oversee the
sell the mortgage loans to the trust. servicing of the mortgage loans by the
servicer.
ISSUER
SERVICER
Aames Mortgage Investment Trust
20___-__, a Delaware statutory trust. Aames Capital Corporation will service
the mortgage loans included in the
OWNER TRUSTEE trust.
[OWNER TRUSTEE] will act as owner CAP COUNTERPARTY
trustee of the trust.
The trust will enter into [three]
INDENTURE TRUSTEE interest rate cap agreements with [YIELD
MAINTENANCE PROVIDER] to protect against
[INDENTURE TRUSTEE]. The notes will be certain interest rate risk on the senior
issued, and the mortgage loans will be notes and on the subordinate notes,
pledged to the indenture trustee as respectively.
collateral for the notes, under an
indenture.
S-1
THE OFFERED NOTES
CLASSES OF NOTES
The Aames Mortgage Investment Trust 20___-__ Mortgage Backed Notes consist of
the classes of notes listed in the table below.
SUMMARY INTEREST RATE SUMMARY INTEREST RATE
CLASS INITIAL FORMULA (UNTIL INITIAL FORMULA (AFTER INITIAL
PRINCIPAL INTEREST OPTIONAL TERMINATION OPTIONAL TERMINATION
CLASS AMOUNT(1) RATE(2) DATE)(3) DATE)(5) CUSIP NUMBER
- ----------- ------------ -------- -------------------- ---------------------- --------------
1A1........ $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
1A2........ $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
1A3........ $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
2A1........ $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
M1......... $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
M2......... $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
M3......... $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
M4......... $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
M5......... $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
M6......... $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
M7......... $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
M8......... $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
M9......... $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
B1......... $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
B2......... $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
B3......... $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
B4......... $[_________] [___]% LIBOR plus [___]%(4) LIBOR plus [___]%(4) 126673 [__]
- -----------
(1) These amounts are approximate, as described in this prospectus supplement.
(2) Reflects the interest rate as of the closing date.
(3) Reflects the interest rate formula up to and including the earliest
possible payment date on which Aames Investment Acceptance Corporation has
the option to purchase the mortgage loans as described under "Description
of the Notes--Optional Purchase of the Mortgage Loans."
(4) The interest rates of each class of notes is subject to a cap equal to the
lesser of (a) one-month LIBOR plus the specified margin, (b) the applicable
net funds cap and (c) a fixed rate cap of [___]% per annum, as described
under "--The Offered Notes--Payments on the Notes--Interest Payments."
(5) Reflects the interest rate formula if the option to purchase the mortgage
loans is not exercised by Aames Investment Acceptance Corporation at the
earliest possible payment date as described under "Description of the
Notes--Optional Purchase of the Mortgage Loans."
S-2
The notes offered by this of the trust have been paid on the
prospectus supplement will be issued in related payment date.
book-entry form.
The ownership certificate is not
See "Description of the offered by this prospectus supplement.
Notes--General" in this prospectus The notes will have an approximate total
supplement for the minimum denominations initial principal amount of
and the incremental denominations of $[___________]. Any difference between
each class of notes. the total principal amount of the notes
on the date they are issued and the
The notes represent obligations of approximate total principal amount of
the trust and will be secured by the notes as reflected in this
collateral consisting primarily of prospectus supplement will not exceed
conventional, first lien, adjustable 5%.
rate, fully amortizing residential
mortgage loans having a total principal PAYMENTS ON THE NOTES
balance as of the cut-off date, which is
[Month] [Day], 20___, of approximately Principal and interest on the
$[___________]. The mortgage loans to be notes will be paid on the 25th day of
included in the trust will be divided each month, beginning in [Month] [Day],
into two mortgage pools: "pool 1" and 20___, . However, if the 25th day is not
"pool 2." Pool 1 will consist of a business day, payments will be made on
mortgage loans with original principal the next business day after the 25th day
balances which may be less than, equal of the month.
to, or in excess of the applicable
Freddie Mac maximum original loan amount Interest Payments
limitations for one- to four-family
residential mortgaged properties. Pool 2 Interest will accrue on each class
will consist of those mortgage loans in of notes at an annual rate equal to the
the trust with original principal lesser of (1) the applicable annual rate
balances which do not exceed those loan as described in the table on page
amount limitations. S-[___] (2) the applicable net funds cap
and (3) a fixed rate cap of [___]%
Payments of principal and interest annually.
on the Class 1A1, 1A2 and 1A3 Notes will
be based primarily on collections from If the option to purchase the
the pool 1 mortgage loans. Payments of mortgage loans is not exercised by Aames
principal and interest on the Class 2A1 Investment Acceptance Corporation on the
Notes will be based primarily on initial optional termination date as
collections from the pool 2 mortgage described under "--The Mortgage
loans. Payments of principal and Loans--Optional Purchase of Mortgage
interest on the Class M1, M2, M3, M4, Loans" below, then with respect to the
M5, M6, M7, M8, M9, B1, B2, B3 and B4 next payment date and each payment date
Notes will be based on collections from thereafter, the annual rate described in
both mortgage pools as described in this clause (1) of the interest rate formula
prospectus supplement. set forth above will be increased for
each class of notes to the applicable
The rights of holders of the Class annual rate as described in the table on
M1, M2, M3, M4, M5, M6, M7, M8, M9, B1, page S-[___], subject in each case to
B2, B3 and B4 Notes to receive payments the lesser of the applicable net funds
of principal and interest will be cap and the fixed rate cap of [___]%
subordinate to the rights of the holders annually.
of notes having a senior priority of
payment, as described in this Summary of See "--The Mortgage
Terms under "--Enhancement of Likelihood Loans--Optional Purchase of Mortgage
of Payment on the Notes--Subordination Loans" below.
of Payments" below. We refer to the
Class M1, M2, M3, M4, M5, M6, M7, M8, The net funds cap for the Class
M9, B1, B2, B3 and B4 Notes collectively 1A1, Class 1A2 and Class 1A3 Notes is a
as "subordinate" notes, and we refer to limitation generally based on the net
the Class 1A1, 1A2, 1A3 and 2A1 Notes as mortgage rates on the mortgage loans in
"senior" notes. pool 1, adjusted to reflect the accrual
of interest on an actual/360 basis. The
The trust will also issue an net funds cap for the Class 2A1 Notes is
ownership certificate which will not be a limitation generally based on the net
entitled to monthly payments of mortgage rates on the mortgage loans in
principal or interest, but rather solely pool 2, adjusted to reflect the accrual
to any monthly excess cashflow remaining of interest on an actual/360 basis. The
after all payments on the notes have net funds cap for the subordinate notes
been made and certain fees and expenses is a limitation generally based on the
net mortgage rates of the mortgage loans
in pool
S-3
1 and pool 2, weighted on the basis of shortfalls experienced by the
the excess of the principal balance of subordinate notes during the 28-month
the mortgage loans in pool 1 and pool 2 period it is in effect.
over the principal balances of the group
1 and the group 2 notes, respectively, See "Description of the
and adjusted to reflect the accrual of Notes--Payments of Interest--The Cap
interest on an actual/360 basis. Agreements" in this prospectus
supplement.
For a complete description of the
net funds caps and the priority of Principal Payments
payment of interest, see "Description of
the Notes--Payments of Interest" in this The amount of principal payable on
prospectus supplement. the notes will be determined by (1)
formulas that allocate portions of
The Interest Rate Cap Agreements principal payments received on the
mortgage loans among the different note
The trust will enter into [three] classes, (2) principal collections on
interest rate cap agreements with the mortgage loans that are available to
[_________________] as cap counterparty. make principal payments on the notes and
Under the group 1 cap agreement, the cap (3) the application of excess interest
counterparty will be required to make from the mortgage loans to pay principal
monthly payments to the trust in respect on the notes. Funds received on the
of the Class 1A1, Class 1A2 and Class mortgage loans may consist of (1)
1A3 Notes from [Month] 20___, through expected monthly scheduled payments or
[Month] 20___, if one-month LIBOR for (2) unexpected payments resulting from
the related payment date moves above a prepayments or defaults by borrowers,
specified rate, subject to a maximum liquidation of defaulted mortgage loans,
rate of payment. The group 1 cap or repurchases of mortgage loans under
agreement will provide only temporary, the circumstances described in this
limited protection against upward prospectus supplement.
movements in one-month LIBOR, and, to
the extent described in this prospectus The manner of allocating payments
supplement, any proceeds received under of principal on the mortgage loans on
the group 1 cap agreement will be any payment date will differ, as
available to cover any basis risk described in this prospectus supplement,
shortfalls experienced by the Class 1A1, depending upon whether that payment date
Class 1A2 and Class 1A3 Notes during the occurs before the payment date in
29-month period it is in effect. Under [Month] 20___, or on or after that date,
the group 2 cap agreement, the cap and depending upon whether the
counterparty will be required to make delinquency and loss experience of the
monthly payments to the trust in respect mortgage loans is worse than certain
of the Class 2A1 Notes from [Month] levels set by the rating agencies.
20___, through [Month] 20___, if
one-month LIBOR for the related payment See "Description of the
date moves above a specified rate, Notes--Payments of Principal" in this
subject to a maximum rate of payment. prospectus supplement.
The group 2 cap agreement will provide
only temporary, limited protection LIMITED RECOURSE
against upward movements in one-month
LIBOR, and, to the extent described in The only source of cash available
this prospectus supplement, any proceeds to make interest and principal payments
received under the group 2 cap agreement on the notes will be the assets of the
will be available to cover any basis trust pledged to secure the notes. The
risk shortfalls experienced by the Class trust will have no source of cash other
2A1 Notes during the 29-month period it than collections and recoveries of the
is in effect. Under the subordinate cap mortgage loans through insurance or
agreement, the cap counterparty will be otherwise and payments received under
required to make monthly payments to the the interest rate cap agreements
trust in respect of the subordinate described below. No other entity will be
notes from [Month] 20___, through required or expected to make any
[Month] 20___, if one-month LIBOR for payments on the notes.
the related payment date moves above a
specified rate, subject to a maximum
rate of payment. The subordinate cap
agreement will provide only temporary,
limited protection against upward
movements in one-month LIBOR, and, to
the extent described in this prospectus
supplement, any proceeds received under
the subordinate cap agreement will be
available to cover any basis risk
S-4
ENHANCEMENT OF LIKELIHOOD OF PAYMENT ON See "Risk Factors--Potential
THE NOTES Inadequacy of Credit Enhancement" and
"Description of the Notes--Credit
The payment structure of this Enhancement--Excess Interest" in this
securitization includes excess interest, prospectus supplement.
overcollateralization, subordination and
limited cross-collateralization features Overcollateralization
to enhance the likelihood that holders
of more senior classes of notes will On the closing date, the total
receive regular payments of interest and principal balance of the mortgage loans
principal. Each class of notes with a B is expected to exceed the total
in its class designation is more likely principal amount of the notes by
to experience losses than (1) the other approximately $[___________], which
classes of notes with a B in their represents approximately [___]% of the
designations, if any, that have a lower total principal balance of the mortgage
number in their designations, (2) the loans as of the cut-off date. This
classes of notes with an M in their condition is referred to in this
designations and (3) the senior notes. prospectus supplement as
Each class of notes with an M in its "overcollateralization." Thereafter, to
class designation is more likely to the extent described in this prospectus
experience losses than (1) the other supplement, a portion of excess interest
classes of notes with a M in their may be applied to pay principal on the
designations, if any, that have a lower notes to the extent needed to increase
number in their designations and (2) the and maintain the required level of
senior notes. overcollateralization. We cannot,
however, assure you that sufficient
See "Risk Factors--Potential interest will be generated by the
Inadequacy of Credit Enhancement" and mortgage loans to increase or maintain
"Description of the Notes--Credit any particular level of
Enhancement" in this prospectus overcollateralization.
supplement for a more detailed
description of the excess interest, See "Risk Factors--Potential
overcollateralization and subordination Inadequacy of Credit Enhancement" and
features. "Description of the Notes--Credit
Enhancement--Overcollateralization" in
Subordination of Payments this prospectus supplement.
The senior notes will have a Limited Cross-Collateralization
payment priority as a group over other
notes. Each class of notes with an M in Under certain limited
its designation will have a payment circumstances, principal payments on the
priority over (1) the other classes of mortgage loans in one pool may be paid
notes with an M in their designations, as principal to holders of the senior
if any, that have a higher number in notes corresponding to the other pool.
their designations and (2) the classes
of notes with a B in their designations. If the senior notes relating to
Each class of notes with a B in its one pool have been retired, then
designation will have a payment priority principal payments on the mortgage loans
over the other classes of notes with an relating to the retired senior notes
B in their designations, if any, that will be paid to the remaining senior
have a higher number in their notes of the other pool, if any, before
designations. being paid to the Class M1, M2, M3, M4,
M5, M6, M7, M8, M9, B1, B2, B3 and B4
See "Description of the Notes.
Notes--Credit
Enhancement--Subordination" in this See "Description of the
prospectus supplement. Notes--Payments of Principal" in this
prospectus supplement.
Excess Interest
THE MORTGAGE LOANS
The mortgage loans will bear
interest each month that, in the GENERAL
aggregate, is expected to exceed the
amount needed to pay monthly interest on On the closing date, which is
the notes and certain fees and expenses expected to be on or about [Month]
of the trust. This "excess interest" [Day], 20___, the assets of the trust
received from the mortgage loans each will consist primarily of two pools of
month will be available to absorb approximately
realized losses on the mortgage loans
and to maintain overcollateralization at
required levels.
S-5
[_______] conventional, first lien, balance of the mortgage loans (plus
adjustable rate, fully amortizing accrued interest thereon to the date of
residential mortgage loans with a total purchase), plus certain expenses of the
principal balance as of the cut-off date trust.
of approximately $[___________]. The
mortgage loans will be secured by If the mortgage loans are
mortgages, deeds of trust, or other purchased, the trust administrator will
security instruments, all of which are apply the net proceeds to the mandatory
referred to in this prospectus redemption of the notes.
supplement as mortgages.
If Aames Investment Acceptance
Substantially all of the mortgage Corporation's option to purchase the
loans have original terms to maturity of mortgage loans is not exercised on the
[___] years. earliest possible payment date as
described above, then, beginning with
The mortgage loans were generally the accrual period relating to the next
originated or acquired pursuant to succeeding payment date and thereafter,
underwriting guidelines that are less the interest rates of the notes will be
strict than Fannie Mae or Freddie Mac increased as described in this
guidelines. As a result, the mortgage prospectus supplement.
loans are likely to experience higher
rates of delinquency, foreclosure and See "Description of the
bankruptcy than mortgage loans Notes--Optional Purchase of the Mortgage
underwritten in accordance with higher Loans" in this prospectus supplement for
standards. a description of the purchase price to
be paid for the mortgage loans upon an
The mortgage loans will not be optional purchase. See "--The Offered
insured or guaranteed by any government Notes--Payments on the Notes--Interest
agency. Payments" in this prospectus supplement
for a description of the increased
None of the mortgage loans will be interest rates to be paid on the notes
"high cost" loans under applicable after the initial optional termination
federal, state or local anti-predatory date.
or anti-abusive lending laws.
FINANCING
Servicing of the Mortgage Loans
Affiliates of certain of the
The mortgage loans will be master underwriters have provided financing for
serviced by [MASTER SERVICER]. The some of the mortgage loans. The seller
master servicer will oversee the will use a portion of the proceeds of
servicing of the mortgage loans by Aames the sale of the mortgage loans to the
Capital Corporation, the servicer. depositor to repay the financing.
See "The Master Servicer," "The TAX STATUS
Servicer" and "Servicing of the Mortgage
Loans" in this prospectus supplement. For federal income tax purposes
the notes will be characterized as debt
OPTIONAL PURCHASE OF THE MORTGAGE LOANS to the extent they are issued to parties
unrelated to the owner of the ownership
Aames Investment Acceptance certificate. Each noteholder that is
Corporation, an affiliate of the seller unrelated to the owner of the ownership
and the servicer, may purchase the certificate, by its acceptance of a
mortgage loans on any payment date note, will agree to treat the notes as
following the month in which the total debt.
principal balance of the mortgage loans
declines to less than 20% of their The trust will be classified as a
initial total principal balance. If taxable mortgage pool. The trust will
Aames Investment Acceptance Corporation not, however, be subject to federal
does not exercise its option to purchase income tax as a corporation as long as
the notes, then the servicer may the ownership certificate is owned
purchase the mortgage loans on any exclusively by a "real estate investment
payment date following the month in trust" or by a "qualified REIT
which the total principal balance of the subsidiary." The seller represents that
mortgage loans declines to less than 10% it qualifies as a "real estate
of their initial total principal investment trust" and that it will own
balance. the ownership certificate directly, or
indirectly through a "qualified REIT
The purchase price paid for the subsidiary." Moreover, the trust
mortgage loans will be equal to the agreement sets forth restrictions on the
total outstanding principal transferability of the ownership
certificate to ensure that it will only
S-6
be held by a "real estate investment STANDARD
trust" or a "qualified REIT subsidiary." MOODY'S & POOR'S
CLASS RATING RATING
----- ------- --------
See "Risk Factors--Trust Could 1A1............................ Aaa AAA
Become a Taxable Entity" in this 1A2............................ Aaa AAA
prospectus supplement and "Material 1A3............................ Aaa AAA
Federal Income Tax Considerations" in 2A1............................ Aaa AAA
this prospectus supplement and in the M1............................. Aa1 AA+
accompanying prospectus for additional M2............................. Aa2 AA+
information concerning the application M3............................. Aa3 AA
of federal income tax laws to the notes. M4............................. A1 AA
M5............................. A2 AA
ERISA CONSIDERATIONS M6............................. N/R AA-
M7............................. Baa1 A+
Under current law, in general, the M8............................. Baa2 A
notes will be eligible for purchase by M9............................. Baa3 A-
an employee benefit plan or other B1............................. Ba1 BBB+
retirement arrangement subject to the B2............................. N/R BBB+
Employee Retirement Income Security Act B3............................. N/R BBB
of 1974, as amended and/or the Internal B4............................. N/R BBB-
Revenue Code of 1986, as amended. You
should consult with your counsel with o These ratings are not
respect to the legal consequences of recommendations to buy, sell or hold
such plan's or arrangement's acquisition these notes. A rating may be changed or
and ownership of the notes. withdrawn at any time by the assigning
rating agency.
See "ERISA Considerations" in this
prospectus supplement and in the o The ratings do not address the
accompanying prospectus for a more possibility that, as a result of
complete discussion of these issues. principal prepayments, the yield on your
notes may be lower than anticipated.
LEGAL INVESTMENT CONSIDERATIONS
o The ratings do not address the
Generally, the notes offered by payment of any basis risk shortfalls
this prospectus supplement (other than with respect to the notes.
the Class M7, M8, M9, B1, B2, B3 and B4
Notes) will constitute "mortgage related See "Ratings" in this prospectus
securities" for purposes of the supplement for a more complete
Secondary Mortgage Market Enhancement discussion of the note ratings.
Act of 1984.
There are other restrictions on
the ability of certain types of
investors to purchase the notes that
prospective investors should also
consider.
See "Legal Investment
Considerations" in this prospectus
supplement.
RATINGS OF THE NOTES
The notes offered by this
prospectus supplement will initially
have the following ratings from Moody's
Investors Service, Inc. and Standard and
Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc. The
designation "N/R" means that a rating
agency will not publicly rate the notes
of that class:
S-7
RISK FACTORS
THE FOLLOWING INFORMATION, WHICH YOU SHOULD CAREFULLY CONSIDER, IDENTIFIES
CERTAIN SIGNIFICANT SOURCES OF RISK ASSOCIATED WITH AN INVESTMENT IN THE NOTES.
MORTGAGE LOANS ORIGINATED ACCORDING The mortgage loans, in general, were originated according to
TO NON-AGENCY UNDERWRITING GUIDELINES MAY underwriting guidelines that do not comply with Fannie Mae or
HAVE HIGHER EXPECTED Freddie Mac guidelines. These types of mortgage loans are
DELINQUENCIES........................... sometimes referred to as "subprime," "non-prime,"
"non-conforming" or "Alt-A" mortgage loans. Whereas "prime" loans
are typically made to borrowers who have a strong credit history
and can demonstrate a capacity to repay their loans, subprime
loans are typically made to borrowers who are perceived as
deficient in either or both of these respects. The borrowers may
have imperfect credit histories, ranging from minor delinquencies
to bankruptcy, or relatively high ratios of monthly mortgage
payments to income or relatively high ratios of total monthly
credit payments to income. While lenders consider a borrower's
credit history when determining whether a loan is other than
prime, they also consider the mortgage loan characteristics, such
as loan-to-value ratio, or attributes of the property that may
cause the loan to carry elevated credit risk.
Compared with prime loans, subprime loans typically have higher
loan-to-value ratios, reflecting the greater difficulty that
subprime borrowers have in making down payments and the
propensity of these borrowers to extract equity during
refinancing. Historically, subprime borrowers pay higher rates of
interest, go into delinquency and bankruptcy more often, and have
their properties foreclosed at a higher rate than either prime
borrowers or borrowers of mortgage loans originated in accordance
with Fannie Mae or Freddie Mac guidelines.
A significant portion of the mortgage loans in the trust may have
been classified in these relatively low (i.e., relatively higher
risk) credit categories.
Rising unemployment, higher interest rates, or a decline in
housing prices generally or in certain regions of the United
States may have a greater effect on the delinquency, foreclosure,
bankruptcy and loss experience of subprime mortgage loans and
other mortgage loans of relatively low credit quality than on
mortgage loans originated under stricter guidelines. We cannot
assure you that the values of the mortgaged properties have
remained or will remain at levels in effect on the dates of
origination of the related mortgage loans. These risks are
magnified with respect to adjustable rate mortgage loans. See
"--Changes in U.S. Economic Conditions May Adversely Affect the
Performance of Mortgage Loans, Particularly Adjustable Rate Loans
of Various Types" for a discussion of risks related to economic
conditions generally and adjustable rate mortgage loans.
See "Description of the Mortgage Pool--General" in this
prospectus supplement for a description of the characteristics of
S-8
the mortgage loans in the mortgage pool and "The Seller and the
Underwriting Guidelines" for a general description of the
underwriting guidelines applied in originating the mortgage loans.
CHANGES IN U.S. ECONOMIC CONDITIONS Approximately [_____]% of all of the mortgage loans and
MAY ADVERSELY AFFECT THE PERFORMANCE approximately [_____]% and [_____]% of the pool 1 and pool 2
OF MORTGAGE LOANS, PARTICULARLY mortgage loans, respectively, are adjustable rate mortgage loans,
ADJUSTABLE RATE LOANS OF which present special default and prepayment risks. In addition,
VARIOUS TYPES........................... approximately [_____]% of the mortgage loans in the trust fund
and approximately [_____]% and [_____]% of the pool 1 and pool 2
mortgage loans, respectively, are "interest-only" mortgage loans,
which provide for payment of interest at the related mortgage
rate, but no payment of principal, for the period specified in
the related mortgage note; thereafter, the monthly payment is
increased to an amount sufficient to amortize the principal
balance of the mortgage loan over the remaining term and to pay
interest at the applicable mortgage rate.
Because the initial monthly mortgage loan payments on these types
of loans can be significantly lower than fixed rate or level pay
mortgage loans under which the borrower pays both principal and
interest at an interest rate fixed for the life of the mortgage
loan, many borrowers may have been able to incur substantially
greater mortgage debt using one of these adjustable rate mortgage
loan products than if they had used a level-pay, fixed rate
mortgage loan.
These borrowers may have taken out these mortgage loan products
in the expectation that either (1) their income will rise by the
time their interest-only period expires, thus enabling them to
make the higher monthly payments, or (2) in an appreciating real
estate market, they will be able to sell their property for a
higher price or will be able to refinance the mortgage loan
before the expiration of the interest-only period.
The borrowers will likely be exposed to increased monthly
payments, subject to any periodic caps on rate adjustments, (1)
when the mortgage rate adjusts upward from a low introductory
rate to the rate computed in accordance with the applicable index
and margin, (2) if interest rates rise significantly or (3) in
the case of interest-only mortgage loans, from the large
increases in monthly payments when the interest-only terms expire
and the monthly payments on these loans are recalculated to
amortize the outstanding principal balance over the remaining
term.
When evaluating a mortgage loan application from a prospective
borrower for an adjustable rate or interest-only mortgage loan,
the originators may have determined the amount of loan that
borrower can afford based on the borrower's initial scheduled
monthly payments, or the scheduled monthly payments on the first
mortgage rate reset date, rather than based on the adjusted
S-9
monthly payments as of future mortgage rate reset dates or the
principal amortization date (in the case of interest-only
mortgage loans). The mortgage loan characteristics set forth in
this prospectus supplement reflect the scheduled mortgage loan
payments due or being made as of the cut-off date, and do not
reflect the mortgage loan payment resets that will occur during
the life of the mortgage loan. These origination practices may
increase the sensitivity of mortgage loan performance and
defaults to changes in U.S. economic conditions.
In recent years, mortgage rates have been at historically low
levels. Although short-term interest rates have increased from
their lowest levels, long-term interest rates have remained low.
If mortgage rates rise, the borrowers will experience increased
monthly payments on their loans and may find that the new minimum
monthly payments are considerably higher and they may not be able
to make those payments.
In addition, without regard to changes in interest rates, the
monthly payments on mortgage loans with interest-only features
will increase substantially when the interest-only period ends.
Any of these factors, or a combination of these factors, could
cause defaults on the mortgage loans to increase substantially.
Borrowers who intend to avoid increased monthly payments by
refinancing their mortgage loans may find that lenders may not in
the future be willing or able to offer these adjustable rate
mortgage loan products, or to offer these products at relatively
low interest rates. A decline in housing prices generally or in
certain regions of the United States could also leave the
borrowers with insufficient equity in their homes to permit them
to refinance.
Interest-only mortgage loans have only been originated in any
significant numbers in relatively recent years. Consequently,
there is no material statistical information showing payment and
default trends under a variety of macroeconomic conditions. In
particular, it is unclear how interest-only mortgage loans will
perform in a declining housing market or under other negative
macroeconomic conditions.
See "-- Mortgage Loans with Interest-Only Payments" for further
discussion of mortgage loans with interest-only features.
MORTGAGE LOAN INTEREST RATES MAY LIMIT
INTEREST RATES ON THE NOTES............. The notes will accrue interest at interest rates based on the
one-month LIBOR index plus a specified margin. The applicable
net funds cap, which for any class of notes is a limitation
generally based on the net mortgage rates of the related mortgage
loans, will limit the interest rates on the notes
All of the mortgage loans to be included in each pool will have
interest rates that adjust based on a six-month LIBOR index, as
S-10
described in "Description of the Mortgage Pools--The Index." The
mortgage loans in each pool may also have periodic maximum and
minimum limitations on adjustments to their interest rates, and
substantially all of the mortgage loans will have the first
adjustment to their interest rates two, three or five years after
their first payment dates. If as a result of those factors, or
due to delinquencies in payment, the interest rates are limited
by the applicable net funds cap, the notes may accrue less
interest than they would accrue if their interest rates were
solely based on the one-month LIBOR index plus the specified
margin.
The interest rates on the notes are also subject to a fixed rate
cap. The fixed rate cap limits the interest rate on those notes
to a maximum per annum rate of [_____]%. If the interest rate
for a class of notes for a payment date is limited to the fixed
rate cap, the market value of those notes may be temporarily or
permanently reduced.
A variety of factors could limit the interest rates and adversely
affect the yields to maturity on the notes. Some of these
factors are described below.
o The interest rates on the notes adjust monthly based on
one-month LIBOR, while the interest rates on the mortgage
loans to be included in each pool adjust less frequently,
adjust based on a different index and do not adjust at all
for a period of time. Consequently, the limits on the
interest rates on the notes may prevent increases in these
interest rates for extended periods in a rising interest
rate environment.
o The interest rates on the adjustable rate mortgage loans
may respond to economic and market factors that differ from
those that affect one-month LIBOR. It is possible that the
interest rates on the adjustable rate mortgage loans may
decline while the interest rates on the notes are stable or
rising. It is also possible that the interest rates on the
mortgage loans and the interest rates on the notes may both
decline or increase during the same period, but that the
interest rate on the notes may decline or increase more
slowly or rapidly.
o To the extent that mortgage loans are delinquent in payment
or subject to default or prepayment, the interest rates on
the notes may be reduced as a result of the applicable net
funds cap limitation described in this prospectus
supplement.
If the interest rates on the notes are limited for any payment
date, the resulting basis risk shortfalls may be recovered by
the holders of those notes on future payment dates, but only if
there is enough cashflow generated from excess interest on the
mortgage loans to fund these shortfalls or payments are received
under the applicable interest rate cap agreement to cover these
shortfalls.
S-11
See "Summary of Terms--The Offered Notes--Payments on the
Notes--Interest Payments," "Description of the Notes--Payments of
Interest" and "--Credit Enhancement--Overcollateralization" in this
prospectus supplement. For a general description of the interest
rates of the mortgage loans, see "Description of the Mortgage
Pools" in this prospectus supplement..
POTENTIAL INADEQUACY OF CREDIT ENHANCEMENT.
The notes are not insured by any financial guaranty insurance
policy. The excess interest, overcollateralization,
subordination and limited cross-collateralization features
described in this prospectus supplement are intended to enhance
the likelihood that holders of more senior classes will receive
regular payments of interest and principal, but are limited in
nature and may be insufficient to cover all shortfalls and all
losses on the mortgage loans.
EXCESS INTEREST AND OVERCOLLATERALIZATION. In order to maintain
overcollateralization, it will be necessary that the mortgage loans in each pool
generate more interest than is needed to pay interest on the related notes as
well as that pool's allocable portion of fees and expenses of the trust. We
expect that the mortgage loans will generate more interest than is needed to pay
those amounts, at least during certain periods, because the weighted average of
the net interest rates on the mortgage loans in each pool is expected to be
higher than the weighted average of the interest rates on the related notes. Any
remaining interest generated by the mortgage loans will be used, if necessary on
any payment date, to absorb losses on the mortgage loans and maintain
overcollateralization.
On the closing date, the total principal balance of the mortgage loans in the
trust as of the cut-off date will exceed the total principal amount of the notes.
This excess is referred to herein as "overcollateralization" and will be
available to absorb losses. We cannot assure you, however, that the mortgage
loans will generate enough excess interest in all periods to maintain the
overcollateralization level required by the rating agencies. The following
factors will affect the amount of excess interest that the mortgage loans will
generate:
o Prepayments. Every time a mortgage loan is prepaid in whole or in part, total
excess interest after the date of prepayment will be reduced because that
mortgage loan will no longer be outstanding and generating interest or, in the
case of a partial prepayment, will be generating less interest. The effect on
your notes of this reduction will be influenced by the amount of prepaid loans
and the characteristics of the prepaid loans. Prepayment of a
disproportionately high number of high interest rate mortgage loans would have a
greater negative effect on future excess interest.
S-12
o Defaults, Delinquencies and Liquidations. If the rates of delinquencies,
defaults or losses on the mortgage loans turn out to be higher than expected,
excess interest will be reduced by the amount necessary to compensate for any
shortfalls in cash available to pay noteholders. Every time a mortgage loan is
liquidated or written off, excess interest is reduced because that mortgage loan
will no longer be outstanding and generating interest.
o Increases in LIBOR. All of the mortgage loans have interest rates that adjust
based on a six-month LIBOR index and not the one-month LIBOR index used to
determine the interest rates on the notes. As a result of an increase in
one-month LIBOR, the interest rates on these notes may increase relative to
interest rates on the mortgage loans, requiring that more of the interest
generated by the mortgage loans be applied to cover interest on these notes,
which will accordingly reduce the amount of excess interest.
See "Description of the Notes--Credit Enhancement-- Overcollateralization" in this
prospectus supplement.
SUBORDINATION. If applicable subordination is insufficient to absorb realized losses on
the mortgage loans, then noteholders will likely incur losses and may never receive all
of their principal or interest payments. You should consider the following:
o if you buy a note with a B in its class designation and losses on the mortgage
loans exceed excess interest and any overcollateralization that has been
created, plus the total principal amount of the other classes of notes with a B
in their designation, if any, that have a higher number in their designation
than your note, your note will incur a principal deficiency; although the
principal deficiency will not reduce the principal amount of your note, interest
accrued on the amount of the principal deficiency and the portion of the note
principal amount represented by the principal deficiency will not be repaid
unless future amounts of excess interest are available to pay it; and
o if you buy a note with an M in its class designation and losses on the mortgage
loans exceed excess interest and any overcollateralization that has been
created, plus the total principal amount of the notes with a B in their class
designation and the total principal amount of the notes with an M in their class
designation, if any, that have a higher number in their designation than your
note, your note will incur a principal deficiency; although the principal
deficiency will not reduce the principal amount of your note, interest accrued
on the amount of the principal deficiency and the portion of the note principal
amount represented by the principal deficiency will not be repaid unless future
amounts of excess interest are available to pay it; and
S-13
o if you buy a senior note and losses on the mortgage loans exceed excess interest
and any overcollateralization that has been created, plus the total principal
amount of the subordinate notes, holders of those senior notes may not recover
their full investment.
The amount of interest accrued on the portion of the balance of the notes in
excess of the balance of the mortgage loans will be deferred and this deferral
will be allocated to the classes of subordinate notes in reverse order of
priority. The amount of interest so deferred will be paid only after certain
other payments are made from excess interest to restore overcollateralization and
to pay basis risk shortfalls to the notes. Investors should consider the risks
associated with an investment in the subordinate notes, including the possibility
that investors may not fully recover their initial investment as a result of
realized losses.
See "Description of the Notes--Credit Enhancement--Subordination" in this prospectus
supplement.
LIMITED CROSS-COLLATERALIZATION. If you buy a senior note, your principal
payments will depend, for the most part, on collections on the mortgage loans in
the pool that relates to your class of notes. However, your notes will have the
benefit of credit enhancement in the form of overcollateralization and
subordination from the other pool. That means that even if the rate of losses on
mortgage loans in the pool that relates to your class of notes is low, losses in
the other pool may reduce the loss protection for your notes.
MORTGAGE LOANS WITH INTEREST-ONLY
PAYMENTS. ............................. Approximately [_____]% of all of the mortgage loans and
approximately [_____]% and [____]% of the mortgage loans to be
included in pool 1 and pool 2, respectively, provide for payment
of interest at the related mortgage interest rate, but no payment
of principal, for the first five years following the origination
of the mortgage loan. Following this interest-only period, the
monthly payment with respect to each of these mortgage loans
will be increased to an amount sufficient to amortize the
principal balance of the mortgage loan over the remaining term
and to pay interest at the related mortgage interest rate. The
presence of these mortgage loans in pool 1 and pool 2 will,
absent other considerations, result in longer weighted average
lives of the related notes than would have been the case had
these loans not been included in the trust. If you purchase such
a note at a discount, you should consider that the extension of
weighted average life could result in a lower yield than would be
the case if these mortgage loans provided for the payment of
principal and interest on every payment date. In addition, a
borrower may view the absence of any obligation to make payment
of principal during the initial period as a disincentive to
prepayment. If a recalculated monthly payment as described above
is substantially higher than a borrower's previous interest-only
monthly payment, that loan may be subject to an increased risk of
delinquency and loss.
S-14
SPECIAL DEFAULT RISK OF SECOND LIEN MORTGAGE Approximately [_____]% of all of the mortgage loans, and
LOANS.................................. approximately [_____]% and [_____]% of the pool 1 and pool 2
mortgage loans, respectively, are secured by second liens on the
related mortgaged properties. These second lien mortgage loans
are subordinate to the related first lien mortgage loans and may
present special risks upon default.
UNPREDICTABILITY AND EFFECT OF
PREPAYMENTS. ............................. The rate of prepayments on the mortgage loans will be sensitive
to prevailing interest rates. Generally, if prevailing interest
rates decline, mortgage loan prepayments may increase due to the
availability of refinancing at lower interest rates. If
prevailing interest rates rise, prepayments on the mortgage loans
may decrease.
Borrowers may prepay their mortgage loans in whole or in part at
any time; however, approximately [_____]% of all of the mortgage
loans, and approximately [_____]% and [_____]% of the mortgage
loans to be included in pool 1 and pool 2, respectively, require
the payment of a prepayment premium in connection with any
voluntary prepayments in full, and certain voluntary prepayments
in part, made during periods ranging from one year to three years
after origination. These prepayment premiums may discourage
borrowers from prepaying their mortgage loans during the
applicable period.
The mortgage loans are adjustable-rate mortgage loans,
substantially all of which have a fixed interest rate for the
first two, three or five years after origination, which then
convert to an adjustable interest rate. This type of
adjustable-rate mortgage loan is commonly referred to as a hybrid
ARM mortgage loan. The prepayment experience on adjustable-rate
mortgage loans may differ from the prepayment experience on
fixed-rate mortgage loans due to provisions for conversion to an
adjustable mortgage interest rate, periodic rate caps and a
minimum and maximum mortgage interest rate. In particular,
hybrid ARM mortgage loans may be subject to higher prepayment
rates as the date on which they are scheduled to start accruing
interest at an adjustable rate approaches. As a hybrid ARM
mortgage loan approaches its initial adjustment date, the
borrower may become more likely to refinance that loan to avoid
an increase in the loan rate, even if prevailing fixed rate
mortgage loans are only available at rates that are slightly
higher than the mortgage interest rate before adjustment.
The timing of payments of principal on the notes may also be
affected by liquidations of or insurance payments on the mortgage
loans. In addition, Aames Investment Corporation, as the seller
of the mortgage loans to the depositor, may be required to
purchase mortgage loans from the trust in the event that certain
breaches of representations and warranties made with respect to
the mortgage loans are not cured. These purchases will have the
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same effect on noteholders as prepayments in full of the affected
mortgage loans.
A prepayment of a mortgage loan will usually result in a payment
of principal on the notes:
If you purchase your notes at a discount and principal
is repaid slower than you anticipate, then your yield may be
lower than you anticipate.
If you purchase your notes at a premium and principal is
repaid faster than you anticipate, then your yield may be lower
than you anticipate.
The prepayment experience of the mortgage loans may differ
significantly from that of other first lien residential mortgage
loans included in the servicer's portfolios.
See "Yield, Prepayment and Weighted Average Life" in this
prospectus supplement for a description of factors that may
influence the rate and timing of prepayments on the mortgage
loans.
DELAY IN RECEIPT OF LIQUIDATION PROCEEDS;
LIQUIDATION PROCEEDS MAY BE LESS THAN
MORTGAGE LOAN BALANCE.................. Substantial delays could be encountered in connection with the
liquidation of delinquent mortgage loans. Further, reimbursement
of advances made by the servicer and liquidation expenses such as
legal fees, real estate taxes and maintenance and preservation
expenses may reduce the amount of liquidation proceeds payable to
noteholders. If a mortgaged property fails to provide adequate
security for the related mortgage loan, you could incur a loss on
your investment if the applicable credit enhancement is
insufficient to cover the loss.
MORTGAGE LOANS WITH HIGH ORIGINAL Approximately [_____]% of all of the mortgage loans, and
COMBINED LOAN-TO-VALUE RATIOS MAY approximately [_____]% and [_____]% of the pool 1 and pool 2
PRESENT A GREATER RISK OF LOSS........ mortgage loans, respectively, have original combined
loan-to-value ratios of greater than 80%. Mortgage loans with
high combined loan-to-value ratios, particularly those in excess
of 100%, may be more likely to experience default and foreclosure
than mortgage loans with low original combined loan-to-value
ratios.
GEOGRAPHIC CONCENTRATION OF MORTGAGE
LOANS. ................................... Approximately [_____]% and [_____]% of all of the mortgage loans
are secured by properties located in California and Florida,
respectively. The rate of delinquencies, defaults and losses on
the mortgage loans may be higher than if fewer of the mortgage
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loans were concentrated in those states because the following
conditions will have a disproportionate impact on the mortgage
loans in general:
o Weak economic conditions in California or Florida, which may or may not affect
real property values, may affect the ability of borrowers to repay their loans
on time.
o Declines in the residential real estate market in California or Florida may
reduce the values of properties located in those states, which would result in
an increase in the loan-to-value ratios.
o Properties in California and Florida may be more susceptible than homes located
in other parts of the country to certain types of uninsurable hazards, such as
earthquakes, as well as hurricanes, floods, wildfires, mudslides and other
natural disasters.
Natural disasters affect regions of the United States from time to time, and may result
in increased losses on mortgage loans in those regions, or in insurance payments that
will constitute prepayments of principal of those mortgage loans. Properties in
California may have been damaged by recent mudslides.
Properties located in certain parts of the United States, particularly certain
parts of Alabama, Louisiana and Mississippi, may have been damaged by Hurricane
Katrina, which caused extensive damage in affected areas. Approximately [_____]%
and [_____]% of the pool 1 and pool 2 mortgage loans, respectively, are secured
by properties located in these states. Additionally, approximately [_____]% and
[_____]% of the pool 1 and pool 2 mortgage loans, respectively, are secured by
properties located in the Florida counties of Broward, Miami-Dade and Monroe,
which have been designated as disaster areas by the Federal Emergency Management
Agency. We do not know how many mortgaged properties have been affected by
Hurricane Katrina, and no assurance can be given as to the effect of this storm
on the rate of delinquencies and losses on any mortgage loans secured by
mortgaged properties which were damaged by Hurricane Katrina. The seller will be
obligated to repurchase any mortgage loan if the related property incurred
material damage prior to the closing date and this damage had a material adverse
affect on the interest of noteholders in the mortgage loan
For additional information regarding the geographic concentration of the mortgage loans
to be included in each mortgage pool, see the geographic distribution table in Annex B
of this prospectus supplement.
VIOLATION OF PREDATORY LENDING LAWS MAY
RESULT IN LOSSES....................... Various federal and state laws are designed to discourage
predatory lending practices. The federal Home Ownership and
Equity Protection Act of 1994, commonly known as HOEPA,
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prohibits inclusion of some provisions in mortgage loans that have mortgage
rates or origination costs in excess of prescribed levels, and requires that
borrowers be given certain disclosures prior to the consummation of these
mortgage loans. Some states have enacted, or may enact, similar laws or
regulations, which in some cases impose restrictions and requirements
greater than those in HOEPA. Under the anti-predatory lending laws of some
states, the origination of a mortgage loan must satisfy a net tangible
benefits test with respect to the related borrower. The test may be highly
subjective and open to interpretation. As a result, a court may determine
that a mortgage loan does not meet the test even if the originator
reasonably believed that the test was satisfied.
Failure to comply with these laws, to the extent applicable to any of the mortgage
loans, could subject the trust, as an assignee of the mortgage loans, to monetary
penalties and could result in the borrowers rescinding these mortgage loans against
the trust. Lawsuits have been brought in various states making claims against
assignees of high cost loans for violations of state law. Named defendants in these
cases have included numerous participants within the secondary mortgage market
including some securitization trusts.
Aames Investment Corporation, as seller, will represent in the mortgage loan purchase
agreement described in this prospectus supplement that the mortgage loans are not "high
cost" loans within the meaning of HOEPA or any other applicable local, state or federal
anti-predatory or anti-abusive lending laws. However, if the trust should include high
cost loans, it will have repurchase remedies against the seller.
See "The Mortgage Loan Purchase Agreement and the Transfer and Servicing
Agreement--Assignment of Mortgage Loans" in this prospectus supplement.
AAMES FINANCIAL CORPORATION IS SUBJECT TO
CLASS ACTION LITIGATION AND INVESTIGATIONS
BY GOVERNMENTAL AGENCIES, THE UNFAVORABLE
OUTCOME OF WHICH COULD ADVERSELY AFFECT
THE SELLER'S OR THE SERVICER'S BUSINESS .... On April 27, 2004, Aames Financial Corporation, a wholly-owned
subsidiary of Aames Investment Corporation, and Aames Capital
Corporation's parent, received a civil investigative demand, or
CID, from the Federal Trade Commission, or FTC, that, although
not alleging any wrongdoing, sought documents and data relating
to Aames Financial Corporation's business and lending practices.
The CID was issued pursuant to an April 8, 2004 resolution of the
FTC authorizing non-public investigations of various unnamed
subprime lenders and loan brokers to determine whether there have
been violations of certain consumer protection laws. Aames
Financial Corporation has advised the Depositor that it has
cooperated and intends to continue to cooperate fully with the
FTC in this investigation. Because the investigation is at an
early stage, the outcome of the investigation
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and its effect, if any, on Aames Investment Corporation, Aames Financial
Corporation and Aames Capital Corporation cannot be predicted.
On September 7, 2004, Aames Financial Corporation received a Civil Investigative
Demand and Notice to Proceed from the Office of the Attorney General of Iowa
that, although not alleging any wrongdoing, sought documents and data relating to
Aames Financial Corporation's business and lending practices in Iowa. Aames
Financial Corporation has advised the Depositor that it has cooperated and
intends to continue to cooperate fully with the Office of the Attorney General of
Iowa in this investigation. Because the investigation is at an early stage, Aames
Investment Corporation cannot predict the outcome of the investigation and its
effect, if any on Aames Financial Corporation's business in Iowa or on Aames
Investment Corporation or Aames Capital Corporation. Approximately [ ]% of the
initial mortgage loans, by aggregate principal balance, are secured by mortgaged
properties located in Iowa.
In the ordinary course of business, Aames Investment Corporation and its subsidiaries
are defendants in or parties to a variety of legal actions. Certain of such actions
involve claims relating to their origination and collection efforts, alleged violations
of employment laws, unfair trade practices, and other federal and state laws. In the
opinion of Aames Investment Corporation, the resolution of any of these pending
incidental matters is not expected to have a material adverse effect on Aames
Investment Corporation's operations.
MILITARY ACTION AND TERRORIST ATTACKS...... The effects that military action by U.S. forces in Iraq,
Afghanistan or other regions, terrorist attacks in the United
States or other incidents and related military action may have on
the performance of the mortgage loans or on the values of
mortgaged properties cannot be determined at this time.
Investors should consider the possible effects on delinquency,
default and prepayment experience of the mortgage loans. Federal
agencies and non-government lenders may defer, reduce or forgive
payments and delay foreclosure proceedings in respect of loans to
borrowers affected in some way by possible future events. In
addition, the activation of additional U.S. military reservists
or members of the National Guard may significantly increase the
proportion of mortgage loans whose mortgage rates are reduced by
application of the Servicemembers Civil Relief Act or similar
state or local laws. The amount of interest available for
payment to the holders of the notes will be reduced by any
reductions in the amount of collectible as a result of
application of the Servicemembers Civil Relief Act or similar
state or local laws and none of the servicer, the master servicer
or any other party will be required to fund any interest
shortfall caused by any reduction.
MORTGAGE LOANS ORIGINATED PURSUANT TO STATED
INCOME DOCUMENTATION PROGRAMS MAY HAVE A
GREATER RISK OF DEFAULT................ Approximately [_____]% of the mortgage loans in the trust, and
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approximately [_____]% and [_____]% of the pool 1 and pool 2
mortgage loans, respectively, were originated pursuant to stated
income documentation programs. Unlike full documentation
programs, borrowers' income is not subject to verification under
stated income programs. Therefore, stated income documentation
mortgage loans may involve a greater risk of default than full
documentation mortgage loans with income verification.
LIMITED ABILITY TO RESELL NOTES............ The underwriters are not required to assist in resales of the
notes, although any of them may do so. A secondary market for
any class of notes may not develop. If a secondary market does
develop, it might not continue or it might not be sufficiently
liquid to allow you to resell any of your notes.
TRUST COULD BECOME A TAXABLE ENTITY........ For U.S. federal income tax purposes, the trust will be a
taxable mortgage pool. As long as the sole class of equity
interest in a taxable mortgage pool is held, directly or
indirectly, through one or more wholly owned "qualified REIT
subsidiaries" or by an entity that qualifies as a "real estate
investment trust" under the rules set out in the Internal Revenue
Code of 1986, as amended, the taxable mortgage pool will not be
subject to federal income tax. The seller will hold through
Aames Investment Acceptance Corporation, its direct wholly owned
qualified REIT subsidiary, a 100% ownership interest in the
ownership certificate. The seller will represent that it
qualifies as a real estate investment trust and that it will not
undertake any action that would cause the trust to be subject to
federal income tax. Under the terms of the trust agreement, the
ownership certificate may be transferred only to an entity that
qualifies as either a "real estate investment trust" or a
"qualified REIT subsidiary." The provisions of the Internal
Revenue Code pertaining to real estate investment trusts are,
however, highly technical and complex. If the seller were to
fail to qualify as a real estate investment trust, or if the
seller were to transfer the ownership certificate to an entity
that did not qualify as a real estate investment trust or a
qualified REIT subsidiary, the trust could become subject to
federal income tax as though it were a corporation. Any tax
imposed on the trust would reduce cash flow that would be used to
make payments on the notes and could cause losses which could
adversely affect the notes, in particular the subordinate notes.
The failure of the holder of the ownership certificate to qualify
as a real estate investment trust or a qualified REIT subsidiary
would constitute an event of default under the indenture.
See "Material Federal Income Tax Considerations" and "Description of the
Notes--Optional Purchase of the Mortgage Loans" in this prospectus supplement.
S-20
DESCRIPTION OF THE NOTES
GENERAL
Aames Mortgage Investment Trust 20___-__ (the "Trust") Mortgage Backed
Notes will consist of the Class 1A1, Class 1A2, Class 1A3, Class 2A1, Class M1,
Class M2, Class M3, Class M4, Class M5, Class M6, Class M7, Class M8, Class M9,
Class B1, Class B2, Class B3 and Class B4 Notes (the "Notes"). The Class 1A1,
Class 1A2, Class 1A3 and Class 2A1 Notes are referred to herein as the "Senior
Notes". The Class 1A1, Class 1A2 and Class 1A3 Notes are referred to herein as
the "Group 1 Notes." The Class M1, Class M2, Class M3, Class M4, Class M5, Class
M6, Class M7, Class M8, Class M9, Class B1, Class B2, Class B3 and Class B4
Notes are collectively referred to herein as the "Subordinate Notes."
The Notes represent obligations of the Trust, the assets of which consist
primarily of (1) two pools ("Pool 1" and "Pool 2," respectively, and each a
"Mortgage Pool") of conventional, adjustable rate, fully amortizing, first lien
residential mortgage loans (the "Mortgage Loans"), (2) such assets as from time
to time are deposited in respect of the Mortgage Loans in an account maintained
by the Servicer (the "Custodial Account"), (3) property acquired by foreclosure
of Mortgage Loans or deed in lieu of foreclosure, (4) insurance policies
covering certain of the Mortgage Loans or the related Mortgaged Properties, (5)
the rights of Aames Capital Acceptance Corp. as depositor (the "Depositor")
under the Mortgage Loan Purchase Agreement, as described under "The Mortgage
Loan Purchase Agreement and the Transfer and Servicing Agreement--Assignment of
Mortgage Loans," (6) the Group 1 Cap Agreement, as described under "--Payments
of Interest--The Cap Agreements--The Group 1 Cap Agreement," (7) the Group 2 Cap
Agreement, as described under "--Payments of Interest--The Cap Agreements--The
Group 2 Cap Agreement," (8) the Subordinate Cap Agreement, as described under
"--Payments of Interest--The Cap Agreements--The Subordinate Cap Agreement" and
(9) all proceeds of the foregoing.
The Mortgage Loans to be included in the Trust will bear interest at rates
that adjust in accordance with the Six-Month LIBOR Index (as defined herein), as
described under "Description of the Mortgage Pools--The Index." Pool 1 will
consist of Mortgage Loans with original principal balances which may be less
than, equal to, or in excess of the applicable Freddie Mac maximum original loan
amount limitations for one- to four-family residential Mortgaged Properties.
Pool 2 will consist only of those Mortgage Loans with original principal
balances which do not exceed those loan amount limitations.
Each class of Notes will be issued in the respective approximate initial
total principal amount specified in the table on page S-[_] of this prospectus
supplement. The initial aggregate Class Principal Amount (as defined herein) of
the Notes may be increased or decreased by up to five percent to the extent that
the Cut-off Date Balance (as defined herein) of the Mortgage Loans is
correspondingly increased or decreased as described under "Description of the
Mortgage Pools" herein.
For purposes of allocating payments of principal and interest on the
Senior Notes, (a) the Class 1A1, Class 1A2 and Class 1A3 Notes will relate to,
and generally will be limited to collections from, the Mortgage Loans in Pool 1
and (b) the Class 2A1 Notes will relate to, and generally be limited to
collections from, the Mortgage Loans in Pool 2. However, holders of each such
class will receive the benefit of Monthly Excess Cashflow (as defined herein)
generated by each Mortgage Pool and, to a limited extent, certain principal
payments generated by the Mortgage Pool unrelated to that class. Holders of
Subordinate Notes will be entitled to receive payments of principal and interest
based upon collections from each Mortgage Pool, but such rights to payments will
be subordinate to the rights of the holders of the Senior Notes to the extent
described herein.
The equity ownership in the Trust will be evidenced by an ownership
certificate issued pursuant to the Trust Agreement (the "Ownership
Certificate"). The holder of the Ownership Certificate (the "Ownership
Certificateholder") will be entitled to receive on each Payment Date (1) any
cash flow from Mortgage Loan collections attributable to Prepayment Premiums (as
defined herein) on the Mortgage Loans and (2) any remaining excess cash flow
from Mortgage Loan collections after all principal and interest on the Notes and
expenses of the Trust for such Payment Date have been made.
S-21
Payments on the Notes will be made on the 25th day of each month or, if
the 25th day is not a Business Day, on the next succeeding Business Day,
beginning in [Month] 20___ (each, a "Payment Date"), to Noteholders of record on
the applicable Record Date. The "Record Date" for the Notes and each Payment
Date will be the close of business on the Business Day immediately preceding
such Payment Date. A "Business Day" is generally any day other than a Saturday
or Sunday or a day on which banks in New York, Maryland, Minnesota, California
or Delaware are closed.
Payments on the Notes will be made to each registered holder entitled
thereto by wire transfer in immediately available funds; provided that the final
payment in respect of any Note will be made only upon presentation and surrender
of such Note at the Corporate Trust Office (as defined herein) of the Trust
Administrator. See "--Reports to Noteholders" herein.
The Notes will be issued, maintained and transferred on the book-entry
records of The Depository Trust Company ("DTC") and its Participants (as defined
herein) and for such purpose are referred to as "Book-Entry Notes." The Senior
Notes will be issued in minimum denominations in principal amount of $25,000 and
integral multiples of $1 in excess thereof. The Subordinate Notes will be issued
in minimum denominations in principal amount of $100,000 and integral multiples
of $1 in excess thereof.
Each class of Book-Entry Notes will be represented by one or more global
notes that equal in the aggregate the initial Class Principal Amount of the
related class registered in the name of the nominee of DTC. The Depositor has
been informed by DTC that DTC's nominee will be Cede & Co. No person acquiring
an interest in a Book-Entry Note will be entitled to receive a physical note
representing such person's interest (a "Definitive Note"), except as set forth
below under "--Book-Entry Registration--Definitive Notes." Unless and until
Definitive Notes are issued for the Book-Entry Notes under the limited
circumstances described herein, all references to actions by Noteholders with
respect to the Book-Entry Notes shall refer to actions taken by DTC upon
instructions from its Participants, and all references herein to payments,
notices, reports and statements to Noteholders with respect to the Book-Entry
Notes shall refer to payments, notices, reports and statements to DTC or Cede &
Co., as the registered holder of the Book-Entry Notes, for payment to Beneficial
Owners by DTC in accordance with DTC procedures.
BOOK-ENTRY REGISTRATION
GENERAL. Persons acquiring beneficial ownership interests in the
Book-Entry Notes (each, a "Beneficial Owner") will hold their Notes through DTC
in the United States, or Clearstream Banking Luxembourg ("Clearstream
Luxembourg") or the Euroclear System ("Euroclear") in Europe if they are
participants of such systems, or indirectly through organizations which are
participants in such systems. Each class of Book-Entry Notes will be issued in
one or more notes that equal the initial Class Principal Amount of the related
class of Notes and will initially be registered in the name of Cede & Co., the
nominee of DTC. Clearstream Luxembourg and Euroclear will hold omnibus positions
on behalf of their participants through customers' securities accounts in
Clearstream Luxembourg'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. [DEPOSITARY] generally,
but not exclusively, will act as depositary for Clearstream Luxembourg and
[DEPOSITARY] generally, but not exclusively, will act as depositary for
Euroclear (in such capacities, individually the "Relevant Depositary" and
collectively, the "European Depositaries"). Except as described below, no
Beneficial Owner will be entitled to receive a physical note representing such
Note. Unless and until Definitive Notes are issued, it is anticipated that the
only "Noteholder" of the Book-Entry Notes will be Cede & Co., as nominee of DTC.
Beneficial Owners will not be Noteholders as that term is used in the Indenture.
Beneficial Owners are only permitted to exercise their rights indirectly through
Participants and DTC.
The Beneficial Owner's ownership of a Book-Entry Note 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 Note will be recorded on the records of DTC (or of
a participating firm (a "Participant") that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Beneficial
S-22
Owner's Financial Intermediary is not a DTC Participant and on the records of
Clearstream Luxembourg or Euroclear, as appropriate).
Beneficial Owners will receive all payments of principal of, and interest
on, the Book-Entry Notes from the Trust Administrator (as defined herein)
through DTC and DTC participants. While the Notes 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 Book-Entry Notes and is required to receive and transmit payments
of principal of, and interest on, the Book-Entry Notes. Participants and
indirect participants with whom Beneficial Owners have accounts with respect to
Book-Entry Notes are similarly required to make book-entry transfers and receive
and transmit such payments on behalf of their respective Beneficial Owners.
Accordingly, although Beneficial Owners will not possess notes, the Rules
provide a mechanism by which Beneficial Owners will receive payments and will be
able to transfer their interest.
Beneficial Owners will not receive or be entitled to receive notes
representing their respective interests in the Book-Entry Notes, except under
the limited circumstances described below. Unless and until Definitive Notes are
issued, Beneficial Owners who are not Participants may transfer ownership of
Book-Entry Notes only through Participants and indirect participants by
instructing such Participants and indirect participants to transfer Book-Entry
Notes, by book-entry transfer, through DTC for the account of the purchasers of
such Book-Entry Notes, which account is maintained with their respective
Participants. Under the Rules and in accordance with DTC's normal procedures,
transfer of ownership of Book-Entry Notes 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 Beneficial Owners.
Because of time zone differences, credits of securities received in
Clearstream Luxembourg 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 Clearstream Luxembourg Participants on such
business day. Cash received in Clearstream Luxembourg or Euroclear as a result
of sales of securities by or through a Clearstream Luxembourg 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 Clearstream Luxembourg or Euroclear cash account only
as of the business day following settlement in DTC. For information with respect
to tax documentation procedures relating to the Book-Entry Notes, see "Material
Federal Income Tax Considerations--Taxation of Debt Securities" and "--Tax
Treatment of Foreign Investors" in the Prospectus and "Global Clearance,
Settlement and Tax Documentation Procedures--Certain U.S. Federal Income Tax
Documentation Requirements" in Annex A hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Clearstream Luxembourg 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 Clearstream
Luxembourg Participants or Euroclear Participants, on the other, will be
effected in DTC in accordance with the 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. Clearstream Luxembourg Participants and Euroclear Participants may not
deliver instructions directly to the European Depositaries.
S-23
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants, some of which (and/or their representatives) own
DTC. In accordance with its normal procedures, DTC is expected to record the
positions held by each DTC Participant in the Book-Entry Notes, whether held for
its own account or as a nominee for another person. In general, beneficial
ownership of Book-Entry Notes will be subject to the rules, regulations and
procedures governing DTC and DTC Participants as in effect from time to time.
Clearstream Luxembourg is a duly licensed bank organized as a limited
liability company (a societe anonyme) incorporated under the laws of Grand Duchy
of Luxembourg as a professional depository. Clearstream Luxembourg holds
securities for its participating organizations ("Clearstream Luxembourg
Participants") and facilitates the clearance and settlement of securities
transactions between Clearstream Luxembourg Participants through electronic
book-entry changes in accounts of Clearstream Luxembourg Participants, thereby
eliminating the need for physical movement of notes. Transactions may be settled
in Clearstream Luxembourg in any of various currencies, including United States
dollars. Clearstream Luxembourg provides to its Clearstream Luxembourg
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally-traded securities and securities
lending and borrowing. Clearstream Luxembourg interfaces with domestic markets
in several countries. As a professional depository, Clearstream Luxembourg is
subject to regulation by the Luxembourg Monetary Institute. Clearstream
Luxembourg 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
Clearstream Luxembourg is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Clearstream Luxembourg 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 notes and
any risk from lack of simultaneous transfers of securities and cash.
Transactions may be settled in any of various 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 Euroclear Bank, S.A./N.V. (the
"Euroclear Operator"). All operations are conducted by the Euroclear Operator,
and all Euroclear securities clearance accounts and Euroclear cash accounts are
accounts with the Euroclear Operator. 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.
Securities clearance accounts and cash accounts with the Euroclear
Operator 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 notes 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.
Payments on the Book-Entry Notes will be made on each Payment Date by the
Trust Administrator to DTC. DTC will be responsible for crediting the amount of
such payments to the accounts of the applicable DTC participants in accordance
with DTC's normal procedures. Each DTC participant will be responsible for
disbursing such payment to the Beneficial Owners of the Book-Entry Notes 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 Notes that it represents.
Under a book-entry format, Beneficial Owners of the Book-Entry Notes may
experience some delay in their receipt of payments, since such payments will be
forwarded by the Trust Administrator to Cede & Co. Payments with respect to
Book-Entry Notes held through Clearstream Luxembourg or Euroclear will be
credited to the cash accounts of Clearstream Luxembourg Participants or
Euroclear Participants in accordance with the relevant
S-24
system's rules and procedures, to the extent received by the Relevant
Depositary. Such payments will be subject to tax reporting in accordance with
relevant United States tax laws and regulations. See "Material Federal Income
Tax Considerations--Taxation of Debt Securities", "--Tax Treatment of Foreign
Investors" and "--Tax Consequences to Holders of the Notes" in the Prospectus.
Because DTC can only act on behalf of Financial Intermediaries, the
ability of a Beneficial Owner to pledge Book-Entry Notes to persons or entities
that do not participate in the DTC system, or otherwise take actions in respect
of such Book-Entry Notes, may be limited due to the lack of physical notes for
such Book-Entry Notes. In addition, issuance of the Book-Entry Notes in
book-entry form may reduce the liquidity of such Notes in the secondary market
since certain potential investors may be unwilling to purchase Notes for which
they cannot obtain physical notes.
Monthly and annual reports will be provided to Cede & Co., as nominee of
DTC, and may be made available by Cede & Co. to Beneficial Owners upon request,
in accordance with the rules, regulations and procedures creating and affecting
DTC, and to the Financial Intermediaries to whose DTC accounts the Book-Entry
Notes of such Beneficial Owners are credited.
DTC has advised the Trust Administrator that, unless and until Definitive
Notes are issued, DTC will take any action permitted to be taken by the holders
of the Book-Entry Notes under the Indenture only at the direction of one or more
Financial Intermediaries to whose DTC accounts the Book-Entry Notes are
credited, to the extent that such actions are taken on behalf of Financial
Intermediaries whose holdings include such Book-Entry Notes. Clearstream
Luxembourg or the Euroclear Operator, as the case may be, will take any other
action permitted to be taken by a Noteholder under the Indenture on behalf of a
Clearstream Luxembourg 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
Book-Entry Notes which conflict with actions taken with respect to other Notes.
Although DTC, Clearstream Luxembourg and Euroclear have agreed to the
foregoing procedures in order to facilitate transfers of Book-Entry Notes among
participants of DTC, Clearstream Luxembourg 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 Depositor, the Seller, the Master Servicer, the Servicer, the
Owner Trustee, the Trust Administrator or the Indenture Trustee (as such terms
are defined herein) or any of their respective affiliates 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 Notes held by Cede &
Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests or transfers thereof.
Definitive Notes. Definitive Notes will be issued to Beneficial Owners or
their nominees, respectively, rather than to DTC or its nominee, (1) if DTC or
the Depositor advises the Trust Administrator in writing that DTC is no longer
willing or able to properly discharge its responsibilities as depository for the
Book-Entry Notes and the Depositor is unable to locate a qualified successor or
(2) after the occurrence of an Indenture Default (as defined herein) as
specified in the Indenture, Beneficial Owners of Book-Entry Notes representing
not less than 50% in principal amount of the outstanding Book-Entry Notes advise
the Trust Administrator and DTC through the Financial Intermediaries in writing
that the continuation of a book-entry system through DTC, or a successor to it,
is no longer in the best interests of the Beneficial Owners of such Book-Entry
Notes.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trust Administrator is required to direct DTC to notify
Participants who have ownership of Book-Entry Notes as indicated on the records
of DTC of the availability of Definitive Notes for their Book-Entry Notes. Upon
surrender by DTC of the Definitive Notes representing the Book-Entry Notes and
upon receipt of instructions from DTC for re-registration, the Trust
Administrator will reissue the Book-Entry Notes as Definitive Notes in the
respective principal amounts owned by individual Beneficial Owners, and
thereafter the Indenture Trustee
S-25
and the Trust Administrator will recognize the holders of such Definitive Notes
as Noteholders under the Indenture.
PAYMENTS OF INTEREST
CALCULATION OF INTEREST. The amount of interest payable on each Payment
Date in respect of each class of Notes will equal the Current Interest (as
defined herein) for such class on such date. Interest will accrue on the Notes
on the basis of a 360-day year and the actual number of days elapsed in each
related Accrual Period (as defined herein).
o "Current Interest" with respect to any class of Notes and any Payment
Date will equal the aggregate amount of interest accrued at the
applicable Interest Rate during the related Accrual Period on the Class
Principal Amount of such class immediately prior to such Payment Date,
provided, however, that for any class of Subordinate Notes and any
Payment Date, Current Interest will be reduced by the amount specified
in clause (a) of the definition of Deferred Interest, if any, for such
class and Payment Date.
o The "Accrual Period" applicable to each class of Notes with respect
to each Payment Date will be the period beginning on the immediately
preceding Payment Date (or on the Closing Date, in the case of the
first Accrual Period) and ending on the day immediately preceding the
related Payment Date.
The "Interest Rate" for each class of Notes will be the applicable annual
rate described under "Summary of Terms--The Offered Notes--Payments on the
Notes--Interest Payments."
DEFINITIONS RELATING TO INTEREST PAYMENT PRIORITIES.
o The "Class Principal Amount" of any Class of Notes as of any Payment
Date will be its initial Class Principal Amount as of [Month] [Day],
20___ (the "Closing Date"), as reduced by all amounts previously paid
on that class in respect of principal prior to such Payment Date.
o The "Net Funds Cap" with respect to each Payment Date will be an
annual rate equal to:
1. in the case of each class of Group 1 Notes, the weighted
average of the Net Mortgage Rates of the Mortgage Loans in Pool 1
as of the first day of the related Collection Period, adjusted to
reflect the accrual of interest on an actual/360 basis,
2. in the case of the Class 2A1 Notes, the weighted average of the
Net Mortgage Rates of the Mortgage Loans in Pool 2 as of the first
day of the related Collection Period, adjusted to reflect the
accrual of interest on an actual/360 basis, and
3. in the case of each class of Subordinate Notes, the weighted
average of (a) the weighted average of the Net Mortgage Rates of
the Mortgage Loans in Pool 1 as of the first day of the related
Collection Period and (b) the weighted average of the Net Mortgage
Rates of the Mortgage Loans in Pool 2 as of the first day of the
related Collection Period, weighted on the basis of the excess of
(x) in the case of clause (a), the excess of the Pool Balance for
Pool 1 as of the first day of the related Collection Period over
the aggregate of the Class Principal Amounts of the Group 1 Notes
immediately prior to that Payment Date and (y) in the case of
clause (b), the excess of the Pool Balance for Pool 2 as of the
first day of the related Collection Period over the Class
Principal Amount of the Class 2A1 Notes immediately prior to that
Payment Date, and adjusted to reflect the accrual of interest on
an actual/360 basis.
o The "Fixed Rate Cap" with respect to each Payment Date is [_____]%
per annum.
S-26
o The "Net Mortgage Rate" for any Mortgage Loan at any time equals the
Mortgage Rate thereof minus the sum of the related Servicing Fee Rate
and the Master Servicing Fee Rate (each as defined herein).
o The "Mortgage Rate" for any Mortgage Loan is its applicable interest
rate as determined in the related mortgage note as reduced by any
application of the Servicemembers Civil Relief Act or similar state
laws (the "Relief Act").
o The "Pool Balance" for any Mortgage Pool as of any date of
determination will be equal to the aggregate of the Scheduled Principal
Balances (as defined herein) of the Mortgage Loans in such Mortgage
Pool as of such date of determination.
o The "Pool Percentage" for any Mortgage Pool and any Payment Date will
be a fraction, expressed as a percentage, the numerator of which is the
Pool Balance for such Mortgage Pool for such date and the denominator
of which is the Aggregate Loan Balance for such date of determination.
o The "Aggregate Loan Balance" as of any date of determination will be
equal to the aggregate of the Scheduled Principal Balances of the
Mortgage Loans as of such date of determination.
BASIS RISK SHORTFALLS. With respect to each Payment Date and any class of
Notes, to the extent that (a) the amount calculated under clause (1) of the
definition of "Interest Rate" for such class exceeds (b) the amount calculated
under the applicable Net Funds Cap (such excess, a "Basis Risk Shortfall"), such
class will be entitled to the amount of such Basis Risk Shortfall or Unpaid
Basis Risk Shortfall (as defined herein). Such classes of Notes will be entitled
to the amount of such Basis Risk Shortfall or Unpaid Basis Risk Shortfall from
both (1) Monthly Excess Cashflow (as described below) and (2)(i) in the case of
the Group 1 Notes, any amounts received under the Group 1 Cap Agreement for the
related Payment Date, (ii) in the case of the Class 2A1 Notes, any amounts
received under the Group 2 Cap Agreement for the related Payment Date or (iii)
in the case of the Subordinate Notes, any amounts received under the Subordinate
Cap Agreement for the related Payment Date. See "--Credit
Enhancement--Application of Monthly Excess Cashflow and Cap Agreement Proceeds"
below.
o The "Unpaid Basis Risk Shortfall" for any class of Notes on any
Payment Date will equal the aggregate of all Basis Risk Shortfalls for
such class remaining unpaid from all previous Payment Dates, together
with interest thereon at the applicable Interest Rate, computed without
regard to the applicable Net Funds Cap.
THE CAP AGREEMENTS.
The Group 1 Cap Agreement. On the Closing Date, the Trust will enter into
an interest rate cap agreement for the benefit of the Group 1 Notes (the "Group
1 Cap Agreement") with the Cap Counterparty (as defined herein), which will be
assigned to the Indenture Trustee.
Under the Group 1 Cap Agreement, in exchange for a fixed payment made by
the Seller on behalf of the Trust on the Closing Date, the Cap Counterparty will
be obligated to pay to the Trust by the Business Day immediately prior to each
Payment Date, commencing with the Payment Date in [Month] 20___ and ending with
the Payment Date in [Month] 20___, one month's interest calculated at an annual
rate equal to the excess, if any, of (a) the lesser of (i) LIBOR (as defined
herein) and (ii) the maximum rate under the Group 1 Cap Agreement as set forth
in the table below for the related Payment Date (the "Group 1 Maximum Rate")
over (b) the strike rate as set forth in the table for the related Payment Date
(the "Group 1 Strike Rate") on a calculated notional amount as set forth in the
table for the related Payment Date:
S-27
GROUP 1 GROUP 1 GROUP 1
PAYMENT DATE NOTIONAL BALANCE STRIKE RATE MAXIMUM RATE
- ------------ ---------------- ----------- ------------
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
However, to the extent that the notional amount of the Group 1 Cap
Agreement for any Payment Date exceeds the aggregate of the Class Principal
Amounts of the Group 1 Notes as of the immediately preceding Payment Date, the
portion of the amount payable by the Cap Counterparty with respect to the
current Payment Date that is attributable to such excess will be paid by the
Trust Administrator to the holder of the Ownership Certificate and will not be
available to make payments on the Group 1 Notes.
The Group 1 Cap Agreement will terminate after the Payment Date in [Month]
20___.
It is intended that payments under the Group 1 Cap Agreement provide
protection against upward movements in LIBOR and diminish the basis risk to the
Group 1 Notes associated with the Trust's investment in hybrid Mortgage Loans.
See "Description of the Mortgage Pools--General." However, there can be no
assurance that amounts payable to the Trust under the Group 1 Cap Agreement will
be sufficient to cover such shortfalls. On each Payment Date, the Trust
Administrator will pay holders of the Group 1 Notes from any amounts received
from Group 1 Cap Agreement in accordance with priority (3)(a)(i) set forth under
"--Credit Enhancement--Application of Monthly Excess Cashflow and Cap Agreement
Proceeds" below. If such payments from the Group 1 Cap Agreement are
insufficient to cover the total amount of any Basis Risk Shortfall or Unpaid
Basis Risk Shortfall, the only other source of coverage will be the Monthly
Excess Cashflow, if any, that would otherwise be payable to the Ownership
Certificate.
The Group 2 Cap Agreement. On the Closing Date, the Trust will enter into
an interest rate cap agreement for the benefit of the Class 2A1 Notes (the
"Group 2 Cap Agreement") with the Cap Counterparty (as defined herein), which
will be assigned to the Indenture Trustee.
S-28
Under the Group 2 Cap Agreement, in exchange for a fixed payment made by
the Seller on behalf of the Trust on the Closing Date, the Cap Counterparty will
be obligated to pay to the Trust by the Business Day immediately prior to each
Payment Date, commencing with the Payment Date in [Month] 20___ and ending with
the Payment Date in [Month] 20___, one month's interest calculated at an annual
rate equal to the excess, if any, of (a) the lesser of (i) LIBOR (as defined
herein) and (ii) the maximum rate under the Group 2 Cap Agreement as set forth
in the table below for the related Payment Date (the "Group 2 Maximum Rate")
over (b) the strike rate as set forth in the table for the related Payment Date
(the "Group 2 Strike Rate") on a calculated notional amount as set forth in the
table for the related Payment Date:
GROUP 2 GROUP 2 GROUP 2
PAYMENT DATE NOTIONAL BALANCE STRIKE RATE MAXIMUM RATE
- ------------ ---------------- ----------- ------------
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
However, to the extent that the notional amount of the Group 2 Cap
Agreement for any Payment Date exceeds the Class Principal Amount of the Class
2A1 Notes as of the immediately preceding Payment Date, the portion of the
amount payable by the Cap Counterparty with respect to the current Payment Date
that is attributable to such excess will be paid by the Trust Administrator to
the holder of the Ownership Certificate and will not be available to make
payments on the Class 2A1 Notes.
The Group 2 Cap Agreement will terminate after the Payment Date in [Month]
20___.
It is intended that payments under the Group 2 Cap Agreement provide
protection against upward movements in LIBOR and diminish the basis risk to the
Class 2A1 Notes associated with the Trust's investment in hybrid Mortgage Loans.
See "Description of the Mortgage Pools--General." However, there can be no
assurance that amounts payable to the Trust under the Group 2 Cap Agreement will
be sufficient to cover such shortfalls. On each Payment Date, the Trust
Administrator will pay holders of the Class 2A1 Notes from any amounts received
from Group 2 Cap Agreement in accordance with priority (3)(a)(ii) set forth
under "--Credit
S-29
Enhancement--Application of Monthly Excess Cashflow and Cap Agreement Proceeds"
below. If such payments from the Group 2 Cap Agreement are insufficient to cover
the total amount of any Basis Risk Shortfall or Unpaid Basis Risk Shortfall, the
only other source of coverage will be the Monthly Excess Cashflow, if any, that
would otherwise be payable to the Ownership Certificate.
The Subordinate Cap Agreement. On the Closing Date, the Trust will enter
into an interest rate cap agreement for the benefit of the Subordinate Notes
(the "Subordinate Cap Agreement" ) with the Cap Counterparty, which will be
assigned to the Indenture Trustee.
Under the Subordinate Cap Agreement, in exchange for a fixed payment made
by the Seller on behalf of the Trust on the Closing Date, the Cap Counterparty
will be obligated to pay to the Trust by the Business Day immediately prior to
each Payment Date, commencing with the Payment Date in [Month] 20___ and ending
with the Payment Date in [Month] 20___, one month's interest calculated at an
annual rate equal to the excess, if any, of (a) the lesser of (i) LIBOR and (ii)
the maximum rate under the Subordinate Cap Agreement as set forth in the table
below for the related Payment Date (the "Subordinate Maximum Rate") over (b) the
strike rate as set forth in the table for the related Payment Date (the
"Subordinate Strike Rate") on a calculated notional amount as set forth in the
table for the related Payment Date:
SUBORDINATE SUBORDINATE SUBORDINATE
PAYMENT DATE NOTIONAL BALANCE STRIKE RATE MAXIMUM RATE
- ------------ ---------------- ----------- ------------
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
[Month] 20___.................................. $[___________] [_______]% [_______]%
However, to the extent that the notional amount of the Subordinate Cap
Agreement for any Payment Date exceeds the aggregate of the Class Principal
Amounts of the Subordinate Notes as of the immediately preceding Payment Date,
the portion of the amount payable by the Cap Counterparty with respect to the
current Payment Date that is attributable to such excess will be paid by the
Trust Administrator to the holder of the Ownership Certificate and will not be
available to make payments on the Subordinate Notes.
S-30
The Subordinate Cap Agreement will terminate after the Payment Date in
[Month] 20___.
It is intended that payments under the Subordinate Cap Agreement provide
protection against upward movements in LIBOR and diminish the basis risk to the
Subordinate Notes associated with the Trust's investment in hybrid Mortgage
Loans. See "Description of the Mortgage Pools--General." However, there can be
no assurance that amounts payable to the Trust under the Subordinate Cap
Agreement will be sufficient to cover such shortfalls. On each Payment Date, the
Trust Administrator will pay holders of the Subordinate Notes from any amounts
received from Subordinate Cap Agreement in accordance with priority (3)(a)(iii)
set forth under "--Credit Enhancement--Application of Monthly Excess Cashflow
and Cap Agreement Proceeds" below. If such payments from the Subordinate Cap
Agreement are insufficient to cover the total amount of any Basis Risk Shortfall
or Unpaid Basis Risk Shortfall, the only other source of coverage will be the
Monthly Excess Cashflow, if any, that would otherwise be payable to the
Ownership Certificate.
Termination. The Group 1 Cap Agreement, the Group 2 Cap Agreement and the
Subordinate Cap Agreement will each be subject to early termination only in
limited circumstances. Such circumstances generally include certain insolvency
or bankruptcy events in relation to the Cap Counterparty or the Trust, the
failure by the Cap Counterparty (within three business days after notice of such
failure is received by the Cap Counterparty) to make a payment due under the
relevant interest rate cap agreement, the failure by the Cap Counterparty
(within 30 days after notice of such failure is received) to perform any other
agreement made by it under the relevant interest rate cap agreement, and the
relevant interest rate cap agreement becoming illegal or subject to certain
kinds of taxation.
If the Group 1 Cap Agreement, the Group 2 Cap Agreement or the Subordinate
Cap Agreement is terminated early, the Cap Counterparty may owe a termination
payment, payable in a lump sum. Any termination payment will be held by the
Trust Administrator and applied on subsequent Payment Dates to pay any Basis
Risk Shortfall Amounts and Unpaid Basis Risk Shortfall Amounts on the related
classes of Notes as described above. Any termination payment remaining on
deposit with the Trust Administrator on the Payment Date on which the relevant
interest rate cap agreement would have otherwise terminated had it not been
subject to early termination (after all other payments on that Payment Date)
will be payable to the Ownership Certificate.
General. The Notes do not represent an obligation of the Cap Counterparty.
The holders of the Notes are not parties to or beneficiaries under the Group 1
Cap Agreement, the Group 2 Cap Agreement or the Subordinate Cap Agreement and
will not have any right to proceed directly against the Cap Counterparty in
respect of its obligations under any interest rate cap agreement.
The Cap Counterparty [YIELD MAINTENANCE PROVIDER] ("[_____]")is a
bankruptcy-remote derivatives product company based in New York, New York that
has been established as a wholly owned subsidiary of [________________] [_____]
has a ratings classification of "AAA" from S&P and "Aaa" from Moody's. BSFP will
provide upon request, without charge, to each person to whom this prospectus
supplement is delivered, a copy of (i) the ratings analysis from each of S&P and
Moody's evidencing those respective ratings or (ii) the most recent audited
annual financial statements of [_____]. Requests for information should be
directed to the [_____] Manager of [_____] at ([_____] ) [_____] or in writing
at [_________________] . [_____] is an affiliate of [________________].
[_____] has not been involved in the preparation of, and does not accept
responsibility for, this prospectus supplement or the accompanying prospectus,
except with respect to the information set forth in the immediately preceding
paragraph.
Interest Payment Priorities. The Interest Remittance Amount (as defined
herein) for each Mortgage Pool will be paid on each Payment Date concurrently as
follows:
(A) On each Payment Date, the Interest Remittance Amount for Pool 1 for
such date will be paid in the following order of priority:
S-31
(i) pro rata, to the Class 1A1, Class 1A2 and Class 1A3 Notes, Current
Interest for each such class for such Payment Date;
(ii) to the Class 2A1 Notes, Current Interest for such class for such
Payment Date, to the extent not paid as described in clause (B)(i) below;
(iii) to the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6,
Class M7, Class M8, Class M9, Class B1, Class B2, Class B3 and Class B4 Notes,
sequentially, in that order (the "Subordinate Priority"), Current Interest for
each such class for such Payment Date;
(iv) to the Indenture Trustee, the Owner Trustee, the Trust Administrator,
the Master Servicer and the Servicer, previously unreimbursed extraordinary
costs, liabilities and expenses to the extent provided in the Transfer and
Servicing Agreement, as applicable; and
(v) for application as part of Monthly Excess Cashflow for such Payment
Date, as described under "--Credit Enhancement--Application of Monthly Excess
Cashflow and Cap Agreement Proceeds" below, any Interest Remittance Amount for
Pool 1 remaining after application pursuant to clauses (i) through (iv) above
(such amount, "Pool 1 Monthly Excess Interest" for such Payment Date).
(B) On each Payment Date, the Interest Remittance Amount for Pool 2 for
such date will be paid in the following order of priority:
(i) to the Class 2A1 Notes, Current Interest for such class for such
Payment Date;
(ii) pro rata, to the Class 1A1, Class 1A2 and Class 1A3 Notes, Current
Interest for each such class for such Payment Date, to the extent not paid as
described in clause (A)(i) above;
(iii) to the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6,
Class M7, Class M8, Class M9, Class B1, Class B2, Class B3 and Class B4 Notes,
in accordance with the Subordinate Priority, Current Interest for each such
class for such Payment Date;
(iv) to the Indenture Trustee, the Owner Trustee, the Trust Administrator,
the Master Servicer and the Servicer, previously unreimbursed extraordinary
costs, liabilities and expenses to the extent provided in the Transfer and
Servicing Agreement, as applicable; and
(v) for application as part of Monthly Excess Cashflow for such Payment
Date, as described under "--Credit Enhancement--Application of Monthly Excess
Cashflow and Cap Agreement Proceeds" below, any Interest Remittance Amount for
Pool 2 remaining after application pursuant to clauses (i) through (iv) above
(such amount, "Pool 2 Monthly Excess Interest" for such Payment Date).
The "Interest Remittance Amount" with respect to any Payment Date and any
Mortgage Pool will equal (a) the sum of (1) all interest collected (other than
Payaheads (as defined herein)) or advanced in respect of Scheduled Payments (as
defined herein) on the Mortgage Loans in such Mortgage Pool during the related
Collection Period (as defined herein) by the Master Servicer, the Servicer or
the Indenture Trustee, minus (x) the related Servicing Fee and the Master
Servicing Fee with respect to such Mortgage Loans, (y) previously unreimbursed
Advances (as defined herein) and previously unreimbursed servicing advances and
other amounts due to the Servicer, the Master Servicer or the Indenture Trustee
(solely in its capacity as successor Master Servicer) with respect to the
Mortgage Loans, to the extent allocable to interest and (z) any Prepayment
Premiums received with respect to such Mortgage Loans during the related
Prepayment Period (as defined herein), (2) all Compensating Interest (as defined
herein) paid by the Master Servicer or the Servicer with respect to such
Mortgage Loans with respect to the related Prepayment Period, (3) the portion of
any purchase price or Substitution Amount (as defined herein) paid with respect
to such Mortgage Loans during the related Prepayment Period allocable to
interest and (4) all Net Liquidation Proceeds (as defined herein), Insurance
Proceeds (as defined herein) and any other recoveries collected with respect to
such Mortgage Loans during the related
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Prepayment Period, to the extent allocable to interest, as reduced by (b) the
Pool Percentage of other costs, expenses, fees or liabilities reimbursable to
the Master Servicer, the Servicer, the Trust Administrator, the Custodian, the
Indenture Trustee or the Owner Trustee.
o A "Payahead" is generally any Scheduled Payment intended by the
related borrower to be applied in a Collection Period subsequent to the
Collection Period in which such payment was received.
o The "Substitution Amount" will be generally equal to the amount, if
any, by which the Scheduled Principal Balance of a Mortgage Loan
required to be removed from the Mortgage Pool due to a breach of a
representation or warranty or defective documentation exceeds the
principal balance of the related substitute Mortgage Loan, plus unpaid
interest accrued thereon, any unpaid Advances and servicing advances,
unpaid Servicing Fees (and related interest) and the costs and damages
incurred by the Trust associated with violations of any applicable
federal, state or local predatory or abusive lending law with respect
to such Mortgage Loan.
DETERMINATION OF LIBOR
On the second LIBOR Business Day (as defined herein) preceding the
commencement of each Accrual Period (each such date, a "LIBOR Determination
Date"), the Trust Administrator will determine LIBOR based on the "Interest
Settlement Rate" for U.S. dollar deposits of one-month maturity set by the
British Bankers' Association (the "BBA") as of 11:00 a.m. (London time) on the
LIBOR Determination Date ("LIBOR").
The BBA's Interest Settlement Rates are currently displayed on the
Moneyline Telerate Service page 3750 (such page, or such other page as may
replace page 3750 on that service or such other service as may be nominated by
the BBA as the information vendor for the purpose of displaying the BBA's
Interest Settlement Rates for deposits in U.S. dollars, the "Designated Telerate
Page"). Such Interest Settlement Rates are also currently available on Reuters
Monitor Money Rates Service page "LIBOR01" and Bloomberg L.P. page "BBAM." The
BBA's Interest Settlement Rates currently are rounded to five decimal places.
A "LIBOR Business Day" is any day on which banks in London and New York
are open for conducting transactions in foreign currency and exchange.
With respect to any LIBOR Determination Date, if the BBA's Interest
Settlement Rate does not appear on the Designated Telerate Page as of 11:00 a.m.
(London time) on such date, or if the Designated Telerate Page is not available
on such date, the Trust Administrator will obtain such rate from the Reuters or
Bloomberg page. If such rate is not published for such LIBOR Determination Date,
LIBOR for such date will be the most recently published Interest Settlement
Rate. In the event that the BBA no longer sets an Interest Settlement Rate, the
Trust Administrator will designate an alternative index that has performed, or
that the Trust Administrator expects to perform, in a manner substantially
similar to the BBA's Interest Settlement Rate.
The establishment of LIBOR on each LIBOR Determination Date by the Trust
Administrator and the Trust Administrator's calculation of the rate of interest
applicable to the Notes for the related Accrual Period will (in the absence of
manifest error) be final and binding.
LIBOR for the first Accrual Period will be [____]%.
PAYMENTS OF PRINCIPAL
GENERAL DEFINITIONS. Payments of principal on the Senior Notes will be
made primarily from the Principal Payment Amount for the related Mortgage Pool,
secondarily from the Principal Payment Amount from the unrelated Mortgage Pool,
and from Monthly Excess Cashflow from each Mortgage Pool, to the extent of such
excess available funds, as described under "--Credit Enhancement--Application of
Monthly Excess Cashflow and Cap Agreement Proceeds" below. Payments of principal
on the Subordinate Notes will be made from the
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aggregate of the Principal Payment Amounts from each Mortgage Pool in each case
after payments of principal have been made on the related Senior Notes.
o The "Principal Payment Amount" for each Mortgage Pool for any Payment
Date will be equal to the Principal Remittance Amount for such Mortgage
Pool for such date minus the Aggregate Overcollateralization Release
Amount (as defined herein), if any, attributable to such Mortgage Pool
for such Payment Date.
o The "Principal Remittance Amount" for each Mortgage Pool for any
Payment Date will be equal to (a) the sum of (1) all principal
collected (other than Payaheads) or advanced in respect of Scheduled
Payments on the Mortgage Loans in such Mortgage Pool during the related
Collection Period by the Servicer or the Master Servicer (less
unreimbursed Advances due to the Master Servicer, or the Servicer with
respect to such Mortgage Loans, to the extent allocable to principal
and any unreimbursed related servicing advances), (2) the principal
portion of all prepayments in full or in part received on the Mortgage
Loans in such Mortgage Pool during the related Prepayment Period, (3)
the outstanding principal balance of each Mortgage Loan that was
repurchased by the Seller or purchased by the Servicer during the
related Prepayment Period from such Mortgage Pool, (4) the principal
portion of any Substitution Amount paid with respect to any replaced
Mortgage Loan in such Mortgage Pool during the related Prepayment
Period allocable to principal, (5) all Net Liquidation Proceeds,
Insurance Proceeds and any other recoveries collected with respect to
the Mortgage Loans in such Mortgage Pool during the related Prepayment
Period, to the extent allocable to principal and (6) all other
unscheduled collections and recoveries in respect of principal during
the related Prepayment Period, as reduced by (b) the Pool Percentage of
other costs, expenses, fees or liabilities reimbursable to the Master
Servicer, the Servicer, the Trust Administrator, the Custodian, the
Indenture Trustee or the Owner Trustee from interest collections as
described in clause (b) of the definition of Interest Remittance Amount
and not reimbursed therefrom or otherwise.
o The "Collection Period" with respect to any Payment Date is the
one-month period beginning on the second day of the calendar month
immediately preceding the month in which such Payment Date occurs and
ending on the first day of the month in which such Payment Date occurs.
o "Insurance Proceeds" means any amounts paid by an insurer under any
standard hazard insurance policy, flood insurance policy or any other
insurance policy relating to the Mortgage Loans or related Mortgaged
Properties other than amounts to cover expenses incurred by the
Servicer in connection with procuring such proceeds, applied to the
restoration and repair of the related Mortgaged Property or to be paid
to the borrower pursuant to the mortgage note or state law.
o "Net Liquidation Proceeds" means all amounts, net of (1) unreimbursed
related expenses and (2) unreimbursed related Advances and related
servicing advances, received and retained in connection with the
liquidation of defaulted Mortgage Loans, through insurance or
condemnation proceeds, by foreclosure or otherwise, together with any
net proceeds received on a periodic basis with respect to any
properties acquired on behalf of the Noteholders by foreclosure or deed
in lieu of foreclosure.
o The "Prepayment Period" with respect to each Payment Date (other than
the initial Payment Date) is the period from 16th day of the calendar
month immediately preceding the month in which such Payment Date occurs
up to and including the 15th day of the month in which such Payment
Date occurs; provided, however, that with respect to the initial
Payment Date, the Prepayment Period will be from and excluding the
Cut-off Date up to and including the 15th day of [Month] 20___.
o A "Scheduled Payment" is the monthly scheduled payment of interest
and principal specified in the related mortgage note for the Mortgage
Loan.
o The "Scheduled Principal Balance" of any Mortgage Loan as of any date
of determination will be generally equal to its outstanding principal
balance as of the Cut-off Date, after giving effect to
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Scheduled Payments due on or before such date, whether or not received,
reduced by (1) the principal portion of all Scheduled Payments due on
or before the due date in the Collection Period immediately preceding
such date of determination, whether or not received, and (2) all
amounts allocable to unscheduled principal payments received on or
before the last day of the Collection Period immediately preceding such
date of determination. The Scheduled Principal Balance of a Liquidated
Mortgage Loan will be equal to zero.
PRINCIPAL PAYMENT PRIORITIES. The Principal Payment Amount for each
Mortgage Pool will be paid on each Payment Date as follows:
(I) On each Payment Date (a) prior to the Stepdown Date or (b) with respect to
which a Trigger Event is in effect, the Trust Administrator will make the
following payments, concurrently:
(A) For Pool 1: The Principal Payment Amount for Pool 1 will be paid in the
following order of priority:
(i) sequentially, to the Class 1A1, Class 1A2 and Class 1A3 Notes, in
that order, until the Class Principal Amount of each such class has
been reduced to zero;
(ii) to the Class 2A1 Notes, after giving effect to payments made
pursuant to clause (I)(B)(i) below, until the Class Principal Amount of
such class has been reduced to zero;
(iii) to the Class M1, Class M2, Class M3, Class M4, Class M5, Class
M6, Class M7, Class M8, Class M9, Class B1, Class B2, Class B3 and
Class B4 Notes, in accordance with the Subordinate Priority, until the
Class Principal Amount of each such class has been reduced to zero; and
(iv) for application as part of Monthly Excess Cashflow for such
Payment Date, as described under "--Credit Enhancement--Application of
Monthly Excess Cashflow and Cap Agreement Proceeds" below, any such
Principal Payment Amount for Pool 1 remaining after application
pursuant to clauses (i) through (iii) above.
(B) For Pool 2: The Principal Payment Amount for Pool 2 will be paid in the
following order of priority:
(i) to the Class 2A1 Notes, until the Class Principal Amount of such
class has been reduced to zero;
(ii) sequentially, to the Class 1A1, Class 1A2 and Class 1A3 Notes, in
that order, after giving effect to payments made pursuant to clause
(I)(A)(i) above, until the Class Principal Amount of each such class
has been reduced to zero;
(iii) to the Class M1, Class M2, Class M3, Class M4, Class M5, Class
M6, Class M7, Class M8, Class M9, Class B1, Class B2, Class B3 and
Class B4 Notes, in accordance with the Subordinate Priority, until the
Class Principal Amount of each such class has been reduced to zero; and
(iv) for application as part of Monthly Excess Cashflow for such
Payment Date, as described under "--Credit Enhancement--Application of
Monthly Excess Cashflow and Cap Agreement Proceeds" below, any such
Principal Payment Amount for Pool 2 remaining after application
pursuant to clauses (i) through (iii) above.
The priority of payments on the Class 1A1, Class 1A2 and Class 1A3 Notes
described in clause (I)(A)(i) above is referred to in this prospectus supplement
as the "Pool 1 Senior Priority" for the related Mortgage Pool.
(II) On each Payment Date (a) on or after the Stepdown Date and (b) with
respect to which a Trigger Event is not in effect, the Principal Payment Amount
for each Mortgage Pool for such date will be paid in the following order of
priority:
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(i) (a) so long as any of the Subordinate Notes are outstanding, to the
Class 1A1, Class 1A2 and Class 1A3 Notes in accordance with the Pool 1
Senior Priority (from amounts in Pool 1 except as provided below) and
to the Class 2A1 Notes (from amounts in Pool 2 except as provided
below), an amount equal to the lesser of (x) the Principal Payment
Amount for the related Mortgage Pool for such Payment Date and (y) the
Related Senior Principal Payment Amount for the related Mortgage Pool
for such Payment Date, in each case until the Class Principal Amount of
each such class has been reduced to zero; provided, however, that to
the extent that the Principal Payment Amount for a Mortgage Pool
exceeds the Related Senior Principal Payment Amount for such Mortgage
Pool, such excess shall be paid to the Senior Notes of the other
Mortgage Pool (in the case of the Class 1A1, Class 1A2 and Class 1A3
Notes, in accordance with the Pool 1 Senior Priority), but in an amount
not to exceed the Senior Principal Payment Amount for such Payment Date
(as reduced by any payments pursuant to subclauses (x) and (y) of this
clause (i)(a) on such Payment Date), or (b) otherwise to the Class 1A1,
Class 1A2 and Class 1A3 Notes (in accordance with the Pool 1 Senior
Priority) and the Class 2A1 Notes, the Principal Payment Amount for the
related Mortgage Pool for such Payment Date;
(ii) to the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6,
Class M7, Class M8, Class M9, Class B1, Class B2, Class B3 and Class B4
Notes, in accordance with the Subordinate Priority, in each case in an
amount equal to the lesser of (x) the excess of (a) the aggregate
Principal Payment Amount for Pool 1 and Pool 2 for such Payment Date
over (b) the aggregate of the amount paid to the Senior Notes on such
Payment Date pursuant to clause (i) above and any amounts paid to any
class or classes of Subordinate Notes that have a higher priority of
payment than the subject class on such Payment Date pursuant to this
clause (ii), and (y) the Subordinate Class Principal Payment Amount for
the subject class for such Payment Date, until the Class Principal
Amount of such class has been reduced to zero; and
(iii) for application as part of Monthly Excess Cashflow for such
Payment Date, as described under "--Credit Enhancement--Application of
Monthly Excess Cashflow and Cap Agreement Proceeds" below, any such
Principal Payment Amount remaining after application pursuant to
clauses (i) and (ii) above.
Notwithstanding the foregoing, on any Payment Date on which the Class Principal
Amount of each class of Notes having a higher priority of payment has been
reduced to zero, any remaining Principal Payment Amount of a Mortgage Pool will
be paid to the remaining Notes, in the order of priority set forth above, until
the Class Principal Amount of each such class has been reduced to zero.
DEFINITIONS RELATING TO PRINCIPAL PAYMENT PRIORITIES.
o The "Related Senior Principal Payment Amount" for each Mortgage Pool
for any Payment Date will be equal to the lesser of (x) the aggregate
Class Principal Amount of the Class 1A1, Class 1A2 and Class 1A3 Notes
(with respect to Pool 1) or the Class Principal Amount of the Class 2A1
Notes (with respect to Pool 2) immediately prior to that Payment Date
and (y) the product of (a) the Senior Principal Payment Amount and (b)
the related Senior Proportionate Percentage in each case for such date.
o The "Target Amount" for any Payment Date will be equal to the
Aggregate Loan Balance as of such Payment Date minus the Targeted
Overcollateralization Amount for such Payment Date.
o A "Trigger Event" will be in effect with respect to any Payment Date
if (i) the Rolling Three Month Delinquency Rate as of the last day of
the immediately preceding month equals or exceeds [_____]% of the
Senior Enhancement Percentage for such Payment Date, (ii) a Cumulative
Loss Trigger Event shall have occurred or (iii) a Principal Deficiency
Amount exists for such Payment Date.
o A "Cumulative Loss Trigger Event" will have occurred if, with respect
to any Payment Date, the fraction, expressed as a percentage, obtained
by dividing (x) the aggregate amount of cumulative Realized Losses
incurred on the Mortgage Loans from the Cut-off Date through the last
day of the
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related Collection Period by (y) the Cut-off Date Balance, exceeds the
applicable percentage described below with respect to such Payment
Date:
PAYMENT DATE CUMULATIVE LOSS PERCENTAGE
- ------------ --------------------------
[Month] 20___ through [Month] 20___................... [____]% for the first month, plus an additional
1/12th of [____]% for each month thereafter
[Month] 20___ through [Month] 20___................... [____]% for the first month, plus an additional
1/12th of [____]% for each month thereafter
[Month] 20___ through [Month] 20___................... [____]% for the first month, plus an additional
1/12th of [____]% for each month thereafter
[Month] 20___ and thereafter.......................... [____]%
o The "Rolling Three Month Delinquency Rate" with respect to any
Payment Date will be the average of the Delinquency Rates for each of
the three (or one and two, in the case of the first and second Payment
Dates, respectively) immediately preceding months.
o The "Delinquency Rate" for any month will be, generally, the
fraction, expressed as a percentage, the numerator of which is the
aggregate outstanding principal balance of all Mortgage Loans 60 or
more days delinquent (including all foreclosures, bankruptcies and REO
Properties) as of the close of business on the last day of such month,
and the denominator of which is the Aggregate Loan Balance as of the
close of business on the last day of such month.
o The "Stepdown Date" will be the later to occur of (x) the Payment
Date in [Month] 20___ and (y) the first Payment Date on which the
Senior Enhancement Percentage (calculated for this purpose after giving
effect to payments or other recoveries in respect of the Mortgage Loans
during the related Collection Period, but before giving effect to
payments on any Notes on such Payment Date) is greater than or equal to
[_____]%.
o The "Senior Principal Payment Amount" for any Payment Date and the
Senior Notes will be equal to (a) prior to the Stepdown Date or if a
Trigger Event is in effect with respect to such Payment Date, 100% of
the aggregate Principal Payment Amount for both Mortgage Pools and (b)
on or after the Stepdown Date and as long as a Trigger Event is not in
effect with respect to such Payment Date, the lesser of (x) the
aggregate Principal Payment Amount for both Mortgage Pools and (y) the
amount, if any, by which (A) the aggregate Class Principal Amount of
the Senior Notes immediately prior to that Payment Date exceeds (B) the
Senior Target Amount (as defined herein).
o The "Subordinate Class Principal Payment Amount" for any class of
Subordinate Notes and any Payment Date will be equal, on or after the
Stepdown Date and as long as a Trigger Event is not in effect with
respect to such Payment Date, to the amount, if any, by which (x) the
sum of (i) the aggregate Class Principal Amount of the Senior Notes
after giving effect to payments to such classes on such Payment Date,
(ii) the aggregate Class Principal Amount of the classes of Subordinate
Notes, if any, that have a higher priority of payment than the subject
class of Subordinate Notes, after giving effect to payments to such
classes on such Payment Date and (iii) the Class Principal Amount of
the subject class of Subordinate Notes immediately prior to such
Payment Date exceeds (y) the Subordinate Class Target Amount for the
subject class of Subordinate Notes for such Payment Date.
o The "Overcollateralization Amount" with respect to any Payment Date
will be equal to the amount, if any, by which (x) the Aggregate Loan
Balance for such Payment Date exceeds (y) the aggregate Class Principal
Amount of the Notes, after giving effect to payments on such Payment
Date.
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o The "Aggregate Overcollateralization Release Amount" with respect to
any Payment Date will be equal to the lesser of (x) the aggregate
Principal Remittance Amount for both Mortgage Pools for such Payment
Date and (y) the amount, if any, by which (1) the Overcollateralization
Amount for such date (calculated for this purpose on the basis of the
assumption that 100% of the aggregate Principal Remittance Amount for
such date is applied on such date in reduction of the aggregate Class
Principal Amount of the Notes) exceeds (2) the Targeted
Overcollateralization Amount for such date.
o The "Senior Enhancement Percentage" with respect to any Payment Date
will be the fraction, expressed as a percentage, the numerator of which
is the sum of the aggregate Class Principal Amount of the Subordinate
Notes and the Overcollateralization Amount (which, for purposes of this
definition only, shall not be less than zero) in each case after giving
effect to payments on such Payment Date and the denominator of which is
the Aggregate Loan Balance for such Payment Date.
o The "Senior Proportionate Percentage" with respect to any Payment
Date, (1) for Pool 1 will be the fraction, expressed as a percentage,
the numerator of which is the Principal Remittance Amount for Pool 1
for such Payment Date and the denominator of which is the aggregate
Principal Remittance Amount for Pool 1 and Pool 2 for such date, and
(2) for Pool 2 will be the fraction, expressed as a percentage, the
numerator of which is the Principal Remittance Amount for Pool 2 for
such Payment Date and the denominator of which is the aggregate
Principal Remittance Amount for Pool 1 and Pool 2 for such Payment
Date.
o The "Targeted Overcollateralization Amount" with respect to any
Payment Date (a) prior to the Stepdown Date, will be equal to [____]%
of the Cut-off Date Balance, (b) on or after the Stepdown Date and with
respect to which a Trigger Event is not in effect, will be equal to
[____]% of the Aggregate Loan Balance for such Payment Date determined
as of the last day of the related Collection Period, but in no event
less than [____]% of the Cut-off Date Balance, and (c) on or after the
Stepdown Date and with respect to which a Trigger Event is in effect,
will be equal to the Targeted Overcollateralization Amount for the
immediately preceding Payment Date.
o The "Senior Target Amount" for each Mortgage Pool and any Payment
Date will be equal to the lesser of (a) the product of (1) [_____]% and
(2) the Aggregate Loan Balance for such Payment Date determined as of
the last day of the related Collection Period and (b) the amount, if
any, by which (i) the Aggregate Loan Balance for such Payment Date
determined as of the last day of the related Collection Period exceeds
(ii) 0.50% of the Cut-off Date Balance.
o The "Subordinate Class Target Amount" for any class of Subordinate
Notes and any Payment Date will be equal to the lesser of (a) the
product of (1) the target percentage set forth for such Class in the
following table and (2) the Aggregate Loan Balance for such Payment
Date determined as of the last day of the related Collection Period and
(b) the amount, if any, by which (i) the Aggregate Loan Balance for
such Payment Date determined as of the last day of the related
Collection Period exceeds (ii) 0.50% of the Cut-off Date Balance.
CLASS TARGET PERCENTAGE
----- -----------------
M1 [_____]%
M2 [_____]%
M3 [_____]%
M4 [_____]%
M5 [_____]%
M6 [_____]%
M7 [_____]%
M8 [_____]%
M9 [_____]%
B1 [_____]%
B2 [_____]%
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B3 [_____]%
B4 [_____]%
CREDIT ENHANCEMENT
Credit enhancement for the Notes consists of, in addition to limited cross
collateralization, the subordination of the Subordinate Notes, excess interest
and overcollateralization, in each case as described herein.
Subordination. The rights of holders of the Subordinate Notes to receive
payments with respect to the Mortgage Loans will be subordinated, to the extent
described herein, to such rights of holders of each class of Notes having a
higher priority of payment, as described under "--Payments of Interest" and
"--Payments of Principal" above. This subordination is intended to enhance the
likelihood of regular receipt by holders of Notes having a higher priority of
payment of the full amount of interest and principal payable thereon, and to
afford such Noteholders limited protection against Realized Losses incurred with
respect to the Mortgage Loans.
The limited protection afforded to holders of Notes by means of the
subordination of Subordinate Notes having a lower priority of payment will be
accomplished by the preferential right of holders of such Notes to receive,
prior to any payment in respect of interest or principal, respectively, being
made on any Payment Date in respect of Notes having a lower priority of payment,
the amounts of interest due them and principal available for payment,
respectively, on such Payment Date.
REALIZED LOSSES. If a Mortgage Loan becomes a Liquidated Mortgage Loan
during any Collection Period, the related Net Liquidation Proceeds, to the
extent allocable to principal, may be less than the outstanding principal
balance of that Mortgage Loan. The amount of such insufficiency is a "Realized
Loss." Realized Losses on Mortgage Loans will have the effect of reducing
amounts payable in respect of, first, the Ownership Certificate (through the
application of Monthly Excess Cashflow to fund such deficiency and through a
reduction in the Overcollateralization Amount for the related Payment Date);
second, the Class B4 Notes; third, the Class B3 Notes; fourth, the Class B2
Notes; fifth, the Class B1 Notes; sixth, the Class M9 Notes; seventh, the Class
M8 Notes; eighth, the Class M7 Notes; ninth, the Class M6 Notes; tenth, the
Class M5 Notes; eleventh, the Class M4 Notes; twelfth, the Class M3 Notes;
thirteenth, the Class M2 Notes; and fourteenth, the Class M1 Notes, before
reducing amounts payable in respect of the Senior Notes. A "Liquidated Mortgage
Loan" is, in general, a defaulted Mortgage Loan as to which the Servicer has
determined that all amounts that it expects to recover in respect of such
Mortgage Loan have been recovered (exclusive of any possibility of a deficiency
judgment).
Realized Losses will not reduce the Class Principal Amount of any Note,
however, under certain loss scenarios, there may not be enough principal and
interest collected from the Mortgage Loans to pay the Notes all principal and
interest to which they are entitled.
To the extent that Realized Losses are incurred, those Realized Losses
will reduce the Aggregate Loan Balance, and thus may reduce the
Overcollateralization Amount. As described herein, the Overcollateralization
Amount is increased and maintained by application of Monthly Excess Cashflow to
make payments of principal on the Notes.
Excess Interest. The Mortgage Loans included in each Mortgage Pool bear
interest each month that in the aggregate is expected to exceed the amount
needed to pay monthly interest on the related Notes and the fees and expenses of
the Servicer, the Master Servicer, the Trust Administrator, the Indenture
Trustee and the Owner Trustee. Such excess interest from the Mortgage Loans each
month will be available to absorb Realized Losses on the Mortgage Loans and to
maintain overcollateralization at the required levels.
OVERCOLLATERALIZATION. On the Closing date, the Cut-off Date Balance will
exceed the initial aggregate Class Principal Amount of the Notes by
approximately $[__________], which represents approximately [____]% of the
Cut-off Date Balance. The weighted average of the Net Mortgage Rates of the
Mortgage Loans is currently, and generally in the future is expected to be,
higher than the weighted average interest rate on the Notes. As described below,
interest collections will be applied to payments of principal to the extent
needed to maintain overcollateralization (i.e., the excess of the Aggregate Loan
Balance over the aggregate Class Principal Amount
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of the Notes) at the required Targeted Overcollateralization Amount. However,
Realized Losses with respect to Mortgage Loans will reduce
overcollateralization, and could result in an overcollateralization deficiency.
As described herein, to the extent that the Overcollateralization Amount
exceeds the related Targeted Overcollateralization Amount, a portion of the
Principal Payment Amount will not be applied in reduction of the Class Principal
Amounts of the Notes, but will instead be applied as described below.
APPLICATION OF MONTHLY EXCESS CASHFLOW AND CAP AGREEMENT PROCEEDS. The sum
of the Pool 1 Monthly Excess Interest and the Pool 2 Monthly Excess Interest for
any Payment Date, the Aggregate Overcollateralization Release Amount and any
remaining Principal Payment Amount for such date will constitute the "Monthly
Excess Cashflow" for such Payment Date. The Monthly Excess Cashflow for each
Payment Date and the proceeds, if any, from the Group 1 Cap Agreement, the Group
2 Cap Agreement and the Subordinate Cap Agreement for each Payment Date will be
paid as follows:
(1) for each Payment Date occurring (a) before the Stepdown Date or (b) on or
after the Stepdown Date but for which a Trigger Event is in effect, any Monthly
Excess Cashflow will be paid until the aggregate Class Principal Amount of the
Notes equals the Target Amount for such Payment Date, in the following order of
priority:
(a) concurrently, pro rata based on the respective Senior Proportionate
Percentages for Pool 1 and Pool 2 for such Distribution Date, to the
Class 1A1, Class 1A2 and Class 1A3 Notes (in accordance with the Pool 1
Senior Priority) and to the Class 2A1 Notes, until the Class Principal
Amount of each such class has been reduced to zero; and
(b) to the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6,
Class M7, Class M8, Class M9, Class B1, Class B2, Class B3 and Class B4
Notes, in accordance with the Subordinate Priority, until the Class
Principal Amount of each such class has been reduced to zero;
(2) for each Payment Date occurring on or after the Stepdown Date and for which
a Trigger Event is not in effect, any Monthly Excess Cashflow will be paid in
the following order of priority:
(a) concurrently, in proportion to the aggregate Class Principal Amount
of the Senior Notes related to each Mortgage Pool, after giving effect
to principal payments on such Payment Date as described under
"--Payments of Principal--Principal Payment Priorities" above, to the
Class 1A1, Class 1A2 and Class 1A3 Notes (in accordance with the Pool 1
Senior Priority) and to the Class 2A1 Notes, until the aggregate Class
Principal Amount of the Senior Notes, after giving effect to payments
on such Payment Date, equals the Senior Target Amount; and
(b) to the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6,
Class M7, Class M8, Class M9, Class B1, Class B2, Class B3 and Class B4
Notes, in accordance with the Subordinate Priority, in reduction of
their respective Class Principal Amounts, in each case until the
aggregate Class Principal Amount of the Senior Notes and the classes of
Subordinate Notes, if any, that have a higher priority of payment than
the subject class, after giving effect to payments on such Payment
Date, equals the Target Amount for the subject class for such Payment
Date;
(3) for each Payment Date, after giving effect to payments described above on
such Payment Date, amounts received by the Trust Administrator under the Group 1
Cap Agreement, the Group 2 Cap Agreement and the Subordinate Cap Agreement will
be paid to the following classes of Notes and in the following order of
priority:
(a) concurrently, (i) in the case of amounts received under the Group 1
Cap Agreement, concurrently, in proportion to their respective Basis
Risk Shortfall and Unpaid Basis Risk Shortfall amounts, to the Group 1
Notes, any applicable Basis Risk Shortfall and Unpaid Basis Risk
Shortfall amounts for each such class for such Payment Date, (ii) in
the case of amounts received under the Group 2 Cap Agreement, to the
Class 2A1 Notes, any applicable Basis Risk Shortfall and Unpaid Basis
Risk Shortfall amounts for such class for such Payment Date and (iii)
in the case of amounts received under the
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Subordinate Cap Agreement, concurrently, in proportion to their
respective Basis Risk Shortfall and Unpaid Basis Risk Shortfall
amounts, to the Subordinate Notes, any applicable Basis Risk Shortfall
and Unpaid Basis Risk Shortfall amounts for each such class for such
Payment Date; and
(b) for addition to amounts distributable pursuant to priority (6)
below, to the Ownership Certificate, any amounts remaining from
payments under the Group 1 Cap Agreement, the Group 2 Cap Agreement and
the Subordinate Cap Agreement in excess of amounts required to be paid
under priority (3)(a)(i), (3)(a)(ii) and (3)(a)(iii), respectively, for
such Payment Date;
(4) for each Payment Date, from Monthly Excess Cashflow remaining after payments
have been made pursuant to priority (1) or (2) above, as the case may be, and
after giving effect to payments described in priority (3) above, in the
following order of priority:
(a) concurrently, in proportion to their respective Basis Risk
Shortfall and Unpaid Basis Risk Shortfall amounts for such Payment Date
remaining unpaid after giving effect to payments described in priority
(3) above, to the Senior Notes, any such Basis Risk Shortfall and
Unpaid Basis Risk Shortfall amounts remaining unpaid for each such
class; and
(b) to the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6,
Class M7, Class M8, Class M9, Class B1, Class B2, Class B3 and Class B4
Notes, in accordance with the Subordinate Priority, any applicable
Basis Risk Shortfall and Unpaid Basis Risk Shortfall amounts for each
such class for such Payment Date remaining unpaid after giving effect
to payments described in priority (3) above;
(5) to the Class M1, Class M2, Class M3, Class M4, Class M5, Class M6, Class M7,
Class M8, Class M9, Class B1, Class B2, Class B3 and Class B4 Notes, in
accordance with the Subordinate Priority, any Deferred Interest for each such
class and such Payment Date; and
(6) to the Ownership Certificate, the amount distributable thereon under the
Transfer and Servicing Agreement.
DEFINITIONS RELATING TO MONTHLY EXCESS CASHFLOW PRIORITIES.
The "Deferred Interest" for each class of Subordinate Notes for any
Payment Date will be equal to the sum of (a) the aggregate amount of interest
accrued at the applicable Interest Rate during the related Accrual Period on the
Principal Deficiency Amount for that class, (b) any amounts due pursuant to
clause (a) for such class for prior Payment Dates that remain unpaid and (c)
interest accrued during the Accrual Period related to such Payment Date on the
amount in clause (b) at the Interest Rate applicable to such class.
The "Total Principal Deficiency Amount" with respect to any Payment Date
will be the excess, if any, of the aggregate Class Principal Amount of the Notes
after giving effect to payments on such Payment Date over the Aggregate Loan
Balance as of the last day of the related Collection Period.
The "Principal Deficiency Amount" with respect to any class of Subordinate
Notes and any Payment Date will be the lesser of (a) the excess of (1) the Total
Principal Deficiency Amount for such Payment Date over (2) the aggregate
Principal Deficiency Amount for the classes of Subordinate Notes, if any, that
have a lower priority of payment than the subject class and (b) the Class
Principal Amount of the subject class of Subordinate Notes immediately prior to
such Payment Date.
MATURITY DATE
The Maturity Date for the Notes has been determined to be the Payment Date
in July 2035 based upon the second Payment Date after the date of the last
Scheduled Payment of the latest maturing Mortgage Loan. As to each class of
Notes, the actual final Payment Date may be earlier and could be substantially
earlier than such class's Maturity Date.
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OPTIONAL PURCHASE OF THE MORTGAGE LOANS
On any Payment Date following the end of the first Collection Period in
which the Aggregate Loan Balance is less than 20% of the Cut-off Date Balance
(the first such date, the "Initial Optional Termination Date"), Aames Investment
Acceptance Corporation will have the option to purchase the Mortgage Loans, any
REO Property and any other property remaining in the Trust for a price equal to
the sum of (a) 100% of the aggregate outstanding principal balance of the
Mortgage Loans plus accrued interest thereon at the applicable Mortgage Rate,
(b) any costs and damages incurred by the Trust associated with a violation of
any applicable federal, state or local predatory or abusive lending law, (c) the
fair market value of REO Property and all other property being purchased and (d)
any Basis Risk Shortfalls (the "Termination Price"). The Master Servicer and the
Servicer will be reimbursed from the Termination Price for any outstanding
Advances, servicing advances and unpaid Servicing Fees and other amounts not
previously reimbursed pursuant to the provisions of the Transfer and Servicing
Agreement, as applicable, and the Trust Administrator, the Owner Trustee and the
Indenture Trustee shall be reimbursed for any previously unreimbursed amounts
for which they are entitled to be reimbursed pursuant to the Transfer and
Servicing Agreement or the Trust Agreement. If Aames Investment Acceptance
Corporation fails to exercise such option, then on or after any Payment Date
following the end of the first Collection Period in which the Aggregate Loan
Balance is less than 10% of the Cut-off Date Balance, the Servicer will have the
option to purchase the Mortgage Loans for the Termination Price. If either such
option is exercised the Trust will be terminated, resulting in a mandatory
redemption of the Notes. The margin on each of the Notes will be increased as
described under "Summary of Terms--The Offered Certificates--Payments on the
Notes--Interest Payments" herein beginning on the first Payment Date following
the Initial Optional Termination Date.
THE OWNERSHIP CERTIFICATE
The equity ownership in the Trust will be evidenced by the Ownership
Certificate. The holder of the Ownership Certificate, the Ownership
Certificateholder, will, after all amounts due and owing to the Owner Trustee,
and not otherwise paid, have been paid, be entitled to receive on each Payment
Date (1) any cash flow from Mortgage Loan collections attributable to Prepayment
Premiums, (2) any payments under the Group 1 Cap Agreement, the Group 2 Cap
Agreement and the Subordinate Cap Agreement remaining on such Payment Date after
payment of Basis Risk Shortfalls and Unpaid Basis Risk Shortfalls pursuant to
priority (3)(a)(i), (3)(a)(ii) and (3)(a)(iii), respectively, set forth under
"--Credit Enhancement--Application of Monthly Excess Cashflow and Cap Agreement
Proceeds," and (3) any remaining cash flow from Mortgage Loan collections after
all principal and interest on the Notes and other expenses of the Trust for such
Payment Date have been made.
TRUST ADMINISTRATOR
[TRUST ADMINISTRATOR], will serve as the Trust Administrator (the "Trust
Administrator") under the Transfer and Servicing Agreement for so long as it is
the Master Servicer and, as such, will be responsible for preparing certain
investor reports, including the monthly payment date statement to Noteholders,
providing all customary tax reports to Noteholders related to their investment
and preparing and filing the Trust's tax information returns. The Trust
Administrator shall prepare the payment date statement and tax returns based
solely on information provided to the Trust Administrator by the Master Servicer
(which it received from the Servicer). The Trust Administrator shall not be
required to confirm, verify, or recompute any such information, but shall be
entitled to rely conclusively on such information. The Trust Administrator will
make the payment date statement available each month to Noteholders. The Trust
Administrator also will act as note registrar and paying agent. The Trust
Administrator will be paid for its trust administration services by the Master
Servicer out of its Master Servicing Fee. The Trust Administrator will be
entitled to reimbursement for certain expenses prior to payment of any amounts
to Noteholders.
DESCRIPTION OF THE MORTGAGE POOLS
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GENERAL
Except where otherwise specifically indicated, the discussion that follows
and the statistical information presented therein are derived solely from the
characteristics of the Mortgage Loans as of the Cut-off Date. Whenever reference
is made herein to the characteristics of the Mortgage Loans or to a percentage
of the Mortgage Loans, unless otherwise specified, that reference is based on
the Scheduled Principal Balances of the Mortgage Loans (or the specified Pool of
Mortgage Loans) as of the Cut-off Date (the "Cut-off Date Balance").
The Trust will primarily consist of approximately [_____] conventional,
adjustable, fully amortizing, first lien residential Mortgage Loans,
substantially all of which have original terms to maturity from the first due
date of the Scheduled Payment of 30 years, and which have a Cut-off Date Balance
(after giving effect to Scheduled Payments due on such date) of approximately
$[_____________].
The Mortgage Loans were originated or acquired by Aames Investment
Corporation (the "Seller") in the ordinary course of its business and were
underwritten or re-underwritten by the Seller or its affiliates, in accordance
with the Seller's "Super Aim" underwriting standards as described under "The
Seller and the Underwriting Guidelines" below. Because, in general, such
underwriting guidelines do not conform to Fannie Mae and Freddie Mac's
underwriting guidelines, the Mortgage Loans are likely to experience higher
rates of delinquency, foreclosure and bankruptcy than if they had been
underwritten to a higher standard.
The Depositor will purchase the Mortgage Loans from the Seller on the
Closing Date pursuant to a Mortgage Loan Purchase and Assignment Agreement dated
as of the Cut-off Date (the "Mortgage Loan Purchase Agreement"), between the
Seller and the Depositor. Pursuant to an Amended and Restated Trust Agreement
dated as of the Cut-off Date (the "Trust Agreement"), among the Depositor, the
Owner Trustee, and the Trust Administrator, the Depositor will assign its
rights, title and interest in the Mortgage Loans and the Mortgage Loan Purchase
and Assignment Agreement to the Indenture Trustee for the benefit of
Noteholders. See "The Mortgage Loan Purchase Agreement and the Transfer and
Servicing Agreement--Assignment of the Mortgage Loans" below.
All of the Mortgage Loans are secured by first mortgages or deeds of trust
or similar security instruments on residential properties consisting of one- to
four-family dwelling units and individual condominium units.
All of the Mortgage Loans in the Trust are adjustable rate Mortgage Loans,
as described in more detail under "Adjustable Rate Mortgage Loans" below.
Interest on the Mortgage Loans accrues on the basis of a 360-day year consisting
of twelve 30-day months.
Approximately [_____]% and [____]% of the Mortgage Loans in Pool 1 and
Pool 2, respectively, provide for payment of interest at the related Mortgage
Rate, but no payment of principal, for a period of five years following
origination of the related Mortgage Loan. Following the applicable interest-only
period, the monthly payment with respect to these Mortgage Loans will be
increased to an amount sufficient to amortize the principal balance of such
Mortgage Loan over its remaining term, and to pay interest at the related
Mortgage Rate.
Pursuant to its terms, each Mortgage Loan, other than a loan secured by a
condominium unit, is required to be covered by a standard hazard insurance
policy in an amount equal to the lower of the unpaid principal amount thereof or
the replacement value of the improvements on the Mortgaged Property. Generally,
a condominium association is responsible for maintaining hazard insurance
covering the entire building. See "The Agreements----Hazard Insurance" in the
Prospectus.
Approximately [_____]% of the Mortgage Loans have original Loan-to-Value
Ratios in excess of 80%. The "Loan-to-Value Ratio" of a Mortgage Loan at any
time is the ratio of the principal balance of such Mortgage Loan at the date of
determination to (a) in the case of a purchase, the lesser of the sale price of
the Mortgaged Property and its appraised value at the time of sale or (b) in the
case of a refinancing or modification, the appraised value of the Mortgaged
Property at the time of the refinancing or modification.
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Approximately [_____]% of the Mortgage Loans provide for payment by the
borrower of a prepayment premium (each, a "Prepayment Premium") in connection
with certain full prepayments of principal. Generally, each such Mortgage Loan
provides for payment of a Prepayment Premium in connection with certain
voluntary, full prepayments made within the period of time specified in the
related Mortgage Note, ranging from one year to three years from the date of
origination of such Mortgage Loan (the "Penalty Period"), as described herein.
The amount of the applicable Prepayment Premium, to the extent permitted under
applicable state law, is as provided in the related Mortgage Note. Prepayment
Premiums will not be part of available funds applied to pay interest or
principal on the Notes, but rather will be distributed to the holder of the
Ownership Certificate. A Servicer may waive a Prepayment Premium (without
reimbursing the Trust from its own funds for any foregone Prepayment Premium)
only if (a) the Mortgage Loan is in default (defined as 61 days or more
delinquent) and such waiver would maximize recovery of total proceeds taking
into account the value of such Prepayment Premium and the related Mortgage Loan
or the Mortgage Loan is foreseen to be in default and such waiver would maximize
recovery of total proceeds taking into account the value of such Prepayment
Premium and the related Mortgage Loan, (b) the collection of the Prepayment
Premium would be in violation of applicable laws or (c) notwithstanding any
state or federal law to the contrary, any Prepayment Premium in any instance
when a Mortgage Loan is in foreclosure. The Servicer will be obligated to
deposit with the Master Servicer from its own funds the amount of any Prepayment
Premium to the extent not collected from a borrower (except with respect to a
waiver of any such Prepayment Premium as described above).
As of the Cut-off Date, [___] of the Mortgage Loans, representing [____]%
of the Cut-off Date Balance, was 30 days or more delinquent in payment.
None of the Mortgage Loans in the Trust will be "high cost" loans under
applicable federal, state or local anti-predatory or anti-abusive lending laws.
As described under "Description of the Notes--General," the Mortgage Loans
in the Trust have been divided into two Mortgage Pools (Pool 1 and Pool 2) for
the purpose of allocating interest and principal payments among the Senior
Notes. Pool 1 will consist of Mortgage Loans in the Trust with original
principal balances which may be less than, equal to, or in excess of, the
applicable Freddie Mac maximum original loan amount limitations for one- to
four-family Mortgaged Properties. On the Closing Date, Pool 1 will consist of
approximately [_____] Mortgage Loans having an aggregate Cut-off Date Balance of
approximately $[___________]. On the Closing Date, Pool 2 will consist only of
Mortgage Loans in the Trust with original principal balances which do not exceed
such original loan amount limitations. Pool 2 will consist of approximately
[_____] Mortgage Loans having an aggregate Cut-off Date Balance of approximately
$[___________]. Other important statistical characteristics of each Mortgage
Pool are described at "--Pool 1 Mortgage Loans" and "--Pool 2 Mortgage Loans"
below.
ADJUSTABLE RATE MORTGAGE LOANS
All of the Mortgage Loans provide for semi-annual adjustment of the
related Mortgage Rate based on the Six-Month LIBOR Index as described under
"--The Index" below. For each Mortgage Loan there will be corresponding
adjustments to the monthly payment amount on each adjustment date applicable
thereto (each such date, an "Adjustment Date"); provided that the first such
adjustment for approximately [_____]% of the Mortgage Loans, approximately two
years following origination; in the case of approximately [____]% of the
Mortgage Loans, approximately three years following origination; and in the case
of approximately [____]% of the Mortgage Loans, approximately five years
following origination. On each Adjustment Date for a Mortgage Loan, the Mortgage
Rate will be adjusted to equal the sum, rounded generally to the nearest
multiple of 1/8%, of the Six-Month LIBOR Index and a fixed percentage amount
(the "Gross Margin"), provided that the Mortgage Rate on each such Mortgage Loan
will not increase or decrease by more than a fixed percentage (approximately
[_____]%) specified in the related Mortgage Note (the "Periodic Cap") on any
related Adjustment Date and will not exceed a specified maximum Mortgage Rate
over the life of such Mortgage Loan (the "Maximum Rate") or be less than a
specified minimum Mortgage Rate over the life of such Mortgage Loan (the
"Minimum Rate"). The Mortgage Rate generally will not increase or decrease on
the first Adjustment Date by more than a fixed percentage specified in the
related Mortgage Note (the "Initial Cap"). The Initial Caps range from [_____]%
to [_____]% for all of the Adjustable Rate Loans and the weighted average of the
Initial Caps of the Mortgage
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Loans are approximately [_____]% for Pool 1 and [_____]% for Pool 2. Effective
with the first monthly payment due on each Adjustable Rate Loan after each
related Adjustment Date, the monthly payment amount will be adjusted to an
amount that will amortize fully the outstanding principal balance of the related
Mortgage Loan over its remaining term, and pay interest at the Mortgage Rate as
so adjusted. Due to the application of the Initial Caps, Periodic Caps and
Maximum Rates, the Mortgage Rate on each Mortgage Loan, as adjusted on any
related Adjustment Date, may be less than the sum of the Six-Month LIBOR Index
and the related Gross Margin, rounded as described herein. See "The Index"
below.
The Mortgage Loans generally do not permit the related borrower to convert
the adjustable Mortgage Rate to a fixed Mortgage Rate.
THE INDEX
As indicated above, the index applicable to the determination of the
Mortgage Rates for the Mortgage Loans will be the average of the interbank
offered rates for six month United States dollar deposits in the London market,
calculated as provided in the related Mortgage Note (the "Six-Month LIBOR
Index") and as most recently available either as of (1) the first business day a
specified period of time prior to such Adjustment Date or (2) the first business
day of the month preceding the month of such Adjustment Date. In the event that
the Six-Month LIBOR Index becomes unavailable or otherwise unpublished, the
Servicer will select a comparable alternative index over which it has no direct
control and which is readily verifiable.
THE MORTGAGE LOANS
The Mortgage Loans in the aggregate are expected to have the following
approximate aggregate characteristics as of the Cut-off Date. Prior to the
issuance of the Notes, Mortgage Loans may be removed from Pool 1 or Pool 2, as
applicable, as a result of incomplete documentation or otherwise, if the
Depositor deems such removal necessary or appropriate.
Number of Mortgage Loans................................ [_____]
Total Scheduled Principal Balance....................... $[_____________]
Mortgage Rates:
Weighted Average................................... [_____]%
Range.............................................. [_____]% to [______]%
Weighted Average Remaining Term to Maturity (months).... [___]
The Scheduled Principal Balances of the Mortgage Loans range from
approximately $[______] to $[_______]. The Mortgage Loans have an average
Scheduled Principal Balance of approximately $[_______].
The weighted average Loan-to-Value Ratio at origination of the Mortgage
Loans is approximately [_____]%, and approximately [_____]% of the Mortgage
Loans have a Loan-to-Value Ratio at origination exceeding 80%.
No more than approximately [____]% of the Mortgage Loans are secured by
Mortgaged Properties located in any one zip code area.
The Mortgage Loans in the aggregate are expected to have the stated
characteristics as of the Cut-off Date as set forth in Annex B to this
prospectus supplement. The sum of the amounts of the aggregate Scheduled
Principal Balances and the percentages in the tables in Annex B may not equal
the totals due to rounding.
POOL 1 MORTGAGE LOANS
The Mortgage Loans included in Pool 1 (the "Pool 1 Mortgage Loans") are
expected to have the following approximate aggregate characteristics as of the
Cut-off Date. Prior to the issuance of the Notes, Mortgage Loans
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may be removed from Pool 1 as a result of incomplete documentation or otherwise,
if the Depositor deems such removal necessary or appropriate.
Number of Mortgage Loans................................ [_____]
Total Scheduled Principal Balance....................... $[_____________]
Mortgage Rates:
Weighted Average................................... [_____]%
Range.............................................. [_____]% to [______]%
Weighted Average Remaining Term to Maturity (months).... [___]
The Scheduled Principal Balances of the Pool 1 Mortgage Loans range from
approximately $[_______] to $[_______]. The Pool 1 Mortgage Loans have an
average Scheduled Principal Balance of approximately $[_______].
The weighted average Loan-to-Value Ratio at origination of the Pool 1
Mortgage Loans is approximately [_____]%, and approximately [_____]% of the Pool
1 Mortgage Loans have a Loan-to-Value Ratio at origination exceeding 80%.
No more than approximately [____]% of the Pool 1 Mortgage Loans are
secured by Mortgaged Properties located in any one zip code area.
The Pool 1 Mortgage Loans are expected to have the stated characteristics
as of the Cut-off Date as set forth in Annex B to this prospectus supplement.
The sum of the amounts of the aggregate Scheduled Principal Balances and the
percentages in the tables in Annex B may not equal the totals due to rounding.
POOL 2 MORTGAGE LOANS
The Mortgage Loans included in Pool 2 (the "Pool 2 Mortgage Loans") are
expected to have the following approximate aggregate characteristics as of the
Cut-off Date. Prior to the issuance of the Notes, Mortgage Loans may be removed
from Pool 2 as a result of incomplete documentation or otherwise, if the
Depositor deems such removal necessary or appropriate.
Number of Mortgage Loans................................ [_____]
Total Scheduled Principal Balance....................... $[_____________]
Mortgage Rates:
Weighted Average................................... [_____]%
Range.............................................. [_____]% to [______]%
Weighted Average Remaining Term to Maturity (months).... [___]
The Scheduled Principal Balances of the Pool 2 Mortgage Loans range from
approximately $[_______] to $[_______]. The Pool 2 Mortgage Loans have an
average Scheduled Principal Balance of approximately $[_______].
The weighted average Loan-to-Value Ratio at origination of the Pool 2
Mortgage Loans is approximately [_____]%, and approximately [_____]% of the Pool
2 Mortgage Loans have a Loan-to-Value Ratio at origination exceeding 80%.
No more than approximately [____]% of the Pool 2 Mortgage Loans are
secured by Mortgaged Properties located in any one zip code area.
The Pool 2 Mortgage Loans are expected to have the stated characteristics
as of the Cut-off Date as set forth in Annex B to this prospectus supplement.
The sum of the amounts of the aggregate Scheduled Principal Balances and the
percentages in the tables in Annex B may not equal the totals due to rounding.
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ADDITIONAL INFORMATION
The description in this prospectus supplement of the Mortgage Pools and
the Mortgaged Properties is based upon each Mortgage Pool as constituted at the
close of business on the Cut-off Date, as adjusted for Scheduled Payments due on
or before that date. A Current Report on Form 8-K will be filed, together with
the Transfer and Servicing Agreement, Indenture and Trust Agreement and certain
other transaction documents, with the Securities and Exchange Commission after
the initial issuance of the Notes. In the event that Mortgage Loans are removed
from or added to the Trust, such removal or addition, to the extent material,
will be noted in the Current Report on Form 8-K.
Pursuant to the Transfer and Servicing Agreement, the Trust Administrator
will prepare a monthly statement to Noteholders containing certain information
regarding the Notes and the Mortgage Pools. The Trust Administrator may make
available each month, to any interested party, the monthly statement to
Noteholders via the Trust Administrator's website. Assistance in using the
website can be obtained by calling the Trust Administrator's customer service
desk at (###) ###-####. Parties that are unable to use the above option are
entitled to have a paper copy mailed to them via first class by notifying the
Trust Administrator at [TRUST ADMINISTRATOR], [STREET ADDRESS], [CITY], [STATE]
[ZIP CODE], Attention: Trust Administrator, Aames Mortgage Investment Trust
[___-_]. The Trust Administrator will have the right to change the way such
reports are paid in order to make such payments more convenient and/or more
accessible, and the Trust Administrator will provide timely and adequate
notification to such parties regarding any such changes.
THE SELLER AND THE UNDERWRITING GUIDELINES
The information in this section has been provided by the Seller and none
of the Depositor, the Trust Administrator, the Indenture Trustee, the Owner
Trustee, the Underwriters, the Servicer, the Master Servicer or any of their
respective affiliates has made or will make any representation or warranty as to
the accuracy or completeness of this information.
THE SELLER
The Seller, Aames Investment Corporation ("Aames Investment"), is a real
estate investment trust incorporated in the State of Maryland. The principal
executive office of the Seller is located at 350 South Grand Avenue, Los
Angeles, California 90071, and its telephone number is (323) 210-5000.
UNDERWRITING GUIDELINES
The mortgage loans were acquired by Aames Investment from an indirect,
wholly-owned subsidiary, Aames Capital Corporation ("ACC"). ACC is a California
corporation and a national mortgage-banking company, which together with its
parent Aames Financial Corporation and its sister corporation Aames Funding
Corporation are focused primarily on originating subprime residential mortgage
loans through both wholesale and retail channels under the name "Aames Home
Loan." ACC's corporate headquarters are located at 350 S. Grand Avenue, 43rd
Floor, Los Angeles, CA 90071 and its telephone number is (323) 210-5000. Aames
Investment has elected to be taxed as a real estate investment trust (a "REIT").
ACC, Aames Financial Corporation and Aames Funding Corporation are each taxable
REIT subsidiaries of Aames Investment.
The mortgage loans were underwritten generally in accordance with the
underwriting criteria described herein. The information set forth in the
following paragraphs has been provided by Aames Investment, and none of the
Depositor, the Master Servicer, the Trust Administrator, the Indenture Trustee,
the Underwriters, the Owner Trustee or any of their respective affiliates or any
other party has made or will make any representation as to the accuracy or
completeness of such information.
ACC acquires mortgage loans originated by an affiliate of ACC, which
together with its sister company, Aames Funding Corporation, are called
affiliated originators or originators in this prospectus supplement. The
following is a general summary of the underwriting guidelines of ACC. This
summary does not purport to be a
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complete description of the underwriting standards of ACC. All mortgage loans
are underwritten generally in accordance with underwriting guidelines developed
by ACC and the affiliated originator, as described below, subject to certain
exceptions with respect to individual mortgage loans.
ACC's underwriting guidelines are designed to assess the borrower's
creditworthiness and the adequacy of the real property as collateral for the
loan. The borrower's creditworthiness is assessed by examination of a number of
factors, including calculation of debt-to-income ratios, which is the sum of the
borrower's monthly debt payments divided by the borrower's monthly income before
taxes and other payroll deductions, an examination of the borrower's credit
history and credit score through standard credit reporting bureaus, and by
evaluating the borrower's payment history with respect to existing mortgages, if
any, on the property.
ACC's underwriting policy is to analyze the overall situation of the
borrower and to take into account compensating factors that may be used to
offset certain areas of weakness. These compensating factors include the
borrower's history of payments on his prior mortgage, credit scores, proposed
reductions in the borrower's debt service expense, employment stability, number
of years in residence and net disposable income. A critical function of ACC's
underwriting process is to identify the level of credit risk associated with
each applicant for a mortgage loan. ACC has established six principal
classifications, with respect to the credit profile of potential borrowers, and
has assigned a rating to each loan based upon these classifications. ACC assigns
credit grades by analyzing mortgage payment history, consumer credit history,
credit score, bankruptcy history and debt-to-income ratio. If an individual loan
application does not meet ACC's formal written underwriting guidelines, its
underwriters can make underwriting exceptions up to certain limits within its
formal exception policies and approval authorities. ACC may, from time to time,
apply underwriting criteria that are either more stringent or more flexible
depending upon the economic conditions of a particular geographic market.
Credit scores are obtained by ACC in connection with mortgage loan
applications to help assess a borrower's creditworthiness. Credit scores are
obtained from credit reports provided by various credit reporting organizations,
each of which may employ differing computer models and methodologies. The credit
score is designed to assess a borrower's credit history at a single point in
time, using objective information currently on file for the borrower at a
particular credit reporting organization. Information utilized to create a
credit score may include, among other things, payment history, delinquencies on
accounts, level of outstanding indebtedness, length of credit history, types of
credit, and bankruptcy experience. Credit scores range from approximately 400 to
approximately 800, with higher scores indicating an individual with a more
favorable credit history compared to an individual with a lower score. However,
a credit score purports only to be a measurement of the relative degree of risk
a borrower represents to a lender; that is, a borrower with a higher score is
statistically expected to be less likely to default in payment than a borrower
with a lower score. Moreover, credit scores were developed to indicate a level
of default probability over the period of the next two-years, which does not
correspond to the life of a mortgage loan. Furthermore, credit scores were not
developed specifically for use in connection with mortgage loans, but for
consumer loans in general. Therefore, a credit score does not take into
consideration the differences between mortgage loans and consumer loans
generally or the specific characteristics of the related mortgage loan
including, for example, the loan-to-value ratio or combined loan-to-value ratio,
the collateral for the mortgage loan, or the debt to income ratio. There can be
no assurance that the credit scores of the mortgagors will be accurate
predictors of the likelihood of repayment of the related mortgage loans.
An assessment of the adequacy of the real property as collateral for the
loan is primarily based upon an appraisal of the property and a calculation of
the loan-to-value ratios of the loan applied for and of all mortgages existing
on the property, including the loan applied for the combined loan-to-value
ratio, to the appraised value of the property at the time of origination.
Appraisers determine a property's value by reference to the sales prices of
comparable properties recently sold, adjusted to reflect the condition of the
property as determined through inspection. As a lender that generally
specializes in loans made to credit impaired borrowers, ACC makes mortgage loans
to borrowers with credit histories or other factors that might disqualify them
from consideration for a loan from traditional financial institutions. ACC's
underwriting guidelines for such credit-impaired borrowers may, in certain
instances, allow for higher combined loan-to-value ratios than would typically
be the case if the borrower could qualify for a loan from a traditional
financial institution, and at generally higher interest rates than the borrower
could qualify for from a traditional financial institution.
S-48
The underwriting of a mortgage loan to be originated or purchased by ACC
generally includes a review of the completed loan package, which includes the
loan application, a current appraisal, a preliminary title report and a credit
report. All loan applications and all closed loans offered to ACC for purchase
must be approved by ACC in accordance with its underwriting criteria. ACC
regularly reviews its underwriting guidelines and makes changes when appropriate
to respond to market conditions, the performance of loans representing a
particular loan product or changes in laws or regulations.
ACC requires title insurance coverage issued on an American Land Title
Association (or similar) form of title insurance on all residential properties
securing mortgage 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 ACC against loss if the title
or lien position is not as indicated. The applicant is also required to maintain
hazard and, in certain instances, flood insurance, in an amount sufficient to
cover the new loan and any senior mortgage, subject to the maximum amount
available under the National Flood Insurance Program.
Set forth below is a general description of the underwriting guidelines
designed to provide an overview of the general credit considerations utilized by
ACC and is not intended to be a detailed explanation of all credit
considerations analyzed by ACC in underwriting loans.
"Super Aim" Underwriting Guidelines. The Super Aim guidelines require a
minimum credit score of 500, although a higher credit score is often required to
qualify for the maximum LTV under the program. The Super Aim guidelines
generally permit a maximum debt-to-income ratio ("DTI") of 50% and require that
the borrower not be more than 149 days delinquent on the existing mortgage. For
full documentation or limited documentation loans with LTVs of 85% or less, the
maximum DTI is 55%, and for loans with LTVs of greater than 95%, the maximum DTI
is 45%. Interest-only loans, limited to the "A+", "A" and "A-" credit grades,
have a generally higher minimum credit score of 580, and a maximum DTI of 50%.
The following chart generally outlines the parameters of the credit grades of
ACC's Super Aim underwriting guidelines.
CREDIT GRADE
----------------------------------------------------------------------------
"A+" "A" "A-" "B" "C" "C-"
----------- ------------ ------------ ------------ ------------ --------
12 Month Mortgage History 0 x 30 1 x 30 3 x 30 1 x 60 1 x 90 1 x 120
Minimum Credit Score 500 (580 500 (580 500 500 500 500
for for
interest-onlyinterest-only
loans) loans)
BK/FC(1) Seasoning 24 months 24 months 24 months 18 months 12 months No current
BK
Full Documentation Plus, Owner 80%; 100% 80%; 95% 80%; 95% 80%; 90% 75%; 85% 70%
Occupied Max LTV for credit for credit for credit for credit for credit
score of score of score of score of score of
620 or 550 or above 550 or above 550 or above 550 or above
above
Full Documentation, Owner 80%; 95% 80%; 95% 80%; 95% 80%; 90% 75%; 85% 70%
Occupied Max LTV for credit for credit for credit for credit for credit
score of score of score of score of score of
550 or 550 or above 550 or above 550 or above 550 or above
above
Limited Documentation, Owner 80%; 90% 80%; 90% 80%; 85% 80%; 85% 75%; 80% 70%
Occupied Max LTV for credit for credit for credit for credit for credit
score of score of score of score of score of
550 and 550 and 550 and 550 and 550 and
above above above above above
Stated Income, Owner Occupied 80%; 90% 80%; 90% 75%; 80% 75%; 80% 70%; 75% Not
Max LTV for credit for credit for credit for credit for credit available
score of score of score of score of score of
580 or 620 and 525 and 550 and 550 or above
above above above above
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(1) Bankruptcy, notice of default and foreclosure
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ACC's mortgage programs include several levels of documentation used to
verify the borrower's income:
Full Documentation Plus: The highest level of income documentation based
upon S&P's full income documentation guidelines. Generally a stable, two-year
history of the income is required. A wage-earner may document income by a
verification of employment together with either of the following: the borrower's
most recent two-years W-2 forms and a current pay-stub reflecting year-to-date
income; or the borrower's most recent two-years IRS Form 1040's and a current
pay-stub reflecting year-to-date income. A self-employed borrower may document
income with the most recent two-years IRS Form 1040's and current year-to-date
statement of profit and loss if the loan application is dated more than 120 days
after the end of the business's fiscal year.
Full Documentation: Generally a stable, one-year history of the income is
required. A wage-earner may document income by a verification of employment
together with any of the following: the borrower's most recent W-2 forms and a
current pay-stub reflecting year-to-date income; the borrower's most recent IRS
Form 1040's and a current pay-stub reflecting year-to-date income; or the
borrower's most recent 12-months personal (or 24-months commingled personal and
business) bank statements showing average monthly deposits sufficient to support
the qualifying income. A self-employed borrower may document income with either
the most recent two-years IRS Form 1040's and current year-to-date statement of
profit and loss if the loan application is dated more than 120 days after the
end of the business's fiscal year; or the borrower's most recent 12-months
personal (or 24-months commingled personal and business) bank statements showing
average monthly deposits sufficient to support the qualifying income.
Limited Documentation: For borrowers who have less than a one-year history
of stable income or who otherwise cannot meet the requirements of the full
documentation program. This program generally requires two-years history in the
same profession, together with 12-months business or commingled personal and
business bank statements to support their qualifying income.
Stated Income: The borrower's income used to qualify for the loan is taken
from the borrower's signed application and must be reasonable for the borrower's
line of work or profession. All self-employed borrowers must provide
satisfactory evidence of existence of the business and show a history of 2 years
employment in the same profession on the loan application. In some cases, but
not in all, the assets of the borrower will be verified.
EVENTS RELATED TO PRIOR SECURITIZATIONS
In the past, and most recently in [______] 2005, the ratings of certain
mortgage pass-through securities (including certain investment grade securities)
issued by trusts containing mortgage loans that were originated or purchased by
ACC or its affiliates have been downgraded by the rating agencies that issued
ratings on the mortgage-pass through securities at the time of issuance. Other
mortgage pass-through securities issued by such trusts may also be the subject
of ratings actions by a rating agency.
See the discussion below under "The Servicer--Mortgage Loan Delinquency
and Foreclosure Experience" regarding loss triggers related to securitizations
for which ACC acts as servicer and which include mortgage loans originated or
purchased by ACC.
THE MASTER SERVICER
The information in this section has been provided by [MASTER SERVICER] (or
the "Master Servicer"), and none of the Depositor, the Trust Administrator, the
Indenture Trustee, the Owner Trustee, the Seller, the Underwriters, the Servicer
or any of their respective affiliates has made or will make any representation
or warranty as to the accuracy or completeness of this information.
[MASTER SERVICER] is a national banking association, with its master
servicing offices located at [STREET ADDRESS] [CITY], [STATE] [ZIP CODE].
[MASTER SERVICER] is engaged in the business of master servicing single family
residential mortgage loans secured by properties located in all 50 states and
the
S-50
District of Columbia. [MASTER SERVICER] is one of the banking subsidiaries
of [MASTER SERVICER PARENT ENTITY].
THE SERVICER
The information in this section has been provided by the Servicer and none
of the Depositor, the Trust Administrator, the Indenture Trustee, the Owner
Trustee, the Underwriters, the Master Servicer or any of their respective
affiliates has made or will make any representation or warranty as to the
accuracy or completeness of this information.
THE SERVICER
ACC (also, the "Servicer"), is a California corporation and, through Aames
Funding Corporation, a national mortgage-banking company focused primarily on
originating, selling and servicing subprime residential mortgage loans through
both wholesale and retail channels under the name "Aames Home Loan." ACC's
corporate headquarters are located at 350 S. Grand Avenue, 43rd Floor, Los
Angeles, CA 90071 and its telephone number is (323) 210-5000.
As of March 31, 2005, ACC's total servicing portfolio was $3.7 billion,
all of which was serviced in-house. ACC's servicing portfolio consists mainly of
loans held for investment and loans serviced on an interim basis, including
loans held for sale and loans sold to others and subserviced on an interim
basis. To a lesser extent, ACC's servicing portfolio includes mortgage loans
securitized prior to 2000 for which ACC retained servicing, and loans sold to
others and subserviced on a long-term basis. ACC's servicing portfolio included
mortgage loans held for investment of $2.9 billion at March 31, 2005. ACC
subserviced $119.9 million of mortgage loans for others at March 31, 2005. ACC's
portfolio of mortgage loans in securitization trusts was $106.5 million at March
31, 2005. The servicing portfolio at March 31, 2005 also included $625.2 million
of loans serviced on an interim basis. Loans serviced on an interim basis
include loans held for sale and loans sold where servicing has not yet been
transferred. ACC currently has in place an experienced subprime mortgage loan
servicing team and a highly scalable servicing platform. ACC has approximately
91 servicing employees.
COLLECTIONS, DELINQUENCIES AND FORECLOSURE
Servicing by ACC includes collecting and remitting loan payments,
accounting for principal and interest, contacting delinquent borrowers, managing
borrower defaults and liquidating foreclosed properties.
ACC sends borrowers a monthly billing statement approximately 10 days
prior to the monthly payment due date. Although borrowers generally make loan
payments within 10 to 15 days after the due date (the "grace period"), if a
borrower fails to pay the monthly payment within this grace period, ACC
commences collection efforts by notifying the borrower of the delinquency. In
the case of borrowers in the "C" through "D" credit grades or with a poor
payment history with ACC, collection efforts begin immediately after the due
date. ACC continues contact with the borrower to determine the cause of the
delinquency and to obtain a commitment to cure the delinquency at the earliest
possible time.
As a general matter, if efforts to obtain payment have not been
successful, a pre-foreclosure notice will be sent to the borrower immediately
after the due date of the next subsequently scheduled installment (five days
after the initial due date for "C" through "D" credit grades), providing 30
days' notice of impending foreclosure action. During the 30-day notice period,
collection efforts continue and ACC evaluates various legal options and remedies
to protect the value of the loan, including arranging for extended repayment
terms, accepting a deed-in-lieu of foreclosure, entering into a short sale (a
sale for less than the outstanding principal amount) or commencing foreclosure
proceedings. If no substantial progress has been made in collecting delinquent
payments from the borrower, foreclosure proceedings will begin. Generally, ACC
will have commenced foreclosure proceedings when a loan is 60 to 100 days
delinquent, depending upon credit grade, other credit considerations or borrower
bankruptcy status.
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Servicing and collection practices change over time in accordance with,
among other things, ACC's business judgment, changes in portfolio performance
and applicable laws and regulations.
MORTGAGE LOAN DELINQUENCY AND FORECLOSURE EXPERIENCE
The following table sets forth delinquency, foreclosure and loss
information of ACC's servicing portfolio included in ACC's servicing portfolio
as of or for the periods indicated. Certain of the information concerning the
delinquency, foreclosure and loss information relates to home equity loans
serviced by affiliates of ACC, including loans securitized or sold and loans
sold to others. Such information also includes delinquency, foreclosure and loss
information of home equity loans originated by affiliates of ACC or purchased by
the Seller or affiliates of Seller and, in each case, serviced by or on behalf
of Seller as of the end of the period indicated.
AT OR DURING
SIX MONTHS
THREE MONTHS ENDED
ENDED MARCH 31, DECEMBER 31, FISCAL YEAR ENDED JUNE 30,
---------------------- ------------ -----------------------------------
2005 2004 2004 2004 2003 2002
--------- --------- ------------ --------- --------- --------
(DOLLARS IN THOUSANDS)
Percentage of dollar amount of
delinquent loans to loans
serviced (period end)(1)(2)
One month.................. 0.5% 0.4% 0.3% 0.3% 0.7% 0.7%
Two months................. 0.3 0.2 0.2 0.2 0.3 0.5
Three or more months:
Not foreclosed(3) ...... 1.4 2.5 1.8 2.4 7.2 7.4
Foreclosed(4)........... 0.2 0.3 0.2 0.3 0.8 1.0
--------- --------- ------------ --------- ---------- -------
Total.......................... 2.4% 3.4% 2.5% 3.2% 9.0% 9.6%
========= ========= ============ ========= ========== =======
Percentage of total dollar amount
of delinquent loans in:
Loans held for investment.. 1.1% --% 0.2% --% --% --%
Loans serviced on an interim
basis...................... 4.2 0.7 1.5 0.6 1.3 1.5
Loans subserviced for
others..................... 5.5 1.7 4.8 2.7 -- --
Loans in securitization
trusts..................... 23.2 20.3 22.5 20.7 17.4 15.7
Percentage of dollar amount of
loans foreclosed during the
period to servicing
portfolio(2)(5)............ 0.1% 0.2% 0.1% 0.5% 1.3% 2.2%
Number of loans foreclosed during
the period................. 42 61 68 180 417 780
Principal amount of foreclosed
loans during the period.... $2,351 $4,659 $3,585 $11,667 $27,703 $56,419
Number of loans liquidated during
the period................. 69 125 163 503 1,033 1,624
Net losses on liquidations during
the period(6).............. $2,104 $4,518 $6,778 $18,371 $35,669 $67,444
Percentage of annualized losses to
servicing portfolio(2)(5).. 0.3% 0.6% 0.5% 0.8% 1.6% 2.6%
Servicing portfolio at period end $3,709,833 $2,395,072 $2,843,887 $2,341,028 $1,739,632 $2,308,170
- ----
(1) Delinquent loans are loans for which more than one payment is due.
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(2) The delinquency and foreclosure percentages are calculated on the basis
of the total dollar amount of mortgage loans serviced by ACC including
loans serviced on an interim basis.
(3) Represents loans which are in foreclosure but as to which foreclosure
proceedings have not concluded.
(4) Represents properties acquired following a foreclosure sale and still
serviced by ACC at period end.
(5) The percentages were calculated to reflect the dollar volume of loans
foreclosed or annualized losses, as the case may be, to the average
dollar amount of mortgage loans serviced by ACC and any subservicers
during the related periods indicated.
(6) Represents losses, net of gains, on properties sold through foreclosure
or other default management activities during the period indicated.
ACC has historically experienced delinquency rates that are higher than
those prevailing in the mortgage industry due to the inclusion of lower credit
grade mortgage loans in its securitization trusts. Delinquent loans by principal
balance of the total servicing portfolio at March 31, 2005 were $89.7 million
compared to $71.0 million at December 31, 2004 and $80.7 million at March 31,
2004. At March 31, 2005, total delinquent loans in the portfolio of mortgage
loans held for investment were $32.4 million. Total delinquent loans in ACC's
portfolio of loans serviced on an interim basis were $26.0 million and $11.5
million at March 31, 2005 and December 31, 2004, respectively, and were $12.6
million at March 31, 2004. Total delinquent loans in ACC's portfolio of loans
subserviced for others were $6.6 million and $6.2 million at March 31, 2005 and
December 31, 2004, respectively and were $3.2 million at March 31, 2004.
The delinquency rate at March 31, 2005 was 2.4% compared to 2.5% at
December 31, 2004 and 3.4% at March 31, 2004. The delinquency rate at March 31,
2005 declined from the delinquency rate at December 31, 2004 due to the fact
that loans in ACC's portfolio of mortgage loans in securitization trusts, which
contains the majority of delinquent loans, became a smaller part of its total
servicing portfolio, primarily as a consequence of calls of securitization
trusts in August 2003, November 2003 and February 2005.
During the three months ended March 31, 2005, losses on loan liquidations
decreased to $2.1 million from $4.5 million during the comparable three-month
period a year ago primarily due to the decrease in the number of loans
liquidated. Substantially all of the foreclosures and liquidations handled by
ACC occur in connection with its portfolio of mortgage loans in securitization
trusts.
Because foreclosures and credit losses typically occur months or years
after a loan is originated, data relating to delinquencies, foreclosures and
credit losses as a percentage of the current portfolio can understate the risk
of future delinquencies, foreclosures or credit losses.
There can be no assurance that the delinquency, foreclosure and loss
experience with respect to any of the mortgage loans will be comparable to the
experience reflected above. Because Aames is a lender that specializes in loans
made to credit impaired borrowers, the actual rates of delinquencies,
foreclosures and losses on such mortgage loans can be higher than those
historically experienced in the mortgage lending industry in general,
particularly in periods during which the values of the related mortgaged
properties decline. In addition, the rate of delinquencies, foreclosures and
losses with respect to the mortgage loans will also be affected by, among other
things, interest rate fluctuations and general and regional economic conditions.
SERVICING OF THE MORTGAGE LOANS
GENERAL
Notwithstanding anything to the contrary in the accompanying Prospectus,
the Master Servicer will not be ultimately responsible for the performance of
the servicing activities by the Servicer, except as described under "--Servicing
Compensation and Payment of Expenses," "--Prepayment Interest Shortfalls" and
"--Advances" below. If the Servicer fails to fulfill its obligations under the
Transfer and Servicing Agreement, the Master
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Servicer is obligated to terminate the Servicer and appoint a successor servicer
as provided in the Transfer and Servicing Agreement.
The Servicer may transfer the servicing of the related Mortgage Loans to
one or more successor servicers at any time with 30 days' notice, subject to the
conditions set forth in the Indenture and the Transfer and Servicing Agreement,
with the prior consent of the Master Servicer and the requirement that the
Rating Agencies confirm in writing that the transfer of servicing will not
result in a qualification, withdrawal or downgrade of the then-current ratings
of any of the Notes.
In managing the liquidation of defaulted Mortgage Loans, the Servicer will
have sole discretion to take such action as it deems appropriate to maximize
recoveries to the Noteholders including, without limitation, selling defaulted
Mortgage Loans and REO properties.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
As compensation for master servicing, custodial duties and administration
of the trust, the Master Servicer will be entitled to a monthly fee (the "Master
Servicing Fee") calculated at a rate of 0.0125% per annum for each Mortgage Loan
(the "Master Servicing Fee Rate") and to a portion of the investment earnings on
amounts on deposit in the account established by the Trust Administrator (the
"Collection Account") into which the Servicer is generally required to deposit
or cause to be deposited all amounts from the Custodial Account.
The Servicer will be paid a monthly fee out of interest collections
received from the related Mortgage Loan (the "Servicing Fee") calculated at a
rate of 0.50% per annum for each Mortgage Loan (the "Servicing Fee Rate"). If
the Servicer is terminated and replaced by a successor servicer, the fee payable
to such successor servicer will in all cases not exceed the Servicing Fee. As
additional servicing compensation, the Servicer is entitled to retain (i) all
servicing related fees, including assumption fees, modification fees, ancillary
servicing fees, extension fees, non-sufficient fund fees and late payment
charges (other than Prepayment Premiums) to the extent collected from the
borrower (ii) any Prepayment Interest Excess (as defined below) and (iii) any
interest or other income earned on funds held in the Custodial Account and any
escrow accounts and other similar items described under the Transfer and
Servicing Agreement.
The Servicing Fee is subject to reduction as described below under
"Prepayment Interest Shortfalls" below. The Servicer will pay certain expenses
incurred in connection with the servicing of the loans, including defaulted
loans. Certain of these expenses are reimbursable pursuant to the terms of the
Transfer and Servicing Agreement from Liquidation Proceeds and Insurance
Proceeds. In addition, the Servicer and the Master Servicer will each be
entitled to reimbursement of its expenses in connection with the restoration of
REO Property. This right of reimbursement is prior to the rights of the
Noteholders to receive any related Insurance Proceeds or Liquidation Proceeds.
See "The Agreements--Payments on Loans; Deposits to the Security Accounts,"
"--Hazard Insurance" and "--Servicing and Other Compensation and Expenses" in
the Prospectus.
The Servicer is required to indemnify the Master Servicer, the Depositor,
the Issuer, the Indenture Trustee, the Owner Trustee, and the Trust
Administrator from the liabilities specified in the Transfer and Servicing
Agreement and in certain circumstances is entitled to receive indemnification.
The standard for exculpation and indemnification with respect to the
Master Servicer under the Transfer and Servicing Agreement is in all material
respects similar to that described in the Prospectus under "The
Agreements--Certain Matters Regarding the Master Servicer and the Depositor,"
except that the standard of care is negligence rather than gross negligence and
that losses related to any specific loan or loans (except any loss, liability or
expense otherwise reimbursable pursuant to the Transfer and Servicing Agreement)
are not excluded from the Trustee's right to indemnification.
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PREPAYMENT INTEREST SHORTFALLS
Prepayments received during a Prepayment Period will be included in
determining payments to Noteholders on the related Payment Date. When a borrower
prepays all or a portion of a Mortgage Loan between due dates, the borrower is
required to pay interest on the amount prepaid only to the date of prepayment
rather than a full month's interest, which could result in a Prepayment Interest
Shortfall in respect of interest available for payment to Noteholders on the
related Payment Date. "Prepayment Interest Shortfall" means, with respect to any
voluntary prepayment in full or in part by the borrower on any Mortgage Loan
that is received during the period from the first day of the Prepayment Period
through the last day of the month preceding the Payment Date, the amount, if
any, by which one month's interest at the Mortgage Rate less the Servicing Fee
Rate, in the case of the Servicer, or at the Net Mortgage Rate, in the case of
the Master Servicer, for such Mortgage Loan on the amount of such prepayment
exceeds the amount of interest received from such borrower in respect of such
prepayment. In order to mitigate the effect of any such Prepayment Interest
Shortfall, the Servicer will be required to pay the amount of any Prepayment
Interest Shortfall into the Collection Account in respect of prepayments
received during the portion of the Prepayment Period from the sixteenth day of
the calendar month preceding a Payment Date through the last day of the calendar
month preceding the related Payment Date (such amount, the "Compensating
Interest"); provided, however, that the amount of Compensating Interest in
respect of any Payment Date shall be limited to the Servicing Fee otherwise
payable for such Payment Date. To the extent that the Servicer fails to pay
required Compensating Interest in respect of any Payment Date, the Master
Servicer will be required to pay such Compensating Interest, but only to the
extent of the Master Servicing Fee for the applicable Payment Date. Conversely,
any interest received in respect of prepayments received during the portion of
the Prepayment Period from the first day of the calendar month in which the
Payment Date occurs through the fifteenth day of the calendar month in which the
Payment Date occurs will constitute "Prepayment Interest Excess," which will be
retained by the Servicer as additional servicing compensation and will not be
available to make any payments to the Noteholders on the related Payment Date.
Any Prepayment Interest Shortfalls not covered by Compensating Interest ("Net
Prepayment Interest Shortfalls") will reduce the Interest Remittance Amount
available for payment on the related Payment Date.
ADVANCES
The Servicer will be obligated to make an advance with respect to
delinquent payments of principal and interest on the Mortgage Loans, based on an
interest rate adjusted to the related Mortgage Rate less the related Servicing
Fee Rate (an "Advance"), to the extent that such Advances, in its judgment, are
reasonably recoverable from future payments and collections, insurance payments
or proceeds of liquidation of the related Mortgage Loan. The Master Servicer
will be obligated to make any required Advance if the Servicer fails in its
obligation to do so, to the extent provided in the Transfer and Servicing
Agreement. The Master Servicer and the Servicer will be entitled to recover any
Advances made by it with respect to a Mortgage Loan out of late payments thereon
or out of related liquidation and insurance proceeds or, if those amounts are
insufficient, from collections on other Mortgage Loans. Such reimbursements may
result in Realized Losses.
The purpose of making these Advances is to maintain a regular cash flow to
the Noteholders, rather than to guarantee or insure against losses. No party
will be required to make any Advances with respect to reductions in the amount
of the monthly payments on Mortgage Loans due to reductions made by a bankruptcy
court in the amount of a Scheduled Payment owed by a borrower or a reduction of
the applicable Mortgage Rate by application of the Relief Act or similar state
laws.
The Transfer and Servicing Agreement will provide that (i) the Servicer
may enter into a facility with any person which provides that such person may
fund Advances and/or servicing advances, although no such facility will reduce
or otherwise affect the Servicer's obligation to fund such Advances and/or
servicing advances and (ii) the Transfer and Servicing Agreement may be amended
by the parties thereto without the consent of the Noteholders as necessary or
appropriate to effect the terms of such a facility.
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COLLECTION PROCEDURES
Until the date each Mortgage Loan ceases to be subject to the Transfer and
Servicing Agreement, the Servicer is required to proceed diligently to collect
all payments due under each of the Mortgage Loans when the same shall become due
and payable.
The Servicer is required to use its best efforts, consistent with the
servicing standard specified in the Transfer and Servicing Agreement, to
foreclose upon or otherwise comparably convert the ownership of such Mortgaged
Properties as come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments pursuant to the
Transfer and Servicing Agreement. The Servicer is required to use its best
efforts to realize upon defaulted Mortgage Loans in such a manner as will
maximize the receipt of principal and interest by the Trust, taking into
account, among other things, the timing of foreclosure proceedings. The
foregoing is subject to the provisions that, in any case in which a Mortgaged
Property has suffered damage, the Servicer is not required to expend its own
funds toward the restoration of such property unless it determines in its
discretion (i) that such restoration will increase the proceeds of liquidation
of the related Mortgage Loan to the Issuer after reimbursement to itself for
such expenses, and (ii) that such expenses will be recoverable by the Servicer
through Insurance Proceeds or Liquidation Proceeds from the related Mortgaged
Property.
Although the Servicer may waive, modify or vary any term of any Mortgage
Loan, including (i) waiving any late payment charge and (ii) extending the due
dates for payments due on a Mortgage Note for a period not greater than 120
days, the Transfer and Servicing Agreement contains certain restrictions on the
Servicer's ability to grant such waivers, modifications or variances.
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 but subject to certain conditions specified in
the Transfer and Servicing Agreement, purchase such Mortgage Loan at a price
equal to (i) 100% of the outstanding principal balance thereof, (ii) accrued
interest thereon and (iii) any costs or damages incurred by the Trust associated
with a violation of any applicable federal, state or local predatory or abusive
lending law, minus (iv) any unreimbursed Advances with respect to that Mortgage
Loan.
COLLECTION OF TAXES, ASSESSMENTS AND SIMILAR ITEMS
The Servicer will, to the extent required by the related loan documents,
maintain escrow accounts for the collection of hazard insurance premiums and
real estate taxes with respect to the Mortgage Loans, and will make servicing
advances with respect to delinquencies in required escrow payments by the
related borrowers to the extent necessary to avoid the loss of a Mortgaged
Property due to a tax sale or the foreclosure thereof as a result of a tax lien.
INSURANCE COVERAGE
As specified in the Transfer and Servicing Agreement, the Master Servicer
and the Servicer are required to obtain and thereafter maintain in effect a
bond, corporate guaranty or similar form of insurance coverage (which may
provide blanket coverage), or any combination thereof, insuring against loss
occasioned by the errors and omissions of their respective officers and
employees.
EVIDENCE AS TO COMPLIANCE
The Transfer and Servicing Agreement will provide that each year a firm of
independent accountants will furnish a statement to the Master Servicer to the
effect that such firm has examined certain documents and records relating to the
servicing of mortgage loans similar to the Mortgage Loans by the Servicer and
that, on the basis of such examination, such firm is of the opinion that the
servicing has been conducted in accordance with
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the terms of the Transfer and Servicing Agreement, except for (1) exceptions as
the firm believes to be immaterial and (2) any other exceptions set forth in
such statement. The Master Servicer will be obligated to cause its independent
accountants to furnish such statement in the event that it becomes the successor
servicer.
The Master Servicer will deliver to the Indenture Trustee an annual
statement signed by an officer of the Master Servicer to the effect that the
Master Servicer has fulfilled its obligations under the Transfer and Servicing
Agreement throughout the preceding calendar year. The Servicer will deliver to
the Master Servicer an annual statement signed by an officer of the Servicer to
the effect that the Servicer has fulfilled its obligations under the Transfer
and Servicing Agreement throughout the preceding calendar year.
MASTER SERVICER DEFAULT; SERVICER DEFAULT
If the Master Servicer is in default on certain of its obligations under
the Transfer and Servicing Agreement, the Indenture Trustee may, and must if
directed to do so by the Noteholders having more than 50% of the voting rights
applicable to each class of Notes affected thereby, terminate the Master
Servicer. However, if the Master Servicer is in default on its obligation to
make an Advance as provided in the Transfer and Servicing Agreement, the
Indenture Trustee will be obligated to terminate promptly the Master Servicer.
The events that constitute a Master Servicer event of default that would enable
the Indenture Trustee or the Noteholders to so terminate the Master Servicer are
specified in the Transfer and Servicing Agreement. If the Master Servicer is
terminated, the Indenture Trustee will either assume the duties of the Master
Servicer, as successor Master Servicer, or appoint, or petition a court of
competent jurisdiction to appoint, a successor Master Servicer.
If the Servicer is in default on its obligations under the Transfer and
Servicing Agreement, the Master Servicer may, at its option, either terminate
the defaulting Servicer and either appoint a successor servicer, in accordance
with the Transfer and Servicing Agreement, or succeed to the responsibilities of
the terminated Servicer. The events that constitute a Servicer event of default
that would enable the Master Servicer to so terminate the Servicer are specified
in the Transfer and Servicing Agreement. If the Master Servicer succeeds to the
responsibilities of the Servicer, it will be entitled to receive the Servicing
Fee.
Notwithstanding anything to the contrary to contained in the Prospectus,
neither the Master Servicer nor the Servicer will be required to purchase any
Mortgage Loan in connection with any breach of its respective obligations under
the Transfer and Servicing Agreement.
MASTER SERVICER RESIGNATION; SERVICER RESIGNATION
Except as otherwise provided in the Transfer and Servicing Agreement, the
Master Servicer may not resign unless it determines that the Master Servicer's
duties are no longer permissible under applicable law or are in material
conflict by reason of applicable law with any other activities carried on by it
and cannot be cured. No such resignation will become effective until the
Indenture Trustee has assumed, or a successor master servicer shall have been
appointed by the Indenture Trustee and until such successor has assumed, the
Master Servicer's responsibilities and obligations under the Transfer and
Servicing Agreement. The Master Servicer will have the right to assign its
obligations under the Transfer and Servicing Agreement as specified in the
Transfer and Servicing Agreement.
In general, 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 the Transfer
and Servicing Agreement, provided, that that person (or an affiliate) is
qualified to service mortgage loans on behalf of, Fannie Mae or Freddie Mac and
will have a net worth of not less than $15,000,000.
Except as otherwise provided in the Transfer and Servicing Agreement, the
Servicer may not resign except by mutual consent of the Servicer and the Master
Servicer, or upon the determination that its duties are no longer permissible
under applicable law and such incapacity cannot be cured by the Servicer. If the
Servicer resigns, the Master Servicer may, at its option, either terminate the
defaulting Servicer and either appoint a successor servicer,
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in accordance with the Transfer and Servicing Agreement, or succeed to the
responsibilities of the terminated Servicer. If the Master Servicer succeeds to
the responsibilities of the Servicer, it will be entitled to receive the
Servicing Fee.
PLEDGE OF SERVICING RIGHTS
The Transfer and Servicing Agreement permits the Servicer to obtain
financing by means of a pledge and assignment of its rights to reimbursement for
outstanding Advances and other rights under the Transfer and Servicing Agreement
to one or more lenders. To the extent provided under any such financing
arrangement, upon default by the Servicer, the lender may appoint a successor
servicer, provided that such successor servicer is acceptable to the Master
Servicer and meets the requirements for appointment of a successor servicer
under the Transfer and Servicing Agreement. See "--General" above.
THE MORTGAGE LOAN PURCHASE AGREEMENT AND THE
TRANSFER AND SERVICING AGREEMENT
GENERAL
On the Closing Date, pursuant to the Mortgage Loan Purchase Agreement, the
Seller will sell the Mortgage Loans to the Depositor. Pursuant to a transfer and
servicing agreement (the "Transfer and Servicing Agreement"), the Depositor
will, in turn, sell the Mortgage Loans to the Trust.
ASSIGNMENT OF MORTGAGE LOANS
On the Closing Date, the Mortgage Loans will be assigned to the Trust,
together with all principal and interest received with respect to the Mortgage
Loans on and after the Cut-off Date (other than Scheduled Payments due on that
date). Pursuant to an indenture (the "Indenture"), the Trust will pledge all of
its interest in such assets and any other property comprising the assets of the
Trust (the "Trust Estate") to the Indenture Trustee as security for the Notes.
Each Mortgage Loan will be identified in a schedule to the Transfer and
Servicing Agreement which will specify with respect to each Mortgage Loan, among
other things, the original principal balance and the Scheduled Principal Balance
as of the close of business on the Cut-off Date, the Mortgage Rate, the
Scheduled Payment, the maturity date and the custodian of the mortgage file, and
applicable prepayment premium provisions, if any.
As to each Mortgage Loan, the following documents, to the extent
applicable, are generally required to be delivered to the Indenture Trustee (or
its custodian): (1) the related original Mortgage Note, endorsed without
recourse to the Indenture Trustee or in blank, or a lost note affidavit
conforming to the requirements of the Transfer and Servicing Agreement, together
with a copy of the related Mortgage Note, (2) the original recorded Mortgage
with evidence of recording indicated thereon (or, if the original recorded
Mortgage has not yet been returned by the recording office, a copy thereof
certified to be a true and complete copy of such Mortgage sent for recording),
(3) an original assignment of the Mortgage to the Indenture Trustee or in blank
in recordable form (except as described below), (4) any related documents
showing a complete chain of assignment, (5) the policies of title insurance
issued with respect to each Mortgage Loan and (6) the originals of any
assumption, modification, extension or guaranty agreements. The Depositor
generally does not expect to cause the assignments of mortgage to be recorded
and may instead receive an opinion of counsel acceptable to the Rating Agencies,
to the effect that recording is not required to protect the Indenture Trustee's
interest in the related Mortgage Loan. The Indenture Trustee or the Custodian on
behalf of the Indenture Trustee, will, for the benefit of Noteholders, review
the mortgage loan documents as specified in the Transfer and Servicing
Agreement.
REPRESENTATIONS AND WARRANTIES
Pursuant to the terms of the Mortgage Loan Purchase Agreement, the Seller
will make to the Depositor certain representations and warranties concerning the
Mortgage Loans; including representations that (i) each
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Mortgage Loan is covered by a title insurance policy and each Mortgaged Property
was covered by a standard hazard insurance; (ii) immediately prior to the
transfer and assignment of each Mortgage Loan, the Seller had good title to and
was sole owner of each such Mortgage Loan; (iii) each Mortgage constituted a
valid lien on the related Mortgaged Property (subject only to permissible title
insurance exceptions) and that the related Mortgaged Property was free of
material damage; (iv) each Mortgage Loan was current as to all required
payments; (v) each Mortgage Loan at the time it was made complied in all
material respects with applicable local, state and federal laws, including but
not limited to, usury, equal credit opportunity, and truth-in-lending or similar
disclosure laws and all applicable anti-predatory and anti-abusive lending laws;
(vi) none of the Mortgage Loans constitute "high-cost loans" as defined by
applicable anti-predatory and anti-abusive lending laws; (vii) no proceeds from
any Mortgage Loan were used to finance single premium credit insurance policies;
and (viii) no Mortgage Loan imposes a prepayment premium for a term in excess of
three years. The Depositor will assign its rights under the Mortgage Loan
Purchase Agreement to the Trust pursuant to the Transfer and Servicing
Agreement. The Trust will in turn pledge its rights in the Seller's
representations and warranties to the Indenture Trustee for the benefit of
holders of Notes. Within the period of time specified in the Transfer and
Servicing Agreement following discovery or notification of a breach of any
representation or warranty that materially and adversely affects the interests
of Noteholders in a Mortgage Loan or receipt of notice of such breach, the
Seller will be obligated to cure such breach or purchase the affected Mortgage
Loan from the Trust for a price equal to the unpaid principal balance thereof
plus accrued interest thereon plus any costs and damages incurred by the Trust
associated with any violation of applicable federal, state or local
anti-predatory or abusive lending laws (or, in certain circumstances, to
substitute another mortgage loan). Rather than repurchase the Mortgage Loan as
provided above, within the two year period following the Closing Date, the
Seller may remove the Mortgage Loan from the Trust and substitute in its place
another Mortgage Loan of like kind; provided that the substituted Mortgage Loan
meets the required characteristics specified in the Transfer and Servicing
Agreement.
To the extent that any Mortgage Loan as to which a representation or
warranty has been breached is not repurchased or a replacement Mortgage Loan is
not substituted by the Seller and a Realized Loss occurs with respect to that
Mortgage Loan, holders of Notes, in particular the Subordinate Notes, may incur
a loss.
ADMINISTRATION
The Trust Administrator will agree, to the extent provided in the Transfer
and Servicing Agreement, to provide certain notices and to perform certain other
administrative obligations required to be performed by the Issuer under the
Transfer and Servicing Agreement, the Indenture and the Trust Agreement. [MASTER
SERVICER] will not receive additional compensation for such services as Trust
Administrator.
AMENDMENT
The Transfer and Servicing Agreement may be amended by the Depositor, the
Trust, the Master Servicer, the Trust Administrator, the Seller, the Servicer
and the Indenture Trustee, without consent of the Noteholders, (1) to cure any
ambiguity, (2) to conform the provisions of the Transfer and Servicing Agreement
to the information contained herein or to correct or supplement any provision
therein, (3) to make any other provision with respect to matters or questions
arising under the Transfer and Servicing Agreement or (4) to add, delete or
amend any provision in order to comply with any requirements imposed by the
Code, ERISA and their related regulations; provided, however, that no such
amendment effected pursuant to clause (3) above will adversely affect in any
material respect the interests of any Noteholder. Any such amendment will be
deemed not to adversely affect in any material respect the interests of any
Noteholder if the rating agencies confirm that such action would not adversely
affect the then-current ratings on the Notes.
The Transfer and Servicing Agreement may also be amended by the Depositor,
the Trust, the Trust Administrator, the Master Servicer, the Seller, the
Servicer, the Indenture Trustee, the holders of each class of Notes affected
thereby evidencing voting rights aggregating not less than 66?% of each such
class and the Ownership Certificateholder, for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Transfer and Servicing Agreement or modifying in any manner the rights of
Noteholders; provided, however, that no such amendment may (1) reduce in any
manner the amount of, or delay the timing of, payments that are required to be
made in respect of any Notes without the consent of the
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holder of each such Note affected thereby or (2) reduce the percentage of Notes
the holders of which are required to consent to any such amendment without the
consent of the holders of all Notes affected thereby.
VOTING RIGHTS
At all times 99% of all voting rights will be allocated among the holders
of the Notes as provided below. The portion of such voting rights allocated to
such Notes will be based on the fraction, expressed as a percentage, the
numerator of which is the aggregate Class Principal Amount then outstanding and
the denominator of which is the aggregate outstanding principal balance of the
Notes. At all times during the term of the Indenture and the Transfer and
Servicing Agreement, the holder of the Ownership Certificate will be allocated
1% of the voting rights for so long as the class remains outstanding. The voting
rights allocation to any class of Notes will be allocated among all holders of
each such class in proportion to the outstanding principal amount of such Notes.
THE TRUST AGREEMENT AND THE INDENTURE
GENERAL
The Notes will be issued pursuant to the Indenture. Notes in certificated
form will be transferable and exchangeable at the Corporate Trust Office of the
Trust Administrator, which will serve as Note Registrar and Paying Agent. The
Trust Administrator will provide to a prospective or actual Noteholder, without
charge, on written request, an electronic copy (without exhibits) of the
Indenture, the Trust Agreement and the Transfer and Servicing Agreement.
Requests should be addressed to [TRUST ADMINISTRATOR], [STREET ADDRESS] [CITY],
[STATE] [ZIP CODE], Attention: Aames Investment Trust 20___-__.
The following summary describes the Trust, the Owner Trustee, the
Indenture Trustee, and certain terms of the Trust Agreement and the Indenture.
The summary does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all the provisions of such Agreements.
THE TRUST
Aames Mortgage Investment Trust 20___-__ will be a statutory trust formed
under the laws of the State of [STATE] pursuant to the Trust Agreement, as
amended and restated, among the Depositor, the Owner Trustee and the Trust
Administrator. The Trust will not engage in any activity other than acquiring,
holding and managing the Mortgage Loans and the other assets of the Trust and
proceeds therefrom, entering into the Group 1 Cap Agreement, the Group 2 Cap
Agreement and the Subordinate Cap Agreement, issuing the Notes, making payments
on the Notes, and related activities.
On the Closing Date, the Trust will pledge the Mortgage Loans, the Group 1
Cap Agreement, the Group 2 Cap Agreement, the Subordinate Cap Agreement and
other Trust assets to the Indenture Trustee as security for the Notes. The
Depositor will sell the Notes to the Underwriters and apply the net proceeds of
such sale to the purchase of the Mortgage Loans. Other than the Mortgage Loans
and the other Trust assets pledged as collateral for the Notes, the Trust will
not have any assets available for payment of the Notes.
The Trust's principal offices are located in [CITY], [STATE], in care of
[OWNER TRUSTEE], as Owner Trustee, at the address set forth below under "--The
Owner Trustee."
THE OWNER TRUSTEE
[OWNER TRUSTEE] will act, not in its individual capacity but solely as the
Owner Trustee, under the Trust Agreement. [OWNER TRUSTEE] is a [STATE] banking
corporation and its principal offices are located at [STREET ADDRESS], [CITY],
[STATE] [ZIP CODE]. The Owner Trustee will be entitled to receive as
compensation for its services a fee agreed to with and payable by the Master
Servicer.
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The Trust Administrator and the Depositor will perform on behalf of the
Owner Trustee and the Trust certain administrative functions required under the
Indenture and Transfer and Servicing Agreement pursuant to the terms of the
Transfer and Servicing Agreement.
THE INDENTURE TRUSTEE
[INDENTURE TRUSTEE] will be the Indenture Trustee under the Indenture. The
Indenture Trustee will be entitled to receive as compensation for its services a
fee agreed to with and payable by the Master Servicer. The Indenture Trustee
will also be entitled to customary indemnification for certain costs and
expenses prior to payment of any amounts to Noteholders. The Indenture Trustee's
Corporate Trust Office is located at [STREET ADDRESS], [CITY], [STATE] [ZIP
CODE], Attention: Trust Administration, Aames Mortgage Investment Trust
20___-__, or any other address that the Indenture Trustee may designate from
time to time by notice to the Noteholders, the Owner Trustee, the Trust
Administrator, the Depositor and the Master Servicer.
CERTAIN MATTERS UNDER THE AGREEMENTS
Events of Default Under the Indenture. An "Indenture Default" is any event
of default under the Indenture, which generally consist of: (i) a default for
one month or more in the payment of any Current Interest due on any class of
Notes outstanding; (ii) a default in the payment of the entire principal of any
Note when the same becomes due and payable under the Indenture or on the
applicable maturity date; (iii) a default in the observance or performance of
any covenant or agreement of the Issuer made in the Indenture and the
continuation of any such default for a period of 30 days after notice thereof is
given to the Owner Trustee as provided in the Indenture; (iv) any representation
or warranty made by the Trust in the Indenture or in any certificate delivered
pursuant thereto or in connection therewith having been incorrect in a material
respect when made, and such breach not having been cured within 30 days after
notice thereof is given to the Owner Trustee as provided in the Indenture; (v)
the receipt of notice from the holder of the Ownership Certificate to the
Indenture Trustee of such holder's failure to qualify as a REIT or a qualified
REIT subsidiary; or (vi) certain events of bankruptcy, insolvency, receivership
or liquidation of the Issuer.
If an Indenture Default occurs and is continuing, the Indenture Trustee or
Holders of a majority by principal amount of the Priority Class or Priority
Classes of Notes then outstanding may declare the principal of the Notes to be
immediately due and payable. Such declaration may, under certain circumstances,
be rescinded by the Holders of a majority by Class Principal Amount of such
Priority Class or Priority Classes of Notes. The "Priority Class" is the class
or classes of Notes then outstanding having the highest priority of payment of
interest.
If the Notes are declared immediately due and payable following an
Indenture Default, the Indenture Trustee may, as directed, institute proceedings
to collect amounts due or foreclose on collateral pledged to secure the Notes,
exercise remedies as a secured party, sell the assets of the Trust Estate
pledged to secure the Notes, or elect to maintain possession of such assets and
continue to apply collections on such assets as if there had been no declaration
of acceleration. However, the Indenture Trustee is prohibited from selling the
assets of the Trust Estate following an Indenture Default, other than a default
in the payment of any principal of or a default for one month or more in the
payment of any interest on any class of Notes, unless (i) the holders of all
outstanding Notes consent to such sale, (ii) the proceeds of the sale are
sufficient to pay in full the principal of and the accrued interest on such
outstanding Notes at the date of such sale or (iii) the Indenture Trustee
determines, based on information provided by the Trust Administrator, that the
proceeds of the Trust Estate and the other property of the Trust would not be
sufficient on an ongoing basis to make all payments on the Notes as such
payments would have become due if such obligations had not been declared due and
payable, and the Indenture Trustee obtains the consent of the holders of 66?% of
the aggregate outstanding amount of the Notes.
If the collateral securing the Notes is sold following an Indenture
Default, proceeds of such sale, after deduction of the expenses of such sale,
will be applied in the order of priority provided in the Indenture.
If an Indenture Default occurs and is continuing, the Indenture Trustee
will 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 the
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Notes, if the Indenture Trustee reasonably believes it will not be adequately
indemnified against the costs, expenses and liabilities that might be incurred
by it in complying with such request. Subject to the provisions for
indemnification and certain limitations contained in the Indenture, the holders
of a majority in principal amount of the outstanding Notes will have the right
to direct the time, method and place of conducting any proceeding or any remedy
available to the Indenture Trustee, and the holders of a majority in principal
amount of the Notes then outstanding 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.
Except as described above in the case of an Indenture Default, no
Noteholder will have the right to institute any proceeding with respect to the
Indenture, unless (i) such holder previously has given to the Indenture Trustee
written notice of a continuing Indenture Default, (ii) the holders of not less
than 25% in principal amount of the outstanding Notes have made written request
to the Indenture Trustee to institute such proceeding in its own name as the
Indenture Trustee, (iii) such holder or holders have offered the Indenture
Trustee reasonable indemnity, (iv) the Indenture Trustee has, for 60 days after
receipt of such notice, request and offer of indemnity, failed to institute such
proceeding and (v) no direction inconsistent with such written request has been
given to the Indenture Trustee during such 60-day period by the Holders of a
majority in principal amount of such outstanding Notes.
In addition, the Indenture Trustee and the Noteholders, by accepting the Notes,
will covenant that they will not at any time institute against the Trust any
bankruptcy, reorganization or other proceeding under any federal or state
bankruptcy or similar law.
None of the Indenture Trustee, the Master Servicer, the Trust
Administrator nor the Owner Trustee in their respective individual capacities,
nor the Ownership Certificateholder, nor any of their respective owners,
beneficiaries, agents, officers, directors, employees, affiliates, successors or
assigns will, except as expressly set forth in the transaction documents, be
personally liable for the payment of the principal of or interest on the Notes
or for the agreements of the Trust contained in the Indenture.
Redemption. The Notes are subject to redemption under the circumstances
described under "Description of the Notes--Optional Purchase of the Mortgage
Loans."
The Indenture will be discharged upon the delivery to the Trust
Administrator for cancellation of all Notes or, with certain limitations, upon
deposit with the Trust Administrator of funds sufficient for the payment in full
of all the Notes. Upon the payment in full of all outstanding Notes and the
discharge of the Indenture, the Owner Trustee will succeed to all the rights of
the Indenture Trustee, the Master Servicer and the Trust Administrator, and the
Ownership Certificateholder will succeed to all the rights of the Noteholders
pursuant to the Transfer and Servicing Agreement.
AMENDMENT
Generally, the Trust Agreement and the Indenture are subject to amendment
by the parties thereto under conditions similar to those described under "The
Mortgage Loan Purchase Agreement and the Transfer and Servicing
Agreement--Amendment," except that in the case of the Trust Agreement,
references to Notes and Noteholders should be read as referring to Ownership
Certificate and the Ownership Certificateholder, and in the case of the
Indenture such references should be read as referring to Notes and Noteholders.
Any amendment of the provisions of the Indenture will take the form of a
supplemental indenture. In addition to the purposes described under "The
Mortgage Loan Purchase Agreement and the Transfer and Servicing
Agreement--Amendment," the Trust and the Indenture Trustee may enter into
supplemental indentures, without obtaining the consent of the Noteholders, for
the purpose of correcting or amplifying the description of the Trust Estate
subject to the Indenture, evidencing the succession of a successor to the Trust,
adding to the covenants of the Trust or surrendering any power conferred upon
the Trust under the Indenture, or conveying or pledging any property to the
Indenture Trustee.
YIELD, PREPAYMENT AND WEIGHTED AVERAGE LIFE
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GENERAL
The yields to maturity (or to early termination) of the Notes will be
affected by the rate of principal payments (including prepayments, which may
include amounts received by virtue of purchase, condemnation, insurance or
foreclosure) on the Mortgage Loans and the application of excess interest to
retire the Class Principal Amounts of the Notes. Yields will also be affected by
the extent to which Mortgage Loans bearing higher Mortgage Rates prepay at a
more rapid rate than Mortgage Loans with lower Mortgage Rates, the amount and
timing of borrower delinquencies and defaults resulting in Realized Losses, the
purchase price for the Notes and other factors.
Yields on the Senior Notes will be affected by the rate of principal
payments on the Mortgage Loans in the related Mortgage Pool, primarily, and to a
lesser extent (if at all) by the rate of principal prepayments on the Mortgage
Loans in the other Mortgage Pool. Yields on the Subordinate Notes will be
affected by the rate of principal payments on the Mortgage Loans in both
Mortgage Pools.
Principal prepayments may be influenced by a variety of economic,
geographic, demographic, social, tax, legal and other factors, including the
credit quality of the Mortgage Loans. In general, if prevailing interest rates
fall below the interest rates on the Mortgage Loans, the Mortgage Loans are
likely to be subject to higher prepayments than if prevailing rates remain at or
above the interest rates on the Mortgage Loans. Conversely, if prevailing
interest rates rise above the interest rates on the Mortgage Loans, the rate of
prepayment would be expected to decrease. Other factors affecting prepayment of
the Mortgage Loans include such factors as changes in borrowers' housing needs,
job transfers, unemployment, borrowers' net equity in the Mortgaged Properties,
changes in the values of Mortgaged Properties, mortgage market interest rates
and servicing decisions. The Mortgage Loans generally have due-on-sale clauses.
Substantially all of the Mortgage Loans in Pool 1 and Pool 2 have Mortgage
Rates that provide for a fixed interest rate during an initial period of two,
three or five years from the date of the origination and thereafter provide for
adjustments to the Mortgage Rates on a semi-annual basis. When such Mortgage
Loans begin their adjustable period, increases and decreases in the Mortgage
Rate on the Mortgage Loan will be limited by the Periodic Rate Cap, except in
the case of the first adjustment, the Maximum Rate and the Minimum Rate, if any,
and will be based on the Six-Month LIBOR Index in effect on the applicable date
prior to the related Adjustment Date plus the applicable Gross Margin. The
Six-Month LIBOR Index may not rise and fall consistently with Mortgage Rates. As
a result, the Mortgage Rates on the Mortgage Loans at any time may not equal the
prevailing mortgage interest rates of similar adjustable rate loans, and
accordingly the prepayment rate may be lower or higher than would otherwise be
anticipated. Moreover, each Mortgage Loan has a Maximum Rate, and each Mortgage
Loan has a Minimum Rate, which in some cases is equal to the related Gross
Margin. Further, some borrowers who prefer the certainty provided by fixed rate
mortgage loans may nevertheless obtain adjustable rate mortgage loans at a time
when they regard the mortgage interest rates (and, therefore, the payments) on
fixed rate mortgage loans as unacceptably high. These borrowers may be induced
to refinance adjustable rate loans when the mortgage interest rates and monthly
payments on comparable fixed rate mortgage loans decline to levels which these
borrowers regard as acceptable, even though such mortgage interest rates and
monthly payments may be significantly higher than the current mortgage interest
rates and monthly payments on the borrower's adjustable rate mortgage loans. The
ability to refinance a Mortgage Loan will depend on a number of factors
prevailing at the time refinancing is desired, including, without limitation,
real estate values, the borrower's financial situation, prevailing mortgage
interest rates, the borrowers' equity in the related Mortgaged Property, tax
laws and prevailing general economic conditions. In addition, as discussed
below, the Interest Rate on the Notes beginning with the Accrual Period
following the first adjustment date may decrease, and may decrease
significantly, after the Mortgage Rates on the Mortgage Loans begin to adjust.
Approximately [_____]% of all of the Mortgage Loans and approximately
[_____]% and [_____]% of the Mortgage Loans in Pool 1 and Pool 2, respectively,
are subject to Prepayment Premiums during intervals ranging from one year to
three years after origination, as described under "Description of the Mortgage
Pools--General" herein. Such Prepayment Premiums may have the effect of reducing
the amount or the likelihood of prepayment of the related Mortgage Loans during
the applicable Penalty Period.
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The rate of principal payments on the Mortgage Loans will also be affected
by the amortization schedules of the Mortgage Loans, the rate and timing of
prepayments thereon by the borrowers, liquidations of defaulted Mortgage Loans
and repurchases of Mortgage Loans due to certain breaches of representations and
warranties or defective documentation. The timing of changes in the rate of
prepayments, liquidations and purchases of the related Mortgage Loans may, and
the timing of Realized Losses will, significantly affect the yield to an
investor, even if the average rate of principal payments experienced over time
is consistent with an investors' expectation. Because the rate and timing of
principal payments on the Mortgage Loans will depend on future events and on a
variety of factors (as described more fully herein and in the accompanying
Prospectus under "Description of the Securities"), no assurance can be given as
to such rate or the timing of principal payments on the Notes. In general, the
earlier a prepayment of principal of the Mortgage Loans, the greater the effect
on an investor's yield. The effect on an investor's yield of principal payments
occurring at a rate higher (or lower) than the rate anticipated by the investor
during the period immediately following the issuance of the Notes may not be
offset by a subsequent like decrease (or increase) in the rate of principal
payments.
From time to time, areas of the United States may be affected by flooding,
severe storms, landslides, wildfires, earthquakes or other natural disasters.
Under the Mortgage Loan Purchase Agreement, the Seller will represent and
warrant that as of the Closing Date each Mortgaged Property was free of material
damage. In the event of an uncured breach of this representation and warranty
that materially and adversely affects the interests of Noteholders, the Seller
will be required to repurchase the affected Mortgage Loan or substitute another
mortgage loan therefor. If any damage caused by flooding, storms, wildfires,
landslides or earthquakes (or other cause) occurs after the Closing Date, the
Seller will not have any repurchase obligation. In addition, the standard hazard
policies covering the Mortgaged Properties generally do not cover damage caused
by earthquakes, flooding and landslides, and earthquake, flood or landslide
insurance may not have been obtained with respect to such Mortgaged Properties.
As a consequence, Realized Losses could result. To the extent that the insurance
proceeds received with respect to any damaged Mortgaged Properties are not
applied to the restoration thereof, the proceeds will be used to prepay the
related Mortgage Loans in whole or in part. Any repurchases or repayments of
Mortgage Loans may reduce the weighted average lives of the Notes and will
reduce the yields on the Notes to the extent they are purchased at a premium.
Prepayments, liquidations and purchases of Mortgage Loans will result in
payments to holders of the related Notes of principal amounts that would
otherwise be paid over the remaining terms of such Mortgage Loans. The rate of
defaults on the Mortgage Loans will also affect the rate and timing of principal
payments on the Mortgage Loans. In general, defaults on mortgage loans are
expected to occur with greater frequency in their early years.
The yields on the Notes may be adversely affected by Net Prepayment
Interest Shortfalls on the Mortgage Loans. The yields on the Notes will be
affected by the level of LIBOR from time to time and the Notes will be affected
by the Mortgage Rates of the Mortgage Loans from time to time and by
delinquencies in payment, defaults and prepayments of the Mortgage Loans, as
described under "Risk Factors--Mortgage Loan Interest Rates May Limit Interest
Rates on the Notes." The yields on the Notes may also be adversely affected by
reductions in the Mortgage Rates under the Relief Act or similar state laws.
As described herein, excess interest will be applied, to the extent
available, as an additional payments of principal on the Notes to maintain
limited overcollateralization. The level of excess interest available on any
Payment Date will be influenced by, among other things:
o The overcollateralization level of the Mortgage Loans. This means the
extent to which interest on the Mortgage Loans is accruing on a higher
principal balance than the aggregate Class Principal Amount of the
Notes;
o The loss experience of the Mortgage Loans. For example, excess
interest will be reduced as a result of Realized Losses on the Mortgage
Loans;
o The value of One-Month LIBOR and Six-Month LIBOR; and
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o The extent to which the weighted average Net Mortgage Rates of the
Mortgage Loans exceeds the weighted average of the Interest Rates of
the Notes.
No assurances can be given as to the amount or timing of excess interest
payable on the Notes.
The yields of the Notes will be affected by the exercise by Aames
Investment Acceptance Corporation or the Servicer, as applicable, of its
respective right to purchase the Mortgage Loans, as described under "Description
of the Notes--Optional Purchase of the Mortgage Loans" herein.
If the purchaser of a Note offered at a discount from its initial
principal amount calculates its anticipated yield to maturity (or early
termination) based on an assumed rate of payment of principal that is faster
than that actually experienced on the related Mortgage Loans, the actual yield
may be lower than that so calculated. Conversely, if the purchaser of a Note
offered at a premium calculates its anticipated yield based on an assumed rate
of payment of principal that is slower than that actually experienced on the
related Mortgage Loans, the actual yield may be lower than that so calculated.
For this purpose, prepayments of principal include not only voluntary
prepayments made by the borrower, but repurchases of Mortgage Loans by the
seller due to breaches of representations and warranties.
The Interest Rates applicable to the Notes will be affected by the level
of One-Month LIBOR from time to time and the Notes will be affected by the
Mortgage Rates of the Mortgage Loans from time to time as described under "Risk
Factors--Mortgage Loan Interest Rates May Limit Interest Rates on the Notes."
OVERCOLLATERALIZATION
The yields of the Notes will be affected by the application of Monthly
Excess Cashflow as described herein and by the amount of overcollateralization.
The amount of Monthly Excess Cashflow will be affected by the delinquency,
default and prepayment experience of the Mortgage Loans. There can be no
assurance as to the rate at which overcollateralization will be maintained at
the levels described herein. In addition, because of the cross collateralization
features as described under "Description of the Notes--Payments of Principal,"
payments of principal on the Senior Notes may be accelerated before principal
payments are applied to the Subordinate Notes.
SUBORDINATION OF THE SUBORDINATE NOTES
As described herein, Notes having a relatively higher priority of payment
will have a preferential right to receive payments of interest to the extent of
the Interest Remittance Amount and principal to the extent of the Principal
Payment Amount. As a result, the yields of the Subordinate Notes will be more
sensitive, in varying degrees, to delinquencies and losses on the Mortgage Loans
than the yields of more senior Notes.
WEIGHTED AVERAGE LIFE
Weighted average life refers to the average amount of time that will
elapse from the date of issuance of a security to the date of payment to the
investor of each dollar paid in net reduction of principal of such security
(assuming no losses). The weighted average lives of the Notes will be influenced
by, among other things, the rate at which principal of the related Mortgage
Loans is paid, which may be in the form of scheduled amortization, prepayments
or liquidations and the amount of excess interest (or, in some cases, payments
under the Cap Contract) applied in reduction of the Class Principal Amounts of
the Notes.
Prepayments on mortgage loans are commonly measured relative to a constant
prepayment standard or model. The model used in this prospectus supplement for
the Mortgage Loans is a prepayment assumption (the "Prepayment Assumption") that
represents an assumed rate of the prepayment each month relative to the then
outstanding principal balance of a pool of mortgage loans for the life of the
mortgage loans. 100% of the Prepayment Assumption assumes a constant prepayment
rate ("CPR") of [_]% in month 1, an additional 1/11th of [__]% CPR for each
month thereafter, increasing to [__]% CPR in month 12 and remaining constant at
[__]% CPR until month 24, increasing to and remaining constant at [__]% CPR from
month 25 until month 28
S-65
decreasing 1/6th of [__]% CPR for each month thereafter and remaining constant
at [__]% CPR from month 34 and thereafter; provided, however, the prepayment
rate will not exceed [__]% CPR in any period for any given percentage of the
Prepayment Assumption. As used in the tables below, a [_]% Prepayment Assumption
assumes prepayment rates equal to [_]% of the Prepayment Assumption, i.e. no
prepayments; a [__]% Prepayment Assumption assumes prepayment rates equal to
[__]% of the Prepayment Assumption, and so forth. The Prepayment Assumption does
not purport to be either a historical description of the prepayment experience
of the mortgage loans or a prediction of the anticipated rate of prepayment of
any mortgage loans, including the Mortgage Loans to be included in the Trust.
The tables beginning on page S-[__] were prepared based on the following
assumptions (collectively, the "Modeling Assumptions"): (1) the initial Class
Principal Amounts are as set forth in the table on page S-[__] of this
prospectus supplement and the Interest Rates are as described herein; (2) each
Scheduled Payment of principal and interest is timely received on the first day
of each month commencing in [Month] 20___; (3) principal prepayments are
received in full on the last day of each month commencing in [Month] 20___ and
there are no Net Prepayment Interest Shortfalls; (4) there are no defaults or
delinquencies on the Mortgage Loans; (5) Payment Dates occur on the 25th day of
each month, irrespective of whether such day is a Business Day, commencing in
[Month] 20___; (6) there are no purchases or substitutions of Mortgage Loans;
(7) the Mortgage Rate of each Mortgage Loan is adjusted on the next applicable
Adjustment Date to equal the value of the Six-Month LIBOR Index set forth below
plus the related Gross Margin, subject to any applicable Initial Cap or
Subsequent Periodic Cap and Maximum or Minimum Interest Rate; (8) the value of
six-month LIBOR is equal to [_____]% and the value of one-month LIBOR is equal
to _________%; (9) the applicable index for the Notes is One-Month LIBOR; (10)
none of the Mortgage Loans provide for payments of interest that accrue based on
the daily simple interest method; (11) there is no Optional Termination of the
Trust (except in the case of Weighted Average Life in Years With Optional
Termination); (12) the Notes are issued on [Month] [Day], 20___; and (13) the
Mortgage Loans are aggregated into assumed Mortgage Loans having the following
characteristics:
S-66
ASSUMED MORTGAGE LOAN CHARACTERISTICS OF POOL 1
REMAINING REMAINING ORIGINAL
GROSS NET TERM TO AMORT. TERM TO MONTHS TO
MORTGAGE LOAN PRINCIPAL MORTGAGE MORTGAGE MATURITY TERM MATURITY NEXT RATE
TYPE (1) BALANCE ($) RATE (%) RATE (%) (MONTHS) (MONTHS) (MONTHS) ADJUSTMENT
- ------------------ ----------- -------- -------- -------- -------- -------- ----------
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
3/27 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
3/27 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
3/27 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
3/27 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
3/27 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
3/27 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
3/27 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
3/27 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
ORIGINAL
INITIAL SUBSEQUENT RATE INTEREST
GROSS PERIODIC PERIODIC ADJUSTMENT ONLY
MORTGAGE LOAN MARGIN MAXIMUM MINIMUM RATE CAP RATE CAP FREQUENCY TERM
TYPE (1) (%) RATE (%) RATE (%) (%) (%) (MONTHS) (MONTHS)
- ------------------ ----------- -------- -------- -------- -------- -------- ----------
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
3/27 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
3/27 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
3/27 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
3/27 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
3/27 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
3/27 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
3/27 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
3/27 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
- -----------
(1) "6ML" indicates that the assumed Mortgage Loan bears interest based on
six-month LIBOR.
S-67
ASSUMED MORTGAGE LOAN CHARACTERISTICS OF POOL 2
REMAINING REMAINING ORIGINAL
GROSS NET TERM TO AMORT. TERM TO MONTHS TO
MORTGAGE LOAN PRINCIPAL MORTGAGE MORTGAGE MATURITY TERM MATURITY NEXT RATE
TYPE (1) BALANCE ($) RATE (%) RATE (%) (MONTHS) (MONTHS) (MONTHS) ADJUSTMENT
- ------------------ ----------- -------- -------- -------- -------- -------- ----------
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
2/28 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
3/27 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
3/27 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
3/27 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
3/27 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
3/27 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
3/27 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
3/27 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
3/27 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
5/25 ARM (6ML).... [___________] [______] [______] [___] [___] [___] [__]
ORIGINAL
INITIAL SUBSEQUENT RATE INTEREST
GROSS PERIODIC PERIODIC ADJUSTMENT ONLY
MORTGAGE LOAN MARGIN MAXIMUM MINIMUM RATE CAP RATE CAP FREQUENCY TERM
TYPE (1) (%) RATE (%) RATE (%) (%) (%) (MONTHS) (MONTHS)
- ------------------ ----------- -------- -------- -------- -------- -------- ----------
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
2/28 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
3/27 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
3/27 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
3/27 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
3/27 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
3/27 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
3/27 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
3/27 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
3/27 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] N/A
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
5/25 ARM (6ML).... [______] [________] [______] [______] [________] [_] [__]
(1) "6ML" indicates that the assumed Mortgage Loan bears interest based on
six-month LIBOR.
S-68
The actual characteristics and the performance of the Mortgage Loans will
differ from the assumptions used in constructing the tables set forth below,
which are hypothetical in nature and are provided only to give a general sense
of how the principal cash flows might behave under varying prepayment scenarios.
For example, it is not expected that the Mortgage Loans will prepay at a
constant rate until maturity, that all of the Mortgage Loans will prepay at the
same rate or that there will be no defaults or delinquencies on the Mortgage
Loans. Moreover, the diverse remaining terms to maturity and the Mortgage Rate
of the Mortgage Loans could produce slower or faster principal payments than
indicated in the tables at the various percentages of the Prepayment Assumption
specified, even if the weighted average remaining term to maturity and the
weighted average Mortgage Rates of the Mortgage Loans are as assumed. Any
difference between such assumptions and the actual characteristics and
performance of the Mortgage Loans, or the actual prepayment or loss experience,
will cause the percentages of initial Class Principal Amounts outstanding over
time and the weighted average lives of the Notes to differ (which difference
could be material) from the corresponding information in the tables for each
indicated percentage of the Prepayment Assumption.
Subject to the foregoing discussion and assumptions, the following tables
indicate the weighted average lives of the Notes and set forth the percentages
of the initial Class Principal Amounts of the Notes that would be outstanding
after each of the Payment Dates shown at various percentages of the Prepayment
Assumption.
The weighted average life of a Note is determined by (1) multiplying the
net reduction, if any, of the applicable Class Principal Amount by the number of
years from the date of issuance of the Note to the related Payment Date, (2)
adding the results and (3) dividing the sum by the aggregate of the net
reductions of Class Principal Amount described in (1) above.
S-69
PERCENTAGE OF INITIAL CLASS PRINCIPAL AMOUNT OF THE CLASS 1A1 AND CLASS 1A2 NOTES
OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS 1A1 NOTES CLASS 1A2 NOTES
-------------------------------------- ---------------------------------------
0% 80% 100% 120% 150% 0% 80% 100% 120% 150%
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Initial Percentage............. [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
Weighted Average Life in Years:
Without Optional Termination [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
With Optional Termination... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
* Indicates a value greater than 0.0% and less than 0.5%.
S-70
PERCENTAGE OF INITIAL CLASS PRINCIPAL AMOUNT OF THE CLASS 1A3 AND CLASS 2A1 NOTES
OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS 1A3 NOTES CLASS 2A1 NOTES
-------------------------------------- ---------------------------------------
0% 80% 100% 120% 150% 0% 80% 100% 120% 150%
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Initial Percentage............. [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
Weighted Average Life in Years:
Without Optional Termination [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
With Optional Termination... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
* Indicates a value greater than 0.0% and less than 0.5%.
S-71
PERCENTAGE OF INITIAL CLASS PRINCIPAL AMOUNT OF THE CLASS M1 AND CLASS M2 NOTES
OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS M1 NOTES CLASS M2 NOTES
-------------------------------------- ---------------------------------------
0% 80% 100% 120% 150% 0% 80% 100% 120% 150%
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Initial Percentage............. [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
Weighted Average Life in Years:
Without Optional Termination [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
With Optional Termination... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
S-72
PERCENTAGE OF INITIAL CLASS PRINCIPAL AMOUNT OF THE CLASS M3 AND CLASS M4 NOTES
OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS M3 NOTES CLASS M4 NOTES
-------------------------------------- ---------------------------------------
0% 80% 100% 120% 150% 0% 80% 100% 120% 150%
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Initial Percentage............. [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
Weighted Average Life in Years:
Without Optional Termination [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
With Optional Termination... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
S-73
PERCENTAGE OF INITIAL CLASS PRINCIPAL AMOUNT OF THE CLASS M5 AND CLASS M6 NOTES
OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS M5 NOTES CLASS M6 NOTES
-------------------------------------- ---------------------------------------
0% 80% 100% 120% 150% 0% 80% 100% 120% 150%
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Initial Percentage............. [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
Weighted Average Life in Years:
Without Optional Termination [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
With Optional Termination... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
S-74
PERCENTAGE OF INITIAL CLASS PRINCIPAL AMOUNT OF THE CLASS M7 AND CLASS M8 NOTES
OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS M7 NOTES CLASS M8 NOTES
-------------------------------------- ---------------------------------------
0% 80% 100% 120% 150% 0% 80% 100% 120% 150%
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Initial Percentage............. [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
Weighted Average Life in Years:
Without Optional Termination [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
With Optional Termination... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
S-75
PERCENTAGE OF INITIAL CLASS PRINCIPAL AMOUNT OF THE CLASS M9 AND CLASS B1
NOTES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS M9 NOTES CLASS B1 NOTES
-------------------------------------- ---------------------------------------
0% 80% 100% 120% 150% 0% 80% 100% 120% 150%
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Initial Percentage............. [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
Weighted Average Life in Years:
Without Optional Termination [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
With Optional Termination... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
S-76
PERCENTAGE OF INITIAL CLASS PRINCIPAL AMOUNT OF THE CLASS B2 AND CLASS B3
NOTES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS B2 NOTES CLASS B3 NOTES
-------------------------------------- ---------------------------------------
0% 80% 100% 120% 150% 0% 80% 100% 120% 150%
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Initial Percentage............. [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
Weighted Average Life in Years:
Without Optional Termination [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
With Optional Termination... [___] [___] [___] [___] [___] [___] [___] [___] [___] [___]
S-77
PERCENTAGE OF INITIAL CLASS PRINCIPAL AMOUNT OF THE CLASS B4
NOTES OUTSTANDING AT THE FOLLOWING PERCENTAGES OF THE PREPAYMENT ASSUMPTION
CLASS B4 NOTES
--------------------------------------
0% 80% 100% 120% 150%
----- ----- ----- ----- -----
Initial Percentage............. [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
[Month[ [Day], 20___........... [___] [___] [___] [___] [___]
Weighted Average Life in Years:
Without Optional Termination [___] [___] [___] [___] [___]
With Optional Termination... [___] [___] [___] [___] [___]
S-78
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
TAX CLASSIFICATION OF THE TRUST AND OF THE NOTES
In the opinion of Greenberg Traurig, LLP , assuming compliance with the
Agreements, for U.S. federal income tax purposes, the Notes (other than the
Class B4 Notes, which at the time of their issuance, the Seller or one of its
qualified REIT subsidiaries will acquire beneficial ownership thereof), will be
classified as debt instruments. In addition, the Owner Trustee, on behalf of the
Trust, will agree, and beneficial owners of the Notes will agree by their
purchase of Notes, to treat the Notes as debt instruments for U.S. federal
income tax purposes.
In the opinion of Greenberg Traurig, LLP, assuming compliance with the
Agreements, for U.S. federal income tax purposes, the Trust will not be
classified as a corporation or as a publicly traded partnership; the Trust will,
however, be classified as a taxable mortgage pool ("TMP"). Although the Trust
will be classified as a TMP, the Trust will not be subject to federal income tax
as long as an entity that qualifies as a REIT under the Code holds, directly or
indirectly, through one or more wholly owned qualified REIT subsidiaries a 100%
ownership interest in the Ownership Certificate.
The Seller will hold through Aames Investment Acceptance Corporation, its
wholly owned subsidiary, a 100% ownership interest in the Ownership Certificate.
The Seller represents it filed for its taxable year ended [Month] [Day], 20___
an election to be a REIT, that it has been organized in conformity with the
requirements for REIT qualification set forth in the Code, that it has operated
and will continue to operate in a manner that enables it to qualify as a REIT
and that it will not undertake any action that would cause the Trust to be
subject to federal income tax. In rendering its opinion, Greenberg Traurig, LLP
has not independently verified the Seller's qualification as a REIT, but instead
has relied solely upon the representation made by the Seller concerning its REIT
status. If the Seller were to fail to qualify as a REIT while it or its
subsidiary owns the Ownership Certificate, the Trust could become subject to
federal income tax as a corporation and would not be allowed to file a
consolidated federal income tax return with any other corporation. A tax imposed
upon the Trust could reduce cash flow that would otherwise be available to make
payments on the Notes. Any such failure of the holder of the Ownership
Certificate to qualify as a REIT or a qualified REIT subsidiary would constitute
an Indenture Default.
At the issuance of the Notes, Aames Investment Acceptance Corporation will
also acquire beneficial ownership of the Class B4 Notes. Because the Seller's
qualified REIT subsidiary will own the Ownership Certificate, the Class B4 Notes
will not be considered issued and outstanding for federal income tax purposes.
Thus, the Class B4 Notes will not be treated as debt instruments for federal
income tax purposes while the same party or related parties hold the Class B4
Notes and the Ownership Certificate. If Aames Investment Acceptance Corporation
were to sell the Class B4 Notes or the Ownership Certificate to an unaffiliated
party, then depending upon the circumstances existing at the time of the sale,
the Class B4 Notes could become characterized as debt instruments for federal
income tax purposes as of the time of the sale. The federal income tax
consequences to a beneficial owner of a retained Note characterized as an equity
interest in the Trust generally would be the same as those described in the
section captioned "--Tax Consequences to Holders of the Notes--Possible
Alternative Treatment of the Notes" below. The remainder of this discussion,
other than the portion captioned "Tax Consequences to Holders of the
Notes--Possible Alternative Treatment of the Notes," assumes that the Notes are
properly characterized as debt instruments for federal income tax purposes.
TAX CONSEQUENCES TO HOLDERS OF THE NOTES
Interest Income on the Notes. The notes may be treated as having been
issued with OID. The beneficial owner of a note must include any OID with
respect to such note in income as it accrues on a constant yield method,
regardless of whether the beneficial owner receives any cash currently
attributable to such OID. See "Material Federal Income Tax
Considerations--Taxation of Debt Securities" in the Prospectus. The prepayment
assumption that will be used in determining the accrual of any OID, market
discount, or bond premium, if any, will be a rate equal to 100% of the
Prepayment Assumption with respect to the Mortgage Loans. See "Yield,
S-79
Prepayment and Weighted Average Life" above. No representation, however, is made
as to the rate at which principal payments or recoveries on the mortgage loans
actually will occur.
Possible Alternative Treatments of the Notes. If, contrary to the opinion
of Greenberg Traurig, LLP, the IRS successfully asserted that a class of notes
did not represent debt instruments for U.S. federal income tax purposes, those
notes might be treated as equity interests in the trust. If, as a result, a REIT
did not hold, directly, or indirectly through a qualified REIT subsidiary, 100%
of the equity in the trust, the trust could be subject to corporate income tax.
Moreover, if a class of notes represented equity in the trust, payments of
interest on that class of notes to a foreign person generally would be subject
to U.S. tax and withholding requirements.
STATE AND LOCAL INCOME TAX CONSIDERATIONS
In addition to the federal income tax consequences described under
"Material Federal Income Tax Considerations" above, prospective investors should
consider the state and local income tax consequences of the acquisition,
ownership, and disposition of the offered securities. State and local income tax
law may differ substantially from the corresponding federal tax law, and this
discussion does not purport to describe any aspect of the income tax laws of any
state or municipality. Therefore, prospective investors should consult their own
tax advisors with respect to the various tax consequences of investments in the
offered securities.
LEGAL INVESTMENT CONSIDERATIONS
The Senior Notes and the Class M1, Class M2, Class M3, Class M4, Class M5
and Class M6 Notes will constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984, as amended ("SMMEA") for
so long as they are rated in one of the two highest rating categories by one or
more nationally recognized statistical rating agencies, and, as such, are legal
investments for certain entities to the extent provided in SMMEA. Such
investments, however, will be subject to general regulatory considerations
governing investment practices under state and federal laws. The Class M7, Class
M8, Class M9, Class B1, Class B2, Class B3 and Class B4 Notes will not
constitute "mortgage related securities" for purposes of the SMMEA.
Classes of Notes 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 regulation to
the same extent as, under applicable law, obligations issued by or guaranteed as
to principal and interest by the United States or any of these 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," the Notes will constitute legal investments for
entities subject to this legislation only to the extent provided therein.
Approximately twenty-one states adopted the legislation prior to the October 4,
1991 deadline.
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 Notes 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 Notes for their own account without regard to the limitations generally
applicable to investment securities set forth in 12 U.S.C. ss.24 (Seventh),
subject in each case to any regulations 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), (whether or not the class of Notes under consideration for purchase
constitutes a "mortgage related security").
All depository institutions considering an investment in the Notes (whether
or not the class of Notes under consideration for purchase constitutes a
"mortgage related security" should review the Federal Financial Institutions
Examination Council's Supervisory Policy Statement on Securities Activities (to
the extent adopted
S-80
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" that are "high-risk mortgage securities" as defined in the Policy
Statement. According to the Policy Statement, "high-risk mortgage securities"
include securities not entitled to payments 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 the
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, percentage-of-assets limits and provisions
that may restrict or prohibit investment in securities that are not "interest
bearing" or "income paying."
Institutions whose investment activities are subject to review by certain
regulatory authorities may be or may become subject to restrictions, which may
be retroactively imposed by such regulatory authorities, on the investment by
such institutions in certain mortgage related securities. In addition, several
states have adopted or may adopt regulations that prohibit certain state
chartered institutions from purchasing or holding similar types of securities.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Notes or to purchase Notes
representing more than a specified percentage of the investor's assets.
Accordingly, investors should consult their own legal advisors to determine
whether and to what extent the Notes may be purchased by such investors.
ERISA CONSIDERATIONS
GENERAL
Section 406 of ERISA prohibits, and Section 4975 of the Code imposes
adverse tax consequences on, certain transactions between a Plan and persons
that are "parties in interest" under ERISA or "disqualified persons" under the
Code with respect to such Plan. A violation of these "prohibited transaction"
rules may result in excise taxes and other penalties and liabilities under ERISA
and the Code for such persons.
Certain transactions involving the assets of a trust might be deemed to
constitute prohibited transactions under Section 406 of ERISA and Section 4975
of the Code with respect to a Plan that purchased notes issued by that trust if
assets of the trust were deemed to be assets of the Plan. Under the Plan Asset
Regulations, the assets of a trust would be treated as plan assets of the Plan
for the purposes of ERISA and the Code only if the Plan acquired an "equity
interest" in the trust and none of the exceptions contained in the Plan Asset
Regulations was applicable. An equity interest is defined under the Plan Asset
Regulations as an interest other than an instrument which is treated as
indebtedness under applicable local law and which has no substantial equity
features.
PURCHASES OF THE NOTES
Although there is little guidance on the subject, the Notes should be
treated as indebtedness without substantial equity features for purposes of the
Plan Asset Regulations. This determination is based in part upon (i) tax
counsel's opinion that Notes transferred on the Closing Date to parties
unrelated to the holder of the Ownership Certificate will be classified as debt
for U. S. federal income tax purposes and that the Class B4 Notes, if later sold
to a party unrelated to the holder of the Ownership Certificate for cash, will
be classified as debt instruments for U. S. federal income tax purposes as of
the date of such sale, based on certain assumptions (including that the rating
of the Notes as of the Closing Date has not declined below investment grade) and
(ii) the traditional debt features of the Notes, including the reasonable
expectation of purchasers of the Notes that they will be repaid when due, as
well as the absence of conversion rights, warrants and other typical equity
S-81
features. Based upon the foregoing and other considerations, subject to the
considerations described below, the Notes may be purchased by a Plan.
Without regard to whether the Notes are considered an "equity interest" in
the Trust under the Plan Asset Regulations, the acquisition or holding of Notes
by or on behalf of a Plan could be considered to give rise to a prohibited
transaction if the Underwriters, the Trust, the Owner Trustee or the Indenture
Trustee, or any of their respective affiliates is or becomes a party in interest
or a disqualified person with respect to such PLAN. In that case, Prohibited
Transaction Class Exemption ("PTCE") 84-14 (relating to transactions effected by
a "qualified professional asset manager"); PTCE 90-1 (relating to transactions
involving insurance company pooled separate accounts); PTCE 91-38 (relating to
transactions involving bank collective investment funds); PTCE 95-60 (relating
to transactions involving insurance company general accounts); PTCE 96-23
(relating to transactions effected by an "in-house asset manager"); and any
other applicable exemption granted by the U.S. Department of Labor
(collectively, the "Investor-Based Exemptions") from the prohibited transaction
rules could be applicable, depending on the type of Plan involved and the
circumstances of the plan fiduciary's decision to acquire a Note. Even if the
conditions specified in one or more of the Investor-Based Exemptions are met,
the scope of the relief provided by these exemptions might or might not cover
all acts that might be construed as prohibited TRANSACTIONS. There can be no
assurance that any of the Investor-Based Exemptions, or any other exemption,
will be available with respect to any particular transaction involving the
Notes.
The Notes should not be purchased with the assets of an employee benefit
plan as described in Section 3(3) of ERISA and subject to Title I of ERISA, any
plan subject to Section 4975 of the Code, any employee benefit plan or other
retirement arrangement subject to any provision of applicable federal, state,
local or foreign law materially similar to the foregoing provisions of ERISA or
the Code or any entity deemed to hold the assets of the foregoing (a "Benefit
Plan") if the Depositor, the Indenture Trustee, the Owner Trustee, the
Underwriters or any of their affiliates is a fiduciary or gives investment
advice with respect to such Benefit Plan or is an employer maintaining or
contributing to such Benefit Plan, unless such purchase and holding of the Notes
would be covered by an applicable prohibited transaction exemption, or, if
subject to any federal, state, local or foreign laws substantially similar to
ERISA or Section 4975 of the Code ("Similar Law"), will not cause a non-exempt
violation of that law.
Prospective Benefit Plan investors in Notes should consult with their legal
advisors concerning the impact of ERISA and the Code, the availability of other
exemptions from the prohibited transaction rules that may apply to them, and the
potential consequences in their specific circumstances, prior to making an
investment in the notes. Each Benefit Plan fiduciary should also determine
whether under the general fiduciary standards of investment prudence and
diversification, an investment in the Notes is appropriate for the Benefit Plan,
taking into account the overall investment policy of the Plan and the
composition of the Benefit Plan's investment portfolio.
Each purchaser and transferee of a Note will be deemed to represent and
warrant to the trust that either (i) it is not a Benefit Plan or (ii) it is a
Benefit Plan and its acquisition and holding of such Notes will not result in a
non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of
the Code which is not covered under an Investor-Based Exemption or some other
applicable exemption, and will not cause a non-exempt violation of any Similar
Law.
The sale of Notes to a Plan is in no respect a representation by the issuer
or any underwriter of the Notes that this investment meets all relevant legal
requirements with respect to investments by Plans generally or any particular
Plan, or that this investment is appropriate for Plans generally or any
particular Plan.
USE OF PROCEEDS
The net proceeds from the sale of the Underwritten Notes will be applied by
the Depositor toward the purchase of the Mortgage Loans, and will be applied by
the Seller toward the repayment of any related financing.
S-82
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement") among the Depositor and [UNDERWRITER],
[UNDERWRITER], [UNDERWRITER], [UNDERWRITER], [UNDERWRITER], [UNDERWRITER],
[UNDERWRITER] and [UNDERWRITER] (collectively, the "Underwriters"), the
Depositor has agreed to sell to the Underwriters, and each Underwriter has
severally but not jointly agreed to purchase from the Depositor, the principal
amounts of the following classes of Notes (the "Underwritten Notes") shown
opposite its name:
UNDERWRITER CLASS 1A1 NOTES CLASS 1A2 NOTES CLASS 1A3 NOTES CLASS 2A1 NOTES
- ------------------------------------ --------------- --------------- --------------- ---------------
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
Total............................... $[__________] $[__________] $ [_________] $[__________]
UNDERWRITER CLASS M1 NOTES CLASS M2 NOTES CLASS M3 NOTES CLASS M4 NOTES
- ------------------------------------ --------------- --------------- --------------- ---------------
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
Total............................... $[__________] $[__________] $ [_________] $[__________]
UNDERWRITER CLASS M5 NOTES CLASS M6 NOTES CLASS M7 NOTES CLASS M8 NOTES
- ------------------------------------ --------------- --------------- --------------- ---------------
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
Total............................... $[__________] $[__________] $ [_________] $[__________]
UNDERWRITER CLASS M9 NOTES CLASS B1 NOTES CLASS B2 NOTES CLASS B3 NOTES
- ------------------------------------ --------------- --------------- --------------- ---------------
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
[UNDERWRITER]....................... $[__________] $[__________] $ [_________] $[__________]
Total............................... $[__________] $[__________] $ [_________] $[__________]
S-83
The distribution of the Underwritten Notes by the Underwriters will be
effected in each case from time to time in one or more negotiated transactions,
or otherwise, at varying prices to be determined, in each case, at the time of
sale. The Underwriters may effect such transactions by selling the Underwritten
Notes to or through dealers, and such dealers may receive from the Underwriters,
for whom they act as agent, compensation in the form of underwriting discounts,
concessions or commissions. The Underwriters and any dealers that participate
with the Underwriters in the distribution of the Underwritten Notes may be
deemed to be an underwriter, and any discounts, commissions or concessions
received by them, and any profit on the resale of the Underwritten Notes
purchased by them, may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended (the "Act").
It is expected that the proceeds to the Depositor from the sale of the
Underwritten Notes will be approximately $[__________] before deducting issuance
expenses payable by the Depositor, estimated to be approximately $[______].
The Underwriting Agreement provides that the Depositor will indemnify each
Underwriter against certain civil liabilities, including liabilities under the
Act.
The Class B4 Notes will be transferred to the Seller or an affiliate
thereof on the Closing Date.
Immediately prior to the sale of the Mortgage Loans to the Trust, certain
of the Mortgage Loans were subject to financing provided by affiliates of one or
more of the Underwriters.
Countrywide Securities Corporation is an affiliate of the Depositor.
After the initial distribution of the Underwritten Notes by the
Underwriters, the accompanying Prospectus and prospectus supplement may be used
by the Underwriters in connection with market making transactions in the
Underwritten Notes. The Underwriter may act as principal or agent in such
transactions. Such transactions will be at prices related to prevailing market
prices at the time of sale.
LEGAL MATTERS
Certain legal matters with respect to the Notes will be passed upon for the
Depositor and for the Seller and Servicer by Greenberg Traurig, LLP, New York,
New York. Certain legal matters with respect to the Underwriter will be passed
upon by [UNDERWRITERS' COUNSEL], New York, New York.
RATINGS
It is a condition to the issuance of the Class 1A1, Class 1A2, Class 1A3
and Class 2A1 Notes that they be rated "AAA" by S&P and "Aaa" by Moody's
(collectively, the "Rating Agencies"). It is a condition to the issuance of the
Class M1 Notes that they be rated "AA+" by S&P and "Aa1" by Moody's. It is a
condition to the issuance of the Class M2 Notes that they be rated "AA+" by S&P
and "Aa2" by Moody's. It is a condition to issuance of the Class M3 Notes that
they be rated "AA" by S&P and "Aa3" by Moody's. It is a condition to the
issuance of the Class M4 Notes that they be rated "AA" by S&P and "A1" by
Moody's. It is a condition to the issuance of the Class M5 Notes that they be
rated "AA" by S&P and "A2" by Moody's. It is a condition to the issuance of the
Class M6 Notes that they be rated "AA-" by S&P. It is a condition to the
issuance of the Class M7 Notes that they be rated "A+" by S&P and "Baa1" by
Moody's. It is a condition to the issuance of the Class M8 Notes that they be
rated "A" by S&P and "Baa2" by Moody's. It is a condition to the issuance of the
Class M9 Notes that they be rated "A-" by S&P and "Baa3" by Moody's. It is a
condition to the issuance of the Class B1 Notes that they be rated "BBB+" by S&P
and "Ba1" by Moody's. It is a condition to the issuance of the Class B2 Notes
that they be rated "BBB+" by S&P. It is a condition to the issuance of the Class
B3 Notes that they be rated "BBB" by S&P. It is a condition to the issuance of
the Class B4 Notes that they be rated "BBB-" by S&P.
S-84
The ratings of "AAA" and "Aaa" are the highest ratings that the applicable
rating agency assigns to securities. A securities 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 agency. A securities rating addresses the
likelihood of receipt by holders of Notes of payments in the amount of scheduled
payments on the Mortgage Loans. The rating takes into consideration the
characteristics of the Mortgage Loans and the structural and legal aspects
associated with the Notes. The ratings do not take into consideration any of the
tax aspects associated with the Notes. The ratings on the Notes do not represent
any assessment of the likelihood or rate of principal prepayments. The ratings
do not address the possibility that holders of Notes might suffer a lower than
anticipated yield due to prepayments.
The ratings do not address the likelihood that any Basis Risk Shortfall or
Unpaid Basis Risk Shortfall will be repaid to Noteholders from Monthly Excess
Cashflow, the Group 1 Cap Agreement, the Group 2 Cap Agreement or the
Subordinate Cap Agreement.
The security ratings assigned to the Notes should be evaluated
independently from similar ratings on other types of securities.
The Depositor has not requested a rating of the Notes by any rating agency
other than those described above; there can be no assurance, however, as to
whether any other rating agency will rate the Notes or, if it does, what rating
would be assigned by such other rating agency. The rating assigned by such other
rating agency to the Notes could be lower than the respective ratings assigned
by the rating agencies described above.
S-85
DEFINED TERM PAGE
- ------------ ----
Aames Investment...........................................................S-45
ACC........................................................................S-46
Accrual Period.............................................................S-25
Act........................................................................S-83
Adjustment Date............................................................S-43
Advance....................................................................S-55
Aggregate Loan Balance.....................................................S-26
Aggregate Overcollateralization Release Amount.............................S-36
Basis Risk Shortfall.......................................................S-26
BBA........................................................................S-31
Beneficial Owner...........................................................S-21
Benefit Plan...............................................................S-81
Book-Entry Notes...........................................................S-21
BSFP.......................................................................S-29
Business Day...............................................................S-21
Class Principal Amount.....................................................S-25
Clearstream Luxembourg.....................................................S-21
Clearstream Luxembourg Participants........................................S-23
Closing Date...............................................................S-25
Collection Account.........................................................S-53
Collection Period..........................................................S-32
Compensating Interest......................................................S-54
CPR........................................................................S-65
Cumulative Loss Trigger Event..............................................S-35
Current Interest...........................................................S-25
Custodial Account..........................................................S-20
Cut-off Date Balance.......................................................S-41
Deferred Interest..........................................................S-40
Definitive Note............................................................S-21
Delinquency Rate...........................................................S-35
Depositor..................................................................S-20
Designated Telerate Page...................................................S-31
DTC........................................................................S-21
DTI........................................................................S-47
Euroclear..................................................................S-21
Euroclear Operator.........................................................S-23
Euroclear Participants.....................................................S-23
European Depositaries......................................................S-21
Financial Intermediary.....................................................S-21
Fixed Rate Cap.............................................................S-25
Gross Margin...............................................................S-43
Group 1 Cap Agreement......................................................S-26
Group 1 Maximum Rate.......................................................S-26
Group 1 Notes..............................................................S-20
Group 1 Strike Rate........................................................S-26
Group 2 Cap Agreement......................................................S-27
Group 2 Maximum Rate.......................................................S-27
Group 2 Strike Rate........................................................S-27
Indenture..................................................................S-57
Indenture Default..........................................................S-60
Initial Cap................................................................S-43
S-86
Initial Optional Termination Date..........................................S-40
Insurance Proceeds.........................................................S-32
Interest Rate........................................................S-25, S-26
Interest Remittance Amount.................................................S-31
Interest Settlement Rate...................................................S-31
Investor-Based Exemptions..................................................S-81
LIBOR......................................................................S-31
LIBOR Business Day.........................................................S-31
LIBOR Determination Date...................................................S-31
Liquidated Mortgage Loan...................................................S-37
Loan-to-Value Ratio........................................................S-42
Master Servicer............................................................S-49
Master Servicing Fee.......................................................S-53
Master Servicing Fee Rate..................................................S-53
Maximum Rate...............................................................S-43
Minimum Rate...............................................................S-43
Modeling Assumptions.......................................................S-65
Monthly Excess Cashflow....................................................S-38
Mortgage Loan Purchase Agreement...........................................S-41
Mortgage Loans.............................................................S-20
Mortgage Pool..............................................................S-20
Mortgage Rate..............................................................S-26
NCUA.......................................................................S-79
Net Funds Cap..............................................................S-25
Net Liquidation Proceeds...................................................S-32
Net Mortgage Rate..........................................................S-25
Net Prepayment Interest Shortfalls.........................................S-54
Noteholder.................................................................S-21
Notes......................................................................S-20
Overcollateralization Amount...............................................S-36
Ownership Certificate......................................................S-20
Ownership Certificateholder................................................S-20
Participant................................................................S-21
Payahead...................................................................S-31
Payment Date...............................................................S-21
Penalty Period.............................................................S-42
Periodic Cap...............................................................S-43
Policy Statement...........................................................S-80
Pool 1.....................................................................S-20
Pool 1 Monthly Excess Interest.............................................S-30
Pool 1 Mortgage Loans......................................................S-44
Pool 1 Senior Priority.....................................................S-34
Pool 2.....................................................................S-20
Pool 2 Monthly Excess Interest.............................................S-30
Pool 2 Mortgage Loans......................................................S-44
Pool Balance...............................................................S-26
Pool Percentage............................................................S-26
Prepayment Assumption......................................................S-65
Prepayment Interest Excess.................................................S-54
Prepayment Interest Shortfall..............................................S-54
Prepayment Period..........................................................S-33
Prepayment Premium.........................................................S-42
Principal Deficiency Amount................................................S-40
Principal Payment Amount...................................................S-32
Principal Remittance Amount................................................S-32
S-87
Priority Class.............................................................S-61
PTCE.......................................................................S-81
Rating Agencies............................................................S-83
Realized Loss..............................................................S-37
Record Date................................................................S-21
REIT.......................................................................S-46
Related Senior Principal Payment Amount....................................S-35
Relevant Depositary........................................................S-21
Relief Act.................................................................S-26
Rolling Three Month Delinquency Rate.......................................S-35
Rules......................................................................S-22
Scheduled Payment..........................................................S-33
Scheduled Principal Balance................................................S-33
Seller.....................................................................S-41
Senior Enhancement Percentage..............................................S-36
Senior Notes...............................................................S-20
Senior Principal Payment Amount............................................S-35
Senior Proportionate Percentage............................................S-36
Senior Target Amount.......................................................S-36
Servicer...................................................................S-49
Servicing Fee..............................................................S-53
Servicing Fee Rate.........................................................S-53
Similar Law................................................................S-81
Six-Month LIBOR Index......................................................S-43
SMMEA......................................................................S-79
Stepdown Date..............................................................S-35
Subordinate Cap Agreement..................................................S-28
Subordinate Class Principal Payment Amount.................................S-36
Subordinate Class Target Amount............................................S-37
Subordinate Maximum Rate...................................................S-28
Subordinate Notes..........................................................S-20
Subordinate Priority.......................................................S-30
Subordinate Strike Rate....................................................S-29
Substitution Amount........................................................S-31
Target Amount..............................................................S-35
Targeted Overcollateralization Amount......................................S-36
Termination Price..........................................................S-40
Terms and Conditions.......................................................S-23
TMP........................................................................S-78
Total Principal Deficiency Amount..........................................S-40
Transfer and Servicing Agreement...........................................S-57
Trigger Event..............................................................S-35
Trust......................................................................S-20
Trust Administrator........................................................S-41
Trust Agreement............................................................S-41
Trust Estate...............................................................S-57
Underwriters...............................................................S-82
Underwriting Agreement.....................................................S-82
Underwritten Notes.........................................................S-82
Unpaid Basis Risk Shortfall................................................S-26
S-88
ANNEX A
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Aames
Mortgage Investment Trust 20___-__ Mortgage Backed Notes, Series 20___-__ (the
"Global Securities") will be available only in book entry form. Investors in the
Global Securities may hold such Global Securities through any of DTC,
Clearstream Luxembourg or Euroclear. The Global Securities will be tradable as
home market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same day funds.
Secondary market trading between investors holding Global Securities
through Clearstream Luxembourg and Euroclear will be conducted in the ordinary
way in accordance with their normal rules and operating procedures and in
accordance with conventional eurobond practice (i.e., seven calendar day
settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior mortgage loan asset backed notes
issues.
Secondary cross market trading between Clearstream Luxembourg or Euroclear
and DTC Participants holding Notes will be effected on a delivery against
payment basis through the respective Depositaries of Clearstream Luxembourg and
Euroclear (in such capacity) and as DTC Participants.
A holder that is not a United States person (as described below) of Global
Securities will be subject to U.S. withholding taxes unless such holders meet
certain requirements and deliver appropriate U.S. tax documents to the
securities clearing organizations or their participants.
INITIAL SETTLEMENT
All Global Securities will be held in book entry form by DTC in the name of
Cede & Co. as nominee of DTC. Investors' interests in the Global Securities will
be represented through financial institutions acting on their behalf as direct
and indirect Participants in DTC. As a result, Clearstream Luxembourg and
Euroclear will hold positions on behalf of their Participants through their
respective Relevant Depositaries, which in turn will hold such positions in
accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will follow
the settlement practices applicable to prior mortgage loan asset backed notes
issues. Investors' securities custody accounts will be credited with their
holdings against payment in same-day funds on the settlement date.
Investors electing to hold their Global Securities through Clearstream
Luxembourg or Euroclear accounts will follow the settlement procedures
applicable to conventional eurobonds, except that there will be no temporary
global security and no lock up or restricted period. Global Securities will be
credited to the securities custody accounts on the settlement date against
payment in same-day funds.
SECONDARY MARKET TRADING
Since the purchaser determines the place of delivery, it is important to
establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
TRADING BETWEEN DTC PARTICIPANTS. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior mortgage
loan asset backed notes issues in same-day funds.
TRADING BETWEEN CLEARSTREAM LUXEMBOURG AND/OR EUROCLEAR PARTICIPANTS.
Secondary market trading between Clearstream Luxembourg Participants or
Euroclear Participants will be settled using the procedures applicable to
conventional eurobonds in same day funds.
S-A-1
TRADING BETWEEN DTC SELLER AND CLEARSTREAM LUXEMBOURG OR EUROCLEAR
PURCHASER. When Global Securities are to be transferred from the account of a
DTC Participant to the account of a Clearstream Luxembourg Participant or a
Euroclear Participant, the purchaser will send instructions to Clearstream
Luxembourg or Euroclear through a Clearstream Luxembourg Participant or
Euroclear Participant at least one business day prior to settlement. Clearstream
Luxembourg or Euroclear will instruct the respective Relevant Depositary, as the
case may be, to receive the Global Securities against payment. Payment will
include interest accrued on the Global Securities from and including the last
coupon payment date to and excluding the settlement date, on the basis of either
the actual number of days in such accrual period and a year assumed to consist
of 360 days or a 360-day year of twelve 30-day months as applicable to the
related class of Global Securities. For transactions settling on the 31st of the
month, payment will include interest accrued to and excluding the first day of
the following month. Payment will then be made by the respective Relevant
Depositary of the DTC Participant's account against delivery of the Global
Securities. After settlement has been completed, the Global Securities will be
credited to the respective clearing system and by the clearing system, in
accordance with its usual procedures, to the Clearstream Luxembourg
Participant's or Euroclear Participant's account. The securities credit will
appear the next day (European time) and the cash debt will be back valued to,
and the interest on the Global Securities will accrue from, the value date
(which would be the preceding day when settlement occurred in New York). If
settlement is not completed on the intended value date (i.e., the trade fails),
the Clearstream Luxembourg or Euroclear cash debt will be valued instead as of
the actual settlement date.
Clearstream Luxembourg Participants and Euroclear Participants will need to
make available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Clearstream Luxembourg or
Euroclear. Under this approach, they may take on credit exposure to Clearstream
Luxembourg or Euroclear until the Global Securities are credited to their
accounts one day later.
As an alternative, if Clearstream Luxembourg or Euroclear has extended a
line of credit to them, Clearstream Luxembourg Participants or Euroclear
Participants can elect not to preposition funds and allow that credit line to be
drawn upon the finance settlement. Under this procedure, Clearstream Luxembourg
Participants or Euroclear Participants purchasing Global Securities would incur
overdraft charges for one day, assuming they cleared the overdraft when the
Global Securities were credited to their accounts. However, interest on the
Global Securities would accrue from the value date. Therefore, in many cases the
investment income on the Global Securities earned during that one day period may
substantially reduce or offset the amount of such overdraft charges, although
this result will depend on each Clearstream Luxembourg Participant's or
Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours, DTC
Participants can employ their usual procedures for sending Global Securities to
the respective European Depositary for the benefit of Clearstream Luxembourg
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
TRADING BETWEEN CLEARSTREAM LUXEMBOURG OR EUROCLEAR SELLER AND DTC
PURCHASER. Due to time zone differences in their favor, Clearstream Luxembourg
Participants and Euroclear Participants may employ their customary procedures
for transactions in which Global Securities are to be transferred by the
respective clearing system, through the respective Relevant Depositary, to a DTC
Participant. The seller will send instructions to Clearstream Luxembourg or
Euroclear through a Clearstream Luxembourg Participant or Euroclear Participant
at least one business day prior to settlement. In these cases Clearstream
Luxembourg or Euroclear will instruct the respective Relevant Depositary, as
appropriate, to deliver the Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment to and excluding the settlement date
on the basis of either the actual number of days in such accrual period and a
year assumed to consist of 360 days or a 360-day year of twelve 30-day months as
applicable to the related class of Global Securities. For transactions settling
on the 31st of the month, payment will include interest accrued to and excluding
the first day of the following month. The payment will then be reflected in the
account of the Clearstream Luxembourg Participant or Euroclear Participant the
following day,
S-A-2
and receipt of the cash proceeds in the Clearstream Luxembourg Participant's or
Euroclear Participant's account would be back-valued to the value date (which
would be the preceding day, when settlement occurred in New York). Should the
Clearstream Luxembourg Participant or Euroclear Participant have a line of
credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back valuation
will extinguish any overdraft incurred over that one day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the Clearstream Luxembourg Participant's or Euroclear
Participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use Clearstream Luxembourg or Euroclear and that
purchase Global Securities from DTC Participants for delivery to Clearstream
Luxembourg Participants or Euroclear Participants should note that these trades
would automatically fail on the sale side unless affirmative action were taken.
At least three techniques should be readily available to eliminate this
potential problem:
(a) borrowing through Clearstream Luxembourg or Euroclear for one day
(until the purchase side of the day trade is reflected in their Clearstream
Luxembourg or Euroclear accounts) in accordance with the clearing system's
customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to the settlement, which would give the Global
Securities sufficient time to be reflected in their Clearstream Luxembourg
or Euroclear account in order to settle the sale side of the trade; or
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at
least one day prior to the value date for the sale to the Clearstream
Luxembourg or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A holder that is not a United States person within the meaning of Section
7701(a)(30) of the Internal Revenue Code of 1986 holding a book entry note
through Clearstream, Euroclear or DTC may be subject to U.S. withholding tax at
a rate of 30% unless such holder provides certain documentation to the Trust
Administrator or to the U.S. entity required to withhold tax (the U.S.
withholding agent) establishing an exemption from withholding. A holder that is
not a United States person may be subject to 30% withholding unless:
I. the Trust Administrator or the U.S. withholding agent receives a
statement--
(a) from the holder on Internal Revenue Service (IRS) Form W-8BEN (or
any successor form) that--
(i) is signed by the noteholder under penalties of perjury,
(ii) certifies that such owner is not a United States person, and
(iii) provides the name and address of the noteholder, or
(b) from a securities clearing organization, a bank or other financial
institution that holds customer's securities in the ordinary course of its
trade or business that--
(i) is signed under penalties of perjury by an authorized
representative of the financial institution,
(ii) states that the financial institution has received an IRS
Form W-8BEN (or any successor form) from the noteholder or that another
financial institution acting on behalf of the noteholder has received
such IRS Form W-8BEN (or any successor form),
(iii) provides the name and address of the noteholder, and
S-A-3
(iv) attaches the IRS Form W-8BEN (or any successor form) provided
by the noteholder;
II. the holder claims an exemption or reduced rate based on a treaty and
provides a properly executed IRS Form W-8BEN (or any successor form) to Trust
Administrator or the U.S. withholding agent;
III. the holder claims an exemption stating that the income is effectively
connected to a U.S. trade or business and provides a properly executed IRS Form
W-8ECI (or any successor form) to Trust Administrator or the U.S. withholding
agent; or
IV. the holder is a non-withholding partnership and provides a properly
executed IRS Form W-8IMY (or any successor form) with all necessary attachments
to Trust Administrator or the U.S. withholding agent. Certain pass through
entities that have entered into agreements with the Internal Revenue Service
(for example qualified intermediaries) may be subject to different documentation
requirements; it is recommended that such holders consult with their tax
advisors when purchasing the Notes.
A holder holding book entry notes through Clearstream or Euroclear provides
the forms and statements referred to above by submitting them to the person
through which he holds an interest in the book entry notes, which is the
clearing agency, in the case of persons holding directly on the books of the
clearing agency. Under certain circumstances a Form W-8BEN, if furnished with a
taxpayer identification number, (TIN), will remain in effect until the status of
the beneficial owner changes, or a change in circumstances makes any information
on the form incorrect. A Form W-8BEN, if furnished without a TIN, and a Form
W-8ECI will remain in effect for a period starting on the date the form is
signed and ending on the last day of the third succeeding calendar year, unless
a change in circumstances makes any information on the form incorrect.
In addition, all holders holding book entry notes through Clearstream,
Euroclear or DTC may be subject to backup withholding at a rate of up to 31%
unless the holder:
I. provides a properly executed IRS Form W-8BEN, Form W-8ECI or Form W-8IMY
(or any successor forms) if that person is not a United States person;
II. provides a properly executed IRS Form W-9 (or any substitute form) if
that person is a United States person; or
III. is a corporation, within the meaning of Section 7701(a) of the
Internal Revenue Code of 1986, or otherwise establishes that it is a recipient
exempt from United States backup withholding.
This summary does not deal with all aspects of federal income tax
withholding or backup withholding that may be relevant to investors that are not
United States persons within the meaning of Section 7701(a)(30) of the Internal
Revenue Code. Such investors are advised to consult their own tax advisors for
specific tax advice concerning their holding and disposing of the book entry
notes.
The term "United States" person means (1) a citizen or resident of the
United States, (2) a corporation or partnership organized in or under the laws
of the United States or any state or the District of Columbia (other than a
partnership that is not treated as a United States person under any applicable
Treasury regulations), (3) an estate the income of which is includible in gross
income for United States tax purposes, regardless of its source, (4) 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 persons have
authority to control all substantial decisions of the trust, and (5) to the
extent provided in regulations, certain trusts in existence on August 20, 1996
that are treated as United States persons prior to such date and that elect to
continue to be treated as United States persons.
S-A-4
ANNEX B
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
The following tables set forth, as of the Cut-off Date, the number,
aggregate Scheduled Principal Balance and percentage of the aggregate Mortgage
Pools, the Pool 1 Mortgage Loans and the Pool 2 Mortgage Loans, in each case
having the stated characteristics shown in the tables in each range. The sum of
the amounts of the aggregate Scheduled Principal Balances and the percentages in
the following tables may not equal the totals due to rounding.
ALL MORTGAGE LOANS
CUT-OFF DATE SCHEDULED PRINCIPAL BALANCES -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS BY
AGGREGATE AGGREGATE
RANGE OF SCHEDULED NUMBER OF SCHEDULED SCHEDULED
PRINCIPAL BALANCES ($) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------ -------------- ----------------- -----------------
[__________] to [__________].................... [_____] $ [___________] [_____]%
[__________] to [__________].................... [_____] [___________] [_____]%
[__________] to [__________].................... [_____] [___________] [_____]%
[__________] to [__________].................... [_____] [___________] [_____]%
[__________] to [__________].................... [_____] [___________] [_____]%
[__________] to [__________].................... [_____] [___________] [_____]%
[__________] to [__________].................... [_____] [___________] [_____]%
[__________] to [__________].................... [_____] [___________] [_____]%
[__________] to [__________].................... [_____] [___________] [_____]%
[__________] to [__________].................... [_____] [___________] [_____]%
[__________] to [__________].................... [_____] [___________] [_____]%
[__________] to [__________].................... [_____] [___________] [_____]%
[__________] to [__________].................... [_____] [___________] [_____]%
[__________] to [__________].................... [_____] [___________] [_____]%
[__________] to [__________].................... [_____] [___________] [_____]%
[__________] to [__________].................... [_____] [___________] [_____]%
[__________] to [__________].................... [_____] [___________] [_____]%
-------------- ----------------- -----------------
Total........................................ [_____] $ [___________] 100.00%
-------------- ----------------- -----------------
The average Cut-off Date Scheduled Principal Balance for all Mortgage Loans
is approximately $[___________].
S-B-1
MORTGAGE RATES -- ALL MORTGAGE LOANS(1)
PERCENTAGE OF
MORTGAGE LOANS BY
AGGREGATE AGGREGATE
RANGE OF NUMBER OF SCHEDULED SCHEDULED
MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------ -------------- ----------------- -----------------
4.501 to 5.000............................ [_____] $ [___________] [_____]%
5.001 to 5.500............................ [_____] [___________] [_____]
5.501 to 6.000............................ [_____] [___________] [_____]
6.001 to 6.500............................ [_____] [___________] [_____]
6.501 to 7.000............................ [_____] [___________] [_____]
7.001 to 7.500............................ [_____] [___________] [_____]
7.501 to 8.000............................ [_____] [___________] [_____]
8.001 to 8.500............................ [_____] [___________] [_____]
8.501 to 9.000............................ [_____] [___________] [_____]
9.001 to 9.500............................ [_____] [___________] [_____]
9.501 to 10.500............................ [_____] [___________] [_____]
10.001 to 10.500............................ [_____] [___________] [_____]
10.501 to 11.000............................ [_____] [___________] [_____]
11.001 to 11.500............................ [_____] [___________] [_____]
11.501 to 12.000............................ [_____] [___________] [_____]
12.001 to 12.500............................ [_____] [___________] [_____]
-------------- ----------------- -----------------
Total........................................ [_____] $ [___________] 100.00%
-------------- ----------------- -----------------
The weighted average Mortgage Rate for all Mortgage Loans is approximately
[_____]%.
- -------------
(1) Reflects the current Mortgage Rates for the Mortgage Loans.
LOAN TYPE -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS BY
AGGREGATE AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
LOAN TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
2/28 ARM ........................................ [_____] $ [___________] [_____]%
2/28 ARM - Interest-Only......................... [_____] [___________] [_____]
3/27 ARM ........................................ [_____] [___________] [_____]
3/27 ARM - Interest-Only......................... [_____] [___________] [_____]
5/25 ARM ........................................ [_____] [___________] [_____]
5/25 ARM - Interest-Only......................... [_____] [___________] [_____]
. -------------- ----------------- -----------------
Total......................................... [_____] $ [___________] 100.00%
-------------- ----------------- -----------------
ORIGINAL TERMS TO MATURITY -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
ORIGINAL TERMS TO NUMBER OF SCHEDULED SCHEDULED
MATURITY (MONTHS) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
360.............................................. [_____] $ [___________] [_____]%
-------------- ----------------- -----------------
Total......................................... [_____] $ [___________] 100.00%
-------------- ----------------- -----------------
S-B-2
REMAINING TERMS TO MATURITY -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF REMAINING TERMS TO NUMBER OF SCHEDULED SCHEDULED
MATURITY (MONTHS) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
301 to 360 ...................................... [_____] $ [___________] [_____]%
-------------- ----------------- -----------------
Total......................................... [_____] $ [___________] 100.00%
-------------- ----------------- -----------------
The weighted average remaining term to maturity for all Mortgage Loans is
approximately [_____] months.
ORIGINAL LOAN-TO-VALUE RATIOS -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF ORIGINAL NUMBER OF SCHEDULED SCHEDULED
LOAN-TO-VALUE RATIOS (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
0.00 to 50.00........................... [_____] $ [__________] [_____]%
50.01 to 55.00........................... [_____] [__________] [_____]
55.01 to 60.00........................... [_____] [__________] [_____]
60.01 to 65.00........................... [_____] [__________] [_____]
65.01 to 70.00........................... [_____] [__________] [_____]
70.01 to 75.00........................... [_____] [__________] [_____]
75.01 to 80.00........................... [_____] [__________] [_____]
80.01 to 85.00........................... [_____] [__________] [_____]
85.01 to 90.00........................... [_____] [__________] [_____]
90.01 to 95.00........................... [_____] [__________] [_____]
95.01 to 100.00........................... [_____] [__________] [_____]
-------------- ----------------- -----------------
Total......................................... [_____] $ [__________] 100.00%
-------------- ----------------- -----------------
The weighted average original loan-to-value ratio for all Mortgage Loans is
approximately [_____]%.
S-B-3
GEOGRAPHIC DISTRIBUTION -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS BY
AGGREGATE AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
LOCATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Arizona ......................................... [____] $ [__________] [______]%
Arkansas ........................................ [____] [__________] [______]
California ...................................... [____] [__________] [______]
Colorado ........................................ [____] [__________] [______]
Connecticut ..................................... [____] [__________] [______]
Delaware ........................................ [____] [__________] [______]
Florida ......................................... [____] [__________] [______]
Georgia ......................................... [____] [__________] [______]
Hawaii .......................................... [____] [__________] [______]
Idaho ........................................... [____] [__________] [______]
Illinois ........................................ [____] [__________] [______]
Indiana ......................................... [____] [__________] [______]
Iowa ............................................ [____] [__________] [______]
Kansas .......................................... [____] [__________] [______]
Kentucky ........................................ [____] [__________] [______]
Louisiana ....................................... [____] [__________] [______]
Maine ........................................... [____] [__________] [______]
Maryland ........................................ [____] [__________] [______]
Massachusetts ................................... [____] [__________] [______]
Michigan ........................................ [____] [__________] [______]
Minnesota ....................................... [____] [__________] [______]
Mississippi ..................................... [____] [__________] [______]
Missouri ........................................ [____] [__________] [______]
Montana ......................................... [____] [__________] [______]
Nevada .......................................... [____] [__________] [______]
New Hampshire ................................... [____] [__________] [______]
New Jersey ...................................... [____] [__________] [______]
New Mexico ...................................... [____] [__________] [______]
New York ........................................ [____] [__________] [______]
North Carolina .................................. [____] [__________] [______]
Ohio ............................................ [____] [__________] [______]
Oklahoma ........................................ [____] [__________] [______]
Oregon .......................................... [____] [__________] [______]
Pennsylvania .................................... [____] [__________] [______]
Rhode Island .................................... [____] [__________] [______]
South Carolina .................................. [____] [__________] [______]
South Dakota .................................... [____] [__________] [______]
Tennessee ....................................... [____] [__________] [______]
Texas ........................................... [____] [__________] [______]
Utah ............................................ [____] [__________] [______]
Virginia ........................................ [____] [__________] [______]
Washington ...................................... [____] [__________] [______]
West Virginia ................................... [____] [__________] [______]
Wisconsin ....................................... [____] [__________] [______]
-------------- ----------------- -----------------
Total......................................... [_____] $ [__________] 100.00%
-------------- ----------------- -----------------
S-B-4
PROPERTY TYPE -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS BY
AGGREGATE AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Single Family.................................... [____] $ [__________] [______]%
Condominium...................................... [____] [__________] [______]
Two-Family....................................... [____] [__________] [______]
Three-Family..................................... [____] [__________] [______]
Four-Family...................................... [____] [__________] [______]
-------------- ----------------- -----------------
Total......................................... [_____] $ [__________] 100.00%
-------------- ----------------- -----------------
LOAN PURPOSE -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Cash Out Refinance .............................. [____] $ [__________] [______]%
Purchase ........................................ [____] [__________] [______]
Rate/Term Refinance ............................. [____] [__________] [______]
-------------- ----------------- -----------------
Total......................................... [____] $ [__________] 100.00%
-------------- ----------------- -----------------
OCCUPANCY STATUS -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Owner Occupied .................................. [____] $ [__________] [______]%
Investment ...................................... [____] [__________] [______]
-------------- ----------------- -----------------
Total......................................... [____] $ [__________] 100.00%
-------------- ----------------- -----------------
LOAN DOCUMENTATION -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
LOAN DOCUMENTATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Full Documentation .............................. [____] $ [__________] [______]%
Stated Income ................................... [____] [__________] [______]
Full Documentation Plus ......................... [____] [__________] [______]
Limited Documentation ........................... [____] [__________] [______]
-------------- ----------------- -----------------
Total......................................... [____] $ [__________] 100.00%
-------------- ----------------- -----------------
S-B-5
ORIGINAL PREPAYMENT PREMIUM TERM (YEARS IN EFFECT) -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
ORIGINAL PREPAYMENT PREMIUM TERM NUMBER OF SCHEDULED SCHEDULED
(YEARS IN EFFECT) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
0 ............................................... [____] $ [__________] [______]%
1 ............................................... [____] [__________] [______]
2 ............................................... [____] [__________] [______]
3 ............................................... [____] [__________] [______]
-------------- ----------------- -----------------
Total......................................... [____] $ [__________] 100.00%
-------------- ----------------- -----------------
CREDIT SCORES OF THE MORTGAGE LOANS -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF NUMBER OF SCHEDULED SCHEDULED
CREDIT SCORES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Greater than 820 ................................ [____] $ [__________] [______]%
801 to 820 ...................................... [____] [__________] [______]
781 to 800 ...................................... [____] [__________] [______]
761 to 780 ...................................... [____] [__________] [______]
741 to 760 ...................................... [____] [__________] [______]
721 to 740 ...................................... [____] [__________] [______]
701 to 720 ...................................... [____] [__________] [______]
681 to 700 ...................................... [____] [__________] [______]
661 to 680 ...................................... [____] [__________] [______]
641 to 660 ...................................... [____] [__________] [______]
621 to 640 ...................................... [____] [__________] [______]
601 to 620 ...................................... [____] [__________] [______]
581 to 600 ...................................... [____] [__________] [______]
561 to 580 ...................................... [____] [__________] [______]
541 to 560 ...................................... [____] [__________] [______]
521 to 540 ...................................... [____] [__________] [______]
501 to 520 ...................................... [____] [__________] [______]
500 or Less ..................................... [____] [__________] [______]
-------------- ----------------- -----------------
Total......................................... [____] $ [__________] 100.00%
-------------- ----------------- -----------------
The weighted average credit score for all Mortgage Loans is approximately
[____].
S-B-6
GROSS MARGINS OF THE MORTGAGE LOANS -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
RANGE OF GROSS MARGINS (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
2.001 to 3.000 .................................. [____] $ [__________] [______]%
4.001 to 5.000 .................................. [____] [__________] [______]
5.001 to 6.000 .................................. [____] [__________] [______]
6.001 to 7.000 .................................. [____] [__________] [______]
-------------- ----------------- -----------------
Total......................................... [____] $ [__________] 100.00%
-------------- ----------------- -----------------
The weighted average Gross Margin for all Mortgage Loans is approximately
[_____]%.
MAXIMUM RATES OF THE MORTGAGE LOANS -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF NUMBER OF SCHEDULED SCHEDULED
MAXIMUM RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
9.001 to 10.000 ................................ [____] $ [__________] [______]%
10.001 to 10.500 ................................ [____] [__________] [______]
10.501 to 11.000 ................................ [____] [__________] [______]
11.001 to 11.500 ................................ [____] [__________] [______]
11.501 to 12.000 ................................ [____] [__________] [______]
12.001 to 12.500 ................................ [____] [__________] [______]
12.501 to 13.000 ................................ [____] [__________] [______]
13.001 to 13.500 ................................ [____] [__________] [______]
13.501 to 14.000 ................................ [____] [__________] [______]
14.001 to 14.500 ................................ [____] [__________] [______]
14.501 to 15.000 ................................ [____] [__________] [______]
15.001 to 15.500 ................................ [____] [__________] [______]
15.501 to 16.000 ................................ [____] [__________] [______]
16.001 to 16.500 ................................ [____] [__________] [______]
16.501 to 17.000 ................................ [____] [__________] [______]
17.001 to 17.500 ................................ [____] [__________] [______]
17.501 to 18.000 ................................ [____] [__________] [______]
18.001 to 18.500 ................................ [____] [__________] [______]
-------------- ----------------- -----------------
Total ........................................ [____] $ [__________] 100.00%
-------------- ----------------- -----------------
The weighted average Maximum Rate for all Mortgage Loans is approximately
[_____]%.
S-B-7
MINIMUM RATES OF THE MORTGAGE LOANS -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF NUMBER OF SCHEDULED SCHEDULED
MINIMUM RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
4.001 to 5.000................................... [____] $ [__________] [______]%
5.001 to 6.000................................... [____] [__________] [______]
6.001 to 7.000................................... [____] [__________] [______]
7.001 to 8.000................................... [____] [__________] [______]
8.001 to 9.000................................... [____] [__________] [______]
9.001 to 10.000.................................. [____] [__________] [______]
Greater than 10.000.............................. [____] [__________] [______]
-------------- ----------------- -----------------
Total ........................................ [____] $ [__________] 100.00%
-------------- ----------------- -----------------
The weighted average Minimum Rate for all Mortgage Loans is approximately
[_____]%.
NEXT RATE ADJUSTMENT DATE OF THE MORTGAGE LOANS -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
NEXT RATE ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
[Month] 20___ ................................... [____] $ [__________] [______]%
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
[Month] 20___ ................................... [____] [__________] [______]
-------------- ----------------- -----------------
Total ........................................ [____] $ [__________] 100.00%
-------------- ----------------- -----------------
S-B-8
INITIAL CAPS OF THE MORTGAGE LOANS -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
INITIAL CAP (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
1.000............................................ [____] $ [__________] [______]%
3.000............................................ [____] [__________] [______]
5.000............................................ [____] [__________] [______]
-------------- ----------------- -----------------
Total ........................................ [____] $ [__________] 100.00%
-------------- ----------------- -----------------
The weighted average of the Initial Caps of all Mortgage Loans is
approximately [_____]%.
PERIODIC CAP OF THE MORTGAGE LOANS -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
PERIODIC CAP (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
1.000 ........................................... [____] $ [__________] [______]%
-------------- ----------------- -----------------
Total ........................................ [____] $ [__________] 100.00%
-------------- ----------------- -----------------
The weighted average of the Periodic Cap of all Mortgage Loans is
approximately 1.000%.
CREDIT GRADES OF THE MORTGAGE LOANS -- ALL MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
CREDIT GRADE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
A+ .............................................. [____] $ [__________] [______]%
A ............................................... [____] [__________] [______]
A- .............................................. [____] [__________] [______]
B ............................................... [____] [__________] [______]
C ............................................... [____] [__________] [______]
C- .............................................. [____] [__________] [______]
-------------- ----------------- -----------------
Total ........................................ [____] $ [__________] 100.00%
-------------- ----------------- -----------------
S-B-9
POOL 1 MORTGAGE LOANS
CUT-OFF DATE SCHEDULED PRINCIPAL BALANCES -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF SCHEDULED NUMBER OF SCHEDULED SCHEDULED
PRINCIPAL BALANCES ($) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
150,000.01 to 200,000.00 ........................ [____] $ [__________] [______]%
200,000.01 to 250,000.00 ........................ [____] [__________] [______]
250,000.01 to 300,000.00 ........................ [____] [__________] [______]
300,000.01 to 350,000.00 ........................ [____] [__________] [______]
350,000.01 to 400,000.00 ........................ [____] [__________] [______]
400,000.01 to 450,000.00 ........................ [____] [__________] [______]
450,000.01 to 500,000.00 ........................ [____] [__________] [______]
500,000.01 to 550,000.00 ........................ [____] [__________] [______]
550,000.01 to 600,000.00 ........................ [____] [__________] [______]
600,000.01 to 650,000.00 ........................ [____] [__________] [______]
650,000.01 to 700,000.00 ........................ [____] [__________] [______]
700,000.01 to 750,000.00 ........................ [____] [__________] [______]
750,000.01 to 800,000.00 ........................ [____] [__________] [______]
800,000.01 to 850,000.00 ........................ [____] [__________] [______]
850,000.01 to 900,000.00 ........................ [____] [__________] [______]
-------------- ----------------- -----------------
Total ........................................ [____] $ [__________] 100.00%
-------------- ----------------- -----------------
The average Cut-off Date Scheduled Principal Balance for the Mortgage Loans
in Pool 1 is approximately $[______].
S-B-10
MORTGAGE RATES -- POOL 1 MORTGAGE LOANS(1)
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF NUMBER OF SCHEDULED SCHEDULED
MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------ -------------- ----------------- -----------------
4.501 to 5.000............................ [_____] $ [__________] [_____]%
5.001 to 5.500............................ [_____] [__________] [_____]
5.501 to 6.000............................ [_____] [__________] [_____]
6.001 to 6.500............................ [_____] [__________] [_____]
6.501 to 7.000............................ [_____] [__________] [_____]
7.001 to 7.500............................ [_____] [__________] [_____]
7.501 to 8.000............................ [_____] [__________] [_____]
8.001 to 8.500............................ [_____] [__________] [_____]
8.501 to 9.000............................ [_____] [__________] [_____]
9.001 to 9.500............................ [_____] [__________] [_____]
9.501 to 10.500............................ [_____] [__________] [_____]
10.001 to 10.500............................ [_____] [__________] [_____]
10.501 to 11.000............................ [_____] [__________] [_____]
11.001 to 11.500............................ [_____] [__________] [_____]
11.501 to 12.000............................ [_____] [__________] [_____]
-------------- ----------------- -----------------
Total........................................ [_____] $ [__________] 100.00%
-------------- ----------------- -----------------
The weighted average Mortgage Rate for the Mortgage Loans in Pool 1 is
approximately [______]%.
- -------------
(1)Reflects the current Mortgage Rates for the Mortgage Loans
LOAN TYPE -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
LOAN TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
2/28 ARM ........................................ [_____] $ [__________] [_____]%
2/28 ARM - Interest-Only......................... [_____] [__________] [_____]
3/27 ARM ........................................ [_____] [__________] [_____]
3/27 ARM - Interest-Only......................... [_____] [__________] [_____]
5/25 ARM ........................................ [_____] [__________] [_____]
5/25 ARM - Interest-Only......................... [_____] [__________] [_____]
. -------------- ------------------ -----------------
Total......................................... [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
ORIGINAL TERMS TO MATURITY -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
ORIGINAL TERMS TO NUMBER OF SCHEDULED SCHEDULED
MATURITY (MONTHS) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
360 ............................................. [_____] $ [__________] [______]%
-------------- ------------------ -----------------
Total......................................... [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
S-B-11
REMAINING TERMS TO MATURITY -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF REMAINING TERMS TO NUMBER OF SCHEDULED SCHEDULED
MATURITY (MONTHS) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
301 to 360....................................... [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
Total......................................... [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
The weighted average remaining term to maturity for the Mortgage Loans in
Pool 1 is approximately [_____] months.
ORIGINAL LOAN-TO-VALUE RATIOS -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF ORIGINAL NUMBER OF SCHEDULED SCHEDULED
LOAN-TO-VALUE RATIOS (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
50.00 or Less.................................... [_____] $ [__________] [_____]%
50.01 to 55.00................................... [_____] [__________] [_____]
55.01 to 60.00................................... [_____] [__________] [_____]
60.01 to 65.00................................... [_____] [__________] [_____]
65.01 to 70.00................................... [_____] [__________] [_____]
70.01 to 75.00................................... [_____] [__________] [_____]
75.01 to 80.00................................... [_____] [__________] [_____]
80.01 to 85.00................................... [_____] [__________] [_____]
85.01 to 90.00................................... [_____] [__________] [_____]
90.01 to 95.00................................... [_____] [__________] [_____]
95.01 to 100.00.................................. [_____] [__________] [_____]
-------------- ------------------ -----------------
Total......................................... [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
The weighted average original loan-to-value ratio for the Mortgage Loans in Pool 1 is approximately
[________]%.
S-B-12
GEOGRAPHIC DISTRIBUTION -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
LOCATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Arizona ......................................... [_____] $ [__________] [______]%
California ...................................... [_____] [__________] [______]
Colorado ........................................ [_____] [__________] [______]
Connecticut ..................................... [_____] [__________] [______]
Delaware ........................................ [_____] [__________] [______]
Florida ......................................... [_____] [__________] [______]
Georgia ......................................... [_____] [__________] [______]
Hawaii .......................................... [_____] [__________] [______]
Idaho ........................................... [_____] [__________] [______]
Illinois ........................................ [_____] [__________] [______]
Indiana ......................................... [_____] [__________] [______]
Kansas .......................................... [_____] [__________] [______]
Kentucky ........................................ [_____] [__________] [______]
Louisiana ....................................... [_____] [__________] [______]
Maryland ........................................ [_____] [__________] [______]
Massachusetts ................................... [_____] [__________] [______]
Michigan ........................................ [_____] [__________] [______]
Minnesota ....................................... [_____] [__________] [______]
Mississippi ..................................... [_____] [__________] [______]
Missouri ........................................ [_____] [__________] [______]
Nevada .......................................... [_____] [__________] [______]
New Hampshire ................................... [_____] [__________] [______]
New Jersey ...................................... [_____] [__________] [______]
New York ........................................ [_____] [__________] [______]
North Carolina .................................. [_____] [__________] [______]
Ohio ............................................ [_____] [__________] [______]
Oklahoma ........................................ [_____] [__________] [______]
Oregon .......................................... [_____] [__________] [______]
Pennsylvania .................................... [_____] [__________] [______]
Rhode Island .................................... [_____] [__________] [______]
South Carolina .................................. [_____] [__________] [______]
Tennessee ....................................... [_____] [__________] [______]
Texas ........................................... [_____] [__________] [______]
Utah ............................................ [_____] [__________] [______]
Virginia ........................................ [_____] [__________] [______]
Washington ...................................... [_____] [__________] [______]
West Virginia ................................... [_____] [__________] [______]
Wisconsin ....................................... [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
S-B-13
PROPERTY TYPE -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Single Family.................................... [_____] $ [__________] [______]%
Two-Family...................................... [_____] [__________] [______]
Condominium...................................... [_____] [__________] [______]
Four-Family...................................... [_____] [__________] [______]
Three-Family..................................... [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
LOAN PURPOSE -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Purchase......................................... [_____] $ [__________] [______]%
Cash Out Refinance............................... [_____] [__________] [______]
Rate/Term Refinance ............................. [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
OCCUPANCY STATUS -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Owner Occupied .................................. [_____] $ [__________] [______]%
Investment ...................................... [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
LOAN DOCUMENTATION -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
LOAN DOCUMENTATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Stated Incoe...... .............................. [_____] $ [__________] [______]%
Full Documentation............................... [_____] [__________] [______]
Full Documentation Plus ......................... [_____] [__________] [______]
Limited Documentation ........................... [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
S-B-14
ORIGINAL PREPAYMENT PREMIUM TERM (YEARS IN EFFECT) -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
ORIGINAL PREPAYMENT PREMIUM TERM NUMBER OF SCHEDULED SCHEDULED
(YEARS IN EFFECT) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
0 ............................................... [_____] $ [__________] [______]%
1 ............................................... [_____] [__________] [______]
2 ............................................... [_____] [__________] [______]
3 ............................................... [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
CREDIT SCORES OF THE MORTGAGE LOANS -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF NUMBER OF SCHEDULED SCHEDULED
CREDIT SCORES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Greater than 820 ................................ [_____] $ [__________] [______]%
801 to 820 ...................................... [_____] [__________] [______]
781 to 800 ...................................... [_____] [__________] [______]
761 to 780 ...................................... [_____] [__________] [______]
741 to 760 ...................................... [_____] [__________] [______]
721 to 740 ...................................... [_____] [__________] [______]
701 to 720 ...................................... [_____] [__________] [______]
681 to 700 ...................................... [_____] [__________] [______]
661 to 680 ...................................... [_____] [__________] [______]
641 to 660 ...................................... [_____] [__________] [______]
621 to 640 ...................................... [_____] [__________] [______]
601 to 620 ...................................... [_____] [__________] [______]
581 to 600 ...................................... [_____] [__________] [______]
561 to 580 ...................................... [_____] [__________] [______]
541 to 560 ...................................... [_____] [__________] [______]
521 to 540 ...................................... [_____] [__________] [______]
501 to 520 ...................................... [_____] [__________] [______]
500 or Less ..................................... [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
The weighted average credit score for the Mortgage Loans in Pool 1 is
approximately [____].
S-B-15
GROSS MARGINS OF THE MORTGAGE LOANS -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
RANGE OF GROSS MARGINS (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
2.001 to 3.000 .................................. [_____] $ [__________] [______]%
4.001 to 5.000 .................................. [_____] [__________] [______]
5.001 to 6.000 .................................. [_____] [__________] [______]
6.001 to 7.000 .................................. [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
The weighted average Gross Margin for all Mortgage Loans in Pool 1 is
approximately [_____]%.
MAXIMUM RATES OF THE MORTGAGE LOANS -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF NUMBER OF SCHEDULED SCHEDULED
MAXIMUM RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
9.001 to 10.000 ................................ [_____] $ [__________] [______]%
10.001 to 10.500 ................................ [_____] [__________] [______]
10.501 to 11.000 ................................ [_____] [__________] [______]
11.001 to 11.500 ................................ [_____] [__________] [______]
11.501 to 12.000 ................................ [_____] [__________] [______]
12.001 to 12.500 ................................ [_____] [__________] [______]
12.501 to 13.000 ................................ [_____] [__________] [______]
13.001 to 13.500 ................................ [_____] [__________] [______]
13.501 to 14.000 ................................ [_____] [__________] [______]
14.001 to 14.500 ................................ [_____] [__________] [______]
14.501 to 15.000 ................................ [_____] [__________] [______]
15.001 to 15.500 ................................ [_____] [__________] [______]
15.501 to 16.000 ................................ [_____] [__________] [______]
16.001 to 16.500 ................................ [_____] [__________] [______]
16.501 to 17.000 ................................ [_____] [__________] [______]
17.001 to 17.500 ................................ [_____] [__________] [______]
17.501 to 18.000 ................................ [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
The weighted average Maximum Rate for the Mortgage Loans in Pool 1 is
approximately [_____]%
S-B-16
MINIMUM RATES OF THE MORTGAGE LOANS -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF NUMBER OF SCHEDULED SCHEDULED
MINIMUM RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
4.001 to 5.000.................................. [_____] $ [__________] [______]%
5.001 to 6.000.................................. [_____] [__________] [______]
6.001 to 7.000.................................. [_____] [__________] [______]
7.001 to 8.000.................................. [_____] [__________] [______]
8.001 to 9.000.................................. [_____] [__________] [______]
9.001 to 10.000.................................. [_____] [__________] [______]
Greater than 10.000.............................. [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
The weighted average Minimum Rate for the Mortgage Loans in Pool 1 is
approximately [____]%
NEXT RATE ADJUSTMENT DATE OF THE MORTGAGE LOANS -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
NEXT RATE ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
[__________] 20___............................... [_____] $ [__________] [______]%
[__________] 20___............................... [_____] [__________] [______]
[__________] 20___............................... [_____] [__________] [______]
[__________] 20___............................... [_____] [__________] [______]
[__________] 20___............................... [_____] [__________] [______]
[__________] 20___............................... [_____] [__________] [______]
[__________] 20___............................... [_____] [__________] [______]
[__________] 20___............................... [_____] [__________] [______]
[__________] 20___............................... [_____] [__________] [______]
[__________] 20___............................... [_____] [__________] [______]
[__________] 20___............................... [_____] [__________] [______]
[__________] 20___............................... [_____] [__________] [______]
[__________] 20___............................... [_____] [__________] [______]
[__________] 20___............................... [_____] [__________] [______]
[__________] 20___............................... [_____] [__________] [______]
[__________] 20___............................... [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
S-B-17
INITIAL CAPS OF THE MORTGAGE LOANS -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
INITIAL CAP (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
1.000............................................ [_____] $ [__________] [______]%
3.000............................................ [_____] [__________] [______]
5.000............................................ [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
The weighted average of the Initial Caps of the Mortgage Loans in Pool 1 is
approximately [_______]%.
PERIODIC CAP OF THE MORTGAGE LOANS -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
PERIODIC CAP (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
1.000............................................ [_____] $ [__________] [______]%
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
The weighted average of the Periodic Cap of the Mortgage Loans in Pool 1 is
approximately [_____]%
CREDIT GRADES OF THE MORTGAGE LOANS -- POOL 1 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
CREDIT GRADE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
A+............................................... [_____] $ [__________] [______]%
A................................................ [_____] [__________] [______]
A-............................................... [_____] [__________] [______]
B................................................ [_____] [__________] [______]
C................................................ [_____] [__________] [______]
C-............................................... [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
S-B-18
POOL 2 MORTGAGE LOANS
CUT-OFF DATE SCHEDULED PRINCIPAL BALANCES -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF SCHEDULED NUMBER OF SCHEDULED SCHEDULED
PRINCIPAL BALANCES ($) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
25,000.01 to 50,000.00......................... [_____] $ [__________] [______]%
50,000.01 to 75,000.00......................... [_____] [__________] [______]
75,000.01 to 100,000.00......................... [_____] [__________] [______]
100,000.01 to 150,000.00......................... [_____] [__________] [______]
150,000.01 to 200,000.00......................... [_____] [__________] [______]
200,000.01 to 250,000.00......................... [_____] [__________] [______]
250,000.01 to 300,000.00......................... [_____] [__________] [______]
300,000.01 to 350,000.00......................... [_____] [__________] [______]
350,000.01 to 400,000.00......................... [_____] [__________] [______]
400,000.01 to 450,000.00......................... [_____] [__________] [______]
450,000.01 to 500,000.00......................... [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
The average Cut-off Date Scheduled Principal Balance for the Mortgage Loans
in Pool 2 is approximately $[------].
MORTGAGE RATES -- POOL 2 MORTGAGE LOANS(1)
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF NUMBER OF SCHEDULED SCHEDULED
MORTGAGE RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
4.501 to 5.000............................... [_____] $ [__________] [______]%
5.001 to 5.500............................... [_____] [__________] [______]
5.501 to 6.000............................... [_____] [__________] [______]
6.001 to 6.500............................... [_____] [__________] [______]
6.501 to 7.000............................... [_____] [__________] [______]
7.001 to 7.500............................... [_____] [__________] [______]
7.501 to 8.000............................... [_____] [__________] [______]
8.001 to 8.500............................... [_____] [__________] [______]
8.501 to 9.000............................... [_____] [__________] [______]
9.001 to 9.500............................... [_____] [__________] [______]
9.501 to 10.000............................... [_____] [__________] [______]
10.001 to 10.500............................... [_____] [__________] [______]
10.501 to 11.000............................... [_____] [__________] [______]
11.001 to 11.500............................... [_____] [__________] [______]
11.501 to 12.000............................... [_____] [__________] [______]
12.001 to 12.500............................... [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
The weighted average Mortgage Rate for the Mortgage Loans in Pool 2 is
approximately [_______]%.
- -------------
(1) Reflects the current Mortgage Rates for the Mortgage Loans.
S-B-19
LOAN TYPE -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
LOAN TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
2/28 ARM......................................... [_____] $ [__________] [______]%
2/28 ARM - Interest-Only......................... [_____] [__________] [______]
3/27 ARM......................................... [_____] [__________] [______]
3/27 ARM - Interest-Only......................... [_____] [__________] [______]
5/25 ARM......................................... [_____] [__________] [______]
5/25 ARM - Interest-Only......................... [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
ORIGINAL TERMS TO MATURITY -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
ORIGINAL TERMS TO NUMBER OF SCHEDULED SCHEDULED
MATURITY (MONTHS) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
360.............................................. [_____] $ [__________] [______]%
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
REMAINING TERMS TO MATURITY -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF REMAINING TERMS TO NUMBER OF SCHEDULED SCHEDULED
MATURITY (MONTHS) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
301 to 360....................................... [_____] $ [__________] [______]%
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
The weighted average remaining term to maturity for the Mortgage Loans in
Pool 2 is approximately [____] months.
S-B-20
ORIGINAL LOAN-TO-VALUE RATIOS -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF ORIGINAL NUMBER OF SCHEDULED SCHEDULED
LOAN-TO-VALUE RATIOS (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
50.00 or Less.................................... [_____] $ [__________] [______]%
50.01 to 55.00................................... [_____] [__________] [______]
55.01 to 60.00................................... [_____] [__________] [______]
60.01 to 65.00................................... [_____] [__________] [______]
65.01 to 70.00................................... [_____] [__________] [______]
70.01 to 75.00................................... [_____] [__________] [______]
75.01 to 80.00................................... [_____] [__________] [______]
80.01 to 85.00................................... [_____] [__________] [______]
85.01 to 90.00................................... [_____] [__________] [______]
90.01 to 95.00................................... [_____] [__________] [______]
-------------- ------------------ -----------------
Total ........................................ [_____] $ [__________] 100.00%
-------------- ------------------ -----------------
The weighted average original loan-to-value ratio for the Mortgage Loans in
Pool 2 is approximately [____]%.
S-B-21
GEOGRAPHIC DISTRIBUTION -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
LOCATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Arizona.......................................... [______] $ [_________] [_______]%
Arkansas......................................... [______] [_________] [_______]
California....................................... [______] [_________] [_______]
Colorado ........................................ [______] [_________] [_______]
Connecticut...................................... [______] [_________] [_______]
Delaware ........................................ [______] [_________] [_______]
Florida ......................................... [______] [_________] [_______]
Georgia ......................................... [______] [_________] [_______]
Hawaii .......................................... [______] [_________] [_______]
Idaho ........................................... [______] [_________] [_______]
Illinois ........................................ [______] [_________] [_______]
Indiana ......................................... [______] [_________] [_______]
Iowa ............................................ [______] [_________] [_______]
Kansas .......................................... [______] [_________] [_______]
Kentucky ........................................ [______] [_________] [_______]
Louisiana........................................ [______] [_________] [_______]
Maine ........................................... [______] [_________] [_______]
Maryland ........................................ [______] [_________] [_______]
Massachusetts.................................... [______] [_________] [_______]
Michigan ........................................ [______] [_________] [_______]
Minnesota........................................ [______] [_________] [_______]
Mississippi...................................... [______] [_________] [_______]
Missouri ........................................ [______] [_________] [_______]
Montana ......................................... [______] [_________] [_______]
Nevada .......................................... [______] [_________] [_______]
New Hampshire.................................... [______] [_________] [_______]
New Jersey....................................... [______] [_________] [_______]
New Mexico....................................... [______] [_________] [_______]
New York ........................................ [______] [_________] [_______]
North Carolina................................... [______] [_________] [_______]
Ohio ............................................ [______] [_________] [_______]
Oklahoma ........................................ [______] [_________] [_______]
Oregon .......................................... [______] [_________] [_______]
Pennsylvania..................................... [______] [_________] [_______]
Rhode Island..................................... [______] [_________] [_______]
South Carolina................................... [______] [_________] [_______]
South Dakota..................................... [______] [_________] [_______]
Tennessee........................................ [______] [_________] [_______]
Texas ........................................... [______] [_________] [_______]
Utah ............................................ [______] [_________] [_______]
Virginia ........................................ [______] [_________] [_______]
Washington....................................... [______] [_________] [_______]
West Virginia.................................... [______] [_________] [_______]
Wisconsin........................................ [______] [_________] [_______]
-------------- ------------------ -----------------
Total......................................... [_____] $ [_________] 100.00%
-------------- ------------------ -----------------
S-B-22
PROPERTY TYPE -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
PROPERTY TYPE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Single Family.................................... [______] $ [_________] [_______]%
Condominium...................................... [______] [_________] [_______]
Two-Family....................................... [______] [_________] [_______]
Three-Family..................................... [______] [_________] [_______]
Four-Family...................................... [______] [_________] [_______]
-------------- ------------------ -----------------
Total......................................... [______] $ [_________] 100.00%
-------------- ------------------ -----------------
LOAN PURPOSE -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
LOAN PURPOSE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Cash Out Refinance............................... [______] $ [_________] [_______]%
Purchase ........................................ [______] [_________] [_______]
Rate/Term Refinance.............................. [______] [_________] [_______]
-------------- ------------------ -----------------
Total......................................... [______] $ [_________] 100.00%
-------------- ------------------ -----------------
OCCUPANCY STATUS -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
OCCUPANCY STATUS MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Owner Occupied................................... [______] $ [_________] [_______]%
Investment....................................... [______] [_________] [_______]
-------------- ------------------ -----------------
Total......................................... [______] $ [_________] 100.00%
-------------- ------------------ -----------------
LOAN DOCUMENTATION -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
LOAN DOCUMENTATION MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
Full Documentation............................... [______] $ [_________] [_______]%
Stated Income..... .............................. [______] [_________] [_______]
Full Documentation Plus.......................... [______] [_________] [_______]
Limited Documentation............................ [______] [_________] [_______]
-------------- ------------------ -----------------
Total......................................... [______] $ [_________] 100.00%
-------------- ------------------ -----------------
S-B-23
ORIGINAL PREPAYMENT PREMIUM TERM (YEARS IN EFFECT) -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
ORIGINAL PREPAYMENT PREMIUM TERM NUMBER OF SCHEDULED SCHEDULED
(YEARS IN EFFECT) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
0 ............................................... [______] $ [_________] [_______]%
1 ............................................... [______] [_________] [_______]
2 ............................................... [______] [_________] [_______]
3 ............................................... [______] [_________] [_______]
-------------- ------------------ -----------------
Total......................................... [______] $ [_________] 100.00%
-------------- ------------------ -----------------
CREDIT SCORES OF THE MORTGAGE LOANS -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF NUMBER OF SCHEDULED SCHEDULED
CREDIT SCORES MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
801 to 820....................................... [______] $ [_________] [_______]%
781 to 800....................................... [______] [_________] [_______]
761 to 780....................................... [______] [_________] [_______]
741 to 760....................................... [______] [_________] [_______]
721 to 740....................................... [______] [_________] [_______]
701 to 720....................................... [______] [_________] [_______]
681 to 700....................................... [______] [_________] [_______]
661 to 680....................................... [______] [_________] [_______]
641 to 660....................................... [______] [_________] [_______]
621 to 640....................................... [______] [_________] [_______]
601 to 620....................................... [______] [_________] [_______]
581 to 600....................................... [______] [_________] [_______]
561 to 580....................................... [______] [_________] [_______]
541 to 560....................................... [______] [_________] [_______]
521 to 540....................................... [______] [_________] [_______]
501 to 520....................................... [______] [_________] [_______]
500 or Less...................................... [______] [_________] [_______]
-------------- ------------------ -----------------
Total......................................... [______] $ [_________] 100.00%
-------------- ------------------ -----------------
The weighted average credit score for the Mortgage Loans in Pool 2 is
approximately [_____].
S-B-24
GROSS MARGINS OF THE MORTGAGE LOANS -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
RANGE OF GROSS MARGINS (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
4.001 to 5.000................................... [______] $ [_________] [_______]%
5.001 to 6.000................................... [______] [_________] [_______]
6.001 to 7.000................................... [______] [_________] [_______]
-------------- ------------------ -----------------
Total......................................... [______] $ [_________] 100.00%
-------------- ------------------ -----------------
The weighted average Gross Margin for the Mortgage Loans in Pool 2 is
approximately [______]%.
MAXIMUM RATES OF THE MORTGAGE LOANS -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF NUMBER OF SCHEDULED SCHEDULED
MAXIMUM RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
10.001 to 10.500................................. [______] $ [_________] [_______]%
10.501 to 11.000................................. [______] [_________] [_______]
11.001 to 11.500................................. [______] [_________] [_______]
11.501 to 12.000................................. [______] [_________] [_______]
12.001 to 12.500................................. [______] [_________] [_______]
12.501 to 13.000................................. [______] [_________] [_______]
13.001 to 13.500................................. [______] [_________] [_______]
13.501 to 14.000................................. [______] [_________] [_______]
14.001 to 14.500................................. [______] [_________] [_______]
14.501 to 15.000................................. [______] [_________] [_______]
15.001 to 15.500................................. [______] [_________] [_______]
15.501 to 16.000................................. [______] [_________] [_______]
16.001 to 16.500................................. [______] [_________] [_______]
16.501 to 17.000................................. [______] [_________] [_______]
17.001 to 17.500................................. [______] [_________] [_______]
17.501 to 18.000................................. [______] [_________] [_______]
18.001 to 18.500................................. [______] [_________] [_______]
-------------- ------------------ -----------------
Total......................................... [______] $ [_________] 100.00%
-------------- ------------------ -----------------
The weighted average Maximum Rate for the Mortgage Loans in Pool 2 is
approximately [______]%.
S-B-25
MINIMUM RATES OF THE MORTGAGE LOANS -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
RANGE OF NUMBER OF SCHEDULED SCHEDULED
MINIMUM RATES (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
4.001 to 5.000................................... [______] $ [_________] [_______]%
5.001 to 6.000................................... [______] [_________] [_______]
6.001 to 7.000................................... [______] [_________] [_______]
7.001 to 8.000................................... [______] [_________] [_______]
8.001 to 9.000................................... [______] [_________] [_______]
9.001 to 10.000.................................. [______] [_________] [_______]
Greater than 10.000.............................. [______] [_________] [_______]
-------------- ------------------ -----------------
Total......................................... [______] $ [_________] 100.00%
-------------- ------------------ -----------------
The weighted average Minimum Rate for the Mortgage Loans in Pool 2 is
approximately [_____]%.
NEXT RATE ADJUSTMENT DATE OF THE MORTGAGE LOANS -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
NEXT RATE ADJUSTMENT DATE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
[Month] 20___.................................... [______] $ [_________] [_______]%
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
[Month] 20___.................................... [______] [_________] [_______]
-------------- ------------------ -----------------
Total......................................... [______] $ [_________] 100.00%
-------------- ------------------ -----------------
S-B-26
INITIAL CAPS OF THE MORTGAGE LOANS -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
INITIAL CAP (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
1.000............................................ [______] $ [_________] [_______]%
3.000............................................ [______] [_________] [_______]
5.000............................................ [______] [_________] [_______]
-------------- ------------------ -----------------
Total......................................... [______] $ [_________] 100.00%
-------------- ------------------ -----------------
The weighted average of the Initial Caps of the Mortgage Loans in Pool 2 is
approximately [____]%.
PERIODIC CAP OF THE MORTGAGE LOANS -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
PERIODIC CAP (%) MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
1.000 ........................................... [______] $ [_________] [_______]%
-------------- ------------------ -----------------
Total......................................... [______] $ [_________] 100.00%
-------------- ------------------ -----------------
The weighted average of the Periodic Cap of the Mortgage Loans in Pool 2 is
approximately [_____]%.
CREDIT GRADES OF THE MORTGAGE LOANS -- POOL 2 MORTGAGE LOANS
PERCENTAGE OF
MORTGAGE LOANS
AGGREGATE BY AGGREGATE
NUMBER OF SCHEDULED SCHEDULED
CREDIT GRADE MORTGAGE LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------------------------------- -------------- ----------------- -----------------
A+ .............................................. [______] $ [_________] [_______]%
A ............................................... [______] [_________] [_______]
A- .............................................. [______] [_________] [_______]
B ............................................... [______] [_________] [_______]
C ............................................... [______] [_________] [_______]
C- .............................................. [______] [_________] [_______]
-------------- ------------------ -----------------
Total......................................... [______] $ [_________] 100.00%
-------------- ------------------ -----------------
S-B-27
$[______________]
(APPROXIMATE)
AAMES MORTGAGE INVESTMENT TRUST 20___-__
MORTGAGE BACKED NOTES
[ image ]
AAMES INVESTMENT CORPORATION
Seller
[MASTER SERVICER]
Master Servicer
AAMES CAPITAL ACCEPTANCE CORP.
Depositor
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with different information.
We are not offering the Aames Mortgage Investment Trust 20___-__ Mortgage
Backed Notes in any state where the offer is not permitted.
Until 90 days after the date of this prospectus supplement, all dealers
effecting transaction in the notes offered by this prospectus supplement,
whether or not participating in this distribution, may be required to deliver
this prospectus supplement and the accompanying prospectus. This is in addition
to the obligation of dealers to deliver this prospectus supplement and the
accompanying prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
[Month] [Day], 20___
UNDERWRITERS:
[UNDERWRITER] [UNDERWRITER]
(CO-LEAD MANAGER) (CO-LEAD MANAGER)
CO-MANAGERS:
[UNDERWRITER] [UNDERWRITER]
[UNDERWRITER] [UNDERWRITER]
[UNDERWRITER] [UNDERWRITER]
SUBJECT TO COMPLETION
DATED SEPTEMBER 30, 2005
$[ ]
(Approximate)
AAMES MORTGAGE TRUST [___]
Mortgage Pass-Through Certificates, Series [___]
Aames Capital Corporation Aames Capital Acceptance Corporation
as Sponsor as Depositor
[SERVICER]
AS SERVICER
Offered Principal Pass-Through Price to Underwriting Proceeds to the
Certificates Balance Rate Public(1) Discount Depositor(1)(2)
Class A-1 $[ ] [___]%(3)(4) [ ]% [ ]% [ ]%
Class A-2 $[ ] [___]%(3)(4) [ ]% [ ]% [ ]%
Class M-1 $[ ] [___]%(3)(4) [ ]% [ ]% [ ]%
Class M-2 $[ ] [___]%(3)(4) [ ]% [ ]% [ ]%
Class M-3 $[ ] [___]%(3)(4) [ ]% [ ]% [ ]%
Class B $[ ] [___]%(3)(4) [ ]% [ ]% [ ]%
Total $[ ] $[ ] $[ ] $[ ]
___________________
(1) Plus accrued interest from [[Month] [Day], 20__].
(2) Before deducting expenses, estimated to be approximately $[________].
(3) Subject to a maximum rate as described in this prospectus supplement.
(4) Subject to a step-up if the optional termination is not exercised.
THE CERTIFICATES
------------------------------
| You should carefully review | o represent the entire beneficial interest in a trust, whose assets include a pool
| the information under the | of fixed rate and adjustable rate mortgage loans secured by first liens on one- to
| caption "Risk Factors" | four-family residential properties,
| beginning on page S-[___] in |
| this prospectus supplement. | o currently have no trading market and
| |
| The certificates are |
| non-recourse obligations of | o are obligations of the trust only and are not obligations of the sponsor, the
| the trust only and do not | servicer or their affiliates
| represent an interest in or |
| obligation of Aames Capital | CREDIT ENHANCEMENT
| Corporation, Aaames Capital |
| Acceptance Corp., the Trustee| o overcollateralization,
| or any of their affiliates. |
| |
| This prospectus supplement | o excess interest and
| must be accompanied by the |
| prospectus if it is being | o subordination.
| used to offer and sell the |
| certificates. | THE TRUST
------------------------------
o will make REMIC elections for federal income tax purposes.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these certificates or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
The offered certificates will be delivered in book-entry form only, on or about
[Month] [Day], 20_____.
________________________
[UNDERWRITER]
[UNDERWRITER]
[UNDERWRITER]
[UNDERWRITER] [Date of ProSupp]
IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
We provide information to you about the certificates in two separate
documents that provide progressively more detail:
o the accompanying prospectus, which provides general information, some
of which may not apply to your certificates; and
o this prospectus supplement, which describes the specific terms of your
certificates.
YOU SHOULD RELY PRIMARILY ON THE DESCRIPTION OF YOUR CERTIFICATES
IN THIS PROSPECTUS SUPPLEMENT.
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not authorized anyone to provide you with different information.
Dealers will deliver a prospectus supplement and prospectus when acting
as underwriters of the Mortgage Pass-Through Certificates, Series [___] and with
respect to their unsold allotments or subscriptions. In addition, all dealers
selling Mortgage Pass-Through Certificates, Series [___], will be required to
deliver a prospectus supplement and prospectus for ninety days following the
date of this prospectus supplement.
TABLE OF CONTENTS
- ---------------------------------------------------------- ---------------------------------------------------------
PROSPECTUS SUPPLEMENT PROSPECTUS
- ---------------------------------------------------------- ---------------------------------------------------------
CAPTION PAGE CAPTION PAGE
Summary..................................... Incorporation of Certain Documents by Reference
Risk Factors................................ Risk Factors..........................................
Credit Enhancement ......................... Use Of Proceeds.......................................
The Mortgage Loans.......................... Aames Capital Acceptance Corp.........................
Additional Information ..................... Aames Capital Corporation.............................
The Master Servicer......................... The Originators.......................................
The Servicer................................ Description of the Securities.........................
Servicing Of The Mortgage Loans............. Reports to Securityholders............................
The Pooling And Servicing Agreement......... Credit Enhancement....................................
Prepayment And Yield Considerations......... The Pooling and Servicing Agreement...................
Assumed Mortgage Loan Characteristics....... The Agreements........................................
Certain Federal Income Tax Certain Legal Aspects Of the Mortgage Loans
Consequences.............................. and Related Matters.................................
ERISA Considerations........................ Use Of Proceeds.......................................
Use Of Proceeds............................. Federal Income Tax Considerations.....................
Legal Investment Considerations............. State Tax Considerations..............................
Underwriting................................ ERISA Considerations..................................
Legal Matters............................... Legal Investment Matters..............................
Rating Of The Offered Certificates.......... Plan of Distribution..................................
Legal Matters.........................................
- ---------------------------------------------------------- --------------------------------------------------------------
S-2
SUMMARY
This section outlines the significant terms of the offered
certificates. As this is a summary, we do not attempt to discuss or describe in
any detail the terms outlined here. We recommend that you review carefully the
more detailed information in this prospectus supplement and in the attached
prospectus.
ISSUER......................................... Aames Mortgage Trust [________].
SPONSOR AND SERVICER........................... Aames Capital Corporation, a California corporation.
The principal office of the sponsor is located at
350 South Grand Avenue, 43rd Floor, Los Angeles,
California 90071.
DEPOSITOR...................................... Aames Capital Acceptance Corporation, a Delaware
corporation. The principal office of the depositor is
located at 350 South Grand Avenue, 43rd Floor, Los
Angeles 90071.
MASTER SERVICER................................ [INSERT MASTER SERVICER DESCRIPTION]
TRUSTEE........................................ [TRUSTEE]
CUT-OFF DATE................................... The close of business on [Month] [Day], 20__, except that for any
subsequent mortgage loan, the later of the date of origination of
such subsequent mortgage loan and the first day of the month in
which the subsequent mortgage loan is added to the trust.
STATISTIC CALCULATION DATE..................... [Month] [Day], 20__.
CLOSING DATE................................... On or about [Month] [Day], 20__.
DISTRIBUTION DATES............................. The __th day of each month or, if such day is not a business
day, the next business day, beginning in [Month] 20__.
RECORD DATES................................... The last business day of the month before the month in which the
applicable distribution date occurs.
FINAL SCHEDULED DISTRIBUTION DATE.............. The final scheduled distribution date for each class of offered
certificates is as follows:
FINAL SCHEDULE
CLASS DISTRIBUTION DATE
Class A-1 [Month] 20__
Class A-2 [Month] 20__
Class M-1 [Month] 20__
Class M-2 [Month] 20__
Class M-3 [Month] 20__
Class B [Month] 20__
The actual last distribution date for each class of offered
certificates is expected to be significantly earlier than its
final
S-3
scheduled distribution date.
DESIGNATIONS................................... Each class of certificates will have different characteristics.
Certain of those characteristics are reflected in the following
general designations. These designations are used in this
prospectus supplement and the attached prospectus to provide you
with a better understanding of the certificates.
Book-Entry Certificates..................... All classes of offered certificates.
Offered Certificates........................ The senior certificates and the subordinate certificates.
Senior Certificates......................... Class A-1 and Class A-2 certificates.
Subordinate Certificates.................... Class M-1, Class M-2, Class M-3 and Class B certificates.
Mortgage Loan Group......................... Group I or Group II, as applicable.
Group I..................................... Those mortgage loans having agency conforming balances, bearing
interest at fixed rates and at rates that are fixed for some
specified period before beginning to adjust, and included in
Group I.
Group II.................................... Those mortgage loans having both agency conforming and
non-conforming balances, bearing interest at fixed rates and at
rates that are fixed for some specified period before beginning to
adjust, and included in Group II.
RETAINED CERTIFICATES.......................... Class C, Class P and Class R certificates. We have included
information with respect to the Class C, Class P and Class R
certificates in this prospectus supplement solely to provide you a
better understanding of the offered certificates.
REGISTRATION OF OFFERED CERTIFICATES RATINGS
We will issue the offered certificates in book-entry The offered certificates will not be issued unless
form. You will hold your interests either through a they receive the respective ratings set forth below
depository in the United States or upon request from Standard & Poor's, a division of The
through one of two depositories in Europe. You will McGraw-Hill Companies, Inc., Fitch Ratings and
not be entitled to receive a definitive certificate Moody's Investors Service, Inc.
representing your interests except under limited
circumstances that are described in this prospectus STANDARD
supplement. While the certificates are in book-entry CLASS & POOR'S FITCH MOODY'S
form, they will be registered in the name of the A-1 AAA AAA Aaa
applicable depository, or in the name of the A-2 AAA AAA Aaa
depository's nominee. Transfers within any M-1 AA AA Aa2
depository system will be made in accordance with M-2 AA AA -
the usual rules and operating procedures of that M-3 A A -
system. B BBB BBB -
We refer you to "Description of the Certificates --
Book-Entry Registration of Offered Certificates" in We refer you to "Ratings of the Offered
this prospectus supplement, "Annex B: Global Certificates" in this prospectus supplement.
Clearance, Settlement and Tax Documentation
Procedures" to this prospectus supplement and
"Description of the Securities -- Book-Entry
Securities" in the prospectus.
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DISTRIBUTIONS ON THE OFFERED CERTIFICATES On each distribution date, to the extent funds are
available, holders of the offered certificates will
Interest be entitled to distributions of principal in the
order of priority described in this prospectus
The pass-through rate for each class of offered supplement.
certificates is set forth on the cover page of, and
is further described in, this prospectus supplement. We refer you to "Description of the Certificates --
The pass-through rate for each class of offered Distributions" in this prospectus supplement.
certificates is limited by a maximum rate cap that
will be determined based on the weighted average of PREFUNDING AND CAPITALIZED INTEREST ACCOUNTS
the interest rates on the mortgage loans, minus
specified fees and expenses. Holders of the offered On the closing date, the sponsor will deposit
certificates limited by the maximum rate cap will be approximately $[___] into a segregated prefunding
entitled to certain interest amounts in excess of account maintained with the trustee to be used to
the maximum rate cap, but such amounts will be paid buy additional mortgage loans from the sponsor after
on a subordinated basis. the closing date and prior to [Month] [Day], 20__.
The sponsor must satisfy conditions specified in the
Generally, on each distribution date, each class of pooling and servicing agreement before it can sell
offered certificates will be entitled to interest in additional mortgage loans to the trust.
an amount equal to:
On the closing date, the sponsor will deposit cash
o the applicable pass-through rate, multiplied by into a segregated capitalized interest account to
cover shortfalls in interest on each class of
o the applicable certificate principal balance on offered certificates that may arise in connection
the day before that distribution date, with the prefunding feature of the trust.
multiplied by
We refer you to "Description of the Certificates --
o 1/12, minus Prefunding Account" and "-- Capitalized Interest
Account" in this prospectus supplement.
o such class'share of civil relief act interest
shortfalls and MONTHLY ADVANCES AND COMPENSATING INTEREST
o prepayment interest shortfalls, plus Each month the servicer will determine the amount of
any unpaid principal and interest due on the
o any unpaid interest amounts from prior mortgage loans. If the servicer believes that unpaid
distribution dates, plus principal and interest can be recovered from the
related mortgage loan, then the servicer will
o interest on such unpaid interest amounts at the either:
applicable pass-through rate.
o advance the unpaid principal and interest to the
The interest accrual period for the offered trust out of its own funds; or
certificates is the calendar month preceding the
month in which a distribution date occurs. Interest o advance the unpaid principal and interest to the
accrues on the basis of a 360-day year consisting of trust out of collections on the mortgage loans
twelve 30-day months. that are not required to be distributed on the
related distribution date.
We refer you to "Description of the Certificates --
Pass-Through Rates" in this prospectus supplement The servicer is required to reimburse the trust for
for a more detailed description of the pass-through amounts advanced from trust collections on the next
rates on the offered certificates. succeeding deposit date.
Principal The servicer is entitled to be reimbursed from the
related mortgage loan in respect of which the
The initial certificate principal balances of the advance was made and, to the extent that the
offered certificates are set forth on the cover page
of this prospectus supplement.
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servicer reasonably believes thereafter that such certificates against losses due to defaults by the
advances will not be recoverable from subsequent borrowers under the mortgage loans.
collections on the related mortgage loan, from the
related mortgage loan group. The offered certificates have the benefit of two types
of credit enhancement:
The servicer will provide to the trust the amount of
any shortfall in the anticipated collection of o the use of excess interest to cover losses
principal and interest on a mortgage loan that is and to create overcollateralization; and
caused by a full or partial prepayment of a mortgage
loan generally up to one-half of the amount of the o subordination of distributions on the class or
servicer's monthly servicing fee. classes of certificates with lower relative
payment priorities.
We refer you to "Origination and Servicing of the
Mortgage Loans -- Monthly Advances; -- Servicing The Class B certificates, which have the lowest
Advances; -- Compensating Interest; and Interest relative payment priority, have the benefit of
Shortfalls" in this prospectus supplement. only the first form of credit enhancement.
SERVICING ADVANCES We refer you to "Credit Enhancement" in this
prospectus supplement.
Unless the servicer determines that any proposed
advance is not recoverable from the related mortgage ALLOCATION OF LOSSES
loan, the servicer will be required to pay all
reasonable and customary "out-of-pocket" costs and If, on any distribution date, there is insufficient
expenses incurred in the performance of its excess interest or overcollateralization to absorb
servicing obligations, including, but not limited realized losses on the mortgage loans, then realized
to: losses on the mortgage loans will be allocated to the
subordinate certificates first, to the Class B
o expenditures in connection with a foreclosed certificates, second, to the Class M-3 certificates,
mortgage loan prior to the liquidation of the third, to the Class M-2 certificates and fourth, to the
loan; Class M-1 certificates. The pooling and servicing
agreement does not permit the allocation of realized
o the cost of any enforcement of judicial losses on the mortgage loans to the senior
proceedings, including foreclosures; and certificates; however investors in the senior
certificates should realize that under certain loss
o the cost of the management and liquidation of scenarios there will not be enough principal and
property acquired in satisfaction of the interest on the mortgage loans to pay the senior
related mortgage loan. certificates all the interest and principal amounts to
which such certificates would then be entitled if
The servicer is entitled to be reimbursed for collections on the mortgage loans were sufficient to
servicing advances from the related mortgage loan pay the maximum amount on such certificates.
in respect of which the servicing advance was made
and, to the extent that the servicer believes Once realized losses are allocated to the
thereafter that such advances will not be certificates, such realized losses will not be
recoverable from the related mortgage loan, from reinstated thereafter. However, the amount of any
the related mortgage loan group. realized losses allocated to the subordinate
certificates may be paid to the holders of these
We refer you to "Origination and Servicing of the certificates according to the priorities set forth
Mortgage Loans -- Monthly Advances; Servicing under "Description of the Certificates --
Advances; Compensating Interest and Interest Distributions" in this prospectus supplement.
Shortfalls" in this prospectus supplement.
We refer you to "Description of the Certificates --
CREDIT ENHANCEMENT Treatment of Realized Losses" in this prospectus
supplement.
Credit enhancement refers to a mechanism that is
intended to protect the holders of the offered
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THE MORTGAGE LOANS mortgaged property locations: [ ] states
average principal balance: $[________]
Set forth below is selected information about the interest rates range: [_________]% to [________]%
mortgage loans that existed as of the statistic weighted average interest rate
calculation date of [Month] [Day], 20 , which we (approximate): [________]%
refer to as the statistic calculation loans. On the weighted average remaining term to stated maturity,
closing date, additional mortgage loans will be based on principal balance (months)
delivered to the trust. (approximate): [________]
range of remaining term to stated maturity
Group I (months): [_____] to [________]
weighted average original term to maturity
number of mortgage loans: [___________] (months): [________]
aggregate principal balance: $[___________] latest maturity date: [Month] [Day], 20__
secured by first lien on mortgaged range of original term to maturity
property: [___________]% (months): [_______] to [_______]
range of loan sizes (approximate): $[___________] original loan-to-value ratio range
to $[___________] (approximate): [_______]% to [_______]%
mortgaged property locations: [ ] states weighted average original loan-to value ratio
average principal balance: $[___________] (approximate): [_______]%
interest rates range: [_______]% to [___________]% mortgage loans with prepayment charges (by aggregate
weighted average interest rate, based on principal principal balance): [_______]%
balance (approximate): [___________]% hybrid loans: [_______]%
weighted average remaining term to stated maturity, We refer you to "The Mortgage Loans" in this
based on principal balance (months) (approximate): prospectus supplement and "Annex A:
[___________] Description of the Mortgage Pool" to this
range of remaining term to maturity prospectus supplement.
(months): [______] to [_______]
weighted average original term to maturity (months) OPTIONAL TERMINATION OF THE TRUST
(approximate): [_______]
latest maturity date: [Month] [Day], 20__ On any distribution date when the principal balance
range of original term to maturity of the mortgage loans is equal to or less than 5% of
(months): [_______] to [______] the sum of the principal balances of the initial
original loan-to-value ratio range mortgage loans as of the cut-off date and the amount
(approximate): [_________]% to [________]% deposited in the prefunding account on the closing
weighted average original loan-to value ratio date, the servicer may purchase all of the remaining
(approximate): [________]% mortgage loans from the trust and thereby terminate
mortgage loans with prepayment charges(by the trust. Upon receipt of the purchase price of the
aggregate principal balance): [________]% mortgage loans from the servicer, the trustee will
hybrid loans: [________]% make a final payment to the certificateholders.
Group II We refer you to "Description of the Certificates" in
this prospectus supplement.
number of mortgage loans: [____]
aggregate principal balance: $[________] CERTAIN FEDERAL INCOME TAX CONSEQUENCES
secured by first lien on mortgaged property:
[________]% Certain assets of the trust will be designated as
range of loan sizes: $[________] to $[________] one or more REMICs for federal income tax purposes.
The offered certificates, the Class P certificates
and Class C certificates will each
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represent regular interests in a REMIC and generally
will be treated as newly originated debt instruments
for federal income tax purposes. In addition, each
of the offered certificates will represent an
undivided beneficial ownership interest in an
interest rate cap agreement. The Class R
certificates will represent the residual interest in
each REMIC.
We refer you to "Certain Federal Income Tax
Consequences" in this prospectus supplement and
"Federal Income Tax Considerations" in the
prospectus.
ERISA CONSIDERATIONS
Subject to the satisfaction of certain conditions
described in this prospectus supplement, the offered
certificates may be acquired and held by a pension
or other employee benefit plan.
We refer you to "ERISA Considerations" in this
prospectus supplement and in the prospectus.
USE OF PROCEEDS
The sponsor intends to use the net proceeds to be
received from the sale of the offered certificates
to pay off certain indebtedness incurred in
connection with the acquisition of the mortgage
loans, to repay warehouse facilities (including
certain amounts owing to affiliates of the
underwriters) and to pay other expenses associated
with the pooling of the mortgage loans and the
issuance of the certificates.
We refer you to "Use of Proceeds" in this prospectus
supplement and in the prospectus.
LEGAL INVESTMENT CONSIDERATIONS
Following the funding period, the Class A-1, Class
A-2, Class M-1 and Class M-2 certificates will
constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984, known as SMMEA. The Class
M-3 and Class B certificates will not constitute
"mortgage related securities" for purposes of SMMEA
and, accordingly, many institutions with legal
authority to invest in comparably rated securities
may not be legally authorized to invest in such
certificates.
We refer you to "Legal Investment" in this
prospectus supplement and in the prospectus.
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RISK FACTORS
An investment in the offered certificates involves significant risks.
Before you decide to invest in the offered certificates, you should consider the
following risk factors.
YOU MAY HAVE DIFFICULTY SELLING YOUR CERTIFICATES
The offered certificates will not be listed on any securities exchange.
As a result, if you wish to sell your certificates, you will have to find a
purchaser that is willing to purchase your certificates. The underwriters intend
to make a secondary market for the offered certificates. The underwriters may do
so by offering to buy the offered certificates from investors that wish to sell.
However, the underwriters will not be obligated to make offers to buy the
offered certificates and may stop making offers at any time. In addition, the
prices offered, if any, may not reflect prices that other potential purchasers,
were they to be given the opportunity, would be willing to pay. There have been
times in the past where there have been very few buyers of similar
mortgage-backed securities, and there may be such times in the future. As a
result, you may not be able to sell your certificates if or when you wish to do
so or you may not be able to obtain the price you wish to receive.
THE UNIQUE FEATURES OF THE MORTGAGE LOANS CREATE SPECIAL RISKS
There are a number of unique features of the mortgage loans that create
risks, including the following:
o Risks Associated with Underwriting Standards. The sponsor has
underwritten and originated or re-underwritten all of the mortgage loans in
accordance with the sponsor's guidelines. The sponsor's guidelines rely on the
creditworthiness of the mortgagor and the value and adequacy of the related
mortgaged property as collateral. As a lender that specializes in loans made to
credit impaired borrowers, the sponsor ordinarily makes mortgage loans to
borrowers with credit histories or other factors that would disqualify them from
consideration for a loan from traditional financial institutions. A derogatory
credit history or a lack of credit history will not necessarily prevent the
sponsor from making or acquiring a mortgage loan. The values of the mortgaged
properties may decline from those on the dates the related mortgage loans were
originated thereby increasing the loan-to-value ratios of the mortgage loans.
Even assuming that the mortgaged properties provide adequate security for the
mortgage loans, substantial delays could be encountered in connection with the
foreclosure and liquidation of defaulted mortgage loans. The actual rates of
delinquencies, foreclosures and losses on mortgage loans could be higher than
those historically experienced in the mortgage lending industry in general,
particularly in periods during which the values of the related mortgaged
properties decline. We refer you to "The Originators -- Underwriting Guidelines"
in the prospectus.
o Newly Originated Mortgage Loans May Default. Defaults on mortgage loans
tend to occur at higher rates during the early years of the mortgage loans. A
substantial majority of the mortgage loans will have been originated within 12
months prior to their sale to the trust. As a result, the trust may experience
higher rates of default than if the mortgage loans had been outstanding for a
longer period of time.
o Geographic Concentration Increases Risks. Based on the statistic
calculation date principal balances, approximately [__]%, [__]%, [__]%, and
[__]% of the statistic calculation loans in Group I are secured by mortgaged
properties located in [State], [State], [State] and [State], respectively, and
approximately [__]%, [__]%, [__]% and [__]% of the statistic calculation loans
in Group II are secured by mortgaged properties located in [State], [State],
[State] and [State], respectively. In general, declines in the [State], [State],
[State] and [State] residential real estate markets may adversely affect the
values of the mortgaged properties securing mortgage loans in those states such
that the principal balances of the
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mortgage loans will equal or exceed the value of the mortgaged properties.
Property in certain of those states, including [State], [State] and [State], may
be more susceptible than homes located in other parts of the country to certain
types of uninsurable hazards, such as earthquakes, floods, mudslides and other
natural disasters. In addition, adverse economic conditions in those states may
affect borrowers' timely payment of scheduled payments of principal and interest
on mortgage loans in those states. Accordingly, the actual rates of
delinquencies, foreclosures and losses on the mortgage loans could be higher
than those currently experienced in the mortgage lending industry in general.
o Risks Associated with Damaged Mortgage Properties. Generally, the
standard form of hazard insurance policy required to be maintained under the
terms of each mortgage loan does not cover physical damage resulting from floods
and other water-related causes or from earth movement (including earthquakes,
landslides and mudflows). [California historically has been vulnerable to
certain natural disaster risks, such as earthquakes and erosion-caused
mudslides.] [Florida historically has been vulnerable to certain other natural
disasters, such as tropical storms and hurricanes.] To the extent a mortgaged
property has been materially damaged since the cut-off date due to flooding or
other water-related causes or due to an earthquake or other earth movement and
that damage results in losses on the related mortgage loan, and if such damage
is caused by a natural disaster in one of the states with a concentration of
loans, you could suffer a loss if such loss exceeds the overcollateralization of
the mortgage loans. Under the pooling and servicing agreement, the sponsor will
represent that, as of the cut-off date, each mortgaged property is free of
substantial damage and is in good repair. In the event that any uncured breach
of that representation materially and adversely affects the interest of
certificateholders in the related mortgage loan, the sponsor will be required to
repurchase the mortgage loan or deliver a substitute mortgage loan [or it. To
the extent the sponsor repurchases any mortgage loan, the repurchase will
accelerate the timing of principal distributions with respect to the related
mortgage loan group and may thereby affect the yields and weighted average lives
of the related class or classes of certificates.
o Risks Associated with Hybrid Loans. Credit-impaired borrowers with
loans that have an initial fixed rate term followed by an adjustable rate term
may encounter financial difficulties as a result of increases in the interest
rate over the life of the loan. Substantially all of the hybrid loans include a
teaser rate, i.e., an initial interest rate significantly below the fully
indexed interest rate at origination. As a result, borrowers will face interest
rate increases on their adjustable rate even in a stable interest rate
environment, Hybrid loans with an initial adjustment date three years after
funding are underwritten at the teaser rate. Higher risks of delinquency may
result when borrowers who may qualify for hybrid loans with a teaser rate at the
time of funding may not be able to afford the monthly payments when the payment
amount increases.
RECENT EVENTS MAY RESULT IN HIGHER DELINQUENCIES, DEFAULTS AND INTEREST
SHORTFALLS WHICH MAY ADVERSELY AFFECT THE YIELD ON YOUR CERTIFICATES
On September 11, 2001, tragic events occurred at the World Trade Center
in New York City and at the Pentagon in Arlington, Virginia that have caused
significant uncertainty with respect to global markets. The short term and long
term impact of these events is uncertain, but could have a material effect on
general economic conditions, consumer confidence and market liquidity.
Certain government agencies, government sponsored entities and private
financial institutions have implemented special servicing procedures which may
include:
o A moratorium on the commencement of foreclosure proceedings, and a
suspension of any current foreclosure proceedings, with regard to borrowers who
have been personally affected by the terrorist attacks;
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o Increased use of repayment plans that will seek to cure delinquencies
without imposing undue hardship on the affected borrower;
o Extending due dates for mortgage payments;
o Waiving or reducing late payment fees or similar fees; and
o Suspending the submission of reports to credit bureaus for affected
borrowers that have delinquent mortgage loans.
We cannot give you any assurance as to the effect of these events on the rate of
delinquencies and losses on the mortgage loans and servicing decisions with
respect to the mortgage loans. Any adverse impact as a result of these events
would be borne by holders of the certificates.
The response of the United States to the events of September 11, 2001
involves military operations that may increase the number of citizens who are in
active military duty, including persons in reserve status who have been called
or will be called to active duty. The Soldiers' and Sailors' Civil Relief Act of
1940, called the Civil Relief Act, provides generally that a borrower who is
covered by the Civil Relief Act may not be charged interest on a mortgage loan
in excess of 6% per annum during the period of the borrower's active duty. These
shortfalls are not required to be paid by the borrower at any future time. The
servicer is not required to advance these shortfalls as delinquent payments and
the shortfalls are not covered by any form of credit enhancement on the offered
certificates.
Any shortfalls in interest collections on mortgage loans included in
the trust resulting from application of the Civil Relief Act will be allocated
first, to the Class C certificates in reduction of the interest amounts payable
to such class on the related distribution date and, to the extent the amount of
such shortfall exceeds the interest due and payable to the Class C certificates
on such distribution date, thereafter to the offered certificates, pro rata,
based on the respective class monthly interest amount for each such class on
such distribution date.
The Civil Relief Act also limits the ability of the servicer to
foreclose on a mortgage loan during the borrower's period of active duty and, in
some cases, during an additional three month period thereafter. As a result,
there may be delays in payment and increased losses on the mortgage loans. Those
delays and increased losses will be borne primarily by the outstanding class of
certificates with the lowest payment priority.
We do not know how many mortgage loans have been or may be affected by
the application of the Civil Relief Act.
THE RETURN ON YOUR INVESTMENT WILL CHANGE OVER TIME
Your pre-tax return on your investment will change from time to time
for a number of reasons, including the following:
o The Rate of Return of Principal is Uncertain. The amount of distribu-
tions of principal of the offered certificates and the time when you receive
those distributions depends on the amount and the times at which borrowers make
principal payments on the mortgage loans. Those principal payments may be
regularly scheduled payments or unscheduled payments resulting from prepayments
or defaults of the mortgage loans. The rate of prepayment may be affected by the
credit standings of the borrowers. If a borrower's credit standing improves,
that borrower may be able to refinance his existing loan on more favorable
terms, which would result in a principal prepayment.
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o The Rate of Prepayment of the Mortgage Loans is Uncertain. All of the
statistic calculation loans may be prepaid in full or in part at any time, in
most cases upon the payment to the sponsor of a prepayment charge. The rate of
prepayments of the mortgage loans cannot be predicted and may be affected by a
wide variety of economic, social, competitive and other factors. Prepayments,
liquidations, repurchases and purchases of the mortgage loans will result in
distributions to offered certificateholders of principal amounts that would
otherwise be distributed over the remaining terms of the mortgage loans thereby
potentially affecting the yield to maturity of an offered certificate from the
anticipated yield.
o Prefunding May Result in Prepayments. If the seller is unable to
deliver sufficient, eligible additional mortgage loans to the trust by the end
of the funding period, a portion of the prefunding account deposit will be
distributed as a prepayment to the owners of the senior certificates.
o Overcollateralization Provisions Will Affect Your Yield. The
overcollateralization provisions are intended to result in an accelerated rate
of principal distributions to holders of the offered certificates at any time
that the overcollateralization provided by the mortgage pool falls below the
required level. An earlier return of principal to the holders of the offered
certificates as a result of the overcollateralization provisions will influence
the yield on the offered certificates in a manner similar to the manner in which
principal prepayments on the mortgage loans will influence the yield on the
offered certificates. In addition, if the senior certificates are entitled to
distributions of principal at any time that overcollateralization is required to
be restored to the required level, then the amounts available for such purpose
will be allocated between the Class A-1 certificates and the Class A-2
certificates on a pro rata basis based on the amount of principal actually
received on the Group I mortgage loans and Group II mortgage loans,
respectively, for the related distribution date. This, as well as the relative
sizes of these two groups of mortgage loans, may magnify the prepayment effect
on either class of senior certificates caused by the relative rates of
prepayments and defaults experienced by the two groups of mortgage loans.
o The Yield on the Subordinate Certificates Will Be Particularly
Sensitive to Prepayments. The multiple class structure of the offered
certificates causes the yield of certain classes of the offered certificates to
be particularly sensitive to changes in the rates of prepayments of mortgage
loans. Because distributions of principal will be made to the classes of offered
certificates according to the priorities described in this prospectus
supplement, the yield to maturity on such classes of offered certificates will
be sensitive to the rates of prepayment on the mortgage loans experienced both
before and after the commencement of principal distributions on such classes. In
particular, the subordinate certificates do not receive (unless the certificate
principal balances of the senior certificates have been reduced to zero) any
portion of the amount of principal payable to the offered certificates prior to
the distribution date in January 2006. Even after the date that subordinate
certificates start receiving distributions of principal, such distributions may
be suspended if losses or delinquencies exceed specified levels. The weighted
average lives of the subordinate certificates will therefore be longer than
would otherwise be the case. The effect on the market value of the subordinate
certificates of changes in market interest rates or market yields for similar
securities may be greater than for the senior certificates.
We refer you to "Prepayment and Yield Considerations" in this
prospectus supplement.
o You Bear Reinvestment Risk. Mortgage-backed securities like the offered
certificates usually produce a higher rate of return of principal to investors
when market interest rates fall below the interest rates on the mortgage loans
and produce less returns of principal when market interest rates are above the
interest rates on the mortgage loans. If borrowers refinance their mortgage
loans as a result of lower market interest rates, you will receive an
unscheduled payment of principal. As a result, you are likely to receive more
money to reinvest at a time when other investments generally are producing a
lower yield than that on the offered certificates, and are likely to receive
less money to reinvest when other investments generally are
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producing a higher yield than that on the offered certificates. You will bear
the risk that the timing and amount of distributions on your offered
certificates will prevent you from attaining your desired yield.
o The Optional Termination May Affect the Yield. Your investment in the
offered certificates may be ended before you desire if the optional termination
is exercised. In addition, holders of the offered certificates will not be
entitled to any net rate cap carryover amounts accrued but unpaid at the time
the optional termination is exercised. We refer you to "Description of the
Certificates --Termination; Retirement of the Certificates" in this prospectus
supplement.
o Pass-Through Rates May be Limited. The rate at which interest accrues
on the offered certificates is subject to a rate cap. The rate cap is based on
the weighted average of the interest rates on the mortgage loans, net of certain
fees and expenses. If mortgage loans with relatively higher loan rates prepay,
the maximum rate on these classes of offered certificates will be lower than
otherwise would be the case.
If the pass-through rate on your certificates is limited by the rate
cap, the market value and liquidity of your certificates may decline,
We refer you to "Prepayment and Yield Considerations -- Pass- Through
Rates" in this prospectus supplement.
o Hybrid Loans. Based on principal balances as of the statistic
calculation date, approximately [__]% and [ ]% of the statistic calculation
loans in Group I and Group II, respectively, had at origination a [____] year
fixed rate term followed by a [__] year adjustable rate term and approximately
[___]% and [__]% of the statistic calculation loans in Group I and Group II,
respectively, had at origination a three year fixed rate term followed by a
[___] year adjustable rate term. Additionally, approximately [___]% of the
statistic calculation loans in Group [___] had at origination a five year fixed
rate term followed by a [__] year adjustable rate term. As with all mortgage
loans, the rate of prepayments on hybrid loans (as we call these loans in this
prospectus supplement) that are in their respective initial fixed rate periods
is sensitive to prevailing interest rates. The prepayment behavior of the hybrid
loans may differ from that of the other mortgage loans. As a hybrid loan
approaches its initial adjustment date, the borrower may become more likely to
refinance the loan to avoid an increase in the coupon rate, even if fixed rate
loans are only available at rates that are slightly lower or higher than the
coupon rate before adjustment. The existence of the applicable periodic rate
cap, lifetime cap and lifetime floor also may affect the likelihood of
prepayments resulting from refinancings. You will bear the risk of any faster or
slower prepayments on the mortgage loans. We refer you to "Prepayment and Yield
Considerations" in this prospectus supplement.
THE TRUST ASSETS ARE THE ONLY SOURCE OF PAYMENTS ON THE OFFERED CERTIFICATES
All distributions on the offered certificates will be made from
payments by borrowers under the mortgage loans. The trust has no other assets to
make distributions on the offered certificates. The mortgage loans are not
insured or guaranteed by any person. Only the trust is obligated to make
distributions on the offered certificates. The offered certificates are not
insured by any governmental agency. If substantial losses occur as a result of
defaults and delinquencies on the mortgage loans, you may suffer losses.
INTEREST GENERATED BY THE MORTGAGE LOANS MAY BE INSUFFICIENT TO MAINTAIN
OVERCOLLATERALIZATION
The weighted average of the interest rates on the mortgage loans is
expected to be higher than the pass-through rates on the offered certificates.
The mortgage loans are expected to generate more interest than is needed to pay
interest owed on the offered certificates and to pay certain fees and expenses
of the trust. Any remaining interest generated by the mortgage loans will then
be used to absorb losses that occur
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on the mortgage loans. After these financial obligations of the trust are
covered, the available excess interest generated by the mortgage loans will be
used to maintain overcollateralization at the required level provided in the
pooling and servicing agreement. We cannot assure you, however, that enough
excess interest will be generated to absorb losses or to maintain the required
level of overcollateralization.
TRANSFER OF PRIMARY SERVICING MAY RESULT IN HIGHER DELINQUENCIES AND DEFAULTS
WHICH MAY ADVERSELY AFFECT THE YIELD ON YOUR CERTIFICATES
[SERVICER] will be the servicer under the pooling and servicing
agreement. However, the sponsor has serviced the mortgage loans since
origination or acquisition by the originator or the sponsor and will continue to
service the mortgage loans on an interim basis pending the transfer of primary
servicing obligations to [SERVICER] on or before [Month] [Day], 20___ with
respect to the initial mortgage loans and on or before [Month] [Day], 20___ with
respect to the subsequent mortgage loans. Although we expect the transfer to be
completed by [Month] [Day], 20___ and [Month] [Day], 20___ , respectively, we
cannot assure you that it will be completed by that date. All transfers of
servicing involve the risk of disruption in collections due to data input
errors, misapplied or misdirected payments, system incompatibilities and other
reasons. As a result, the rate of delinquencies and defaults are likely to
increase at least for a period of time and may result in losses on your
certificates. In addition, a higher delinquency rate may delay payments of
principal to you. A higher default rate may result in accelerated prepayments on
the offered certificates. You will bear any reinvestment risk associated with
any accelerated prepayments. We cannot assure you as to the extent or duration
of any disruptions associated with the transfer of servicing or as to the
resulting effect on your certificates.
THE SUBORDINATE CERTIFICATES WILL ABSORB CASH SHORTFALLS BEFORE THE SENIOR
CERTIFICATES
The subordinate certificates will not receive any distributions of
interest until the senior certificates receive their interest distributions and
will not receive any distributions of principal until the senior certificates
receive their principal distributions. If the available funds are insufficient
to make all of the required distributions on the offered certificates, one or
more classes of certificates will not receive all of their distributions. In
addition, losses due to defaults by borrowers, to the extent not covered by the
amount of overcollateralization and excess interest available at that time, will
be allocated to the subordinate certificates in the reverse order of payment
priority. Any allocation of a loss to a class of subordinate certificates will
reduce the amount of interest and, to the extent not reimbursed from future
excess interest, principal they will receive. Distributions to the subordinate
certificates are made in the following order: to the Class M-1 certificates,
then to the Class M-2 certificates, then to the Class M-3 certificates and then
to the Class B certificates, and losses are allocated to the subordinate
certificates in the reverse order, commencing with the Class B certificates. The
Class M-1 certificates receive distributions before, and are allocated losses
after, the other classes of subordinate certificates. Conversely, the Class B
certificates receive distributions after, and are allocated losses before, the
other classes of subordinate certificates. As a result, the Class B certificates
will be affected to a larger degree by any losses on the mortgage loans.
ADDITIONAL RISKS ASSOCIATED WITH THE SUBORDINATE CERTIFICATES
The weighted average lives of, and the yields to maturity on, the Class
M-1 certificates, the Class M-2 certificates, the Class M-3 certificates and the
Class B certificates will be progressively more sensitive, in that order, to the
rate and timing of mortgagor defaults and the severity of ensuing losses on the
mortgage loans. If the actual rate and severity of losses on the mortgage loans
is higher than those assumed by an investor in such certificates, the actual
yield to maturity of such certificates may be lower than the yield anticipated
by such holder based on such assumption. The timing of losses on the mortgage
loans will also affect an investor's actual yield to maturity, even if the rate
of defaults and severity of losses over the life of the mortgage loans are
consistent with an investor's expectations. In general, the earlier a loss
occurs, the greater the effect on an investor's yield to maturity. Realized
losses on the mortgage loans, to the extent they exceed the amount of
overcollateralization following distributions of principal on the related
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distribution date, will reduce the certificate principal balance of the Class B
certificates, the Class M-3 certificates, the Class M-2 certificates and the
Class M-1 certificates, in that order. As a result of such reductions, less
interest will accrue on such class of subordinate certificates than would
otherwise be the case. Once a realized loss is allocated to a subordinate
certificate, no interest will be distributable with respect to such written down
amount. However, the amount of any realized losses allocated to the subordinate
certificates may be reimbursed to the holders of the subordinate certificates
according to the priorities set forth under "Description of the
Certificates--Distributions" in this prospectus supplement.
Unless the certificate principal balances of the senior certificates
have been reduced to zero, the subordinate certificates will not be entitled to
any principal distributions until at least January 2006 or during any period in
which losses or delinquencies on the mortgage loans exceed certain levels. As a
result, the weighted average lives of the subordinate certificates will be
longer than would otherwise be the case if distributions of principal were
allocated among all of the certificates at the same time. As a result of the
longer weighted average lives of the subordinate certificates, the holders of
such certificates have a greater risk of suffering a loss on their investments.
In addition, the multiple class structure of the subordinate
certificates causes the yield of such classes to be particularly sensitive to
changes in the rates of prepayment of the mortgage loans. Because distributions
of principal will be made to the holders of such certificates according to the
priorities described in this prospectus supplement, the yield to maturity on
such classes of certificates will be sensitive to the rates of prepayment on the
mortgage loans experienced both before and after the commencement of principal
distributions on such classes. The yield to maturity on such classes of
certificates will also be extremely sensitive to losses due to defaults on the
mortgage loans and the timing thereof, to the extent such losses are not covered
by overcollateralization, excess interest or a class of subordinate certificates
with a lower payment priority. Furthermore, as described in this prospectus
supplement, the timing of receipt of principal and interest by the subordinate
certificates may be adversely affected by losses even if such classes of
certificates do not ultimately bear such loss.
RISKS ASSOCIATED WITH ORIGINATION FEES
Fees earned on the origination of loans, placement of related insurance
and other services provided by the sponsor and affiliated originators are often
paid by the borrower out of related loan proceeds. From time to time, in the
ordinary course of their businesses, originators of mortgage loans have been
named in legal actions brought by mortgagors challenging the amount or method of
imposing or disclosing such fees. If such an action against any originator with
respect to any mortgage loan were successful, a court might require that the
principal balances of the related mortgage loans be reduced by the amount of
contested fees or charges. Any such reductions could result in substantial
realized losses during one or more collection periods. You could suffer a loss
if such realized losses exceed the overcollateralization of the mortgage loans.
VIOLATIONS OF CONSUMER PROTECTION LAWS MAY RESULT IN LOSSES
Depending on the provisions of the applicable law and the specific
facts and circumstances involved, violations of laws, policies and principles
relating to the mortgage loans may limit the ability of the servicer 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 trust to damages and administrative enforcement. In this event,
holders of the offered certificates, and the subordinate certificates in
particular, may suffer a loss.
Applicable state laws generally regulate interest rates and other
charges and require specific disclosures. In addition, other state laws, public
policy and general principles of equity relating to the
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protection of consumers, unfair and deceptive practices and debt collection
practices may apply to the origination, servicing and collection of the mortgage
loans.
The mortgage loans are also subject to federal laws, including:
(1) the federal Truth in Lending Act and Regulation Z promulgated under
the Truth in Lending Act, which require particular disclosures to the
borrowers regarding the terms of the mortgage loans;
(2) the Equal Credit Opportunity Act and Regulation B promulgated under
the Equal Credit Opportunity Act, 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;
(3) the Real Estate Settlement Procedures Act, known as RESPA, and
Regulation X promulgated under RESPA, which require certain disclosures
to borrowers regarding the settlement and servicing of the mortgage
loans;
(4) the Fair Credit Reporting Act, which regulates the use and
reporting of information related to the borrower's credit experience;
and
(5) the Federal Trade Commission Preservation of Consumer's Claims and
Defense Rule, i6 C.F.R Part 433, regarding the preservation of a
consumer's right.
In addition to the foregoing, a number of legislative proposals have
been introduced at both the federal and state level that are designed to
discourage predatory lending practices. Some states have enacted, or may enact,
laws or regulations that prohibit inclusion of some provisions in mortgage loans
that have mortgage rates or origination costs in excess of prescribed levels,
and require that borrowers be given certain disclosures prior to the
consummation of such mortgage loans. Failure to comply with these laws, to the
extent applicable to any of the mortgage loans, could subject the trust, as an
assignee of the mortgage loans, to monetary penalties and could result in the
borrowers rescinding such mortgage loans against either the trust or subsequent
holders of the mortgage loans. Lawsuits have been brought in various states
making claims against assignees of high cost loans for violations of state law.
Named defendants in these cases include numerous participants within the
secondary mortgage market, including some securitization trusts.
In addition, numerous other federal and state statutory provisions,
including the federal bankruptcy laws and state debtor relief laws, may also
adversely affect the servicer's ability to collect the principal of or interest
on the mortgage loans and holders of the offered certificates, and the
subordinate certificates in particular, may suffer a loss if the applicable laws
result in these loans being uncollectible.
AAMES FINANCIAL CORPORATION IS THE SUBJECT OF CURRENT INVESTIGATIONS BY
GOVERNMENTAL AGENCIES AND CONSUMER GROUPS, WHICH COULD ADVERSELY AFFECT THE
SELLER'S OR THE SERVICER'S BUSINESS AND ATTRACT CLASS ACTION LITIGATION AGAINST
THEM
On April 27, 2004, Aames Financial Corporation, a wholly-owned
subsidiary of Aames Investment Corporation, and Aames Capital Corporation's
parent, received a civil investigative demand, or CID, from the Federal Trade
Commission, or FTC, that although not alleging any wrongdoing, sought documents
and data relating to Aames Financial Corporation's business and lending
practices. The CID was issued pursuant to an April 8, 2004 resolution of the FTC
authorizing non-public investigations of various unnamed subprime lenders and
loan brokers to determine whether there have been violations of certain consumer
protection laws. Aames Financial Corporation has advised the Depositor that it
has cooperated and intends to continue to cooperate fully with the FTC in this
investigation. Because the investigation is at an early
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stage, the outcome of the investigation and its effect, if any, on Aames
Investment Corporation, Aames Financial Corporation and Aames Capital
Corporation cannot be predicted.
On September 7, 2004, Aames Financial Corporation received a Civil
Investigative Demand and Notice to Proceed from the Office of the Attorney
General of Iowa, that, although not alleging any wrongdoing, sought documents
and data relating to Aames Financial Corporation's business and lending
practices in Iowa. Aames Financial Corporation has advised the Depositor that it
has cooperated and intends to continue to cooperate fully with the Office of the
Attorney General of Iowa in this investigation. Because the investigation is at
an early stage, Aames Investment Corporation cannot predict the outcome of the
investigation and its effect, if any on Aames Financial Corporation's business
in Iowa or on Aames Investment Corporation or Ames Capital Corporation.
Approximately ___% of the initial mortgage loans, by aggregate principal
balance, are secured by mortgaged properties located in Iowa. On April 26, 2004,
Aames Financial Corporation was contacted by the National Community Reinvestment
Coalition, or NCRC, a non-profit trade association, regarding alleged violations
of federal fair lending laws. NCRC asserts that, under a grant from the United
States Department of Housing and Urban Development, NCRC conducted an
investigation of certain Aames Financial Corporation branches, as well as
multiple other lenders, which investigation purportedly resulted in evidence of
violations of fair lending laws involving discriminatory treatment of minority
loan applicants. Although Aames Financial Corporation does not agree with NCRC's
assertions, Aames Financial Corporation has advised the Depositor that it is
discussing the matter with NCRC and intends to work with NCRC to reach a
mutually satisfactory result.
While Aames Financial Corporation has advised the Depositor that it
does not believe its subsidiaries engaged in any improper or illegal activity,
such allegations or suggestions, whether proven or unproven, could have an
adverse effect on the business of Aames Financial Corporation, Aames Investment
Corporation or Aames Capital Corporation and attract class action litigation
against them.
HIGHER LOAN-TO-VALUE RATIOS INCREASE RISK OF LOSS
Mortgage loans with higher loan-to-value ratios may present a greater
risk of loss than mortgage loans with lower loan-to-value ratios. Approximately
[___]% and [___]% of the statistic calculation loans (by aggregate principal
balance as of the statistic calculation date) in Group I and Group II,
respectively, had loan-to-value ratios in excess of [___]%, but not more than
100%, at origination. Additionally, the sponsor's determination of the value of
a mortgaged property used in the calculation of the loan-to-value ratios of the
mortgage loans may differ from the appraised value of such mortgaged properties
or the actual value of such mortgaged properties.
WITHDRAWAL OR DOWNGRADING OF INITIAL RATINGS WILL AFFECT THE PRICES FOR
CERTIFICATES
A security rating is not a recommendation to buy, sell or hold
securities. Similar ratings on different types of securities do not necessarily
mean the same thing. You are encouraged to analyze the significance of each
rating independently from any other rating. Any rating agency may change its
rating of the offered certificates after those offered certificates are issued
if that rating agency believes that circumstances have changed. Any subsequent
change in rating will likely affect the price that a subsequent purchaser will
be willing to pay for your certificates.
THE OFFERED CERTIFICATES ARE NOT SUITABLE INVESTMENTS FOR ALL INVESTORS
The offered certificates, and in particular the subordinate
certificates, are not a suitable investment if you require a regular or
predictable schedule of payments or payment on any specific date. The offered
securities, and in particular the subordinate certificates, are complex
investments that should be considered only by investors who, either alone or
with their financial, tax and legal advisors, have the expertise to
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analyze the prepayment, reinvestment, default and market risk, the tax
consequences of an investment, and the interaction of these factors.
THE FINANCIAL CONDITION OF THE SPONSOR AND ITS CORPORATE PARENT MAY ADVERSELY
AFFECT THE CERTIFICATES
In connection with certain securitization transactions, the sponsor is
in violation of specified limits on delinquencies and losses as well as certain
net worth covenants. As a result, the sponsor may be terminated as servicer with
respect to these transactions; however, to date the sponsor's related servicing
rights have not been terminated. If the sponsor were terminated as servicer in
these securitizations, the sponsor may not be able to comply with its repurchase
or substitution obligations that may arise as a result of a breach of its
representations or warranties under the pooling and servicing agreement. We
refer you to "Origination and Servicing of Mortgage Loans--Recent Events" in
this prospectus supplement.
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DESCRIPTION OF THE CERTIFICATES
GENERAL
The certificates will represent certain undivided beneficial ownership
interests in the trust created pursuant to a pooling and servicing agreement,
subject to the limits and priority of distributions described therein. The
offered certificates will be issued in minimum denominations of $25,000 and
integral dollar multiples of $1,000 in excess thereof. The assets of the trust
will consist of:
(a) the mortgage loans;
(b) the assets that from time to time are required by the
pooling and servicing agreement to be deposited in the collection
account and the certificate account, and held in the prefunding account
and capitalized interest account, and any investment proceeds of these
accounts;
(c) all rights of the mortgagee under any insurance policy
covering a mortgage loan or the related mortgaged property; and
(d) property and any proceeds thereof acquired by foreclosure
of the mortgage loans, deed in lieu of foreclosure or a comparable
conversion.
The principal balance of a class of certificates on any distribution
date is equal to the applicable certificate principal balance on the closing
date reduced by the
o aggregate of amounts actually distributed as principal to the
holders of the class of certificates prior to the applicable date
and
o in the case of a subordinate certificate, any reductions in the
class principal balance of the subordinate certificate due to
realized losses as described in this prospectus supplement.
DISTRIBUTION DATES
Distributions on the certificates will be made by the trustee on the th
day of each month or, if that day is not a business day, on the first business
day thereafter, commencing in [Month] 20 , each called a distribution date, to
the persons in whose names the certificates are registered, each called a
certificateholder, as of the related record date. The record date for any
distribution date is the last business day of the calendar month preceding the
month of the applicable distribution date. Distributions will be made (1) in
immediately available funds to holders of certificates the aggregate principal
balance of which is at least $[5,000,000], by wire transfer or otherwise, to the
account of the certificateholder at a domestic bank or other entity having
appropriate facilities for distribution, if the certificateholder has so
notified the trustee, or (2) by check mailed to the address of the person
entitled to the distribution as it appears on the certificate register
maintained by the trustee as certificate registrar. Notwithstanding the
foregoing, the final distribution on any certificate will be made in like manner
but only upon presentment and surrender of the certificate at the office or
agency appointed for that purpose.
DISTRIBUTIONS
Fees and Costs
On each distribution date, the trustee will withdraw from the
certificate account that portion of Available Funds for such distribution date
for each mortgage loan group in such amounts so as to pay, concurrently, to the
trustee, the trustee fee and to the servicer, the monthly servicing fee and
certain
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additional expenses payable under the pooling and servicing agreement, if any
(to the extent not otherwise reimbursed from the collection account), in each
case for such mortgage loan group and distribution date.
Interest Distributions on the Offered Certificates
On each distribution date, after subtracting amounts payable toward the
trustee fee, the monthly servicing fee and certain additional expenses payable
under the pooling and servicing agreement, if any, the trustee shall withdraw
from the certificate account that portion of Available Funds for each mortgage
loan group for such distribution date and make the following disbursements and
transfers in the order of priority described below:
1. To each class of senior certificates, the related Class Interest
Distribution for the applicable distribution date, allocated as follows:
A. From the Available Funds attributable to the Group I
mortgage loans:
first, to the Class A-1 certificates, the Class Interest
Distribution for the Class A-1 certificates; and
second, to the Class A-2 certificates, the Class Interest
Distribution for the Class A-2 certificates to the extent
not paid pursuant to clause B below;
B. From the Available Funds attributable to the Group II
mortgage loans:
first, to the Class A-2 certificates, the Class Interest
Distribution for the Class A-2 certificates; and
second, to the Class A-1 certificates, the Class Interest
Distribution for the Class A-1 certificates to the extent
not paid pursuant to clause A above;
2. Sequentially, to the Class M-1, Class M-2, Class M-3 and Class B
certificates, in that order, the related Class Monthly Interest Amount for the
applicable distribution date.
Principal Distributions on the Offered Certificates
On each distribution date, the holders of the offered certificates
shall be entitled to receive distributions in respect of principal to the extent
of the Principal Distribution Amount in the following amounts and order of
priority:
1. To the senior certificates, the Senior Principal Distribution
Amount for the applicable distribution date, excluding any Subordination
Increase Amount included in that amount, distributed as follows:
A. To the Class A-1 certificates, payable solely from the Basic
Principal Amount from the Group I mortgage loans, an amount equal
to the product of (a) the Senior Principal Distribution Amount,
excluding any Subordination Increase Amount included in that amount,
and (b) the Class A Principal Allocation Percentage applicable to the
Class A-1 certificates, until the certificate principal balance thereof
is reduced to zero;
B. To the Class A-2 certificates, payable solely from the
Basic Principal Amount from the Group II mortgage loans, an amount
equal to the product of (a) the Senior Principal Distribution
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Amount, excluding any Subordination Increase Amount included in that
amount, and (b) the Class A Principal Allocation Percentage applicable
to the Class A-2 certificates, until the certificate principal balance
thereof is reduced to zero;
2. To the Class M-1 certificates, the Class M-1 Principal Distribution
Amount for the applicable distribution date, excluding any Subordination
Increase Amount included in that amount, until its certificate principal balance
is reduced to zero.
3. To the Class M-2 certificates, the Class M-2 Principal Distribution
Amount for the applicable distribution date, excluding any Subordination
Increase Amount included in that amount, until its certificate principal balance
is reduced to zero,
4. To the Class M-3 certificates, the Class M-3 Principal Distribution
Amount for the applicable distribution date, excluding any Subordination
Increase Amount included in that amount, until its certificate principal balance
is reduced to zero.
5. To the Class B certificates, the Class B Principal Distribution
Amount for the applicable distribution date, excluding any Subordination
Increase Amount included in that amount, until its certificate principal balance
is reduced to zero.
If the certificate principal balance of either class of senior
certificates is reduced to zero, then the remaining amount of principal
distributions distributable to the holders of the senior certificates on such
distribution date, and the amount of principal distributions distributable to
the holders of the senior certificates on all subsequent distribution dates,
will be distributed to the holders of the class of senior certificates remaining
outstanding, until the certificate principal balance of such class of senior
certificates remaining outstanding has been reduced to zero.
Excess Interest Distributions on the Offered Certificates
On each distribution date, any Excess Interest shall be paid in the
following order of priority, in each case to the extent of the Excess Interest
remaining undistributed:
1. To the offered certificates the Subordination Increase Amount for
the applicable distribution date, allocated in the order set forth in " --
Principal Distributions on the Offered Certificates," above.
2. To the Class M-1 certificates, any related (a) Class Interest
Carryover Shortfall and then (b) Class Principal Carryover Shortfall.
3. To the Class M-2 certificates, any related (a) Class Interest
Carryover Shortfall and then (b) Class Principal Carryover Shortfall.
4. To the Class M-3 certificates, any related (a) Class Interest
Carryover Shortfall and then (b) Class Principal Carryover Shortfall.
5. To the Class B certificates, any related (a) Class Interest
Carryover Shortfall and then (b) Class Principal Carryover Shortfall.
6. To the trustee, in an amount equal to its reasonable expenses,
disbursements and advances payable to the trustee pursuant to the pooling and
servicing agreement and not otherwise reimbursed,
7. To the Class C certificates for deposit in the net rate cap fund.
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8. Sequentially, (a) concurrently to the Class A-1 and Class A-2
certificates, pro rata, and (b) sequentially to the Class M-1 certificates, the
Class M-2 certificates, the Class M-3 certificates and the Class B certificates,
in that order, the related Net Rate Cap Carryover, from the net rate cap fund.
9. To fund a distribution to the Class C certificateholders in an
amount required by the pooling and servicing agreement.
10. To the Class R certificates, the remainder.
On each distribution date, the holders of the Class P certificates will
be entitled to all Prepayment Charges received with respect to the mortgage
loans during the related collection period, and such amounts will not be
available for distribution on the other classes of certificates.
GLOSSARY OF TERMS
The following terms have the meanings given below to help describe the
cashflows on the offered certificates:
"Aggregate Principal Amount" means, as to any distribution date, the
sum of the Basic Principal Amount for each mortgage loan group.
"Available Funds" as to any mortgage loan group and any distribution
date, is the sum, without duplication of the following amounts with respect to
the mortgage loans and the immediately preceding collection period, of:
(i) scheduled and unscheduled payments of principal and
interest on the mortgage loans received by the servicer, including
amounts deposited in respect of interest on any mortgage loan that does
not have a monthly payment due in the collection period relating to the
distribution date (net of amounts representing the monthly servicing
fee with respect to each mortgage loan, certain additional expenses
payable under the pooling and servicing agreement and reimbursement for
monthly advances and servicing advances);
(ii) net liquidation proceeds and trust insurance proceeds
with respect to the mortgage loans (net of amounts applied to the
restoration or repair of a mortgaged property);
(iii) amounts payable in connection with each such mortgage
loan that was repurchased from the trust, and all amounts payable in
respect of any mortgage loan in the related mortgage loan group in
connection with a substitution of a qualified replacement mortgage loan
therefor;
(iv) payments from the servicer in connection with (a) monthly
advances, (b) compensating interest, and (c) payments in connection
with the termination of the trust with respect to the mortgage loans as
provided in the pooling and servicing agreements;
(v) on the distribution dates during and immediately following
the funding period, amounts from the capitalized interest account for
the payment of interest on the certificates; and
(vi) on the distribution date at or immediately following the
end of the funding period, amounts remaining on deposit in the
prefunding account.
Available Funds shall not include any Prepayment Charges.
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"Available Funds Cap" means the per annum rate equal to the weighted
average loan rate of the mortgage loans net of the servicing fee, the trustee
fee and certain additional expenses payable under the pooling and servicing
agreement.
"Basic Principal Amount" as to any mortgage loan group and any
distribution date, is an amount equal to the sum of the following amounts
(without duplication) with respect to the mortgage loans in such mortgage loan
group and the immediately preceding collection period:
(i) each payment of principal on a mortgage loan received by
the servicer during such collection period, including all full and
partial principal prepayments (net of reimbursements to the servicer
for servicing advances);
(ii) the net liquidation proceeds and trust insurance proceeds
allocable to principal received by the servicer with respect to any
mortgage loan during such collection period (net of amounts applied to
the restoration or repair of a mortgaged property);
(iii) all amounts allocable to principal payable in connection
with each such mortgage loan that was repurchased from the trust during
such collection period, and all amounts allocable to principal payable
in respect of any mortgage loan in the related mortgage loan group in
connection with a substitution of a qualified replacement mortgage loan
therefor; and
(iv) any related amounts remaining in the prefunding account
after the funding period.
"Basic Principal Distribution Amount" as to any distribution date, is
an amount equal to the Aggregate Principal Amount minus the Excess
Overcollateralization Amount.
"Certificate Principal Balance" of any class of the offered
certificates is the original certificate principal balance of such class as
reduced by all amounts in respect of principal actually distributed to the
related certificateholders on all prior distribution dates, reduced in the case
of any class of subordinate certificates by any Realized Losses allocated to
such class on prior distribution dates.
"Class A Principal Allocation Percentage" for any distribution date is
the percentage equivalent of a fraction, determined as follows: (i) in the case
of the Class A-1 certificates, the numerator of which is (x) the portion of the
Aggregate Principal Amount for such distribution date that is attributable to
principal received on the Group I mortgage loans, and the denominator of which
is (y) the Aggregate Principal Amount for such distribution date, and (ii) in
the case of the Class A-2 certificates, the numerator of which is (x) the
portion of the Aggregate Principal Amount for such distribution date that is
attributable to principal received on the Group II mortgage loans, and the
denominator of which is (y) the Aggregate Principal Amount for such distribution
date.
"Class B Principal Distribution Amount" means as to any distribution
date on or after the Stepdown Date and as long as a Trigger Event is not in
effect, is the excess of:
(1) the sum of
(A) the aggregate certificate principal balance of the senior
certificates, after taking into account distributions of the Senior
Principal Distribution Amount for the applicable distribution date,
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(B) the certificate principal balance of the Class M-1
certificates, after taking into account distribution of the Class M-1
Principal Distribution Amount for the applicable Distribution Date,
(C) the certificate principal balance of the Class M-2
certificates, after taking into account distribution of the Class M-2
Principal Distribution Amount for the applicable distribution date,
(D) the certificate principal balance of the Class M-3
certificates, after taking into account distribution of the Class M-3
Principal Distribution Amount for the applicable distribution date, and
(E) the certificate principal balance of the Class B
certificates immediately prior to the applicable Distribution Date
over
(2) the lesser of
(A) [___]% of the sum of the Pool Balance and amounts on deposit
in the prefunding account as of the last day of the related collection
period, and
(B) the Pool Balance as of the last day of the related
collection period minus the OC Floor,
provided, however, that after the certificate principal balances of the senior,
Class M-1, Class M-2 and Class M-3 certificates are reduced to zero, the Class B
Principal Distribution Amount for the applicable distribution date will equal
100% of the Principal Distribution Amount.
"Class Interest Carryover Shortfall" means as to any class of
certificates and any distribution date, an amount equal to the sum of (i) the
excess of the related Class Monthly Interest Amount for the preceding
distribution date and any outstanding Class Interest Carryover Shortfall with
respect to that class on the preceding distribution date, over the amount in
respect of interest that is actually distributed to the certificateholders of
the class on the preceding distribution date plus (2) one month's interest on
the excess, to the extent permitted by law, at the related pass-through rate.
"Class Interest Distribution" means as to any class of certificates and
distribution date, an amount equal to the sum of (a) the related Class Monthly
Interest Amount and (b) any Class Interest Carryover Shortfall for that class of
certificates for the applicable distribution date.
"Class M-1 Principal Distribution Amount": As to any distribution date
on or after the Stepdown Date, (x) 100% of the Principal Distribution Amount if
the certificate principal balance of each class of senior certificates has been
reduced to zero and a Trigger Event exists, or (y) if a Trigger Event is not in
effect, the excess of:
(1) the sum of
(A) the aggregate certificate principal balance of the senior
certificates, after taking into account distributions of the Senior
Principal Distribution Amount for the applicable distribution date, and
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(B) the certificate principal balance of the Class M-1
certificates immediately prior to the applicable distribution date
over
(2) the lesser of
(A) [____]% of the sum of the Pool Balance and amounts on deposit
in the prefunding account as of the last day of the related collection
period, and
(B) the Pool Balance as of the last day of the related collection
period minus the OC Floor.
"Class M-2 Principal Distribution Amount" means as to any distribution
date on or after the Stepdown Date, (x) 100% of the Principal Distribution
Amount if the aggregate certificate principal balance of each of the senior and
Class M-1 certificates has been reduced to zero and a Trigger Event exists, or
(y) if a Trigger Event is not in effect, the excess of:
(1) the sum of
(A) the aggregate certificate principal balance of the senior
certificates, after taking into account distributions of the Senior
Principal Distribution
Amount for the applicable distribution date,
(B) the certificate principal balance of the Class M-1
certificates, after taking into account distribution of the Class M-1
Principal Distribution Amount for the applicable distribution date, and
(C) the certificate principal balance of the Class M-2
certificates immediately prior to the applicable distribution date
over
(2) the lesser of
(A) [___]% of the sum of the Pool Balance and amounts on deposit
in the prefunding account as of the last day of the related collection
period, and
(B) the Pool Balance as of the last day of the related collection
period minus the OC Floor.
"Class M-3 Principal Distribution Amount" means as to any distribution
date on or after the Stepdown Date, (x) 100% of the Principal Distribution
Amount if the aggregate certificate principal balance of each of the senior,
Class M-1 and Class M-2 certificates has been reduced to zero and a Trigger
Event exists, or (y) if a Trigger Event is not in effect, the excess of:
(1) the sum of
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(A) the aggregate certificate principal balance of the senior
certificates, after taking into account distributions of the Senior
Principal Distribution Amount for the applicable distribution date,
(B) the certificate principal balance of the Class M-1
certificates, after taking into account distribution of the Class M-1
Principal Distribution Amount for the applicable distribution date,
(C) the certificate principal balance of the Class M-2
certificates, after taking into account distribution of the Class M-2
Principal Distribution Amount for the applicable distribution date, and
(D) the certificate principal balance of the Class M-3
certificates immediately prior to the applicable distribution date
over
(2) the lesser of
(A) [___]% of the sum of the Pool Balance and amounts on deposit
in the prefunding account as of the last day of the related collection
period, and
(B) the Pool Balance as of the last day of the related
collection period minus the OC Floor.
"Class Monthly Interest Amount" for any class of certificates on any
distribution date is the amount of interest due thereon in respect of any
Interest Period at the applicable pass-through rate on the related certificate
principal balance, less such class' share of Interest Shortfalls.
"Class Principal Carryover Shortfall" means as to any class of
subordinate certificates and any distribution date, the excess, if any, of (1)
the sum of (x) the amount of the reduction in the certificate principal balance
of that class of subordinate certificates on the applicable distribution date as
provided under "--Treatment of Realized Losses" below and (y) the amount of any
reductions on prior distribution dates over (2) the amount distributed in
respect of the Class Principal Carryover Shortfall to such class of subordinate
certificates on prior distribution dates.
"Collection Period" with respect to the first distribution date, is the
period beginning on and including [Month] [Day], 20 and ending on and including
[Month] [Day], 20 (except that with respect to payments due and unpaid on or
before [Month] [Day], 20 , only collections of principal are included), and with
respect to any distribution date thereafter for collections of both interest and
principal, the period beginning on and including the second day of the calendar
month immediately preceding such distribution date and ending on and including
the first day of the calendar month of such distribution date.
"Cumulative Loss Event" means that the percentage of cumulative losses
on the mortgage loans exceeds, for the initial distribution date in each of the
distribution periods set forth below, the applicable initial percentages of the
initial Pool Balance as of the cut-off date and the amount deposited in the
prefunding account on the closing date and for each successive distribution date
in such period, the applicable percentage for the previous distribution date
plus the related monthly increment for such distribution period.
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NUMBER OF INITIAL MONTHLY
DISTRIBUTION DATES PERCENTAGES INCREMENT
37-48 [___]% [___]%
49-60 [___]% [___]%
61-72 [___]% [___]%
73 and thereafter [___]% [___]%
"Delinquency Amount" means as to any distribution date, the aggregate
principal balance of the mortgage loans that are (a) 60 or more days delinquent
or (b) 60 days or more delinquent and in bankruptcy or (c) foreclosure or REO
properties as of the last day of the related collection period.
"Delinquency Event" shall have occurred and be continuing, if at any
time, (x) the three-month rolling average of the percentage equivalent of a
fraction, the numerator of which is the Delinquency Amount and the denominator
of which is the sum of the Pool Balance and amounts on deposit in the prefunding
account as of the last day of the related collection period exceeds (y) [__]% of
the Senior Enhancement Percentage.
"Excess Interest" with respect to any distribution date, means the sum
of (a) any Excess Overcollateralization Amount and (b) the excess of (x) the
Available Funds for such distribution date over (y) the sum for such
distribution date of (A) the Class Monthly Interest Amounts for the offered
certificates, (B) any Class Interest Carryover Shortfall for the Senior
Certificates, and (C) the Aggregate Principal Amount.
"Excess Overcollateralization Amount" means as to any distribution
date, the lesser of (1) the Aggregate Principal Amount for the applicable
distribution date and (2) the excess, if any, of (x) the Overcollateralization
Amount, assuming 100% of the Aggregate Principal Amount is distributed on the
offered certificates, over (y) the Required Overcollateralization Amount.
"Interest Period" means the calendar month preceding the month in which
such distribution date occurs.
"Interest Shortfall" means as to any class of certificates and any
distribution date, the amount equal to the sum of Relief Act Shortfalls and
Prepayment Interest Shortfalls. On any distribution date, the amount of any
Interest Shortfalls will be applied to reduce the Class Monthly Interest Amount
of a class in the following order: first, to the Class C certificates in
reduction of the interest amounts payable to such class on the related
distribution date and, to the extent the amount of such Interest Shortfall
exceeds the interest due and payable to the Class C certificates on such
distribution date, thereafter to the offered certificates, pro rata, based on
the respective Class Monthly Interest Amount for each such class on such
distribution date before giving effect to the reduction in respect of any
Interest Shortfalls.
"Liquidation Proceeds" means the aggregate of any proceeds received by
the servicer during the related collection period in connection with the
liquidation of any mortgaged property securing a mortgage loan, whether through
trustee's sale, foreclosure, condemnation, taking by eminent domain or otherwise
(including any insurance proceeds to the extent not duplicative of trust
insurance proceeds).
"Net Liquidation Proceeds" means the amount equal to liquidation
proceeds less expenses incurred by the servicer in connection with the
liquidation of such mortgage loan.
"Net Rate Cap Carryover" means, as to any distribution date and the
offered certificates the sum of
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(a) the excess, if any, of the related Class Monthly Interest
Amount, calculated at the applicable pass-through rate, without regard
to the Available Funds Cap, over the Class Monthly Interest Amount for
the applicable distribution date,
(b) any Net Rate Cap Carryover remaining unpaid from prior
distribution dates and
(c) 30 days' interest on the amount in clause (b) calculated
at the applicable pass-through rate, without regard to the Available
Funds Cap.
"OC Floor" means an amount equal to [___]% of the aggregate certificate
principal balance of the offered certificates as of the closing date.
"Overcollateralization Amount" means, as of any distribution date, the
excess of (x) the sum of the Pool Balance and amounts on deposit in the
prefunding account as of the last day of the related collection period over (y)
the aggregate certificate principal balance of the offered certificates (after
taking into account all distributions of principal on the offered certificates
on such distribution date).
"Pool Balance" means, as to any distribution date, the aggregate of the
principal balances of the mortgage loans as of the end of the related collection
period.
"Prepayment Charge" means any charge paid by a mortgagor in connection
with certain partial prepayments and all prepayments in full.
"Principal Distribution Amount" means, as to any distribution date, the
lesser of (a) the aggregate certificate principal balances immediately preceding
such distribution date and (b) sum of (1) the Aggregate Principal Amount minus
the Excess Overcollateralization Amount and (2) the Subordination Increase
Amount.
"Relief Act" means the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended.
"Relief Act Shortfalls" means, as to any distribution date and any
mortgage loan group, the amount of any reduction of interest collectable on any
mortgage loan in such mortgage loan group for the related Interest Period due to
the application of the Relief Act.
"Required Overcollateralization Amount" means, as to any distribution
date (a) prior to the Stepdown Date, the product of (x) [___]% and (y) the sum
of the Pool Balance as of the cut-off date and the amount deposited in the
prefunding account on the closing date; and (b) on and after the Stepdown Date,
the greater of (1) the lesser of (x) the product of [___]% and the sum of the
Pool Balance as of the cut-off date and the amount deposited in the prefunding
account on the closing date and (y) the product of [___]% and the Pool Balance
as of the end of the related collection period and (2) the OC Floor; provided,
however, that on each distribution date during the continuance of a Trigger
Event, the Required Overcollateralization Amount will equal the Required
Overcollateralization Amount in effect as of the distribution date immediately
preceding the date on which the Trigger Event first occurred.
"Senior Enhancement Percentage" means, as to any distribution date, the
percentage equivalent of a fraction, the numerator of which is the sum of (i)
the aggregate certificate principal balance of the subordinate certificates and
(2) the Overcollateralization Amount, in each case, after taking into account
the distribution of the Principal Distribution Amount on the applicable
distribution date, and the denominator of which is the sum of the Pool Balance
and amounts on deposit in the prefunding account as of the last day of the
related collection period.
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"Senior Principal Distribution Amount" means, as to (a) any
distribution date prior to the Stepdown Date or during the continuation of a
Trigger Event, the lesser of (1) 100% of the Principal Distribution Amount and
(2) the aggregate certificate principal balance of the senior certificates, and
(b) any other distribution date, an amount equal to the lesser of (I) the
Principal Distribution Amount and (2) the excess, if any, of (x) the aggregate
certificate principal balance of the senior certificates immediately prior to
the applicable distribution date over (y) the lesser of (A) [_______]% of the
Pool Balance and (B) the Pool Balance as of the last day of the related
collection period minus the OC Floor.
"Stepdown Date" means the later to occur of (x) the earlier to occur of
(A) the distribution date in [Month] 20___ and (B;) the distribution date on
which the aggregate certificate principal balance of the senior certificates is
reduced to zero, and (y) the first distribution date on which the sum of the
Pool Balance and amounts on deposit in the prefunding account has been reduced
to [___]% of the sum of the Pool Balance as of the cut-off date and the amount
deposited in the prefunding account on the closing date.
"Subordination Deficiency" means, as to any distribution date, the
excess, if any, of (x) the Required Overcollateralization Amount for the
applicable distribution date over (y) the Overcollateralization Amount for that
distribution date after giving effect to the distribution of the Basic Principal
Amount on that distribution date (but prior to the distribution of any
Subordination Increase Amount on that distribution date).
"Subordination Increase Amount" means, as to any distribution date, the
lesser of (x) the Subordination Deficiency and (y) the Excess Interest.
"Trigger Event" means the occurrence of either a Delinquency Event
and/or a Cumulative Loss Event.
"Trust Insurance Proceeds" means the aggregate of any proceeds from or
in respect of any policy of insurance that are received during a collection
period and applied by the servicer to reduce the principal balance of the
related mortgage loan or losses with respect thereto (which proceeds will not
include any amounts applied to the restoration or repair of the related
mortgaged property or released to the related mortgagor in accordance with
applicable law, the servicer's customary servicing procedures or the terms of
the related mortgage loan).
PASS-THROUGH RATES
The pass-through rate for each class of offered certificates is set
forth on the cover page of this prospectus supplement. The pass-through rates of
the offered certificates are subject to the Available Funds Cap and will
increase by [___] basis points per annum after the clean-up call date.
CAPITALIZED INTEREST ACCOUNT
On the closing date, cash will be deposited in the capitalized interest
account, which account will be in the name of and maintained by the trustee and
will be part of the trust. The amount on deposit in the capitalized interest
account, including reinvestment income on that amount, will be used by the
trustee, on the distribution dates during and immediately following the funding
period, to fund shortfalls in the interest collections attributable to the
prefunding feature of the trust. Any amounts remaining in the capitalized
interest account and not needed for this purpose will be paid to the sponsor and
will not thereafter be available for distribution to the holders of the offered
certificates.
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Amounts on deposit in the capitalized interest account will be invested
in permitted investments as set forth in the pooling and servicing agreement.
The capitalized interest account will not be an asset of any REMIC.
PREFUNDING ACCOUNT
On the closing date, approximately $[_____] will be deposited into the
prefunding account of which approximately $[_______] will be allocated to Group
I and approximately $[_______] will be allocated to Group II. All mortgage loans
purchased by the trust through application of amounts on deposit in the
prefunding account are referred to in this prospectus supplement as the
subsequent mortgage loans. The prefunding account deposit may be increased by an
amount equal to the aggregate of the principal balances of any mortgage loans
removed from the mortgage pool prior to the closing date. During the period,
called the funding period, from the closing date until the earlier of (i) the
date on which the amount on deposit in the prefunding account is reduced to zero
and (ii) [Month] [Day], 20___, the amount on deposit in the prefunding account
will be allocated for purchase of subsequent mortgage loans from the sponsor in
accordance with the applicable provisions of the pooling and servicing
agreement. Subsequent mortgage loans purchased by and added to the trust on any
subsequent transfer date must satisfy the criteria set forth in the pooling and
servicing agreement. We refer you to "Description of the Mortgage Loans --
Conveyance of subsequent mortgage loans," herein.
On the distribution date in [Month] 20___, the portion of the
prefunding account deposit that has not been applied to purchase subsequent
mortgage loans during the funding period will be applied as a principal
prepayment to the holders of the applicable senior certificates. Although it is
intended that the principal amount of subsequent mortgage loans sold to the
trust will require application of substantially all of the prefunding account
deposit and it is not currently anticipated that there will be any material
amount of principal distributions from amounts remaining on deposit in the
prefunding account, no assurance can be given that such a distribution will not
occur on the Distribution Date in [Month] 20___. In any event, it is unlikely
that the sponsor will be able to deliver subsequent mortgage loans with
aggregate principal balances that exactly equal the prefunding account deposit.
Amounts on deposit in the prefunding account will be invested in
permitted investments. Any investment earnings on funds in the prefunding
account will be transferred to the sponsor. The prefunding account will not be
an asset of any REMIC.
NET RATE CAP FUND
The pooling and servicing agreement provides for a reserve fund, called
the net rate cap fund, which is held by the trustee on behalf of the holders of
the offered certificates. To the extent amounts on deposit are sufficient,
holders of the applicable certificates will be entitled to receive payments from
the fund equal to any Net Rate Cap Carryover. The amount required to be
deposited in the fund on any distribution date will equal any Net Rate Cap
Carryover for such distribution date or, if no Net Rate Cap Carryover is payable
on such distribution date, an amount such that when added to other amounts
already on deposit in the fund, the aggregate amount on deposit therein is equal
to $[________]. Any investment earnings on amounts on deposit in the fund will
be paid to (and for the benefit of) the holders of the Class C certificates and
will not be available to pay any Net Rate Cap Carryover. The net rate cap fund
will not be included as an asset of any REMIC created pursuant to the pooling
and servicing agreement. The applicable certificates will be entitled to receive
any related Net Rate Cap Carryover on the distribution date on which it arises
or on a subsequent distribution date from and to the extent of amounts otherwise
distributable to the Class C certificateholders. Net Rate Cap Carryover amounts
will not be paid after the date on which the trust is terminated by optional
termination or otherwise. The ratings assigned to the offered certificates do
not address the likelihood of the payment of any Net Rate Cap Carryover.
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REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution to certificateholders, the trustee
will make available on its web site, located at http://www.[________].com, the
following information:
(a) the amount of the distribution with respect to each class
of certificates, based on a certificate in the original principal
amount of $1,000;
(b) the amount of such distribution allocable to principal on
the related mortgage loans in each mortgage loan group, separately
identifying the aggregate amount of any prepayment or other recoveries
of principal included therein;
(c) the amount of such distribution allocable to interest on
the related mortgage loans in each mortgage loan group, based on a
certificate in the original principal amount of $1,000;
(d) the class monthly interest and the class interest
carryover shortfall for each class of certificates;
(e) the principal amount of each class of certificates, based
on a certificate in the original principal amount of $1,000 that will
be outstanding after giving effect to any payment of principal on such
distribution date;
(f) the aggregate of the principal balances of all mortgage
loans and the aggregate of the principal balances of the mortgage loans
in each mortgage loan group after giving effect to any payment of
principal on such distribution date;
(g) based upon information furnished by the sponsor, such
information as may be required by Section 6049(d)(7)(C) of the Internal
Revenue Code and the regulations promulgated thereunder to assist
certificateholders in computing their market discount;
(h) the total of all amounts paid by the sponsor or the
servicer during such collection period in connection with purchases or
repurchases from the trust of mortgage loans and substitutions for
mortgage loans of qualified replacement mortgages with respect to each
mortgage loan group;
(i) the weighted average mortgage interest rate of the
mortgage loans in each mortgage loan group;
(j) whether a delinquency event or cumulative loss event under
the pooling and servicing agreement have occurred;
(k) the overcollateralization amount and required
overcollateralization amount;
(1) the certificate principal balance of each class of
certificates then outstanding after giving effect to all payments of
principal on such distribution date;
(m) with respect to each mortgage loan group, the number of
mortgage loans in each mortgage loan group and the aggregate of their
principal balances as a percentage of the applicable group balance,
that as of the end of the immediately preceding calendar month are
(i) 30 to 59 days delinquent,
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(ii) 60 to 89 days delinquent,
(iii) 90 or more days delinquent,
(iv) the subject of bankruptcy proceedings, to the
actual knowledge of the servicer,
(v) in foreclosure, and
(vi) as to which the related mortgaged property is
REO property;
(n) the amount of any Net Rate Cap Carryover paid and
remaining unpaid as of such distribution date; and
(o) with respect to any distribution date during or
immediately following the funding period, all amounts remaining in the
prefunding account and capitalized interest account.
Assistance in using the Trustee's web site can be obtained by calling
the Trustee's investor relations desk at (###)-###-####. The obligation of the
Trustee to provide information to the certificateholders is conditioned upon
such information being received from the Servicer.
Within 90 days after the end of each calendar year the trustee will
mail to each person who at any time during such calendar year was a holder of
record of a certificate the information set forth in clauses (a) through (o)
above, aggregated for such calendar year or, in the case of each person who was
a holder of record of a certificate for a portion of such calendar year, setting
forth such information for each month thereof.
VOTING RIGHTS
Each certificateholder of a class will have a voting interest equal to
the product of the voting interest to which such class is collectively entitled
and the certificateholder's percentage interest in such class. [_____]% of all
voting interests will be allocated to each of the Class C, Class P and Class R
certificates. The remaining voting interests will be allocated to the classes of
offered certificates in proportion to their respective certificate principal
balances on any determination date.
BOOK-ENTRY REGISTRATION OF OFFERED CERTIFICATES
The offered certificates initially will be issued as book-entry
certificates. The book-entry certificates will be issued in one or more
certificates which equal the aggregate principal balance of the offered
certificates and will initially be registered in the name of Cede & Co.,
referred to as Cede, the nominee of the Depository Trust Company, referred to as
DTC. Persons acquiring beneficial ownership interests in the offered
certificates will hold their certificates through DTC in the United States, or
upon request Clearstream, Luxembourg or the Euroclear System, referred to as
Euroclear, in Europe, if they are participants of these systems, or indirectly
through organizations which are participants in these systems. Clearstream,
Luxembourg and Euroclear will hold omnibus positions on behalf of their
participants through customers' securities accounts in Clearstream, Luxembourg's
and Euroclear's names on the books of their respective depositaries which in
turn will hold positions in customers' securities accounts in the depositaries'
names on the books of DTC. [Depositary #1], referred to as [Depositary #1], will
act as depositary for Clearstream, Luxembourg and [Depositary #2], referred to
as [Depositary #2], will act as depositary for Euroclear. Collectively, these
entities are referred to as the European depositaries.
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Investors may hold beneficial interests in the book-entry certificates
in minimum denominations representing certificate principal balances of $25,000
and in integral multiples of $1,000 in excess of $25,000. One certificate of
each class of offered certificates may be issued in a different principal amount
to accommodate the remainder of the initial principal amount of the certificates
of the class. Unless and until definitive certificates are issued, it is
anticipated that the only certificateholder of the offered certificates will be
Cede & Co., as nominee of DTC. Certificate owners will not be certificateholders
as that term is used in the pooling and servicing agreement. Certificate owners
are only permitted to exercise their rights indirectly through participants and
DTC. For a description of the features of the book-entry registration system,
see "Description of the Securities -- Form of Securities -- Book-Entry
Registration" in the prospectus. For information with respect to tax
documentation procedures relating to the certificates, see "Global Clearance.
Settlement and Tax Documentation Procedures -- U.S. Federal Income Tax
Documentation Requirements" in Annex B to this prospectus supplement.
Neither the seller, the servicer nor 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 certificates held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to beneficial ownership interests.
TERMINATION; RETIREMENT OF THE CERTIFICATES
The trust will terminate upon the earlier to occur of
(a) the final payment or other liquidation of the principal
balance of the last mortgage loan remaining in the trust or
(b) the optional purchase of the mortgage loans by the
servicer, as described below.
Written notice of termination of the pooling and servicing agreement
will be given to each certificateholder, and the final distribution will be made
only upon surrender and cancellation of the certificates at an office or agency
appointed by the trustee which will be specified in the notice of termination.
Subject to provisions in the pooling and servicing agreement concerning
adopting a plan of complete liquidation, the servicer may, at its option,
terminate the pooling and servicing agreement on any distribution date during
which the aggregate outstanding principal balance of the mortgage loans is less
than [__]% of the sum of the principal balances of the initial mortgage loans as
of the cut-off date and the amount deposited in the prefunding account on the
closing date, called the clean-up call date, by purchasing all of the
outstanding mortgage loans and REO properties at a price equal to the sum of the
principal balance of the outstanding mortgage loans, plus the fair market value
of any REO property included in the trust, plus accrued and unpaid interest on
the related mortgage loans at the weighted average of the loan rates through the
end of the related collection period and any unreimbursed servicing advances
made in respect of such mortgage loans less any payments of principal and
interest received during the related collection period in respect of such
mortgage loans. Any resulting losses will be allocated to the subordinate
certificates in reverse order of payment priority.
The pooling and servicing agreement will provide that notice of any
termination, specifying the final distribution date upon which the
certificateholders may surrender their certificates to the trustee for payment
of the final distribution and cancellation, will be given promptly by the
trustee by letter to certificateholders specifying
(a) the distribution date for the final distribution,
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(b) the amount of any such final distribution and
(c) that the final distribution will be made only upon
presentation and surrender of the certificates at the office or agency
of the trustee therein specified.
THE TRUSTEE
[Trustee] will be the trustee under the pooling and servicing
agreement. The trustee has its principal office at [Address], Attn: [_____]. The
trustee has designated the offices of its agent, DTC Transfer Agent Services,
located at 55 Water Street, Jeanette Park Entrance, New York, New York 10041 for
purposes of surrendering and exchanging certificates. The pooling and servicing
agreement will provide that the trustee is entitled to the trustee fee and
reimbursement of expenses. The trustee may resign at any time, in which event
the servicer will be obligated to appoint a successor trustee, The servicer may
also remove the trustee if the trustee ceases to be eligible to continue as such
under the pooling and servicing agreement, if the trustee fails to fulfill its
obligations in any material respect under the pooling and servicing agreement or
if the trustee becomes insolvent. Upon becoming aware of such circumstances, the
servicer will be obligated to appoint a successor trustee. Any resignation or
removal of the trustee and appointment of a successor trustee will not become
effective until acceptance of the appointment by the successor trustee.
S-34
CREDIT ENHANCEMENT
The credit enhancement provided for the benefit of the offered
certificateholders consists of the application of excess interest, the
overcollateralization features of the trust and the subordination of
distributions on the classes of certificates with lower payment priorities.
TREATMENT OF REALIZED LOSSES
The aggregate principal amount includes the net liquidation proceeds in
respect of principal received upon liquidation of a liquidated mortgage loan, If
the portion of net liquidation proceeds allocable to principal are less than the
unpaid principal balance of the related liquidated mortgage loan, the pool
balance will decline more than the aggregate class principal balance of the
offered certificates. If the difference is not covered by the
overcollateralization amount or the application of excess interest, the class of
subordinate certificates then outstanding with the lowest relative payment
priority will bear the loss.
If, following the distributions on a distribution date, the aggregate
class principal balance of the offered certificates exceeds the sum of the pool
balance and the amounts on deposit in the prefunding account, that is, the
certificates are undercollateralized, the class principal balance of the class
of subordinate certificates then outstanding with the lowest relative payment
priority will be reduced by the amount of the excess. Any reduction will
constitute a class principal carryover shortfall for the applicable class.
Although a class principal carryover shortfall will not accrue interest, this
amount may be paid on a future distribution date to the extent funds are
available for distributions as provided above under "--Distribution Priorities."
The pooling and servicing agreement does not permit the allocation of
realized losses to the senior certificates or the retained certificates.
Investors in the senior certificates should note that although realized losses
cannot be allocated to the senior certificates, under certain loss scenarios
there will not be enough principal and interest on the mortgage loans to pay the
senior certificates all interest and principal amounts to which they are then
entitled.
For all purposes of this prospectus supplement, the Class B
certificates will have the lowest payment priority of any class of subordinate
certificates.
OVERCOLLATERALIZATION AND APPLICATION OF EXCESS INTEREST
The weighted average net mortgage interest rate for the mortgage loans
is generally expected to be higher than the weighted average of the pass-through
rates on the offered certificates, In addition, to the extent that there is
overcollateralization, these mortgage loans will be generating still further
excess interest relative to the pass-through rates on the offered certificates.
The overcollateralization mechanics of the trust result in a limited
acceleration of the payment of the offered certificates relative to the
amortization of the mortgage loans. The accelerated amortization will cause the
aggregate of the related principal balances of the certificates to amortize more
rapidly than the principal balances of the mortgage loans, increasing the amount
of overcollateralization. Once the required overcollateralization amount is
reached, such accelerated amortization feature will cease, unless necessary to
maintain the required overcollateralization amount. On any distribution date on
which the required overcollateralization amount is reached, the excess interest
will not be passed through as a distribution of principal to the holders of the
offered certificates on such distribution date, but will be distributed to the
retained certificateholders.
The pooling and servicing agreement provides that, based on the
delinquency and loss experience of the mortgage loans, the required
overcollateralization amount may increase or decrease over time. An
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increase would result in a temporary period of accelerated amortization of the
offered certificates to increase the actual level of overcollateralization to
the required overcollateralization amount: a decrease would result in a
temporary period of decelerated amortization to reduce the actual level of
overcollateralization to the required overcollateralization amount.
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THE MORTGAGE LOANS
The mortgage loans will include:
(a) the mortgage loans identified as of [Month] [Day], 20__
and described in this prospectus supplement, called the statistic
calculation loans;
(b) additional fixed and hybrid loans to be delivered on the
closing date, referred to as the additional mortgage loans, and
together with the statistic calculation loans, called the initial
mortgage loans; and
(c) additional mortgage loans to he purchased by the trust
from the seller from time to time on or prior to [Month] [Day], 20__,
called the subsequent mortgage loans, and together with the initial
mortgage loans, called the mortgage loans.
The following brief description of the statistic calculation loans is
based on the terms of the statistic calculation loans, including their
respective principal balances as of the statistic calculation date, and each
mortgage loan group as of the statistic calculation date. Certain mortgage loans
may be removed, prior to the closing date, from the mortgage pool and each
mortgage loan group and other mortgage loans may be substituted therefor. As a
result, the statistical information presented in this prospectus supplement
regarding the statistic calculation loans and each mortgage loan group may vary
in certain limited respects but will not vary in any material respects from
comparable information based on the actual composition of the mortgage pool and
each mortgage loan group at the closing date.
None of the mortgage loans is or will be insured or guaranteed by the
sponsor, the depositor, the servicer, the trustee, any originator or any of
their respective affiliates, or by any governmental agency or other person.
None of the mortgage loans is subject to the Home Ownership and Equity
Protection Act of 1994 or any comparable state law.
A schedule of the initial mortgage loans included in each mortgage loan
group as of the closing date will be attached to the pooling and servicing
agreement delivered to the trustee upon delivery of the certificates. A current
report on Form 8-K containing a description of the mortgage loans included in
the final mortgage pool as of the end of the funding period in a form comparable
to the description of the statistic calculation loans contained in "Annex A:
Description of the Mortgage Pool" will be filed with the Securities and Exchange
Commission within 15 days after the end of the funding period.
Each mortgage loan in the trust will be assigned to Group I or Group
II. All of the mortgage loans in Group I have agency conforming balances while
the mortgage loans in Group II have both agency conforming and non-conforming
balances. Each mortgage loan in Group I and in Group II bears interest at either
a fixed rate or at an initial fixed rate term at origination followed by an
adjustable rate term. All statistic calculation loans are secured by first
liens.
Certain mortgage loans will provide for the payment of a charge if the
principal thereof is paid prior to its stated maturity date. No mortgage loan
will impose a prepayment charge for a term in excess of five years and no
mortgage loan in Group I originated on or after [Month] [Day], 20__ will impose
a prepayment charge for a term in excess of three years. Such charge, to the
extent received, however, will not be available to the trust but will instead be
paid to the holders of the Class P certificates.
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In connection with the assignment of the mortgage loans to the trust,
the sponsor will represent and warrant that, among other things, as of the
cut-off date, no mortgage loan had two or more monthly payments past due.
However, you should be aware that approximately [____]% and [____]%, by
aggregate principal balance, of the statistic calculation loans in Group I and
Group II, respectively, had a first monthly payment due before [Month] [Day],
20__, and only such mortgage loans could have had two or more monthly payments
past due as of the cut-off date. None of the statistic calculation loans in each
of Group I and Group II, respectively, were 30 days delinquent in payment as of
the statistic calculation date. No statistic calculation loan has a
loan-to-value ratio at origination of more than 100%.
Approximately [___]%, [___]% and [___]%, by principal balance, of the
statistic calculation loans in Group I and approximately [___]%, [___]% and
[___]%, by principal balance, of the statistic calculation loans in Group II
change from having a fixed rate of interest to having an adjustable rate of
interest [___], [___] and [___] months after origination, respectively. We refer
to these loans, collectively, as hybrid loans. The weighted average month to
next rate adjustment for the hybrid loans in Group I and Group II, as of the
statistic calculation date, is approximately [___] months and [___] months,
respectively. The interest rate, also referred to as the loan rate, borne by
each hybrid loan during its adjustable rate term, which we refer to as an ARM,
is subject to adjustment on the date set forth in the related promissory note,
each called a mortgage note, and at regular intervals thereafter, each referred
to as a change date, to equal the sum of (a) the applicable loan index and (b)
the number of basis points set forth in that mortgage note, called the gross
margin, subject to rounding and to the effects of the applicable periodic cap,
the applicable lifetime cap and the applicable lifetime floor. The periodic cap
limits changes in the loan rate for each ARM on each change date, The lifetime
cap is the maximum loan rate that may be borne by an ARM at any point. The
lifetime floor is the minimum loan rate that may be borne by an ARM at any
point. The periodic cap for all of the ARMs, subsequent to the first change
date, is [___]%. However, the periodic cap for the initial change date for the
hybrid loans generally is [___]%.
For all of the statistic calculation mortgage loans that are ARMs, the
loan index is the London interbank offered rate for six-month United States
dollar deposits, and the change dates occur every six months after the initial
change date. The reference for each applicable loan index and the date prior to
a change date as of which the loan index is determined is set forth in the
related mortgage note.
CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS
On the closing date, cash in an amount not to exceed approximately
$[________], called the prefunding account deposit, will be deposited into the
prefunding account. Amounts on deposit in the prefunding account will be
withdrawn to purchase subsequent mortgage loans from the sponsor during the
funding period from the closing date until the closing of business on [Month]
[Day], 20__.
The purchase price for the subsequent mortgage loans will equal the
outstanding principal balances of those mortgage loans as of the related cut-off
dates and will be paid by withdrawal of funds on deposit in the prefunding
account. The subsequent mortgage loans may have characteristics which differ
from the initial mortgage loans. Accordingly, the statistical characteristics of
the mortgage loans in the trust will vary upon the acquisition of subsequent
mortgage loans, but will not vary in any material respects from the
characteristic of the statistic calculation loans.
The obligation of the trust to purchase subsequent mortgage loans on
any date during the funding period is subject to the following requirements in
addition to other requirements set forth in the pooling and servicing agreement:
o the subsequent mortgage loan may not be 30 or more days
contractually delinquent as of the related cut-off date;
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o the remaining term to stated maturity of the subsequent mortgage
loan will not exceed 30 years;
o each subsequent mortgage loan will be secured by a mortgage in a
first lien position;
o the subsequent mortgage loan will be underwritten or
re-underwritten in accordance with the sponsor's underwriting
criteria;
o the addition of the subsequent mortgage loans will not result in
a withdrawal or downgrading of the ratings assigned to the
offered certificates;
o the subsequent mortgage loan will not have a loan rate less than
[____]%; and
o following the delivery of such subsequent mortgage loans, the
mortgage loans in each loan group (including the subsequent
mortgage loans) (a) will have a related weighted average loan
rate not materially different from the weighted average loan rate
of the statistic calculation loans in such loan group, (b) will
each have a principal balance not in excess of $[____] in the
case of Group 1 and $[____] in the case of Group II and (c) will
satisfy any additional requirements set forth in the pooling and
servicing agreement.
ASSIGNMENT OF MORTGAGE LOANS
On the closing date with respect to the initial mortgage loans and on
each subsequent transfer date with respect to the subsequent mortgage loans, the
sponsor will transfer to the depositor and the depositor will contemporaneously
transfer to the trust all of their respective right, title and interest in and
to each mortgage loan, the related mortgage note, mortgages and other related
documents, collectively referred to as the related documents, including all
payments received after the related cut-off date other than payments of interest
on the initial mortgage loans due on or before [Month] [Day], 20__. The trustee,
concurrently with the initial transfer, will deliver the certificates to the
depositor. Each mortgage loan transferred to the trust will be identified on a
mortgage loan schedule delivered to the trustee pursuant to the pooling and
servicing agreement. This schedule will include information as to the principal
balance of each mortgage loan as of the related cut-off date, as well as
information with respect to the loan rate.
The pooling and servicing agreement will require that, within the time
period specified in the agreement, the depositor will deliver or cause to be
delivered to the trustee the mortgage loans endorsed to the trustee and the
related documents. In lieu of delivery of original mortgages, if the original is
not available, the depositor may deliver or cause to be delivered true and
correct copies of the original mortgages.
Under the terms of the pooling and servicing agreement, the depositor,
promptly and in no event later than 30 days after the closing date with respect
to the initial mortgage loans and promptly but not later than 30 days after each
subsequent transfer date with respect to the related subsequent mortgage loans,
will prepare and record or cause to be prepared and recorded assignments of the
mortgages related to each mortgage loan in favor of the trustee, unless opinions
of counsel satisfactory to the rating agencies are delivered to the trustee to
the effect that recordation of the assignments is not required in the relevant
jurisdictions to protect the interests of the trustee in the mortgage loans. If
the recording information with respect to any assignment of mortgage is
unavailable within 30 days of the closing date or subsequent transfer date, as
the case may be, the assignment will be prepared and recorded within 30 days
after receipt of this information, but in no event later than eight months after
the closing date or subsequent transfer date, as the case may be.
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Within 45 days of the closing date with respect to the initial mortgage
loans and each subsequent transfer date with respect to the subsequent mortgage
loans, the trustee will review the mortgage loans and the related documents
pursuant to the pooling and servicing agreement and if any mortgage loan or
related document is found to be missing, mutilated, torn, defaced or otherwise
does not conform to the requirements of the pooling and servicing agreement in
any material respect and such defect is not cured within 60 days following
notification of such defect to the depositor and the sponsor by the trustee, the
sponsor will be obligated to either (a) substitute for the mortgage loan a
qualified replacement mortgage loan; however, this substitution is permitted
only within two years of the closing date and may not be made unless an opinion
of counsel is provided to the effect that the substitution will not disqualify
any REMIC as a REMIC or result in a prohibited transaction tax under the Code or
(b) purchase the mortgage loan at a price, called the purchase price, equal to
the outstanding principal balance of the mortgage loan as of the date of
purchase, plus unpaid interest on the mortgage loan from the date interest was
last paid or with respect to which interest was advanced and not reimbursed
through the end of the calendar month in which the purchase occurred, computed
at the loan rate, net of the servicing fee if the sponsor is the servicer, plus
if the sponsor is not the servicer the amount of any unreimbursed servicing
advances made by the servicer. The purchase price will be deposited in the
collection account on or prior to the next succeeding deposit date after the
obligation arises. The obligation of the sponsor to repurchase or substitute for
a defective mortgage loan is the sole remedy regarding any defects in the
mortgage loans and related documents available to the trustee, the depositor or
the certificateholders,
The sponsor will make representations and warranties as to the accuracy
in all material respects of information furnished to the trustee with respect to
each mortgage loan. In addition, the sponsor will represent and warrant, on the
closing date, among other things: (a) that each mortgage loan, at its
origination, complied in all material respects with applicable state and federal
laws; (b) that each mortgage is a valid lien of the applicable priority; (c)
that, as of the closing date, no mortgage loan had two or more monthly payments
past due; (d) that each mortgaged property consists of a one-to four-family
residential property or unit in a condominium or planned unit development; (e)
that the sponsor had good title to each mortgage loan prior to the sale and
assignment by the sponsor; and (f) that no proceeds from any mortgage loan were
used to finance single-premium credit, life and disability insurance policies.
Upon discovery of a breach of any representation and warranty which materially
and adversely affects the interests of the certificateholders in the related
mortgage loan and related documents, the sponsor will have a period of 60 days
after discovery or notice of the breach to effect a cure. If the breach cannot
be cured within the 60-day period, the sponsor will be obligated to (x)
substitute for the mortgage loan a qualified replacement mortgage loan or (y)
purchase the mortgage loan from the trust. The same procedure and limitations
that are set forth above for the substitution or purchase of defective mortgage
loans as a result of deficient documentation relating to the defective mortgage
loans will apply to the substitution or purchase of a mortgage loan as a result
of a breach of a representation or warranty in the pooling and servicing
agreement that materially and adversely affects the interests of the
certificateholders.
OPTIONAL PURCHASE OF DEFAULTED MORTGAGE LOANS
The servicer additionally has the option to purchase from the trust any
mortgage loan delinquent in three or more consecutive monthly payments, at the
purchase price set forth above for the purchase of defective mortgage loans;
provided, however, that the aggregate of the principal balances of the mortgage
loans so purchased by the servicer may not exceed [__]% of the sum of the
cut-off date pool balance and the amounts on deposit in the prefunding account
on the closing date and such mortgage loans may be purchased only in the order
of the most delinquent to the least delinquent. We refer you to "The Pooling and
Servicing Agreement -- Realization upon defaulted mortgage loans" in the
Prospectus.
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PAYMENTS ON MORTGAGE LOANS; DEPOSITS TO COLLECTION ACCOUNT AND CERTIFICATE
ACCOUNT
The servicer will establish and maintain in the name of the trustee a
separate collection account for the benefit of the holders of the certificates.
The collection account will be an eligible account meeting the criteria
specified in the pooling and servicing agreement. Upon receipt by the servicer
of amounts in respect of the mortgage loans, excluding amounts representing the
servicing fee, reimbursement for certain monthly advances, servicer advances and
any other expenses incurred by it for which it is entitled to reimbursement
under the pooling and servicing agreement, the servicer will deposit these
amounts in the collection account. Amounts so deposited may be invested in
permitted investments, as described in the pooling and servicing agreement, that
meet the criteria of the rating agencies as being consistent with their then
current ratings of the offered certificates. Investment earnings from amounts on
deposit in the collection account will not be part of Available Funds.
The trustee will establish a certificate account. Three days prior to
each distribution date, which date is called the deposit date, the servicer is
required to deposit into the certificate account the Available Funds for each
mortgage loan group and the related collection period. The certificate account
will be an eligible account. Amounts on deposit in the certificate account may
be invested in permitted investments maturing on or before the business day
prior to the related distribution date. Investment earnings from amounts on
deposit in the distribution account will not be part of Available Funds.
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ADDITIONAL INFORMATION
The description in this prospectus supplement of the Mortgage Pools and
the Mortgaged Properties is based upon each Mortgage Pool as constituted at the
close of business on the Cut-off Date, as adjusted for Scheduled Payments due on
or before that date. A Current Report on Form 8-K will be filed, together with
the Pooling and Servicing Agreement and certain other transaction documents,
with the Securities and Exchange Commission after the initial issuance of the
Certificates. In the event that Mortgage Loans are removed from or added to the
Trust, such removal or addition, to the extent material, will be noted in the
Current Report on Form 8-K.
Pursuant to the Pooling and Servicing Agreement, the Trustee will
prepare a monthly statement to Certificateholders containing certain information
regarding the Certificates and the Mortgage Pools. The Trustee may make
available each month, to any interested party, the monthly statement to
Certificateholders via the Trustee's website. Assistance in using the website
can be obtained by calling the Trustee's customer service desk at (###)
###-####. Parties that are unable to use the above option are entitled to have a
paper copy mailed to them via first class by notifying the Trustee at [TRUSTEE'S
STREET ADDRESS], [CITY], [STATE] [ZIP CODE], Attention: Aames Mortgage Trust
20___-___. The Trustee will have the right to change the way such reports are
paid in order to make such payments more convenient and/or more accessible, and
the Trustee will provide timely and adequate notification to such parties
regarding any such changes.
THE SELLER
The mortgage loans will be sold to the depositor by Aames Capital
Corporation ("ACC"). ACC is a California corporation and a national
mortgage-banking company, which together with its parent Aames Financial
Corporation and its sister corporation Aames Funding Corporation are focused
primarily on originating subprime residential mortgage loans through both
wholesale and retail channels under the name "Aames Home Loan." ACC, Aames
Financial Corporation and Aames Funding Corporation are each subsidiaries of
Aames Investment Corporation ("Aames Investment"), their corporate parent. Aames
Investment's corporate headquarters are located at 350 S. Grand Avenue, 43rd
Floor, Los Angeles, CA 90071 and its telephone number is (323) 210-5000. Aames
Investment has elected to be taxed as a real estate investment trust (a "REIT").
ACC, Aames Financial Corporation and Aames Funding Corporation are each taxable
REIT subsidiaries of Aames Investment.
UNDERWRITING OF MORTGAGE LOANS
Mortgage loans originated by ACC and its affiliated originators have
been underwritten in accordance with standard guidelines developed by ACC and
the related affiliated originator, as described in the prospectus. Mortgage
loans originated by unaffiliated originators are re-underwritten in accordance
with ACC's guidelines. We refer you to "THE ORIGINATORS--Underwriting
Guidelines" in the prospectus.
EVENTS RELATED TO PRIOR SECURITIZATIONS
In the past, and most recently in [_____] 2005, the ratings of certain
mortgage pass-through securities (including certain investment grade securities)
issued by trusts containing mortgage loans that were originated or purchased by
ACC or its affiliates have been downgraded by the rating agencies that issued
ratings on the mortgage-pass through securities at the time of issuance. Other
mortgage pass-through securities issued by such trusts may also be the subject
of ratings actions by a rating agency.
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See the discussion below under "The Servicer--Mortgage Loan Delinquency
and Foreclosure Experience" regarding loss triggers related to securitizations
for which ACC acts as servicer and which include mortgage loans originated or
purchased by ACC.
THE MASTER SERVICER
The information in this section has been provided by [MASTER SERVICER].
("[MASTER SERVICER]" or the "Master Servicer"), and none of the Depositor, the
Trustee, the Seller, the Underwriters, the Servicer or any of their respective
affiliates has made or will make any representation or warranty as to the
accuracy or completeness of this information.
[MASTER SERVICER] is a national banking association, with its master
servicing offices located at [STREET ADDRESS], [CITY], [STATE] [ZIP CODE].
[MASTER SERVICER] is engaged in the business of master servicing single family
residential mortgage loans secured by properties located in all 50 states and
the District of Columbia. [MASTER SERVICER] is one of the banking subsidiaries
of [PARENT COMPANY].
THE SERVICER
The information in this section has been provided by the Servicer and
none of the Depositor, the Trustee, the Underwriters, the Master Servicer or any
of their respective affiliates has made or will make any representation or
warranty as to the accuracy or completeness of this information.
ACC (also, the "Servicer"), is a California corporation and, through
Aames Funding Corporation, a national mortgage-banking company focused primarily
on originating, selling and servicing subprime residential mortgage loans
through both wholesale and retail channels under the name "Aames Home Loan."
ACC's corporate headquarters are located at 350 S. Grand Avenue, 43rd Floor, Los
Angeles, CA 90071 and its telephone number is (323) 210-5000.
As of March 31, 2005, ACC's total servicing portfolio was $3.7 billion,
all of which was serviced in-house. ACC's servicing portfolio consists mainly of
loans held for investment and loans serviced on an interim basis, including
loans held for sale and loans sold to others and subserviced on an interim
basis. To a lesser extent, ACC's servicing portfolio includes mortgage loans
securitized prior to 2000 for which ACC retained servicing, and loans sold to
others and subserviced on a long-term basis. ACC's servicing portfolio included
mortgage loans held for investment of $2.9 billion at March 31, 2005. ACC
subserviced $119.9 million of mortgage loans for others at March 31, 2005. ACC's
portfolio of mortgage loans in securitization trusts was $106.5 million at March
31, 2005. The servicing portfolio at March 31, 2005 also included $625.2 million
of loans serviced on an interim basis. Loans serviced on an interim basis
include loans held for sale and loans sold where servicing has not yet been
transferred. ACC currently has in place an experienced subprime mortgage loan
servicing team and a highly scalable servicing platform. ACC has approximately
91 servicing employees.
COLLECTIONS, DELINQUENCIES AND FORECLOSURE
Servicing by ACC includes collecting and remitting loan payments,
accounting for principal and interest, contacting delinquent borrowers, managing
borrower defaults and liquidating foreclosed properties.
ACC sends borrowers a monthly billing statement approximately 10 days
prior to the monthly payment due date. Although borrowers generally make loan
payments within 10 to 15 days after the due date (the "grace period"), if a
borrower fails to pay the monthly payment within this grace period, ACC
commences collection efforts by notifying the borrower of the delinquency. In
the case of borrowers in the
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"C" through "D" credit grades or with a poor payment history with ACC,
collection efforts begin immediately after the due date. ACC continues contact
with the borrower to determine the cause of the delinquency and to obtain a
commitment to cure the delinquency at the earliest possible time.
As a general matter, if efforts to obtain payment have not been
successful, a pre-foreclosure notice will be sent to the borrower immediately
after the due date of the next subsequently scheduled installment (five days
after the initial due date for "C" through "D" credit grades), providing 30
days' notice of impending foreclosure action. During the 30-day notice period,
collection efforts continue and ACC evaluates various legal options and remedies
to protect the value of the loan, including arranging for extended repayment
terms, accepting a deed-in-lieu of foreclosure, entering into a short sale (a
sale for less than the outstanding principal amount) or commencing foreclosure
proceedings. If no substantial progress has been made in collecting delinquent
payments from the borrower, foreclosure proceedings will begin. Generally, ACC
will have commenced foreclosure proceedings when a loan is 60 to 100 days
delinquent, depending upon credit grade, other credit considerations or borrower
bankruptcy status.
Servicing and collection practices change over time in accordance with,
among other things, ACC's business judgment, changes in portfolio performance
and applicable laws and regulations.
MORTGAGE LOAN DELINQUENCY AND FORECLOSURE EXPERIENCE
The following table sets forth delinquency, foreclosure and loss
information of ACC's servicing portfolio included in ACC's servicing portfolio
as of or for the periods indicated. Certain of the information concerning the
delinquency, foreclosure and loss information relates to home equity loans
serviced by affiliates of ACC, including loans securitized or sold and loans
sold to others. Such information also includes delinquency, foreclosure and loss
information of home equity loans originated by affiliates of ACC or purchased by
the Seller or affiliates of Seller and, in each case, serviced by or on behalf
of Seller as of the end of the period indicated.
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AT OR DURING
SIX MONTHS
THREE MONTHS ENDED
ENDED MARCH 31, DECEMBER 31, FISCAL YEAR ENDED JUNE 30,
----------------------- ----------- -------------------------------------
2005 2004 2004 2004 2003 2002
------- -------- -------- ------- ------- -------
(DOLLARS IN THOUSANDS)
Percentage of dollar amount of
delinquent loans to loans
serviced (period end)(1)(2)
One month.................. 0.5% 0.4% 0.3% 0.3% 0.7% 0.7%
Two months................. 0.3 0.2 0.2 0.2 0.3 0.5
Three or more months:
Not foreclosed(3) ...... 1.4 2.5 1.8 2.4 7.2 7.4
Foreclosed(4)........... 0.2 0.3 0.2 0.3 0.8 1.0
------- -------- -------- ------- ------- -------
Total.......................... 2.4% 3.4% 2.5% 3.2% 9.0% 9.6%
======= ======= ======= ======= ======= =======
Percentage of total dollar amount
of delinquent loans in:
Loans held for investment.. 1.1% --% 0.2% --% --% --%
Loans serviced on an interim
basis...................... 4.2 0.7 1.5 0.6 1.3 1.5
Loans subserviced for
others..................... 5.5 1.7 4.8 2.7 -- --
Loans in securitization
trusts..................... 23.2 20.3 22.5 20.7 17.4 15.7
Percentage of dollar amount of
loans foreclosed during the
period to servicing
portfolio(2)(5)............ 0.1% 0.2% 0.1% 0.5% 1.3% 2.2%
Number of loans foreclosed during
the period................. 42 61 68 180 417 780
Principal amount of foreclosed
loans during the period.... $2,351 $4,659 $3,585 $11,667 $27,703 $56,419
Number of loans liquidated during
the period................. 69 125 163 503 1,033 1,624
Net losses on liquidations during
the period(6).............. $2,104 $4,518 $6,778 $18,371 $35,669 $67,444
Percentage of annualized losses to
servicing portfolio(2)(5).. 0.3% 0.6% 0.5% 0.8% 1.6% 2.6%
Servicing portfolio at period end $3,709,833 $2,395,072 $2,843,887 $2,341,028 $1,739,632 $2,308,170
- -----------------
(1) Delinquent loans are loans for which more than one payment is due.
(2) The delinquency and foreclosure percentages are calculated on the basis of
the total dollar amount of mortgage loans serviced by ACC including loans
serviced on an interim basis.
(3) Represents loans which are in foreclosure but as to which foreclosure
proceedings have not concluded.
(4) Represents properties acquired following a foreclosure sale and still
serviced by ACC at period end.
(5) The percentages were calculated to reflect the dollar volume of loans
foreclosed or annualized losses, as the case may be, to the average dollar
amount of mortgage loans serviced by ACC and any subservicers during the
related periods indicated.
(6) Represents losses, net of gains, on properties sold through foreclosure
or other default management activities during the period indicated.
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ACC has historically experienced delinquency rates that are higher than
those prevailing in the mortgage industry due to the inclusion of lower credit
grade mortgage loans in its securitization trusts. Delinquent loans by principal
balance of the total servicing portfolio at March 31, 2005 were $89.7 million
compared to $71.0 million at December 31, 2004 and $80.7 million at March 31,
2004. At March 31, 2005, total delinquent loans in the portfolio of mortgage
loans held for investment were $32.4 million. Total delinquent loans in ACC's
portfolio of loans serviced on an interim basis were $26.0 million and $11.5
million at March 31, 2005 and December 31, 2004, respectively, and were $12.6
million at March 31, 2004. Total delinquent loans in ACC's portfolio of loans
subserviced for others were $6.6 million and $6.2 million at March 31, 2005 and
December 31, 2004, respectively and were $3.2 million at March 31, 2004.
The delinquency rate at March 31, 2005 was 2.4% compared to 2.5% at
December 31, 2004 and 3.4% at March 31, 2004. The delinquency rate at March 31,
2005 declined from the delinquency rate at December 31, 2004 due to the fact
that loans in ACC's portfolio of mortgage loans in securitization trusts, which
contains the majority of delinquent loans, became a smaller part of its total
servicing portfolio, primarily as a consequence of calls of securitization
trusts in August 2003, November 2003 and February 2005.
During the three months ended March 31, 2005, losses on loan
liquidations decreased to $2.1 million from $4.5 million during the comparable
three-month period a year ago primarily due to the decrease in the number of
loans liquidated. Substantially all of the foreclosures and liquidations handled
by ACC occur in connection with its portfolio of mortgage loans in
securitization trusts.
Because foreclosures and credit losses typically occur months or years
after a loan is originated, data relating to delinquencies, foreclosures and
credit losses as a percentage of the current portfolio can understate the risk
of future delinquencies, foreclosures or credit losses.
There can be no assurance that the delinquency, foreclosure and loss
experience with respect to any of the mortgage loans will be comparable to the
experience reflected above. Because ACC is a lender that specializes in loans
made to credit impaired borrowers, the actual rates of delinquencies,
foreclosures and losses on such mortgage loans can be higher than those
historically experienced in the mortgage lending industry in general,
particularly in periods during which the values of the related mortgaged
properties decline. In addition, the rate of delinquencies, foreclosures and
losses with respect to the mortgage loans will also be affected by, among other
things, interest rate fluctuations and general and regional economic conditions.
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SERVICING OF THE MORTGAGE LOANS
GENERAL
The Master Servicer will not be ultimately responsible for the
performance of the servicing activities by the Servicer, except as described
under "--Servicing Compensation and Payment of Expenses," "--Prepayment Interest
Shortfalls" and "--Advances" below. If the Servicer fails to fulfill its
obligations under the Pooling and Servicing Agreement, the Master Servicer is
obligated to terminate the Servicer and appoint a successor servicer as provided
in the Pooling and Servicing Agreement.
The Servicer may transfer the servicing of the related Mortgage Loans
to one or more successor servicers at any time with 30 days' notice, subject to
the conditions set forth in the Pooling and Servicing Agreement, with the prior
consent of the Master Servicer and the requirement that the Rating Agencies
confirm in writing that the transfer of servicing will not result in a
qualification, withdrawal or downgrade of the then-current ratings of any of the
Certificates.
In managing the liquidation of defaulted Mortgage Loans, the Servicer
will have sole discretion to take such action as it deems appropriate to
maximize recoveries to the Certificateholders including, without limitation,
selling defaulted Mortgage Loans and REO properties.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
As compensation for master servicing, custodial duties and
administration of the trust, the Master Servicer will be entitled to a monthly
fee (the "Master Servicing Fee") calculated at a rate of 0.0125% per annum for
each Mortgage Loan (the "Master Servicing Fee Rate") and to a portion of the
investment earnings on amounts on deposit in the account established by the
Trustee (the "Collection Account") into which the Servicer is generally required
to deposit or cause to be deposited all amounts from the Custodial Account.
The Servicer will be paid a monthly fee out of interest collections
received from the related Mortgage Loan (the "Servicing Fee") calculated at a
rate of 0.50% per annum for each Mortgage Loan (the "Servicing Fee Rate"). If
the Servicer is terminated and replaced by a successor servicer, the fee payable
to such successor servicer will in all cases not exceed the Servicing Fee. As
additional servicing compensation, the Servicer is entitled to retain (i) all
servicing related fees, including assumption fees, modification fees, ancillary
servicing fees, extension fees, non-sufficient fund fees and late payment
charges (other than Prepayment Premiums) to the extent collected from the
borrower (ii) any Prepayment Interest Excess (as defined below) and (iii) any
interest or other income earned on funds held in the Custodial Account and any
escrow accounts and other similar items described under the Pooling and
Servicing Agreement.
The Servicing Fee is subject to reduction as described below under
"--Prepayment Interest Shortfalls" below. The Servicer will pay certain expenses
incurred in connection with the servicing of the loans, including defaulted
loans. Certain of these expenses are reimbursable pursuant to the terms of the
Pooling and Servicing Agreement from Liquidation Proceeds and Insurance
Proceeds. See "The Agreements--Advances and Compensating Interest" in the
Prospectus for information regarding expenses payable by the Servicer. In
addition, the Servicer and the Master Servicer will each be entitled to
reimbursement of its expenses in connection with the restoration of REO
Property. This right of reimbursement is prior to the rights of the
Certificateholders to receive any related Insurance Proceeds or Liquidation
Proceeds. See "The Agreements--Payments on the Mortgage Loans" and "--Servicing
Compensation and Payment of Expenses" in the Prospectus.
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PREPAYMENT INTEREST SHORTFALLS
Prepayments received during a Prepayment Period will be included in
determining payments to Certificateholders on the related Payment Date. When a
borrower prepays all or a portion of a Mortgage Loan between due dates, the
borrower is required to pay interest on the amount prepaid only to the date of
prepayment rather than a full month's interest, which could result in a
Prepayment Interest Shortfall in respect of interest available for payment to
Certificateholders on the related Payment Date. "Prepayment Interest Shortfall"
means, with respect to any voluntary prepayment in full or in part by the
borrower on any Mortgage Loan that is received during the period from the first
day of the Prepayment Period through the last day of the month preceding the
Payment Date, the amount, if any, by which one month's interest at the Mortgage
Rate less the Servicing Fee Rate, in the case of the Servicer, or at the Net
Mortgage Rate, in the case of the Master Servicer, for such Mortgage Loan on the
amount of such prepayment exceeds the amount of interest received from such
borrower in respect of such prepayment. In order to mitigate the effect of any
such Prepayment Interest Shortfall, the Servicer will be required to pay the
amount of any Prepayment Interest Shortfall into the Collection Account in
respect of prepayments received during the portion of the Prepayment Period from
the sixteenth day of the calendar month preceding a Payment Date through the
last day of the calendar month preceding the related Payment Date (such amount,
the "Compensating Interest"); provided, however, that the amount of Compensating
Interest in respect of any Payment Date shall be limited to the Servicing Fee
otherwise payable for such Payment Date. To the extent that the Servicer fails
to pay required Compensating Interest in respect of any Payment Date, the Master
Servicer will be required to pay such Compensating Interest, but only to the
extent of the Master Servicing Fee for the applicable Payment Date. Conversely,
any interest received in respect of prepayments received during the portion of
the Prepayment Period from the first day of the calendar month in which the
Payment Date occurs through the fifteenth day of the calendar month in which the
Payment Date occurs will constitute "Prepayment Interest Excess," which will be
retained by the Servicer as additional servicing compensation and will not be
available to make any payments to the Certificateholders on the related Payment
Date. Any Prepayment Interest Shortfalls not covered by Compensating Interest
("Net Prepayment Interest Shortfalls") will reduce the Interest Remittance
Amount available for payment on the related Payment Date.
ADVANCES
The Servicer will be obligated to make an advance with respect to
delinquent payments of principal and interest on the Mortgage Loans, based on an
interest rate adjusted to the related Mortgage Rate less the related Servicing
Fee Rate (an "Advance"), to the extent that such Advances, in its judgment, are
reasonably recoverable from future payments and collections, insurance payments
or proceeds of liquidation of the related Mortgage Loan. The Master Servicer
will be obligated to make any required Advance if the Servicer fails in its
obligation to do so, to the extent provided in the Pooling and Servicing
Agreement. The Master Servicer and the Servicer will be entitled to recover any
Advances made by it with respect to a Mortgage Loan out of late payments thereon
or out of related liquidation and insurance proceeds or, if those amounts are
insufficient, from collections on other Mortgage Loans. Such reimbursements may
result in Realized Losses.
The purpose of making these Advances is to maintain a regular cash flow
to the Certificateholders, rather than to guarantee or insure against losses. No
party will be required to make any Advances with respect to reductions in the
amount of the monthly payments on Mortgage Loans due to reductions made by a
bankruptcy court in the amount of a Scheduled Payment owed by a borrower or a
reduction of the applicable Mortgage Rate by application of the Relief Act or
similar state laws.
The Pooling and Servicing Agreement will provide that (i) the Servicer
may enter into a facility with any person which provides that such person may
fund Advances and/or servicing advances, although
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no such facility will reduce or otherwise affect the Servicer's obligation to
fund such Advances and/or servicing advances and (ii) the Pooling and Servicing
Agreement may be amended by the parties thereto without the consent of the
Certificateholders as necessary or appropriate to effect the terms of such a
facility.
COLLECTION PROCEDURES
Until the date each Mortgage Loan ceases to be subject to the Pooling
and Servicing Agreement, the Servicer is required to proceed diligently to
collect all payments due under each of the Mortgage Loans when the same shall
become due and payable.
The Servicer is required to use its best efforts, consistent with the
servicing standard specified in the Pooling and Servicing Agreement, to
foreclose upon or otherwise comparably convert the ownership of such Mortgaged
Properties as come into and continue in default and as to which no satisfactory
arrangements can be made for collection of delinquent payments pursuant to the
Pooling and Servicing Agreement. The Servicer is required to use its best
efforts to realize upon defaulted Mortgage Loans in such a manner as will
maximize the receipt of principal and interest by the Trust, taking into
account, among other things, the timing of foreclosure proceedings. The
foregoing is subject to the provisions that, in any case in which a Mortgaged
Property has suffered damage, the Servicer is not required to expend its own
funds toward the restoration of such property unless it determines in its
discretion (i) that such restoration will increase the proceeds of liquidation
of the related Mortgage Loan to the Issuer after reimbursement to itself for
such expenses, and (ii) that such expenses will be recoverable by the Servicer
through Insurance Proceeds or Liquidation Proceeds from the related Mortgaged
Property.
Although the Servicer may waive, modify or vary any term of any
Mortgage Loan, including (i) waiving any late payment charge and (ii) extending
the due dates for payments due on a Mortgage Note for a period not greater than
120 days, the Pooling and Servicing Agreement contains certain restrictions on
the Servicer's ability to grant such waivers, modifications or variances.
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 but subject to certain conditions
specified in the Pooling and Servicing Agreement, purchase such Mortgage Loan at
a price equal to (i) 100% of the outstanding principal balance thereof, (ii)
accrued interest thereon and (iii) any costs or damages incurred by the Trust
associated with a violation of any applicable federal, state or local predatory
or abusive lending law, minus (iv) any unreimbursed Advances with respect to
that Mortgage Loan.
COLLECTION OF TAXES, ASSESSMENTS AND SIMILAR ITEMS
The Servicer will, to the extent required by the related loan
documents, maintain escrow accounts for the collection of hazard insurance
premiums and real estate taxes with respect to the Mortgage Loans, and will make
servicing advances with respect to delinquencies in required escrow payments by
the related borrowers to the extent necessary to avoid the loss of a Mortgaged
Property due to a tax sale or the foreclosure thereof as a result of a tax lien.
INSURANCE COVERAGE
As specified in the Pooling and Servicing Agreement, the Master
Servicer and the Servicer are required to obtain and thereafter maintain in
effect a bond, corporate guaranty or similar form of insurance
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coverage (which may provide blanket coverage), or any combination thereof,
insuring against loss occasioned by the errors and omissions of their respective
officers and employees.
EVIDENCE AS TO COMPLIANCE
The Pooling and Servicing Agreement will provide that each year a firm
of independent accountants will furnish a statement to the Master Servicer to
the effect that such firm has examined certain documents and records relating to
the servicing of mortgage loans similar to the Mortgage Loans by the Servicer
and that, on the basis of such examination, such firm is of the opinion that the
servicing has been conducted in accordance with the terms of the Pooling and
Servicing Agreement, except for (1) exceptions as the firm believes to be
immaterial and (2) any other exceptions set forth in such statement. The Master
Servicer will be obligated to cause its independent accountants to furnish such
statement in the event that it becomes the successor servicer.
The Master Servicer will deliver to the Trustee an annual statement
signed by an officer of the Master Servicer to the effect that the Master
Servicer has fulfilled its obligations under the Pooling and Servicing Agreement
throughout the preceding calendar year. The Servicer will deliver to the Master
Servicer an annual statement signed by an officer of the Master Servicer to the
effect that the Servicer has fulfilled its obligations under the Pooling and
Servicing Agreement throughout the preceding calendar year.
MASTER SERVICER DEFAULT; SERVICER DEFAULT
If the Master Servicer is in default on certain of its obligations
under the Pooling and Servicing Agreement, the Trustee may, and must if directed
to do so by the Certificateholders having more than 50% of the voting rights
applicable to each class of Certificates affected thereby, terminate the Master
Servicer. However, if the Master Servicer is in default on its obligation to
make an Advance as provided in the Pooling and Servicing Agreement, the Trustee
will be obligated to terminate promptly the Master Servicer. The events that
constitute a Master Servicer event of default that would enable the Trustee or
the Certificateholders to so terminate the Master Servicer are specified in the
Pooling and Servicing Agreement. If the Master Servicer is terminated, the
Trustee will either assume the duties of the Master Servicer, as successor
Master Servicer, or appoint, or petition a court of competent jurisdiction to
appoint, a successor Master Servicer.
If the Servicer is in default on its obligations under the Pooling and
Servicing Agreement, the Master Servicer may, at its option, either terminate
the defaulting Servicer and either appoint a successor servicer, in accordance
with the Pooling and Servicing Agreement, or succeed to the responsibilities of
the terminated Servicer. The events that constitute a Servicer event of default
that would enable the Master Servicer to so terminate the Servicer are specified
in the Pooling and Servicing Agreement. If the Master Servicer succeeds to the
responsibilities of the Servicer, it will be entitled to receive the Servicing
Fee.
Neither the Master Servicer nor the Servicer will be required to
purchase any Mortgage Loan in connection with any breach of its respective
obligations under the Pooling and Servicing Agreement.
MASTER SERVICER RESIGNATION; SERVICER RESIGNATION
Except as otherwise provided in the Pooling and Servicing Agreement,
the Master Servicer may not resign unless it determines that the Master
Servicer's duties are no longer permissible under applicable law or are in
material conflict by reason of applicable law with any other activities carried
on by it and cannot be cured. No such resignation will become effective until
the Trustee has assumed, or a successor master servicer shall have been
appointed by the Trustee and until such successor has assumed, the Master
Servicer's responsibilities and obligations under the Pooling and Servicing
Agreement. The Master Servicer
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will have the right to assign its obligations under the Pooling and Servicing
Agreement as specified in the Pooling and Servicing Agreement.
In general, 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 the Pooling
and Servicing Agreement, provided, that that person (or an affiliate) is
qualified to service mortgage loans on behalf of, Fannie Mae or Freddie Mac and
will have a net worth of not less than $15,000,000.
Except as otherwise provided in the Pooling and Servicing Agreement,
the Servicer may not resign except by mutual consent of the Servicer and the
Master Servicer, or upon the determination that its duties are no longer
permissible under applicable law and such incapacity cannot be cured by the
Servicer. If the Servicer resigns, the Master Servicer may, at its option,
either terminate the defaulting Servicer and either appoint a successor
servicer, in accordance with the Pooling and Servicing Agreement, or succeed to
the responsibilities of the terminated Servicer. If the Master Servicer succeeds
to the responsibilities of the Servicer, it will be entitled to receive the
Servicing Fee.
PLEDGE OF SERVICING RIGHTS
The Pooling and Servicing Agreement permits the Servicer to obtain
financing by means of a pledge and assignment of its rights to reimbursement for
outstanding Advances and other rights under the Pooling and Servicing Agreement
to one or more lenders. To the extent provided under any such financing
arrangement, upon default by the Servicer, the lender may appoint a successor
servicer, provided that such successor servicer is acceptable to the Master
Servicer and meets the requirements for appointment of a successor servicer
under the Pooling and Servicing Agreement. See "--General" above.
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THE POOLING AND SERVICING AGREEMENT
GENERAL
On the Closing Date, pursuant to a Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement"), dated as of [Month][Day], 20____, by and
among the Depositor, the Seller and Servicer, the Master Servicer and the
Trustee, the Seller will sell the Mortgage Loans to the Depositor and the
Depositor will, in turn, sell the Mortgage Loans to the Trust.
ASSIGNMENT OF MORTGAGE LOANS
On the Closing Date, the Mortgage Loans will be assigned to the Trust,
together with all principal and interest received with respect to the Mortgage
Loans on and after the Cut-off Date (other than Scheduled Payments due on that
date).
Each Mortgage Loan will be identified in a schedule to the Pooling and
Servicing Agreement which will specify with respect to each Mortgage Loan, among
other things, the original principal balance and the Scheduled Principal Balance
as of the close of business on the Cut-off Date, the Mortgage Rate, the
Scheduled Payment, the maturity date and the custodian of the mortgage file, and
applicable prepayment premium provisions, if any.
As to each Mortgage Loan, the following documents, to the extent
applicable, are generally required to be delivered to the Trustee (or its
custodian): (1) the related original Mortgage Note, endorsed without recourse to
the Trustee or in blank, or a lost note affidavit conforming to the requirements
of the Pooling and Servicing Agreement, together with a copy of the related
Mortgage Note, (2) the original recorded Mortgage with evidence of recording
indicated thereon (or, if the original recorded Mortgage has not yet been
returned by the recording office, a copy thereof certified to be a true and
complete copy of such Mortgage sent for recording), (3) an original assignment
of the Mortgage to the Trustee or in blank in recordable form (except as
described below), (4) any related documents showing a complete chain of
assignment, (5) the policies of title insurance issued with respect to each
Mortgage Loan and (6) the originals of any assumption, modification, extension
or guaranty agreements. The Depositor generally does not expect to cause the
assignments of mortgage to be recorded and may instead receive an opinion of
counsel acceptable to the Rating Agencies, to the effect that recording is not
required to protect the Trustee's interest in the related Mortgage Loan. The
Trustee or the Custodian on behalf of the Trustee, will, for the benefit of
Certificateholders, review the mortgage loan documents as specified in the
Pooling and Servicing Agreement.
REPRESENTATIONS AND WARRANTIES
Pursuant to the terms of the Pooling and Servicing Agreement, the
Seller will make to the Depositor certain representations and warranties
concerning the Mortgage Loans; including representations that (i) each Mortgage
Loan is covered by a title insurance policy and each Mortgaged Property was
covered by a standard hazard insurance; (ii) immediately prior to the Pooling
and assignment of each Mortgage Loan, the Seller had good title to and was sole
owner of each such Mortgage Loan; (iii) each Mortgage constituted a valid lien
on the related Mortgaged Property (subject only to permissible title insurance
exceptions) and that the related Mortgaged Property was free of material damage;
(iv) each Mortgage Loan was current as to all required payments; (v) each
Mortgage Loan at the time it was made complied in all material respects with
applicable local, state and federal laws, including but not limited to, usury,
equal credit opportunity, and truth-in-lending or similar disclosure laws and
all applicable anti-predatory and anti-abusive lending laws; (vi) none of the
Mortgage Loans constitute "high-cost loans" as defined by applicable
anti-predatory and anti-abusive lending laws; (vii) no proceeds from any
Mortgage Loan were used to finance single premium
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credit insurance policies; and (viii) no Mortgage Loan imposes a prepayment
premium for a term in excess of three years. Within the period of time specified
in the Pooling and Servicing Agreement following discovery or notification of a
breach of any representation or warranty that materially and adversely affects
the interests of Certificateholders in a Mortgage Loan or receipt of notice of
such breach, the Seller will be obligated to cure such breach or purchase the
affected Mortgage Loan from the Trust for a price equal to the unpaid principal
balance thereof plus accrued interest thereon plus any costs and damages
incurred by the Trust associated with any violation of applicable federal, state
or local anti-predatory or abusive lending laws (or, in certain circumstances,
to substitute another mortgage loan). Rather than repurchase the Mortgage Loan
as provided above, within the two year period following the Closing Date, the
Seller may remove the Mortgage Loan from the Trust and substitute in its place
another Mortgage Loan of like kind; provided that the substituted Mortgage Loan
meets the required characteristics specified in the Pooling and Servicing
Agreement.
To the extent that any Mortgage Loan as to which a representation or
warranty has been breached is not repurchased or a replacement Mortgage Loan is
not substituted by the Seller and a Realized Loss occurs with respect to that
Mortgage Loan, holders of Certificates, in particular the Subordinate
Certificates, may incur a loss.
ADMINISTRATION
The Trustee will agree, to the extent provided in the Pooling and
Servicing Agreement, to provide certain notices and to perform certain other
administrative obligations required to be performed by the Issuer under the
Pooling and Servicing Agreement. [TRUSTEE] will not receive additional
compensation for such services as Trustee.
AMENDMENT
The Pooling and Servicing Agreement may be amended by the Depositor,
the Trust, the Master Servicer, the Trustee, the Seller, the Servicer and the
Trustee, without consent of the Certificateholders, (1) to cure any ambiguity,
(2) to conform the provisions of the Pooling and Servicing Agreement to the
information contained herein or to correct or supplement any provision therein,
(3) to make any other provision with respect to matters or questions arising
under the Pooling and Servicing Agreement or (4) to add, delete or amend any
provision in order to comply with any requirements imposed by the Code, ERISA
and their related regulations; provided, however, that no such amendment
effected pursuant to clause (3) above will adversely affect in any material
respect the interests of any Certificateholder. Any such amendment will be
deemed not to adversely affect in any material respect the interests of any
Certificateholder if the rating agencies confirm that such action would not
adversely affect the then-current ratings on the Certificates.
The Pooling and Servicing Agreement may also be amended by the
Depositor, the Trust, the Trustee, the Master Servicer, the Seller, the
Servicer, the Trustee, the holders of each class of Certificates affected
thereby evidencing voting rights aggregating not less than 66?% of each such
class, 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
modifying in any manner the rights of Certificateholders; provided, however,
that no such amendment may (1) reduce in any manner the amount of, or delay the
timing of, payments that are required to be made in respect of any Certificates
without the consent of the holder of each such Certificate affected thereby or
(2) reduce the percentage of Certificates the holders of which are required to
consent to any such amendment without the consent of the holders of all
Certificates affected thereby.
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VOTING RIGHTS
At all times 99% of all voting rights will be allocated among the
holders of the Certificates as provided below. The portion of such voting rights
allocated to such Certificates will be based on the fraction, expressed as a
percentage, the numerator of which is the aggregate principal amount then
outstanding and the denominator of which is the aggregate outstanding principal
balance of the Certificates. At all times during the term of the Pooling and
Servicing Agreement, the holder of the non-offered Certificates will be
allocated 1% of the voting rights for so long as the class remains outstanding.
The voting rights allocation to any class of Certificates will be allocated
among all holders of each such class in proportion to the outstanding principal
amount of such Certificates.
ISSUANCE OF THE CERTIFICATES
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement. Certificates in certificated form will be transferable and
exchangeable at the Corporate Trust Office of the Trustee, which will serve as
Certificate Registrar and Paying Agent. The Trustee will provide to a
prospective or actual Certificateholder, without charge, on written request, an
electronic copy (without exhibits) of the Pooling and Servicing Agreement.
Requests should be addressed to [STREET ADDRESS], [CITY], [STATE] [ZIP CODE],
Attention: Aames Mortgage Trust 20___-___.
THE TRUSTEE
[TRUSTEE] will be the Trustee under the Pooling and Servicing
Agreement. The Trustee will be entitled to receive as compensation for its
services a fee agreed to with and payable by the Master Servicer. The Trustee
will also be entitled to customary indemnification for certain costs and
expenses prior to payment of any amounts to Certificateholders. The Trustee's
Corporate Trust Office is located at [STREET ADDRESS], [CITY], [STATE] [ZIP
CODE], Attention: Aames Mortgage Trust 20___-___., or any other address that the
Trustee may designate from time to time by notice to the Certificateholders, the
Depositor and the Master Servicer.
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PREPAYMENT AND YIELD CONSIDERATIONS
GENERAL
The weighted average life of and the yield to maturity on an offered
certificate will be directly related to the rate of prepayments of principal of
the mortgage loans. The actual rate of principal prepayments on the mortgage
loans may be influenced by a variety of economic, tax, geographic, demographic,
social, competitive, legal and other factors and has fluctuated considerably in
recent years. The mortgage loans may be prepaid by the borrowers at any time;
however, a majority of the mortgage loans are subject to a prepayment charge.
Because a portion of all amounts available for distribution on each
class of certificates after distributions in respect of class monthly interest
are applied as reductions of the related certificate principal balance, the
weighted average lives of the certificates will be influenced by the amount of
excess interest so applied. Because the overcollateralization feature is
expected to cause interest collections on the related mortgage loans to outpace
required interest distributions for each class of certificates, such excess
interest will be applied to reduce the principal balances of the offered
certificates. It is expected that, over time, this excess interest will increase
in proportion to the principal balances of the offered certificates in the
absence of offsetting realized losses.
PASS-THROUGH RATES
The pass-through rate for the offered certificates is subject to the
available funds cap. The available funds cap on any distribution date is
determined by reference to the weighted average interest rate of the mortgage
loans, net of certain expenses, in effect at the beginning of the related
collection period. Approximately [_____]% and [____]% of the statistic
calculation loans in Group I and Group II, respectively, have interest rates
that are fixed for the lives of such mortgage loans. If mortgage loans bearing
higher interest rates were to prepay at rates faster than mortgage loans with
lower interest rates, the available funds cap would be lower than otherwise
would be the case. Thus, the effective pass-through rate on the offered
certificates will be dependent on the prepayment experience of the mortgage
loans.
The yield to investors on the offered certificates will be sensitive
to, among other things, the level of the loan index. Approximately [____]%,
[____]% and [____]%, measured by aggregate principal balance, of the statistic
calculation loans in Group I and approximately [____]%, [____]% and [____]%,
measured by aggregate principal balance, of the statistic calculation loans in
Group II are hybrid loans which will bear interest at fixed rates for either 24
months, 36 months or 60 months, respectively, after origination of such mortgage
loans. Although each of the hybrid loans, after its initial fixed rate period,
bears interest at an adjustable rate, such rate is subject to a periodic rate
cap, a lifetime floor and a lifetime cap. If the index increases substantially
between change dates, the adjusted interest rate on the related mortgage loan
may not equal the index plus the related gross margin due to the constraint of
such caps. In such event, the related mortgage interest rate will be less than
would have been the case in the absence of such caps. If the index of a hybrid
loan during its adjustable rate period decreases, the related mortgage loan for
any collection period may bear interest at a rate lower than the rate on one or
more of the offered certificates. In such an event, the available funds cap
would be lower than otherwise would be the case. In addition, the mortgage
interest rate applicable to any change date will be based on the index related
to the change date. Thus, if the value of the index with respect to a mortgage
loan rises, the lag in time before the corresponding mortgage interest rate
increases will, all other things being equal, slow the upward adjustment of the
available funds cap. Furthermore, mortgage loans that have not reached their
first change date are more likely to be subject to the applicable periodic rate
cap on their first change date, Although the holders of the offered certificates
will be entitled to receive the related net rate cap carryover, there is no
assurance that sufficient funds will be
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available therefor. The ratings on the offered certificates do not address the
likelihood of the payment of any Net Rate Cap Carryover to the offered
certificates,
The subordinate certificates provide credit enhancement for the senior
certificates in both certificate groups and may absorb losses on the mortgage
loans in either loan group. The weighted average lives of, and the yields to
maturity on, the subordinate certificates, in reverse order of their relative
payment priorities, will be progressively more sensitive to the rate and timing
of mortgagor defaults and the severity of ensuing losses on the mortgage loans.
If the actual rate and severity of losses on the mortgage loans is higher than
those assumed by a holder of a subordinate certificate, the actual yield to
maturity on the holder's certificate may be lower than the yield expected by the
holder based on that assumption. Realized losses on the mortgage loans will
reduce the certificate principal balance of the class of subordinate
certificates then outstanding with lowest relative payment priority if and to
the extent that the aggregate of the certificate principal balances of all
classes of certificates, following all distributions on a distribution date,
exceeds the pool balance. As a result of these reductions, less interest will
accrue on the class of subordinate certificates than otherwise would be the
case.
The basic principal amount includes the net proceeds in respect of
principal received upon liquidation of a liquidated mortgage loan. If the net
proceeds are less than the unpaid principal balance of the liquidated mortgage
loan, the pool balance will decline more than the aggregate certificate
principal balance of the offered certificates, thus reducing the
overcollateralization amount. If this difference is not covered by the
overcollateralization amount or the application of excess interest, the class of
subordinate certificates then outstanding with the lowest relative payment
priority will bear the loss. In addition, the subordinate certificates will not
be entitled to any principal distributions prior to the stepdown date or during
the continuation of a trigger event, unless all of the certificates with a
higher relative payment priority have been paid in full. Because of the
disproportionate distribution of principal of the senior certificates, depending
on the timing of realized losses, the subordinate certificates may bear a
disproportionate percentage of the realized losses on the mortgage loans.
For all purposes, the Class B certificates will have the lowest payment
priority of any class of subordinate certificates.
PAYMENT DELAY FEATURE OF FIXED RATE CERTIFICATES
The effective yield to the certificateholders will be lower than the
yield otherwise produced by the pass-through rate for such class and the
purchase price of such certificates because distributions will not be payable to
the certificateholders until the [__]th day of the month following the month of
accrual, without any additional distribution of interest or earnings thereon in
respect of such delay.
MANDATORY PREPAYMENT
In the event that at the end of the funding period there are any
remaining amounts on deposit in the prefunding account for either loan group,
the holders of the related class of senior certificates will receive an
additional distribution allocable to principal in an amount equal to the
remaining amounts on deposit in the prefunding account. Although there can be no
assurance, the sponsor anticipates that there should be no material principal
prepayment to the senior certificateholders due to a lack of subsequent mortgage
loans.
PROJECTED PREPAYMENTS AND YIELDS FOR THE OFFERED CERTIFICATES
If an offered certificate is purchased at other than its parity price,
its yield to maturity will be affected by the rate of the payment of principal
on the mortgage loans in the related mortgage loan group. If the actual rate of
payments on the mortgage loans in the related mortgage loan group is slower than
the rate
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anticipated by an investor who purchases an offered certificate at a discount,
especially in the case of a subordinate certificate, the actual yield to such
investor will be lower than such investor's anticipated yield. If the actual
rate of payments on the mortgage loans in the related mortgage loan group is
faster than the rate anticipated by an investor who purchases an offered
certificate at a premium, the actual yield to such investor will be lower than
such investor's anticipated yield.
The rate of prepayments with respect to conventional fixed rate
mortgage loans has fluctuated significantly in recent years. As with fixed rate
obligations generally, the rate of prepayment on a pool of mortgage loans with
fixed rates is affected by prevailing market rates for mortgage loans of a
comparable term and risk level. When the market interest rate is below the
applicable loan rate, mortgagors may have an increased incentive to refinance
their mortgage loans. Depending on prevailing market rates, the future outlook
for market rates and economic conditions generally, some mortgagors may sell or
refinance mortgaged properties in order to realize their equity in the mortgaged
properties, to meet cash flow needs or to make other investments.
As is the case with conventional fixed rate mortgage loans, the hybrid
loans after their initial fixed rate period may be subject to a greater rate of
principal prepayments in a declining interest rate environment. For example, if
prevailing interest rates fall appreciably, these loans are likely to be subject
to a higher prepayment rate than if prevailing interest rates remain constant
because the availability of fixed rate mortgage loans at competitive interest
rates may encourage mortgagors to refinance their hybrid loans during their
adjustable rate period in order to "lock in" a lower fixed interest rate. In
addition, the prepayment behavior of the hybrid loans may differ from that of
the other mortgage loans. As a hybrid loan approaches its initial adjustment
date, the borrower may become more likely to refinance such loan to avoid an
increase in the mortgage interest rate, The existence of the applicable periodic
rate cap, lifetime cap and lifetime floor also may affect the likelihood of
prepayments resulting from refinancings. However, no assurance can be given as
to the expected level of prepayments on the mortgage loans.
Due to changes in interest rates, property appreciation, loan seasoning
and other factors, borrowers of the mortgage loans may be the subject of
solicitations to refinance their loans. Any refinancing of the mortgage loans,
whether such refinancing is effected by the servicer or a competitor, will
affect the rate of prepayment of the mortgage loans.
In addition to the foregoing factors affecting the weighted average
lives of the offered certificates, the use of excess interest to pay principal
of the offered certificates will result in acceleration of the offered
certificates then entitled to principal distributions, relative to the
amortization of the related mortgage loans, particularly in the early months of
the transaction. This acceleration feature creates overcollateralization which
equals the excess of the pool balance over the aggregate certificate principal
balance of the certificates. Once the required level of overcollateralization is
reached, the acceleration feature will cease, unless necessary to maintain the
required level of overcollateralization,
FINAL SCHEDULED DISTRIBUTION DATES
The final scheduled distribution date for each class of offered
certificates is set forth in the summary of this prospectus supplement. The
final scheduled distribution date for each class of the offered certificates is
the distribution date in the month after the last due date of the latest
maturing mortgage loan, including any subsequent mortgage loan, in either
mortgage loan group. It is expected that the weighted average lives of the
offered certificates are likely to be shorter, and the actual final distribution
date for each class of offered certificates could occur significantly earlier
than the final scheduled distribution date for such class.
S-57
STRUCTURING ASSUMPTIONS
The following tables have been prepared on the basis of the following
assumptions,:
(i) the offered certificates are purchased on [Month] [Day], 20__;
(ii) with respect to the initial collection period, the mortgage
loans include 30 days of interest and no deposits in respect of interest were
contributed to the trust;
(iii) scheduled payments are timely received on the first day of each
month commencing in [Month] 200_;
(iv) distributions on the offered certificates are received, in
cash, on the [__]th day of each month, commencing in [Month] 20__;
(v) no defaults or delinquencies in, or modifications, waivers or
amendments respecting, the payment by the mortgagors of principal and interest
on the mortgage loans occur;
(vi) prepayments represent payment in full of individual mortgage
loans and are received on the last day of each month, commencing in [Month] 20__
and include 30 days' interest thereon;
(vii) the mortgage loans prepay according to the indicated prepayment
scenarios as described below;
(viii) the six-month London Interbank Offered Rate remains constant
at [____]%;
(ix) except as otherwise indicated on the following table, the
servicer does not exercise its right of optional termination;
(x) the required overcollateralization amount is set as specified
in this prospectus supplement;
(xi) all adjustable rate mortgage loans have semi-annual rate
adjustment frequencies;
(xii) each mortgage loan group consists of mortgage loans having the
characteristics set forth in the following tables;
(xiii) the capitalized interest account has an initial balance of
$[______]; and
(xiv) the subsequent mortgage loans make their initial payment of
principal in [Month] 20__.
The foregoing assumptions are referred to collectively in this
prospectus supplement as the structuring assumptions.
S-58
ASSUMED MORTGAGE LOAN CHARACTERISTICS
GROUP I MORTGAGE LOANS
Months Initial
to Peri Peri-
Gross Original Remaining Original Maximum Minimum Next odic odic
Mort- Term Term Amorti- Mort- Mort- Mort- Rate Rate
Loan gage Servic- to to zation gage gage gage Adjust- Adjust-
Rate Principal Interest ing Maturity Maturity Term Gross Interest Interest Rate ment ment
Type Balance Rate (1) (Months) (Months) (Months) Margin Rate Rate Change cap Cap
- ---- --------- -------- ------- -------- -------- -------- ------ -------- -------- ------- ------- -------
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
_______________
(1) Includes trustee fee and certain additional expenses.
S-59
GROUP I MORTGAGE LOANS (CONTINUED)
Months Initial
to Peri Peri-
Gross Original Remaining Original Maximum Minimum Next odic odic
Mort- Term Term Amorti- Mort- Mort- Mort- Rate Rate
Loan gage Servic- to to zation gage gage gage Adjust- Adjust-
Rate Principal Interest ing Maturity Maturity Term Gross Interest Interest Rate ment ment
Type Balance Rate (1) (Months) (Months) (Months) Margin Rate Rate Change cap Cap
- ---- --------- -------- ------- -------- -------- -------- ------ -------- -------- ------- ------- -------
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed(2) $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
____________
(2) Represents mortgage loans purchased during the funding period.
S-60
GROUP II MORTGAGE LOANS
Months Initial
to Peri Peri-
Gross Original Remaining Original Maximum Minimum Next odic odic
Mort- Term Term Amorti- Mort- Mort- Mort- Rate Rate
Loan gage Servic- to to zation gage gage gage Adjust- Adjust-
Rate Principal Interest ing Maturity Maturity Term Gross Interest Interest Rate ment ment
Type Balance Rate (1) (Months) (Months) (Months) Margin Rate Rate Change cap Cap
- ---- --------- -------- ------- -------- -------- -------- ------ -------- -------- ------- ------- -------
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Adjustable $[__________] [____]% [____]% [____] [____] [____] [____]% [____]% [____]% [____] [____]% [____]%
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
Fixed(2) $[__________] [____]% [____]% [____] [____] [____] N/A N/A N/A N/A N/A N/A
____________
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Includes trustee fee and certain additional expenses.
(2) Represents mortgage loans purchased during the funding period.
S-61
DECREMENT TABLES
The weighted average lives of the offered certificates will be
influenced by the rate at which principal payments on the mortgage loans in the
related mortgage loan group are made, which may be in the form of scheduled
amortization or prepayments.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The model used in this prospectus supplement is
the prepayment assumption, which represents an assumed rate of prepayment each
month relative to the then outstanding principal balance of the mortgage loans
for the life of such mortgage loans. In the case of the mortgage loans bearing a
fixed rate of interest, a 100% prepayment assumption assumes a 4.0% constant
prepayment rate, referred to as CPR, per annum of the outstanding principal
balance of such mortgage loans in the first month of the life of the mortgage
loans and an additional 1.4545% in each month thereafter until the twelfth
month; beginning in the twelfth month and in each month thereafter during the
life of such mortgage loans, a CPR of 20% per annum each month is assumed. In
the case of the hybrid loans, the prepayment assumption assumes a constant
prepayment rate of the applicable per annum CPR percentage of the outstanding
principal balance of the hybrid loans. Each of the prepayment assumptions in the
table below assumes the respective percentages of the prepayment scenario in the
case of the fixed rate mortgage loans or CPR in the case of the hybrid loans.
The prepayment assumption does not purport to be a historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any of the mortgage loans. The sponsor is not aware of any statistics that
provide a reliable basis for predicting with any certainty the amount or the
timing of receipt of prepayments on the related mortgage loans.
The prepayment scenarios are defined as a percentage of the applicable
prepayment assumption:
SCENARIO SCENARIO SCENARIO SCENARIO IV SCENARIO V SCENARIO SCENARIO
I II III VI VII
----------- ----------- ----------- ------------ ----------- ----------- -----------
Fixed Rate Mortgage Loans:
% of Prepayment Assumption...... [____]% [____]% [____]% [____]% [____]% [____]% [____]%
Hybrid Mortgage Loans;
CPR %........................... [____]% [____]% [____]% [____]% [____]% [____]% [____]%
S-62
PERCENT OF CLASS A-1 INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
PREPAYMENT SCENARIO
-------------------
DISTRIBUTION DATE I II III IV V VI VII
- ----------------- ------ ------ ------ ------ ------ ------ ------
Initial Percent.......................... [___]% [___]% [___]% [___]% [___]% [___]% [___]%
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
Average Life To Maturity (years)......... [____] [____] [____] [____] [____] [____] [____]
Average Life To Call* (years)............ [____] [____] [____] [____] [____] [____] [____]
S-63
PERCENT OF CLASS A-2 INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
PREPAYMENT SCENARIO
DISTRIBUTION DATE I II III IV V VI VII
- ----------------- ------ ------ ------ ------ ------ ------ ------
Initial Percent.......................... [___]% [___]% [___]% [___]% [___]% [___]% [___]%
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
Average Life To Maturity (years)......... [____] [____] [____] [____] [____] [____] [____]
Average Life To Call* (years)............ [____] [____] [____] [____] [____] [____] [____]
S-64
PERCENT OF CLASS M-1 INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
PREPAYMENT SCENARIO
DISTRIBUTION DATE I II III IV V VI VII
- ----------------- ------ ------ ------ ------ ------ ------ ------
Initial Percent.......................... [___]% [___]% [___]% [___]% [___]% [___]% [___]%
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
Average Life To Maturity (years)......... [____] [____] [____] [____] [____] [____] [____]
Average Life To Call* (years)............ [____] [____] [____] [____] [____] [____] [____]
S-65
PERCENT OF CLASS M-2 INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
PREPAYMENT SCENARIO
DISTRIBUTION DATE I II III IV V VI VII
- ----------------- ------ ------ ------ ------ ------ ------ ------
Initial Percent.......................... [___]% [___]% [___]% [___]% [___]% [___]% [___]%
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
Average Life To Maturity (years)......... [____] [____] [____] [____] [____] [____] [____]
Average Life To Call* (years)............ [____] [____] [____] [____] [____] [____] [____]
S-66
PERCENT OF CLASS M-3 INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
PREPAYMENT SCENARIO
DISTRIBUTION DATE I II III IV V VI VII
- ----------------- ------ ------ ------ ------ ------ ------ ------
Initial Percent.......................... [___]% [___]% [___]% [___]% [___]% [___]% [___]%
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
Average Life To Maturity (years)......... [____] [____] [____] [____] [____] [____] [____]
Average Life To Call* (years)............ [____] [____] [____] [____] [____] [____] [____]
S-67
PERCENT OF CLASS B INITIAL CERTIFICATE PRINCIPAL BALANCE OUTSTANDING
PREPAYMENT SCENARIO
DISTRIBUTION DATE I II III IV V VI VII
- ----------------- ------ ------ ------ ------ ------ ------ ------
Initial Percent.......................... [___]% [___]% [___]% [___]% [___]% [___]% [___]%
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
[Month], 20__............................ [___] [___] [___] [___] [___] [___] [___]
Average Life To Maturity (years)......... [____] [____] [____] [____] [____] [____] [____]
Average Life To Call* (years)............ [____] [____] [____] [____] [____] [____] [____]
S-68
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The assets of the trust (other than the prefunding account, the
capitalized interest account and the net rate cap fund) will he designated as
one or more real estate mortgage investment conduits, each called a REMIC, for
federal income tax purposes. The Class R certificates will represent the
residual interest in each REMIC. We refer you to `Federal Income Tax
Considerations" in the prospectus.
Upon the issuance of the offered certificates, Greenberg Traurig, LLP
("Tax Counsel") will deliver its opinion to the effect that, assuming compliance
with the pooling and servicing, each of the REMICs will qualify as a REMIC
within the meaning of Section 860D of the Internal Revenue Code of 1986, as
amended (the "Code"). In addition, Tax Counsel will deliver an opinion to the
effect that the net rate cap fund is an "outside reserve fund" that is
beneficially owned by the beneficial owner of the Class C certificate. Moreover,
Tax Counsel will deliver an opinion to the effect that the rights of beneficial
owners of the offered certificates to receive payments from the net rate cap
fund represent interests in an interest rate cap contract for federal income tax
purposes.
For federal income tax purposes, a beneficial owner of an offered
certificate will be treated (i) as holding an undivided interest in a REMIC
regular interest corresponding to that certificate and (ii) as having entered
into a limited recourse interest rate cap contract (the "Cap Contract"). The
REMIC regular interest corresponding to an offered certificate will be entitled
to receive interest and principal payments at the times and in the amounts equal
to those made on the offered certificate to which it corresponds, except that
the interest payments will be determined (i) without regard to any payments made
from the net rate cap fund. Any amount paid on an offered certificate in excess
of the amounts payable on the corresponding REMIC regular interest will be
treated as having been paid on such certificate from the net rate cap fund and
will be deemed to have been paid pursuant to the Cap Contract. Consequently,
each beneficial owner of an offered certificate will be required to report
income accruing with respect to the REMIC regular interest component as
discussed under "Federal Income Tax Considerations -- Taxation of debt
securities including regular interest securities" in the prospectus. In
addition, each beneficial owner of an offered certificate will be required to
report net income with respect to the Cap Contract component and will be
permitted to recognize a net deduction with respect to the Cap Contract
component, subject to the discussion under" -- The Cap Contract Components"
below. Prospective investors should consult their own tax advisors regarding the
consequences to them in light of their own particular circumstances of taxing
separately the two components comprising each offered certificate.
ALLOCATIONS
A beneficial owner of an offered certificate must allocate its purchase
price for the certificate between its components -- the REMIC regular interest
component and the Cap Contract component. For information reporting purposes the
trustee will assume the Cap Contract components will have nominal value. Each
Cap Contract is difficult to value, and the Internal Revenue Service ("IRS")
could assert that the value of a Cap Contract component as of the closing date
is greater than the value used for information reporting purposes. Prospective
investors should consider the tax consequences to them if the IRS were to assert
a different value for the Cap Contract components.
Upon the sale, exchange, or other disposition of an offered
certificate, the beneficial owner of the certificate must allocate the amount
realized between the components of the certificate based on the relative fair
market values of those components at the time of sale and must treat the sale,
exchange or other disposition as a sale, exchange or disposition of the REMIC
regular interest component and the Cap Contract component. Assuming that the
offered certificate is held as a "capital asset" within the meaning of Section
1221 of the Code, gain or loss on the disposition of an interest in the Cap
Contract component should be capital gain or loss. For a discussion of the
material federal income tax consequences to a
S-69
beneficial owner upon the disposition of a REMIC regular interest, see "Federal
Income Tax Considerations -- Taxation of debt securities including regular
interest securities" in the prospectus.
ORIGINAL ISSUE DISCOUNT
The REMIC regular interest component of an offered certificate may be
issued with ODE. A beneficial owner of an offered certificate must include any
ODE with respect to such component in income as it accrues on a constant yield
method, regardless of whether the beneficial owner receives currently the cash
attributable to such ODE. See "Federal Income Tax Considerations -- Taxation of
debt securities including regular interest securities" in the prospectus. The
prepayment assumption that will be used in determining the accrual of any ODE,
market discount, or bond premium, if any, will be a rate equal to [___]% of the
prepayment scenario in the case of the fixed rate loans and [___]% CPR in the
case of the hybrid loans, as such terms are defined in "Prepayment and Yield
Considerations --- Decrement Tables," above. No representation is made as to the
actual rate at which the mortgage loans will prepay.
THE CAP CONTRACT COMPONENTS
The portion of the overall purchase price of an offered certificate
attributable to the Cap Contract component must be amortized over the life of
such certificate, taking into account the declining balance of the related REMIC
regular interest component. Treasury regulations concerning notional principal
contracts provide alternative methods for amortizing the purchase price of an
interest rate cap contract. Under one method --the level yield constant interest
method -- the price paid for an interest rate cap is amortized over the life of
the cap as though it were the principal amount of a loan bearing interest at a
reasonable rate, Prospective investors are urged to consult their tax advisors
concerning the methods that can be employed to amortize the portion of the
purchase price paid for the Cap Contract component of an offered certificate.
Any payments made to a beneficial owner of an offered certificate from
the net rate cap fund will be treated as periodic payments on an interest rate
cap contract. To the extent the sum of such periodic payments for any year
exceeds that year's amortized cost of the Cap Contract component, such excess
represents net income for that year. Conversely, to the extent that the amount
of that year's amortized cost exceeds the sum of the periodic payments, such
excess shall represent a net deduction for that year. Although not clear, net
income or a net deduction should be treated as ordinary income or as an ordinary
deduction.
A beneficial owner's ability to recognize a net deduction with respect
to the Cap Contract component is limited under Sections 67 and 68 of the Code in
the case of (i) estates and trusts and (ii) individuals owning an interest in
such component directly or through a "pass-through entity" (other than in
connection with such individual's trade or business). Pass-through entities
include partnerships, S corporations, grantor trusts and non-publicly offered
regulated investment companies, but do not include estates, nongrantor trusts,
cooperatives, real estate investment trusts and publicly offered regulated
investment companies. Further, such a beneficial owner will not be able to
recognize a net deduction with respect to the Cap Contract component in
computing the beneficial owner's alternative minimum tax liability.
STATUS OF THE OFFERED CERTIFICATES
The REMIC regular interest components of offered certificates will be
treated as assets described in Section 7701 (a)(19)(C) of the Code, and as "real
estate assets" under Section 856(c)(5)(B) of the Code, generally, in the same
proportion that the assets of the trust, exclusive of the assets not included in
any
S-70
REMIC, would be so treated. In addition, the interest derived from the REMIC
regular interest component of an offered certificate will be interest on
obligations secured by interests in real property for purposes of section
856(c)(3) of the Code, subject to the same limitation in the preceding sentence.
The Cap Contract components of the offered certificate will not qualify,
however, as an asset described in Section 7701 (a)(19)(C) of the Code or as a
real estate asset under Section 856(c)(5)(B) of the Code.
ERISA CONSIDERATIONS
Any fiduciary of an employee benefit plan or other retirement
arrangement subject to Title I of the Employee Retirement Income Security Act of
1974, as amended, called ERISA, and/or Section 4975 of the Code, as amended,
such plans and assignments collectively called a plan, which proposes to cause
the 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 the certificates,
The U.S. Department of Labor granted an administrative exemption to
Morgan Stanley & Co. Incorporated, which administrative exemption is referred to
as the exemption, which exempts from the application of the prohibited
transaction rules transactions relating to (1) the acquisition, sale and holding
by plans of particular certificates representing an undivided interest in
asset-backed pass-through trusts, with respect to which Morgan Stanley & Co.
Incorporated or any of its affiliates is the sole underwriter or the manager or
co-manager of the underwriting syndicate; and (2) the servicing, operation and
management of the asset-backed pass-through trusts, provided that the general
conditions and other conditions set forth in the exemption are satisfied. The
exemption will apply to the acquisition, holding and resale of the offered
certificates by a plan, provided that its conditions, including the requirement
that an investing plan be an "accredited investor" as defined in Rule 501(a)(1)
of Regulation D of the Securities Act of 1933, as amended, are met. We refer you
to "ERISA Considerations" in the prospectus.
It is expected that the exemption will apply to the acquisition and
holding of the offered certificates by plans and that all conditions of the
exemption other than those within the control of the investors will be met,
provided that at the time such offered certificates are acquired they are rated
at least BBB-- or the equivalent by at least one of the rating agencies.
Accordingly, the acquisition of a Class B Certificate in the secondary market
directly or indirectly by or on behalf of a plan will be deemed a representation
by the acquirer that it understands that the availability of the exemption is
conditioned upon such minimum BBB-- or equivalent rating at the time of the
acquisition or that the acquisition is being made pursuant to the Section I and
III of Prohibited Transaction Class Exemption 95-60, relating to insurance
company general accounts.
The exemption provides only limited relief to plans sponsored by the
seller, the underwriters, the trustee, the securities administrator, the
servicer, any other servicers, a provider of credit enhancement or any mortgagor
with respect to mortgage loans included in the trust constituting more than 5%
of the aggregate unamortized principal balance of the assets in the trust or any
affiliate of any of these parties, called the restricted group. No exemption
from certain prohibited transactions is provided for the acquisition or holding
of offered certificates on behalf of an excluded plan by any person who is a
fiduciary with respect to the assets of the excluded plan. For purposes of the
offered certificates, an excluded plan is a plan sponsored by any member of the
restricted group. Relief from certain fiduciary prohibited transactions is
available only if the fiduciary (and its affiliates) are obligated for no more
than 5% of the aggregate unauthorized principal balance of the assets in the
trust. In addition, no plan's investment in any class of offered certificates
may exceed 25% of all of the certificates of the class outstanding at the time
of the plan's acquisition and after the plan's acquisition of the class of
offered certificates, no more than 25% of the assets over which the fiduciary
has investment authority may be invested in securities of a trust containing
assets
S-71
which are sold or serviced by the same entity. Finally, in the case of initial
issuance, but not secondary market transactions, at least 50% of each class of
offered certificates, and at least 50% of the aggregate interest in the trust,
must be acquired by persons independent of the restricted group.
We recommend that any plan fiduciary considering whether to purchase
any offered certificates on behalf of a plan consult with its counsel regarding
the applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Internal Revenue Code to the investment. Among other
things, before purchasing any offered certificates, a fiduciary of a plan
subject to the fiduciary responsibility provisions of ERISA or an employee
benefit plan subject to the prohibited transaction provisions of the Internal
Revenue Code should make its own determination as to the availability of the
exemptive relief provided in the exemption, and also consider the availability
of any other prohibited transaction exemptions.
USE OF PROCEEDS
The sponsor intends to use the net proceeds to be received from the
sale of the offered certificates to pay off certain indebtedness incurred in
connection with the acquisition of the mortgage loans, to fund the prefunding
account and capitalized interest account, to repay warehouse facilities
(including certain amounts owing to affiliates of the underwriters) and to pay
other expenses associated with the pooling of the mortgage loans and the
issuance of the certificates.
LEGAL INVESTMENT CONSIDERATIONS
The Class A-1, Class A-2, Class M-1 and Class M-2 certificates will
constitute "mortgage related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984. No representation is made in this prospectus
supplement as to whether the offered certificates constitute legal investments
for any entity under any applicable statute, law, rule, regulation or order. You
are urged to consult with your counsel concerning the status of the offered
certificates as legal investments for you prior to investing in the offered
certificates.
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting
agreement and the related pricing agreement, collectively called the
underwriting agreement, among the depositor and the underwriters named below,
the depositor has agreed to sell to the underwriters, and each of the
underwriters has severally agreed to purchase from the depositor the principal
amount of offered certificates set forth below opposite their respective names.
UNDERWRITER CLASS A-1 CLASS A-2 CLASS M-1 CLASS M-2 CLASS M-3 CLASS B
- ----------- --------- --------- --------- --------- --------- -------
[Underwriter]........... $ [________] $ [________] $ [________] $ [________] $ [________] $ [________]
[Underwriter]........... $ [________] $ [________] $ [________] $ [________] $ [________] $ [________]
[Underwriter]........... $ [________] $ [________] $ [________] $ [________] $ [________] $ [________]
[Underwriter]........... $ [________] $ [________] $ [________] $ [________] $ [________] $ [________]
------------ ------------ ------------ ------------ ------------ ------------
Totals:.............. $ [________] $ [________] $ [________] $ [________] $ [________] $ [________]
------------ ------------ ------------ ------------ ------------ ------------
In the underwriting agreement, the underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase the entire principal
amount of the offered certificates.
S-72
The depositor has been advised that the underwriters propose initially
to offer the offered certificates to some dealers at the price less a selling
concession not to exceed 0.18%, and that the underwriters may allow and the
dealers may reallow a reallowance discount not to exceed 0.12%.
After the initial public offering, the public offering prices,
concessions and discounts may be changed.
The depositor has been advised by the underwriters that they presently
intend to make a market in the offered certificates. However, no underwriter is
obligated to do so, any market-making may be discontinued at any time, and there
can be no assurance that an active public market for any class of offered
certificates will develop or if one does develop, that it will continue for the
life of the applicable class or that it will provide certificateholders with a
sufficient level of liquidity of investment.
Until the distribution of the offered certificates is completed, rules
of the Securities and Exchange Commission may limit the ability of the
underwriters and some selling group members to bid for and purchase the offered
certificates. As an exception to these rules, the underwriters are permitted to
engage in particular transactions that stabilize the prices of the offered
certificates. These 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 these purchases.
Neither the depositor nor any 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 related offered
certificates. In addition, neither the depositor nor any of the underwriters
makes any representation that the underwriters will engage in these transactions
or that the transactions, once commenced, will not be discontinued without
notice.
The underwriting agreement provides that the depositor will indemnify
the underwriters against particular civil liabilities, including liabilities
under the Securities Act of 1933, as amended.
All of the underwriters have represented that: (i) they have not
offered or sold and will not offer or sell, prior to the date six months after
their date of issuance, any offered certificates to persons in the United
Kingdom, except to persons whose activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances that have not resulted in and
will not result in an offer to the public in the United Kingdom within the
meaning of the public offers of securities regulations 1995; (ii) they have
complied and will comply with all applicable provisions of the financial
services act 1986 with respect to anything done by it in relation to the offered
certificates in, from or otherwise involving the United Kingdom; and (iii) they
have only issued or passed on and will only issue or pass on in the United
Kingdom any document received by them in connection with the issuance of the
offered certificates to a person who is of a kind described in article 11(3) of
the financial services act 1986 (investment advertisements) (exemptions) order
1997 or is a person to whom the document can lawfully be issued or passed on.
The depositor or its affiliates may apply all or any portion of the net
proceeds of this offering to the repayment of debt, including "warehouse" debt
secured by the mortgage loans (prior to their sale to the trust). One or more of
the underwriters (or their respective affiliates) has acted as a "warehouse
lender" to the depositor or its affiliates, and may receive a portion of such
proceeds as repayment of such warehouse debt.
S-73
LEGAL MATTERS
Certain legal matters with respect to the certificates will be passed
upon for the sponsor and depositor by Greenberg Traurig, LLP, New York, New
York. [____________________________], New York, New York, will act as counsel
for the underwriters.
RATING OF THE OFFERED CERTIFICATES
It is a condition to the issuance of each class of offered certificates
that each such class shall be rated by Standard and Poor's, a division of The
McGraw-Hill Companies, Inc., called S&P, Fitch Ratings, called Fitch, and
Moody's Investors Service, Inc., called Moody's, which are collectively called
the rating agencies as follows:
CLASS S&P FITCH MOODY'S
----- --- ----- -------
A-1 AAA AAA Aaa
A-2 AAA AAA Aaa
M-1 AA AA Aa2
M-2 AA AA --
M-3 A A --
B BBB BBB --
The ratings assigned by the rating agencies to mortgage pass-through
certificates address the likelihood of the receipt of all distributions on the
related mortgage loans by the related certificateholders under the agreements
pursuant to which such certificates are issued. The ratings take into
consideration the credit quality of the related mortgage pool, including any
credit support providers, structural and legal aspects associated with such
certificates, and the extent to which the payment stream on such mortgage pool
is adequate to make payments required by such certificates. The ratings on such
certificates do not, however, constitute a statement regarding frequency of
prepayments on the related mortgage loans.
The ratings do not reflect the likelihood of payment of any net rate
cap carryover.
There is no assurance that any rating assigned to the offered
certificates will continue for any period of time or that such ratings will not
be revised or withdrawn. Any such revision or withdrawal of such ratings may
have an adverse effect on the market price or liquidity of the offered
certificates.
The 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.
There can be no assurance as to whether any other rating agency will
rate the offered certificates, or, if one does, what rating will be assigned by
such other rating agency. A rating on the offered certificates by another rating
agency, if assigned at all, may be lower than the ratings assigned to the
offered certificates by Moody's, Fitch or S&P.
S-74
ANNEX A
DESCRIPTION OF THE MORTGAGE POOL
The following is a description of certain terms of the statistic
calculation loans in tabular form based on the statistic calculation loans and
each mortgage loan group as of the statistic calculation date.
GROUP I
PRODUCT TYPE
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
ADJUSTMENT TYPE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------- ----------------- ----------------- -----------------
ARM - 2 Year /6 Month........................... [ ________ ] $ [ ________ ] [ ________ ].%
ARM - 3 Year /6 Month........................... [ ________ ] $ [ ________ ] [ ________ ].
Fixed Rate...................................... [ ________ ] $ [ ________ ] [ ________ ].
----------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.%
----------------- --------------------- ------------------
GROUP I
PRINCIPAL BALANCE
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
RANGE OF STATISTIC STATISTIC AGGREGATE AGGREGATE
CALCULATION DATE PRINCIPAL BALANCE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------- ----------------- --------------------- -------------------
$0.01 to $50,000.00....................... [ ________ ] $ [ ________ ] [ ________ ]
$50,000.01 to $100,000.00...................... [ ________ ] [ ________ ] [ ________ ]
$100,000.01 to $150,000.00...................... [ ________ ] [ ________ ] [ ________ ]
$150,000.01 to $200,000.00...................... [ ________ ] [ ________ ] [ ________ ]
$200,000.01 to $250,000.00...................... [ ________ ] [ ________ ] [ ________ ]
$250,000.01 to $300,000.00...................... [ ________ ] [ ________ ] [ ________ ]
$300,000.01 to $350,000.00...................... [ ________ ] [ ________ ] [ ________ ]
$350,000.01 to $400,000.00...................... [ ________ ] [ ________ ] [ ________ ]
$400,000.01 to $450,000.00...................... [ ________ ] [ ________ ] [ ________ ]
----------------- --------------------- -------------------
Total......................................... [ ________ ] $ [ ________ ] 100.00%
----------------- --------------------- -------------------
A-1
GROUP I
CURRENT MORTGAGE RATES
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
CURRENT MORTGAGE RATES CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- ----------------- ----------------- ------------------
5.001% to 5.500%.............................. [ ________ ] $ [ ________ ] [ ________ ]
5.501% to 6.000%.............................. [ ________ ] [ ________ ] [ ________ ]
6.001% to 6.500%.............................. [ ________ ] [ ________ ] [ ________ ]
6.501% to 7.000%.............................. [ ________ ] [ ________ ] [ ________ ]
7.001% to 7.500%.............................. [ ________ ] [ ________ ] [ ________ ]
7.501% to 8.000%.............................. [ ________ ] [ ________ ] [ ________ ]
8.001% to 8.500%.............................. [ ________ ] [ ________ ] [ ________ ]
8.501% to 9.000%.............................. [ ________ ] [ ________ ] [ ________ ]
9.001% to 9.500%.............................. [ ________ ] [ ________ ] [ ________ ]
9.501% to 10.000%.............................. [ ________ ] [ ________ ] [ ________ ]
10.001% to 10.500%.............................. [ ________ ] [ ________ ] [ ________ ]
10.501% to 11.000%.............................. [ ________ ] [ ________ ] [ ________ ]
11.001% to 11.500%.............................. [ ________ ] [ ________ ] [ ________ ]
11.501% to 12.000%.............................. [ ________ ] [ ________ ] [ ________ ]
12.001% to 12.500%.............................. [ ________ ] [ ________ ] [ ________ ]
12.501% to 13.000%.............................. [ ________ ] [ ________ ] [ ________ ]
13.001% to 13.500%.............................. [ ________ ] [ ________ ] [ ________ ]
13.501% to 14.000%.............................. [ ________ ] [ ________ ] [ ________ ]
14.501% to 15.000%.............................. [ ________ ] [ ________ ] [ ________ ]
-------------- --------------------- -------------------
Total......................................... [ ________ ] $ [ ________ ] 100.00%
-------------- --------------------- -------------------
GROUP I
ORIGINAL TERM
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
ORIGINAL TERM (MONTHS) CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- ----------------- --------------------- -------------------
109 to 120....................................... [ ________ ] $ [ ________ ] [ ________ ]
121 to 132....................................... [ ________ ] [ ________ ] [ ________ ]
169 to 180....................................... [ ________ ] [ ________ ] [ ________ ]
181 to 192....................................... [ ________ ] [ ________ ] [ ________ ]
193 to 204....................................... [ ________ ] [ ________ ] [ ________ ]
229 to 240....................................... [ ________ ] [ ________ ] [ ________ ]
289 to 300....................................... [ ________ ] [ ________ ] [ ________ ]
325 to 336....................................... [ ________ ] [ ________ ] [ ________ ]
349 to 360....................................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- -------------------
Total......................................... [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- -------------------
A-2
GROUP I
REMAINING TERM TO STATED MATURITY
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
REMAINING TERM TO STATISTIC AGGREGATE AGGREGATE
STATED MATURITY (MONTHS) CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------ ----------------- --------------------- -------------------
1 to 12....................................... [ ________ ] $ [ ________ ] [ ________ ]
61 to 72....................................... [ ________ ] [ ________ ] [ ________ ]
109 to 120....................................... [ ________ ] [ ________ ] [ ________ ]
169 to 180....................................... [ ________ ] [ ________ ] [ ________ ]
193 to 204....................................... [ ________ ] [ ________ ] [ ________ ]
229 to 240....................................... [ ________ ] [ ________ ] [ ________ ]
289 to 300....................................... [ ________ ] [ ________ ] [ ________ ]
325 to 336....................................... [ ________ ] [ ________ ] [ ________ ]
349 to 360....................................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- -------------------
Total......................................... [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- -------------------
GROUP I
ORIGINAL LOAN-TO-VALUE RATIOS
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
ORIGINAL LOAN-TO-VALUE RATIO CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------- ----------------- --------------------- ------------------
Less than 50.00%................................. [ ________ ] $ [ ________ ] [ ________ ]
50.01% to 60.00%................................ [ ________ ] [ ________ ] [ ________ ]
60.01% to 70.00%................................ [ ________ ] [ ________ ] [ ________ ]
70.01% to 75.00%................................ [ ________ ] [ ________ ] [ ________ ]
75.01% to 80.00%................................ [ ________ ] [ ________ ] [ ________ ]
80.01% to 85.00%................................ [ ________ ] [ ________ ] [ ________ ]
85.01% to 90.00%................................ [ ________ ] [ ________ ] [ ________ ]
90.01% to 95.00%................................ [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- -------------------
Total......................................... [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- -------------------
GROUP I
OCCUPANCY
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
ORIGINAL LOAN-TO-VALUE RATIO CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------- ----------------- --------------------- ------------------
Primary......................................... [ ________ ] $ [ ________ ] [ ________ ]
Non-Owner Occupied.............................. [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- -------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- -------------------
A-3
GROUP I
PROPERTY TYPE
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
PROPERTY TYPE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- ----------------- --------------------- -------------------
Single Family Residence......................... [ ________ ] $ [ ________ ] [ ________ ]
Two-Four Family................................. [ ________ ] [ ________ ] [ ________ ]
Condominium..................................... [ ________ ] [ ________ ] [ ________ ]
Manufactured Housing............................ [ ________ ] [ ________ ] [ ________ ]
Unknown......................................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP I
ORIGINATOR
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
ORIGINATOR CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------- ----------------- --------------------- -------------------
Broker/Wholesale................................ [ ________ ] $ [ ________ ] [ ________ ]
National Loan Center............................ [ ________ ] [ ________ ] [ ________ ]
National Loan Center - Irvine................... [ ________ ] [ ________ ] [ ________ ]
Retail.......................................... [ ________ ] [ ________ ] [ ________ ]
Unaffiliated Originator......................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
A-4
GROUP I
GEOGRAPHIC DISTRIBUTION BY STATE
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
STATE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----- ----------------- --------------------- -------------------
Arizona......................................... [ ________ ] $ [ ________ ] [ ________ ]
Arkansas........................................ [ ________ ] [ ________ ] [ ________ ]
California...................................... [ ________ ] [ ________ ] [ ________ ]
Colorado........................................ [ ________ ] [ ________ ] [ ________ ]
Connecticut..................................... [ ________ ] [ ________ ] [ ________ ]
Delaware........................................ [ ________ ] [ ________ ] [ ________ ]
Florida......................................... [ ________ ] [ ________ ] [ ________ ]
Georgia......................................... [ ________ ] [ ________ ] [ ________ ]
Hawaii.......................................... [ ________ ] [ ________ ] [ ________ ]
Idaho........................................... [ ________ ] [ ________ ] [ ________ ]
Illinois........................................ [ ________ ] [ ________ ] [ ________ ]
Indiana......................................... [ ________ ] [ ________ ] [ ________ ]
Iowa............................................ [ ________ ] [ ________ ] [ ________ ]
Kansas.......................................... [ ________ ] [ ________ ] [ ________ ]
Kentucky........................................ [ ________ ] [ ________ ] [ ________ ]
Louisiana....................................... [ ________ ] [ ________ ] [ ________ ]
Maine........................................... [ ________ ] [ ________ ] [ ________ ]
Maryland........................................ [ ________ ] [ ________ ] [ ________ ]
Massachusetts................................... [ ________ ] [ ________ ] [ ________ ]
Michigan........................................ [ ________ ] [ ________ ] [ ________ ]
Minnesota....................................... [ ________ ] [ ________ ] [ ________ ]
Mississippi..................................... [ ________ ] [ ________ ] [ ________ ]
Missouri........................................ [ ________ ] [ ________ ] [ ________ ]
Montana......................................... [ ________ ] [ ________ ] [ ________ ]
Nebraska........................................ [ ________ ] [ ________ ] [ ________ ]
Nevada.......................................... [ ________ ] [ ________ ] [ ________ ]
New Hampshire................................... [ ________ ] [ ________ ] [ ________ ]
New Jersey...................................... [ ________ ] [ ________ ] [ ________ ]
New Mexico...................................... [ ________ ] [ ________ ] [ ________ ]
New York........................................ [ ________ ] [ ________ ] [ ________ ]
North Carolina.................................. [ ________ ] [ ________ ] [ ________ ]
North Dakota.................................... [ ________ ] [ ________ ] [ ________ ]
Ohio............................................ [ ________ ] [ ________ ] [ ________ ]
Oklahoma........................................ [ ________ ] [ ________ ] [ ________ ]
Oregon.......................................... [ ________ ] [ ________ ] [ ________ ]
Pennsylvania.................................... [ ________ ] [ ________ ] [ ________ ]
Rhode Island.................................... [ ________ ] [ ________ ] [ ________ ]
South Carolina.................................. [ ________ ] [ ________ ] [ ________ ]
South Dakota.................................... [ ________ ] [ ________ ] [ ________ ]
Tennessee....................................... [ ________ ] [ ________ ] [ ________ ]
Texas........................................... [ ________ ] [ ________ ] [ ________ ]
Utah............................................ [ ________ ] [ ________ ] [ ________ ]
Virginia........................................ [ ________ ] [ ________ ] [ ________ ]
Washington...................................... [ ________ ] [ ________ ] [ ________ ]
West Virginia................................... [ ________ ] [ ________ ] [ ________ ]
Wisconsin....................................... [ ________ ] [ ________ ] [ ________ ]
Wyoming......................................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
<
A-5
GROUP I
DOCUMENTATION LEVEL
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
DOCUMENTATION LEVEL CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------- ----------------- --------------------- -------------------
Full............................................ [ ________ ] $ [ ________ ] [ ________ ]
Stated Documentation............................ [ ________ ] [ ________ ] [ ________ ]
Light........................................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP I
CREDIT GRADE
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
CREDIT GRADE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------- ----------------- --------------------- -------------------
A+.............................................. [ ________ ] $ [ ________ ] [ ________ ]
A............................................... [ ________ ] [ ________ ] [ ________ ]
A-.............................................. [ ________ ] [ ________ ] [ ________ ]
B+.............................................. [ ________ ] [ ________ ] [ ________ ]
B............................................... [ ________ ] [ ________ ] [ ________ ]
B-.............................................. [ ________ ] [ ________ ] [ ________ ]
C+.............................................. [ ________ ] [ ________ ] [ ________ ]
C............................................... [ ________ ] [ ________ ] [ ________ ]
C-.............................................. [ ________ ] [ ________ ] [ ________ ]
D............................................... [ ________ ] [ ________ ] [ ________ ]
S............................................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP I
FICO SCORE
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
FICO SCORE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------- ----------------- --------------------- -------------------
451 to 500....................................... [ ________ ] $ [ ________ ] [ ________ ]
501 to 550....................................... [ ________ ] [ ________ ] [ ________ ]
551 to 600....................................... [ ________ ] [ ________ ] [ ________ ]
601 to 650....................................... [ ________ ] [ ________ ] [ ________ ]
651 to 700....................................... [ ________ ] [ ________ ] [ ________ ]
701 to 750....................................... [ ________ ] [ ________ ] [ ________ ]
751 to 800....................................... [ ________ ] [ ________ ] [ ________ ]
801 to 360....................................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total......................................... [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
A-6
GROUP I
PREPAYMENT PENALTIES
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
PREPAYMENT PENALTY STATUS CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------- ----------------- --------------------- -------------------
No Prepayment Penalty........................... [ ________ ] $ [ ________ ] [ ________ ]
Prepayment Penalty.............................. [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP I
LOAN PURPOSE
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
LOAN PURPOSE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------ ----------------- --------------------- -------------------
Refinance - Cashout............................. [ ________ ] $ [ ________ ] [ ________ ]
Refinance - Rate Term........................... [ ________ ] [ ________ ] [ ________ ]
Purchase........................................ [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP I HYBRID LOANS
MARGINS
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
MARGIN CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------ ----------------- --------------------- -------------------
4.001% to 4.500%.............................. [ ________ ] $ [ ________ ] [ ________ ]
5.001% to 5.500%.............................. [ ________ ] [ ________ ] [ ________ ]
5.501% to 6.000%.............................. [ ________ ] [ ________ ] [ ________ ]
6.001% to 6.500%.............................. [ ________ ] [ ________ ] [ ________ ]
6.501% to 7.000%.............................. [ ________ ] [ ________ ] [ ________ ]
7.001% to 7.500%.............................. [ ________ ] [ ________ ] [ ________ ]
7.501% to 8.000%.............................. [ ________ ] [ ________ ] [ ________ ]
8.001% to 8.500%.............................. [ ________ ] [ ________ ] [ ________ ]
9.501% to 10.000%.............................. [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total......................................... [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
A-7
GROUP I HYBRID LOANS
NEXT RATE ADJUSTMENT DATE
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
NEXT RATE STATISTIC AGGREGATE AGGREGATE
ADJUSTMENT DATE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------- ----------------- --------------------- -------------------
[Month] [Day], 20__............................. [ ________ ] $ [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP I HYBRID LOANS
MAXIMUM MORTGAGE RATES
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
MAXIMUM MORTGAGE RATES CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------- ----------------- --------------------- -------------------
12.001% to 12.500%.............................. [ ________ ] $ [ ________ ] [ ________ ]
12.501% to 13.000%.............................. [ ________ ] [ ________ ] [ ________ ]
13.001% to 13.500%.............................. [ ________ ] [ ________ ] [ ________ ]
13.501% to 14.000%.............................. [ ________ ] [ ________ ] [ ________ ]
14.001% to 14.500%.............................. [ ________ ] [ ________ ] [ ________ ]
14.501% to 15.000%.............................. [ ________ ] [ ________ ] [ ________ ]
15.001% to 15.500%.............................. [ ________ ] [ ________ ] [ ________ ]
15.501% to 16.000%.............................. [ ________ ] [ ________ ] [ ________ ]
16.001% to 16.500%.............................. [ ________ ] [ ________ ] [ ________ ]
16.501% to 17.000%.............................. [ ________ ] [ ________ ] [ ________ ]
17.001% to 17.500%.............................. [ ________ ] [ ________ ] [ ________ ]
17.501% to 18.000%.............................. [ ________ ] [ ________ ] [ ________ ]
18.001% to 18.500%.............................. [ ________ ] [ ________ ] [ ________ ]
18.501% to 19.000%.............................. [ ________ ] [ ________ ] [ ________ ]
19.001% to 19.500%.............................. [ ________ ] [ ________ ] [ ________ ]
19.501% to 20.000%.............................. [ ________ ] [ ________ ] [ ________ ]
20.501% to 21.000%.............................. [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total......................................... [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
A-8
GROUP I HYBRID LOANS
MINIMUM MORTGAGE RATES
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
MINIMUM MORTGAGE RATES CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- ----------------- --------------------- -------------------
6.001% to 6.500%.............................. [ ________ ] $ [ ________ ] [ ________ ]
6.501% to 7.000%.............................. [ ________ ] [ ________ ] [ ________ ]
7.001% to 7.500%.............................. [ ________ ] [ ________ ] [ ________ ]
7.501% to 8.000%.............................. [ ________ ] [ ________ ] [ ________ ]
8.001% to 8.500%.............................. [ ________ ] [ ________ ] [ ________ ]
8.501% to 9.000%.............................. [ ________ ] [ ________ ] [ ________ ]
9.001% to 9.500%.............................. [ ________ ] [ ________ ] [ ________ ]
9.501% to 10.000%.............................. [ ________ ] [ ________ ] [ ________ ]
10.001% to 10.500%.............................. [ ________ ] [ ________ ] [ ________ ]
10.501% to 11.000%.............................. [ ________ ] [ ________ ] [ ________ ]
11.001% to 11.500%.............................. [ ________ ] [ ________ ] [ ________ ]
11.501% to 12.000%.............................. [ ________ ] [ ________ ] [ ________ ]
12.001% to 12.500%.............................. [ ________ ] [ ________ ] [ ________ ]
12.501% to 13.000%.............................. [ ________ ] [ ________ ] [ ________ ]
13.001% to 13.500%.............................. [ ________ ] [ ________ ] [ ________ ]
13.501% to 14.000%.............................. [ ________ ] [ ________ ] [ ________ ]
14.501% to 15.000%.............................. [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total......................................... [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
A-9
GROUP II
PRODUCT TYPE
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
ADJUSTMENT TYPE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------- ----------------- --------------------- -------------------
ARM - 2 Year/6 Month........................... [ ________ ] $ [ ________ ] [ ________ ]
ARM - 3 Year/6 Month........................... [ ________ ] [ ________ ] [ ________ ]
ARM - 5 Year/6 Month........................... [ ________ ] [ ________ ] [ ________ ]
Fixed Rate..................................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total....................................... [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP II
PRINCIPAL BALANCE
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
RANGE OF STATISTIC STATISTIC AGGREGATE AGGREGATE
CALCULATION DATE PRINCIPAL BALANCE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------------- ----------------- --------------------- -------------------
$0.01 to $50,000.00...................... [ ________ ] $ [ ________ ] [ ________ ]%
$100,000.01 to $150,000.00...................... [ ________ ] [ ________ ] [ ________ ]
$300,000.01 to $350,000.00...................... [ ________ ] [ ________ ] [ ________ ]
$350,001.00 to $400,000.00...................... [ ________ ] [ ________ ] [ ________ ]
$400,000.01 to $450,000.00...................... [ ________ ] [ ________ ] [ ________ ]
$450,000.01 to $500,000.00...................... [ ________ ] [ ________ ] [ ________ ]
$500,000.01 to $550,000.00...................... [ ________ ] [ ________ ] [ ________ ]
$550,000.01 to $600,000.00...................... [ ________ ] [ ________ ] [ ________ ]
$700,000.01 to $750,000.00...................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total......................................... [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP II
CURRENT MORTGAGE RATES
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
CURRENT MORTGAGE RATES CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- ----------------- --------------------- -------------------
5.501% to 6.000%.............................. [ ________ ] $ [ ________ ] [ ________ ]%
6.001% to 6.500%.............................. [ ________ ] [ ________ ] [ ________ ]
6.501% to 7.000%.............................. [ ________ ] [ ________ ] [ ________ ]
7.001% to 7.500%.............................. [ ________ ] [ ________ ] [ ________ ]
7.501% to 8.000%.............................. [ ________ ] [ ________ ] [ ________ ]
8.001% to 8.500%.............................. [ ________ ] [ ________ ] [ ________ ]
8.501% to 9.000%.............................. [ ________ ] [ ________ ] [ ________ ]
9.001% to 9.500%.............................. [ ________ ] [ ________ ] [ ________ ]
9.501% to 10.000%.............................. [ ________ ] [ ________ ] [ ________ ]
11.501% to 12.000%.............................. [ ________ ] [ ________ ] [ ________ ]
12.501% to 13.000%.............................. [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total......................................... [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
A-10
GROUP II
ORIGINAL TERM
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
ORIGINAL TERM (MONTHS) CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- ----------------- --------------------- -------------------
169 to 180....................................... [ ________ ] $ [ ________ ] [ ________ ]%
229 to 240....................................... [ ________ ] [ ________ ] [ ________ ]
349 to 360....................................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total......................................... [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP II
REMAINING TERM TO STATED MATURITY
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
REMAINING TERM TO STATISTIC AGGREGATE AGGREGATE
STATED MATURITY (MONTHS) CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------ ----------------- --------------------- -------------------
169 to 180....................................... [ ________ ] $ [ ________ ] [ ________ ]
229 to 240....................................... [ ________ ] [ ________ ] [ ________ ]
349 to 360....................................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total......................................... [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP II
ORIGINAL LOAN-TO-VALUE RATIOS
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
ORIGINAL LOAN-TO-VALUE RATIO CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------- ----------------- --------------------- -------------------
Less than 50.00%................................ [ ________ ] $ [ ________ ] [ ________ ]
50.01% to 60.00%................................ [ ________ ] [ ________ ] [ ________ ]
60.01% to 70.00%................................ [ ________ ] [ ________ ] [ ________ ]
70.01% to 75.00%................................ [ ________ ] [ ________ ] [ ________ ]
75.01% to 80.00%................................ [ ________ ] [ ________ ] [ ________ ]
80.01% to 85.00%................................ [ ________ ] [ ________ ] [ ________ ]
85.01% to 90.00%................................ [ ________ ] [ ________ ] [ ________ ]
90.01% to 95.00%................................ [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
A-11
GROUP II
OCCUPANCY
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
ORIGINAL LOAN-TO-VALUE RATIO CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------------- ----------------- --------------------- -------------------
Primary......................................... [ ________ ] $ [ ________ ] [ ________ ]
Non-Owner Occupied.............................. [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP II
PROPERTY TYPE
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
PROPERTY TYPE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------- ----------------- --------------------- -------------------
Single Family Residence......................... [ ________ ] $ [ ________ ] [ ________ ]
Condominium..................................... [ ________ ] [ ________ ] [ ________ ]
Two-Four Family................................. [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP II
ORIGINATOR
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
ORIGINATOR CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------- ----------------- --------------------- -------------------
Broker/Wholesale................................ [ ________ ] $ [ ________ ] [ ________ ]
National Loan Center............................ [ ________ ] [ ________ ] [ ________ ]
National Loan Center - Irvine................... [ ________ ] [ ________ ] [ ________ ]
Retail.......................................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
A-12
GROUP II
GEOGRAPHIC DISTRIBUTION BY STATE
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
STATE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ----- ----------------- --------------------- -------------------
California...................................... [ ________ ] $ [ ________ ] [ ________ ]
Florida......................................... [ ________ ] [ ________ ] [ ________ ]
Hawaii.......................................... [ ________ ] [ ________ ] [ ________ ]
Illinois........................................ [ ________ ] [ ________ ] [ ________ ]
Louisiana....................................... [ ________ ] [ ________ ] [ ________ ]
Massachusetts................................... [ ________ ] [ ________ ] [ ________ ]
Michigan........................................ [ ________ ] [ ________ ] [ ________ ]
Minnesota....................................... [ ________ ] [ ________ ] [ ________ ]
Nevada.......................................... [ ________ ] [ ________ ] [ ________ ]
New Hampshire................................... [ ________ ] [ ________ ] [ ________ ]
New Jersey...................................... [ ________ ] [ ________ ] [ ________ ]
New York........................................ [ ________ ] [ ________ ] [ ________ ]
Ohio............................................ [ ________ ] [ ________ ] [ ________ ]
Pennsylvania.................................... [ ________ ] [ ________ ] [ ________ ]
Texas........................................... [ ________ ] [ ________ ] [ ________ ]
Washington...................................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP II
DOCUMENTATION LEVEL
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
DOCUMENTATION LEVEL CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------- ----------------- --------------------- -------------------
Full............................................ [ ________ ] $ [ ________ ] [ ________ ]
Stated Documentation............................ [ ________ ] [ ________ ] [ ________ ]
Light........................................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
A-13
GROUP II
CREDIT GRADE
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
CREDIT GRADE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------ ----------------- --------------------- -------------------
A+.............................................. [ ________ ] $ [ ________ ] [ ________ ]%
A............................................... [ ________ ] [ ________ ] [ ________ ]
A-.............................................. [ ________ ] [ ________ ] [ ________ ]
B............................................... [ ________ ] [ ________ ] [ ________ ]
C............................................... [ ________ ] [ ________ ] [ ________ ]
C-.............................................. [ ________ ] [ ________ ] [ ________ ]
S............................................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP II
FICO SCORE
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
FICO SCORE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------- ----------------- --------------------- -------------------
451 to 500....................................... [ ________ ] $ [ ________ ] [ ________ ]%
501 to 550....................................... [ ________ ] [ ________ ] [ ________ ]
551 to 600....................................... [ ________ ] [ ________ ] [ ________ ]
601 to 650....................................... [ ________ ] [ ________ ] [ ________ ]
651 to 700....................................... [ ________ ] [ ________ ] [ ________ ]
701 to 750....................................... [ ________ ] [ ________ ] [ ________ ]
751 to 800....................................... [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total......................................... [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP II
PREPAYMENT PENALTIES
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
PREPAYMENT PENALTY STATUS CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------------------- ----------------- --------------------- -------------------
No Prepayment Penalty........................... [ ________ ] $ [ ________ ] [ ________ ]
Prepayment Penalty.............................. [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
A-14
GROUP II
LOAN PURPOSE
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
LOAN PURPOSE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------------ ----------------- --------------------- -------------------
Refinance - Cashout............................. [ ________ ] $ [ ________ ] [ ________ ]
Refinance - Rate Term........................... [ ________ ] [ ________ ] [ ________ ]
Purchase........................................ [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP II HYBRID LOANS
MARGINS
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
MARGIN CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ------ ----------------- --------------------- -------------------
5.001% to 5.500%.............................. [ ________ ] $ [ ________ ] [ ________ ]%
5.501% to 6.000%.............................. [ ________ ] [ ________ ] [ ________ ]
6.001% to 6.500%.............................. [ ________ ] [ ________ ] [ ________ ]
6.501% to 7.000%.............................. [ ________ ] [ ________ ] [ ________ ]
7.001% to 7.500%.............................. [ ________ ] [ ________ ] [ ________ ]
7.501% to 8.000%.............................. [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP II HYBRID LOANS
NEXT RATE ADJUSTMENT DATE
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
NEXT RATE STATISTIC AGGREGATE AGGREGATE
ADJUSTMENT DATE CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- --------------- ----------------- --------------------- -------------------
[Month] [Day], 20__............................. [ ________ ] $ [ ________ ] [ ________ ]%
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
[Month] [Day], 20__............................. [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total........................................ [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
A-15
GROUP II HYBRID LOANS
MAXIMUM MORTGAGE RATES
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
MAXIMUM MORTGAGE RATES CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- ----------------- --------------------- -------------------
12.501% to 13.000%.............................. [ ________ ] $ [ ________ ] [ ________ ]%
13.001% to 13.500%.............................. [ ________ ] [ ________ ] [ ________ ]
14.001% to 14.500%.............................. [ ________ ] [ ________ ] [ ________ ]
14.501% to 15.000%.............................. [ ________ ] [ ________ ] [ ________ ]
15.501% to 16.000%.............................. [ ________ ] [ ________ ] [ ________ ]
16.501% to 17.000%.............................. [ ________ ] [ ________ ] [ ________ ]
18.501% to 19.000%.............................. [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total......................................... [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
GROUP II HYBRID LOANS
MINIMUM MORTGAGE RATES
PERCENTAGE OF
GROUP I
STATISTIC STATISTIC
NUMBER OF CALCULATION DATE CALCULATION DATE
STATISTIC AGGREGATE AGGREGATE
MINIMUM MORTGAGE RATES CALCULATION LOANS PRINCIPAL BALANCE PRINCIPAL BALANCE
- ---------------------- ----------------- --------------------- -------------------
6.501% to 7.000%.............................. [ ________ ] $ [ ________ ] [ ________ ]%
7.001% to 7.500%.............................. [ ________ ] [ ________ ] [ ________ ]
8.001% to 8.500%.............................. [ ________ ] [ ________ ] [ ________ ]
8.501% to 9.000%.............................. [ ________ ] [ ________ ] [ ________ ]
9.501% to 10.000%.............................. [ ________ ] [ ________ ] [ ________ ]
11.501% to 12.000%.............................. [ ________ ] [ ________ ] [ ________ ]
12.501% to 13.000%.............................. [ ________ ] [ ________ ] [ ________ ]
---------------- --------------------- ------------------
Total......................................... [ ________ ] $ [ ________ ] 100.00%
---------------- --------------------- ------------------
A-16
ANNEX B
GLOBAL CLEARANCE, SETTLEMENT AND
TAX DOCUMENTATION PROCEDURES
Except under limited circumstances, the globally offered Mortgage
Pass-Through Certificates, Series 200 _____ - _____, referred to as global
securities will be available only in book-entry form. Investors in the global
securities may hold the global securities through any of DTC or, upon request,
Euroclear or Clearstream, Luxembourg. The global securities will be tradable as
home market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding global securities
through Euroclear and Clearstream, Luxembourg will be conducted in the ordinary
way in accordance with their normal rules and operating procedures and in
accordance with conventional eurobond practice i.e., seven calendar day
settlement.
Secondary market trading between investors holding global securities
through DTC will he conducted according to the rules and procedures applicable
to U.S. corporate debt obligations and prior Mortgage Pass-Through Certificates
issues.
Secondary cross-market trading between Euroclear or Clearstream,
Luxembourg and DTC participants holding Certificates will be effected on a
delivery-against-payment basis through the respective depositaries of Euroclear
and Clearstream, Luxembourg and as DTC participants.
Non-U.S. holders as described below of global securities will be
subject to U.S. withholding taxes unless the holders meet established
requirements and deliver appropriate U.S. tax documents to the securities
clearing organizations or their participants
INITIAL Settlement
All global securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the global
securities will be represented through financial institutions acting on their
behalf as direct and indirect participants in DTC. As a result, Euroclear and
Clearstream, Luxembourg will hold positions on behalf of their participants
through their respective depositaries, which in turn will hold the positions in
accounts as DTC participants.
Investors electing to hold their global securities through DTC will
follow the settlement practices applicable to prior Mortgage Pass-Through
Certificates issues. Investor securities custody accounts will be credited with
their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their global securities through Euroclear or
Clearstream, Luxembourg accounts will follow the settlement procedures
applicable to conventional eurobonds, except that there will be no temporary
global security and no "lock-up" or restricted period. Global securities will be
credited to the securities custody accounts on the settlement date against
payment in same-day funds
B-1
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and sellers'
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
participants will be settled using the procedures applicable to prior Home
Equity Loan Asset-Backed Certificates issues in same-day funds.
Trading between Euroclear and/or Clearstream, Luxembourg Participants.
Secondary market trading between Euroclear participants or Clearstream,
Luxembourg participants will be settled using the procedures applicable to
conventional eurobonds in same-day funds.
Trading between DTC Seller and Euroclear or Clearstream, Luxembourg
Purchaser. When global securities are to be transferred from the account of a
DTC participant to the account of a Euroclear participant or a Clearstream,
Luxembourg participant, the purchaser will send instructions to Euroclear or
Clearstream, Luxembourg through a Euroclear participant or Clearstream,
Luxembourg participant at least one business day prior to settlement. Euroclear
or Clearstream, Luxembourg will instruct the respective depositary, as the case
may be, to receive the global securities against payment. Payment will include
interest accrued on the global securities from and including the last coupon
payment date to and excluding the settlement date, on the basis of either the
actual number of days in the accrual period and a year assumed to consist of 360
days or a 360-day year of twelve 30-day months as applicable to the related
class of global securities. For transactions settling on the 31st of the month,
payment will include interest accrued to and excluding the first day of the
following month. Payment will then be made by the respective depositary of the
DTC participant's account against delivery of the global securities. After
settlement has been completed, the global securities will be credited to the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Euroclear participant's or Clearstream, Luxembourg
participant's account, The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the global
securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Euroclear or Clearstream,
Luxembourg cash debt will be valued instead as of the actual settlement date.
Euroclear participants and Clearstream, Luxembourg participants will
need to make available to the respective clearing systems the funds necessary to
process same-day funds settlement. The most direct means of doing so is to
preposition funds for settlement, either from cash on hand or existing lines of
credit, as they would for any settlement occurring within Euroclear or
Clearstream, Luxembourg. Under this approach, they may take on credit exposure
to Euroclear or Clearstream, Luxembourg until the global securities are credited
to their accounts one day later.
As an alternative, if Euroclear or Clearstream, Luxembourg has extended
a line of credit to them, Euroclear participants or Clearstream, Luxembourg
participants can elect not to preposition funds and allow that credit line to be
drawn upon the finance settlement. Under this procedure, Euroclear participants
or Clearstream, Luxembourg participants purchasing global securities would incur
overdraft charges for one day, assuming they cleared the overdraft when the
global securities were credited to their accounts. However, interest on the
global securities would accrue from the value date. Therefore, in many cases the
B-2
investment income on the global securities earned during that one-day period may
substantially reduce or offset the amount of the overdraft charges, although
this result will depend on each Euroclear participant's or Clearstream,
Luxembourg participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC participants can employ their usual procedures for sending global securities
to the respective European depositary for the benefit of Euroclear participants
or Clearstream, Luxembourg participants. The sale proceeds will be available to
the DTC Seller on the settlement date. Thus, to the DTC participants a
cross-market transaction will settle no differently than a trade between two DTC
participants.
Trading between Euroclear or Clearstream, Luxembourg Seller and DTC
Purchaser. Due to time zone differences in their favor, Euroclear participants
and Clearstream, Luxembourg participants may employ their customary procedures
for transactions in which global securities are to be transferred by the
respective clearing system, through the respective depositary, to a DTC
participant. The seller will send instructions to Euroclear or Clearstream,
Luxembourg through a Euroclear participant or Clearstream, Luxembourg
participant at least one business day prior to settlement. In these cases
Euroclear or Clearstream, Luxembourg will instruct the respective depositary, as
appropriate, to deliver the global securities to the DTC participant's account
against payment. Payment will include interest accrued on the global securities
from and including the last coupon payment to and excluding the settlement date
on the basis of either the actual number of days in the accrual period and a
year assumed to consist of 360 days or a 360-day year of twelve 30-day months as
applicable to the related class of global securities, For transactions settling
on the 31st of the month, payment will include interest accrued to and excluding
the first day of the following month. The payment will then be reflected in the
account of the Euroclear participant or Clearstream, Luxembourg participant the
following day, and receipt of the cash proceeds in the Euroclear participant's
or Clearstream, Luxembourg participant's account would be back-valued to the
value date (which would be the preceding day, when settlement occurred in New
York). Should the Euroclear participant or Clearstream, Luxembourg participant
have a line of credit with its respective clearing system and elect to be in
debt in anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft incurred over that one-day period.
If settlement is not completed on the intended value date i.e., the trade fails,
receipt of the cash proceeds in the Euroclear participant's or Clearstream.
Luxembourg participant's account would instead be valued as of the actual
settlement date.
Finally, day traders that use Euroclear or Clearstream, Luxembourg and
that purchase global securities from DTC participants for delivery to Euroclear
participants or Clearstream, Luxembourg participants should note that these
trades would automatically fail on the sale side unless affirmative action were
taken. At least three techniques should be readily available to eliminate this
potential problem:
(a) borrowing through Euroclear or Clearstream, Luxembourg for
one day (until the purchase side of the day trade is reflected in their
Euroclear or Clearstream, Luxembourg accounts) in accordance with the
clearing system's customary procedures;
(b) borrowing the global securities in the U.S. from a DTC
participant no later than one day prior to settlement, which would give
the global securities sufficient time to be reflected in their
Euroclear or Clearstream, Luxembourg account in order to settle the
sale side of the trade; or
B-3
(c) staggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the DTC
participant is at least one day prior to the value date for the sale to
the Euroclear participant or Clearstream, Luxembourg participant
U.S. Federal Income Tax Documentation Requirements
A beneficial owner of global securities holding securities through
Clearstream, Luxembourg or Euroclear (or through DTC if the holder has an
address outside the U.S.) will be subject to the 30% (or in some cases 31%) U.S.
withholding tax that generally applies to payments of interest on registered
debt issued by U.S. persons, unless (1) each clearing system, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business in the chain of intermediaries between the beneficial
owner and the U.S. entity required to withhold tax complies with applicable
certification requirements and (2) the beneficial owner takes one of the
following steps to obtain an exemption or reduced tax rate:
Exemption for non-U.S. persons (Form W-8BEN). Beneficial owners of
global securities that are non-U.S. persons can obtain a complete exemption from
the withholding tax by filing a signed Form W-8BEN. If the information shown on
Form W-8BEN changes, a new Form W-8BEN must be filed within 30 days of the
change.
Exemption for non-U.S. persons with effectively connected income (Form
W-8ECI). A non-U.S. person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form W-8ECI.
Exemption or reduced rate for non-U.S. persons resident in treaty
countries (Form W-8 BEN). Non-U.S. persons that are beneficial owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
W-8BEN (including Part II thereof).
Exemption for U.S. persons (Form W-9). U.S. persons can obtain a
complete exemption from the withholding tax by filing Form W-9.
U.S. Federal income Tax Reporting Procedure. The global securities
holder files by submitting the appropriate form to the person through whom he
holds (e.g., the clearing agency, in the case of persons holding directly on the
books of the clearing agency). Forms W-8 BEN and W-8ECI are generally effective
for three calendar years from the close of the calendar year in which collected.
U.S. Person. As used in this prospectus supplement the term "U.S.
person" means a beneficial owner of a certificate that is for United States
federal income tax purposes
(a) a citizen or resident of the United States,
(b) a corporation or partnership created or organized in or
under the laws of the United States or of any State thereof or the
District of Columbia,
B-4
(c) an estate the income of which is subject to United States
federal income taxation regardless of its source, or
(d) a trust if a court within the United States is able to
exercise primary supervision of the administration of the trust and one
or more United States persons have the authority to control all
substantial decisions of the trust.
Notwithstanding the preceding sentence, to the extent provided in
regulations, trusts in existence on August 20, 1996 and treated as United States
persons prior to that date that elect to continue to be so treated also will be
considered U.S. Persons. As used in this prospectus supplement, the term
"non-U.S. person" means a beneficial owner of a certificate that is not a U.S.
person.
Treasury regulations provide certain presumptions regarding the entity
classification and foreign or U.S. status of a holder that a payor generally
must apply in the absence of appropriate documentation from the holder, and
provide detailed documentation requirements and procedures for holders claiming
withholding tax exemptions through intermediaries. Prospective investors are
urged to consult their tax advisors regarding the effect of these regulations on
their ability to claim and the means for claiming exemptions from or reduced
rates of U.S. withholding taxes.
B-5
SUBJECT TO COMPLETION,
DATED SEPTEMBER 30, 2005
Prospectus
MORTGAGE PASS-THROUGH CERTIFICATES
MORTGAGE BACKED NOTES
-----------------
AAMES CAPITAL CORPORATION,
AS SPONSOR
AAMES CAPITAL ACCEPTANCE CORPORATION,
AS DEPOSITOR
-----------------
-----------------------------------------
|The securities are obligations only of | Securities Offered
|the related trust and are not insured or |
|guaranteed by any governmental agency. | o mortgage pass-through
| | certificates, mortgage-backed
|The securities involve significant | notes or a combination
|risks. We recommend that you review the |
|information under "Risk Factors" in this | o rated in one of the four highest
|prospectus and in the accompanying | rating categories by at least
|prospectus supplement. | one nationally recognized rating
| | organization
|This prospectus must be accompanied by a |
|prospectus supplement for the particular | o not listed on any trading
|series | exchange
-----------------------------------------
Assets
o mortgage loans secured by first
or second liens on residential
or mixed used properties
o securities backed by those types
of mortgage loans
o may include one or more forms of
enhancement
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. MAKING ANY CONTRARY REPRESENTATION IS A
CRIMINAL OFFENSE.
The sponsor or depositor may offer securities through underwriters or
by other methods described under the caption "Method of Distribution."
The date of this prospectus is _______________, 2005
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The sponsor or depositor, as creator of each trust, has filed with the
Securities and Exchange Commission a Registration Statement under the Securities
Act of 1933, as amended, with respect to the notes and the certificates offered
pursuant to this prospectus. The Registration Statement includes information
about the securities which is not included in this prospectus. Prospective
investors may read the Registration Statement and make copies of it at the
Commission's main office located at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the Commission's regional offices located at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 6061-2511 and 233 Broadway,
New York, New York 10279. Prospective investors also may obtain a copy of the
Registration Statement by paying a fee set by the Commission and requesting a
copy from the Public Reference Section of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. Prospective investors who
have access to the Internet also may read the Registration Statement at the
Commission's site on the World Wide Web located at http://www.sec.gov.
Each trust will be required to file with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, (a) a Current Report on Form 8-K each month after the month of
formation of that trust and prior to the expiration of the calendar year in
which that trust was formed and (b) an annual report on Form 10-K within 90 days
after the end of the calendar year in which the trust was formed. Each Form 8-K
will include as an exhibit the monthly statement to securityholders of the
related series. The Form 10-K will include certain summary information about the
trust. Any reports and documents so filed by or on behalf of a trust before the
termination of the offering of the securities of that trust will be incorporated
in this prospectus. If the information incorporated by reference in this
prospectus modifies or changes the information in this prospectus, the modified
or changed information will control, and if any information incorporated by
reference in this prospectus is itself modified or changed by subsequent
information incorporated by reference, the latter information will control. Any
reports and documents that are incorporated in this prospectus will not be
physically included in this prospectus or delivered with this prospectus.
The sponsor or the depositor will provide without charge to each
person, including any beneficial owner of securities, to whom a copy of this
prospectus is delivered, on the written or oral request of any person, a copy of
any or all of the documents incorporated in this prospectus or in any related
prospectus supplement, other than exhibits to the documents unless these
exhibits are specifically incorporated by reference in the document. Written
requests for copies should be directed to General Counsel, Aames Capital
Corporation, 350 South Grand Avenue, 43rd Floor, Los Angeles, California 90071.
Telephone requests for copies should be directed to the sponsor or the
depositor, at (323) 210-5000. IN ORDER TO RECEIVE ANY REQUESTED INFORMATION IN A
TIMELY FASHION, PROSPECTIVE INVESTORS MUST MAKE THEIR REQUESTS NO LATER THAN
FIVE BUSINESS DAYS BEFORE THEY MUST MAKE THEIR INVESTMENT DECISIONS.
2
RISK FACTORS
You should consider carefully the following information, together with
the information set forth under "Risk Factors" in the accompanying prospectus
supplement, since it identifies the principal risk factors associated with an
investment in the securities.
YOU MAY HAVE DIFFICULTY SELLING YOUR
SECURITIES OR OBTAINING YOUR DESIRED PRICE
No market will exist for the
securities before they are issued.
In addition, we cannot give you
any assurance that a resale market
will develop following the
issuance and sale of any series of
the securities. Even if a resale
market does develop, you may not
be able to sell your securities
when you wish or at the price you
want.
ONLY THE ASSETS OF THE RELATED TRUST FUND
ARE AVAILABLE TO PAY YOUR SECURITIES.....
The securities of each series will
be payable solely from the assets
of the related trust fund,
including any applicable credit
enhancement, and will not have a
claim against the assets of any
other trust. In the case of
securities that are in the form of
notes, the related indenture will
require that noteholders proceed
only against the assets of the
related trust fund. We cannot give
you any assurance that the market
value of the assets in any trust
fund will be equal to or greater
than the total principal amount of
the related securities then
outstanding, plus accrued
interest. Moreover, if the assets
of a trust fund are ever sold, the
sale proceeds will be applied
first to reimburse any related
trustee, servicer and credit
enhancement provider for their
unpaid fees and expenses before
any remaining amounts are
distributed to securityholders. In
addition, at the times specified
in the related prospectus
supplement, assets of the trust
fund and the related security
accounts may be released to the
depositor, the servicer, the
credit enhancement provider or
other persons, if
o all payments then due on
the related securities have
been made, and
o any other payments
specified in the related
prospectus supplement have
been made.
Once released, such assets will no
longer be available to make
payments to securityholders.
You will have no recourse against
the depositor or any other person
if any required distribution on
the securities
3
is not made or for any
other default. The only
obligations of the depositor with
respect to a trust fund or the
related securities would result
from a breach of the
representations and warranties
that the depositor may make
concerning the trust assets.
However, because of the
depositor's very limited assets,
even if the depositor should be
required to repurchase a loan from
a particular trust fund because of
the breach of a representation or
warranty, its sole source of funds
for the repurchase would be:
o funds obtained from enforcing
any similar obligation of the
originator of the loan, or
o monies from any reserve fund
established to pay for loan
repurchases.
CREDIT ENHANCEMENT MAY BE INSUFFICIENT TO
PROVIDE AGAINST PARTICULAR RISKS.........
Although credit enhancement is
intended to reduce the effect of
delinquent payments or loan losses
on particular classes of
securities, the amount of any
credit enhancement is subject to
the limits described in the
related prospectus supplement. In
addition, the amount of credit
enhancement may decline or be
depleted before the related
securities are paid in full. As a
result, securityholders may suffer
losses.
PRINCIPAL PAYMENTS ON THE LOANS MAY
ADVERSELY AFFECT THE AVERAGE LIFE OF, AND
RATE OF RETURN ON, YOUR SECURITIES.......
You may be unable to reinvest the
principal payments on your
securities at a rate of return
equal to the rate on your
securities. The timing of
principal payments on the
securities of a series will be
affected by a number of factors,
including the following:
o the extent of prepayments
on the underlying loans in
the trust fund or, if the
trust fund contains
underlying securities, on
the loans backing the
underlying securities;
o how payments of principal
are allocated among the
classes of securities of
that series as specified
in the related prospectus
supplement;
o if any party has an option
to terminate the related
trust early, the effect of
the exercise of
4
the option;
o the rate and timing of
defaults and losses on the
assets in the related
trust fund;
o repurchases of assets in
the related trust fund as
a result of material
breaches of
representations and
warranties made by the
depositor or a seller; and
o in the case of a trust
fund that contains
revolving credit line
loans, any provisions for
non-amortization, early
amortization or scheduled
amortization periods
described in the related
prospectus supplement.
All the above factors may affect
the yield to maturity of the
securities.
THE INTEREST ACCRUAL PERIOD MAY REDUCE THE
EFFECTIVE YIELD ON YOUR SECURITIES.......
Interest payable on the securities
on any given distribution date
will include all interest accrued
during the related interest
accrual period. Each prospectus
supplement will specify the
interest accrual period for the
related securities. If interest
accrues during the calendar month
before the related distribution
date, your effective yield will be
less than it would be if the
interest accrual period ended the
day before the distribution date.
As a result, your effective yield
at par may be less than the
indicated coupon rate.
NEGATIVE AMORTIZATION
PROVISIONS .............................. Certain underlying loans may have
negative amortization features.
Negative amortization occurs when
the amount of interest accruing on
the principal balance of a
mortgage loan at the applicable
mortgage rate exceeds the amount
of the monthly payment on such
mortgage loans and the resulting
excess is added to the unpaid
principal balance of the mortgage
loan. For certain mortgage loans
with a negative amortization
feature, the monthly payment is
increased in order to amortize the
mortgage loan fully by the end of
its original term. Other such
mortgage loans limit the amount by
which the monthly payment can be
increased, which results in a
larger payment at maturity. The
ability of the mortgagor to make
that payment may depend on its
ability to obtain refinancing of
the balance due on the mortgage
loan or to sell the related
mortgaged property. Certain of
these mortgagors may have
5
negative payment histories that
would affect their ability to
refinance. As a result, mortgage
loans with negative amortization
provisions could experience higher
default rates relative to other
mortgage loans.
LOANS WITH BALLOON PAYMENTS MAY INCREASE
YOUR RISK OF LOSS........................ Certain underlying loans may not
be fully amortizing over their
terms to maturity and may require
a substantial principal payment (a
"balloon" payment) at their stated
maturity. Loans of this type
involve greater risk than fully
amortizing loans since the
borrower generally must be able to
refinance the loan or sell the
related property prior to the
loan's maturity date. The
borrower's ability to do so will
depend on such factors as the
level of available mortgage rates
at the time of sale or
refinancing, the relative strength
of the local housing market, the
borrower's equity in the property,
the borrower's general financial
condition and tax laws.
JUNIOR LIEN LOANS GENERALLY ARE RISKIER
THAN SENIOR LIEN LOANS................... If the mortgage loans in a trust
fund are primarily in a junior
lien position, any proceeds from
liquidations, insurance recoveries
or condemnations must be used
first to satisfy the claims of the
related senior lien loans (and
related foreclosure expenses)
before being available to satisfy
the junior lien loans. In
addition, a junior mortgage lender
may only foreclose subject to the
related senior mortgage. As a
result, the junior mortgage lender
must either pay the related senior
mortgage lender in full, at or
before the foreclosure sale, or
agree to make the regular payments
on the senior mortgage. The trust
will not have a source of funds to
satisfy any senior mortgages or to
continue making payments on them.
As a result, the trust's ability,
as a practical matter, to
foreclose on any junior mortgage
loan will be quite limited.
A DECLINE IN PROPERTY VALUES COULD
REDUCE THE AMOUNT AND DELAY THE
TIMING OF RECOVERIES ON DEFAULTED
MORTGAGE LOANS.......................... The following factors, among
others, could adversely affect
property values in such a way that
the outstanding balance of the
related loans, together with any
senior financing on the same
properties, would equal or exceed
those values:
o an overall decline in the
residential real estate
markets where the
properties are located;
o failure of borrowers to
maintain their properties
6
adequately; and
o natural disasters that may
not be covered by hazard
insurance, such as
earthquakes and floods.
If property values decline, actual
rates of delinquencies,
foreclosures and losses on the
underlying loans could be higher
than those currently experienced
by the mortgage lending industry
in general.
SOME MORTGAGED PROPERTIES MAY NOT BE OWNER
OCCUPIED................................. The mortgaged properties in the
trust fund may not be owner
occupied. Rates of delinquencies,
foreclosures and losses on
mortgage loans secured by
non-owner occupied properties may
be higher than those on mortgage
loans secured by the borrower's
primary residence.
MORTGAGE LOANS MAY NOT HAVE SUFFICIENT A trust fund may include mortgage
SECURITY................................. loans with original loan-to-value
ratios (or combined loan-to-value
ratios in the case of junior
loans) greater than 100%. In these
cases, the trust fund could be
treated as a general unsecured
creditor for the unsecured portion
of these loans. If a loan of this
type goes into default, the trust
fund will have recourse only
against the borrower's assets
generally for the unsecured
portion of the loan, along with
the borrower's other general
unsecured creditors. In a
bankruptcy proceeding, the
unsecured portion of the loan may
be discharged, even if the value
of the borrower's assets available
to the trust fund would be
insufficient to pay the remaining
amounts owing on the loan.
IF AMOUNTS IN ANY PRE-FUNDING ACCOUNT ARE
NOT USED TO PURCHASE TRUST ASSETS, YOU WILL
RECEIVE A PREPAYMENT ON THE RELATED
SECURITIES...............................
The related prospectus supplement
may provide that the depositor or
seller will deposit a specified
amount in a pre-funding account on
the date the securities are
issued. In this case, the
deposited funds may be used only
to acquire additional assets for
the trust during a specified
period after the initial issuance
of the securities. Any amounts
remaining in the account at the
end of that period will be
distributed as a prepayment of
principal to the holders of the
related securities. The resulting
prepayment could adversely affect
the yield to maturity on those
securities.
7
BANKRUPTCY LAWS MAY RESULT IN ADVERSE
CLAIMS AGAINST TRUST FUND ASSETS.........
The federal bankruptcy code and
state debtor relief laws may
adversely affect the ability of
the trust fund, as a secured
lender, to realize upon its
security. For example, in a
federal bankruptcy proceeding, a
lender may not foreclose on
mortgaged property without the
bankruptcy court's permission.
Similarly, the debtor may propose
a rehabilitation plan, in the case
of mortgaged property that is not
his principal residence, that
would reduce the amount of the
lender's secured indebtedness to
the value of the property as of
the commencement of the
bankruptcy. As a result, the
lender would be treated as a
general unsecured creditor for the
reduced amount, the amount of the
monthly payments due on the loan
could be reduced, and the interest
rate and loan payment schedule
could be changed.
Any such actions could result in
delays in receiving payments on
the loans underlying the
securities and result in the
reduction of total payments.
BANKRUPTCY OR INSOLVENCY MAY AFFECT THE The seller and the depositor will
TIMING AND AMOUNT OF DISTRIBUTIONS ON THE treat the transfer of the loans
SECURITIES.............................. held in the trust fund by the
seller to the depositor as a sale
for legal purposes. The depositor
and the trust fund will treat the
transfer of the loans from the
depositor to the trust fund as a
sale for legal purposes. If these
characterizations are correct,
then if the seller were to become
bankrupt, the loans would not be
part of the seller's bankruptcy
estate and would not be available
to the seller's creditors. On the
other hand, if the seller becomes
bankrupt, its bankruptcy trustee
or one of its creditors may
attempt to recharacterize the sale
of the loans as a borrowing by the
seller, secured by a pledge of the
loans. Presenting this position to
a bankruptcy court could prevent
timely payments on the securities
and even reduce the payments on
the securities. Similarly, if the
characterizations of the transfers
as sales are correct, then if the
depositor were to become bankrupt,
the loans would not be part of the
depositor's bankruptcy estate and
would not be available to the
depositor's creditors. On the
other hand, if the depositor
becomes bankrupt, its bankruptcy
trustee or one of its creditors
may attempt to recharacterize the
sale of the loans as a borrowing
by the depositor, secured by a
pledge of the loans. Presenting
this position to a bankruptcy
court could prevent timely
payments on the securities and
even reduce the payments on the
securities.
8
ENVIRONMENTAL RISKS MAY ADVERSELY AFFECT
TRUST FUND ASSETS........................
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 that
secure the loans. Failure to
comply with these laws and
regulations can result in fines
and penalties that could be
assessed against the trust fund as
owner of the related property.
In some states, a lien on the
property due to contamination has
priority over the lien of an
existing mortgage. Further, a
mortgage lender may be held liable
as an "owner" or "operator" for
costs associated with the release
of petroleum from an underground
storage tank under certain
circumstances. If the trust fund
is considered the owner or
operator of a property, it will
suffer losses as a result of any
liability imposed for
environmental hazards on the
property.
CONSUMER PROTECTION LAWS MAY ADVERSELY
AFFECT TRUST FUND
ASSETS................................... The loans and contracts in each
trust fund also may be subject to
federal laws relating to loan
origination and underwriting.
These laws
o require certain disclosures
to the borrowers regarding
the terms of the loans;
o 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;
o regulate the use and
reporting of information
related to the borrower's
credit experience; and
o require additional
application disclosures,
limit changes that may be
made to the loan documents
without the borrower's
consent and restrict a
lender's ability to declare a
default or to suspend or
reduce a borrower's credit
limit to certain enumerated
events.
Loans may also be subject to
federal, state or local laws that
impose additional disclosure
requirements and other
9
restrictions on creditors with
respect to mortgage loans with
high interest rates or high
up-front fees and charges. These
laws can impose specific
liabilities upon creditors that
fail to comply and may affect the
enforceability of the related
loans.
In addition, the trust
fund, as assignee of the creditor,
would generally be subject to all
claims and defenses that the
borrower could assert against the
creditor, including the right to
rescind the loan. If certain
provisions of these laws are
violated, the servicer may be
unable to collect all or part of
the principal or interest on the
loans. The trust fund also could
be subject to damages and
administrative enforcement.
SUBORDINATE SECURITIES ARE SUBJECT TO
ADDITIONAL RISK.......................... If you invest in any class of
subordinate securities, your
rights as an investor to receive
payments otherwise due you will be
subordinate to the rights of the
servicer and the holders of the
related senior securities. As a
result, before investing in any
subordinate securities, you must
be prepared to bear the risk that
payments on your securities may be
delayed and that you might not
recover all of your initial
investment.
ANY CREDIT SUPPORT PROVIDED BY FINANCIAL
INSTRUMENTS MAY BE INSUFFICIENT TO PROTECT
AGAINST PARTICULAR RISKS.................
As described in the related
prospectus supplement, a trust
fund may include financial
instruments to protect against
certain risks or to provide
certain cash flow characteristics
for particular classes of the
securities of a series. If you
invest in one of these classes and
the issuer of the financial
instruments fails to perform its
obligations, the yield to
maturity, market price and
liquidity of your securities could
be materially adversely affected.
In addition, if the issuer of the
related financial instruments
experiences a credit rating
downgrade, the market price and
liquidity of your securities could
be reduced. Finally, if the
financial instruments are intended
to provide an approximate or
partial hedge for certain risks or
cashflow characteristics, the
yield to maturity, market price
and liquidity of your securities
could be adversely affected to the
extent that the financial
instrument does not provide a
perfect hedge.
BOOK-ENTRY REGISTRATION MAY LIMIT YOUR
ABILITY TO SELL SECURITIES AND DELAY YOUR
RECEIPT OF PAYMENTS...................... Limit on Liquidity of Securities.
Securities issued in book-entry
form may have only limited
liquidity in the resale market,
since investors may be unwilling
to
10
purchase securities for which they
cannot obtain physical
instruments.
Limit on Ability to Transfer or
Pledge. Transactions in book-entry
securities can be effected only
through The Depository Trust
Company (DTC), its participating
organizations, its indirect
participants and certain banks. As
a result, your ability to transfer
or pledge securities issued in
book-entry form may be limited.
Delays in Distributions. You may
experience some delay in the
receipt of distributions on
book-entry securities since the
distributions will be forwarded by
the trustee to DTC for DTC to
credit to the accounts of its
participants. In turn, these
participants will credit the
distributions to your account
either directly or indirectly
through indirect participants.
RATINGS OF THE SECURITIES DO NOT ADDRESS
ALL INVESTMENT RISKS AND MUST BE VIEWED
WITH CAUTION............................. Any class of securities issued
under this prospectus and the
accompanying prospectus supplement
will be rated in one of the four
highest rating categories of a
nationally recognized rating
agency. A rating is based on the
adequacy of the value of the trust
fund assets and any credit
enhancement for that class and
reflects the rating agency's
assessment of the likelihood that
holders of the class of securities
will receive the payments to which
they are entitled. A rating is not
an assessment of the likelihood
that principal prepayments on the
underlying loans will be made, the
degree to which the rate of
prepayments might differ from that
originally anticipated or the
likelihood of an early termination
of the securities. You should not
view a rating as a recommendation
to purchase, hold or sell
securities because it does not
address the market price or
suitability of the securities for
any particular investor. There is
no assurance that any rating will
remain in effect for any given
period or that the rating agency
will not lower or withdraw the
rating in the future. The rating
agency could lower or withdraw its
rating due to:
o any decrease in the adequacy
of the value of the trust
fund assets or any related
credit enhancement, or
o an adverse change in the
financial or other condition
of a redit enhancement
provider.
11
USE OF PROCEEDS
The sponsor or the depositor will apply all or substantially all of the
net proceeds from the sale of each series of securities for one or more of the
following purposes:
o to establish any reserve fund, pre-funding account or segregated
trust account,
o to pay costs of structuring and issuing the securities, including
the costs of obtaining enhancement,
o to repay any warehouse facilities, and
o for its general corporate purposes.
AAMES CAPITAL ACCEPTANCE CORPORATION
Aames Capital Acceptance Corporation, called either ACAC or the
depositor, was incorporated in the State of Delaware on February 4, 1997 and is
a wholly owned limited purpose finance subsidiary of Aames Capital Corporation.
ACAC maintains its principal office at 350 South Grand Avenue, 43rd Floor, Los
Angeles, California 90071 and its telephone number is (323) 210-5000. ACAC was
organized for the sole purpose of facilitating transactions of the type
described in this prospectus; specifically, the purchasing, holding, owning and
transferring all right, title and interest in mortgage loans and any activities
incidental to and necessary or convenient for the accomplishment of such
purpose. ACAC does not have, and is not expected in the future to have, any
significant assets.
If specified in the related prospectus supplement, ACAC may act as
depositor to the related trust described therein.
Neither ACAC nor any of its affiliates will insure or guarantee
distributions on the securities of any series.
AAMES CAPITAL CORPORATION
GENERAL
Aames Capital Corporation, called either ACC or the sponsor, was
incorporated in the State of California on August 13, 1993 and is a wholly owned
subsidiary of Aames Financial Corporation. ACC, through its sister corporation
Aames Funding Corporation, is a national mortgage-banking company focused
primarily on originating, selling and servicing subprime residential mortgage
loans through both wholesale and retail channels under the name "Aames Home
Loan." ACC's corporate headquarters are located at 350 South Grand Avenue, 43rd
Floor, Los Angeles, California 90071 and its telephone number is (323) 210-5000.
Aames Financial Corporation is a subsidiary of Aames Investment Corporation.
Aames Investment Corporation has elected to be taxed as a real estate investment
trust for United States federal income tax purposes, known as a "REIT". ACC,
ACAC, Aames Financial Corporation and Aames Funding Corporation are each taxable
REIT subsidiaries of Aames Investment Corporation. Neither ACC nor any of its
affiliates will insure or guarantee distributions on the securities of any
series. Either ACC, or such other entity identified in the related prospectus
supplement, will act as servicer with respect to the mortgage loans included in
the mortgage pool for any series of securities.
12
MORTGAGE LOAN DELINQUENCY AND FORECLOSURE EXPERIENCE
The following table sets forth delinquency, foreclosure and loss
information of ACC's servicing portfolio for the periods indicated. Certain of
the information concerning the delinquency, foreclosure and loss information
relates to home equity loans serviced by affiliates of ACC, including loans
securitized or sold and loans sold to others. Such information also includes
delinquency, foreclosure and loss information of home equity loans originated by
affiliates of ACC or purchased by ACC or affiliates of ACC and, in each case,
serviced by or on behalf of ACC as of the end of the period indicated.
AT OR DURING
--------------------------------------------------
FISCAL YEAR ENDED JUNE 30,
--------------------------------------------------
2004 2003 2002
------------- ----------------------- ----------
Percentage of dollar amount of delinquent loans to loans (Dollars in Thousands)
serviced (period end)(1)(2)
One month......................................... 0.3% 0.7% 0.7%
Two months........................................ 0.2 0.3 0.5
Three or more months..............................
Not foreclosed(3) ................................ 2.4 7.2 7.4
Foreclosed(4)..................................... 0.3 0.8 1.0
------------- ----------------------- ----------
Total.............................................. 3.2% 9.0% 9.6%
============= ======================= ==========
Percentage of total dollar amount of delinquent
loans in:
Loans serviced on an interim basis................ 0.6 1.3 1.5
Loans subserviced for others...................... 2.7 -- --
Loans in securitization trusts.................... 20.7 17.4 15.7
Percentage of dollar amount of loans foreclosed
during the period to servicing portfolio(2)(5)...... 0.5% 1.3% 2.2%
Number of loans foreclosed during the period.......... 180 417 780
Principal amount of foreclosed loans during the
period.............................................. $11,667 $27,703 $56,419
Number of loans liquidated during the period.......... 503 1,033 1,624
Net losses on liquidations during the period(6)........ $18,371 $35,669 $67,444
Percentage of annualized losses to servicing
portfolio(2)(5)..................................... 0.8% 1.6% 2.6%
Servicing portfolio at period end...................... $2,341,028 $1,739,632 $2,308,170
- --------------------------------------
(1) Delinquent loans are loans for which more than one payment is due.
(2) The delinquency and foreclosure percentages are calculated on the basis
of the total dollar amount of mortgage loans serviced by ACC including
loans serviced on an interim basis.
(3) Represents loans which are in foreclosure but as to which foreclosure
proceedings have not concluded.
(4) Represents properties acquired following a foreclosure sale and still
serviced by ACC at period end.
(5) The percentages were calculated to reflect the dollar volume of loans
foreclosed or annualized losses, as the case may be, to the average
dollar amount of mortgage loans serviced by ACC and any subservicers
during the related periods indicated.
(6) Represents losses, net of gains, on properties sold through foreclosure
or other default management activities during the period indicated.
13
ACC has historically experienced delinquency rates that are higher than
those prevailing in the mortgage industry due to the inclusion of lower credit
grade mortgage loans in its securitization trusts. Delinquent loans by principal
balance of the total servicing portfolio at June 30, 2004 were $74.9 million
compared to $156.5 million at June 30, 2003 and $222.1 million at June 30, 2002.
The delinquency rate at June 30, 2004 was 3.2% compared to 9.0% at June
30, 2003 and 9.6% at June 30, 2002. The delinquency rate at June 30, 2004
declined from the delinquency rate at June 30, 2003 due to the fact that loans
in ACC's portfolio of mortgage loans in securitization trusts, which contains
the majority of delinquent loans, became a smaller part of its total servicing
portfolio, primarily as a consequence of calls of securitization trusts in
August 2003 and November 2003.
Substantially all of the foreclosures and liquidations handled by ACC
occur in connection with its portfolio of mortgage loans in securitization
trusts.
Because foreclosures and credit losses typically occur months or years
after a loan is originated, data relating to delinquencies, foreclosures and
credit losses as a percentage of the current portfolio can understate the risk
of future delinquencies, foreclosures or credit losses.
There can be no assurance that the delinquency, foreclosure and loss
experience with respect to any of the mortgage loans will be comparable to the
experience reflected above. Because ACC is a lender that specializes in loans
made to credit impaired borrowers, the actual rates of delinquencies,
foreclosures and losses on such mortgage loans can be higher than those
historically experienced in the mortgage lending industry in general,
particularly in periods during which the values of the related mortgaged
properties decline. In addition, the rate of delinquencies, foreclosures and
losses with respect to the mortgage loans will also be affected by, among other
things, interest rate fluctuations and general and regional economic conditions.
THE ORIGINATORS
ACC may either acquire mortgage loans originated by one or more
subsidiaries of ACC Corporation, which are called affiliated originators in this
prospectus, or originated by entities unaffiliated with ACC, which are called
unaffiliated originators in this prospectus. The affiliated originators and
unaffiliated originators are collectively called originators.
UNDERWRITING GUIDELINES
The following is a general summary of the underwriting guidelines of
ACC. This summary does not purport to be a complete description of the
underwriting standards of ACC. All mortgage loans are underwritten generally in
accordance with underwriting guidelines developed by ACC and, as the case may
be, the affiliated originator, as described below, subject to certain exceptions
with respect to individual mortgage loans.
ACC's underwriting guidelines are designed to assess the borrower's
creditworthiness and the adequacy of the real property as collateral for the
loan. The borrower's creditworthiness is assessed by examination of a number of
factors, including calculation of debt-to-income ratios, which is the sum of the
borrower's monthly debt payments divided by the borrower's monthly income before
taxes and other payroll deductions, an examination of the borrower's credit
history and credit score through standard credit reporting bureaus, and by
evaluating the borrower's payment history with respect to existing mortgages, if
any, on the property.
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ACC's underwriting policy is to analyze the overall situation of the
borrower and to take into account compensating factors that may be used to
offset certain areas of weakness. These compensating factors include the
borrower's history of payments on his prior mortgage, credit scores, proposed
reductions in the borrower's debt service expense, employment stability, number
of years in residence and net disposable income. A critical function of ACC's
underwriting process is to identify the level of credit risk associated with
each applicant for a mortgage loan. ACC has established six principal
classifications, with respect to the credit profile of potential borrowers, and
has assigned a rating to each loan based upon these classifications. ACC assigns
credit grades by analyzing mortgage payment history, consumer credit history,
credit score, bankruptcy history and debt-to-income ratio. If an individual loan
application does not meet ACC's formal written underwriting guidelines, its
underwriters can make underwriting exceptions up to certain limits within its
formal exception policies and approval authorities. ACC may, from time to time,
apply underwriting criteria that are either more stringent or more flexible
depending upon the economic conditions of a particular geographic market.
Credit scores are obtained by ACC in connection with mortgage loan
applications to help assess a borrower's creditworthiness. Credit scores are
obtained from credit reports provided by various credit reporting organizations,
each of which may employ differing computer models and methodologies. The credit
score is designed to assess a borrower's credit history at a single point in
time, using objective information currently on file for the borrower at a
particular credit reporting organization. Information utilized to create a
credit score may include, among other things, payment history, delinquencies on
accounts, level of outstanding indebtedness, length of credit history, types of
credit, and bankruptcy experience. Credit scores range from approximately 400 to
approximately 800, with higher scores indicating an individual with a more
favorable credit history compared to an individual with a lower score. However,
a credit score purports only to be a measurement of the relative degree of risk
a borrower represents to a lender; that is, a borrower with a higher score is
statistically expected to be less likely to default in payment than a borrower
with a lower score. Moreover, credit scores were developed to indicate a level
of default probability over the period of the next two-years, which does not
correspond to the life of a mortgage loan. Furthermore, credit scores were not
developed specifically for use in connection with mortgage loans, but for
consumer loans in general. Therefore, a credit score does not take into
consideration the differences between mortgage loans and consumer loans
generally or the specific characteristics of the related mortgage loan
including, for example, the loan-to-value ratio or combined loan-to-value ratio,
the collateral for the mortgage loan, or the debt to income ratio. There can be
no assurance that the credit scores of the mortgagors will be accurate
predictors of the likelihood of repayment of the related mortgage loans.
An assessment of the adequacy of the real property as collateral for
the loan is primarily based upon an appraisal of the property and a calculation
of the loan-to-value ratios of the loan applied for and of all mortgages
existing on the property, including the loan applied for the combined
loan-to-value ratio, to the appraised value of the property at the time of
origination. Appraisers determine a property's value by reference to the sales
prices of comparable properties recently sold, adjusted to reflect the condition
of the property as determined through inspection. As a lender that generally
specializes in loans made to credit impaired borrowers, ACC makes mortgage loans
to borrowers with credit histories or other factors that might disqualify them
from consideration for a loan from traditional financial institutions. ACC's
underwriting guidelines for such credit-impaired borrowers may, in certain
instances, allow for higher combined loan-to-value ratios than would typically
be the case if the borrower could qualify for a loan from a traditional
financial institution, and at generally higher interest rates than the borrower
could qualify for from a traditional financial institution.
The underwriting of a mortgage loan to be originated or purchased by
ACC generally includes a review of the completed loan package, which includes
the loan application, a current appraisal, a preliminary title report and a
credit report. All loan applications and all closed loans offered to ACC for
15
purchase must be approved by ACC in accordance with its underwriting criteria.
ACC regularly reviews its underwriting guidelines and makes changes when
appropriate to respond to market conditions, the performance of loans
representing a particular loan product or changes in laws or regulations.
ACC requires title insurance coverage issued on an American Land Title
Association (or similar) form of title insurance on all residential properties
securing mortgage 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 ACC against loss if the title
or lien position is not as indicated. The applicant is also required to maintain
hazard and, in certain instances, flood insurance, in an amount sufficient to
cover the new loan and any senior mortgage, subject to the maximum amount
available under the National Flood Insurance Program.
Set forth below is a general description of the underwriting guidelines
designed to provide an overview of the general credit considerations utilized by
ACC and is not intended to be a detailed explanation of all credit
considerations analyzed by ACC in underwriting loans.
"Super Aim" Underwriting Guidelines. The Super Aim guidelines require a
minimum credit score of 500, although a higher credit score is often required to
qualify for the maximum LTV under the program. The Super Aim guidelines
generally permit a maximum debt-to-income ratio ("DTI") of 50% and require that
the borrower not be more than 149 days delinquent on the existing mortgage. For
full documentation or limited documentation loans with LTVs of 85% or less, the
maximum DTI is 55%, and for loans with LTVs of greater than 95%, the maximum DTI
is 45%. Interest-only loans, limited to the "A+", "A" and "A-" credit grades,
have a generally higher minimum credit score of 580, and a maximum DTI of 50%.
The following chart generally outlines the parameters of the credit grades of
ACC's Super Aim underwriting guidelines.
CREDIT GRADE
-------------------------------------------------------------------------------
"A+" "A" "A-" "B" "C" "C-"
------------- ------------- ------------- ------------- ------------- ---------
12 Month Mortgage History 0 x 30 1 x 30 3 x 30 1 x 60 1 x 90 1 x 120
Minimum Credit Score 500 (580 500 (580 500 500 500 500
for for
interest-only interest-only
loans) loans)
BK/FC(1) Seasoning 24 months 24 months 24 months 18 months 12 months No current
BK
Full Documentation Plus, Owner 80%; 100% 80%; 95% 80%; 95% 80%; 90% 75%; 85% 70%
Occupied Max LTV for credit for credit for credit for credit for credit
score of score of score of score of score of
620 or 550 or above 550 or above 550 or above 550 or above
above
Full Documentation, Owner 80%; 95% 80%; 95% 80%; 95% 80%; 90% 75%; 85% 70%
?Occupied Max LTV for credit for credit for credit for credit for credit
score of score of score of score of score of
550 or 550 or above 550 or above 550 or above 550 or above
above
Limited Documentation, Owner 80%; 90% 80%; 90% 80%; 85% 80%; 85% 75%; 80% 70%
?Occupied Max LTV for credit for credit for credit for credit for credit
score of score of score of score of score of
550 and 550 and 550 and 550 and 550 and
above above above above above
Stated Income, Owner ?Occupied 80%; 90% 80%; 90% 75%; 80% 75%; 80% 70%; 75% Not
Max LTV for credit for credit for credit for credit for credit available
score of score of score of score of score of
580 or 620 and 525 and 550 and 550 or above
above above above above
- ----------------
(1) Bankruptcy and foreclosure
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ACC's mortgage programs include several levels of documentation used to
verify the borrower's income:
Full Documentation Plus: The highest level of income documentation
based upon S&P's full income documentation guidelines. Generally a stable,
two-year history of the income is required. A wage-earner may document income by
a verification of employment together with either of the following: the
borrower's most recent two-years W-2 forms and a current pay-stub reflecting
year-to-date income; or the borrower's most recent two-years IRS Form 1040's and
a current pay-stub reflecting year-to-date income. A self-employed borrower may
document income with the most recent two-years IRS Form 1040's and current
year-to-date statement of profit and loss if the loan application is dated more
than 120 days after the end of the business's fiscal year.
Full Documentation: Generally a stable, one-year history of the income
is required. A wage-earner may document income by a verification of employment
together with any of the following: the borrower's most recent W-2 forms and a
current pay-stub reflecting year-to-date income; the borrower's most recent IRS
Form 1040's and a current pay-stub reflecting year-to-date income; or the
borrower's most recent 12-months personal (or 24-months commingled personal and
business) bank statements showing average monthly deposits sufficient to support
the qualifying income. A self-employed borrower may document income with either
the most recent two-years IRS Form 1040's and current year-to-date statement of
profit and loss if the loan application is dated more than 120 days after the
end of the business's fiscal year; or the borrower's most recent 12-months
personal (or 24-months commingled personal and business) bank statements showing
average monthly deposits sufficient to support the qualifying income.
Limited Documentation: For borrowers who have less than a one-year
history of stable income or who otherwise cannot meet the requirements of the
full documentation program. This program generally requires two-years history in
the same profession, together with 12-months business or commingled personal and
business bank statements to support their qualifying income.
Stated Income: The borrower's income used to qualify for the loan is
taken from the borrower's signed application and must be reasonable for the
borrower's line of work or profession. All self-employed borrowers must provide
satisfactory evidence of existence of the business and show a history of 2 years
employment in the same profession on the loan application. In some cases, but
not in all, the assets of the borrower will be verified.
SERVICING PROCEDURES
ACC sends borrowers a monthly billing statement approximately 10 days
prior to the monthly payment due date. Although borrowers generally make loan
payments within 10 to 15 days after the due date (the "grace period"), if a
borrower fails to pay the monthly payment within this grace period, ACC
commences collection efforts by notifying the borrower of the delinquency. In
the case of borrowers with a low behavioral score, collection efforts begin
immediately after the due date. ACC continues contact with the borrower to
determine the cause of the delinquency and to obtain a commitment to cure the
delinquency at the earliest possible time.
As a general matter, if efforts to obtain payment have not been
successful, a pre-foreclosure notice will be sent to the borrower immediately
after the due date of the next subsequently scheduled installment, providing 30
days' notice of impending foreclosure action. During the 30-day notice period,
collection efforts continue and ACC evaluates various legal options and remedies
to protect the value of the loan, including arranging for extended repayment
terms, accepting a deed-in-lieu of foreclosure, entering into a short sale (a
sale for less than the outstanding principal amount) or commencing
17
foreclosure proceedings. If no substantial progress has been made in collecting
delinquent payments from the borrower, foreclosure proceedings will begin.
Generally, ACC will have commenced foreclosure proceedings when a loan is 85 to
100 days delinquent, depending upon credit considerations or borrower bankruptcy
status.
Loans originated or purchased by ACC are secured by mortgages, deeds of
trust, security deeds or deeds to collateralize debt, depending upon the
prevailing practice in the state in which the property collateralizing the loan
is located. Depending on local law, foreclosure is effected by judicial action
or nonjudicial sale, and is subject to various notice and filing requirements.
In general, the borrower, or any person having a junior encumbrance on the real
estate, may cure a monetary default by paying the entire amount in arrears plus
other designated costs and expenses incurred in enforcing the obligation during
a statutorily prescribed reinstatement period. Generally, state law or
jurisdictional practice determines the amount of foreclosure expenses and costs,
including attorneys' fees, which may be recovered by a lender, the minimum time
required to foreclose and the reinstatement or redemption rights of the
borrower.
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, ACC often purchases the property from the trustee or referee
through a credit bid in an amount up to the principal amount outstanding under
the loan, accrued and unpaid interest, servicing advances and the expenses of
foreclosure. Depending upon market conditions and other factors, including the
condition of the property, the ultimate proceeds of the sale may not equal ACC's
investment in the property.
As an alternative to foreclosure, ACC may, under limited circumstances,
arrange for a special repayment arrangement, forestall foreclosure to enable a
borrower to sell the mortgaged property or accept the payoff of less than the
full principal balance and accrued interest owing on a mortgage loan. ACC
believes that such loss mitigation efforts reduce overall losses in loan
liquidations. However, the loss on such mitigation efforts is realized earlier
in the life of the mortgage loan.
Servicing and collection practices change over time in accordance with,
among other things, ACC's business judgment, changes in portfolio performance
and applicable laws and regulations.
If provided in the related prospectus supplement, the servicer may be a
party other than ACC or one of its affiliates and, if so, such party's servicing
procedures will be set forth in the related prospectus supplement to the extent
they differ from the procedures set forth herein.
REPRESENTATIONS BY ORIGINATORS AND THE TRANSFERORS
Generally, an unaffiliated originator will make certain representations
and warranties with respect to the mortgage loans, when the mortgage loans are
sold by such unaffiliated originator to the sponsor. The sponsor will make
comparable representations and warranties with respect to the mortgage loans
being transferred pursuant to the related Agreement, as applicable.
Such representations and warranties generally include, among other
things, that (A) at the time of the sale by the originator of each mortgage loan
and, (B) at the time of the conveyance by the sponsor of each mortgage loan into
the related mortgage pool:
o the information with respect to each mortgage loan set forth
in the loan schedule and delivered upon conveyance of the
mortgage loan is true and correct as of the related cut-off
date;
18
o the proceeds of each mortgage loan have been fully disbursed
and there are no obligations to make further disbursements
with respect to any mortgage loan;
o each mortgaged property is improved by a single, one- to
four-family residential dwelling, which may include a
condominium, townhouse or manufactured home which is
permanently affixed to and treated as real property under
local law;
o each mortgage loan had, at the time of origination, either an
attorney's certification of title or a title search or title
policy;
o as of the related cut-off date, each mortgage loan is secured
by a valid and subsisting lien of record on the mortgaged
property;
o each originator held good and indefeasible title to, and was
the sole owner of, each mortgage loan conveyed by such
originator; and
o each mortgage loan was originated in accordance with law and
is the valid, legal and binding obligation of the related
mortgagor, subject to certain limitations.
Upon the discovery of a breach of a representation and/or warranty with
respect to a mortgage loan made by the sponsor under the related Agreement,
after conveyance of the related mortgage loan to a mortgage pool, the sponsor
may be required to withdraw such trust estate from such trust estate or remove
such trust estate from the trust estate and convey a substantially similar trust
estate to the mortgage pool in substitution therefore.
DESCRIPTION OF THE SECURITIES
GENERAL
The mortgage pass-through certificates, which we refer to as
"certificates" of each series (including any class of certificates not offered
by this prospectus) will represent the entire beneficial ownership interest in
the trust estate created pursuant to the related pooling and servicing agreement
for such certificates. A form of the pooling and servicing agreement 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. A series of
securities may also include or consist of mortgage-backed notes which we refer
to as "notes," and together with the certificates, as "securities" that will
represent indebtedness of the related trust estate and will be issued pursuant
to an indenture for such notes. In the case of a series of notes, the issuer and
the depositor will also enter into a sale and servicing agreement and indenture
with the indenture trustee and the issuer. A form of indenture and sale and
service agreement has been filed as an exhibit to the registration statement of
which this prospectus forms a part. We refer to the related pooling and
servicing agreement for certificates and the indenture and sale and servicing
agreement for notes, each as an "Agreement." The provisions of each Agreement
will vary depending upon the nature of the securities to be issued and the
nature of the related trust.
The following summaries describe the material provisions in the
Agreements common to each series of securities. The summaries do not purport to
be complete and are subject to, and are qualified in their entirety by reference
to, the provisions of the Agreements and the prospectus supplement relating to
each series of securities. Where particular provisions or terms used in the
Agreements are referred to, the actual provisions, including definitions of
terms, are incorporated in this prospectus by reference as part of the
summaries.
19
Each series of securities will consist of one or more classes of
securities, one or more of which may have different payment characteristics. A
series may also include one or more classes of subordinate securities. The
securities of each series will be issued only in fully registered form, without
coupons, in the authorized denominations for each class specified in the related
prospectus supplement. Upon satisfaction of the conditions, if any, applicable
to a class of a series, as described in the related prospectus supplement, the
transfer of the securities may be registered and the securities may be exchanged
at the office of the trustee specified in the prospectus supplement without the
payment of any service charge other than any tax or governmental charge payable
in connection with the registration of transfer or exchange. If specified in the
related prospectus supplement, one or more classes of a series may be available
in book-entry form only.
Unless otherwise specified in the related prospectus supplement,
distributions or payments, as applicable, on securities will be made only from
the assets of the related trust or trust estate, as applicable, and the
securities will not represent interests in or obligations of the sponsor, the
servicer, the trustee, any originator or any other person. The assets of each
trust or trust estate, as applicable, will consist of one or more of the
following, to the extent set forth in the related prospectus supplement:
o mortgage loans or securities backed by mortgage loans that
from time to time are subject to the related Agreement;
o the assets of the trust or the trust estate that from time to
time are required by the related Agreement to be deposited in
the certificate account or note account, as applicable, the
collection account and any other accounts, which are
collectively called accounts, or invested in permitted
investments;
o property and any proceeds from such property acquired by
foreclosure;
o any financial guaranty insurance policy;
o any insurance policy relating to a mortgage loan;
o any bankruptcy bond;
o any funds on deposit in any reserve account; and
o all rights under any interest rate swap, caps or other
derivative agreements other insurance policies, guarantees,
surety bond, letters of credit or other credit enhancement.
Payments of principal of and interest on a series of securities will be
made on the distribution dates specified in the related prospectus supplement,
which may be different for each class or for the payment of principal and
interest. Payments will be made by check mailed to holders of the applicable
series, registered at the close of business on the record date specified in the
related prospectus supplement applicable to that distribution date at their
addresses appearing on the security register. However payments may be made by
wire transfer which shall be at the expense of the holder requesting payment by
wire transfer in the circumstances described in the related prospectus
supplement. In addition, the final payment of principal in retirement of each
security will be made only upon presentation and surrender of that security at
the office of the trustee specified in the prospectus supplement. Notice of the
final payment on a security will be mailed to the holder of that security before
the distribution date on which the final principal payment is expected to be
made to the holder of that security.
20
Payments of principal of and interest on the securities will be made by
the trustee, or a paying agent on behalf of the trustee, as specified in the
related prospectus supplement. All payments with respect to the mortgage loans
or securities backed by mortgage loans for a series, amounts withdrawn from any
reserve fund, and amounts available pursuant to any other credit enhancement or
derivative agreement will be deposited directly into the collection account,
certificate account or payment account, as the case may be. If provided in the
related prospectus supplement, the deposited amounts may be net of amounts
payable to the servicer and any other person specified in the prospectus
supplement. These amounts may subsequently be deposited into the certificate
account and will be available to make payments on the securities of the
applicable series on the next applicable distribution date.
CLASSES OF SECURITIES
Each series of securities will be issued in one or more classes as
specified in the related prospectus supplement. The securities of any class of
any series:
o may be entitled to receive:
o only principal, only interest (or other specified
collections) or any combination thereof,
o prepayments of principal throughout the life of the
securities or only during specified periods, and
o amounts only after the occurrence of specified
events, or in accordance with a specified schedule or
formula or on the basis of distributions on specified
portions of the mortgage assets,
o may be subordinated in right to receive distributions and may
be subject to allocation of losses in favor of one or more
other classes of securities of the series, and
o which are interest bearing securities may be entitled to
receive:
o interest at a rate, which may be fixed, variable or
adjustable and may differ from the rate at which
other classes of securities of the series are
entitled to receive interest, and
o distributions only after the occurrence of specified
events and may accrue interest until such events
occur, in each case as specified in the related
prospectus supplement.
BOOK-ENTRY REGISTRATION
The prospectus supplement for a series may specify that the securities
of that series initially will be represented by one or more book-entry
certificates or notes, as the case may be, which are expected to be registered
in the name Cede & Co., the nominee of The Depository Trust Company. Unless and
until the securities are issued in fully registered, certificated form, no
beneficial owner of a book-entry certificate will be entitled to receive a
physical certificate representing a certificate or a note. All references in
this prospectus to actions by securityholders refer to actions taken by DTC or
its nominee, as the case may be, upon instructions from the participants in the
DTC system, and all references in this prospectus to payments, notices, reports
and statements to securityholders refer to participants, notices, reports and
statements to DTC or its nominee, as the case may be, as the registered holder
of the
21
securities, for distribution to securityholders in accordance with DTC's
procedures. The beneficial owners of the securities will not be recognized by
the trustee as "certificateholders" or "noteholders" as those terms are used in
the related Agreement, and the beneficial owners of the securities will be
permitted to exercise the rights of securityholders only indirectly through DTC
and its participating organizations. The beneficial owners of the securities may
hold securities in Europe through Clearstream or Euroclear, which in turn will
hold through DTC, if they participate in DTC, or indirectly through
organizations participating in DTC. See "--Clearstream and Euroclear" in this
prospectus for a further discussion of Clearstream and the Euroclear system.
THE DEPOSITORY TRUST COMPANY
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York Banking
Law, a member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the provisions of Section 17A of the Securities Exchange Act of
1934, as amended. DTC holds securities for its participating organizations and
facilitates the clearance and settlement among those organizations of securities
transactions, such as transfers and pledges, in deposited securities through
electronic book-entry changes in their accounts. The electronic book-entry
system eliminates the need for physical movement of securities. The
organizations that participate in DTC include securities brokers and dealers,
who may include the underwriters of the securities, banks, trust companies,
clearing corporations and other organizations. Indirect access to the DTC system
is also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship with an
organization participating in DTC, either directly or indirectly. Transfers
between organizations participating in DTC will occur in accordance with DTC
rules. The rules applicable to DTC and its participating organizations are on
file with the Securities and Exchange Commission.
Clearstream and Euroclear will hold omnibus positions on behalf of
their respective participating organizations through customers' securities
accounts in the name of Clearstream and Euroclear on the books of their
respective depositaries. The depositaries will in turn hold those positions in
customers' securities accounts in the depositaries' names on the books of DTC.
Transfers between organizations participating in Clearstream and organizations
participating in the Euroclear system will occur in accordance with their
respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC in the United States, on the one hand, and directly or indirectly
through organizations participating in Clearstream or the Euroclear system, on
the other, will be effected in DTC in accordance with DTC rules on behalf of the
relevant European international clearing system by its depositary; however,
these cross-market transactions will require delivery of instructions to the
relevant European international clearing system by the counterparty in that
system in accordance with its rules and procedures and within its established
deadlines. The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to its
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.
Organizations participating in Clearstream or the Euroclear system may not
deliver instructions directly to the Clearstream or Euroclear depositaries.
Because of time zone differences, credits or securities in Clearstream
or Euroclear as a result of a transaction with an organization participating in
DTC will be made during the subsequent securities settlement processing, dated
the business day following the DTC settlement date, and these credits or any
transactions in these securities settled during this processing will be reported
to the relevant organization
22
participating in Clearstream or the Euroclear system on that business day. Cash
received in Clearstream or the Euroclear system as a result of sales of
securities by or through an organization participating in Clearstream or the
Euroclear system to an organization participating in DTC will be received with
value on the DTC settlement date but will be available in the relevant
Clearstream or Euroclear cash account only as of the business day following
settlement in DTC.
Purchases of securities under the DTC system must be made by or through
an organization participating in DTC, which organization will receive a credit
for the securities on DTC's records. The ownership interests of the beneficial
owners of the securities are in turn to be recorded on the records of that
organization or, in the case of a purchase made indirectly through an
organization participating in DTC, on the records of the indirect participant.
The beneficial owners of the securities will not receive written confirmation
from DTC of their purchase, but they are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the organization through which they entered
into the transaction. Transfers of ownership interests in the securities are to
be accomplished by entries made on the books of organizations participating in
DTC acting on behalf of the beneficial owners of the securities.
To facilitate subsequent transfers, all securities deposited with DTC
by its participating organizations are registered in the name of Cede. The
deposit of securities with DTC and their registration in the name of Cede
effects no change in beneficial ownership. DTC has no knowledge of the identity
of the beneficial owners of the securities. DTC's records reflect only the
identity of the organizations participating in DTC to whose accounts the
securities are credited, which may or may not be the beneficial owners of the
securities. Those organizations will remain responsible for keeping account of
their holdings on behalf of their customers.
Because DTC can only act on behalf of its participating organizations,
who in turn act on behalf of organizations participating indirectly in DTC and
certain banks, the ability of the beneficial owners of the securities to pledge
those securities to persons or entities that do not participate in the DTC
system, or otherwise take action in respect of the securities, may be limited
due to lack of a physical certificate for the securities.
Conveyance of notices and other communications by DTC to its
participating organizations, by those organizations to indirect participants in
DTC, and by direct or indirect participants in DTC to the beneficial owners of
the securities will be governed by arrangements among them, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Neither DTC nor Cede will consent r vote with respect to the securities. Under
its usual procedures, DTC mails an omnibus proxy to the issuer as soon as
possible after the record date, which assigns Cede's consenting or voting rights
to those organizations participating in DTC to whose accounts the securities are
credited on the record date as identified in a listing attached to the omnibus
proxy. Principal and interest payments on the securities will be made to DTC.
DTC's practice is to credit the accounts of its participating organizations on
the distribution date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive payment
on the distribution date. Payments by organizations participating in DTC to the
beneficial owners of the securities will be governed by standing instructions
and customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in street name, and will be the
responsibility of those organizations and not of DTC, the trustee or Saxon Asset
securities Company, subject to any statutory or regulatory requirements as may
be in effect from time to time. Payment of principal and interest to DTC is the
responsibility of the trustee, as applicable, disbursement of those payments to
organizations participating in DTC is the responsibility of DTC, and
disbursement of those payments to the beneficial owners of the securities is the
responsibility of those organizations or indirect participants in DTC.
Accordingly, the beneficial owners of the securities may experience some delay
in their receipt of principal and interest payments.
23
THE INFORMATION IN THIS SECTION CONCERNING DTC AND DTC'S BOOK-ENTRY
SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE DEPOSITOR BELIEVES TO BE
RELIABLE, BUT THE DEPOSITOR ASSUMES NO RESPONSIBILITY FOR ITS ACCURACY.
CLEARSTREAM AND EUROCLEAR
Clearstream Banking, societe anonyme, is incorporated under the laws of
Luxembourg as a professional depository. Clearstream holds securities for its
participating organizations and facilitates the clearance and settlement of
securities transactions between those organizations through electronic
book-entry changes in their accounts. The electronic book-entry system
eliminates the need for physical movement of securities. Transactions may be
settled by Clearstream in any of 36 currencies, including United States dollars.
Clearstream provides to its participating organizations services for
safekeeping, administration, clearance and settlement of internationally traded
securities and securities lending and borrowing. Clearstream interfaces with
domestic markets in several countries. As a registered bank in Luxembourg,
Clearstream is subject to regulation by the Commission de Surveillance du
Secteur Financier. Organizations participating in Clearstream are world-wide
financial institutions, including underwriters, securities brokers and dealers,
banks, trust companies, clearing corporations and other organizations and may
include the underwriters of the securities. Indirect access to Clearstream is
also available to others, including banks, brokers, dealers and trust companies,
that clear through or maintain a custodial relationship with an organization
participating in Clearstream, either directly or indirectly. Clearstream has
established an electronic bridge with Morgan Guaranty Trust Company of New York,
as operator of the Euroclear system, in Brussels, Belgium to facilitate
settlement of trades between Clearstream and Euroclear.
The Euroclear system was created in 1968 to hold securities for
organizations participating in the Euroclear system and to clear and settle
transactions between those organizations through simultaneous electronic
book-entry delivery against payment. The electronic book-entry system eliminates
the need for physical movement of securities and any risk from lack of
simultaneous transfers of securities and cash. Transactions may be settled
through the Euroclear system in any of 27 currencies, including United States
dollars. The Euroclear system includes various other services, including
securities lending and borrowing, and interfaces with domestic markets in
several countries under arrangements generally similar to the arrangements for
cross-market transfers with DTC.
The Euroclear system is operated by Euroclear Bank S.A./NV, under a
contract with Euroclear Clearance Systems, S.C., a Belgian cooperative
corporation. All operations are conducted by that office, and all Euroclear
securities clearance accounts and Euroclear cash accounts are maintained with
that office, not Euroclear Clearance System, S.C. Euroclear Clearance System,
S.C. establishes policy for the Euroclear system on behalf of organizations
participating in the Euroclear system. Those organizations include banks,
including central banks, securities brokers and dealers and other professional
financial intermediaries and may include the underwriters of the securities.
Indirect access to the Euroclear system is also available to other firms that
clear through or maintain a custodial relationship with organizations
participating in the Euroclear system, either directly or indirectly.
Euroclear Bank S.A./NV has advised us that it is licensed by the
Belgian Banking and Finance Commission to carry out banking activities on a
global basis. As a Belgian bank, it is regulated and examined by the Belgian
Banking Commission.
The Terms and Conditions Governing Use of Euroclear, the related
Operating Procedures of the Euroclear system and applicable Belgian law govern
the securities clearance accounts and cash accounts maintained with the operator
of the Euroclear system, transfers of securities and cash within the Euroclear
system, withdrawal of securities and cash from the Euroclear system and receipts
of payments with
24
respect to securities in the Euroclear system. All securities in the Euroclear
system are held on a fungible basis without attribution of specific securities
to specific securities clearance accounts. The operator of the Euroclear system
acts only on behalf of organizations participating in the Euroclear system and
has no record of or relationship with persons holding through those
organizations.
Distributions with respect to securities held through Clearstream or
Euroclear will be credited to the cash accounts of organizations participating
in Clearstream or Euroclear in accordance with the relevant system's rules and
procedures, to the extent received by its depositary. These distributions will
be subject to tax reporting in accordance with relevant United States tax laws
and regulations. Clearstream or the operator of the Euroclear system, as the
case may be, will take any other action permitted to be taken by a
securityholder under the applicable Agreement on behalf of an organization
participating in Clearstream or the Euroclear system only in accordance with its
relevant rules and procedures and subject to its depositary's ability to effect
those actions on its behalf through DTC.
Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of the securities among participants
in DTC, Clearstream and the Euroclear system, they are under no obligation to
perform or continue to perform these procedures, and these procedures may be
discontinued at any time.
THE INFORMATION IN THIS SECTION CONCERNING CLEARSTREAM, EUROCLEAR AND
DTC HAS BEEN OBTAINED FROM SOURCES THAT THE DEPOSITOR BELIEVES TO BE RELIABLE,
BUT THE DEPOSITOR ASSUMES NO RESPONSIBILITY FOR ITS ACCURACY.
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
The globally-offered securities to be issued from time to time will
initially be available only in book-entry form. Investors in the
globally-offered securities may hold those securities through any of DTC,
Clearstream or Euroclear. The globally-offered securities will be tradable as
home market instruments in both the European and U.S. domestic markets. Initial
settlement and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding globally-offered
securities through Clearstream and Euroclear will be conducted in accordance
with their normal rules and operating procedures and in accordance with
conventional eurobond practice.
Secondary market trading between investors holding globally-offered
securities through DTC will be conducted in accordance with the rules and
procedures applicable to U.S. corporate debt obligations.
Secondary cross-market trading between Clearstream or Euroclear and
organizations participating in DTC that hold offered securities will be effected
on a delivery-against-payment basis through the respective depositaries of
Clearstream and Euroclear, in such capacity, and as DTC participants.
Initial Settlement. All globally-offered securities will be held in the
book-entry form by DTC in the name of Cede as nominee of DTC. Investors'
interests in the globally-offered securities will be represented through
financial institutions acting on their behalf as direct and indirect
participants in DTC. As a result, Clearstream and Euroclear will hold positions
on behalf of their participants through their respective depositaries, which in
turn will hold positions in accounts as DTC participants. Investors electing to
hold globally-offered securities through DTC will follow the settlement
practices applicable to U.S. corporate debt obligations. Investors' securities
custody accounts will be credited with their holdings against payment in
same-day funds on the settlement date. Investors electing to hold
globally-offered securities through Clearstream or Euroclear accounts will
follow the settlement procedures
25
applicable to conventional eurobonds, except that there will be no temporary
global security and no distribution compliance period. All globally-offered
securities will be credited to the securities custody accounts on the settlement
date against payment in same-day funds.
Establishing Place of Delivery. Since the purchaser determines the
place of delivery, it is important to establish at the time of the trade where
both the purchaser's and seller's accounts are located to ensure that settlement
can be made on the desired value date.
Trading Between DTC Participants. Secondary market trading between
organizations participating in DTC will be settled using the procedures
applicable to U.S. corporate debt obligations in same-day funds.
Trading Between Clearstream and/or Euroclear Participants. Secondary
market trading between organizations participating in Clearstream or the
Euroclear system will be settled using the procedures applicable to conventional
eurobonds in same-day funds.
Trading Between DTC Seller and Clearstream or Euroclear Purchaser. When
globally-offered securities are to be transferred from the account of an
organization participating in DTC to the account of an organization
participating in Clearstream or the Euroclear system, the purchaser will send
instructions to Clearstream or Euroclear through a Clearstream participant or a
Euroclear system participant at least one business day prior to settlement.
Clearstream or Euroclear will instruct the respective depositary to receive the
globally-offered securities against payment. Payment will include interest
accrued on the globally-offered securities from and including the last coupon
payment date to and excluding the settlement date. Payment will then be made by
the respective depositary to the account of the DTC participant against delivery
of the globally-offered securities. After settlement has been completed, the
globally-offered securities will be credited to the respective clearing system
and by the clearing system, in accordance with its usual procedures, to the
account of the Clearstream participant or the Euroclear system participant. The
globally-offered securities credit will appear the next day, European Time, and
the cash debit will be back-valued to, and the interest on the globally-offered
securities will accrue from, the value date, which would be the preceding day
when settlement occurred in New York. If settlement is not completed on the
intended value date, the Clearstream or Euroclear cash debit will be valued
instead as of the actual settlement date.
Organizations participating in Clearstream or the Euroclear system will
need to make available to the respective clearing systems the funds necessary to
process same-day funds settlement. The most direct means of doing so is to
pre-position funds for settlement, either from cash on hand or existing lines of
credit, as they would for any settlement occurring within Clearstream or
Euroclear. Under this approach, they may take on credit exposure to Clearstream
or Euroclear until the globally-offered securities are credited to their
accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of
credit to them, organizations participating in Clearstream or the Euroclear
system can elect not to pre-position funds that allow that credit line to be
drawn upon to finance settlement. Under this procedure, Clearstream participants
or Euroclear system participants purchasing globally-offered securities would
incur overdraft charges for one day, assuming they cleared the overdraft when
the securities were credited to their accounts. However, interest on the
globally-offered securities would accrue from the value date. Therefore, in many
cases the investment income on the globally-offered securities earned during the
one-day period may substantially reduce or offset the amount of these overdraft
charges, although this result will depend on the particular cost of funds of the
organization participating in Clearstream or the Euroclear system.
26
Since the settlement is taking place during New York business hours,
organizations participating in DTC can employ their usual procedures for sending
globally-offered securities to the respective depositary for the benefit of
organizations participating in Clearstream or the Euroclear system. The sale
proceeds will be available to the DTC seller on the settlement date. Thus, to
the DTC participant, a cross-market transaction will settle no differently than
a trade between two DTC participants.
Trading Between Clearstream or Euroclear Seller and DTC Purchaser. Due
to time zone differences in their favor, organizations participating in
Clearstream or the Euroclear system may employ their customary procedures for
transactions in which globally-offered securities are to be transferred by the
respective clearing system, through the respective depositary, to an
organization participating in DTC. The seller will send instructions to
Clearstream or Euroclear through a Clearstream participant or Euroclear system
participant at least one business day prior to settlement. In these cases,
Clearstream or Euroclear will instruct the respective depositary, as
appropriate, to deliver the globally-offered securities to the account of the
DTC participant against payment. Payment will include interest accrued on the
globally-offered securities from and including the last coupon payment date to
and excluding the settlement date. The payment will then be reflected in the
account of the Clearstream participant or the Euroclear system participant the
following day, and receipt of the cash proceeds in the account of the
Clearstream participant or Euroclear system participant would be back-valued to
the value date, which would be the preceding day, when settlement occurred in
New York. Should the Clearstream participant or Euroclear system participant
have a line of credit with its respective clearing system and elect to be in
debit in anticipation of receipt of the sale proceeds in its account, the
back-valuation will extinguish any overdraft charges incurred over that one-day
period. If settlement is not completed on the intended value date, receipt of
the cash proceeds in the account of the Clearstream participant or Euroclear
system participant would instead be valued as of the actual settlement date.
Finally, day traders that use Clearstream or Euroclear and that
purchase globally-offered securities from organizations participating in DTC for
delivery to organizations participating in Clearstream or the Euroclear system
should note that these trades would automatically fail on the sale side unless
affirmative action were taken. At least three techniques should be readily
available to eliminate this potential problem:
o borrowing through Clearstream or Euroclear for one day, until
the purchase side of the day trade is reflected in their
Clearstream or Euroclear accounts, in accordance with the
clearing system's customary procedures;
o borrowing the globally-offered securities in the U.S. from a
DTC participant no later than one day prior to settlement,
which would give the globally-offered securities sufficient
time to be reflected in their Clearstream or Euroclear
accounts in order to settle the sale side of the trade; or
o staggering the value dates for the buy and sell sides of the
trade so that the value date for the purchase form the DTC
participant is at least one day prior to the value date for
the sale to the Clearstream participant or the Euroclear
system participant.
THE INFORMATION IN THIS SECTION CONCERNING CLEARSTREAM, EUROCLEAR AND
DTC HAS BEEN OBTAINED FROM SOURCES THAT THE DEPOSITOR BELIEVES TO BE RELIABLE,
BUT THE DEPOSITOR ASSUMES NO RESPONSIBILITY FOR ITS ACCURACY. THE SETTLEMENT
PROCEDURES DESCRIBED IN THIS SECTION ARE SUBJECT TO CHANGE AT ANY TIME. THE
DEPOSITOR ASSUMES NO RESPONSIBILITY FOR ANY LOSSES THAT MAY RESULT FROM ANY
DISRUPTION IN THE OPERATIONS OF THE SETTLEMENT SYSTEMS AND PROCEDURES DESCRIBED
IN THIS PROSPECTUS.
27
MATERIAL U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A holder that is not a U.S. Person (as defined under "Federal Income
Tax Consequences") holding a book-entry security through Clearstream, Euroclear
or DTC may be subject to U.S. withholding tax at a rate of 30% unless such
holder provides certain documentation to the trustee or to the U.S. entity
required to withhold tax (the "U.S. withholding agent") establishing an
exemption from withholding. A holder that is not a U.S. Person may be subject to
30% withholding unless:
I. the trustee or the U.S. withholding agent receives a statement -
(a) from the holder on Internal Revenue Service ("IRS")
Form W-8BEN (or any successor form) that -
(i) is signed by the holder under penalty of perjury,
(ii) certifies that such owner is not a U.S. Person,
and
(iii) provides the name and address of the holder, or
(b) from a securities clearing organization, a bank or
other financial institution that holds customers'
securities in the ordinary course of its trade or
business that -
(i) is signed under penalties of perjury by an
authorized representative of the financial
institution,
(ii) states that the financial institution has
received an IRS Form W-8BEN (or any
successor form) from the holder or that
another financial institution acting on
behalf of the holder has received such IRS
Form W-8BEN (or any successor form),
(iii) provides the name and address of the holder,
and
(iv) attaches the IRS Form W-8BEN (or any
successor form) provided by the holder;
II. the holder claims an exemption or reduced rate based on a
treaty and provides a properly executed IRS Form W-8BEN (or
any successor form) to the trustee or the U.S. withholding
agent;
III. the holder claims an exemption stating that the income is
effectively connected to a U.S. trade or business and provides
a properly executed IRS Form W-8ECI (or any successor form) to
the trustee or the U.S. withholding agent; or
IV. the holder is a "nonwithholding partnership" and provides a
properly executed IRS Form W-8IMY (or any successor form) with
all necessary attachments to the trustee or the U.S.
withholding agent. Certain pass-through entities that have
entered into agreements with the Internal Revenue Service (for
example "qualified intermediaries") may be subject to
different documentation requirements; it is recommended that
such holders consult with their tax advisors when purchasing
the certificates.
28
A holder holding book-entry certificates through Clearstream or
Euroclear provides the forms and statements referred to above by submitting them
to the person through which he holds an interest in the book-entry certificates,
which is the clearing agency, in the case of persons holding directly on the
books of the clearing agency. Under certain circumstances a Form W-8BEN, if
furnished with a taxpayer identification number, ("TIN"), will remain in effect
until the status of the beneficial owner changes, or a change in circumstances
makes any information on the form incorrect. A Form W-8BEN, if furnished without
a TIN, and a Form W-8ECI will remain in effect for a period starting on the date
the form is signed and ending on the last day of the third succeeding calendar
year, unless a change in circumstances makes any information on the form
incorrect.
In addition, all holders holding book-entry certificates through
Clearstream, Euroclear or DTC may be subject to backup withholding unless the
holder:
I. provides a properly executed IRS Form W-8BEN, Form W-8ECI or
Form W-8IMY(or any successor forms) if that person is not a
U.S. Person;
II. provides a properly executed IRS Form W-9 (or any substitute
form) if that person is a U.S. Person; or
III. is a corporation, within the meaning of Section 7701(a) of the
Internal Revenue Code of 1986, or otherwise establishes that
it is a recipient exempt from United States backup
withholding.
This summary does not deal with all aspects of federal income tax
withholding or backup withholding that may be relevant to investors that are not
U.S. Persons. If you are not a U.S. Person, we recommend that you consult your
own tax advisors with respect to the tax consequences of holding and disposing
of the book-entry certificates.
DEFINITIVE SECURITIES
Book-entry securities will be issued in fully registered, certificated
form to the beneficial owners of the certificates or the notes, as the case may
be, or their respective nominees, rather than to DTC or its nominee, only if:
o DTC or the depositor advise in writing that DTC is no longer
willing or able to discharge properly its responsibilities as
a nominee and depository with respect to the book-entry
certificates and the depositor or the trustee is unable to
locate a qualified successor;
o the depositor elects, at its sole option, to terminate the
book-entry system through DTC; or
o DTC, at the direction of the depositary participants to whose
accounts are credited a majority of the outstanding book-entry
securities, advises the trustee in writing that the
continuation of a book-entry system through DTC, or a
successor to DTC, is no longer in the best interests of the
beneficial owners of the securities.
Upon the occurrence of any of the events described in the preceding
paragraph, the trustee will be required to notify the applicable beneficial
owners of the securities, through organizations participating in DTC, of the
availability of fully registered certificates. Upon surrender by DTC of the
certificates representing the securities and the receipt of instructions for
re-registration, the trustee will issue fully registered certificates to the
beneficial owners of the securities.
29
DISTRIBUTIONS AND PAYMENTS ON SECURITIES
Unless otherwise specified in the related prospectus supplement,
distributions or payments of principal and interest on the related certificates
or notes, as applicable, will be made by the trustee on each distribution date
or payment date, as applicable, specified in the related prospectus supplement,
in the amounts specified in the related prospectus supplement. Distributions or
payments will be made to the persons in whose names the securities are
registered at the close of business on the record dates specified in the
prospectus supplement. Distributions or payments will be made by check mailed to
the persons entitled thereto at the address appearing in the register maintained
for securityholders or, to the extent described in the related prospectus
supplement, by wire transfer or by such other means as are described therein,
except that the final distribution or payment 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 final
distribution notice to securityholders.
With respect to a given series of securities, each class of securities
within such series will evidence the interests specified in the related
prospectus supplement. The prospectus supplement for each series of securities
will describe the method to be used in determining the amount of distributions
or payments, as applicable, on the securities of such series.
Distributions or payments allocable to principal and interest on the
securities of a series will be made by the trustee out of, and only to the
extent of, funds in a segregated account established and maintained by the
trustee for the deposits of such amounts which is called the certificate
account, with respect to certificates, and the note account, with respect to
notes. Unless otherwise specified in the prospectus supplement relating to a
given series of securities, distributions or payments, as applicable, on the
securities of any class of a series will be made pro rata to all related
securityholders of that class.
AVAILABLE FUNDS
All distributions or payments on the securities of each series on any
distribution date or payment date will be made from the funds available for
distribution or payment, as applicable, on such distribution date or payment
date in accordance with the terms described in the related prospectus
supplement. Unless otherwise specified in the related prospectus supplement,
these funds, called available funds, will consist of the following amounts:
(a) all payments of principal, including principal
prepayments, if any, and prepayment penalties, if so
provided in the related prospectus supplement, and
interest on the mortgage loans or securities backed
by mortgage loans in the related mortgage pool,
received by the servicer during the related
collection period other than:
o all payments which were received before the cut-off
date;
o late payment fees and other amounts retained by the
servicer as additional compensation;
o reimbursements for advances made by the servicer;
o that portion of each collection of interest to be
retained by the servicer as servicing compensation;
and
30
o trustee fees and expenses or other fees payable out
of the related trust or trust estate;
(b) net liquidations proceeds and insurance proceeds;
(c) the amount of any monthly advance or compensating
interest payment made by the servicer and deposited
in the certificate account or note account; and
(d) if applicable, amounts withdrawn from a reserve
account or a prefunding account or received in
connection with other credit enhancement.
PAYMENTS OF INTEREST
The securities of each class by their terms entitled to receive
interest will bear interest calculated on the basis of a 360-day year and either
the actual number of days in the applicable accrual period or twelve 30-day
months, from the date and at the rate per annum specified, or calculated in the
method described, in the related prospectus supplement. Interest on the
securities of a series will be payable on the distribution date or payment date
specified in the related prospectus supplement. If so specified in the related
prospectus supplement, the distribution date or payment date for the payment of
interest of a class may be different from, or occur more or less frequently
than, the distribution date or payment date for the payment of principal of that
class. Interest will accrue on the principal balance or notional balance of the
securities entitled to interest, at a fixed rate or variable rate and for the
periods specified in the related prospectus supplement. Principal only
securities may not be entitled to receive any interest distributions or may be
entitled to receive only nominal interest distributions. Any interest on zero
coupon securities that is not paid on the related distribution date or payment
date will accrue and be added to the principal of the applicable zero coupon
security on the related distribution date or payment date.
Interest payable on the securities on a distribution date or payment
date will include all interest accrued during the period specified in the
related prospectus supplement. In the event interest accrues during the calendar
month preceding a distribution date or payment date, the effective yield to
holders will be reduced from the yield that would otherwise be obtainable if
interest payable on the securities were to accrue through the day immediately
preceding the related distribution date or payment date.
PAYMENTS OF PRINCIPAL
On each distribution date or payment date for a series, principal
payments will be made to the holders of the securities of that series on which
principal is then payable, to the extent set forth in the related prospectus
supplement. Payments will be made in an aggregate amount as specified in the
related prospectus supplement and will be allocated among the respective classes
of a series in the manner, at the times and in the priority set forth in the
related prospectus supplement. If so specified in the related prospectus
supplement, the distribution date or payment date for the payment of principal
of a class may be different from, or occur more or less frequently than, the
distribution date or payment date for the payment of interest for the class.
Interest only securities may not be entitled to any payments of principal.
The timing and amounts of distributions allocable to interest and
principal and, if applicable, principal prepayments and scheduled payments of
principal, to be made on any distribution date or payment date may vary among
classes over time, or otherwise, as specified in the prospectus supplement.
REPORTS TO SECURITYHOLDERS
31
Except as otherwise set forth in the related prospectus supplement, on
or before each distribution date or payment date each securityholder of record
of the related series of securities will be entitled to receive a statement or,
if provided in the related prospectus supplement, the trustee will make
available on its web site such information, setting forth, to the extent
applicable to such series, the following information with respect to the related
distribution date or payment date:
(a) the amount of principal distributed to holders of the
related securities and the outstanding principal
balance of the securities following the distribution;
(b) the amount of interest distributed to holders of the
related securities and the current interest on the
securities;
(c) the amounts of
o any overdue accrued interest included in the
distribution,
o any remaining overdue accrued interest with
respect to the securities, or
o any current shortfall in amounts to be
distributed as accrued interest to holders
of the securities;
(d) the amounts of
o any overdue payments of scheduled principal
included in the distribution,
o any remaining overdue principal amounts with
respect to the related securities,
o any current shortfall in receipt of
scheduled principal payments on the related
mortgage loans or securities backed by
mortgage loans, or
o any realized losses to be allocated as
reductions in the outstanding principal
balances of the related securities;
(e) the amount received under any related credit
enhancement, the remaining amount available under
that credit enhancement and the amount reimbursed to
the enhancer, if any;
(f) if applicable with respect to a given series of
securities, the aggregate amount
o otherwise allocable to the subordinated
securityholders on such distribution date,
and
o withdrawn from a reserve account, if any,
that is included in the amounts distributed
with respect to senior securities;
(g) the aggregate outstanding principal balance of the
mortgage loans or securities backed by mortgage
loans, on the distribution date or payment date, and
that amount expressed as a percentage of the cut-off
date principal balance;
(h) if applicable with respect to a given series of
certificates, the percentage of
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principal payments on the mortgage loans or
securities backed by mortgage loans, if any, which
each class will be entitled to receive on the
following distribution date;
(i) for any variable rate security, the related interest
applicable to the distribution on the distribution
date or payment date, as applicable;
(j) the number and aggregate principal balance of
mortgage loans or securities backed by mortgage loans
in the related mortgage pool that were delinquent
o one month,
o two months, and
o three or more months
as of the end of the related collection period;
(k) the number and aggregate principal balance of all
mortgage loans or securities backed by mortgage loans
in foreclosure or other similar proceedings, and the
value of any real estate acquired through foreclosure
or grant of a deed in lieu of foreclosure;
(l) if applicable, the amount remaining in any reserve
account or the amount remaining of any other credit
support, after giving effect to the distribution or
payment, as applicable, on the distribution date or
payment date, as applicable;
(m) if applicable, during the pre-funding period, the
remaining prefunding amount and the portion of the
prefunding amount used to acquire additional mortgage
loans or securities backed by mortgage loans since
the preceding distribution date or payment date as
applicable;
(n) if applicable, during the pre-funding period, the
amount remaining in the capitalized interest account;
and
(o) the amount of monthly advances, servicing advances
and/or compensating interest payments, if any, made
since the preceding distribution date or payment
date, as applicable.
Where applicable, any amount set forth above may be expressed as a
dollar amount of the related securities having the denomination or interest
specified either in the related prospectus supplement or in the report to
securityholders. 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 servicer or the trustee will mail to each person who was a
securityholder of record at any time during such calendar year (a) a report 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.
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CREDIT ENHANCEMENT
The amounts and types of credit enhancement arrangements and the
provider of credit enhancement, if applicable, with respect to a series or any
class of securities will be set forth in the related prospectus supplement. If
specified in the applicable prospectus supplement, credit enhancement for any
series of securities may cover one or more classes of notes or certificates, and
accordingly may be exhausted for the benefit of a particular class of notes or
certificates and subsequently be unavailable to other classes of notes or
certificates. Further information regarding any provider of credit enhancement
will be included in the related prospectus supplement.
If and to the extent provided in the related prospectus supplement,
credit enhancement may include one or more of the following or any combination
of the following:
o Financial Guaranty Insurance Policy which will be issued by a
monoline insurance company and which, subject to the terms of
the policy, will guarantee timely payment of interest on, and
ultimate, as opposed to timely, payment of principal of, the
applicable class or classes of securities;
o Overcollateralization which will equal the excess of the
aggregate principal balance of the mortgage loans or
securities backed by mortgage loans over the aggregate
principal balance of the securities. Overcollateralization may
take the form of the initial or subsequent deposit of mortgage
loans to create this excess or may build over time from the
application of excess cash amounts generated by the mortgage
loans to accelerate the amortization of the applicable class
or classes of securities;
o Crosscollateralization in which certain excess available funds
with respect to one group of securities will be available to
cover certain shortfalls and to create overcollateralization
with respect to the securities in another group of securities
within the same trust. The prospectus supplement for a series
of securities which includes a cross-support feature will
describe the manner and conditions for applying such
cross-support feature;
o Letter of Credit which will be issued by a bank or other
financial institution in a maximum amount which may be
permanently reduced as draws are made or may be replenished as
previous draws are repaid from excess cash amounts generated
by the mortgage loans or securities backed by mortgage loans.
Draws may be made to cover shortfalls generally in
collections, with respect to particular types of shortfalls
such as those due to particular types of losses or with
respect to specific situations such as shortfalls in amounts
necessary to pay current interest;
o Cash Reserve Fund which may be partially or fully funded on
the date of issuance or may be funded over time from excess
cash amounts generated by the mortgage loans or securities
backed by mortgage loans. Withdrawals may be made in
circumstances similar to those for which draws may be made on
a letter of credit;
o Insurance Policies which may insure a portion of the loans or
underlying loans against credit losses, bankruptcy losses,
fraud losses or special hazard losses not covered by typical
homeowners insurance policies;
o Subordinate securities which will be subordinated in the right
to receive distributions to one or more other classes of
securities of the same series, some or all of which may
themselves be subordinated to other classes of that series.
Subordination may be with
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respect to distributions of interest, principal or both. In
addition, all or portions of particular types of losses on the
mortgage loans may be allocated to one or more classes of the
subordinate securities prior to the allocation of those losses
to other classes of subordinate certificates and/or the senior
securities of the applicable series; or
o Derivative Products which may include a swap to convert
floating or fixed rate payments, as applicable, on the
mortgage loans or securities backed by mortgage loans into
fixed or floating rate payments, as applicable, on the
securities or a cap or floor agreement intended to provide
protection against changes in floating rates of interest
payable on the mortgage loans and/or the securities.
The presence of credit enhancement is intended to increase the
likelihood of receipt by the certificateholders and the noteholders of the full
amount of principal and interest due on the applicable certificates and notes
and to decrease the likelihood that the certificateholders and the noteholders
will experience losses, or may be structured to provide protection against
changes in interest rates or against other risks, to the extent and under the
conditions specified in the related prospectus supplement. The credit
enhancement for a class of securities generally will not provide protection
against all risks of loss and may not guarantee repayment of the entire
principal and interest on a class of securities. If losses occur which exceed
the amount covered by any credit enhancement or which are not covered by any
credit enhancement, securityholders will bear their allocable share of
deficiencies. In addition, if a form of credit enhancement covers more than one
class of securities of a series, securityholders of that class will be subject
to the risk that the credit enhancement will be exhausted by the claims of
securityholders of other classes.
THE AGREEMENTS
Set forth below is a summary of the material provisions of each
Agreement that are not described elsewhere in this prospectus. The summary does
not purport to describe all provisions of each Agreement, and is subject to, and
qualified in its entirety by reference to, the provisions of each Agreement, as
the case may be. Where provisions or terms used in a particular Agreement are
different than as described herein, a description of such provisions or terms
will be included in the related prospectus supplement.
ASSIGNMENT OF MORTGAGE LOANS
Transfer of the Mortgage Loans. At the time of issuance of the
securities of a series, the sponsor will transfer, convey and assign to the
trust or, if as set forth in the related prospectus supplement ACAC is acting as
depositor, the sponsor will transfer to the depositor and the depositor will
transfer to the trust all of its respective right, title and interest in the
mortgage loans or securities backed by mortgage loans and other property to be
transferred to the trust for a series. An assignment will include all principal
and interest due or received on or with respect to the mortgage loans after the
cut-off date to the extent specified in the related prospectus supplement,
except for any retained interests. The trustee will, concurrently with an
assignment, execute and deliver the securities.
The notes will be secured by a pledge of the assets of the trust
estate, or an individual mortgage loan group, and the certificates will
represent beneficial ownership interests in the assets of the trust estate, or
an individual asset group, each as specified in the prospectus supplement. The
securities will be non-recourse obligations of the trust estate. Holders of the
notes may only proceed against the assets of the trust estate as collateral in
the case of a default, and then only to the extent provided in the indenture,
and may not proceed against any assets of the depositor or its affiliates, or
assets of the trust estate not pledged to secure the notes. In the case of a
series of notes, the trust estate will be established either as a statutory
business trust under the law of the state specified in the prospectus supplement
or as a common
35
law trust under the law of the state specified in the prospectus supplement
pursuant to a deposit trust agreement between the depositor and an owner trustee
specified in the prospectus supplement relating to that series of notes. Each
mortgage loan or security backed by a mortgage loan included in a trust will be
identified in a schedule appearing as an exhibit to the related Agreement. The
schedule will include information as to the scheduled principal balance of each
mortgage loan or mortgage backed security as of the specified date and its
interest rate, its original principal balance and other specified information.
The sponsor will, as to each loan, deliver or cause to be delivered to
the trustee, or, as specified in the related prospectus supplement a custodian
on behalf of the trustee,
o the mortgage note, with all intervening endorsements, endorsed
without recourse to the order of the trustee or in blank,
o the original mortgage with evidence of recording indicated
thereon, except for any mortgage not returned from the public
recording office, in which case the sponsor will certify that
the original of such mortgage was delivered to such recording
office,
o an original assignment of the mortgage in recordable form,
o all assumption, modification and substitution agreements, if
any, in those instances where the terms or provisions of a
mortgage have been modified or a mortgage note has been
assumed,
o all intervening mortgage assignments with evidence of
recording sufficient to show a complete chain of assignment
from the originator of the mortgage loan to the related
transferor, and
o the original lender's title insurance policy or, if such title
policy has been lost, a certified copy thereof.
The trustee or the custodian, will hold such documents in trust for the benefit
of the holders.
The sponsor will, at the time of issuance of the securities, cause
assignments to the trustee of the mortgages relating to the loans for a series
to be recorded in the appropriate public office for real property records,
except in states where, in the opinion of counsel acceptable to the trustee,
recording is not required to protect the trustee's interest in the related loans
or as to which the rating agencies advise that the omission to record therein
will not affect the ratings of the securities. If specified in the related
prospectus supplement, the sponsor will cause assignments to the trustee to be
so recorded within the time after issuance of the securities as is specified in
the related prospectus supplement, in which event the applicable Agreement may
require the sponsor to repurchase from the trustee any loan the related mortgage
of which is not recorded within the specified time, at the price described below
with respect to repurchases by reason of defective documentation. The
enforcement of the repurchase obligation would constitute the sole remedy
available to the holders or the trustee for the failure of a mortgage to be
recorded.
Each loan will be identified in a schedule appearing as an exhibit to
the related Agreement. This schedule will specify with respect to each loan:
o the original principal amount and unpaid principal balance as
of the cut-off date;
o the current interest rate;
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o the current scheduled payment of principal and interest;
o the maturity date, if any, of the related mortgage note; and
o if the loan is an adjustable rate loan, the lifetime rate cap,
if any, and the index.
Review of the mortgage file. The trustee will review each mortgage file
within the period of time specified in the related Agreement to determine if the
documents described above have been executed and received, and that such
documents relate to the mortgage loans in the loan schedule.
If within such period the trustee finds that any document constituting
a part of a mortgage file is not properly executed, has not been received or is
unrelated to the mortgage loans identified in the related loan schedule, or that
any mortgage loan does not conform in a material respect to the description
thereof as set forth in the related loan schedule, the trustee will be required
to promptly notify the sponsor of any defect. The sponsor will use reasonable
efforts to remedy a material defect in a document constituting part of a
mortgage file within the period of time specified in the related Agreement
following the trustee's notice. Thereafter, the trustee shall also certify that
it has received all of the documents referred to above and that all corrections
or curative actions required to be taken by the sponsor within the such period
have been completed or effected, or that the related mortgage loans will be
withdrawn or substituted, as specified below.
Repurchase and substitution of non-conforming mortgage loans. If any
document in the file relating to the mortgage loans delivered by the sponsor to
the trustee, or custodian, is found to be defective in any material respect and
the sponsor does not cure that defect within the period of time specified in the
related Agreement, the sponsor will, not later than the period of time specified
in the related Agreement following the trustee's notice to the sponsor of the
defect, repurchase the related mortgage loan or any property acquired in respect
of the mortgage loan from the trustee at a price equal to the outstanding
principal balance of the mortgage loan and accrued and unpaid interest to the
date of the repurchase/substitution of the mortgage loan at the rate set forth
in the related Agreement.
The sponsor, may, rather than repurchase the mortgage loan as described
above, remove the mortgage loan from the trust estate and substitute in its
place one or more other mortgage loans; provided, however, that:
(a) with respect to a trust estate for which no REMIC
election is made, the substitution must be effected
within 90 days of the date of initial issuance of the
securities and
(b) with respect to a trust estate for which a REMIC
election is made, the substitution must be effected
within a specified time period, and the trustee must
have received a satisfactory opinion of counsel that
the substitution will not cause the trust estate to
lose its status as a REMIC or otherwise subject the
trust estate to a prohibited transaction tax.
Any substitute mortgage loan will have, on the date of substitution,
o an outstanding principal balance, after deduction of all
scheduled payments due in the month of substitution, not in
excess of and not substantially less than the outstanding
principal balance of the deleted mortgage loan, the amount of
any shortfall to be deposited to the collection account in the
month of substitution for distribution to holders,
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o an interest rate not less than, and not substantially greater
than, the interest rate or margin of the removed mortgage
loan,
o a remaining term-to-stated maturity neither greater nor less
than that of the removed mortgage loan by such amount as set
forth in the related Agreement, and
o will comply with all of the representations and warranties set
forth in the applicable Agreement as of the date of
substitution.
The above-described cure, repurchase or substitution obligations
constitute the sole remedies available to the holders or the trustee for a
material defect in a document for a mortgage loan.
The sponsor will make representations and warranties with respect to
mortgage loans for a series. If the sponsor cannot cure a breach of any of the
representations and warranties in all material respects within the time period
specified in the related Agreement after notification by the trustee of the
breach, and if the breach is of a nature that materially and adversely affects
the value of the mortgage loan, the sponsor is obligated to repurchase the
affected mortgage loan or provide a substitute mortgage loan for the affected
mortgage loan, subject to the same conditions and limitations on purchases and
substitutions as described above.
PAYMENTS ON THE MORTGAGE LOANS
Unless otherwise specified in the related prospectus supplement, the
related Agreement will require the servicer to establish and maintain a
collection account. The servicer will deposit all collections related to the
mortgage loans or securities backed by mortgage loans into a collection account
no later than the second business day after receipt. All funds in the collection
accounts will be invested in as permitted investments, as described below. The
servicer may make withdrawals from the collection account for the following
purposes:
(a) to make deposits into a certificate account or note
account, if any, as applicable;
(b) to pay itself any monthly servicing fees;
(c) to make any servicing advance or to reimburse itself
for any servicing advance or monthly advance
previously made;
(d) to withdraw amounts that have been deposited to the
collection account in error; and
(e) to clear and terminate the collection account.
INVESTMENT OF ACCOUNTS
Unless otherwise specified in the related prospectus supplement,
amounts in any account may be invested and reinvested in one or more
investments, called permitted investments. No investment in the collection
account may mature later than the deposit date next succeeding the date of
investment. The trustee will not in any way be held liable by reason of any
insufficiency in any account resulting from any loss on any permitted investment
included therein. Unless otherwise specified in the related prospectus
supplement, all income or other gain from investments in any account will be
held in such account for the benefit of the servicer and will be subject to
withdrawal from time to time as permitted by the related pooling and servicing
agreement.
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Unless otherwise specified in the related prospectus supplement, each
Agreement will define "permitted investments" generally as follows:
(a) Direct general obligations of the United States or
the obligations of any agency or instrumentality of
the United States, the timely payment or the
guarantee of which constitutes a full faith and
credit obligation of the United States.
(b) Federal Housing Administration debentures, but
excluding any such securities whose terms do not
provide for payment of a fixed dollar amount upon
maturity or call for redemption.
(c) Federal Home Loan Mortgage Corporation senior debt
obligations, but excluding any such securities whose
terms do not provide for payment of a fixed dollar
amount upon maturity or call for redemption.
(d) Fannie Mae senior debt obligations, but excluding any
such securities whose terms do not provide for
payment of a fixed dollar amount upon maturity or
call for redemption.
(e) Federal funds, certificates of deposit, time and
demand deposits, and bankers' acceptances (having
original maturities of not more than 365 days) of any
domestic bank or trust company, the short-term debt
obligations of which have been assigned a minimum
rating specified in the related pooling and servicing
agreement by the applicable rating agency.
(f) Deposits of any bank or savings and loan association
which has combined capital, surplus and undivided
profits of at least $50,000,000 which deposits are
not in excess of the applicable limits insured by the
Bank Insurance Fund or the Savings Association
Insurance Fund of the Federal Deposit Insurance
Corporation, provided that the long-term deposits of
such bank or savings and loan association are
assigned a minimum rating specified in the related
pooling and servicing agreement by the applicable
rating agency.
(g) Commercial paper, having original maturities of not
more than 180 days, assigned a minimum rating
specified in the related pooling and servicing
agreement by the applicable rating agency.
(h) Investments in money market funds assigned a minimum
rating specified in the related pooling and servicing
agreement by the applicable rating agency.
(i) Other investments acceptable to the applicable rating
agency.
ADVANCES AND COMPENSATING INTEREST
The related prospectus supplement will describe the circumstances, if
any, under which the servicer will make advances with respect to delinquent
payments of principal and/or interest on loans. If specified in the related
prospectus supplement, the servicer will be obligated to make monthly advances,
and this obligation may be limited in amount, or may not be activated until a
certain portion of a specified reserve fund is depleted. Monthly advances are
intended to provide liquidity and, except to the extent specified in the related
prospectus supplement, not to guarantee or insure against losses. Accordingly,
to the extent specified in the related prospectus supplement, any funds advanced
are recoverable by the
39
servicer out of amounts received on particular loans which represent late
recoveries of principal or interest, proceeds of insurance policies or
liquidation proceeds respecting which any monthly advance was made or, to the
extent provided in the prospectus supplement, from payments or proceeds from
other loans. If and to the extent specified in the related prospectus
supplement, the servicer will advance its own funds to pay for any related
expenses of foreclosure and disposition of any liquidated loan or related
property. The servicer will be entitled to be reimbursed for any advances by the
servicer to the extent provided in the prospectus supplement. If an advance by
the servicer is made and subsequently determined to be nonrecoverable from late
collections, proceeds of insurance policies, or liquidation proceeds from the
related loan, the servicer will be entitled to reimbursement from other funds in
the collection account, certificate account or note account, if any, as the case
may be, or from a specified reserve fund as applicable, to the extent provided
in the prospectus supplement.
With respect to any mortgage loan that is liquidated or otherwise
charged off during a collection period, if specified in the related prospectus
supplement, the servicer will be obligated to pay, from amounts otherwise
payable to the servicer as the servicing fee, any difference between the
scheduled interest on such mortgage loan and the portion of the liquidation
proceeds applied to interest for the month of liquidation to the date of
liquidation. This amount is referred to as compensating interest. The servicer
will not be entitled to be reimbursed for any payments of compensating interest.
If the servicing fee in respect of such collection period is insufficient to
make the entire required compensating interest payment, the resulting shortfall
will reduce the amount of interest payable to the securityholders on such
distribution date and such reduction will not be recoverable thereafter.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
Unless otherwise specified in the related prospectus supplement, the
servicer is required to foreclose upon or otherwise comparably effect the
ownership of mortgaged properties as come into and continue in default and as to
which no satisfactory arrangements can be made for collection of delinquent
payments. In connection with such foreclosure or other conversion, the servicer
is required to exercise or use foreclosure procedures with the same degree of
care and skill as it would ordinarily exercise or use under the circumstances in
the conduct of its own affairs. Any amounts advanced in connection with such
foreclosure or other action will constitute servicing advances.
In the case of a trust for which a REMIC election has been made, the
servicer generally will be required to liquidate any mortgaged property not
later than three years of its acquisition by the trustee. Unless otherwise
specified in the related prospectus supplement, the sponsor or the servicer may
have the right and the option to reacquire for its own account any Mortgage Loan
which becomes delinquent.
GENERAL SERVICING PROCEDURES
The servicer will service the mortgage loans either directly or through
sub-servicers, in accordance with the provisions of each related Agreement and
the policies and procedures customarily employed by the servicer in servicing
other comparable mortgage loans. Servicing includes, but is not limited to, loan
processing, customer service, remittance handling, collections and liquidations.
The servicer, or any sub-servicer, will:
(x) execute and deliver any and all instruments of satisfaction,
cancellation, release or discharge of the mortgage loans,
(y) foreclosure on any mortgaged property and
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(z) collect any insurance proceeds or liquidation proceeds.
During a foreclosure, any expenses incurred by the servicer are
reimburseable to the servicer as servicing advances. Servicing and charge-off
policies and collection practices may change over time.
SUB-SERVICERS
The servicer is permitted to enter into sub-servicing arrangements with
certain mortgage servicing institutions, known as sub-services. Any such
sub-servicing arrangements will not relieve the servicer of any liability
associated with servicing the mortgage loans. Compensation for the services of
the sub-servicer with respect to the mortgage loans will be paid by the
servicer.
SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The servicer will be entitled to a periodic fee as servicing
compensation in an amount to be determined as specified in the related
prospectus supplement. The servicing fee may be fixed or variable, as specified
in the related prospectus supplement. In addition, the servicer will be entitled
to servicing compensation in the form of assumption fees, late payment charges
and similar items, or excess proceeds following disposition of property in
connection with defaulted loans.
If and to the extent specified in the related prospectus supplement,
the servicer will pay the expenses incurred in connection with the servicing of
the loans, and will also pay the fees and expenses of the trustee and
independent accountants, insurance policy premiums and the cost of credit
support, if any, and expenses incurred in preparation of reports to holders.
The servicer will be entitled to reimbursement for servicing advances
by the servicer. The related holders will suffer no loss by reason of these
servicing advances to the extent expenses are covered under related insurance
policies or from excess liquidation proceeds. If claims are either not made or
paid under the applicable insurance policies or if coverage under the applicable
insurance policies has been exhausted, the related holders will suffer a loss to
the extent that liquidation proceeds, after reimbursement of the servicing
advances by the servicer, are less than the outstanding principal balance of and
unpaid interest on the related loan which would be distributable to holders. The
servicer is generally also entitled to reimbursement from the collection account
for servicing advances by the servicer. In addition, the servicer will be
entitled to reimbursement for monthly advances as described above under
"--Advances and compensating interest."
The rights of the servicer to receive funds from the collection account
for a series, whether as the servicing fee or other compensation, or for the
reimbursement of monthly advances and servicing advances by the servicer,
expenses or otherwise, are not subordinate to the rights of holders of that
series.
In addition, a sub-servicer may be entitled to a monthly servicing fee
in a minimum amount set forth in the related prospectus supplement. The
sub-servicer may also be entitled to collect and retain, as part of its
servicing compensation, any late charges or prepayment penalties provided in the
mortgage note or related instruments. The sub-servicer will be reimbursed by the
servicer for certain expenditures that it makes, generally to the same extent
that the servicer would be reimbursed for such expenditures. Compensation for
the services of the sub-servicer shall be paid by the servicer as a general
corporate obligation of the servicer.
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MAINTENANCE OF HAZARD INSURANCE
The servicer will be required to maintain fire and hazard insurance
with extended coverage customary in the area where each mortgaged property is
located in an amount at least equal to the least of
(a) the outstanding principal balance owing on the
mortgage loan and the related senior lien, if any,
(b) the full insurable value of the related mortgaged
property and
(c) the minimum amount required to compensate for damage
or loss on a replacement cost basis.
If the mortgaged property is in an area identified in a federally
designated special flood hazard area, the servicer will be required to cause to
be maintained a flood insurance policy with a generally acceptable insurance
carrier, in an amount representing coverage not less than the least of
(a) the outstanding principal balance of the mortgage
loan and the senior lien, if any,
(b) the minimum amount required to compensate for damages
or loss on a replacement cost basis or
(c) the maximum amount of insurance available under the
federal flood insurance program.
The servicer will also be required to maintain fire, hazard and, if
applicable, flood insurance on each property acquired by the trust through
foreclosure in the respective amounts described above, as well as liability
insurance, in each case to the extent such insurance is available. Any amounts
collected by the servicer under any such policies not applied to the restoration
or repair of the mortgaged property, are required to be deposited by the
servicer in the collection account.
The servicer may obtain and maintain a blanket policy insuring against
fire and hazards of extended coverage on all of the mortgage loans. If such
blanket policy contains a deductible clause, the servicer will be required to
pay to the trustee the difference between the amount that would have been
payable under a policy described in the preceding paragraph and the amount paid
under the blanket policy.
ENFORCEMENT OF DUE-ON-SALE CLAUSES
When any mortgaged property is being conveyed by the obligor, the
servicer will be obligated to exercise its rights to accelerate the maturity of
the related loan under the applicable "due-on-sale" clause, if any, unless
exercise of the servicer's rights is not permitted under applicable law or if
the enforcement of the due on sale clause would result in loss of coverage under
any primary mortgage insurance policy. In this event, the servicer is authorized
to accept from or enter into an assumption agreement with the person to whom
property has been or is about to be conveyed, pursuant to which the person
becomes liable under the loan. To the extent permitted by applicable law, the
assumption of liability will not release the original borrower from its
obligation under the loan. The material terms of a loan may not be changed in
connection with an assumption except to the extent specified in the related
prospectus supplement.
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VOTING
The related prospectus supplement will set forth the method of
determining allocations of voting interests with respect to a series. Each
securityholder of a class will have a voting interest equal to the product of
the voting interest to which such class is collectively entitled and the
securityholder's percentage interest in such class. With respect to any
provisions of the related Agreement providing for action, consent or approval of
a specified class or classes of securities, each securityholder of such
specified class will have a voting interest in such class equal to such
securityholder's percentage interest in such class. If specified in the related
prospectus supplement, a specified class or classes of securities or a financial
guarantee insurer may be provided the right to exercise all voting rights of the
holders of securities.
AMENDMENTS
Without the consent of the securityholders, the trustee, the sponsor
and the servicer may amend the related Agreement for the purposes of
(a) curing any ambiguity or correcting or supplementing
any provision of such Agreement that may be
inconsistent with any other provision of such
Agreement,
(b) if a REMIC election has been made and if accompanied
by an approving opinion of counsel, removing the
restriction against the transfer of a residual
certificate or
(c) complying with the requirements of the Internal
Revenue Code of 1986, as amended;
provided, however, that such action pursuant to clause (c) above shall not, as
evidenced by an opinion of counsel delivered to the trustee, materially and
adversely affect the interests of any securityholder. Any amendment except
pursuant to clause (c) of the preceding sentence shall be deemed not to
adversely affect in any material respect the interests of any holder if the
trustee receives written confirmation from each rating agency rating the
securities that the amendment will not cause the rating agency to withdraw or
reduce the then current rating of the securities. No amendment shall be
permitted if such amendment shall have a material adverse affect on the sale
treatment of the corpus of the trust from the sponsor or the depositor to the
trustee or shall result in the consolidation of the assets and liabilities of
the trust with those of the sponsor or the depositor or any affiliate thereof,
as the case may be.
The related Agreement may also be amended by the trustee, the sponsor,
the depositor and the servicer, with the prior written approval of not less than
a majority of the voting rights, or such greater percentage set forth in the
related Agreement, represented by each affected class of securities then
outstanding, as represented by all classes if all classes are affected, for the
purpose of adding, changing, or eliminating the provisions thereof or modifying
the rights of the securityholders thereunder; provided, however, that no such
amendment shall
43
(a) change in any manner the amount of, or delay the
timing of, payments which are required to be
distributed to any securityholder without the consent
of such securityholder;
(b) change the percentages of percentage interests of
voting rights which are required to consent to any
such amendments, without the consent of the
securityholders of all securities of the class or
classes affected then outstanding; or
(c) adversely affect in any material respect the
interests of the holders of any class of securities
in a manner other than as described above without the
consent of the holders of securities of the class
evidencing a majority of the voting rights thereof,
or such greater percentage set forth in the related
Agreement; or
(d) reduce the aforesaid percentage of voting rights
represented by securityholders required to consent to
any amendment unless each holder of a security
consents.
The Agreement may also be amended by the parties to the Agreement
without the consent of securityholders for the purpose of, among other things:
(a) curing any ambiguity,
(b) to cause the provisions of the Agreement to conform
to or be consistent with or in furtherance of the
statements made with respect to the securities, the
trust estate or the Agreement in any disclosure
document pursuant to which any securities were
offered,
(c) to correct any defective provision therein or to
supplement any provision therein which may be
inconsistent with any other provision therein,
(d) to add to the duties of the depositor, or the
servicer,
(e) to add any other provisions with respect to matters
or questions arising thereunder, or
(f) to modify, alter, amend, add to or rescind any of the
terms or provisions contained in the Agreement.
The trustee will be required to furnish a copy of any such amendment to
each securityholder in the manner set forth in the related Agreement.
44
EVENTS OF DEFAULT
Certificates
(a) Unless otherwise specified in the related prospectus
supplement, events of default with respect to
certificates under a pooling and servicing agreement
will include any failure by the servicer to make a
monthly advance as required;
(b) failure by the servicer to make a required deposit
into the collection account or certificate account;
(c) failure by the servicer to observe or perform in any
material respect its covenants or agreements in the
pooling and servicing agreement;
(d) certain events of insolvency, readjustment of debt,
or similar proceedings indicating its insolvency or
inability to pay its obligations; and/or
(e) the occurrence of delinquencies and/or losses in
respect of the mortgage loans in excess of levels,
and for periods of time, as specified in the pooling
and servicing agreement.
Notes
As specified in the prospectus supplement, events of default under the
indenture for each series of notes generally include:
(a) a default for a specified number of days in the
payment of any interest or installment of principal
on a note of that series, to the extent specified in
the prospectus supplement, or the default in the
payment of the principal of any note at the note's
maturity;
(b) failure to perform in any material respect any other
covenant of the trust in the indenture that continues
for a specified number of days after notice is given
in accordance with the procedures described in the
prospectus supplement;
(c) any failure to observe or perform any covenant or
agreement of the trust, or any representation or
warranty made by the trust in the indenture having
been incorrect in a material respect as of the time
made, and that breach is not cured within a specified
number of days after notice is given in accordance
with the procedures described in the prospectus
supplement;
(d) certain events of bankruptcy, insolvency,
receivership or liquidation of the trust; or
(e) any other event of default provided with respect to
notes of that series.
45
RIGHTS UPON EVENTS OF DEFAULT
Certificates
Unless otherwise specified in the related prospectus supplement, upon
the occurrence of an event of default, certificateholders evidencing voting
interests represented by all certificates aggregating not less than 51% or such
greater percentage set forth in the related Agreement or the trustee may
terminate all of the rights and obligations of the servicer, whereupon the
trustee will succeed the servicer. In the event that the trustee is unwilling or
legally unable to act, it may appoint, or have a court appoint, any established
institution that regularly services home equity loans that meets certain
requirements set forth in the related pooling and servicing agreement, provided
that the appointment of any such successor servicer will not result in the
qualification, reduction or withdrawal of the rating assigned to the
certificates by any applicable rating agency. Pending appointment of a successor
servicer, the trustee shall be obligated to act as servicer. The servicing
compensation to be paid, may not be greater than the servicing fee.
Unless otherwise specified in the related prospectus supplement, no
certificateholder may institute any action, suit or proceeding with respect to
the related pooling and servicing agreement unless such certificateholder
previously has given to the trustee written notice of default and unless
certificateholders evidencing voting interests represented by all certificates
aggregating not less than 51% or such greater percentage set forth in the
related Agreement have made written request upon the trustee to institute such
action, suit or proceeding, and the trustee for 60 days has neglected or refused
to institute any such action, suit or proceeding. However, such
certificateholders must first have offered to the trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
Notes
If an event of default with respect to the notes of any series at the
time outstanding occurs and is continuing, subject to the terms of the
indenture, either the trustee or the holders of the voting interests of a
specified percentage of the then aggregate outstanding amount of the notes of
the series may declare the principal amount or, if the notes of that series are
zero coupon securities, that portion of the principal amount as may be specified
in the terms of that series, of all the notes of the series to be due and
payable immediately. That declaration may, under certain circumstances, be
rescinded and annulled by the holders of a specified percentage of voting rights
represented by the aggregate outstanding amount of the notes of that series.
If, following an event of default with respect to any series of notes,
the notes of that series have been declared to be due and payable, the holders
of the voting interests of a specified percentage of the then aggregate
outstanding amount of the notes of the series may, in their discretion,
notwithstanding any acceleration, elect to maintain possession of the collateral
securing the notes of the series and to continue to apply distributions on the
collateral as if there had been no declaration of acceleration if the collateral
continues to provide sufficient funds for the payment of principal and interest
on the notes of that series as they would have become due if there had not been
a declaration of acceleration. In addition, the trustee may not sell or
otherwise liquidate the collateral securing the notes of a series following an
event of default, unless:
o the holders of 100% (or any other percentages specified in the
indenture) of the voting rights of the then aggregate
outstanding amount of the notes (or certain classes of notes)
of the series consent to the sale;
46
o the proceeds of the sale or liquidation are sufficient to pay
in full the principal and accrued interest, due and unpaid, on
the outstanding notes of the series at the date of the sale;
or
o the trustee determines that the collateral would not be
sufficient on an ongoing basis to make all payments on the
notes as the payments would have become due if the notes had
not been declared due and payable, and the trustee obtains the
consent of the holders of a specified percentage of the then
aggregate outstanding amount of the notes of the series.
As specified in the prospectus supplement, in the event the principal
of the notes of a series is declared due and payable, the holders of any notes
issued at a discount from par may be entitled to receive no more than an amount
equal to the unpaid principal amount less the amount of the discount that is
unamortized.
Subject to the provisions for indemnification and certain limitations
contained in the indenture, the holders of a specified percentage of the voting
rights represented by the then aggregate outstanding amount of the notes of a
series will 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 the series, and
the holders of a specified percentage of the voting rights represented by the
then aggregate outstanding amount of the notes of that series may, in certain
cases, waive any default, 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 that series affected thereby.
TERMINATION; OPTIONAL TERMINATION
Certificates
Each series of certificates will terminate upon the payment to the
related certificateholders of all amounts held in any accounts or by the
servicer, and required to be paid to them following the final payment or other
liquidation of the last of the related mortgage loans. The seller, the servicer,
or another entity designated in the related prospectus supplement may, at its
option, cause an early termination of one or more classes of securities by
purchasing all or part of the mortgage loans from the trust estate on or after a
date specified in the related prospectus supplement, or on or after the time
when the aggregate outstanding principal amount of the securities or mortgage
loans, as specified in the related prospectus supplement is less than the amount
or percentage specified in the related prospectus supplement. The redemption,
purchase or repurchase price will be set forth in the related prospectus
supplement. If specified in the related prospectus supplement, in the event that
a REMIC election has been made, the trustee will receive a satisfactory opinion
of counsel that the optional redemption, purchase or termination will be
conducted so as to constitute a "qualified liquidation" under Section 860F of
the Internal Revenue Code of 1986, as amended.
Notes
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 or, with
certain limitations, upon deposit with the trustee of funds sufficient for the
payment in full of all of the notes.
In addition, with certain limitations, the indenture may provide that
the trust will be discharged from any and all obligations in respect of the
notes, except for certain administrative duties, upon the
47
deposit with the trustee of money or direct obligations of or obligations
guaranteed by the United States of America which through the payment of interest
and principal in accordance with their terms will provide funds in an amount
sufficient to pay the principal of and each installment of interest on the notes
on the stated maturity date and any installment of interest on the notes in
accordance with the terms of the indenture and the notes. In the event of any
defeasance and discharge of notes, holders of the notes will be able to look
only to the funds or direct obligations for payment of principal and interest,
if any, on their notes until maturity.
EVIDENCE AS TO COMPLIANCE
Each Agreement will provide that each year, a firm of independent
public accountants will furnish a statement to the trustee to the effect that
the firm has examined certain documents and records relating to the servicing of
the loans by the servicer and that this examination, which has been conducted
substantially in compliance with the requirements of the uniform single audit
program for mortgage bankers, or such other applicable audit program set forth
in the related Agreement, has disclosed no items of non-compliance with the
provisions of the applicable Agreement that, in the opinion of the firm, are
material, except for the items of non-compliance as shall be specified in such
report.
The applicable Agreement for each series will also provide for delivery
to the trustee for that series of an annual statement signed by an officer of
the servicer to the effect that the servicer has fulfilled its material
obligations under the applicable pooling and servicing agreement throughout the
preceding calendar year.
INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE SPONSOR
The related Agreement will provide that neither the sponsor nor any of
its directors, officers, employees or agents shall have any liability to the
related trust or to any of the securityholders, except with respect to
liabilities resulting from willful malfeasance, bad faith or negligence or from
the reckless disregard of obligations or duties arising under the related
Agreement. The related Agreement will further provide that, with the exceptions
stated above, the sponsor and its directors, officers, employees and agents are
entitled to be indemnified and held harmless by the related trust against any
loss, liability or expense incurred in connection with legal actions relating to
such Agreement or the securities.
THE TRUSTEE
The identity of the commercial bank, savings and loan association or
trust company named as the trustee for each series of securities will be set
forth in the related prospectus supplement. The related Agreement will provide
that the trustee may resign at any time, upon appointing a successor trustee.
The sponsor may remove the trustee if the trustee ceases to be eligible to
continue as such under the related Agreement or if the trustee becomes
insolvent, upon the appointment of a successor trustee. Each Agreement will
provide that the trustee is under no obligation to exercise any of the rights or
powers vested in it by the Agreement at the request or direction of any of the
holders of securities, unless such holders of securities shall have offered to
the trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction. The trustee may execute any of the rights or powers granted by the
Agreement or perform any duties thereunder either directly or by or through
agents or attorneys, and the trustee is responsible for any misconduct or
negligence on the part of any agent or attorney appointed and supervised with
due care by it thereunder. Pursuant to the related Agreement, the trustee is not
liable for any action it takes or omits to take in good faith which it
reasonably believes to be authorized by an authorized officer of any person or
within its rights or powers under the related Agreement. The trustee and any
director, officer, employee or agent of the trustee may rely and will be
protected in acting or refraining from acting in good faith in
48
reliance on any certificate, notice or other document of any kind prima facie
properly executed and submitted by the authorized officer of any person
respecting any matters arising under the related Agreement.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND
RELATED MATTERS
The following discussion contains summaries of legal aspects of
mortgage loans which are general in nature. Because some of these legal aspects
are governed by applicable state law which laws may differ substantially, the
summaries do not purport to be complete nor encompass the laws of all states in
which the properties securing the loans are situated.
MORTGAGES
The loans for a series will be secured by either mortgages or deeds of
trust or deeds to secure debt, referred to as mortgage loans, depending upon the
prevailing practice in the state in which the property subject to a mortgage
loan is located. In New York, for example, the prevailing practice is a
mortgage. The filing of a mortgage, deed of trust or deed to secure debt creates
a lien or title interest upon the real property covered by the instrument and
represents the security for the repayment of an obligation that is customarily
evidenced by a promissory note. The priority of the liens is important because,
among other things, the foreclosure of a senior lien will extinguish a junior
lien, and because the holder of a senior lien generally will have a right to
receive insurance, condemnation or other proceeds before the holder of a junior
lien.
Priority between mortgages and deeds of trust, or other instruments of
record, generally depends in the first instance on the order of filing with the
appropriate government records office. Priority also may be affected by the
express terms of the mortgage or the deed of trust and any subordination
agreement among the lenders.
Although priority among liens on the same property generally depends in
the first instance on the order of filing, there are a number of ways in which a
lien that is a senior lien when it is filed can become subordinate to a lien
filed at a later date. A deed of trust or mortgage generally is not prior to any
liens for real estate taxes and assessments, particular types of federal liens,
some mechanics and materialmen's liens, and other liens given priority by
applicable law.
There are two parties to a mortgage, the mortgagor, who is the
borrower/property owner or the land trustee, and the mortgagee, who is the
lender. Under the mortgage instrument, the mortgagor delivers to the mortgagee a
note or bond and the mortgage. In the case of a deed of trust, there are three
parties because title to the property is held by a land trustee under a land
trust agreement of which the borrower/property owner is the beneficiary; at
origination of a mortgage loan, the borrower executes a separate undertaking to
make payments on the mortgage note. Under a deed of trust, the homeowner or
borrower, called the "grantor," grants the property securing the mortgage loan,
called the "security property" to a third-party grantee, called the "trustee,"
for the benefit of the lender, called the "beneficiary." The deed of trust, upon
the instructions of the beneficiary, gives the trustee the authority, if the
borrower defaults, to sell the security property in a "foreclosure" or
"trustee's sale" and to apply the sale proceeds to the secured debt. 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 the
time that the underlying debt is repaid. The mortgagee's authority under a
mortgage and the trustee's authority under a deed of trust are governed by the
law of the state in
49
which the real property is located, the express provisions of the mortgage or
deed of trust, and, in some cases, in deed of trust transactions, the directions
of the beneficiary.
Certain of the mortgage loans may be loans secured by condominium
units. Condominium ownership is a form of ownership of a real property wherein
each owner is entitled to the exclusive ownership and possession of his or her
individual condominium unit and also owns a proportionate interest in
condominium building, other than the individual condominium units, and all
common areas and facilities. The condominium unit owners appoint or elect the
condominium association to govern the affairs of the condominium.
FORECLOSURE AND REPOSSESSION
Foreclosure of a mortgage is generally accomplished by judicial action,
and foreclosure of a deed of trust may be accomplished by judicial action.
Generally, the action is initiated by the service of legal pleadings upon all
parties having an interest of record in the real property. Delays in completion
of the foreclosure occasionally may result from difficulties in locating
necessary parties defendant. When the mortgagee's right to foreclosure is
contested, the legal proceedings necessary to resolve the issue can be
time-consuming and expensive. After the completion of a judicial foreclosure
proceeding, the court may issue a judgment of foreclosure and appoint a receiver
or other officer to conduct the sale of the property. In some states, mortgages
may also be foreclosed by advertisement or pursuant to a power of sale provided
in the mortgage. Foreclosure of a mortgage by advertisement is essentially
similar to foreclosure of a deed of trust by nonjudicial power of sale.
If a borrower defaults under a loan secured by a deed of trust, the
lender generally may bring suit against the borrower. The lender generally also
may attempt to collect the loan by causing the deed of trust to be enforced
against the property it encumbers. Enforcement of a deed of trust is
accomplished in most cases by a trustee's sale in which the trustee, upon
default of the grantor, and subject to the expiration of applicable cure
periods, sells the security property at a public sale under the terms of the
loan documents and subject to the applicable procedural provisions of state law.
In certain states, the lender must exhaust the security through foreclosure,
either judicially or non-judicially, prior to collecting on the loan. Whether a
lender may subsequently collect on the unpaid balance of the loan is governed by
the anti-deficiency statute in the applicable state.
The trustee's sale generally must be conducted by public auction in the
county or city in which all or some part of the security property is located. At
the sale, the trustee generally requires a bidder to deposit with the trustee a
set amount or a percentage of the full amount of the bidder's final bid in cash,
or a cash equivalent satisfactory to the trustee, prior to and as a condition to
recognizing the bid, and may conditionally accept and hold these amounts for the
duration of the sale. The beneficiary of the deed of trust generally need not
bid cash at the sale, but may instead make a "credit bid" up to the extent of
the total amount due under the deed of trust, including costs and expenses
actually incurred in enforcing the deed of trust, as well as the trustee's fees
and expenses. The trustee will sell the security property to the highest proper
bidder at the sale.
A sale conducted in accordance with the terms of the power of sale
contained in the deed of trust generally is presumed to be conducted regularly
and fairly, and, on a conveyance of the security property by trustee's deed,
confers absolute legal title to the security property to the purchaser, free of
all junior deeds of trust and free of all other liens and claims subordinate to
the deed of trust under which the sale is made. The purchaser's title, however,
is subject to all senior liens and other senior claims. Thus, if the deed of
trust being enforced is a junior deed of trust, the trustee will convey title to
the property to the purchaser subject to the first deed of trust and any other
prior liens and claims. A trustee's sale or judicial foreclosure under a junior
deed of trust generally has no effect on the first deed of trust, with the
possible
50
exception of the right of a senior beneficiary to accelerate its indebtedness
under a default clause or a "due-on-sale" clause contained in the senior deed of
trust.
Because a potential buyer at the sale may find it difficult to
determine the exact status of title and other facts about the security property,
and because the physical condition of the security property may have
deteriorated, it generally is more common for the lender, rather than an
unrelated third party, to purchase the security property at a trustee's sale or
judicial foreclosure sale. The lender, or other purchaser at the trustee's sale,
will be subject to the burdens of ownership, including the obligations to
service any senior deed of trust, to obtain hazard insurance and to make repairs
at its own expense as are necessary to render the security property suitable for
resale. The lender commonly will attempt to resell the security property and
obtain the services of a real estate broker and agree to pay the broker a
commission in connection with the resale. Depending upon market conditions, the
ultimate proceeds of the resale of the security property may not be high enough
to equal the lender's investment.
The proceeds received by the trustee from the sale generally are
applied first to the costs, fees and expenses of sale and then in satisfaction
of the indebtedness secured by the deed of trust under which the sale was
conducted. Any remaining proceeds generally are payable to the holders of junior
deeds of trust and other liens and claims in order of their priority. Any
balance remaining generally is payable to the grantor. Following the sale, if
there are insufficient proceeds to repay the secured debt, the beneficiary under
the foreclosed lien generally may obtain a deficiency judgment against the
grantor.
Some courts have been faced with the issue of whether federal or state
constitutional due process requires that borrowers under deeds of trust receive
notices in addition to the statutorily prescribed minimum. For the most part,
the courts in these cases have upheld the notice provisions and procedures
described above.
An action to foreclose a mortgage is an action to recover the mortgage
debt by enforcing the mortgagee's rights under the mortgage. It is regulated by
statutes and rules and subject throughout to the court's equitable powers.
Generally, a mortgagor is bound by the terms of the related mortgage note and
the mortgage as made and cannot be relieved from his default if the mortgagee
has exercised his rights in a commercially reasonable manner. However, since a
foreclosure action historically was equitable in nature, the court may exercise
equitable powers to relieve a mortgagor of a default and deny the mortgagee
foreclosure on proof that either the mortgagor's default was neither willful nor
in bad faith or the mortgagee's action established a waiver, fraud, bad faith,
or oppressive or unconscionable conduct such as to warrant a court of equity to
refuse affirmative relief to the mortgagee. Under some circumstances a court of
equity may relieve the mortgagor from an entirely technical default where the
default was not willful.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses or counterclaims are interposed, sometimes requiring
up to several years to complete. Moreover, a non-collusive, regularly conducted
foreclosure sale may be challenged as a fraudulent conveyance, regardless of the
parties' intent, if a court determines that the sale was for less than fair
consideration and the sale occurred while the mortgagor was insolvent and within
one year, or within the state statute of limitations if the trustee in
bankruptcy elects to proceed under state fraudulent conveyance law, of the
filing of bankruptcy. Similarly, a suit against the debtor on the related
mortgage note may take several years and, generally, is a remedy alternative to
foreclosure, the mortgagee being precluded from pursuing both at the same time.
In the case of foreclosure under either a mortgage or a deed of trust,
the sale by the referee or other designated officer or by the trustee is a
public sale. However, because of the difficulty potential third party purchasers
at the sale have in determining the exact status of title and because the
physical
51
condition of the property may have deteriorated during the foreclosure
proceedings, it is uncommon for a third party to purchase the property at a
foreclosure sale. Rather, it is common for the lender to purchase the property
from the trustee or referee for an amount which may be equal to the unpaid
principal amount of the mortgage note secured by the mortgage or deed of trust
plus 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 a deficiency judgment is available. Subject
to the right of the borrower in some states to remain in possession during the
redemption period, the lender will subsequently assume the burdens of ownership,
including obtaining hazard insurance, paying taxes and making 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.
RIGHTS OF REDEMPTION
In some states, after sale pursuant to a deed of trust or foreclosure
of a mortgage, the mortgagor and foreclosed junior lienors are given a statutory
period in which to redeem the property from the foreclosure sale. The right of
redemption should be distinguished from the equity of redemption, which is a
non-statutory right that must be exercised prior to 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 is to diminish
the ability of the lender to sell the foreclosed property. The exercise of a
right of redemption would defeat the title of any purchaser at a foreclosure
sale, or of any purchaser from the lender subsequent to foreclosure or sale
under a deed of trust. Consequently the practical effect of a right of
redemption is to force the lender to retain the property and pay the expenses of
ownership until the redemption period has run. In many states, there is no right
to redeem property after a trustee's sale under a deed of trust, unless a
deficiency judgment is sought by the lender. As a result, lenders may choose to
forego their right to a deficiency judgment to expedite the start of the
marketing process for such foreclosed mortgage.
When the lender under a junior mortgage or deed of trust cures the
default and reinstates or redeems the senior mortgage or deed of trust, the
amount paid by the lender for the cure generally becomes a part of the
indebtedness secured by the junior deed of trust.
JUNIOR MORTGAGES; RIGHTS OF SENIOR MORTGAGEES
The mortgage loans comprising or underlying the primary assets included
in the trust estate for a series will be secured by mortgages or deeds of trust
which may be second or more junior mortgages to other mortgages held by other
lenders or institutional investors. The rights of the trust (and therefore the
holders) as mortgagee under a junior mortgage, are subordinate to those of the
mortgagee under the senior mortgage, including the prior rights of the senior
mortgagee to receive hazard insurance and condemnation proceeds and to cause the
property securing the mortgage loan to be sold upon default of the mortgagor,
thus 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 a default
and bring the senior loan current, in either event adding the amounts expended
to the balance due on the junior loan. In some states, absent a provision in the
mortgage or deed of trust, no notice of default is required to be given to a
junior mortgagee. In addition, as described above, the rights of the trust may
be or become subject to liens for real estate taxes and other obligations.
Although the seller generally
52
does not cure defaults under a senior deed of trust or other lien, it is the
seller's standard practice to protect its interest by monitoring any sale of
which it is aware and bidding for property if it determines that it is in the
seller's best interests to do so.
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 required to be maintained by the borrower and all
awards made in connection with condemnation proceedings. The lender generally
has the right, subject to the specific provisions of the deed of trust securing
its loan, to apply insurance proceeds and awards to repair of any damage to the
security property or to payment of any indebtedness secured by the deed of
trust, in any order the beneficiary 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 or deeds of trust. If
available, proceeds in excess of the amount of senior mortgage indebtedness, in
most cases, will be applied to the indebtedness of a junior mortgage.
Another provision typically 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 of the property, 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 grantor or mortgagor to perform any of these
obligations, the mortgagee or beneficiary is given the right under some
mortgages to perform the obligation itself, at its election, with the mortgagor
agreeing to reimburse the mortgagee or beneficiary for any sums expended by the
mortgagee or beneficiary on behalf of the mortgagor or grantor. The mortgage or
deed of trust typically provide that all sums so expended by the mortgagee
become part of the indebtedness secured by the mortgage.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON LENDERS
Some states have imposed statutory prohibitions which limit the
remedies of a beneficiary under a deed of trust or a mortgagee under a mortgage.
In some states, statutes limit the right of the beneficiary or mortgagee to
obtain a deficiency judgment against the borrower following foreclosure or sale
under a deed of trust. A deficiency judgment is a personal judgment against the
former borrower equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
lender. However, some states calculate the deficiency as the difference between
the outstanding indebtedness and the greater of the fair market value of the
property and the sales price of the property. 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 some other states, the
lender has the option of bringing a personal action against the borrower on the
debt without first exhausting the security; however, in some of these states,
the lender, following judgment on a 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 New York,
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for example, there is no statutory prohibition limiting remedies to the lender,
and the liability for deficiency in a mortgage foreclosure action depends upon
the contract. However, by statute, where no express covenant or other separate
instrument, such as a guarantee, provides for the liability of a deficiency, the
remedies of a lender are confined to the mortgaged property.
In addition to laws limiting or prohibiting deficiency judgments,
numerous other statutory provisions, including the federal bankruptcy laws, the
federal Servicemembers Civil Relief Act and state laws affording relief to
debtors, may interfere with or affect the ability of the secured lender to
realize upon collateral and/or enforce a deficiency judgment. For example, with
respect to federal bankruptcy law, the filing of a petition acts as a stay
against the enforcement of remedies for collection of a debt. Moreover, a court
with federal bankruptcy jurisdiction may permit a debtor through a Chapter 13
bankruptcy code rehabilitative plan to cure a monetary default with respect to a
loan on a debtor's residence by paying arrearages within a reasonable time
period and reinstating the original loan payment schedule even though the lender
accelerated the loan and the lender has taken all steps to realize upon his
security, provided no sale of the property has yet occurred, prior to the filing
of the debtor's Chapter 13 petition. Some courts with federal bankruptcy
jurisdiction have approved plans, based on the particular facts of the
reorganization case, that effected the curing of a loan default by permitting
the obligor to pay arrearages over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that
the terms of a mortgage loan may be modified if the borrower has filed a
petition under Chapter 13. These courts have suggested that modifications may
include reducing the amount of each monthly payment, changing the rate of
interest, altering the repayment schedule and reducing the lender's security
interest to the value of the residence, thus leaving the lender a general
unsecured creditor for the difference between the value of the residence and the
outstanding balance of the loan. Federal bankruptcy law and limited case law
indicate that the foregoing modifications could not be applied to the terms of a
loan secured by property that is the principal residence of the debtor. In all
cases, the secured creditor is entitled to the value of its security plus
post-petition interest, attorney's fees and costs to the extent the value of the
security exceeds the debt.
In a Chapter 11 case under the bankruptcy code, the lender is precluded
from foreclosing without authorization from the bankruptcy court. The lender's
lien may be transferred to other collateral and/or be limited in amount to the
value of the lender's interest in the collateral as of the date of the
bankruptcy. The loan term may be extended, the interest rate may be adjusted to
market rates and the priority of the loan may be subordinated to bankruptcy
court-approved financing. The bankruptcy court can, in effect, invalidate
due-on-sale clauses through confirmed Chapter 11 plans of reorganization.
The bankruptcy code provides priority to specified tax liens over the
lender's security. This may delay or interfere with the enforcement of rights in
respect of a defaulted loans. In addition, substantive requirements are imposed
upon lenders in connection with the origination and the servicing of mortgage
loans by numerous federal and some state consumer protection laws. The 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 laws impose specific
statutory liabilities upon lenders who originate loans and who fail to comply
with the provisions of the law. In some cases, this liability may affect
assignees of the loans.
DUE-ON-SALE CLAUSES IN MORTGAGE LOANS
Due-on-sale clauses permit the lender to accelerate the maturity of the
loan if the borrower sells or transfers, whether voluntarily or involuntarily,
all or part of the real property securing the loan without the lender's prior
written consent. The enforceability of these clauses has been the subject of
legislation or
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litigation in many states, and in some cases, typically involving single family
residential mortgage transactions, their enforceability has been limited or
denied. In any event, the Garn-St. Germain Depository Institutions Act of 1982
preempts state constitutional, statutory and case law that prohibits the
enforcement of due-on-sale clauses and permits lenders to enforce these clauses
in accordance with their terms, subject to certain exceptions. 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
due-on-sale clauses with respect to mortgage loans that were
(a) originated or assumed during the "window period"
under the Garn-St. Germain Depository Institutions
Act which ended in all cases not later than October
15, 1982, and
(b) originated by lenders other than national banks,
federal savings institutions and federal credit
unions.
Freddie Mac 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 Depository Institutions 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.
In addition, under federal bankruptcy law, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under some circumstances, be
eliminated in any modified mortgage resulting from a 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 some states, there are
or may be specific limitations, upon the late charges which a lender may collect
from a borrower for delinquent payments. Some 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. The regulations of the Office of Thrift
Supervision ("OTS") prohibit the imposition of a prepayment charge or equivalent
fee for or 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 to a refinancing lender. The absence of a
restraint on prepayment or the inability to enforce prepayment charge provisions
in the mortgage loan documents (particularly with respect to mortgage loans
having higher interest rates) may increase the likelihood of refinancing or
other early retirements of the mortgage loans.
Some state laws restrict the imposition of prepayment charges even when
the loans expressly provide for the collection of those charge. The Alternative
Mortgage Transaction Parity Act of 1982, or the Parity Act, permitted the
collection of prepayment charges in connection with certain types of eligible
mortgage loans preempting any contrary state law prohibitions. However, recent
changes to the OTS regulations implementing the Parity Act make mortgage loans
originated on or after July 1, 2003 subject to state law restrictions on
prepayment charges.
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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 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.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980, enacted in March 1980 referred to as "Title V", provides
that state usury limitations shall not apply to specific types of residential
first mortgage loans originated by lenders after March 31, 1980. Similar federal
statutes were in effect with respect to mortgage loans made during the first
three months of 1980. Title V authorizes any state to reimpose interest rate
limits by adopting, before April 1, 1983, a state law, or by certifying that the
voters of the state have voted in favor of any provision, constitutional or
otherwise, which expressly rejects an application of the federal law. Fifteen
states adopted a similar law prior to the April 1, 1983 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. State laws apply to residential second mortgages; however,
some state usury limitations do not apply to residential second mortgages.
ENVIRONMENTAL LEGISLATION
A federal statute, the Comprehensive Environmental Response,
Compensation, and Liability Act, and a growing number of state laws impose a
statutory lien for associated costs on property that is the subject of a cleanup
action on account of hazardous wastes or hazardous substances released or
disposed of on the property. This type of lien generally will have priority over
all subsequent liens on the property and, in some of these states, will have
priority over prior recorded liens, including the lien of a mortgage. The
priority of the environmental lien under federal law depends on the time of
perfection of the federal lien compared to the time of perfection of any
competing liens under applicable state law. In addition, under federal
environmental legislation and possibly under state law in a number of states, a
secured party that takes a deed in lieu of foreclosure or acquires a property at
a foreclosure sale may be liable for the costs of cleaning up a contaminated
site. Although these costs could be substantial, they would probably not be
imposed on a secured lender, such as the applicable trust estate, if it promptly
marketed the foreclosed property for resale. In the event that a trust estate
acquired title to a property securing a mortgage loan and cleanup costs were
incurred in respect of the property, the holders of the securities might incur a
delay in the payment if the clean up costs were required to be paid by the trust
estate.
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SERVICEMEMBERS CIVIL RELIEF ACT
Under the Servicemembers Civil Relief Act, borrowers who enter military
service after the origination of their mortgage loan, including a borrower who
was a member of the National Guard or was in reserve status and is called to
active duty after the origination of their mortgage loan:
(a) are entitled to have interest rates reduced and
capped at 6% per annum, on obligations, including
mortgage loans, incurred prior to the commencement of
military service for the duration of military
service,
(b) may be entitled to a stay of proceedings on any kind
of foreclosure or repossession action in the case of
defaults on any obligations entered into prior to
military service for the duration of military
service, and
(c) may have the maturity of any obligations incurred
prior to military service extended, the payments
lowered and the payment schedule readjusted for a
period of time after the completion of military
service.
The Servicemembers Civil Relief Act applies to borrowers who are in
military service, including members of the Air Force, Army, Navy, Marines,
National Guard, Reserves, Coast Guard and U.S. Public Health Officers assigned
to duty with the military. If a borrower's obligation to repay amounts otherwise
due on a mortgage loan included in a trust fund for a series is relieved
pursuant to the Servicememembers Civil Relief Act, none of the trust fund, the
servicer, the seller, the trustee or the owner trustee (if applicable) will be
required to advance these amounts, and any resulting loss may reduce the amounts
available to be paid to the holders of the securities. California has a law very
similar to the Servicemembers Civil Relief Act.
USE OF PROCEEDS
The seller will apply all or substantially all of the net proceeds from
the sale of each series of securities for one or more of the following purposes:
o to establish any reserve fund, pre-funding account or segregated
trust account,
o to pay costs of structuring and issuing the securities, including
the costs of obtaining enhancement and
o for its general corporate purposes.
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain anticipated material
federal income tax consequences of the purchase, ownership and disposition of
the securities. This discussion has been prepared with the advice of Greenberg
Traurig, LLP, special counsel to the depositor. This discussion is based on
authorities currently in effect, all of which are subject to change or differing
interpretations. Any such change or differing interpretation could be applied
retroactively. No rulings have been or will be sought from the IRS with respect
to any of the matters discussed below, and no assurance can be given that the
views of the IRS with respect to those matters will not differ from that
described below.
This discussion is directed solely to Security Owners that purchase
securities at issuance and hold them as "capital assets" within the meaning of
Section 1221 of the Code. The discussion does not purport
57
to cover all federal income tax consequences applicable to particular investors,
some of which may be subject to special rules. Investors subject to such special
rules include, without limitation, dealers in securities, certain traders in
securities, financial institutions, tax-exempt organizations, insurance
companies, persons who hold securities as part of a hedging transaction or as a
position in a straddle or conversion transaction, persons whose functional
currency is not the U.S. dollar, or persons who elect to treat gain recognized
on the disposition of a security as investment income under Section
163(d)(4)(B)(iii) of the Code.
In addition, this discussion does not address the state, local, foreign
or other tax consequences of the purchase, ownership, and disposition of
securities. We recommend that you consult your own tax advisor in determining
the state, local, foreign and other tax consequences of the purchase, ownership,
and disposition of securities. Moreover, this discussion may be supplemented by
a discussion in the applicable prospectus supplement.
In this discussion, when we use the term:
o "Security Owner," we mean any person holding a beneficial
ownership interest in a security;
o "Code," we mean the Internal Revenue Code of 1986, as amended;
o "IRS," we mean the Internal Revenue Service;
o "AFR," we mean the applicable federal rate, which is an average of
current yields for U.S. Treasury securities with specified ranges
of maturities and which is computed and published monthly by the
IRS for use in various tax calculations;
o "Foreign Person," we mean any person other than a U.S. Person; and
o "U.S. Person," we mean (i) a citizen or resident of the United
States; (ii) a corporation (or entity treated as a corporation for
tax purposes) created or organized in the United States or under
the laws of the United States or of any state thereof, including,
for this purpose, the District of Columbia; (iii) a partnership
(or entity treated as a partnership for tax purposes) organized in
the United States or under the laws of the United States or of any
state thereof, including, for this purpose, the District of
Columbia (unless provided otherwise by future Treasury
regulations); (iv) an estate whose income is includible in gross
income for United States income tax purposes regardless of its
source; or (v) 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 U.S. Persons have authority to control
all substantial decisions of the trust. Notwithstanding the
preceding clause, to the extent provided in Treasury regulations,
certain trusts that were in existence on August 20, 1996, that
were treated as U.S. Persons prior to such date, and that elect to
continue to be treated as U.S. Persons, also are U.S. Persons.
TYPES OF SECURITIES
This discussion addresses the following three types of securities:
o REMIC securities;
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o notes issued by a trust, including a trust owned, for federal
income tax purposes, by an entity with respect to which an
election has been made to be treated as a "real estate investment
trust" within the meaning of Section 856(a) of the Code (a
"REIT"), or a wholly-owned subsidiary of such an entity; and
o trust certificates issued by trusts for which a REMIC election is
not made.
The prospectus supplement for each series of securities will indicate
the tax characterization of each security issued pursuant to that supplement.
Set forth below is a general description of each type of tax characterization,
with references to more detailed discussions regarding particular securities.
The discussions under "--Special Tax Attributes," "--Backup Withholding" and
"--Reportable Transactions" below address all types of securities.
REMIC Securities Generally. With respect to each series of REMIC
securities, Greenberg Traurig, LLP will deliver its opinion that, assuming
compliance with all provisions of the related trust agreement, the related trust
will comprise one or more "REMICs" within the meaning of Section 860D of the
Code and the classes of interests offered will be considered to be "regular
interests" or "residual interests" in a REMIC within the meaning set out in
Section 860G(a) of the Code. The prospectus supplement for REMIC securities will
identify the regular interests and residual interests in the REMICs.
A REMIC may issue one or more classes of regular interests and must
issue one and only one class of residual interest. We refer to a REMIC security
representing a regular interest in a REMIC as a "REMIC regular certificate."
REMIC regular certificates generally will be treated for federal income tax
purposes as debt instruments issued by the REMIC. The tax treatment of
securities treated as debt instruments, including REMIC regular certificates, is
discussed under "--Taxation of Securities Treated as Debt Instruments" below.
You should be aware, however, that although you normally would take interest
income on a debt instrument into account under your regular method of
accounting, you must include interest accrued on a REMIC regular certificate in
income under the accrual method of accounting regardless of the method of
accounting you otherwise use for tax purposes.
We refer to a REMIC security representing a residual interest in a
REMIC as a "REMIC residual certificate" and the owner of a beneficial interest
in a REMIC residual certificate as a "Residual Owner." The tax treatment of
REMIC residual certificates is discussed under "--REMIC Residual Certificates"
below.
A REMIC is subject to tax at a rate of 100 percent on the net income
the REMIC derives from prohibited transactions. In general, a "prohibited
transaction" means the disposition of a qualified mortgage other than pursuant
to certain specified exceptions, the receipt of income from a source other than
a qualified mortgage 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 qualified mortgages for temporary investment pending
distribution on the REMIC securities. The Code also imposes a 100 percent tax on
the value of any contribution of assets to the REMIC after the closing date
other than pursuant to specified exceptions. Additionally, the Code subjects
"net income from foreclosure property" to tax at the highest corporate rate. We
do not anticipate that any REMIC with respect to which we will offer securities
will engage in any such transactions or receive any such income.
If an entity elects to be treated as a REMIC but fails to comply with
one or more of the ongoing requirements of the Code for REMIC status during any
taxable year, the entity will not qualify as a REMIC for such year and
thereafter. In this event, the entity may be subject to taxation as a separate
corporation, and the securities issued by the entity may not be accorded the
status described under "--Special Tax Attributes" below. In the case of an
inadvertent termination of REMIC status, the Treasury
59
Department has authority to issue regulations providing relief; however,
sanctions, such as the imposition of a corporate tax on all or a portion of the
entity's income for the period during which the requirements for REMIC status
are not satisfied, may accompany any such relief.
To the extent provided in the applicable prospectus supplement, a
security may represent not only the ownership of a REMIC regular interest but
also an interest in a notional principal contract. This can occur, for instance,
if the applicable trust agreement provides that the rate of interest payable by
the REMIC on the regular interest is subject to a cap based on the weighted
average of the net interest rates payable on the qualified mortgages held by the
REMIC. In such a case, the trust agreement may provide for a reserve fund that
will be held as part of the trust estate but not as an asset of any REMIC
created pursuant to the trust agreement (an "outside reserve fund"). The outside
reserve fund typically would be funded from monthly excess cashflow. If the
interest payments on a regular interest were limited due to the above-described
cap, payments of any interest shortfall due to application of that cap would be
made to the regular interest holder to the extent of funds on deposit in the
outside reserve fund. For federal income tax purposes, payments from the outside
reserve fund will be treated as payments under a notional principal contract
written by the owner of the outside reserve fund in favor of the regular
interest holders.
Issuance of Notes Generally. For each issuance of notes by a trust that
does not make a REMIC election, Greenberg Traurig, LLP will deliver its opinion
that, assuming compliance with the trust agreement and the indenture, the notes
will constitute debt instruments for federal income tax purposes. Generally, no
regulations, published rulings, or judicial decisions exist that definitively
characterize for federal income tax purposes securities with terms substantially
the same as the notes. The depositor and the trustee will agree, and the
beneficial owners of notes will agree by their purchase of the notes, to treat
the notes as debt for all tax purposes. The tax treatment of securities treated
as debt instruments is discussed under "--Taxation of Securities Treated as Debt
Instruments" below. If, contrary to the opinion of Greenberg Traurig, LLP, the
IRS successfully asserted that the notes were not debt instruments for federal
income tax purposes, the notes might be treated as equity interests in the
trust, and the timing and amount of income allocable to beneficial owners of
those notes might be different than as described under "--Taxation of Securities
Treated as Debt Instruments."
With respect to certain trusts that issue notes, the owner of such
trusts, for federal income tax purposes, may be an entity which has made an
election to be treated as a REIT, or a wholly-owned subsidiary of such an
entity. In general, a REIT receives certain tax benefits, provided the REIT
complies with requirements relating to its assets, its income and its
operations, all as further provided in the Code. The classification of the owner
of the trust issuing notes as a REIT generally will not have any tax
consequences for a beneficial owner of a note.
Classification of Trust Certificates Generally. With respect to each
series of trust certificates for which no REMIC election is made, Greenberg
Traurig, LLP will deliver its opinion (unless otherwise limited by the related
prospectus supplement) that, assuming compliance with the trust agreement,
either: (1) the trust will be classified as a trust under applicable Treasury
regulations and will not be taxable as a corporation and that each beneficial
owner of a certificate will be an owner of the trust under the provisions of
subpart E, part I, of subchapter J of the Code (we refer to such a trust herein
as a "Grantor Trust" and to the certificates issued by the trust as "Grantor
Trust Certificates"); or (2) the trust will be classified as a partnership for
federal income tax purposes that is not taxable as a corporation under the
taxable mortgage pool rules of Section 7701(i) of the Code or the publicly
traded partnership rules of Section 7704 of the Code and that each beneficial
owner of a certificate issued by the trust will be a partner in that partnership
(we refer to such certificates as "Partner Certificates"). The depositor and the
trustee will agree, and the beneficial owners of Grantor Trust Certificates or
Partner Certificates will agree by their purchase of such certificates, to treat
the trust and the related certificates consistent with the manner provided in
the related supplement for all tax purposes. The proper characterization of the
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arrangement involving Grantor Trust Certificates or Partner Certificates may not
be clear, because there may be no authority on closely comparable transactions.
For a discussion of the tax treatment of Grantor Trust Certificates, see
"--Grantor Trust Certificates" below, and for a discussion of the tax treatment
of Partner Certificates, see "Partner Certificates" below.
TAXATION OF SECURITIES TREATED AS DEBT INSTRUMENTS
When we refer to "Debt Securities" in the discussion that follows, we
mean (i) REMIC regular certificates and (ii) notes issued by a trust that does
not make a REMIC election. This discussion is based in part on the regulations
applicable to original issue discount (the "OID Regulations") and in part on the
provisions of the Tax Reform Act of 1986 (the "1986 Act"). Prospective investors
should be aware, however, that the OID Regulations do not adequately address
certain issues relevant to prepayable securities, such as the Debt Securities.
To the extent that those issues are not addressed in the OID Regulations, the
trustee intends to apply the methodology described in the Conference Committee
Report to the 1986 Act. No assurance can be provided that the IRS will not take
a different position as to those matters not currently addressed by the OID
Regulations. Moreover, the OID Regulations include an anti-abuse rule allowing
the IRS to apply or depart from the OID Regulations where necessary or
appropriate to ensure a reasonable tax result because of the applicable
statutory provisions. A tax result will not be considered unreasonable under the
anti-abuse rule in the absence of a substantial effect on the present value of a
taxpayer's tax liability. Prospective investors are advised to consult their own
tax advisors as to the discussion therein and the appropriate method for
reporting interest and original issue discount with respect to Debt Securities.
Interest Income and OID. Debt Securities may be treated as having been
issued with original issue discount within the meaning of Section 1273(a) of the
Code ("OID"). A debt instrument is issued with OID to the extent its stated
redemption price at maturity exceeds its issue price and such excess is more
than a de minimis amount. Although not clear, the de minimis amount for a class
of Debt Securities would appear to equal the product of (1) 0.25 percent, (2)
the stated redemption price at maturity of the class and (3) the weighted
average maturity of the class, computed by taking into account the prepayment
assumption discussed below. A beneficial owner of a Debt Security generally must
report de minimis OID with respect to that Debt Security pro rata as principal
payments are received, and that income will be capital gain if the Debt Security
is held as a capital asset.
For OID purposes, the issue price of a Debt Security generally is the
first price at which a substantial amount of that class is sold to the public
(excluding bond houses, brokers and underwriters). Although unclear under the
OID Regulations, it is anticipated that the trustee will treat the issue price
of a Debt Security as to which there is no substantial sale as of the issue
date, or that is retained by the depositor, as the fair market value of the
class as of the issue date. The issue price of a Debt Security also includes any
amount paid by a beneficial owner of that Debt Security for accrued interest
that relates to a period before the issue date of the Debt Security, unless the
Security Owner elects on its federal income tax return to exclude that amount
from the issue price and to recover it on the first distribution date.
The stated redemption price at maturity of a debt instrument includes
all payments, other than interest unconditionally payable at fixed intervals of
one year or less at either a fixed rate or a variable rate ("Qualified Stated
Interest"). Interest is unconditionally payable only if either (1) reasonable
legal remedies exist to compel the timely payment of interest or (2) the terms
or conditions under which the debt instrument is issued make the late payment or
nonpayment of interest a remote likelihood. Because a portion of the interest
payable on the Debt Securities may be deferred, it is possible that some or all
of such interest may not be treated as unconditionally payable. Nevertheless,
for tax information reporting purposes, unless disclosed otherwise in the
applicable prospectus supplement, the trustee or other person responsible for
tax information reporting will treat all stated interest on each class of Debt
Securities as
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Qualified Stated Interest, provided that class is not an interest-only class, a
class the interest on which is not payable currently in all accrual periods (an
"accrual class"), or a class the interest on which is substantially
disproportionate to its principal amount (a "super-premium class").
To the extent stated interest payable on a class of Debt Securities,
other than a class of REMIC regular certificates, is Qualified Stated Interest,
such interest will be taxable as ordinary income to a Security Owner in
accordance with such Security Owner's method of tax accounting. If, however, all
or a portion of the stated interest payable on the class of Debt Securities is
not Qualified Stated Interest, then the stated interest, or portion thereof,
would be included in the Debt Security's stated redemption price at maturity.
Qualified Stated Interest payable on a REMIC regular certificate must be
included in the income of the Security Owner under an accrual method of
accounting, regardless of the method otherwise used by the Security Owner.
If a Debt Security is issued with OID, a Security Owner will be
required to include in income, as ordinary income, the daily portion of such OID
attributable to each day it holds such Debt Security. This requirement generally
will result in the accrual of income before the receipt of cash attributable to
that income.
The daily portion of such OID will be determined on a constant yield to
maturity basis in accordance with Section 1272(a)(6) of the Code (the "PAC
Method"). Under the PAC Method, the amount of OID allocable to any accrual
period for a class of Debt Securities will equal (1) the sum of (i) the adjusted
issue price of that class of Debt Securities at the end of the accrual period
and (ii) any payments made on that class of Debt Securities during the accrual
period of amounts included in the stated redemption price at maturity of that
class of Debt Securities, minus (2) the adjusted issue price of that class of
Debt Securities at the beginning of the accrual period. The OID so determined is
allocated ratably among the days in the accrual period to determine the daily
portion for each such day. The trustee will treat the monthly period (or shorter
period from the date of original issue) ending on the day before each
Distribution Date as the accrual period.
The adjusted issue price of a class of Debt Securities at the beginning
of its first accrual period will be its issue price. The adjusted issue price at
the end of any accrual period (and, therefore, at the beginning of the
subsequent accrual period) is determined by discounting the remaining payments
due on that class of Debt Securities at their yield to maturity. The remaining
payments due are determined based on the prepayment assumption made in pricing
the Debt Securities, but are adjusted to take into account the effect of
payments actually made on the trust's assets.
For this purpose, the yield to maturity of a class of Debt Securities
is determined by projecting payments due on that class of Debt Securities based
on a prepayment assumption made with respect to the trust's assets. The yield to
maturity of a class of Debt Securities is the discount rate that, when applied
to the stream of payments projected to be made on that class of Debt Securities
as of its issue date, produces a present value equal to the issue price of that
class of Debt Securities. The Code requires that the prepayment assumption be
determined in the manner prescribed in Treasury Department regulations. To date,
no such regulations have been issued. The legislative history of this Code
provision indicates that the regulations will provide that the assumed
prepayment rate must be the rate used by the parties in pricing the particular
transaction. The prospectus supplement related to each series will describe the
prepayment assumption to be used for tax reporting purposes. No representation,
however, is made as to the rate at which principal payments or recoveries on the
trust's assets actually will occur.
Under the PAC Method, accruals of OID will increase or decrease (but
never below zero) to reflect the fact that payments on the trust's assets are
occurring at a rate that is faster or slower than that assumed under the
prepayment assumption. If the OID accruing on a class of Debt Securities is
negative
62
for any period, a beneficial owner of a Debt Security of that class will be
entitled to offset such negative accruals only against future positive OID
accruals on that Debt Security. It is possible, although not certain, that a
Security Owner might be permitted to recognize a loss in such a situation to the
extent the Security Owner's basis in the Debt Security exceeds the maximum
amount of payments that it could ever receive with respect to that Debt
Security. However, such a loss may be a capital loss, which is limited in its
deductibility. The foregoing considerations are particularly relevant to Debt
Securities that are interest-only classes or super-premium classes, because they
can have negative yields if the underlying loans held by the trust prepay more
quickly than anticipated.
Under the OID Regulations, OID of only a de minimis amount, other than
de minimis OID attributable to a so-called "teaser" interest rate or an initial
interest holiday, will be included in income as each payment of stated principal
is made, based on the product of (i) the total amount of the de minimis OID and
(ii) a fraction, the numerator of which is the amount of the principal payment
and the denominator of which is the outstanding stated principal amount of the
Debt Security.
Variable Rate Securities. Debt Securities may provide for interest
based on a variable rate. The amount of OID for a Debt Security bearing a
variable rate of interest will accrue in the manner described under "--Interest
Income and OID" above, with the yield to maturity and future payments on that
Debt Security generally to be determined by assuming that interest will be
payable for the life of the Debt Security based on the initial rate (or, if
different, the value of the applicable variable rate as of the pricing date) for
that Debt Security. It is anticipated that the trustee will treat interest
payable at a variable rate as Qualified Stated Interest, other than variable
interest on an interest-only class, super-premium class or accrual class. OID
reportable for any period will be adjusted based on subsequent changes in the
applicable interest rate index.
Acquisition Premium. If a Security Owner purchases a Debt Security for
a price that is greater that its adjusted issue price but less than its stated
redemption price at maturity, the Security Owner will have acquired the Debt
Security at an "acquisition premium" as that term is defined in Section
1272(a)(7) of the Code. The Security Owner must reduce future accruals of OID on
the Debt Security by the amount of the acquisition premium. Specifically, a
Security Owner must reduce each future accrual of OID on the Debt Security by an
amount equal to the product of the OID accrual and a fixed fraction, the
numerator of which is the amount of the acquisition premium and the denominator
of which is the OID remaining to be accrued on the Debt Security at the time the
Security Owner purchased the Debt Security. Security Owners should be aware that
this fixed fraction methodology will not always produce the appropriate recovery
of acquisition premium in situations where stated interest on a Debt Security is
included in the Debt Security's stated redemption price at maturity because the
total amount of OID remaining to be accrued on such a Debt Security at the time
of purchase is not fixed.
Market Discount. If a purchaser acquires a Debt Security at a price
that is less than its outstanding principal amount (or, if the Debt Security is
issued with OID, its adjusted issue price), the purchaser will acquire the Debt
Security with market discount (a "market discount bond"). If the market discount
is less than a statutorily defined de minimis amount (presumably equal to the
product of (i) 0.25 percent, (ii) the stated redemption price at maturity of the
Debt Security and (iii) the remaining weighted average maturity of the Debt
Security), the market discount will be considered to be zero. It appears that de
minimis market discount would be reported in a manner similar to de minimis OID.
See "--Interest Income and OID" above.
Treasury regulations interpreting the market discount rules have not
yet been issued; therefore, we recommend that prospective investors consult
their own tax advisors regarding the application of those rules and the
advisability of making any of the elections described below.
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Unless the beneficial owner of a market discount bond elects under
Section 1278(b) of the Code to include market discount in income as it accrues,
any principal payment (whether a scheduled payment or a prepayment) or any gain
on disposition of the market discount bond will be treated as ordinary income to
the extent that it does not exceed the accrued market discount at the time of
such payment. If the beneficial owner makes the election under Section 1278(b)
of the Code, the election will apply to all market discount bonds acquired by
the beneficial owner at the beginning of the first taxable year to which the
election applies and all market discount bonds thereafter acquired by it. The
election may be revoked only with the consent of the IRS.
The Code grants the Treasury Department authority to issue regulations
providing for the computation of accrued market discount on debt instruments,
such as the Debt Securities, the principal of which is payable in more than one
installment, but no regulations have been issued. The relevant legislative
history provides that, until such regulations are issued, the beneficial owner
of a market discount bond may elect to accrue market discount either on the
basis of a constant interest rate or according to a pro rata method described in
the legislative history. Under that method, the amount of market discount that
accrues in any accrual period in the case of a Debt Security issued with OID
equals the product of (i) the market discount that remains to be accrued as of
the beginning of the accrual period and (ii) a fraction, the numerator of which
is the OID accrued during the accrual period and the denominator of which is the
sum of the OID accrued during the accrual period and the amount of OID remaining
to be accrued as of the end of the accrual period. In the case of a Debt
Security that was issued without OID, the amount of market discount that accrues
in any accrual period will equal the product of (i) the market discount that
remains to be accrued as of the beginning of the accrual period and (ii) a
fraction, the numerator of which is the amount of stated interest accrued during
the accrual period and the denominator of which is the total amount of stated
interest remaining to be accrued at the beginning of the accrual period. For
purposes of determining the amount of OID or interest remaining to be accrued
with respect to a class of Debt Securities, the prepayment assumption applicable
to calculating the accrual of OID on such Debt Securities applies.
If a beneficial owner of a Debt Security incurred or continues
indebtedness to purchase or hold Debt Securities with market discount, the
beneficial owner may be required to defer a portion of its interest deductions
for the taxable year attributable to any such indebtedness. Any such deferred
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includible in income. If such beneficial owner
elects to include market discount in income currently as it accrues under
Section 1278(b) of the Code, the interest deferral rule will not apply.
Amortizable Bond Premium. A purchaser of a Debt Security that purchases
the Debt Security for an amount (net of accrued interest) greater than its
stated redemption price at maturity will have premium with respect to that Debt
Security in the amount of the excess. Such a purchaser need not include in
income any remaining OID with respect to that Debt Security and may elect to
amortize the premium under Section 171 of the Code. If a Security Owner makes
this election, the amount of any interest payment that must be included in the
Security Owner's income for each period will be reduced by a portion of the
premium allocable to the period based on a constant yield method. In addition,
the relevant legislative history states that premium should be amortized in the
same manner as market discount. The election under Section 171 of the Code also
will apply to all debt instruments (the interest on which is not excludable from
gross income) held by the Security Owner at the beginning of the first taxable
year to which the election applies and to all such taxable debt instruments
thereafter acquired by it. The election may be revoked only with the consent of
the IRS.
Non-Pro rata Securities. A Debt Security may provide for certain
amounts of principal to be distributed upon the request of a Security Owner or
by random lot (a "non-pro rata security"). In the case
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of a non-pro rata security, it is anticipated that the trustee will determine
the yield to maturity based upon the anticipated payment characteristics of the
class as a whole under the prepayment assumption. In general, the OID accruing
on each non-pro rata security in an accrual period would be its allocable share
of the OID for the entire class, as determined in accordance with the discussion
of OID above. However, in the case of a distribution in retirement of the entire
unpaid principal balance of any non-pro rata security (or portion of the unpaid
principal balance), (a) the remaining unaccrued OID allocable to the security
(or to that portion) will accrue at the time of the distribution, and (b) the
accrual of OID allocable to each remaining security of that class will be
adjusted by reducing the present value of the remaining payments on that class
and the adjusted issue price of that class to the extent attributable to the
portion of the unpaid principal balance thereof that was distributed. The
depositor believes that the foregoing treatment is consistent with the "pro rata
prepayment" rules of the OID Regulations, but with the rate of accrual of OID
determined based on the prepayment assumption for the class as a whole.
Prospective investors are advised to consult their tax advisors as to this
treatment.
Election to Treat All Interest as OID. The OID Regulations permit a
beneficial owner of a Debt Security to elect to accrue all interest, discount
(including de minimis OID and de minimis market discount), and premium in income
as interest, based on a constant yield method (a "constant yield election"). It
is unclear whether, for this purpose, the initial prepayment assumption would
continue to apply or if a new prepayment assumption as of the date of the
Security Owner's acquisition would apply. If such an election were to be made
and the Debt Securities were acquired at a premium, such a Security Owner would
be deemed to have made an election to amortize bond premium under Section 171 of
the Code, which is described above. Similarly, if the Security Owner had
acquired the Debt Securities with market discount, the Security Owner would be
considered to have made the election in Section 1278(b) of the Code, which is
described above. A constant yield election may be revoked only with the consent
of the IRS.
Treatment of Losses. Security Owners that own REMIC regular
certificates, or in the case of Debt Securities for which a REMIC election is
not made, Security Owners that use the accrual method of accounting, will be
required to report income with respect to such Debt Securities on the accrual
method without giving effect to delays and reductions in distributions
attributable to defaults or delinquencies on any of the trust's assets, except
possibly, in the case of income that constitutes Qualified Stated Interest, to
the extent that it can be established that such amounts are uncollectible. In
addition, potential investors are cautioned that while they may generally cease
to accrue interest income if it reasonably appears that the interest will be
uncollectible, the IRS may take the position that OID must continue to be
accrued in spite of its uncollectibility until the Debt Security is disposed of
in a taxable transaction or becomes worthless in accordance with the rules of
Section 166 of the Code. As a result, the amount of income required to be
reported by a Security Owner in any period could exceed the amount of cash
distributed to such Security Owner in that period.
Although not entirely clear, it appears that: (a) a Security Owner who
holds a Debt Security in the course of a trade or business or a Security Owner
that is a corporation generally should be allowed to deduct as an ordinary loss
any loss sustained on account of the Debt Security's partial or complete
worthlessness and (b) a noncorporate Security Owner who does not hold the Debt
Security in the course of a trade or business generally should be allowed to
deduct as a short-term capital loss any loss sustained on account of the Debt
Security's complete worthlessness. Security Owners should consult their own tax
advisors regarding the appropriate timing, character and amount of any loss
sustained with respect to a Debt Security, particularly subordinated Debt
Securities.
Sale or Other Disposition. If a beneficial owner of a Debt Security
sells, exchanges or otherwise disposes of the Debt Security, or the Debt
Security is redeemed, the beneficial owner will recognize gain or loss in an
amount equal to the difference between the amount realized by the beneficial
owner upon the
65
sale, exchange, redemption or other disposition and the beneficial owner's
adjusted tax basis in the Debt Security. The adjusted tax basis of a Debt
Security to a particular beneficial owner generally will equal the beneficial
owner's cost for the Debt Security, increased by any market discount and OID
previously included by such beneficial owner in income with respect to the Debt
Security and decreased by the amount of bond premium, if any, previously
amortized and by the amount of payments that are part of the Debt Security's
stated redemption price at maturity previously received by such beneficial
owner. Any such gain or loss will be capital gain or loss if the Debt Security
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.
Gain from the sale of a REMIC regular certificate that might otherwise
be treated as capital gain will be treated as ordinary income to the extent that
such gain does not exceed the excess of (1) the amount that would have been
includible in the Security Owner's income had the income accrued at a rate equal
to 110 percent of the AFR as of the date of purchase, over (2) the amount
actually includible in such Security Owner's income.
Foreign Persons. Interest (including OID) paid to or accrued by a
beneficial owner of a Debt Security who is a Foreign Person generally will be
considered "portfolio interest" and generally will not be subject to United
States federal income tax or withholding tax, provided 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 issuer of the Debt Securities or
a controlled foreign corporation with respect to which the issuer of the Debt
Securities is a related person (all within the meaning of the Code) and (ii)
provides the trustee or other person who is otherwise required to withhold U.S.
tax with respect to the Debt Securities (the "withholding agent") with an
appropriate statement on Form W-8 BEN (Certificate of Foreign Status of
Beneficial Owner for United States Tax Withholding). If a Debt Security 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-8BEN provided by the Foreign Person that owns
the Debt Security. If the information shown on Form W-8BEN changes, a new Form
W-8BEN must be filed. If the foregoing requirements are not met, then interest
(including OID) on the Debt Securities 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.
Under Treasury regulations relating to withholding obligations, a
payment to a foreign partnership is treated, with some exceptions, as a payment
directly to the partners, so that the partners are required to provide any
required certifications. We recommend that Foreign Persons that intend to hold a
Debt Security through a partnership or other pass-through entity consult their
own tax advisors regarding the application of those Treasury regulations to an
investment in a Debt Security.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a Debt Security 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 a Foreign Person who is an
individual, the Foreign Person is not present in the United States for 183 days
or more in the taxable year.
Information Reporting. Payments of interest (including OID, if any) on
a Debt Security held by a U.S. Person other than a corporation or other exempt
holder are required to be reported to the IRS. Moreover, each trust is required
to make available to Security Owners that hold beneficial interests in Debt
Securities issued by that trust information concerning the amount of OID and
Qualified Stated Interest accrued for each accrual period for which the Debt
Securities are outstanding, the adjusted issue price of the Debt Securities as
of the end of each accrual period, and information to enable a Security
66
Owner to compute accruals of market discount or bond premium using the pro rata
method described under "--Market Discount" above.
Payments of interest (including OID, if any) on a Debt Security held by
a Foreign Person are required to be reported annually on IRS Form 1042-S, which
the withholding agent must file with the IRS and furnish to the recipient of the
income.
REMIC RESIDUAL CERTIFICATES
If you are a Residual Owner, you will be required to report the daily
portion of the taxable income or, subject to the limitation described under
"--Basis Rules and Distributions" below, the net loss of the REMIC for each day
during a calendar quarter that you are a Residual Owner. The requirement that
Residual Owners report their pro rata share of taxable income or net loss of the
REMIC will continue until there are no securities of any class of the related
series outstanding. For this purpose, the daily portion will be determined by
allocating to each day in the calendar quarter a ratable portion of the taxable
income or net loss of the REMIC for the quarter. The daily portions then will be
allocated among the Residual Owners in accordance with their percentage of
ownership on each day. Any amount included in the gross income of, or allowed as
a loss to, any Residual Owner will be treated as ordinary income or loss. Income
derived from a REMIC residual certificate will be "portfolio income" for
purposes of Section 469 of the Code governing passive loss limitations.
Taxable Income or Net Loss of the REMIC. Generally, a REMIC determines
its taxable income or net loss for a given calendar quarter in the same manner
as would an individual having the calendar year as his taxable year and using
the accrual method of accounting. There are, however, certain modifications.
First, a deduction is allowed for accruals of interest and OID on the REMIC
regular certificates issued by the REMIC. Second, market discount will be
included in income as it accrues, based on a constant yield to maturity method.
Third, no item of income, gain, loss or deduction allocable to a prohibited
transaction is taken into account. Fourth, the REMIC generally may deduct only
items that would be allowed in calculating the taxable income of a partnership
under Section 703(a) of the Code. Fifth, the limitation on miscellaneous
itemized deductions imposed on individuals by Section 67 of the Code does not
apply at the REMIC level to investment expenses such as trustee fees or
servicing fees. See, however, "--Pass Through of Certain Expenses" below. If the
deductions allowed to the REMIC exceed its gross income for a calendar quarter,
such excess will be the net loss for the REMIC for that calendar quarter. For
purposes of determining the income or loss of a REMIC, the regulations
applicable to REMICs provide that a REMIC has a tax basis in its assets equal to
the total of the issue prices of all regular and residual interests in the
REMIC.
Pass Through of Certain Expenses. A Residual Owner who is an
individual, estate, or trust will be required to include in income a share of
the expenses of the related REMIC and may deduct those expenses subject to the
limitations of Sections 67 and 68 of the Code. See "--Grantor Trust
Certificates--Trust Expenses" below for a discussion of the limitations of
Sections 67 and 68 of the Code. Those expenses may include the servicing fees
and all administrative and other expenses relating to the REMIC. In addition,
those expenses are not deductible for purposes of computing the alternative
minimum tax, and may cause those investors to be subject to significant
additional tax liability. Similar rules apply to individuals, estates and trusts
holding a REMIC residual certificate through certain pass-through entities.
Excess Inclusions. Excess inclusions with respect to a REMIC residual
certificate are subject to special tax rules. For any Residual Owner, the excess
inclusion for any calendar quarter will generally equal the excess of the sum of
the daily portions of the REMIC's taxable income allocated to the Residual Owner
over the amount of income that the Residual Owner would have accrued if the
REMIC residual
67
certificate were a debt instrument having a yield to maturity equal to 120
percent of the long-term AFR in effect at the time of issuance of the REMIC
residual certificate. If the issue price of a REMIC residual certificate is
zero, which would be the case if the REMIC residual certificate had no economic
value at issuance, then all of the daily portions of income allocated to the
Residual Owner will be excess inclusions. The issue price of a REMIC residual
certificate issued for cash generally will equal the price paid by the first
buyer, and if the REMIC residual certificate is issued for property, the issue
price will be its fair market value at issuance.
For Residual Owners, an excess inclusion may not be offset by
deductions, losses, or loss carryovers. Thus, a Residual Owner that has losses
in excess of income for a taxable year would, nevertheless, be required to pay
tax on excess inclusions. For Residual Owners that are subject to tax on
unrelated business taxable income (as defined in Section 511 of the Code), an
excess inclusion is treated as unrelated business taxable income. For Residual
Owners that are nonresident alien individuals or foreign corporations generally
subject to United States withholding tax, even if interest paid to such Residual
Owners is generally eligible for exemptions from such tax, an excess inclusion
will be subject to such tax and no tax treaty rate reduction or exemption may be
claimed with respect thereto.
Alternative minimum taxable income for a Residual Owner is determined
without regard to the special rule that taxable income may not be less than the
sum of the Residual Owner's excess inclusions for the year. Alternative minimum
taxable income cannot, however, be less than the sum of a Residual Owner's
excess inclusions for the year. Also, the amount of any alternative minimum tax
net operating loss deduction must be computed without regard to any excess
inclusions.
Finally, if a REIT or a regulated investment company owns a REMIC
residual certificate, a portion (allocated under Treasury regulations yet to be
issued) of dividends paid by the REIT or regulated investment company could not
be offset by net operating losses of its shareholders, would constitute
unrelated business taxable income for tax-exempt shareholders, and would be
ineligible for reduction of withholding to certain persons who are not U.S.
Persons.
Taxable Income May Exceed Distributions. In light of the tax
consequences to a Residual Owner, the taxable income from a REMIC residual
certificate may exceed cash distributions with respect thereto in any taxable
year. The taxable income recognized by a Residual Owner in any taxable year will
be affected by, among other factors, the relationship between the timing of
recognition of interest, OID or market discount income or amortization of
premium for the mortgage loans, on the one hand, and the timing of deductions
for interest (including OID) or income from amortization of issue premium on the
regular interests, on the other hand. If an interest in the mortgage loans is
acquired by the REMIC at a discount, and one or more of these mortgage loans is
prepaid, the proceeds of the prepayment may be used in whole or in part to make
distributions in reduction of principal on the regular interests, and (2) the
discount on the mortgage loans that is includible in income may exceed the
deduction allowed upon those distributions on those regular interests on account
of any unaccrued OID relating to those regular interests. When there is more
than one class of regular interests that distribute principal sequentially, this
mismatching of income and deductions is particularly likely to occur in the
early years following issuance of the regular interests when distributions in
reduction of principal are being made in respect of earlier classes of regular
interests to the extent that those classes are not issued with substantial
discount or are issued at a premium. If taxable income attributable to that
mismatching is realized, in general, losses would be allowed in later years as
distributions on the later maturing classes of regular interests are made.
Taxable income also may be greater in earlier years than in later years
as a result of the fact that interest expense deductions, expressed as a
percentage of the outstanding principal amount of that series of regular
interests, may increase over time as distributions in reduction of principal are
made on the lower yielding classes of regular interests, whereas, to the extent
the REMIC consists of fixed rate
68
mortgage loans, interest income for any particular mortgage loan will remain
constant over time as a percentage of the outstanding principal amount of that
loan. Consequently, Residual Owners must have sufficient other sources of cash
to pay any federal, state, or local income taxes due as a result of that
mismatching or unrelated deductions against which to offset that income, subject
to the discussion of excess inclusions under "--Excess Inclusions" above. The
timing of mismatching of income and deductions described in this paragraph, if
present for a series of REMIC securities, may have a significant adverse effect
upon a Residual Owner's after-tax rate of return.
Basis Rules and Distributions. A Residual Owner's adjusted basis in a
REMIC residual certificate will equal the amount paid for the REMIC residual
certificate, increased by the sum of the daily portions of REMIC income taken
into account by the Residual Owner, and decreased by the sum of (i) the daily
portions of REMIC net loss taken into account by the Residual Owner and (ii)
distributions made by the REMIC to the Residual Owner.
A distribution by a REMIC to a Residual Owner will not be includible in
gross income by the Residual Owner if the distribution does not exceed the
Residual Owner's adjusted basis in the REMIC residual certificate immediately
before the distribution. The distribution will reduce the Residual Owner's
adjusted basis of such interest, but not below zero. To the extent a
distribution exceeds the Residual Owner's adjusted basis in the REMIC residual
certificate, the excess will be treated as gain from the sale of the REMIC
residual certificate. See "--Sales of REMIC Residual Certificates" below.
A Residual Owner is not allowed to take into account any net loss for
any calendar quarter to the extent such net loss exceeds such Residual Owner's
adjusted basis in its REMIC residual certificate as of the close of such
calendar quarter, determined without regard to such net loss. Any loss
disallowed by reason of this limitation may be carried forward indefinitely to
future calendar quarters and, subject to the same limitation, may be used by
that Residual Owner to offset income from the REMIC residual certificate.
The effect of these basis and distribution rules is that a Residual
Owner may not amortize its basis in a REMIC residual certificate but may only
recover its basis through distributions, through the deduction of any net losses
of the REMIC, or upon the sale of its REMIC residual certificate. See "--Sales
of REMIC Residual Certificates."
Sales of REMIC Residual Certificates. If a Residual Owner sells a REMIC
residual certificate, the Residual Owner will recognize gain or loss equal to
the difference between the amount realized on the sale and its adjusted basis in
the certificate. If a Residual Owner sells a REMIC residual certificate at a
loss, the loss will not be recognized if, within six months before or after the
sale of the REMIC residual certificate, the Residual Owner purchases another
residual interest in any REMIC or any interest in a taxable mortgage pool (as
defined in Section 7701(i) of the Code) comparable to a residual interest in a
REMIC. Such disallowed loss will be allowed upon the sale of the other residual
interest (or comparable interest) if the rule referred to in the preceding
sentence does not apply to that sale.
Inducement Fees. The IRS recently issued final regulations addressing
the tax treatment of payments made by a transferor of a non-economic REMIC
residual interest to induce the transferee to acquire that residual interest
("inducement fees"). The regulations (i) require the transferee to recognize an
inducement fee as income over the expected remaining life of the REMIC in a
manner that reasonably reflects the after-tax costs and benefits of holding that
residual interest and (ii) specify that inducement fees constitute income from
sources within the United States. The regulations will apply to any inducement
fee received in connection with the acquisition of a Residual Certificate.
69
Disqualified Organizations. If a Residual Owner were to transfer a
REMIC residual certificate to a disqualified organization, the Residual Owner
would be subject to a tax in an amount equal to the maximum corporate tax rate
applied to the present value (using a discount rate equal to the applicable AFR)
of the total anticipated excess inclusions with respect to such residual
interest for the periods after the transfer. For this purpose, disqualified
organizations include the United States, any state or political subdivision of a
state, any foreign government or international organization or any agency or
instrumentality of any of the foregoing; any tax-exempt entity (other than a
Section 521 cooperative) which is not subject to the tax on unrelated business
income; and any rural electrical or telephone cooperative. However, a transferor
of a REMIC residual certificate would in no event be liable for the tax for a
transfer if the transferee furnished to the transferor an affidavit stating that
the transferee is not a disqualified organization and, as of the time of the
transfer, the transferor does not have actual knowledge that the affidavit is
false.
The anticipated excess inclusions must be determined as of the date
that the REMIC residual certificate is transferred and must be based on events
that have occurred up to the time of such transfer, the prepayment assumption
(see "--Taxation of Securities Treated as Debt Instruments--Interest Income and
OID," for a discussion of the prepayment assumption), and any required or
permitted clean up calls or required liquidation provided for in the trust
agreement. The tax generally is imposed on the transferor of the REMIC residual
certificate, except that it is imposed on an agent for a disqualified
organization if the transfer occurs through such agent. The trust agreement for
each series of REMIC securities will require, as a prerequisite to any transfer
of a REMIC residual certificate, the delivery to the trustee of an affidavit of
the transferee to the effect that it is not a disqualified organization and will
contain other provisions designed to render any attempted transfer of a REMIC
residual certificate to a disqualified organization void.
In addition, if a pass-through entity includes in income excess
inclusions with respect to a REMIC residual certificate, and a disqualified
organization is the record holder of an interest in such entity at any time
during any taxable year of such entity, then a tax will be imposed on the entity
equal to the product of (1) the amount of excess inclusions on the REMIC
residual certificate for such taxable year that are allocable to the interest in
the pass-through entity held by such disqualified organization and (2) the
highest marginal federal income tax rate imposed on corporations. A pass-through
entity will not be subject to this tax for any period with respect to an
interest in such entity, however, if the record holder of such interest
furnishes to such entity (1) such holder's social security number and a
statement under penalties of perjury that such social security number is that of
the record holder or (2) a statement under penalties of perjury that such record
holder is not a disqualified organization. For these purposes, a "pass-through
entity" means any regulated investment company, REIT, trust, partnership or
certain other entities described in Section 860E(e)(6) of the Code. In addition,
a person holding an interest in a pass-through entity as a nominee for another
person shall, with respect to such interest, be treated as a pass-through
entity. Moreover, in the case of any "electing large partnership," within the
meaning of Section 775 of the Code, all record holders are considered to be
disqualified organizations so that the partnership itself will be subject to tax
on the excess inclusions and such excess inclusions will be excluded in
determining partnership income. Finally, an exception to this tax, otherwise
available to a pass-through entity that is furnished certain affidavits by
record holders of interests in the entity and that does not know those
affidavits are false, is not available to an electing large partnership.
Noneconomic REMIC Residual Certificates. A transfer of a "noneconomic"
REMIC residual certificate will be disregarded for all federal income tax
purposes if a significant purpose of the transfer was to enable the transferor
to impede the assessment or collection of tax. If such transfer is disregarded,
the purported transferor will continue to be treated as the Residual Owner and
will, therefore, be liable for any taxes due with respect to the daily portions
of income allocable to such noneconomic REMIC residual certificate.
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A REMIC residual certificate is noneconomic for this purpose unless, at
the time of its transfer, (1) the present value of the expected future
distributions on the REMIC residual certificate at least equals the product of
the present value of the anticipated excess inclusions and the highest tax rate
applicable to corporations for the year of the transfer and (2) the transferor
reasonably expects that the transferee will receive distributions with respect
to the REMIC residual certificate at or after the time the taxes accrue on the
anticipated excess inclusions in an amount sufficient to satisfy the accrued
taxes. The present value computations are based on a discount rate equal to the
applicable AFR and a prepayment assumption used in computing income on the
mortgage loans held by the trust. See "--Taxation of Securities Treated as Debt
Instruments--Interest Income and OID," for a discussion concerning prepayment
assumptions.
All transfers of REMIC residual certificates will be subject to certain
restrictions under the terms of the related trust agreement that are intended to
reduce the possibility of any such transfer being disregarded. Such restrictions
will require each party to a transfer to provide an affidavit that no purpose of
such transfer is to impede the assessment or collection of tax, including
certain representations as to the financial condition of the prospective
transferee.
Prior to purchasing a REMIC residual certificate, prospective
purchasers should consider the possibility that a purported transfer of such
REMIC residual certificate by such a purchaser to another purchaser at some
future date may be disregarded in accordance with the above-described rules,
which would result in the retention of tax liability by such purchaser. The
applicable prospectus supplement will disclose whether offered REMIC residual
certificates may be considered noneconomic residual interests; provided,
however, that any disclosure that a REMIC residual certificate will or will not
be considered noneconomic will be based upon certain assumptions, and the
depositor will make no representation that a REMIC residual certificate will not
be considered noneconomic for purposes of the above-described rules or that a
Residual Owner will receive distributions calculated pursuant to such
assumptions.
Treasury regulations provide a safe harbor for transfers of REMIC
residual certificates and if the safe harbor is satisfied, the transfer is
presumed to be a valid transfer that will be respected for federal income tax
purposes. To qualify under the safe harbor:
o the transferor must perform a reasonable investigation of the
financial status of the transferee and determine that the
transferee has historically paid its debts as they come due
and find no evidence to indicate that the transferee will not
continue to pay its debts as they come due,
o the transferor must obtain a representation from the
transferee to the effect that the transferee understands that
as the holder of the REMIC residual certificate the transferee
will recognize taxable income in excess of cash flow and that
the transferee intends to pay taxes on the income as those
taxes become due,
o the transferee must represent that it will not cause income
from the REMIC residual certificate to be attributable to a
foreign permanent establishment or fixed base (within the
meaning of an applicable income tax treaty) of the transferee
or another U.S. taxpayer and
o either (i) the amount received by the transferee must be no
less on a present value basis than the present value of the
net tax detriment attributable to holding the REMIC residual
certificate reduced by the present value of the projected
payments to be received on the REMIC residual certificate or
(ii) the transfer must be to a domestic taxable corporation
with specified large amounts of gross and net assets and that
meets certain other
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requirements where agreement is made that all future transfers
will be to taxable domestic corporation sin transactions that
qualify for the same "safe harbor" provision.
Eligibility for the safe harbor requires, among other things, that the facts and
circumstances known to the transferor at the time of transfer not indicate to a
reasonable person that the taxes with respect to the REMIC residual certificate
will not be paid, with an unreasonably low cost for the transfer specifically
mentioned as negating eligibility. The safe harbor rules contain additional
detail regarding their application, and you should consult your own tax advisor
regarding the application of the safe harbor rules before acquiring a REMIC
residual certificate.
Restrictions on Transfers of Residual Certificates to Foreign Persons.
Transfers to a Foreign Person of REMIC residual certificates that have tax
avoidance potential are disregarded for all federal income tax purposes. If such
a transfer is disregarded, the purported transferor of the REMIC residual
certificate to the Foreign Person continues to remain liable for any taxes due
with respect to the income on such REMIC residual certificate. A transfer of a
REMIC residual certificate has tax avoidance potential unless, at the time of
the transfer, the transferor reasonably expects (1) that the REMIC will
distribute to the transferee of the REMIC residual certificate amounts that will
equal at least 30 percent of each excess inclusion and (2) that such amounts
will be distributed at or after the time at which the excess inclusion accrues
and not later than the close of the calendar year following the calendar year of
accrual. This rule does not apply to transfers if the income from the REMIC
residual certificate is taxed in the hands of the transferee as income
effectively connected with the conduct of a U.S. trade or business. Moreover, if
a Foreign Person transfers a REMIC residual certificate to a U.S. Person (or to
a Foreign Person in whose hands income from the REMIC residual certificate would
be effectively connected income) and the transfer has the effect of allowing the
transferor to avoid tax on accrued excess inclusions, that transfer is
disregarded for all federal income tax purposes and the purported Foreign Person
transferor continues to be treated as the owner of the REMIC residual
certificate. The trust agreement for each series will preclude the transfer of a
REMIC residual certificate to a Foreign Person, other than a Foreign Person in
whose hands the income from the REMIC residual certificate would be effectively
connected with a U.S. trade or business.
Foreign Persons. The Conference Committee Report to the 1986 Act
indicates that amounts paid to Residual Owners who are Foreign Persons generally
should be treated as interest for purposes of the 30 percent (or lower treaty
rate) United States withholding tax. Treasury regulations provide that amounts
distributed to Residual Owners may qualify as "portfolio interest," subject to
the conditions described in "--Taxation of Securities Treated as Debt
Instruments--Foreign Persons" above, but only to the extent that (i) the
mortgage loans were issued after July 18, 1984, and (ii) the trust estate to
which the REMIC residual certificate relates consists of obligations issued in
"registered form" within the meaning of Section 163 (f)(1) of the Code.
Generally, mortgage loans will not be, but regular interests in another REMIC
will be, considered obligations issued in registered form. Furthermore, Residual
Owners will not be entitled to any exemption from the 30 percent withholding tax
(or lower treaty rate) to the extent of that portion of REMIC taxable income
that constitutes an "excess inclusion." See "--Excess Inclusions" above. If the
amounts paid to Residual Owners who are Foreign Persons are effectively
connected with the conduct of a trade or business within the United States by
those Foreign Persons, the 30 percent (or lower treaty rate) withholding will
not apply. Instead, the amounts paid to those Foreign Persons will be subject to
United States federal income tax at regular rates. If the 30 percent (or lower
treaty rate) withholding is applicable, those amounts generally will be taken
into account for purposes of withholding only when paid or otherwise distributed
(or when the REMIC residual certificate is disposed of) under rules similar to
withholding upon disposition of Debt Securities that have OID. See
"--Restrictions on Transfers of Residual Certificates to Foreign Investors"
above concerning the disregard of certain transfers having "tax avoidance
potential." Potential investors who are Foreign Persons should consult
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their own tax advisors regarding the specific tax consequences to them of owning
REMIC residual certificates.
Administrative Provisions. The REMIC will be required to maintain its
books on a calendar year basis and to file federal income tax returns for
federal income tax purposes in a manner similar to a partnership. The form for
the income tax return is Form 1066, U.S. Real Estate Mortgage Investment Conduit
Income Tax Return. The trustee will be required to sign the REMIC's returns.
Treasury regulations provide that, except where there is a single Residual Owner
for an entire taxable year, the REMIC will be subject to the procedural and
administrative rules of the Code applicable to partnerships, including the
determination by the IRS of any adjustments to, among other things, items of
REMIC income, gain, loss deduction, or credit in a unified administrative
proceeding. The master servicer will be obligated to act as "tax matters
person," as defined in applicable Treasury regulations, for the REMIC as agent
of the Residual Owners holding the largest percentage interest in the REMIC's
residual interest. If the Code or applicable Treasury regulations do not permit
the master servicer to act as tax matters person in its capacity as agent of the
Residual Owner, the Residual Owner or any other person specified pursuant to
Treasury regulations will be required to act as tax matters person. The tax
matters person generally has responsibility for overseeing and providing notice
to the other Residual Owner of certain administrative and judicial proceedings
regarding the REMIC's tax affairs, although other holders of the REMIC residual
certificates of the same series would be able to participate in those
proceedings in appropriate circumstances.
Treasury regulations provide that a Residual Owner is not required to
treat items on its return consistently with their treatment on the REMIC's
return if the holder owns 100 percent of the REMIC residual certificates for the
entire calendar year. Otherwise, each Residual Owner is required to treat items
on its returns consistently with their treatment on the REMIC's return, unless
the holder either files a statement identifying the inconsistency or establishes
that the inconsistency resulted from incorrect information received from the
REMIC. The IRS may assess a deficiency resulting from a failure to comply with
the consistency requirement without instituting an administrative proceeding at
the REMIC level. A REMIC typically will not register as a tax shelter pursuant
to Code Section 6111 because it generally will not have a net loss for any of
the first five taxable years of its existence. Any person that holds a REMIC
residual certificate as a nominee for another person may be required to furnish
the related REMIC, in a manner to be provided in Treasury regulations, with the
name and address of that person and other specified information.
The IRS Form 1066 has an accompanying Schedule Q, Quarterly Notice to
Residual Interest Holders of REMIC Taxable Income or Net Loss Allocation.
Treasury regulations require that a Schedule Q be furnished by the REMIC Pool to
each Residual Owner by the end of the month following the close of each calendar
quarter (41 days after the end of a quarter under proposed Treasury regulations)
in which the REMIC is in existence. Treasury regulations require that, in
addition to the foregoing requirements, information must be furnished quarterly
to Residual Owners and filed annually with the IRS concerning Section 67 of the
Code expenses (see "--Pass Through of Certain Expenses" above) allocable to
those holders. Furthermore, under those regulations, information must be
furnished quarterly to Residual Owners and filed annually with the IRS
concerning the percentage of the REMIC's assets meeting the qualified asset
tests described under "--Special Tax Attributes--REMIC Securities" below.
Mark-to-Market Rules. Section 475 of the Code generally requires that
securities dealers include securities in inventory at their fair market value,
recognizing gain or loss as if the securities were sold at the end of each tax
year. The Treasury regulations provide that a REMIC residual certificate is not
treated as a security for purposes of the mark-to-market rules and thus may not
be marked to market.
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GRANTOR TRUST CERTIFICATES
For purposes of this discussion, we refer to two types of certificates
issued by a Grantor Trust: "Standard Certificates" and "Stripped Certificates."
Each certificate issued by a Grantor Trust that is not a Stripped Certificate is
a Standard Certificate.
Classification of Stripped Certificates. There generally are three
situations in which a Grantor Trust Certificate will be classified as a Stripped
Certificate. First, if the trust holds assets that pay principal and interest
but issues interest-only or principal-only certificates, all the certificates of
that trust likely will be Stripped Certificates. Second, if the seller,
depositor, or some other person retains the right to receive a portion of the
interest payments on assets held in the trust, all the certificates issued by
the trust could be Stripped Certificates. Finally, if a portion of a servicing
or guarantee fee were recharacterized under rules established by the IRS as
ownership interests in stripped coupons, all the certificates of the trust could
be Stripped Certificates.
Taxation of Stripped Certificates. Stripped Certificates will be
treated under rules contained in Section 1286 of the Code (the "Stripped Bond
Rules"). Pursuant to the Stripped Bond Rules, the separation of ownership of
some or all of the interest payments on a debt instrument from ownership of 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. A beneficial owner of a Stripped Certificate will be treated
as owning "stripped bonds" to the extent of its share of principal payments and
"stripped coupons" to the extent of its share of interest payments.
Generally, if a taxpayer acquires an interest in "stripped coupons" or
"stripped bonds," the taxpayer will be treated as having purchased a newly
issued debt instrument on the date of purchase for an issue price equal to the
purchase price paid. As a result, a beneficial owner of a Stripped Certificate
would be taxed as holding a newly issued debt instrument. The tax consequences
of holding a debt instrument are discussed generally under "--Taxation of
Securities Treated as Debt Instruments" above.
Although a Stripped Certificate may represent a beneficial ownership
interest in stripped coupons from all or several of the assets held in the
trust, for information reporting purposes, the trustee will aggregate all such
interests and treat each class of Stripped Certificates as a single issue of
debt instruments. Moreover, the trustee will apply the PAC Method to compute
accruals of any OID on the Stripped Certificates, as described herein under
"--Taxation of Securities Treated as Debt Instruments--Interest Income and OID,"
and will comply with any tax information reporting obligations with respect to
Stripped Certificates in the manner described under "--Taxation of Securities
Treated as Debt Instruments--Information Reporting." Whether aggregation of
stripped coupons from several assets acquired in a single purchase is
appropriate, and whether the PAC Method should apply to compute OID accruals on
Stripped Certificates are not free from doubt. We recommend, therefore, that a
prospective investor in Stripped Certificates consult their tax advisor
concerning the application of these rules to Stripped Certificates.
For this purpose, the tax information will include the amount of OID
accrued on Stripped Certificates. However, the amount required to be reported by
the trustee may not be equal to the proper amount of OID required to be reported
as taxable income by a Security Owner, other than an original Security Owner who
purchased at the issue price. In particular, in the case of Stripped
Certificates, the reporting will be based upon a representative initial offering
price of each class of Stripped Certificates, except as set forth in the
prospectus supplement. It is not clear for this purpose whether the assumed
prepayment rate that is to be used in the case of an owner other than a Security
Owner that acquires its Stripped Certificate at original issue should be the
prepayment assumption or a new rate based on the circumstances at the date of
subsequent purchase.
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A beneficial owner of a Stripped Certificate, particularly any Stripped
Certificate that is subordinate to another class, may deduct losses incurred for
the Stripped Certificate as described under "--Taxation of Standard
Certificates" below. In addition, if the mortgage loans prepay at a rate either
faster or slower than that under the prepayment assumption, a Security Owner's
recognition of OID either will be accelerated or decelerated and the amount of
that OID either will be increased or decreased depending on the relative
interests in principal and interest on each mortgage loan represented by that
Security Owner's Stripped Certificate. While the matter is not free from doubt,
the beneficial owner of a Stripped Certificate should be entitled to recognize a
loss (which may be a capital loss) in the year that it becomes certain (assuming
no further prepayments) that the Security Owner will not recover a portion of
its adjusted basis in the Stripped Certificate, such loss being equal to that
portion of unrecoverable basis.
In addition, each beneficial owner of a Stripped Certificate will be
required to include in income its share of the expenses of the trust, including
the servicing fees with respect to any assets held by the trust. Although not
free from doubt, for purposes of reporting to Security Owners of Stripped
Certificates, the trust expenses will be allocated to the classes of Stripped
Certificates in proportion to the distributions to those classes for the related
period. The beneficial owner of a Stripped Certificate generally will be
entitled to a deduction in respect of the trust expenses, as described under
"--Trust Expenses" below, subject to the limitation described therein.
Purchase of More Than One Class of Stripped Certificates. When an
investor purchases more than one class of Stripped Certificates, it is currently
unclear whether for federal income tax purposes those classes of Stripped
Certificates should be treated separately or aggregated for purposes of the
rules described above.
Taxation of Standard Certificates. For federal income tax purposes, a
Standard Certificate will represent an undivided beneficial ownership interest
in the assets of the Grantor Trust. As a result, each Security Owner holding an
interest in a Standard Certificate must include in income its proportionate
share of the entire income from the assets represented by its Standard
Certificate. Thus, for example, in the case of a Standard Certificate
representing ownership of mortgage loans, a beneficial owner of the certificate
would be required to include in income interest at the coupon rate on the
mortgage loans, OID (if any), and market discount (if any), and any prepayment
fees, assumption fees, and late payment charges received by the servicer, in
accordance with the beneficial owner's method of accounting. In addition,
beneficial owners of Standard Certificates, particularly any class of a series
that is subordinate to other classes, may incur losses of interest or principal
with respect to the trust's assets. Those losses would be deductible generally
only as described under "--Taxation of Securities Treated as Debt
Instruments--Treatment of Losses" above.
For information reporting purposes, although not free from doubt, the
trustee will report information concerning income accruals and principal
payments on the assets of the trust in the aggregate.
Trust Expenses. Each Security Owner that holds an interest in a Grantor
Trust Certificate must include in income its share of the trust's expenses, as
described above. Each Security Owner may deduct its share of those expenses at
the same time, to the same extent, and in the same manner as such items would
have been reported and deducted had it held directly interests in the trust's
assets and paid directly its share of the servicing and related fees and
expenses. Investors who are individuals, estates or trusts who own Grantor Trust
Certificates, either directly or indirectly through certain pass-through
entities, will be subject to limitations for certain itemized deductions
described in Section 67 of the Code, including deductions for the servicing fees
and all administrative and other expenses of the trust. In general, such an
investor can deduct those expenses only to the extent that those expenses, in
total, exceed 2 percent of the investor's adjusted gross income. In addition,
Section 68 of the Code provides that itemized deductions otherwise allowable for
a taxable year will be reduced by the lesser of (i) 3 percent of the
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excess, if any, of adjusted gross income over $142,700 ($71,350 in the case of a
married individual filing a separate return) (in each case, the figures shown
are for 2004 and will be adjusted for inflation), and (ii) 80 percent of the
amount of itemized deductions otherwise allowable for that year. This reduction
is currently scheduled to be phased-out over a five-year period beginning 2006.
As a result of the limitations set forth in Sections 67 and 68 of the Code,
those investors holding Grantor Trust Certificates, directly or indirectly
through a pass-through entity, may have total taxable income in excess of the
total amount of cash received on the Grantor Trust Certificates. In addition,
those investors cannot deduct the expenses of the trust for purposes of
computing the alternative minimum tax, and thus those investors may be subject
to significant additional tax liability.
Sales of Grantor Trust Certificates. If a Grantor Trust Certificate is
sold, gain or loss will be recognized by the Security Owner in an amount equal
to the difference between the amount realized on the sale and the Security
Owner's adjusted tax basis in the Grantor Trust Certificate. Such tax basis will
equal the Security Owner's cost for the Grantor Trust Certificate, increased by
any OID or market discount previously included in income and decreased by any
premium previously taken into account and by the amount of payments, other than
payments of Qualified Stated Interest, previously received with respect to such
Grantor Trust Certificate. The portion of any such gain attributable to accrued
market discount not previously included in income will be ordinary income. See
"--Taxation of Securities Treated as Debt Instruments--Sale or Other
Disposition." Any remaining gain or any loss will be capital gain or loss.
Capital losses generally may be used only to offset capital gains.
Trust Reporting. Each registered holder of a Grantor Trust Certificate
will be furnished with each distribution a statement setting forth the
allocation of such distribution to principal and interest. In addition, within a
reasonable time after the end of each calendar year each registered holder of a
Grantor Trust Certificate at any time during such year will be furnished with
information regarding the amount of servicing compensation and other trust
expenses to enable beneficial owners of Grantor Trust Certificates to prepare
their tax returns. The trustee also will file any required tax information with
the IRS, to the extent and in the manner required by the Code.
Foreign Persons. The tax and withholding rules that apply to Foreign
Persons who acquire an interest in Grantor Trust Certificates generally are the
same as those that apply to a Foreign Person who acquires an interest in Debt
Securities. See the discussion of the tax and withholding rules under
"--Taxation of Securities Treated as Debt Instruments--Foreign Persons."
PARTNER CERTIFICATES
If a trust is classified as a partnership for federal income tax
purposes, the trust will not be subject to an entity level federal income tax.
Instead, pursuant to the terms of the trust agreement, the trustee will compute
taxable income for each taxable year for the trust and will allocate the income
so computed among the Security Owners owning Partner Certificates. Each such
Security Owner must take into account in computing its taxable income for
federal income tax purposes its allocable share of the trust's income for the
taxable year of the trust that ends with or within the Security Owner's taxable
year. The trust will adopt the calendar year as its taxable year unless
otherwise specified in the applicable prospectus supplement.
Security Owner's Distributive Share. The trust will compute taxable
income for each taxable year in the same manner as would an individual, except
that certain deductions specified in Section 703(a)(2) of the Code are not
allowed. The trustee will allocate that taxable income among the Partner
Certificates. The method of allocation will be described in the applicable
prospectus supplement.
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A share of expenses of the partnership (including fees of the master
servicer but not interest expense) allocable to a beneficial owner who is an
individual, estate or trust would constitute miscellaneous itemized deductions
subject to the limitations described under "--Grantor Trust Certificates--Trust
Expenses" above. Accordingly, those deductions might be disallowed to the
individual in whole or in part and might result in that holder being taxed on an
amount of income that exceeds the amount of cash actually distributed to that
holder over the life of the partnership.
Distributions. A distribution of cash to a Security Owner owning a
Partner Certificate will not be taxable to the Security Owner to the extent that
the amount distributed does not exceed the Security Owner's adjusted basis in
the Partner Certificate. If the amount of cash distributed exceeds a Security
Owner's basis in a Partner Certificate, the excess will be treated as though it
were gain from the sale of the Partner Certificate. If, upon receipt of a cash
distribution in liquidation of a Security Owner's interest in the trust, the
Security Owner's adjusted basis exceeds the amount distributed, the excess will
be treated as though it were a loss from the sale of the Partner Certificate.
A Security Owner's adjusted basis in a Partner Certificate at any time
will equal the purchase price paid by the Security Owner for the Partner
Certificate, increased by allocations of income made to the Security Owner by
the trust, and decreased by distributions previously made by the trust on the
Partner Certificate and any losses allocated by the trust to the Security Owner
with respect to the Partner Certificate.
If a trust distributes its assets in-kind to a Security Owner in
liquidation of the trust, neither the trust nor the Security Owner will
recognize gain or loss on the distribution. The Security Owner would be required
to allocate its adjusted basis in its Partner Certificate among the assets it
received in the liquidating distribution.
Sale or Exchange of a Partner Certificate. If a Security Owner sells a
Partner Certificate, the Security Owner will recognize gain or loss equal to the
difference between the amount realized on the sale and the Security Owner's
adjusted basis in the Partner Certificate at the time of sale. Generally, except
to the extent provided otherwise in the applicable prospectus supplement, any
gain or loss will be capital gain or loss.
Section 708 Terminations. Under Section 708 of the Code, the trust will
be deemed to have terminated for federal income tax purpose if 50 percent of the
capital and profits interests in the trust are sold or exchanged within a
12-month period. If a termination were to occur, it would result in the deemed
contribution by the trust of its assets to a newly formed trust in exchange for
interests in such newly formed trust, which the terminated trust would be deemed
to distribute to the Security Owners. The series of deemed transactions would
not result in recognition of gain or loss to the trust or to the Security
Owners. If the Partner Certificates are book-entry certificates, the trust most
likely will not be able to monitor whether the termination provisions of Section
708 of the Code apply due to lack of information concerning the transfer of
interests in the trust.
Section 754 Election. If a Security Owner were to sell its Partner
Certificate at a profit (loss), the purchaser would have a higher (lower)
adjusted basis in the Certificate than did the seller. The trust's adjusted
basis in its assets would not be adjusted to reflect this difference unless the
trust made an election under Section 754 of the Code. To avoid the
administrative complexities that would be involved if such an election were to
be made, a trust that is classified as a partnership will not make an election
under Section 754 of the Code unless otherwise provided in the applicable
prospectus supplement. As a result, a beneficial owner of a Partner Certificate
might be allocated a greater or lesser amount of partnership income than would
be appropriate based on its own purchase price for its Partner Certificate.
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The American Jobs Creation Act of 2004 added a provision to the Code
that would require a partnership with a "substantial built-in loss" immediately
after a transfer of a partner's interest in such partnership to make the types
of basis adjustments that would be required if an election under Section 754 of
the Code were in effect. This new provision does not apply to a "securitization
partnership." The applicable prospectus supplement will address whether any
partnership in which a Partner Certificate represents an interest will
constitute a securitization partnership for this purpose.
Foreign Persons. Unless otherwise provided in the applicable prospectus
supplement, income allocated and distributions made by the trust to a Security
Owner who is a Foreign Person generally will not be subject to United States
federal income tax and withholding tax, if the income attributable to a
certificate is not effectively connected with the conduct of a trade or business
within the United States by the Foreign Person.
Any capital gain realized on the sale, redemption, retirement or other
taxable disposition of a beneficial interest in a Partner Certificate 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, the individual is not present in the United States
for 183 days or more in the taxable year.
Information Reporting. Each trust classified as a partnership will file
a partnership tax return on IRS Form 1065 with the IRS for each taxable year of
the trust. The trust will report each Security Owner's allocable share of the
trust's items of income and expense to the Security Owner and to the IRS on
Schedules K-1. The trust will provide the Schedules K-1 to nominees that fail to
provide the trust with the information statement described below and the
nominees then will be required to forward that information to the beneficial
owners of the Partner Certificates. Generally, a Security Owner must file tax
returns that are consistent with the information reported on the Schedule K-1 or
be subject to penalties, unless the Security Owner notifies the IRS of the
inconsistencies.
Under Section 6031 of the Code, any person that holds a Partner
Certificate as a nominee at any time during a calendar year is required to
furnish to the trust a statement containing certain information concerning the
nominee and the beneficial owner of the Partner Certificates. In addition,
brokers and financial institutions that hold Partner Certificates through a
nominee are required to furnish directly to the trust information as to the
beneficial ownership of the Partner Certificates. The information referred to
above for any calendar year is to be provided to the trust by January 31 of the
following year. Brokers and nominees who fail to provide the information may be
subject to penalties. However, a clearing agency registered under Section 17A of
the Securities Exchange Act of 1934 is not required to furnish that information
statement to the trust.
Administrative Matters. Unless another designation is made, the
depositor will be designated as the tax matters partner in the trust agreement
and, as the tax matters partner, will be responsible for representing the
beneficial owners of Partner Certificates 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 until three years after the date on which the
partnership information return is filed. Any adverse determination following an
audit of the return of the partnership by the appropriate taxing authorities
could result in an adjustment of the returns of the beneficial owners of Partner
Certificates, and, under certain circumstances, a beneficial owner may be
precluded from separately litigating a proposed adjustment to the items of the
partnership. An adjustment also could result in an audit of a beneficial owner's
returns and adjustments of items not related to the income and losses of the
partnership.
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SPECIAL TAX ATTRIBUTES
In certain cases, securities are afforded special tax attributes under
particular sections of the Code, as discussed below.
REMIC Securities. REMIC securities held by a domestic building and loan
association will constitute "regular or residual interests in a REMIC" within
the meaning of Section 7701(a)(19)(C)(xi) of the Code in proportion to the
assets of the REMIC that are described in Section 7701(a)(19)(C)(i) through (x).
If, however, at least 95 percent of the assets of the REMIC are described in
Section 7701(a)(19)(C)(i) through (x), the entire REMIC securities in that REMIC
will so qualify.
In addition, REMIC securities held by a REIT will constitute "real
estate assets" within the meaning of Section 856(c)(5)(B) of the Code. If at any
time during a calendar year less than 95 percent of the assets of a REMIC
consist of "real estate assets," then the portion of the REMIC securities that
are real estate assets under Section 856(c)(5)(B) during the calendar year will
be limited to the portion of the assets of the REMIC that are real estate
assets. Similarly, income on the REMIC securities will be treated as "interest
on obligations secured by mortgages on real property" within the meaning of
Section 856(c)(3)(B) of the Code, subject to the same limitation as set forth in
the preceding sentence.
REMIC regular certificates also will be "qualified mortgages" within
the meaning of Section 860G(a)(3) of the Code with respect to other REMICs,
provided they are transferred to the other REMIC within the periods required by
the Code.
The determination as to the percentage of the REMIC's assets that
constitute assets described in the foregoing sections of the Code will be made
for each calendar quarter based on the average adjusted basis of each category
of the assets held by the REMIC during that calendar quarter. The REMIC will
report those determinations in the manner and at the times required by
applicable Treasury regulations. The Small Business Job Protection Act of 1996
(the "SBJPA of 1996") repealed the reserve method for bad debts of domestic
building and loan associations and mutual savings banks, and thus has eliminated
the asset category of "qualifying real property loans" in former Section 593(d)
of the Code for taxable years beginning after December 31, 1995. The
requirements in the SBJPA of 1996 that these institutions must "recapture" a
portion of their existing bad debt reserves is suspended if a certain portion of
their assets are maintained in "residential loans" under Section
7701(a)(19)(C)(v) of the Code, but only if those loans were made to acquire,
construct or improve the related real property and not for the purpose of
refinancing. However, no effort will be made to identify the portion of the
mortgage loans of any series meeting this requirement, and no representation is
made in this regard.
The assets of the REMIC will include, in addition to mortgage loans,
payments on mortgage loans held pending distribution on the REMIC securities and
property acquired by foreclosure held pending sale, and may include amounts in
reserve accounts. It is unclear whether property acquired by foreclosure held
pending sale and amounts in reserve accounts would be considered to be part of
the mortgage loans, or whether those assets (to the extent not invested in
assets described in the foregoing sections) otherwise would receive the same
treatment as the mortgage loans for purposes of all of the foregoing sections.
Under the regulations applicable to REITs, however, mortgage loan payments held
by a REMIC pending distribution are real estate assets for purposes of Section
856(c)(5)(B) of the Code. Furthermore, foreclosure property generally will
qualify as real estate assets under Section 856(c)(5)(B) of the Code.
For some series of REMIC securities, two or more separate elections may
be made to treat designated portions of the related trust estate as REMICs
("Tiered REMICs") for federal income tax purposes. Solely for purposes of
determining whether the REMIC securities will be "real estate assets"
79
within the meaning of Section 856(c)(5)(B) of the Code and "loans secured by an
interest in real property" under Section 7701(a)(19)(C) of the Code, and whether
the income on those securities is interest described in Section 856(c)(3)(B) of
the Code, the Tiered REMICs will be treated as one REMIC.
As described above, certain securities will evidence ownership of a
REMIC regular interest and a notional principal contract, as further described
in the accompanying supplement. See "Types of Securities--REMIC Securities
Generally" above. Any such notional principal contract (and any income
therefrom) will not be afforded any of the special tax attributes described in
this section.
Non-REMIC Debt Securities. Debt Securities that are not REMIC regular
certificates and that are owned by domestic building and loan associations and
other thrift institutions will not be considered "loans secured by an interest
in real property" or "qualifying real property loans." Moreover, such Debt
Securities owned by a REIT will not be treated as "real estate assets" nor will
interest on the Debt Securities be considered "interest on obligations secured
by mortgages on real property." In addition, such Debt Securities will not be
"qualified mortgages" for REMICs.
Grantor Trust Certificates. Standard Certificates held by a domestic
building and loan association will constitute "loans secured by interests in
real property" within the meaning of Section 7701(a)(19)(C)(v) of the Code;
Standard Certificates held by a REIT will constitute "real estate assets" within
the meaning of Section 856(c)(5)(B) of the Code; amounts includible in gross
income with respect to Standard Certificates held by a REIT will be considered
"interest on obligations secured by mortgages on real property" within the
meaning of Section 856(c)(3)(B) of the Code; and Standard Certificates
transferred to a REMIC within the prescribed time periods will qualify as
"qualified mortgage" within the meaning of Section 860G(a)(3) of the Code;
provided in each case that the related assets of the trust (or income therefrom,
as applicable) would so qualify.
Although there appears to be no policy reason not to accord to Stripped
Certificates the treatment described above for Standard Certificates, there is
no authority addressing such characterization for instruments similar to
Stripped Certificates. We recommend that prospective investors in Stripped
Certificates consult their own tax advisers regarding the characterization of
Stripped Certificates, and the income therefrom, if the characterization of the
Stripped Certificates under the above-referenced rules is relevant.
Partner Certificates. For federal income tax purposes, Partner
Certificates held by a domestic building and loan association will not
constitute "loans secured by an interest in real property" within the meaning of
Code Section 7701(a)(19)(C)(v), but, for purposes of the provisions applicable
to REITs, a REIT holding a Partnership Certificate will be deemed to hold its
proportionate share of each of the assets of the partnership and will be deemed
to be entitled to the income of the partnership attributable to such share,
based in each case on the REIT's capital interest in the issuer.
BACKUP WITHHOLDING
Distributions on securities, as well as payment of proceeds from the
sale of securities, may be subject to the backup withholding tax under Section
3406 of the Code if recipients fail to furnish certain information, including
their taxpayer identification numbers, or otherwise fail to establish an
exemption from such tax. Any amounts deducted and withheld from a recipient
would be allowed as a credit against such recipient's federal income tax.
Furthermore, certain penalties may be imposed by the IRS on a recipient that is
required to supply information but that does not do so in the manner required.
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REPORTABLE TRANSACTIONS
Recent legislation imposes a penalty on a taxpayer that fails to
disclose a "reportable transaction." The IRS has issued guidance defining the
term "reportable transaction" for this purpose. Although a description of that
term is beyond the scope of this summary, a reportable transaction includes a
transaction that meets requirements outlined in the IRS guidance and that
involves:
o a sale or exchange of a security resulting in a loss in excess of
(i) $10 million in any single year or $20 million in any
combination of years in the case of a security held by a
corporation or a partnership with only corporate partners or (ii)
$2 million in any single year or $4 million in any combination of
years in the case of a security held by any other partnership or
an S corporation, trust or individual;
o a significant difference between the U.S. federal income tax
reporting for an item from the transaction and its treatment for
book purposes (generally under U.S. generally accepted accounting
principles); or
o any other characteristic described by the IRS.
A taxpayer discloses a reportable transaction by filing IRS Form 8886
with its federal income tax return. The penalty for failing to disclose a
reportable transaction is $10,000 in the case of a natural person and $50,000 in
any other case. Prospective investors in the securities should consult their own
tax advisors concerning any possible disclosure obligations with respect to
their ownership or disposition of a security in light of their particular
circumstances.
STATE AND LOCAL TAX CONSIDERATIONS
In addition to the federal income tax consequences described above,
potential investors should consider the state and local income tax consequences
of the acquisition, ownership and disposition of 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.
For example, a REMIC or non-REMIC trust may be characterized as a
corporation, a partnership, or some other entity for purposes of state income
tax law. Such characterization could result in entity level income or franchise
taxation of the trust. We recommend that potential investors consult their own
tax advisors with respect to the various state and local tax consequences of an
investment in securities.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the Code impose certain requirements in connection with the
investment of plan assets 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 these plans, accounts or arrangements are invested, that are subject to
Title I of ERISA or to Section 4975 of the Code ("Plans") and on persons who are
fiduciaries for those Plans. Some 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 Section 3(33) of
ERISA), are not subject to ERISA requirements. Therefore, assets of these plans
may be invested in securities without regard to the ERISA considerations
described below, subject to the provisions of other applicable federal, state
and local law.
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Any of these plans that is qualified and exempt from taxation under Sections 401
(a) and 501 (a) of the Code, however, is subject to the prohibited transaction
rules set forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries certain general fiduciary
requirements, including those of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan. In addition, ERISA and the Code prohibit a broad range of
transactions involving assets of a Plan and persons ("Parties in Interest") who
have certain specified relationships to the Plan unless a statutory, regulatory
or administrative exemption is available. Certain Parties in Interest that
participate in a prohibited transaction may be subject to an excise tax imposed
pursuant to Section 4975 of the Code, unless a statutory, regulatory or
administrative exemption is available. These prohibited transactions generally
are set forth in Sections 406 and 407 of ERISA and Section 4975 of the Code.
PLAN ASSETS
A Plan's investment in securities may cause the assets included in a
related trust to be deemed Plan assets. Section 2510.3-101 of the regulations of
the United States Department of Labor ("DOL") (the "Plan Asset Regulations")
provides that when a Plan acquires an equity interest in an entity, the Plan's
assets include both the equity interest and an undivided interest in each of the
underlying assets of the entity, unless certain exceptions not applicable here
apply, or unless the equity participation in the entity by "benefit plan
investors" (i.e., Plans, employee benefit plans not subject to Title I of ERISA
or Section 4975 of the Code and entities whose underlying assets include plan
assets by reason of a Plan's investment in the entity) is not "significant,"
both as defined in the Plan Asset Regulations. For this purpose, in general,
equity participation by benefit plan investors will be "significant" if 25% or
more of the value of any class in the entity is held by benefit plan investors,
as calculated under such Regulations. Securities which are certificates are
treated as equity interests for purposes of the Plan Asset Regulations.
Any person who has discretionary authority or control respecting the
management or disposition of assets of a Plan, and any person who provides
investment advice for those assets for a fee, is a fiduciary of the Plan. If the
assets included in a trust constitute plan assets of an investing Plan, then any
party exercising management or discretionary control regarding those assets,
such as the servicer or master servicer, may be deemed to be a "fiduciary" of
the Plan and thus subject to the fiduciary responsibility provisions and
prohibited transaction provisions of Title I of ERISA and Section 4975 of the
Code with respect to the investing Plan. In addition, if the assets included in
a trust constitute plan assets, the purchase of securities by a Party in
Interest of the Plan, as well as the operation of the trust, may constitute or
involve prohibited transactions under Section 406 of ERISA and Section 4975 of
the Code.
THE UNDERWRITER EXEMPTIONS
The DOL has issued individual exemptions to various underwriters as
indicated in the related prospectus supplement (collectively, the "Exemption")
that generally exempt from the application of the prohibited transaction
provisions of Sections 406(a) and 407(a) of ERISA, and the excise taxes imposed
on those prohibited transactions pursuant to Section 4975(a) and (b) of the
Code, certain transactions relating to the servicing and operation of mortgage
pools and the purchase, sale and holding of securities underwritten by an
underwriter, as defined below, that either (1) represent either a beneficial
ownership interest in the assets of an issuer and entitle the holder to payments
of principal, interest and/or other payments made with respect to the assets of
the issuer or (2) are denominated as a debt instrument and are issued by the
issuer, provided that certain conditions set forth in the Exemption are
satisfied.
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For purposes of this Section "ERISA Considerations," the term
"underwriter" will include (a) the underwriter specified in the related
prospectus supplement, (b) any person directly or indirectly, through one or
more intermediaries, controlling, controlled by or under common control with
that underwriter, (c) any member of the underwriting syndicate or selling group
of which a person described in (a) or (b) is a manager or co-manager for a class
of securities, or (d) any entity with an Exemption which acts as a placement or
selling agent with respect to the securities.
Among the several general conditions that must be satisfied for a
transaction involving the purchase, sale and holding of securities to be
eligible for exemptive relief under the Exemption are:
o The acquisition of securities by a Plan must be on terms
(including the price for the securities) that are at least as
favorable to the Plan as they would be in an arm's-length
transaction with an unrelated party;
o securities eligible for exemptive relief may only be subordinated
to the rights and interests evidenced by the other securities of
the issuer if all the mortgage loans are fully-secured;
o The securities at the time of acquisition by the Plan must be
rated in one of the four highest generic rating categories by
Standard & Poor's Rating Services, a division of The McGraw-Hill
Companies, Inc. ("S&P"), Moody's Investors Service, Inc.
("Moody's") or Fitch, Inc. ("Fitch") (each, a "Rating Agency");
o The trustee may not be an affiliate of any other member of the
Restricted Group, as defined below, other than any underwriter;
o The sum of all payments made to and retained by the underwriter(s)
must represent not more than reasonable compensation for
underwriting the securities; the sum of all payments made to and
retained by the depositor pursuant to the assignment of the assets
to the issuer must represent not more than the fair market value
of those obligations; and the sum of all payments made to and
retained by the master servicer and any other servicer must
represent not more than reasonable compensation for that person's
services under the related agreement and reimbursement of that
person's reasonable expenses in connection therewith;
o The Plan investing in the securities must be an accredited
investor as defined in Rule 501(a)(1) of Regulation D of the
Commission under the securities Act of 1933, as amended; and
o For certain types of issuers, the documents establishing the
issuer and governing the transaction must contain provisions
intended to protect the assets of the issuer from creditors of the
depositor.
Moreover, the Exemption provides relief from certain
self-dealing/conflict of interest prohibited transactions that may arise under
Sections 406(b)(1) and 406(b)(2) of ERISA (as well as from the excise taxes
imposed by Sections 4975(a) and 4975(b) of the Code, by reason of Section
4975(c)(1)(E) of the Code) when a fiduciary causes a Plan to invest in an issuer
that holds obligations on which the fiduciary (or its affiliate) is an obligor
only if, among other requirements: (1) the fiduciary (or its affiliate) is an
obligor with respect to no more than five percent of the fair market value of
the obligations contained in the trust; (2) the Plan's investment in each class
of securities does not exceed twenty-five percent of all of the securities of
that class outstanding at the time of the acquisition; (3) immediately after the
acquisition,
83
no more than twenty-five percent of the assets of any Plan for which the
fiduciary serves as a fiduciary are invested in securities representing an
interest in one or more trusts containing assets sold or serviced by the same
entity; (4) in the case of an acquisition of securities in connection with their
initial issuance, at least 50% of each class of securities in which Plans have
invested and at least 50% of the aggregate interest in the issuer is acquired by
persons independent of the Restricted Group; and (5) the Plan is not an Excluded
Plan. An "Excluded Plan" is one that is sponsored by a member of the Restricted
Group, which consists of the trustee, each underwriter, any insurer of the
issuer, the sponsor, each servicer, any obligor with respect to obligations
included in the issuer constituting more than 5 percent of the aggregate
unamortized principal balance of the assets of the issuer on the date of the
initial issuance of securities, each counterparty in any eligible swap
transactions and any affiliate of any such persons.
A fiduciary of a Plan contemplating purchasing a security must make its
own determination that the general conditions set forth above will be satisfied
for that security.
The rating of a security may change. If the rating of a security
declines below the lowest permitted rating, the security will no longer be
eligible for relief under the Exemption (although a Plan that had purchased the
security when the security had a permitted rating would not be required by the
Exemption to dispose of it). However, in such circumstances Certificate (but not
notes) may be eligible for purchase by a Plan investor which is an insurance
company general account pursuant to Prohibited Transaction Class Exemption 95-60
Sections I and III.
If the general conditions of the Exemption are satisfied, the Exemption
may provide an exemption from the restrictions imposed by Sections 406(a) and
407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(a) and (b)
of the Code by reason of Sections 4975(c) (1)(A) through (D) of the Code) in
connection with the direct or indirect sale, exchange, transfer, holding or the
direct or indirect acquisition or disposition in the secondary market of
securities by Plans. However, no exemption is provided from the restrictions of
Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding
of a security on behalf of an Excluded Plan by any person who has discretionary
authority or renders investment advice with respect to the assets of that
Excluded Plan.
Further, if certain specific conditions of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a), 406(b) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Section 4975(c) of the Code for transactions in
connection with the servicing, management and operation of the trust. The
depositor expects that the specific conditions of the Exemption required for
this purpose will be satisfied for the securities so that the Exemption would
provide an exemption from the restrictions imposed by Sections 406(a), 406(b)
and 407(a) of ERISA (as well as the excise taxes imposed by Sections 4975(a) and
(b) of the Code by reason of Section 4975(c) of the Code) for transactions in
connection with the servicing, management and operation of the mortgage pools,
provided that the general conditions of the Exemption are satisfied.
The Exemption also may provide an exemption from the restrictions
imposed by Sections 406(a) and 407(a) of ERISA, and the taxes imposed by Section
4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of
the Code if those restrictions are deemed to otherwise apply merely because a
person is deemed to be a "party in interest" (within the meaning of Section
3(14) of ERISA) or a "disqualified person" (within the meaning of Section
4975(e)(2) of the Code) with respect to an investing Plan by virtue of providing
services to the Plan (or by virtue of having certain specified relationships to
that person) solely as a result of the Plan's ownership of securities.
The Exemption extends exemptive relief to certain mortgage-backed and
asset-backed securities transactions that use pre-funding accounts and that
otherwise meet the requirements of the Exemption.
84
Generally, obligations in an investment pool supporting payments to
securityholders, and having a value equal to no more than 25% of the total
initial principal balance of the related securities, may be transferred to the
trust within pre-funding period (which must end no later than the later of three
months or ninety days after the closing date) instead of being required to be
either identified or transferred on or before the closing date.
The Exemption permits interest-rate swaps and yield supplement
agreements relating to particular classes of securities to be assets of a trust
if certain conditions are satisfied. An interest-rate swap (or if purchased by
or on behalf of the trust) an interest-rate cap contract (collectively, a "Swap"
or "Swap Agreement") is a permitted trust asset if it: (a) is an "eligible
Swap"; (b) is with an "eligible counterparty"; (c) is purchased by a "qualified
plan investor"; (d) meets certain additional specific conditions which depend on
whether the Swap is a "ratings dependent Swap" or a "non-ratings dependent
Swap"; and (e) permits the trust to make termination payments to the Swap
counterparty (other than currently scheduled payments) solely from excess spread
or amounts otherwise payable to the servicer or depositor.
An "eligible Swap" is one which: (a) is denominated in U.S. dollars;
(b) pursuant to which the trust pays or receives, on or immediately prior to the
respective payment or distribution date for the class of securities to which the
Swap relates, a fixed rate of interest or a floating rate of interest based on a
publicly available index (e.g., LIBOR or the U.S. Federal Reserve's Cost of
Funds Index (COFI)), with the trust receiving such payments on at least a
quarterly basis and obligated to make separate payments no more frequently than
the counterparty, with all simultaneous payments being netted ("Allowable
Interest Rate"); (c) has a notional amount that does not exceed either: (i) the
principal balance of the class of securities to which the Swap relates, or (ii)
the portion of the principal balance of such class represented by obligations
("Allowable Notional Amount"); (d) is not leveraged (i.e., payments are based on
the applicable notional amount, the day count fractions, the fixed or floating
rates permitted above, and the difference between the products thereof,
calculated on a one-to-one ratio and not on a multiplier of such difference)
("Leveraged"); (e) has a final termination date that is either the earlier of
the date on which the issuer terminates or the related class of securities are
fully repaid; and (f) does not incorporate any provision which could cause a
unilateral alteration in the interest rate requirements described above or the
prohibition against leveraging.
An "eligible counterparty" means a bank or other financial institution
which has a rating at the date of issuance of the securities, which is in one of
the three highest long-term credit rating categories or one of the two highest
short-term credit rating categories, utilized by at least one of the Rating
Agencies rating the securities; provided that, if a counterparty is relying on
its short-term rating to establish eligibility hereunder, such counterparty must
either have a long term rating in one of the three highest long term rating
categories or not have a long term rating from the applicable Rating Agency.
A "qualified plan investor" is a Plan or Plans where the decision to
buy such class of securities is made on behalf of the Plan by an independent
fiduciary qualified to understand the Swap transaction and the effect the Swap
would have on the rating of the securities and such fiduciary is either (a) a
"qualified professional asset manager" ("QPAM") under Prohibited Transaction
Class Exemption 84-14 ("PTCE 84-14"), (b) an "in-house asset manager" under
Prohibited Transaction Class Exemption 96-23 ("PTCE 96-23") or (c) has total
assets (both Plan and non-Plan) under management of at least $100 million at the
time the securities are acquired by the Plan.
In "ratings dependent Swaps" (where the rating of a class of securities
is dependent on the terms and conditions of the Swap), the Swap Agreement must
provide that if the credit rating of the counterparty is withdrawn or reduced by
any Rating Agency below a level specified by the Rating Agency, the servicer
must, within the period specified under an agreement: (a) obtain a replacement
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Swap Agreement with an eligible counterparty which is acceptable to the Rating
Agency and the terms of which are substantially the same as the current Swap
Agreement (at which time the earlier Swap Agreement must terminate); or (b)
cause the Swap counterparty to establish any collateralization or other
arrangement satisfactory to the Rating Agency such that the then current rating
by the Rating Agency of the particular class of securities will not be withdrawn
or reduced (and the terms of the Swap Agreement must specifically obligate the
counterparty to perform these duties for any class of securities with a term of
more than one year). In the event that the servicer fails to meet these
obligations, Plan Securityholders must be notified in the immediately following
periodic report which is provided to securityholders but in no event later than
the end of the second month beginning after the date of such failure. Sixty days
after the receipt of such report, the exemptive relief provided under the
Exemption will prospectively cease to be applicable to any class of securities
held by a Plan which involves such ratings dependent Swap.
"Non-ratings dependent Swaps" (those where the rating of the securities
does not depend on the terms and conditions of the Swap) are subject to the
following conditions. If the credit rating of the counterparty is withdrawn or
reduced below the lowest level permitted above, the servicer will, within a
specified period after such rating withdrawal or reduction: (a) obtain a
replacement Swap Agreement with an eligible counterparty, the terms of which are
substantially the same as the current Swap Agreement (at which time the earlier
Swap Agreement must terminate); (b) cause the counterparty to post collateral
with the trust in an amount equal to all payments owed by the counterparty if
the Swap transaction were terminated; or (c) terminate the Swap Agreement in
accordance with its terms.
An "eligible yield supplement agreement" is any yield supplement
agreement or similar arrangement (or if purchased by or on behalf of the trust)
an interest rate cap contract to supplement the interest rates otherwise payable
on obligations held by the trust ("EYS Agreement"). If the EYS Agreement has a
notional principal amount and/or is written on an International Swaps and
Derivatives Association, Inc. (ISDA) form, the EYS Agreement may only be held as
an asset of the trust if it meets the following conditions: (a) it is
denominated in U.S. dollars; (b) it pays an Allowable Interest Rate; (c) it is
not Leveraged; (d) it does not allow any of these three preceding requirements
to be unilaterally altered without the consent of the trustee; (e) it is entered
into between the trust and an eligible counterparty; and (f) it has an Allowable
Notional Amount.
CONSIDERATIONS APPLICABLE TO NOTES
The underwriter, or any holder of certificates or other equity
interest, because of their activities or the activities of its respective
affiliates, may be deemed to be a Party in Interest with respect to a Plan. In
the event that Plan purchases a note issued by the trust in such circumstances,
without regard to whether the notes are considered an "equity interest" in, or
debt issued by, the trust, the acquisition or holding of such note by or on
behalf of that Plan could be considered to give rise to a direct or an indirect
prohibited transaction within the meaning of ERISA and the Code unless one or
more statutory, regulatory or administrative exemptions are applicable. These
exemptions include the Exemption or Prohibited Transaction Class Exemption
("PTCE") 84-14, which exempts certain transactions effected on behalf of a Plan
by a "qualified professional asset manager," PTCE 90-1, which exempts certain
transactions involving insurance company pooled separate accounts, PTCE 91-38,
which exempts certain transactions involving bank collective investment funds,
PTCE 95-60, which exempts certain transactions involving insurance company
general accounts, or PTCE 96-23, which exempts certain transactions effected on
behalf of a Plan by certain "in-house" asset managers. It should be noted,
however, that even if the conditions specified in one or more of these
exemptions are met, the scope of relief provided by such exemptions may not
necessarily cover all acts that might be construed as prohibited transactions.
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ADDITIONAL FIDUCIARY CONSIDERATIONS
The depositor, the master servicer, the servicer, the trustee, or the
underwriter may be the sponsor of, or investment advisor with respect to, one or
more Plans. Because these parties may receive certain benefits in connection
with the sale of securities, the purchase of securities using Plan assets over
which any of these parties has investment authority might be deemed to be a
violation of a provision of Title I of ERISA or Section 4975 of the Code.
Accordingly, securities may not be purchased using the assets of any Plan if any
of the depositor, the servicer, the trustee or the underwriter has investment
authority for those assets, or is an employer maintaining or contributing to the
Plan, unless an applicable prohibited transaction exemption is available to
cover such purchase.
Any Plan fiduciary that proposes to cause a Plan to purchase securities
should consult with its counsel with respect to the potential applicability of
ERISA and the Code to that investment, the availability of the exemptive relief
provided in the Exemption and the potential applicability of any other
prohibited transaction exemption in connection therewith. In particular, a Plan
fiduciary that proposes to cause a Plan to purchase certificates representing a
beneficial ownership interest in a pool of single-family residential first
mortgage loans should consider the applicability of PTCE 83-1, which provides
exemptive relief for certain transactions involving mortgage pool investment
trusts. The prospectus supplement for a series of securities may contain
additional information regarding the application of the Exemption or any other
exemption with respect to the securities offered thereby (or with respect to
certificates only, PTCE 83-1).
Any Plan fiduciary considering whether to purchase a security on behalf
of a Plan should consult with its counsel regarding the application of the Plan
Asset Regulations and the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to that investment.
The sale of securities to a Plan is in no respect a representation by
the depositor or the underwriter that the investment meets all relevant legal
requirements for investments by Plans generally or any particular Plan, or that
the investment is appropriate for Plans generally or any particular Plan.
LEGAL INVESTMENT MATTERS
If so specified in the prospectus supplement for a series, the
securities of such series will constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA"), so
long as they are rated in one of the two highest rating categories by one or
more nationally recognized statistical rating organizations, and, as such, will
be legal investments for persons, trusts, corporations, partnerships,
associations, business trusts and business entities, including, but not limited
to, state-chartered savings banks, commercial banks, savings and loan
associations, and insurance companies, as well as trustees and state government
employee retirement systems, created pursuant to or existing under the laws of
the United States or any state, territory or possession of the United States,
including the District of Columbia or Puerto Rico, whose authorized investments
are subject to state regulation to the same extent that, under applicable law,
obligations issued by or guaranteed as to principal and interest by the United
States or any agency or instrumentality thereof constitute legal investments for
such entities. Pursuant to SMMEA, a number of states enacted legislation, on or
before the October 3, 1991 cut off for such enactments, limiting to varying
extents the ability of certain entities, in particular, insurance companies, to
invest in "mortgage related securities," in most cases by requiring the affected
investors to rely solely upon existing state law and not SMMEA. Accordingly, the
investors affected by such legislation will be authorized to invest in the
securities only to the extent provided in such legislation. Institutions whose
investment activities are subject to legal investment laws and regulations or to
review by certain regulatory authorities may be subject to restrictions on
investment in certain classes of the securities of a series.
87
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
with mortgage related securities without limitation as to the percentage of
their assets represented thereby; federal credit unions may invest in mortgage
related securities; and national banks may purchase mortgage related securities
for their own account without regard to the limitations generally applicable to
investment securities set forth in 12 U.S.C. ss. 24 (Seventh), subject in each
case to such regulations as the applicable federal regulatory authority may
prescribe. Federal credit unions should review National Credit Union
Administration (the "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.
The NCUA has adopted rules, effective December 2, 1991, which prohibit federal
credit unions from investing in some types of mortgage related securities,
possibly including specified series or classes of securities, except under
limited circumstances. The OTS has issued Thrift Bulletin 13a (December 1,
1998), "Management of Interest Rate Risk, Investment Securities and Derivative
Activities," which thrift institutions subject to the jurisdiction of the OTS
should consider before investing in any securities.
If specified in the prospectus supplement for a series, one or more
classes of securities of the series will not constitute "mortgage related
securities" for purposes of SMMEA. In this event, persons whose investments are
subject to state or federal regulation may not be legally authorized to invest
in such classes of securities.
All depository institutions considering an investment in the securities
should review the "Supervisory Policy Statement on Investment Securities and
End-User Derivatives Activities" (the "Policy Statement") of the Federal
Financial Institution Examination Council. The Policy Statement, which has been
adopted by the Board of Governors of the Federal Reserve System, the FDIC, the
Office of the Comptroller of the Currency and the Office of Thrift Supervision,
effective May 26, 1998, and by the NCUA effective October 1, 1998, among other
things, sets forth general guidelines which depository institutions must follow
in managing risks, including market, credit, liquidity, operational, and legal
risks, applicable to all securities used for investment purposes. In addition,
depository institutions and other financial institutions should consult their
regulators concerning the risk-based capital treatment of any securities. Any
financial institution that is subject to the jurisdiction of the Comptroller of
the Currency, the Board of Governors of the Federal Reserve System, the Federal
Deposit Insurance Corporation, the Office of Thrift Supervision, the National
Credit Union Administration or other federal or state agencies with similar
authority should review any applicable rules, guidelines and regulations prior
to purchasing the securities of a series.
Institutions whose investment activities are subject to regulation by
federal or state authorities should review the rules, policies and guidelines
adopted from time to time by these authorities before purchasing securities,
since some securities may be deemed unsuitable investments, or may otherwise be
restricted, under these rules, policies or guidelines, in some instances
irrespective of SMMEA.
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, percentage-of-assets limits, provisions which
may restrict or prohibit investments in securities which are not
"interest-bearing" or "income-paying," and, with regard to any book-entry
securities, provisions which may restrict or prohibit investments in securities
which are issued in book-entry form.
Prospective investors should consult their own legal advisors in
determining whether and to what extent the securities constitute legal
investments for such investors.
88
PLAN OF DISTRIBUTION
On the terms and conditions set forth in an underwriting agreement with
respect to each trust estate, the seller will agree to sell to each of the
underwriters named in the related prospectus supplement, and each of those
underwriters will severally agree to purchase from the seller, the principal
amount of each class of securities of the related series set forth in the
related prospectus supplement.
In each underwriting agreement, the several underwriters will agree,
subject to the terms and conditions set forth in that agreement, to purchase all
of the securities which are offered by this prospectus and by the related
prospectus supplement if any of those securities are purchased. If an
underwriter defaults in its obligations, each underwriting agreement will
provide that purchase commitments of the nondefaulting underwriters may be
increased, or the underwriting agreement may be terminated.
Each prospectus supplement will either
(x) set forth the price at which each class of securities will be
offered to the public and any concessions that may be offered
to dealers participating in the offering of those securities,
or
(y) specify that the related securities are to be resold by the
underwriters in negotiated transactions at varying prices to
be determined at the time of sale.
After the initial public offering of any securities, the public
offering price and concessions may be changed.
Each underwriting agreement will provide that the seller will indemnify
underwriters against particular liabilities, including liabilities under the
Securities Act of 1933, as amended.
Under each underwriting agreement, the closing of the sale of any class
of securities subject to that agreement will be conditioned on the closing of
the sale of all other classes also subject to that agreement.
The place and time of delivery for the securities in respect of which
this prospectus is delivered will be set forth in the related prospectus
supplement.
If a series of securities is offered other than through underwriters,
the prospectus supplement relating to it will contain information regarding the
nature of the offering and any agreements to be entered into between the
depositor and purchasers of securities of the series.
LEGAL MATTERS
Legal matters in connection with the securities will be passed upon for
the seller by Greenberg Traurig, LLP, New York, New York or such other counsel
as may be identified in the applicable prospectus supplement.
89
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of IssuAnce and Distribution
The following is an itemized list of the estimated expenses to be incurred in
connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions:
Registration Fee *
Printing Expenses *
Trustee's Fees and Expenses *
Legal Fees and Expenses *
Accountant's Fees and Expenses *
Rating Agency Fees *
Miscellaneous *
Total *
* To be filed by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Aames Capital Corporation's Articles of Incorporation eliminate the liability of
the directors of the corporation to the fullest extent permitted by California
law and provide for indemnification of the officers and directors in excess of
that expressly provided by and to the full extent permitted under California
law. Aames Capital Acceptance Corporation's Certificate of Incorporation
eliminates the liability of the directors of the corporation to the fullest
extent permitted by Delaware law and provides for indemnification of the
officers and directors in excess of that expressly provided by and to the full
extent permitted under Delaware law.
The general effect of the provisions for indemnification of directors and
officers of a Registrant is to permit such Registrant to obtain the services of
qualified individuals who otherwise would be unwilling to serve because it might
expose their personal assets to potential liability arising from legal actions
in the right of, or against, such Registrant. These provisions do not insulate
the officers or directors from their own unlawful acts but do permit a
Registrant to provide funds to defend them from allegations unless and until
they are finally judged to have acted unlawfully.
The general effect of any statute, charter provision, by-law, contract or other
arrangement under which any controlling person, director or officer of a
Registrant is insured or indemnified against liability when acting on behalf of
the Registrant is to reduce the deterrent effect for such indemnified
individuals for violating the Securities Act of 1933.
Each Registrant is aware that the Securities and Exchange Commission takes the
position that indemnification of directors and officers is against public policy
and is therefore unenforceable.
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ITEM 16. EXHIBITS
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation and By-Laws of Aames Capital Corporation*
3.2 Certificate of Incorporation and By-Laws of Aames Capital
Acceptance Corporation*
4.1 Form of Trust Agreement*
4.2 Form of Indenture*
4.3 Form of Transfer and Servicing Agreement*
4.4 Form of Pooling and Servicing Agreement*
4.5 Form of Mortgage Loan Purchase and Assignment Agreement*
5.1 Opinion of Greenberg Traurig, LLP as to legality*
8.1 Opinion of Greenberg Traurig, LLP with respect to federal income
tax matters (contained in Exhibit 5.1)
23.1 Consent of Greenberg Traurig, LLP (contained in Exhibit 5.1)
24.1 Powers of Attorney (included as part of signature page)
25.1 Statement of Eligibility and Qualification of Indenture Trustee
(Form T-1)*
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
(a) UNDERTAKINGS PURSUANT TO RULE 415.
The applicable undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statements;
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provided further, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do
not apply if the registration statement is for an offering of
asset-backed securities on Form S-1 or Form S-3, and the information
required to be included in a post-effective amendment is provided
pursuant to Item 1100(c) of Regulation AB.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at the time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) Undertaking as to Incorporating Subsequent Exchange Act Documents by
Reference.
The applicable undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Undertaking in Respect of Indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(d) Undertaking as to Registration Statement Permitted by Rule 430A Under the
Securities Act of 1933.
The applicable undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new
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registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(e) Undertaking as to Qualification of Trust Indentures under the Trust
Indenture Act of 1939 for Delayed Offerings.
The applicable undersigned registrant hereby undertakes to file an
application for the purpose of determining the eligibility of the trustee to act
under subsection (a) of Section 310 of the Trust Indenture Act in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Act.
(f) UNDERTAKING AS TO FILINGS REGARDING ASSET-BACKED SECURITIES
INCORPORATING BY REFERENCE SUBSEQUENT EXCHANGE ACT DOCUMENTS BY THIRD
PARTIES.
The applicable undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 of a third party that is incorporated by
reference in the registration statement in accordance with Item 1100(c)(1) of
Regulation AB shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(g) UNDERTAKING AS TO FILINGS REGARDING ASSET-BACKED SECURITIES THAT
PROVIDE CERTAIN INFORMATION THROUGH AN INTERNET WEB SITE.
The applicable undersigned registrant hereby undertakes that, except as
otherwise provided by Item 1105 of Regulation AB, information provided in
response to that Item pursuant to Rule 312 of Regulation S-T through the
specified Internet address in the prospectus is deemed to be a part of the
prospectus included in the registration statement. In addition, the applicable
undersigned registrant hereby undertakes to provide to any person without
charge, upon request, a copy of the information provided in response to Item
1105 of Regulation AB pursuant to Rule 312 of Regulation S-T through the
specified Internet address as of the date of the prospectus included in the
registration statement if a subsequent update or change is made to the
information.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-3, it believes that the securities rating
requirement for use of Form S-3 will be met by the time of sale of the
securities and it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the city of Los
Angeles, state of California, on this 30th day of September 2005.
AAMES CAPITAL CORPORATION
By: /s/ A. Jay Meyerson
------------------------------------
Name: A. Jay Meyerson
Title: Chief Executive Officer
AAMES CAPITAL ACCEPTANCE CORPORATION
By: /s/ A. Jay Meyerson
------------------------------------
Name: A. Jay Meyerson
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/s/ A. Jay Meyerson Chief Executive Officer (principal executive September 30, 2005
- -------------------- officer) and Director of Aames Capital Corporation
A. Jay Meyerson and Aames Capital Acceptance Corporation
/s/ Jon D. Van Deuren Chief Financial Officer (principal financial September 30, 2005
- --------------------- officer) and Director of Aames Capital Corporation
Jon D. Van Deuren and Aames Capital Acceptance Corporation
/s/ Donald J. Puglisi Director of Aames Capital Acceptance Corporation September 30, 2005
- ---------------------
Donald J. Puglisi
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POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints John
F. Madden, Jr. and Patrick D. Grosso and each of them, such person's true and
lawful attorneys-in-fact and agents with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to cause the same to be filed, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting to said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing whatsoever requisite or desirable to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, and hereby confirming all acts and things that said attorneys-in-fact
and agents, or either of them, or their substitutes or substitute, may lawfully
do or cause to be done by virtue hereof.
Signature Title Date
- --------- ----- ----
/s/ A. Jay Meyerson Chief Executive Officer (principal executive September 30, 2005
- -------------------- officer) and Director of Aames Capital Corporation
A. Jay Meyerson and Aames Capital Acceptance Corporation
/s/ Jon D. Van Deuren Chief Financial Officer (principal financial September 30, 2005
- --------------------- officer) and Director of Aames Capital Corporation
Jon D. Van Deuren and Aames Capital Acceptance Corporation
/s/ Donald J. Puglisi Director of Aames Capital Acceptance Corporation September 30, 2005
- ---------------------
Donald J. Puglisi
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EXHIBIT INDEX
1.1 Form of Underwriting Agreement*
3.1 Articles of Incorporation and By-Laws of Aames Capital Corporation*
3.2 Certificate of Incorporation and By-Laws of Aames Capital
Acceptance Corporation*
4.1 Form of Trust Agreement*
4.2 Form of Indenture*
4.3 Form of Transfer and Servicing Agreement*
4.4 Form of Pooling and Servicing Agreement*
4.5 Form of Mortgage Loan Purchase and Assignment Agreement*
5.1 Opinion of Greenberg Traurig, LLP as to legality*
8.1 Opinion of Greenberg Traurig, LLP with respect to federal income
tax matters. (contained in Exhibit 5.1)
23.1 Consent of Greenberg Traurig, LLP (contained in Exhibit 5.1)
24.1 Powers of Attorney (included as part of signature page)
25.1 Statement of Eligibility and Qualification of Indenture Trustee
(Form T-1)*
*To be filed by amendment.
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