1
EXHIBIT 99.1
[Exhibit 99.1. Form of Prospectus Supplement. This form of Prospectus Supplement
is for illustrative purposes only. A Prospectus Supplement in definitive form
reflecting the terms of each Series of Certificates will be filed with the
Commission under the Securities Act of 1933, as amended, pursuant to Rule
424(b)(2) promulgated thereunder.]
SUBJECT TO COMPLETION, DATED [ ]
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED [ ])
AAMES MORTGAGE TRUST 199[ ]-[ ]
$[ ]
MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES 199[ ]-[ ]
$[ ] [ ]% CLASS A-1A CERTIFICATES
$[ ] [ ]% CLASS A-1B CERTIFICATES
$[ ] [ ]% CLASS A-1C CERTIFICATES
$[ ] CLASS A-2 ADJUSTABLE RATE CERTIFICATES
AAMES CAPITAL CORPORATION
SPONSOR AND SERVICER
------------------------
The Mortgage Pass-Through Certificates, Series 199[ ]-[ ], will consist of
the Class [ ] Certificates, the Class [ ] Certificates and the Class [ ]
Certificates (collectively, the "Class A-1 Certificates"), the Class A-2
Certificates (the "Class A-2 Certificates," together with the Class A-1
Certificates, the "Class A Certificates") and the Class R Certificate (the
"Class R Certificate," together with the Class A Certificates, the
"Certificates"). Only the Class A Certificates are offered hereby. The
Certificates will represent undivided beneficial ownership interests in Aames
Mortgage Trust 199[ ]-[ ] (the "Trust") established by [ ] (the
"Sponsor").
SEE "RISK FACTORS" STARTING ON PAGE S-26 HEREOF AND ON PAGE 19 OF THE
PROSPECTUS FOR A DESCRIPTION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS IN THE CLASS A CERTIFICATES OFFERED HEREBY.
------------------------
THE CLASS A CERTIFICATES WILL REPRESENT BENEFICIAL OWNERSHIP INTERESTS ONLY IN
THE TRUST AND WILL NOT REPRESENT ANY INTEREST IN OR OBLIGATION OF THE SPONSOR,
THE SERVICER, ANY ORIGINATOR, THE TRUSTEE OR ANY OF THEIR RESPECTIVE AFFILIATES.
NEITHER THE CLASS A CERTIFICATES NOR THE UNDERLYING MORTGAGE LOANS WILL BE
GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Class A Certificates will be offered by the Underwriters named below
(the "Underwriters") from time to time to the public in negotiated transactions
or otherwise at varying prices to be determined at the time of the related sale.
Proceeds to the Sponsor from the sale of the Class A Certificates are
anticipated to be approximately $[ ] plus, with respect to the Class
A-1 Certificates, accrued interest from [ ], before deducting expenses
payable by the Sponsor, estimated to be $[ ]. The Class A Certificates
are offered by the Underwriters subject to prior sale, when, as and if issued to
and accepted by them and subject to approval of certain legal matters by counsel
for the Underwriters. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the Class A Certificates will be made in book-entry form only
through the Same-Day Funds Settlement System of The Depository Trust Company,
Cedel Bank, societe anonyme and the Euroclear System on or about [ ]. The
Class A Certificates will be offered in Europe and the United States of America.
[UNDERWRITERS]
2
(continued from cover)
The Certificates will represent undivided beneficial ownership interests in
Aames Mortgage Trust [ ] (the "Trust") established by Aames Capital
Corporation (the "Sponsor") pursuant to a Pooling and Servicing Agreement to be
dated as of [ ], 1998 (the "Pooling and Servicing Agreement") between
the Sponsor, in its capacities as Sponsor and Servicer, and the trustee
specified herein (the "Trustee").
Initially, the assets of the Trust will consist primarily of a pool (the
"Mortgage Pool") of mortgage loans (the "Mortgage Loans") secured by first and
junior liens on one- to four-family residential properties or condominiums and
monies on deposit in the Prefunding Account and Capitalized Interest Account as
described herein. The Mortgage Pool will be divided into two groups (each, a
"Mortgage Loan Group"). Distributions on the Class A-1 Certificates will be
derived primarily from amounts received, collected or recovered in respect of
the Mortgage Loan Group comprised entirely of Mortgage Loans bearing fixed rates
of interest (the "Fixed Rate Group"). Distributions on the Class A-2
Certificates will be derived primarily from amounts received, collected or
recovered in respect of the Mortgage Loan Group comprised entirely of Mortgage
Loans bearing interest at rates that are subject to periodic adjustment (the
"Adjustable Rate Group").
[The Class [ ] Certificates will be unconditionally and irrevocably
guaranteed as to payment of interest due to Class A Certificateholders on each
Distribution Date and as to ultimate collection of the Class A Certificate
Principal Balances of the related Class A Certificates, in each case pursuant to
the terms of the Certificate Insurance Policy (as defined herein) issued by name
of Certificate Insurer. See "Description of the Certificates -- The Certificate
Insurance Policy" herein].
[As described herein, the yield on the Class [ ] Certificates will be
affected by the rate of prepayments of the Mortgage Loans in the related
Mortgage Loan Group and the timing of receipt of such payments. Because a
substantial portion of the Mortgage Loans in the Fixed Rate Group are secured by
junior liens, the rate of prepayments experienced on the related Mortgage Loans
may be higher than would be the case if such Mortgage Loan Group consisted only
of first lien Mortgage Loans. The yield on the Class A Certificates will also be
affected by Excess Cash (as defined herein) that is applied in reduction of the
Class A Certificate Principal Balance on any Distribution Date, as described
herein. See "Risk Factors" herein.]
[As described herein, the yields to maturity of the Offered Certificates
will be sensitive to the rate and timing of principal payments (including
prepayments, defaults and liquidations) on the Mortgage Loans in the related
Mortgage Loan Group. The yield to maturity on each Class of Subordinate
Certificates will be extremely sensitive to losses due to defaults on the
Mortgage Loans in the Fixed Rate Group (and the timing thereof) to the extent
that such losses are not covered by overcollateralization or
cross-collateralization (in each case as described herein), or by the
subordination thereto of any other Subordinate Certificates that have a lower
payment priority. The Mortgage Loans generally may be prepaid in full or in part
at any time; however, a prepayment may subject the related mortgagor to a
prepayment charge. The yields to maturity of the Class [ ] Adjustable Rate
Certificates and the Adjustable Rate Group Certificates will be sensitive in
varying degrees to, among other things, the level of [LIBOR] (in the case of the
Class [ ]Certificates) [and the Fed Funds Rate (in the case of the Class
[ ] Adjustable Rate Certificates),] which may vary significantly over time.
The yield to investors on the Offered Certificates (and in particular, the
Subordinate Certificates) will be adversely affected by any shortfalls in
interest collected on the related Mortgage Loans due to prepayments,
liquidations or otherwise, to the extent not otherwise covered as described
herein. See "Certain Yield and Prepayment Considerations" herein. Because a
portion of the Mortgage Loans in the Fixed Rate Group are secured by junior
liens, the rate of prepayments experienced on the related Mortgage Loans may be
higher or lower than would be the case if such Mortgage Loan Group consisted
only of first lien Mortgage Loans.
The Class M Certificates are subordinate in right of distribution to the
Fixed Rate Group Class A Certificates and the Class M-2F Certificates are
subordinate in right of distribution to the Fixed Rate Group Class A
Certificates and the Class M-1F Certificates to the extent described herein. The
Class B-1F Certificates are subordinate in right of distribution to the Fixed
Rate Group Class A Certificates and the Class M Certificates to the extent
described herein. The initial aggregate Certificate Principal Balance of the
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Subordinate Certificates will equal approximately 15.5% of the initial aggregate
Certificate Principal Balance of the Fixed Rate Group Certificates.]
Except as described herein, the Subordinate Certificates may not be
acquired by Plans (as defined herein). See "ERISA Considerations" herein and in
the Prospectus.
As described herein, an election will be made to treat the Trust (other
than the Prefunding Account and the Capitalized Interest Account) as a "real
estate mortgage investment conduit" ("REMIC") pursuant to the Internal Revenue
Code of 1986, as amended (the "Code"). The Class A Certificates will be "regular
interests" in such REMIC. See "Certain Federal Income Tax Consequences" herein
and in the Prospectus.
There is currently no secondary market for the Class A Certificates. The
Underwriters intend to make a secondary market for the Class A Certificates, but
have no obligation to do so. There can be no assurance that a secondary market
for any of the Class A Certificates will develop or, if one does develop, that
it will continue.
The Trust is subject to optional termination under the limited
circumstances described herein. Any such optional termination may result in an
early retirement of the Class A Certificates offered hereby. See "The Pooling
and Servicing Agreement -- Termination; Optional Termination" in the Prospectus.
THE CLASS A CERTIFICATES OFFERED BY THIS PROSPECTUS SUPPLEMENT CONSTITUTE A
SEPARATE SERIES OF CERTIFICATES BEING OFFERED BY THE SPONSOR PURSUANT TO ITS
PROSPECTUS DATED [ ], OF WHICH THIS PROSPECTUS SUPPLEMENT IS A PART AND
WHICH ACCOMPANIES THIS PROSPECTUS SUPPLEMENT. THE PROSPECTUS CONTAINS IMPORTANT
INFORMATION REGARDING THIS OFFERING THAT IS NOT CONTAINED HEREIN, AND
PROSPECTIVE INVESTORS ARE URGED TO READ THE PROSPECTUS AND THIS PROSPECTUS
SUPPLEMENT IN FULL. SALES OF CLASS A CERTIFICATES MAY NOT BE CONSUMMATED UNLESS
THE PROSPECTIVE INVESTOR HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS.
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT, ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A CERTIFICATES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND THE
RELATED PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS ACTING AS
UNDERWRITERS TO DELIVER A PROSPECTUS SUPPLEMENT AND PROSPECTUS WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE CLASS A CERTIFICATES OFFERED HEREBY NOR AN OFFER OF THE CLASS A CERTIFICATES
TO ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER WOULD BE
UNLAWFUL. THE DELIVERY OF THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT AT ANY
TIME DOES NOT IMPLY THAT INFORMATION THEREIN OR HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF; HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS
PROSPECTUS SUPPLEMENT OR PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS
PROSPECTUS SUPPLEMENT OR THE PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED
ACCORDINGLY.
FOR UNITED KINGDOM PURCHASERS: THE [ ] CERTIFICATES MAY NOT BE OFFERED
OR SOLD IN THE UNITED KINGDOM OTHER THAN TO PERSONS WHOSE ORDINARY BUSINESS IS
TO BUY OR SELL SECURITIES, WHETHER AS PRINCIPAL OR AGENT (EXCEPT IN
CIRCUMSTANCES THAT DO NOT CONSTITUTE AN OFFER TO THE PUBLIC WITHIN THE MEANING
OF THE PUBLIC OFFERS OF SECURITIES REGULATION 1995), AND THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS MAY ONLY BE ISSUED OR PASSED ON TO ANY PERSON IN
THE UNITED KINGDOM IF THAT PERSON IS OF THE KIND DESCRIBED IN ARTICLE 11(3) OF
THE FINANCIAL SERVICES ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER
1997.
REPORTS TO CERTIFICATEHOLDERS
Monthly and annual reports concerning the Class A Certificates and the
Trust will be sent by the Trustee to all Certificateholders. So long as any
Class A Certificate is in book-entry form, such reports will be sent to Cede &
Co., as the nominee of The Depository Trust Company ("DTC") and as the
Certificateholder of such Class A Certificates pursuant to the Pooling and
Servicing Agreement described herein. DTC will supply such
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reports to all persons acquiring beneficial ownership interests in the Class A
Certificates. See "Description of the Certificates -- Book-Entry Registration of
Class A Certificates" herein.
AVAILABLE INFORMATION
The Sponsor has filed a Registration Statement under the Securities Act of
1933, as amended, with the Securities and Exchange Commission (the "Commission")
with respect to the Class A Certificates. The Registration Statement and
amendments thereof and the exhibits thereto may be inspected at the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices at Seven World Trade Center,
13th Floor, New York, New York 10048, and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can also
be obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Electronic filings
made through the Electronic Data Gathering, Analysis and Retrieval System are
publicly available through the Commission's Web Site (http://www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Certain documents filed with the Commission by or on behalf of the Trust
are incorporated by reference herein. See "Incorporation of Certain Documents by
Reference" in the Prospectus. [Insert information here regarding incorporation
by reference, if any, of financial information of Certificate Insurer.]
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TABLE OF CONTENTS
REPORTS TO CERTIFICATEHOLDERS.......... S-3
AVAILABLE INFORMATION.................. S-4
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE............................ S-4
SUMMARY OF TERMS....................... S-7
RISK FACTORS........................... S-26
Risk of Limitations on Adjustments of
Pass-Through Rates................ S-26
Limited Sources of Credit
Enhancement....................... S-26
Subordination........................ S-27
Risks Associated with Underwriting
Standards......................... S-27
Risks Associated with Geographic
Concentration of Mortgaged
Properties........................ S-28
Risks Associated with Damaged
Mortgaged Properties.............. S-28
Risks Associated with Junior Loans... S-29
Concentration of Balloon Loans....... S-29
Risks Associated with Prepayment of
the Mortgage Loans................ S-30
The Subsequent Mortgage Loans and the
Prefunding Account................ S-31
Yield Considerations Relating to
Excess Cash....................... S-31
Prepayment of Fixed Rate Group May
Affect Current Interest........... S-32
Environmental Statutes Affecting
Security Interests................ S-32
Risks Associated with Certain
Origination Fees.................. S-32
Limitations on Fixed Rate Group
Certificateholders' Rights........ S-33
DESCRIPTION OF THE CERTIFICATES........ S-33
General.............................. S-33
Assignment of Mortgage Loans......... S-37
Payments on Mortgage Loans and
Deposits to the Collection
Account........................... S-39
Distributions on the Certificates.... S-40
Interest............................. S-43
Principal............................ S-43
Prefunding Account................... S-48
Capitalized Interest Account......... S-49
Overcollateralization Feature........ S-49
The Certificate Insurance Policy..... S-52
The Certificate Insurer Premium...... S-52
Subordination of Subordinate
Certificates...................... S-53
Application of Realized Losses....... S-53
Overcollateralization and Application
of Monthly Excess Cashflow
Amounts........................... S-54
Monthly Advances; Servicing Advances;
Compensating Interest and Interest
Shortfalls........................ S-57
Reports to Certificateholders........ S-58
Termination; Retirement of the
Certificates...................... S-59
The Trustee.......................... S-60
THE MORTGAGE LOANS..................... S-61
General.............................. S-61
Fixed Rate Group..................... S-62
Adjustable Rate Group................ S-62
Conveyance of Subsequent Mortgage
Loans............................. S-64
PREPAYMENT AND YIELD CONSIDERATIONS.... S-64
Projected Prepayments and Yields for
the Class A Certificates.......... S-66
Initial Fixed Rate Group............. S-67
Subsequent Fixed Rate Group.......... S-67
Initial Adjustable Rate Group........ S-68
Subsequent Adjustable Rate Group..... S-68
Weighted Average Lives............... S-69
ORIGINATION AND SERVICING OF THE
MORTGAGE LOANS....................... S-70
The Originators...................... S-70
Underwriting of Mortgage Loans....... S-70
Mortgage Loan Delinquency and
Foreclosure Experience............ S-70
Servicing of Mortgage Loans.......... S-72
Sub-Servicing........................ S-73
Realization upon Defaulted Mortgage
Loans............................. S-73
Hazard Insurance..................... S-74
Servicing and Other Compensation;
Payment of Expenses............... S-75
Certain Matters Regarding Servicer's
Servicing Obligations............. S-75
THE CERTIFICATE INSURANCE POLICY AND
THE CERTIFICATE INSURER.............. S-76
The Certificate Insurer.............. S-76
The Certificate Insurance Policy..... S-78
Credit Enhancement Does Not Apply to
Prepayment Risk................... S-79
CERTAIN FEDERAL INCOME TAX
CONSEQUENCES......................... S-80
Supplemental Interest Amounts........ S-80
ERISA CONSIDERATIONS................... S-81
USE OF PROCEEDS........................ S-82
LEGAL INVESTMENT CONSIDERATIONS........ S-82
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UNDERWRITING........................... S-83
REPORT OF EXPERTS...................... S-84
LEGAL MATTERS.......................... S-84
RATING OF THE CLASS A CERTIFICATES..... S-84
ANNEX A................................ A-1
DESCRIPTION OF THE MORTGAGE POOL....... A-1
ANNEX B................................ B-1
GLOBAL CLEARANCE, SETTLEMENT AND TAX
DOCUMENTATION PROCEDURES............. B-1
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SUMMARY OF TERMS
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus.
Issuer..................... Aames Mortgage Trust 199[ ]-[ ] (the "Trust").
The Sponsor................ [Name of Sponsor] (the "Sponsor"). The principal
office of the Sponsor is located in [City, State].
See "The Sponsor" in the Prospectus.
The Servicer............... Aames Capital Corporation will act as servicer of
the Mortgage Loans (in such capacity, the
"Servicer"). The Servicer intends to appoint one or
more mortgage servicing institutions (each, a
"Sub-Servicer"), which may be affiliates of the
Sponsor, to service and administer certain Mortgage
Loans on behalf of the Servicer. See "Origination
and Servicing of the Mortgage
Loans -- Sub-Servicers" herein and "The Pooling and
Servicing Agreement -- Sub-Servicers" in the
Prospectus.
The Trustee................ [Name of Trustee] (the "Trustee").
Cut-Off Date............... [ ].
Closing Date............... On or about [ ].
Description of the
Certificates............... The Mortgage Pass-Through Certificates, Series
199[ ]-[ ] (the "Certificates"), will consist of
[ ] Classes of Class A Certificates, the Class [ ]
Certificates (consisting of [ ] subclasses, and the
Class [ ] Certificates, and a Class of Certificates
evidencing the residual interest in each REMIC (the
"Class R Certificate"). The Certificates will
represent undivided beneficial ownership interests
in the Trust to be created pursuant to a Pooling
and Servicing Agreement to be dated as of
[ ] (the "Pooling and Servicing
Agreement") between the Sponsor, in its capacity as
Sponsor and Servicer, and the Trustee. Only the
Class [ ] Certificates are being offered hereby.
Initially, the assets of the Trust will consist of
(i) a pool (the "Mortgage Pool") of two groups
(each, a "Mortgage Loan Group") of home equity
mortgage loans described herein (the "Initial
Mortgage Loans") secured by first and junior lien
mortgages or deeds of trust on one- to four-family
residential properties or condominiums (the
"Mortgaged Properties"); (ii) all payments received
under the respective Mortgage Loans on and after
the Cut-off Date; (iii) security interests in the
Mortgaged Properties; (iv) amounts to be deposited
in the Prefunding Account (as defined herein) that
will be available for the purchase of Subsequent
Mortgage Loans (as defined herein) during the
Commitment Period; (v) amounts to be deposited in
the Capitalized Interest Account (as defined
herein); (vi) [the insurance policy (the
"Certificate Insurance Policy") to be issued by
name of Certificate Insurer (the "Certificate
Insurer")]; and (vii) certain other property.
Distributions on the Class A-1 Certificates will be
derived primarily from amounts received, collected
or recovered in respect of the Mortgage Loan Group
comprised entirely of Mortgage Loans bearing fixed
rates of interest (the "Fixed Rate Group").
Distributions on the Class A-2 Certificates will be
derived primarily from amounts received, collected
or recovered in respect of the Mortgage Loan Group
comprised entirely of Mortgage Loans bearing
interest at rates that are subject to periodic
adjustment (the "Adjustable Rate Group"). As of the
Cut-off Date, the Initial Mortgage Loans in the
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Fixed Rate Group had an Aggregate Principal Balance
of $[ ] and the Initial Mortgage Loans in the
Adjustable Rate Group had an Aggregate Principal
Balance of $[ ] (in each case subject to reduction
in the event mortgage loans are removed from the
Mortgage Pool prior to the Closing Date). See "The
Mortgage Loans -- General" herein.
Original Class [ ]
Certificate Principal
Balance.................... $[ ].
Original Class [ ]
Certificate Principal
Balance.................... $[ ].
Original Class [ ]
Certificate Principal
Balance.................... $[ ].
Original Class [ ]
Certificate
$[ ] Principal Balance..... $[ ]. [The Pass-Through Rate with respect
to such Fixed Principal Balance Rate Group
Certificates on any Distribution Date will equal
the lesser of (x) the Pass-Through Rate for such
Class set out above and (y) the weighted average
coupon rate of the Mortgage Loans in the Fixed Rate
Group as of the first day of the related Collection
Period less the Servicing Fee Rate for the Mortgage
Loans in the Fixed Rate Group as of the first day
of the related Collection Period (the "Fixed Rate
Net WAC"). The Pass-Through Rates for each Class of
Adjustable Rate Group Certificates generally will
be limited to the Adjustable Rate Group Available
Funds Cap. The "Adjustable Rate Group Available
Funds Cap" will be, with respect to any
Distribution Date, the per annum rate equal to the
percentage obtained by (I) dividing (x) the amount
of interest that accrued on the Mortgage Loans in
the Adjustable Rate Group in respect of the related
Collection Period at the weighted average of the
related Mortgage Interest Rates applicable to
Monthly Payments due on such Mortgage Loans during
such Collection Period, reduced by (i) the
Servicing Fee for such Collection Period, (ii) the
Financial Guaranty Insurer Premium and (iii)
commencing on the seventh Distribution Date,
one-twelfth of 1.00% of the Adjustable Rate Group
Balance as of the first day of the related
Collection Period by (y) the product of (i) the
Adjustable Rate Group Balance as of the first day
of the related Collection Period, (ii) the actual
number of days elapsed during such Interest Period
divided by 360 and (II) multiplying the result by
100.]
Class [ ] Pass-Through
Rate....................... The Class [ ] Pass-Through Rate will be [ ]% per
annum [The Pass-Through Rate for such Class for the
initial Interest Period will be [ ]% and for each
subsequent Interest Period will be a per annum rate
equal to the lesser of (x) the London interbank
offered rate for one-month United States dollar
deposits as of the second business day preceding
the first day of such Interest Period (calculated
as described under "Description of the
Certificates -- Distributions on the Certificates")
("LIBOR") plus 0.155% and (y) the Fixed Rate Net
WAC times a fraction, the numerator of which is 30
and the denominator of which is the actual number
of days in the related Interest Period.].
Class [ ] Pass-Through
Rate....................... The Class [ ] Pass-Through Rate will be [ ]% per
annum.
Class [ ] Pass-Through
Rate....................... The Class [ ] Pass-Through Rate will be [ ]% per
annum.
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The "Formula Pass-Through Rate" with respect to the
Class [ ], Class [ ] and Class [ ] Certificates, is
the rate described using the margins above LIBOR
and the Fed Funds Rate described in clause (x) of
footnotes (1), (3) and (4), as the case may be.
With respect to either Class of Adjustable Rate
Group Certificates on any Distribution Date, the
positive excess, if any, of the amount of interest
that would have accrued thereon during the related
Interest Period at the related Formula Pass-Through
Rate over the amount of interest that did accrue
thereon at the Adjustable Rate Group Available
Funds Cap (and in the case of any such excess
remaining unpaid from a prior Distribution Date,
interest thereon at the related Formula Pass-
Through Rate to the extent lawful) is the related
"Supplemental Interest Amount." The Class C
Certificateholders have agreed to pay any related
Supplemental Interest Amount on the Distribution
Date on which it arises or on a subsequent
Distribution Date (with interest thereon at the
related Formula Pass-Through Rate) from and to the
extent of amounts otherwise distributable to the
Class C Certificateholders. However, Supplemental
Interest Amounts will not be paid after the date,
if any, on which the Servicer exercises its option
to purchase the property of the Trust as described
below under "Optional Termination."
Record Date................ Distributions will be made on each Distribution
Date to Class A Certificateholders of record on the
last Business Day (as defined herein) of the
immediately preceding calendar month (each, a
"Record Date"), except that the final distribution
in respect of the Class A Certificates will be made
only upon presentation and surrender of such
Certificates at the office or agency designated by
the Trustee for that purpose. See "Description of
the Certificates -- Distributions on the
Certificates" herein.
Distributions on the Class
A Certificates.............
A. General................. Distributions on the Class A Certificates will be
made on the 15th [ ].
The Class M Certificates are subordinate in right
of distribution to the Fixed Rate Group Class A
Certificates, and the Class [ ] Certificates are
subordinate in right of distribution to the Fixed
Rate Group Class A Certificates and the Class [ ]
Certificates to the extent described herein. The
Class [ ] Certificates are subordinate in right of
distribution to the Fixed Rate Group Class A
Certificates and the Class M Certificates to the
extent described herein. The initial aggregate
Certificate Principal Balance of the Subordinate
Certificates will equal approximately [ ]% of the
initial Aggregate Certificate Principal Balance of
the Fixed Rate Group Certificates.]
1. Class A Interest
Distributions.............. On each Distribution Date, the Class A Certificates
will be entitled to distributions in respect of
Class A Monthly Interest.
As of any Distribution Date, "Class A Monthly
Interest" for the Class [ ] Certificates will be an
amount equal to (a) with respect to the [ ]
Distribution Date, interest for the number of days
in the period commencing on the Closing Date and
ending on the day prior to such Distribution Date
at the initial Class [ ] Pass-Through Rate on the
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Original Class A-2 Certificate Principal Balance,
and (b) with respect to each subsequent
Distribution Date, interest for the number of days
in the related Interest Period at the Class [ ]
Pass-Through Rate in effect for such Distribution
Date on the Class [ ] Certificate Principal Balance
(as defined herein) as of the preceding
Distribution Date (after giving effect to the
distribution, if any, in reduction of principal
made on the Class A-2 Certificates on such
preceding Distribution Date), in either case net of
any applicable Interest Shortfalls.
[If, with respect to either Class of Class A
Certificates and any Distribution Date, funds are
not available from Available Funds for the related
Mortgage Loan Group and any available Excess Cash
(as defined herein) from the other Mortgage Loan
Group to distribute the full amount of the Class A
Monthly Interest to the related Class of Class A
Certificates, the deficiency will be covered by
payments made pursuant to the Certificate Insurance
Policy in respect of such Class for such
Distribution Date. See "Description of the
Certificates -- The Certificate Insurance Policy"
herein. The Class C Certificateholders have agreed
to pay any Supplemental Interest Amount to the
related Adjustable Rate Group Certificateholders on
the Distribution Date on which it arises or on a
subsequent Distribution Date (with interest thereon
at the related Formula Pass-Through Rate) from and
to the extent of amounts otherwise distributable to
the Class C Certificateholders. However, such
amounts will not be paid after the date, if any, on
which the Servicer exercises its option to purchase
the property of the Trust as described below under
"Optional Termination."]
The "Interest Period" in respect of any
Distribution Date will be (i) for the Class [ ]
Certificates, the calendar month preceding the
month in which such Distribution Date occurs, and
(ii) for the Class [ ] Certificates, the period
from and including the Closing Date, in the case of
the first Distribution Date, or the immediately
preceding Distribution Date, as applicable, to but
excluding the related Distribution Date. All
calculations of interest on the Class [ ]
Certificates will be computed on the basis of a
360-day year of twelve 30-day months. All
calculations of interest on the Class [ ]
Certificates will be computed on the basis of the
actual number of days elapsed in the related
Interest Period and in a year of 360 days.
2. Class A Principal
Distributions.............. On each Distribution Date, Monthly Principal will
be distributed on the Class A-1 Certificates in
reduction of the Class [ ] Certificate Principal
Balance (as defined herein) and on the Class [ ]
Certificates in reduction of the Class [ ]
Certificate Principal Balance. "Monthly Principal"
with respect to each Class of Class A Certificates
and any Distribution Date will be equal to the
aggregate of amounts collected, received or
otherwise recovered in respect of principal on the
Mortgage Loans in the related Mortgage Loan Group
during the related Collection Period, subject to
reduction for any Coverage Surplus (as defined
herein) with respect to such Class and the related
Distribution Date as described herein.
Distributions in respect of Monthly Principal on
the Class [ ] Certificates will be distributed
first to Class [ ] Certificateholders, in reduction
of the Class [ ] Certificate Principal Balance,
until such Class [ ] Certificate Principal Balance
is reduced to zero, then to
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Class [ ] Certificateholders, in reduction of the
Class [ ] Certificate Principal Balance, until such
Class [ ] Certificate Principal Balance is reduced
to zero and then to Class [ ] Certificateholders,
in reduction of the Class A-1C Certificate
Principal Balance, until such Class [ ] Certificate
Principal Balance is reduced to zero. See
"Description of the Certificates -- Distributions
on the Certificates" herein. [The "Final Scheduled
Distribution Dates" for the indicated Classes of
Certificates are as follows, although it is
anticipated that the actual final Distribution Date
for each Class will occur earlier than the
indicated related Final Scheduled Distribution Date
and it is possible that Offered Certificates of any
Class (other than the Class [ ] Certificates, the
outstanding Certificate Principal Balance of which
is guaranteed as to payment on the related Final
Scheduled Distribution Date pursuant to the terms
of the Financial Guaranty Insurance Policy) may
receive payments of interest or principal later
than such related Final Scheduled Distribution
Date. See "Prepayment and Yield Considerations"
herein.
FINAL SCHEDULED
CLASS DISTRIBUTION DATE
----------------------------- -----------------------------
[In addition, the overcollateralization feature of
the Trust results in accelerated payments of
principal with respect to each Mortgage Loan Group
to achieve, and thereafter maintain a specified
level of overcollateralization with respect to such
Mortgage Loan Group. Such accelerated principal
will generally be funded from excess interest with
respect to the related Mortgage Loan Group. With
respect to the Adjustable Rate Group Certificates
only, the Financial Guaranty Insurer will have the
right, but not the obligation, to fund related
Realized Losses with respect to any Collection
Period, which may have the effect of increasing the
rate of amortization of either such Class.]
[With respect to the Fixed Rate Group and each
Distribution Date on or after the Stepdown Date,
the Fixed Rate Group Certificateholders will be
entitled to receive payments of principal in the
order of priority and amounts set forth below up to
the Principal Distribution Amount with respect to
the Fixed Rate Group:]
First, the Fixed Rate Group Principal Distribution
Amount, not to exceed the Class A Principal
Distribution Amount, shall be distributed to the
Class [ ] Certificateholders, in sequential order
by Class, until the Certificate Principal Balance
of each such Class has been reduced to zero;
Third, any remaining Fixed Rate Group Principal
Distribution Amount, not to exceed the Class M-2F
Principal Distribution Amount, shall be distributed
to the Class M-2F Certificateholders, until the
Certificate Principal Balance thereof has been
reduced to zero;
Third, any remaining Fixed Rate Group Principal
Distribution Amount, not to exceed the Class M-2F
Principal Distribution Amount, shall be
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distributed to the Class M-2F Certificateholders,
until the Certificate Principal Balance thereof has
been reduced to zero;
Fourth, any remaining Fixed Rate Group Principal
Distribution Amount, not to exceed the related
Class B-1F Principal Distribution Amount, shall be
distributed to the Class B-1F Certificateholders,
until the Certificate Principal Balance thereof has
been reduced to zero; and
Fifth, any remaining Fixed Rate Group Principal
Distribution Amount shall be distributed as part of
the Monthly Excess Cashflow Amount with respect to
the Fixed Rate Group (a) to pay the Extra Principal
Distribution Amount, Interest Carry Forward
Amounts, or Realized Loss Amortization Amounts with
respect to the Fixed Rate Group Certificates, (b)
to be treated as if a portion of the Monthly Excess
Interest Amount or Monthly Excess Cashflow Amount
with respect to the Adjustable Rate Group and so
applied to fund any Interest Carry Forward Amounts,
certain amounts due to be reimbursed to the
Financial Guaranty Insurer or the Servicer and any
Extra Principal Distribution Amount with respect to
such Distribution Date and the Adjustable Rate
Group Certificates, (c) to reimburse certain
Advances, and (d) to pay distributions to the
Retained Certificateholders or in respect of the
Adjustable Rate Group Certificates, any Interest
Amounts, as described below under "-- Credit
Enhancement -- Application of Monthly Excess
Cashflow Amounts."
On any Distribution Date on which the sum of the
Certificate Principal Balances of the Subordinate
Certificates and the related Overcollateralization
Amount is zero, any amounts of principal payable to
the Fixed Rate Group Class A Certificateholders on
such Distribution Date shall instead be distributed
pro rata based on the outstanding Certificate
Principal Balances of each such Class.
"Stepdown Date" means the later to occur of (x) the
Distribution Date in [ ] or (y) the first
Distribution Date on which the Senior Enhancement
Percentage (after taking into account distributions
in respect of principal on such Distribution Date)
is greater than or equal to the Specified Senior
Enhancement Percentage.]
["Class A Principal Distribution Amount" means,
with respect to each Distribution Date on or after
the Stepdown Date, the excess of (x) the aggregate
of the Certificate Principal Balances of the Fixed
Rate Group Class A Certificates immediately prior
to such Distribution Date over (y) the lesser of
(A) the product of (i) the lesser of (1) the
Stepped Up Enhancement Percentage and (2) [ ]% and
(ii) the aggregate of the outstanding Principal
Balances of the Mortgage Loans in the Fixed Rate
Group as of the last day of the related Collection
Period (plus, in the case of Collection Periods
during the Funding Period, amounts on deposit in
the Prefunding Account on such date allocable to
such Mortgage Loan Group) and (B) the excess of the
amount described in clause (ii) over [$ ].
"Class M-1F Principal Distribution Amount" means,
with respect to each Distribution Date on or after
the Stepdown Date, the excess of (x) the sum of (i)
the Aggregate Certificate Principal Balance of the
Fixed Rate Group Class A Certificates (after
application of the Class A Principal Distribution
Amount on such Distribution Date) and (ii) the
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Class M-1F Certificate Principal Balance
immediately prior to such Distribution Date over
(y) the lesser of (I) [ ]% of the aggregate of the
outstanding Principal Balances of the Mortgage
Loans in the Fixed Rate Group as of the last day of
the related Collection Period (plus, in the case of
Collection Periods during the Funding Period,
amounts on deposit in the Prefunding Account on
such date allocable to such Mortgage Loan Group)
and (ii) the excess of the amount described in
clause (ii) above over [$ ].
"Class M-2F Principal Distribution Amount" means,
with respect to each Distribution Date on or after
the Stepdown Date, the excess of (x) the sum of (i)
the Aggregate Certificate Principal Balance of the
Fixed Rate Group Class A Certificates (after
application of the Class A Principal Distribution
Amount on such Distribution Date), (ii) the Class
M-1F Certificate Principal Balance (after
application of the Class M-1F Principal
Distribution Amount on such Distribution Date) and
(iii) the related Class M-2F Certificate Principal
Balance immediately prior to such Distribution Date
over (y) the lesser of (I) [ ]% of the aggregate
of the outstanding Principal Balances of the
Mortgage Loans in the Fixed Rate Group as of the
last day of the related Collection Period (plus, in
the case of Collection Periods during the Funding
Period, amounts on deposit in the Prefunding
Account on such date allocable to such Mortgage
Loan Group) and (ii) the excess of the amount
described in clause (ii) above over [$ ].
"Class B-1F Principal Distribution Amount" means,
with respect to each Distribution Date on or after
the Stepdown Date, the excess of (x) the sum of (i)
the Aggregate Certificate Principal Balance of the
Fixed Rate Group Class A Certificates (after
application of the Class A Principal Distribution
Amount on such Distribution Date), (ii) the Class
M-1F Certificate Principal Balance (after
application of the Class M-1F Principal
Distribution Amount on such Distribution Date),
(iii) the Class M-2F Certificate Principal Balance
(after application of the Class M-2F Principal
Distribution Amount on such Distribution Date) and
(iv) the Class B-1F Certificate Principal Balance
immediately prior to such Distribution Date, over
(y) the lesser of (I) [ ]% of the aggregate of the
outstanding Principal Balance of the Mortgage Loans
in the Fixed Rate Group as of the last day of the
related Collection Period (plus, in the case of
Collection Periods during the Funding Period,
amounts on deposit in the Prefunding Account on
such date allocable to such Mortgage Loan Group)
and (ii) the excess of the amount described in
clause (ii) above of the Mortgage Loans in such
Mortgage Loan Group as of the last day of the
related Collection Period over [$ ].
"Overcollateralization Amount" means with respect
to a Mortgage Loan Group and as of any Distribution
Date the excess of (x) the aggregate of the
outstanding Principal Balances of the Mortgage
Loans in such Mortgage Loan Group as of the last
day of the immediately preceding Collection Period
(plus, in the case of Collection Periods during the
Funding Period, amounts on deposit in the
Prefunding Account on such date allocable to such
Mortgage Loan Group) over (y) the Aggregate
Certificate Principal Balance of the related
Certificates (after taking into
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account all distributions of principal collections
on such Distribution Date).
"Senior Enhancement Percentage" means with respect
to the Fixed Rate Group and any Distribution Date,
the percentage obtained by dividing (x) the sum of
(i) the Aggregate Certificate Principal Balance of
the Subordinate Certificates (or, after the
Certificate Principal Balance of each Class of
Fixed Rate Group Class A Certificates has been
reduced to zero, the Aggregate Certificate
Principal Balance of Subordinate Certificates other
than the most senior Class of Subordinate
Certificates then outstanding) and (ii) the related
Overcollateralization Amount, in each case after
taking into account distributions in respect of the
Fixed Rate Group Principal Distribution Amount to
the related Certificateholders on such Distribution
Date by (y) the aggregate of the outstanding
Principal Balances of the Mortgage Loans in the
Fixed Rate Group as of the last day of the related
Collection Period (plus, in the case of Collection
Periods during the Funding Period, amounts on
deposit in the Prefunding Account on such date
allocable to such Mortgage Loan Group) .
The "Stepped Up Enhancement Percentage" means, as
determined on any Distribution Date, a percentage
equal to (x) 100% minus (y) [ ] times the average
for the three preceding Collection Periods of the
Principal Balances of Mortgage Loans in the Fixed
Rate Group which were 60 or more days contractually
delinquent as of the last day of the related
Collection Period (stated as a percentage of the
outstanding Principal Balances of such Mortgage
Loans), but not less than zero.
"Specified Senior Enhancement Percentage" on any
date of determination thereof means [ ]%.
"Extra Principal Distribution Amount" means, for a
Mortgage Loan Group and any Distribution Date, the
lesser of (x) the related Monthly Excess Interest
Amount and (y) the related Overcollateralization
Deficiency.
"Coverage Deficit" means, for the Adjustable Rate
Group and any Distribution Date, the excess, if
any, of the aggregate of the Certificate Principal
Balances of the Adjustable Rate Group Certificates
(after taking into account all distributions in
respect of principal on such Distribution Date
other than amounts paid by the Financial Guaranty
Insurer) over the Adjustable Rate Group Balance as
of the last day of the related Collection Period
(plus in the case of any Collection Period during
the Funding Period, the portion of the Prefunding
Account Deposit allocable to the Adjustable Rate
Group).
"Overcollateralization Deficiency" means, for a
Mortgage Loan Group and Distribution Date, the
excess, if any, of (x) the related Targeted
Overcollateralization Amount over (y) the related
Overcollateralization Amount, calculated for this
purpose after taking into account the reduction on
such Distribution Date of the Certificate Principal
Balances of all related Classes of Certificates
resulting from distributions of principal
collections, but before taking into account any
related Applied Realized Loss Amount or amount paid
by the Financial Guaranty Insurer in respect of
principal for such Distribution Date.
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"Overcollateralization Release Amount" means, for
any Distribution Date and (i) the Fixed Rate Group,
the lesser of (x) the Fixed Rate Group Principal
Distribution Amount (other than any related Extra
Principal Distribution Amount) and (y) the excess
of (1) the related Overcollateralization Amount,
assuming that 100% of such related Principal
Distribution Amount (excluding the application of
any Extra Principal Distribution Amount) is applied
to the payment of principal on the related
Certificates on such Distribution Date over (z) the
related Targeted Overcollateralization Amount, and
(ii) the Adjustable Rate Group, the amount
specified on the Pooling and Servicing Agreement.
"Targeted Overcollateralization Amount" means (x)
in the case of the Fixed Rate Group, (i) prior to
the related Stepdown Date, [ ]% of the initial
Aggregate Certificate Principal Balance of the
related Certificates, or (ii) on and after the
Stepdown Date, the greater of (A) [ ]% of the
aggregate of the outstanding Principal Balance of
the Mortgage Loans in such Mortgage Loan Group as
of the last day of the related Collection Period
and (B) $1,100,000, and (y) in the case of the
Adjustable Rate Group, an amount required by the
Financial Guaranty Insurer pursuant to the Pooling
and Servicing Agreement, provided, however, that if
a Trigger Event has occurred and is continuing for
either Mortgage Loan Group, the applicable Targeted
Overcollateralization Amount for such Mortgage Loan
Group cannot be reduced to less than the applicable
Targeted Overcollateralization Amount in effect on
the Distribution Date immediately preceding the
occurrence of such Trigger Event.
A "Trigger Event" will have occurred with respect
to the Fixed Rate Group and any Distribution Date:
(a) if the percentage obtained by dividing (x) the
average, for the three preceding Collection
Periods, of the Principal Balance of Mortgage Loans
in such Mortgage Loan Group that are 60 or more
days contractually delinquent as of the last day of
each such Collection Period by (y) the aggregate
outstanding Principal Balance of the Mortgage Loans
in such Mortgage Loan Group as of the last day of
the related Collection Period equals or exceeds
[ ]% of the Senior Enhancement Percentage; or (b)
upon the occurrence of certain cumulative rates of
losses during specified periods of time as set
forth in the Pooling and Servicing Agreement.
Notwithstanding the foregoing, with respect to
clause (a) a Trigger Event will not be in effect on
any Distribution Date as to which the percentage
equivalent of a fraction equal to the aggregate
Certificate Principal Balance of the Fixed Rate
Group Class A Certificates divided by the aggregate
of the outstanding Principal Balances of the
Mortgage Loans in the Fixed Rate Group as of the
end of the related Collection Period is less than
or equal to the related Stepped Up Enhancement
Percentage after all distributions thereon in
respect of principal. A "Trigger Event" will have
occurred with respect to the Adjustable Rate Group
and any Distribution Date upon the occurrence of
certain delinquency rates or certain cumulative
loss rates during specified periods of time as set
forth in the Pooling and Servicing Agreement.]
3. Distributions of Excess
Cash....................... On each Distribution Date with respect to which the
Coverage Amount (as defined herein) for a Class of
Class A Certificates is less than the Required
Coverage Amount (as defined herein) for such Class
and such
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Distribution Date, Excess Cash derived from
Available Funds for the related Mortgage Loan
Group, if any, will be distributed on the related
Class of Class A Certificates, in reduction of the
Class A Certificate Principal Balance of such
Class, up to the amount necessary for the related
Coverage Amount to equal the applicable Required
Coverage Amount. Excess Cash with respect to each
Class of Class A Certificates on any Distribution
Date will be equal to Available Funds for the
related Mortgage Loan Group on such Distribution
Date, reduced by the sum of (i) the Class A Monthly
Interest for the related Class and Distribution
Date, (ii) the Monthly Principal for the related
Class and Distribution Date, [(iii) the Certificate
Insurer Premium attributable to the related
Mortgage Loan Group and Distribution Date and (iv)
any amounts payable to the Certificate Insurer for
Insured Amounts (as defined herein) paid on prior
Distribution Dates and not yet reimbursed and any
unpaid Certificate Insurer Premium from prior
Distribution Dates, with respect to the related
Class]. Any distributions in respect of Excess Cash
on the Class A-1 Certificates will be distributed
first to the Class A-1A Certificates, then to the
Class A-1B Certificates and then to the Class A-1C
Certificates as described under the caption
"-- Application of Distributions on the Class A-1
Certificates" herein.
Any Excess Cash with respect to a Class of Class A
Certificates not required to be distributed on the
related Class of Class A Certificates on any
Distribution Date will be distributed on the other
Class of Class A Certificates first, to cover any
shortfall in the Class A Monthly Interest for such
Class and Distribution Date, and then to the extent
necessary to reduce the Class A Certificate
Principal Balance of such other Class up to the
amount necessary for the related Coverage Amount to
equal the then applicable Required Coverage Amount
for such Class on the related Distribution Date.
Any Excess Cash not required to be distributed on
either Class of Class A Certificates on any
Distribution Date shall be applied first, [to
reimburse the Certificate Insurer for amounts to
which it then may be entitled in respect of Insured
Amounts for the other Class and to pay amounts of
any unpaid Certificate Insurer Premium on prior
Distribution Dates; second,] to reimburse the
Servicer for any amounts to which it may then be
entitled; and, thereafter, any remaining amount
shall be distributed to the holder of the Class R
Certificate. Amounts so distributed to the Class R
Certificateholder on a Distribution Date will not
be available to pay amounts due to Class A
Certificateholders on subsequent Distribution
Dates. See "Description of the
Certificates -- Distributions on the Certificates"
herein.
4. Application of
Distributions on the Class
A-1 Certificates........... Distributions on the Class A-1 Certificates will be
allocated among Class A-1 Certificateholders, Class
A-1B Certificateholders and Class A-1C
Certificateholders in the following manner. All
distributions in respect of interest on the Class
A-1 Certificates will be distributed pro rata to
Class A-1A Certificateholders, Class A-1B
Certificateholders and Class A-1C
Certificateholders in proportion to the Class A-1A
Monthly Interest, Class A-1B Monthly Interest and
Class A-1C Monthly Interest for the related
Distribution Date. All distributions in respect of
principal on the Class A-1 Certificates (including
any Excess Cash distributable in respect of the
Class A-1 Certificates) for any Distribution Date
will be distributed to holders of Class A-1
Certificates sequentially in an amount
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not to exceed the amount required to reduce the
Certificate Principal Balance of the related
subclass to zero, but not prior to the Distribution
Date on which the Certificate Principal Balance of
each subclass of Class A-1 Certificates that is
sequentially prior to such subclass has been
reduced to zero. See "Description of the
Certificates -- Distributions on the Certificates"
herein.
B. Available Funds......... "Available Funds" for each Mortgage Loan Group and
any Distribution Date will generally be the sum of
amounts collected, received or otherwise recovered
by or on behalf of the Servicer on or with respect
to the Mortgage Loans in the related Mortgage Loan
Group during the calendar month immediately
preceding the month in which such Distribution Date
occurs (each, a "Collection Period"), net of the
related Servicing Fee and any additional servicing
compensation paid to the Servicer, Payments Ahead
(as defined herein) and reimbursements for certain
Advances (as defined herein) (other than those
included in Liquidation Expenses reimbursed from
related Liquidation Proceeds), plus the amount of
any Monthly Advances and Compensating Interest
Payments made by the Servicer with respect to such
Mortgage Loan Group for such Distribution Date, any
amounts deposited in the Certificate Account by the
Sponsor or the Servicer in respect of the purchase,
repurchase or substitution of Mortgage Loans in
such Mortgage Loan Group during the related
Collection Period and any amounts deposited in the
Certificate Account during such Collection Period
from the Prefunding Account and the Capitalized
Interest Account or in connection with the
termination of the Trust that are attributable to
the related Mortgage Loan Group, all as more fully
described under "Description of the
Certificates -- Distributions on the Certificates"
herein.
C. Overcollateralization
Feature.................... Credit enhancement with respect to the Class A-1
Certificates is expected to result from the
application of Excess Cash on each Distribution
Date to the reduction of the Certificate Principal
Balance of the Class A-1 Certificates so that over
time the Aggregate Principal Balance of the
Mortgage Loans in the Fixed Rate Group will exceed
the aggregate Certificate Principal Balance of the
Class A-1 Certificates. Credit enhancement with
respect to the Class A-2 Certificates initially
will be provided in part by overcollateralization
resulting from the Aggregate Principal Balance of
the Initial Mortgage Loans in the Adjustable Rate
Group and the Prefunding Account Deposit
attributable to such Adjustable Rate Group
exceeding the Original Class A-2 Certificate
Principal Balance which is expected to be
supplemented by the application of Excess Cash on
each Distribution Date so that over time such
overcollateralization will increase. In either
case, such overcollateralization is intended to
result in receipts, collections and recoveries on
the Mortgage Loans in the related Mortgage Loan
Group in excess of the amount necessary to pay the
related Class A Monthly Interest and Class A
Monthly Principal required to be distributed on the
Class A Certificates on any Distribution Date and
to reduce the Certificate Principal Balances of
each Class or subclass, as applicable, of the Class
A Certificates to zero prior to the applicable
Final Scheduled Payment Date (as defined herein).
Excess Cash attributable to a Mortgage Loan Group
will be distributed on the related Class of Class A
Certificates on each Distribution Date to the
extent necessary to reduce
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the Certificate Principal Balance of such Class up
to the amount necessary for the related Coverage
Amount to equal the Required Coverage Amount for
such Class and for such Distribution Date. Any
Excess Cash that is not distributed on the related
Class of Class A Certificates on a given
Distribution Date will be distributed on the other
Class of Class A Certificates, first to cover any
shortfall in the Class A Monthly Interest for such
Class and such Distribution Date and then to the
extent necessary to reduce the Class A Certificate
Principal Balance of such Class up to the amount
necessary for the related Coverage Amount to equal
the applicable Required Coverage Amount.
The "Coverage Amount" for each Class of Class A
Certificates on any Distribution Date will be equal
to the amount by which the Aggregate Principal
Balance of the Mortgage Loans in the related
Mortgage Loan Group as of the end of the related
Collection Period exceeds the Class A Certificate
Principal Balance of the related Class for such
Distribution Date after taking into account
distributions of Monthly Principal (disregarding
any permitted reduction in Monthly Principal due to
a Coverage Surplus in respect of such Class of
Class A Certificates) made on such Distribution
Date. The "Required Coverage Amount" for each Class
of Class A Certificates on any Distribution Date
will be equal to the amount specified as such in
the Pooling and Servicing Agreement. The "Coverage
Surplus" for each Class of Class A Certificates on
any Distribution Date will be the amount, if any,
by which the Coverage Amount for such Class on such
Distribution Date exceeds the then applicable
Required Coverage Amount for such Class. The
"Coverage Deficit" for each Class of Class A
Certificates on any Distribution Date will be the
amount, if any, by which the Class A Certificate
Principal Balance of such Class on such
Distribution Date (after taking into account the
Monthly Principal and Excess Cash to be distributed
on such Distribution Date in reduction of the Class
A Certificate Principal Balance of such Class)
exceeds the Aggregate Principal Balance of the
Mortgage Loans in the related Mortgage Loan Group
at the end of the related Collection Period.
On the Closing Date, the initial Coverage Amount
for the Class A-1 Certificates (the amount by which
the sum of the Aggregate Principal Balance of the
Initial Mortgage Loans in the Fixed Rate Group and
the portion of the Prefunding Account Deposit
attributable to the Fixed Rate Group exceeds the
sum of the Original Class A-1A Certificate
Principal Balance, the Original Class A-1B
Certificate Principal Balance and the Original
Class A-1C Certificate Principal Balance) is
expected to be zero. On the Closing Date, the
initial Coverage Amount for the Class A-2
Certificates will be approximately [ ]% of the sum
of the Aggregate Principal Balance of the Initial
Mortgage Loans in the Adjustable Rate Group and the
portion of the Prefunding Account Deposit
attributable to the Adjustable Rate Group. The
initial Coverage Amount for either the Class A-1
Certificates or the Class A-2 Certificates is not
indicative of the quality of the related Mortgage
Loan Group nor is it intended to reflect the loss,
default or delinquency experience anticipated on
the Mortgage Loans in such Mortgage Loan Group.
The Pooling and Servicing Agreement may provide
that the Required Coverage Amount for a Class of
Class A Certificates may increase or
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decrease during the period such Class remains
outstanding. With respect to the Class A-2
Certificates, if on any Distribution Date occurring
after [ ], the amount of Excess Cash distributable
on the Class A-2 Certificates is less than an
amount specified in the Pooling and Servicing
Agreement, the Required Coverage Amount for the
Class A-2 Certificates will be increased (any such
Distribution Date, a "Class A-2 Trigger Event
Date"); provided, however, that upon the
satisfaction of certain cash flow requirements in
respect of the Class A-2 Certificates for the
period specified in the Pooling and Servicing
Agreement, such Required Coverage Amount will
return to its original level. Any increase in the
Required Coverage Amount for a Class of Class A
Certificates may result in an accelerated
amortization of such Class until such Required
Coverage Amount for such Class is reached, and any
decrease in the Required Coverage Amount for a
Class of Class A Certificates will result in a
decelerated amortization of such Class until such
Required Coverage Amount for such Class is reached.
See "Description of the
Certificates -- Overcollateralization Feature"
herein.
[D. Certificate Insurance
Policy..................... The Certificate Insurance Policy will be issued on
the Closing Date by by the Certificate Insurer in
favor of the Trustee for the benefit of the Class A
Certificateholders. If, with respect to either
Class of Class A Certificates and any Distribution
Date, sufficient funds are not available from
Available Funds for the related Mortgage Loan Group
and any available Excess Cash from the other
Mortgage Loan Group to distribute the Class A
Monthly Interest to the related Class of Class A
Certificates, or if a Coverage Deficit exists with
respect to such Class on such Distribution Date
(after taking into account any distributions in
reduction of the Class A Certificate Principal
Balance of such Class on such Distribution Date),
the Trustee will make a draw on the Certificate
Insurance Policy in an amount equal to the amount
necessary to pay the full amount of the related
Class A Monthly Interest on such Distribution Date
and the amount of any Coverage Deficit with respect
to such Class of Class A Certificates on such
Distribution Date, as more fully described under
"Description of the Certificates -- The Certificate
Insurance Policy" herein. See also "The Certificate
Insurance Policy and the Certificate Insurer"
herein.]
E. Subordination........... The rights of the Subordinate Certificateholders
and Retained Certificateholders to receive
distributions of interest and principal will be
subordinated to the rights of the Fixed Rate Group
Class A Certificateholders to receive such
distributions, to the extent described herein. This
subordination is intended to enhance the likelihood
of regular receipt by such Certificateholders of
the full amount of their scheduled monthly payments
of interest and principal and to afford them
limited protection against Realized Losses with
respect to the Fixed Rate Group. The delinquency
experience of the Mortgage Loans in the Fixed Rate
Group will impact the relative levels of
subordination through the operation of the
applicable Principal Distribution Amounts.
The protection afforded to the Fixed Rate Group
Class A Certificates by means of the subordination
of the Subordinate Certificates and the Retained
Certificates will be accomplished by the
preferential right of such Certificateholders to
receive on each Distribution Date, prior to any
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distribution being made to the Subordinate
Certificateholders and the Retained
Certificateholders, of the amounts of interest due
them and principal available for distribution on
such Distribution Date and, if necessary, by the
right of such Certificateholders to receive future
distributions of amounts that would otherwise be
payable to the Subordinate Certificateholders and
the Retained Certificateholders.
Similarly, and for the same reasons, the rights of
the Retained Certificateholders and of the Class
M-2F, and Class B-1F Certificateholders to receive
distributions will be subordinated, to the extent
described herein, to such rights of the Fixed Rate
Group Class A and Class M-1F Certificateholders.
Also for the same reasons, the rights of the
Retained Certificateholders and Class B-1F
Certificateholders to receive distributions will be
subordinated in the same manner to such rights of
the Fixed Rate Group Class A and Class M
Certificateholders.
Finally, the rights of the Retained
Certificateholders to receive distributions will be
subordinated in the same manner to all such rights
of all of the Certificateholders such that such
Retained Certificateholders will receive no
distributions in respect of interest or principal
until all holders of Certificates relating to both
Mortgage Loan Groups have received all interest and
principal due them on each Distribution Date.
In the case of the Fixed Rate Group, if on any
Distribution Date, after taking into account the
foregoing and (i) all Realized Losses experienced
during the prior Collection Period, (ii) the
distribution of principal (including the Extra
Principal Distribution Amount) with respect to the
Fixed Rate Group Certificates on such Distribution
Date and (iii) the application of any Excess
Monthly Cashflow Amount available from the
Adjustable Rate Group to cover such Realized Losses
to the extent described herein, the related
Overcollateralization Amount is negative, then the
Certificate Principal Balance of the Subordinate
Certificates will be reduced without a
corresponding principal distribution until such
Overcollateralization Amount equals zero (the
amount of such reduction, the "Applied Realized
Loss Amount"). Any such Applied Realized Loss
Amounts shall be applied to the Subordinate
Certificates in reverse order of seniority (i.e.,
first, against the Class B-1F Certificate Principal
Balance until it is reduced to zero, second,
against the Class M-2F.
Certificate Principal Balance until it is reduced
to zero, and third, against the Class M-1F
Certificate Principal Balance until it is reduced
to zero). The Certificate Principal Balances of the
Fixed Rate Group Class A Certificates and the
Adjustable Rate Group Certificates will not be so
written down. Once the Certificate Principal
Balance of a Class of Subordinate Certificates has
been "written down," the amount of such write down
will no longer bear interest, nor will such amount
thereafter be "reinstated"or "written up," although
the amount of such reductions may, on future
Distribution Dates, be reimbursed to Subordinate
Certificateholders sequentially by Class (i.e.,
first, the Class M-1F Certificates, second, the
Class M-2F Certificates and, third, the Class B-1F
Certificates. Any such reimbursements (the
applicable "Realized Loss Amortization Amounts")
will be made from any related Monthly Excess
Cashflow Amount remaining on a future Distribution
Date after the funding of any related Extra
Principal Distribution Amount, any Interest
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Carry Forward Amounts and any Realized Loss
Amortization Amounts with respect to related
Subordinate Certificates of higher priority as
described herein.
Forward Purchase
Commitment; Prefunding
Account.................... On the Closing Date, a deposit (the "Prefunding
Account Deposit") in the amount of approximately
$[ ] will be made by the Sponsor to a
Prefunding Account in the name of the Trustee.
Approximately $[ ] of the Prefunding
Account Deposit shall be allocated for the purchase
of Subsequent Mortgage Loans for inclusion in the
Fixed Rate Group, and approximately $[ ]
of the Prefunding Account Deposit shall be
allocated for the purchase of Subsequent Mortgage
Loans for inclusion in the Adjustable Rate Group.
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 as
described herein, provided that any such increase
shall not exceed $[ ]. See "The Mortgage
Loans -- General" herein. During the period (the
"Commitment Period") from the Closing Date until
the earlier of (i) the date on which the Prefunding
Account Deposit is reduced to zero and (ii)
[ ], the Prefunding Account Deposit will
be reduced by the amount thereof used to purchase
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 (as defined herein)
must satisfy the criteria set forth in the Pooling
and Servicing Agreement [and must be approved by
the Certificate Insurer]. Any date on which such
Subsequent Mortgage Loans will be conveyed by the
Sponsor to the Trust is a "Subsequent Transfer
Date." On the Distribution Date in [ ],
the portion of the Prefunding Account Deposit
allocated to the Fixed Rate Group that is remaining
at the end of the Commitment Period (net of
reinvestment income payable to the Sponsor) will be
distributed in reduction of the Class A-1
Certificate Principal Balance and the portion of
the Prefunding Account Deposit allocated to the
Adjustable Rate Group that is remaining at the end
of the Commitment Period (net of reinvestment
income payable to the Sponsor) will be distributed
in reduction of the Class A-2 Certificate Principal
Balance. 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 in reduction of the Class A Certificate
Principal Balances of either Class, no assurance
can be given that such a distribution with respect
to either Class or both Classes of Class A
Certificates will not occur on the Distribution
Date in [ ]. 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,
and any portion of the Prefunding Account Deposit
allocated to each Mortgage Loan Group remaining at
the end of the Commitment Period will be
distributed on the [ ] Distribution Date
in reduction of the Class A Certificate Principal
Balances of the related Classes. The Prefunding
Account will
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not be part of the REMIC Pool. See "Description of
the Certificates -- Prefunding Account" herein.
Capitalized Interest
Account.................... On the Closing Date, cash will be deposited in the
name of the Trustee in the Capitalized Interest
Account. The Capitalized Interest Account will be
maintained with the Trustee in its corporate trust
department. The amount on deposit in the
Capitalized Interest Account will be specifically
allocated to cover shortfalls in interest on each
Class of Class A Certificates that may arise as a
result of the utilization of the Prefunding Account
for the purchase by the Trust of Subsequent
Mortgage Loans after the Cut-off Date and will be
so applied by the Trustee on the [ ]
Distribution Date. The Capitalized Interest Account
will not be part of the REMIC Pool. See
"Description of the Certificates -- Capitalized
Interest Account" herein.
Monthly Advances........... The Servicer is required to make advances ("Monthly
Advances") on each Distribution Date in respect of
delinquent payments of interest on the Mortgage
Loans in the related Mortgage Loan Group for the
related Collection Period, subject to certain
limitations described herein. See "Description of
the Certificates -- Monthly Advances; Servicing
Advances; Compensating Interest and Interest
Shortfalls" herein.
Compensating Interest and
Interest Shortfalls........ With respect to any Mortgage Loan as to which a
prepayment was received that became a Liquidated
Mortgage Loan (as defined herein) or was otherwise
charged off during a Collection Period, the
Servicer will be required to remit to the Trustee,
from amounts otherwise payable to the Servicer as
the Servicing Fee for the related Mortgage Loan
Group and Collection Period, an amount generally
calculated to ensure that a full month's interest
on each such Mortgage Loan (less the applicable
Servicing Fee attributable to such Mortgage Loan)
is available for distribution to the holders of the
related Class of Class A Certificates on the
applicable Distribution Date (each such amount, a
"Compensating Interest Payment"). If the Servicing
Fee for the related Mortgage Loan Group and
Collection Period is insufficient to make any
portion of such Compensating Interest Payments, the
resulting shortfall (a "Prepayment Interest
Shortfall") will reduce the amount of interest
distributable in respect of the related Class of
Class A Certificates on the related Distribution
Date and such reduction will not be recoverable
thereafter.
In addition, the application to any Mortgage Loan
of the Soldiers' and Sailors' Civil Relief Act of
1940, as amended (the "Relief Act"), or similar
legislation may adversely affect, for an
indeterminate period of time, the ability of the
Servicer to collect full amounts of interest on
such Mortgage Loan ("Relief Act Shortfalls"; Relief
Act Shortfalls and Prepayment Interest Shortfalls
are collectively, "Interest Shortfalls"). [Interest
Shortfalls will not be covered by the Certificate
Insurance Policy.] See "Risk Factors -- Limitations
on Interest Payments and Foreclosures" in the
Prospectus.
[Certificate Insurer
Premium.................... The Certificate Insurer will be entitled to receive
from the Trust a monthly premium (the "Certificate
Insurer Premium") payable out of Available Funds on
each Distribution Date in respect of the related
Class of Class A Certificates from amounts on
deposit in the Certificate Account after
reimbursement to the Certificate Insurer of certain
In-
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sured Amounts. The Certificate Insurer Premium as
of any Distribution Date will equal one-twelfth
(1/12) of the product of the applicable Insurer
Premium Rate and the Class A Certificate Principal
Balance of the related Class of Class A
Certificates for such Distribution Date. The
"Insurer Premium Rate" will be [ ]%; provided,
however, that with respect to the Class A-2
Certificates and each Distribution Date commencing
with the Distribution Date immediately after
[ ], if the Coverage Amount for the Class
A-2 Certificates is less than the then applicable
Required Coverage Amount for such Class as of the
immediately preceding Distribution Date, the
Insurer Premium Rate with respect to the Class A-2
Certificates and such Distribution Date will be
[ ]%. See "Description of the Certificates -- The
Certificate Insurer Premium" herein.]
Servicing Fee.............. The primary compensation payable to the Servicer on
each Distribution Date in respect of the related
Collection Period and the related Mortgage Loan
Group (the "Servicing Fee") will equal one-twelfth
(1/12) of the product of (a) the applicable
Servicing Fee Rate and (b) the Aggregate Principal
Balance of the Mortgage Loans in the related
Mortgage Loan Group at the beginning of such
Collection Period. The "Servicing Fee Rate" for
each Mortgage Loan Group will be [ ]% for each
Collection Period. The Servicer will also be
entitled to retain late fees, prepayment charges
and certain other amounts and charges as additional
servicing compensation. See "Origination and
Servicing of the Mortgage Loans -- Servicing and
Other Compensation; Payment of Expenses" herein.
The Mortgage Loans......... The statistical information presented in this
Prospectus Supplement regarding the Mortgage Pool
is based on the Initial Mortgage Loans as of the
date of this Prospectus Supplement. The statistical
information does not take into account any
Subsequent Mortgage Loans that may be added to the
Mortgage Pool during the Commitment Period through
application of amounts on deposit in the Prefunding
Account. Certain mortgage loans may be removed,
prior to the Closing Date, from the Mortgage Pool
as described herein. In such event, an amount equal
to the aggregate principal balances of such
mortgage loans, but in no event more than
$[ ], would be added to the Prefunding
Account Deposit on the Closing Date. As a result,
the statistical information presented herein
regarding the Initial Mortgage Loans and each
Mortgage Loan Group as of the date of this
Prospectus Supplement may vary in certain limited
respects from comparable information based on the
actual composition of the Mortgage Pool and each
Mortgage Loan Group on the Closing Date.
As of the Cut-off Date, the Mortgage Pool consisted
of a total of [ ] Mortgage Loans of which [ ] are
fixed rate Mortgage Loans and [ ] are adjustable
rate Mortgage Loans. The Mortgage Loans will be
conventional, closed-end, home equity mortgage
loans acquired by the Sponsor from certain
affiliates of the Sponsor (the "Affiliated
Originators") and institutions not affiliated with
the Sponsor (the "Unaffiliated Originators" and,
together with the Affiliated Originators, the
"Originators"). See "Origination and Servicing of
the Mortgage Loans -- The Originators" and
"-- Underwriting of Mortgage Loans" herein.
Approximately [ ]% of the Initial Mortgage Loans
in the Fixed Rate Group and approximately [ ]% of
the Initial Mortgage Loans in the Adjusta-
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ble Rate Group (by principal balance as of the
Cut-off Date) are secured by Mortgaged Properties
located in California. As of the Cut-off Date, the
Initial Mortgage Loans in the Mortgage Pool had an
Aggregate Principal Balance of $[ ]. The
Initial Mortgage Loans in the Fixed Rate Group had
an Aggregate Principal Balance of $[ ] and
the Initial Mortgage Loans in the Adjustable Rate
Group had an Aggregate Principal Balance of
$[ ]. See "The Mortgage Loans -- General,"
"-- Fixed Rate Group" and "-- Adjustable Rate
Group" and "ANNEX A: Description of the Mortgage
Pool" herein for detailed information about the
Initial Mortgage Loans in each Mortgage Loan Group.
Optional Termination....... On any Distribution Date when the Aggregate
Principal Balance of the Mortgage Loans in the
Mortgage Pool (the "Pool Balance") as of such
Distribution Date is less than [ ]% of the sum of
the Pool Balance as of the Cut-off Date and the
original Prefunding Account Deposit, the Servicer
may purchase from the Trust all remaining Mortgage
Loans and all property acquired in respect of any
Mortgage Loan held by the Trust and thereby effect
an early retirement of the Class A Certificates.
The purchase price will generally be equal to the
Principal Balance of each Mortgage Loan in the
Mortgage Pool at such time plus the fair market
value of each Mortgaged Property then held by the
Trust, together with any unpaid accrued interest on
such Mortgage Loan.
[If, on any Distribution Date, Mortgage Loans with
original Cut-off Date aggregate Principal Balances
equal to or in excess of [ ]% of the sum of the
Pool Balance as of the Cut-off Date and the
Prefunding Account Deposit have become Liquidated
Mortgage Loans, the Certificate Insurer will have
the option to purchase all remaining Mortgage Loans
and all property acquired in respect of any
Mortgage Loan held by the Trust, and thereby effect
an early retirement of the Certificates. The
purchase price for such Mortgage Loans will be the
price set forth in the immediately preceding
paragraph plus any outstanding unpaid fees and
expenses of the Trustee and Servicer.] See
"Description of Certificates -- Termination;
Retirement of the Certificates" herein.
Rating..................... It is a condition to the issuance of the Class A
Certificates that each of the Class A-1A
Certificates, the Class A-1B Certificates, the
Class A-1C Certificates and the Class A-2
Certificates be rated "[ ]" by [ ] and
"[ ]" by [ ] (the "Rating Agencies"). A
security rating is not a recommendation to buy,
sell or hold the securities and may be subject to
revision or withdrawal at any time by the assigning
Rating Agency. See "Rating of the Class A
Certificates" herein.
Certain Federal Income Tax
Consequences............... An election will be made to treat the Trust (other
than the Prefunding Account and the Capitalized
Interest Account) as a real estate mortgage
investment conduit (the "REMIC") for federal income
tax purposes. The Class A-1A Certificates, Class
A-1B Certificates, Class A-1C Certificates and
Class A-2 Certificates will be designated as the
regular interests in the REMIC and generally will
be treated as newly originated debt instruments for
federal income tax purposes. The Class R
Certificate will be designated as the residual
interest in the REMIC. Beneficial owners of the
Class A Certificates will be required to report
income on such Certificates in accordance with the
accrual method of accounting.
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It is anticipated that the Class A Certificates
will be issued without original issue discount for
federal income tax purposes. However, it is
possible that the Internal Revenue Service could
treat a portion of the additional interest which
would become payable on the Class A-2 Certificates
after the Distribution Date in [ ] as
original issue discount. Certificateholders are
urged to consult their tax advisors with respect to
the tax consequences of holding the Class A
Certificates. See "Certain Federal Income Tax
Consequences" herein and in the Prospectus.
ERISA Considerations....... Subject to the satisfaction of certain conditions
set forth herein, the Class A Certificates may be
acquired and held by a pension or other employee
benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")
and/or Section 4975 of the Internal Revenue Code of
1986, as amended. See "ERISA Considerations" herein
and in the Prospectus.
Legal Investment
Considerations............. The Class A Certificates will NOT constitute
"mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984
("SMMEA"). See "Legal Investment Considerations"
herein and in the Prospectus.
Risk Factors............... For a discussion of certain factors that should be
considered by prospective investors in the Class A
Certificates, including certain yield and
prepayment risks, see "Risk Factors" herein and in
the Prospectus.
Registration and
Denominations Form of The
Class A
Certificates............... The Class A Certificates will be issued in minimum
denominations of $1,000 and integral multiples of
$1 in excess thereof. Persons acquiring beneficial
ownership interests in the Class A Certificates
("Certificate Owners") will hold their Certificates
through The Depository Trust Company ("DTC"), in
the United States, or Cedel Bank, societe anonyme
("Cedel") or the Euroclear System ("Euroclear") in
Europe. Transfers within DTC, Cedel or Euroclear,
as the case may be, will be in accordance with the
usual rules and operating procedures of the
relevant system. So long as the Class A
Certificates are bookentry Certificates, such
Certificates will be evidenced by one or more
Certificates registered in the name of Cede & Co.,
as the nominee of DTC, or Citibank N.A. or Morgan
Guaranty Trust Company of New York, the relevant
depositaries of Cedel and Euroclear, respectively,
and each a participating member of DTC. No
Certificate Owner will be entitled to receive a
definitive certificate representing such person's
interest, except in the event that Definitive
Certificates are issued under the limited
circumstances described herein. See "Risk
Factors -- Book-Entry Registration", "Description
of the Certificates -- Book-Entry Registration of
Class A Certificates" herein, "ANNEX B: Global
Clearance, Settlement and Tax Documentation
Procedures" hereto and "Description of the
Certificates -- Form of Certificates -- Book-Entry
Registration" in the Prospectus.
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RISK FACTORS
Prospective investors in the Class A Certificates should consider the
following risk factors (as well as the factors set forth under "Risk Factors" in
the Prospectus) in connection with the purchase of the Class A Certificates. Any
statistical information presented below is based upon the characteristics of the
Initial Mortgage Loans as of the date of this Prospectus Supplement. Such
information may vary as a result of the possibility that certain mortgage loans
may be removed from the Mortgage Pool prior to the Closing Date.
RISK OF LIMITATIONS ON ADJUSTMENTS OF PASS-THROUGH RATES
The Adjustable Rate Group contains Mortgage Loans that, after a period of
approximately six months, two years, three years or five years following the
date of origination, adjust either semi-annually based upon a six-month LIBOR
index or annually based on the weekly average yield on United States Treasury
securities adjusted to a constant maturity of one year, as made available by the
Federal Reserve Board (the "one-year CMT index"), in each case subject to
periodic caps on such adjustment, whereas the Class A-2 Pass-Through Rate
adjusts monthly based upon a one-month LIBOR index, subject to the Adjustable
Rate Cap. Consequently, the interest due on such Mortgage Loans (reduced by the
sum of (i) the Servicing Fee, [(ii) the Certificate Insurer Premium,] and (iii)
after the Distribution Date in [ ], an amount equal to one-twelfth ( 1/12)
of [ ] basis points multiplied by the Aggregate Principal Balance of the
Mortgage Loans in the Adjustable Rate Group for the related Distribution Date)
during any Collection Period may not equal the amount of interest that would
accrue at one-month LIBOR plus the applicable margin on the Class A-2
Certificates during the related Interest Period. In particular, because the
interest rates of the Mortgage Loans in the Adjustable Rate Group adjust less
frequently than the Class A-2 Pass-Through Rate, the amount of Class A Monthly
Interest distributed on the Class A-2 Certificates on any Distribution Date may
be limited (as a result of being determined on the basis of the Adjustable Rate
Cap) to an amount that is less than the amount of interest that would be due on
the then Class A-2 Certificate Principal Balance for such Distribution Date at a
rate equal to LIBOR plus [ ]% or LIBOR plus [ ]%, as applicable, for
extended periods in a rising interest rate environment.
A significant percentage of the Initial Mortgage Loans included in the
Adjustable Rate Group have Mortgage Interest Rates that remain fixed for
approximately two years, three years or five years from the date of origination
and thereafter are adjustable semi-annually on the basis of the six-month LIBOR
index (as defined herein). It is expected that, in the aggregate, such Mortgage
Loans will represent not more than [ ]% of the Mortgage Loans (by Aggregate
Principal Balance) included in the Adjustable Rate Group as of the Closing Date.
The inclusion of such Mortgage Loans in the Adjustable Rate Group may increase
the likelihood that the Class A-2 Pass-Through Rate will be determined based on
the Adjustable Rate Cap rather than on the basis of LIBOR plus [ ]% if
LIBOR increases appreciably prior to the time that such Mortgage Loans have
reached their respective dates of first adjustment.
If the Class A-2 Pass-Through Rate is determined on the basis of the
Adjustable Rate Cap, the value of the Class A-2 Certificates may be temporarily
or permanently reduced.
LIMITED SOURCES OF CREDIT ENHANCEMENT
The assets of the Trust, excluding the Financial Guaranty Insurance Policy,
are the sole source of funds for distributions on the Fixed Rate Group
Certificates. The assets of the Trust, including the Financial Guaranty
Insurance Policy and amounts paid by the Class C Certificateholders in respect
of Supplemental Interest Amounts, are the sole sources of funds for distribution
on the Adjustable Rate Group Certificates. The subordination of the Subordinate
Certificates to the Fixed Rate Group Class A Certificates, the further
subordination among the Subordinate Certificates, the Compensating Interest
Payments, and the overcollateralization and cross-collateralization features of
the Trust are the sole sources of protection against losses on the Mortgage
Loans and other shortfalls in available funds in the case of the Fixed Rate
Group Certificates. Compensating Interest Payments, the overcollateralization
and limited cross-collateralization features of the Trust and the Financial
Guaranty Insurance Policy are the sole sources of protection against losses on
the Mortgage Loans and other shortfalls in available funds in the case of the
Adjustable Rate Group Certificates.
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If losses or other shortfalls exceed the protection afforded by such mechanisms,
Certificateholders will bear their proportionate share of such losses and
shortfalls. The Certificates represent interests only in the Trust and do not
represent interests in, or obligations of the Sponsor, the Servicer, the Trustee
or any of their respective affiliates except insofar as the Sponsor, as holder
of the Class C Certificates, has agreed to pay Supplemental Interest Amounts to
the Adjustable Rate Group Certificateholders to the extent of amounts
distributable on the Class C Certificates.
SUBORDINATION
The rights of the Subordinate Certificateholders to receive distributions
with respect to collections on the Mortgage Loans in the Fixed Rate Group will
be subordinate to the rights of the holders of certain more senior Classes of
Fixed Rate Group Certificates. In addition, the Subordinate Certificates are
expected to be allocated relatively higher amounts of Realized Losses with
respect to Mortgage Loans in the Fixed Rate Group than are the related Fixed
Rate Group Class A Certificates. Because of these two features, the yields to
maturity of the Subordinate Certificates will be sensitive, in varying degrees,
to defaults on the Mortgage Loans in the Fixed Rate Group (and the timing
thereof). Investors should fully consider the risks associated with an
investment in the Subordinate Certificates, including the possibility that such
investors may not fully recover their initial investment as a result of Realized
Losses on the Mortgage Loans in the Fixed Rate Group. See "Summary -- Credit
Enhancement -- Allocation of Realized Losses", "Credit Enhancement -- Allocation
of Realized Losses" and "Prepayment and Yield Considerations -- Projected
Payment and Yield for Offered Certificates" herein.
The Subordinate Certificates will not be entitled to any principal
distributions until at least the related Stepdown Date (unless the aggregate
Certificate Principal Balance of the Fixed Rate Group Class A Certificates has
been reduced to zero). As a result, the weighted average lives of the
Subordinate Certificates will be longer than would be the case if distributions
of principal were to be allocated on a pro rata basis among the Fixed Rate Group
Class A Certificates and the Subordinate Certificates. As a result of the longer
weighted average lives of the Subordinate Certificates, the Subordinate
Certificateholders have a greater risk of suffering a loss on their investments.
RISKS ASSOCIATED WITH UNDERWRITING STANDARDS
All of the Mortgage Loans will have been underwritten and originated or, in
the case of Mortgage Loans acquired by the Sponsor from Unaffiliated
Originators, re-underwritten by the Sponsor, in either case pursuant to the
Sponsor's Guidelines (as described in the Prospectus under the caption "The
Originators -- Underwriting Guidelines") which, in most cases, rely on the value
and adequacy of the related Mortgaged Property as collateral and, to a lesser
extent, on the creditworthiness of the Mortgagor. No assurance can be given that
the values of the Mortgaged Properties will not decline from those on the dates
the related Mortgage Loans were originated and any such decline could render the
information set forth herein with respect to the Loan-to-Value or Combined
Loan-to-Value Ratios of such Mortgage Loans an unreliable measure of security
for the related debt. If the residential real estate market should experience an
overall decline in property values such that the outstanding principal balances
of the Mortgage Loans (including any senior liens on the related Mortgage
Properties) become equal to or greater than the values of such Mortgaged
Properties, the actual rate of delinquencies, foreclosures and losses on the
related Mortgage Loans could be higher than those now generally experienced in
the mortgage lending industry. 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 and corresponding delays in the receipt of related proceeds by
Class A Certificateholders could occur. In the event that any Mortgaged
Properties fail to provide adequate security for the related Mortgage Loans, any
resulting losses will be covered by funds made available through operation of
the overcollateralization feature described herein, [or, if necessary, by
amounts paid under the Certificate Insurance Policy to the extent of the Class A
Monthly Interest due to the holders of the related Class of Class A Certificates
on the related Distribution Date] and the amount of any Coverage Deficit with
respect to such Class and Distribution Date. See "Certain Legal Aspects of the
Mortgage Loans and Related Matters -- Foreclosure/Repossession," "-- Rights of
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Redemption" and "The Pooling and Servicing Agreement -- Realization upon
Defaulted Mortgage Loans" in the Prospectus.
In general, a prospective borrower applying for a Mortgage Loan is required
to fill out a detailed application designed to provide the related Originator
pertinent information. As part of the description of the borrower's financial
condition, the borrower generally is required to provide a current list of
assets and liabilities and a statement of income and expenses, as well as an
authorization to apply for a credit report that summarizes the borrower's credit
history. The Originator obtains a credit report from credit reporting agencies.
In many cases, the borrower's credit history will include major derogatory
credit items such as credit write-offs, outstanding judgments and prior
bankruptcies. In most cases, the Originator verifies the borrower's employment
and income. Because certain Mortgage Loans may have been underwritten pursuant
to standards that rely to a greater extent on the value of the related Mortgaged
Properties than on the creditworthiness of the related Mortgagor, the actual
rates of delinquencies, foreclosures and losses on such 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. See "The Originators -- Underwriting Guidelines"
in the Prospectus.
RISKS ASSOCIATED WITH GEOGRAPHIC CONCENTRATION OF MORTGAGED PROPERTIES
Approximately [ ]% of the Initial Mortgage Loans (by Cut-off Date
Principal Balance) are secured by Mortgaged Properties located in California.
The California residential real estate market has experienced a sustained
decline over the last several years. In general, declines in the California
residential real estate market may adversely affect the values of the Mortgaged
Properties securing such Mortgage Loans such that the Principal Balances of such
Mortgage Loans, together with any primary financing on such Mortgaged
Properties, will equal or exceed the value of such Mortgaged Properties. In
addition, adverse economic conditions in California (which may or may not affect
real property values) may affect the timely payment by borrowers of scheduled
payments of principal and interest on such Mortgage Loans and, accordingly, the
actual rates of delinquencies, foreclosures and losses on such Mortgage Loans
could be higher than those currently experienced in the mortgage lending
industry in general.
RISKS ASSOCIATED WITH DAMAGED MORTGAGED 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). See "Origination and Servicing
of the Mortgage Loans -- Hazard Insurance" herein. Accordingly, 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 such damage results in losses on the related Mortgage Loan, such
losses will be covered by funds made available through operation of the
overcollateralization feature described herein, [or, if necessary, by amounts
paid under the Certificate Insurance Policy to the extent of the Class A Monthly
Interest due to the holders of the related Class of Class A Certificates on the
related Distribution Date] and the amount of any Coverage Deficit with respect
to such Class and Distribution Date. See "Description of the
Certificates -- Overcollateralization Feature [ -- Overcollateralization and the
Certificate Insurance Policy" and "-- The Certificate Insurance Policy"] herein.
Certain Initial Mortgage Loans are secured, and certain Subsequent Mortgage
Loans may be secured by Mortgaged Properties located in areas that have been
affected by natural disasters not covered by standard hazard insurance policies.
However, 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 such
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 therefor. To
the extent the Sponsor repurchases such Mortgage Loan, such 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.
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RISKS ASSOCIATED WITH JUNIOR LOANS
Because a substantial portion of the Mortgage Loans in the Fixed Rate Group
are secured by junior liens ("Junior Loans") subordinate to the rights of the
beneficiary under each related senior lien, the proceeds from any liquidation,
insurance or condemnation proceedings will be available to satisfy the principal
balance of a Mortgage Loan only to the extent that the claims, if any, of each
such senior beneficiary are satisfied in full, including any related foreclosure
costs. In addition, a beneficiary of a junior lien may not foreclose on the
Mortgaged Property securing such lien unless it forecloses subject to the
related senior lien(s), in which case it must either make payments on each
senior lien in the event of default thereunder or pay the entire amount of each
senior lien to the applicable beneficiary prior to the foreclosure sale. In
servicing home equity mortgage loans in its portfolio, it is the practice of the
Servicer to satisfy each such senior lien at or prior to the foreclosure sale
only to the extent that it determines any amounts so paid will be recoverable
from future payments and collections on the related home equity mortgage loan or
otherwise. The Trust will have no source of funds to satisfy any such senior
lien or make payments due to each related senior beneficiary. See "Risk
Factors -- Nature of the Security for Mortgage Loans -- Risks Associated with
Junior Liens" and "Certain Legal Aspects of the Mortgage Loans and Related
Matters -- Foreclosure/Repossession" in the Prospectus.
Even assuming that the Mortgaged Properties provide adequate security for
the related Mortgage Loans, substantial delays could be encountered in
connection with the foreclosure and liquidation of defaulted Mortgage Loans and
corresponding delays in the receipt of related proceeds by Class A
Certificateholders could occur. An action to foreclose on a Mortgaged Property
securing a Mortgage Loan is regulated by state statutes and rules and is subject
to many of the same delays and expenses as other lawsuits if defenses or counter
claims are interposed, sometimes requiring several years to complete.
Furthermore, an action to obtain a deficiency judgment is generally not
permitted following a non-judicial foreclosure of a Mortgaged Property. In the
event of a default by a Mortgagor, these restrictions, among other things, may
impede the ability of the Servicer to foreclose on and sell the Mortgaged
Property or to obtain Net Liquidation Proceeds (as defined herein) sufficient to
repay all amounts due on the related Mortgage Loan. In the event that any
Mortgaged Properties fail to provide adequate security for the related Mortgage
Loans, any resulting losses will be covered by funds made available through
operation of the overcollateralization feature described herein [or, if
necessary, by amounts paid under the Certificate Insurance Policy to the extent
of the Class A Monthly Interest due on the related Class of Class A Certificates
on the related Distribution Date and the amount of any Coverage Deficit with
respect to such Class and Distribution Date.] See "Certain Legal Aspects of the
Mortgage Loans and Related Matters -- Foreclosure/Repossession," "-- Certain
Provisions of California Deeds of Trust," "-- Anti-deficiency Legislation and
other Limitations on Lenders" and "The Pooling and Servicing
Agreement -- Realization upon Defaulted Mortgage Loans" in the Prospectus.
In addition, other factors may affect the prepayment rate of Junior Loans
such as the amounts of, and interest rates on, the underlying senior mortgage
loans, if any, and the use of first lien mortgage loans as long-term financing
for home purchase and Junior Loans as shorter-term financing for a variety of
purposes, including home improvement, education expenses and purchases of
consumer durables such as automobiles. Accordingly, Junior Loans may experience
a higher rate of prepayments than traditional first lien mortgage loans. In
addition, any future limitations on the right of borrowers to deduct interest
payments on Junior Loans for federal income tax purposes may further increase
the rate of prepayments of such Junior Loans. See "Maturity, Prepayment and
Yield Considerations" in the Prospectus.
CONCENTRATION OF BALLOON LOANS
Approximately [ ]% of the Aggregate Principal Balance of the Initial
Mortgage Loans in the Fixed Rate Group (by Cut-off Date Principal Balance) are
Balloon Loans. Approximately [ ]% of the Initial Mortgage Loans in the
Adjustable Rate Group (by Cut-off Date Principal Balance) are Balloon Loans. See
"Risk Factors -- Nature of the Security for Mortgage Loans -- Risks Associated
with Balloon Loans" in the Prospectus.
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RISKS ASSOCIATED WITH PREPAYMENT OF THE MORTGAGE LOANS
All of the Mortgage Loans may be prepaid in full or in part at any time,
generally upon the payment to the Servicer 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 and other factors, including state and federal
income tax policies, interest rates, the availability of alternative financing
and homeowner mobility. Therefore, no assurance can be given as to the level of
prepayments that the Trust will experience. A number of factors suggest that the
prepayment behavior of the Mortgage Pool may be significantly different from
that of a pool of conventional first lien residential mortgage loans with
equivalent interest rates and maturities. One such factor is that the principal
balance of the average Mortgage Loan is smaller than that of the average
conventional first lien mortgage loan. A smaller principal balance may be easier
for a borrower to prepay than a larger balance and, therefore, a higher
prepayment rate may result for the Mortgage Pool than for a pool of conventional
first lien mortgage loans, irrespective of the relative average interest rates
and the general interest rate environment. In addition, in order to refinance a
first lien mortgage loan, the borrower must generally repay any junior mortgage
loans. However, a small principal balance may make refinancing a Mortgage Loan
at a lower interest rate less attractive to the borrower as the perceived impact
to the borrower of lower interest rates on the size of the monthly payment may
not be significant. Other factors that might be expected to affect the
prepayment rate of the Mortgage Pool include general economic conditions,
possible future changes affecting the deductibility for federal income tax
purposes of interest payments on mortgage loans, the amounts of and interest
rates on the underlying senior mortgage loans and the tendency of borrowers to
use first lien mortgage loans as long-term financing for home purchase and
junior mortgage loans as shorter-term financing for a variety of purposes,
including home improvement, education expenses, debt consolidation and purchases
of consumer durables such as automobiles. Accordingly, the Mortgage Loans may
experience higher rates of prepayment than traditional first lien mortgage
loans. See "Maturity, Prepayment and Yield Considerations" in the Prospectus.
Prepayments may result from voluntary early payments by borrowers
(including payments in connection with refinancing of any related senior
mortgage loans), sales of Mortgaged Properties subject to "due-on-sale" clauses
as to which the Servicer exercises its rights thereunder and liquidations due to
default, as well as the receipt of proceeds from hazard, credit life and
disability insurance policies. In addition, repurchases or purchases from the
Trust of Mortgage Loans in a Mortgage Loan Group required or permitted to be
made by the Sponsor, the Servicer and, [under certain limited circumstances, the
Certificate Insurer] under the Pooling and Servicing Agreement will have the
same effect on the holders of the related Class of Class A Certificates as a
prepayment of the related Mortgage Loans. Prepayments and such repurchases and
purchases will accelerate the receipt of distributions of Monthly Principal on
the Class A Certificates. See "The Pooling and Servicing Agreement -- Assignment
of Mortgage Loans" and "-- Termination; Optional Termination" and "Certain Legal
Aspects of the Mortgage Loans and Related Matters -- Enforceability of
Due-on-Sale Clauses" in the Prospectus. The Servicer's practice of soliciting
refinancings from existing borrowers under loans originated by Affiliated
Originators may have the effect of increasing the rate of prepayment, due to
refinancings, on the Mortgage Loans. See "Origination and Servicing of the
Mortgage Loans -- Servicing of the Mortgage Loans" herein.
Prepayments, liquidations, repurchases and purchases of the Mortgage Loans
will result in distributions to Class A Certificateholders of principal amounts
which would otherwise be distributed over the remaining terms of the Mortgage
Loans. The extent to which the yield to maturity of a Class A Certificate may
vary from the anticipated yield will depend upon the degree to which it is
purchased at a premium or discount and the degree to which the timing of
payments thereon is sensitive to prepayments, liquidations, repurchases and
purchases of Mortgage Loans. In the case of any Class A Certificate purchased at
a discount, an investor should consider the risk that a slower than anticipated
rate of principal payments on the Mortgage Loans could result in an actual yield
to such investor that is lower than the anticipated yield and, in the case of
any Class A Certificate purchased at a premium, the risk that a faster than
anticipated rate of prepayments, liquidations, repurchases and purchases could
result in an actual yield to such investor that is lower than the anticipated
yield. Further, there can be no assurance that Class A Certificateholders will
be able to reinvest distributions
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in respect of prepayments, liquidations, repurchases and purchases of the
Mortgage Loans in securities or other instruments that have a yield comparable
to that of the related Class of Class A Certificates.
THE SUBSEQUENT MORTGAGE LOANS AND THE PREFUNDING ACCOUNT
Any conveyance of Subsequent Mortgage Loans is subject to the following
conditions, among others: (i) each Subsequent Mortgage Loan must satisfy the
representations and warranties specified in the Subsequent Transfer Agreement
and the Pooling and Servicing Agreement; (ii) the Sponsor will not select such
Subsequent Mortgage Loans in a manner that it believes is adverse to the
interests of either Class of Class A Certificateholders; (iii) as of the
Subsequent Cut-off Date, the Mortgage Loans in the Mortgage Pool at that time,
including the Subsequent Mortgage Loans to be conveyed by the Sponsor as of such
Subsequent Cut-off Date, will satisfy the criteria set forth in the Pooling and
Servicing Agreement; [and (iv) the Subsequent Mortgage Loans will have been
approved by the Certificate Insurer.] Following the transfer of Subsequent
Mortgage Loans to the Mortgage Pool, the aggregate characteristics of the
Mortgage Loans then held in the Mortgage Pool may vary from those of the Initial
Mortgage Loans included in the Mortgage Pool. 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 Commitment Period in a form comparable to the
description of the Initial Mortgage Loans contained in "ANNEX A: Description of
the Mortgage Pool" will be filed with the Securities and Exchange Commission
within 15 days after expiration of the Commitment Period. See "The Mortgage
Loans -- Conveyance of Subsequent Mortgage Loans" herein.
If, by the end of the Commitment Period, amounts on deposit in the
Prefunding Account are not fully applied to the purchase of Subsequent Mortgage
Loans, the portion of the Prefunding Account Deposit allocated to the Fixed Rate
Group that is not so applied will be distributed in reduction of the Class A-1
Certificate Principal Balance and the portion of the Prefunding Account Deposit
allocated to the Adjustable Rate Group that is not so applied will be
distributed in reduction of the Class A-2 Certificate Principal Balance.
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 in reduction of the Class A Certificate
Principal Balance of either Class, no assurance can be given that such a
distribution with respect to either Class or both Classes of Class A
Certificates will not occur on the Distribution Date in [ ]. In any event,
it is unlikely that the Sponsor will be able to deliver Subsequent Mortgage
Loans with an aggregate principal balance that exactly matches the Prefunding
Account Deposit.
YIELD CONSIDERATIONS RELATING TO EXCESS CASH
Excess Cash attributable to any Mortgage Loan Group will be distributed in
reduction of the Class A Certificate Principal Balance of the related Class of
Class A Certificates on each Distribution Date to the extent the then applicable
Required Coverage Amount exceeds the Coverage Amount for such Class on such
Distribution Date and, after such Required Coverage Amount equals the Coverage
Amount for such Class, any remaining Excess Cash attributable to such Mortgage
Loan Group will be distributed on the other Class of Class A Certificates first
to cover any shortfall in the Class A Monthly Interest for such Class, then to
reduce the Class A Certificate Principal Balance of such Class until the
Coverage Amount for that Class equals the then applicable Required Coverage
Amount for such Class. If purchased at a premium or a discount, the yield to
maturity on a Class A Certificate will be affected by the rate at which Excess
Cash is distributed to Class A Certificateholders in reduction of the Class A
Certificate Principal Balance of such Class. If the actual rate of such Excess
Cash distributions on the Class A Certificates is slower than the rate
anticipated by an investor who purchases a Class A Certificate at a discount,
the actual yield to such investor will be lower than such investor's anticipated
yield. If the actual rate of such Excess Cash distributions is faster than the
rate anticipated by an investor who purchases a Class A Certificate at a
premium, the actual yield to such investor will be lower than such investor's
anticipated yield. The amount of Excess Cash on any Distribution Date will be
affected by the actual amount of interest received, collected or recovered in
respect of the Mortgage Loans during the related Collection Period and such
amount will be influenced by changes in
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the weighted average of the Mortgage Interest Rates resulting from prepayments
and liquidations of Mortgage Loans as well as from, in the case of the
Adjustable Rate Group, adjustments of adjustable Mortgage Interest Rates. The
amount of Excess Cash distributions to the Class A Certificateholders applied in
reduction of the related Class A Certificate Principal Balance on each
Distribution Date will be based on the then applicable Required Coverage Amount
applicable to the related Class of Class A Certificates, which may increase or
decrease during the period such Class remains outstanding. With respect to the
Class A-2 Certificates, if on any Distribution Date occurring after [ ],
the amount of Excess Cash distributable on the Class A-2 Certificates is less
than an amount specified in the Pooling and Servicing Agreement, the Required
Coverage Amount for the Class A-2 Certificates will be increased (any such
Distribution Date, a "Class A-2 Trigger Event Date"); provided, however, that
upon the satisfaction of certain cash flow requirements in respect of the Class
A-2 Certificates for the period specified in the Pooling and Servicing
Agreement, such Required Coverage Amount will return to its original level. Any
increase in a Required Coverage Amount (including, in the case of the Class A-2
Certificates, an increase required on a Class A-2 Trigger Event Date) may result
in an accelerated rate of amortization of the related Class of Class A
Certificates until the Coverage Amount for such Class equals such Required
Coverage Amount and any decrease in a Required Coverage Amount will result in a
decelerated rate of amortization of the Class A Certificates until the Coverage
Amount for such Class equals such Required Coverage Amount.
PREPAYMENT OF FIXED RATE GROUP MAY AFFECT CURRENT INTEREST
The Pass-Through Rates on the Class [ ] Certificates are subject to
the Fixed Rate Net WAC. Disproportionate prepayments (including prepayments due
to liquidations and repurchases or purchases by the Sponsor or the Servicer as
required by the Pooling and Servicing Agreement) of Mortgage Loans in the Fixed
Rate Group with relatively high Mortgage Interest Rates in comparison to the
Pass-Through Rate for any such Class of Certificates will increase the
possibility that the Pass-Through Rate for such Class of Certificates will be
limited by the Fixed Rate Net WAC. Any difference between interest determined at
the Fixed Rate Net WAC and interest at the applicable Formula Pass-Through Rate
or fixed Pass-Through Rates shown on the cover page will be foregone permanently
and the value of any such Class of Certificates may be temporarily or
permanently reduced.
ENVIRONMENTAL STATUTES AFFECTING SECURITY INTERESTS
A substantial percentage of the Initial Mortgage Loans (by Cut-off Date
Principal Balance) are secured by Mortgaged Properties located in states that
may impose a statutory lien for associated costs on property that is the subject
of a clean-up action by the state on account of hazardous wastes or hazardous
substances released or disposed of on the property. Such a lien generally will
have priority over all subsequent liens on the property, although in some
states, including California, it will not have priority over prior recorded
liens, including the lien of a mortgage. In addition, under federal
environmental statutes and under the laws of many states, including California,
a secured party that takes a deed in lieu of foreclosure, acquires a mortgaged
property at a foreclosure sale or, prior to foreclosure, has been involved in
decisions or actions that may lead to contamination of a property, may be liable
for the costs of cleaning up a contaminated site. See "Certain Legal Aspects of
the Mortgage Loans and Related Matters -- Environmental Considerations" in the
Prospectus. Any such liens or costs imposed in connection with a clean-up action
by the state may impede the ability of the Servicer to foreclose on or sell the
related Mortgaged Property or to obtain Net Liquidation Proceeds sufficient to
repay all amounts due on the related Mortgage Loan. Any resulting losses will be
covered by funds made available through operation of the overcollateralization
feature described herein or, if necessary, [by amounts paid under the
Certificate Insurance Policy to the extent of the Class A Monthly Interest due
on the related Class of Class A Certificates on the related Distribution Date]
and the amount of any Coverage Deficit with respect to such Class and
Distribution Date.
RISKS ASSOCIATED WITH CERTAIN ORIGINATION FEES
Fees earned on the origination of loans and placement of related insurance
by the Sponsor and Affiliated Originators are often paid by the borrower out of
related loan proceeds. From time to time, in the ordinary
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course of their businesses, originators of home equity loans have been named in
legal actions brought by mortgagors challenging the amount or method of imposing
or disclosing such fees. To date, no such action has been decided against the
Sponsor or any Affiliated Originator. 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, potentially leading to
Coverage Deficits. [Under such circumstances, payments by the Certificate
Insurer would result in accelerated distributions in reduction of the Class A
Certificate Principal Balance.]
[LIMITATIONS ON FIXED RATE GROUP CERTIFICATEHOLDERS' RIGHTS
Although the Fixed Rate Group Certificateholders do not have the benefit of
the Financial Guaranty Insurance Policy, absent an existing default by the
Financial Guaranty Insurer, (i) the rights of the Fixed Rate Group
Certificateholders to give notices of breach or to terminate the rights and
obligations of the Servicer under the Pooling and Servicing Agreement in the
event of a Servicer Event of Default cannot be exercised thereby without the
consent of the Financial Guaranty Insurer, and (ii) the Financial Guaranty
Insurer, rather than such Certificateholders, will have the right to direct the
actions of the Trustee during the continuation of a Servicer Event of Default.
Additionally, the consent of the Financial Guaranty Insurer is required (i) for
the appointment of any successor Servicer or successor Trustee or (ii) to amend
the Pooling and Servicing Agreement. See "Financial Guaranty Insurance Policy"
herein.]
DESCRIPTION OF THE CERTIFICATES
The Class A Certificates will be issued pursuant to a Pooling and Servicing
Agreement, to be dated as of [ ] (the "Pooling and Servicing Agreement"),
between the Sponsor, Servicer, and the Trustee. The following summaries describe
the material provisions of the Pooling and Servicing Agreement but do not
purport to be complete. The Sponsor will provide a copy of the Pooling and
Servicing Agreement (without exhibits) without charge upon the written request
of a Certificate Owner addressed to: [Sponsor], [350 South Grand Avenue, Los
Angeles, California 90071], Attention: [Corporate Secretary].
GENERAL
The Certificates will evidence undivided beneficial ownership interests in
the Trust created pursuant to the Pooling and Servicing Agreement. The Class
A-1A Certificates, the Class A-1B Certificates and the Class A-1C Certificates
will respectively evidence the right to receive from the Trust (i) the Class
A-1A Certificate Principal Balance, plus interest at the Class A-1A Pass-Through
Rate, (ii) the Class A-1B Certificate Principal Balance, plus interest at the
Class A-1B Pass-Through Rate and (iii) the Class A-1C Certificate Principal
Balance, plus interest at the Class A-1C Pass-Through Rate, as described herein.
The Class A-2 Certificates will evidence the right to receive from the Trust an
aggregate amount equal to the Class A-2 Certificate Principal Balance, plus
interest at the Class A-2 Pass-Through Rate, as described herein. The holder of
the Class R Certificate (which has no stated principal balance) is not entitled
to any distributions with respect to any Distribution Date until such time as
the Coverage Amount for each Class of Class A Certificates equals or exceeds the
then applicable Required Coverage Amount for the related Class of Class A
Certificates and [the Certificate Insurer] and the Servicer, in that order, have
been reimbursed amounts to which they may be entitled. The holder of the Class R
Certificate will thereafter be entitled to certain amounts as described herein
under "-- Distributions on the Certificates."
The assets of the Trust will consist of (a) the Mortgage Loans that from
time to time are subject to the Pooling and Servicing Agreement; (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, held in the
Prefunding Account and the Capitalized Interest Account or invested in Permitted
Investments (see "-- Payments on Mortgage Loans and Deposits to the Collection
Account" herein); (c) all rights of the mortgagee under any insurance policy
covering a Mortgage Loan or the related Mortgaged Property;
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(d) property and any proceeds thereof acquired by foreclosure of the Mortgage
Loans, deed in lieu of foreclosure or a comparable conversion; and [(e) the
Certificate Insurance Policy].
The Sponsor will designate in the Pooling and Servicing Agreement, for
purposes of the Internal Revenue Code of 1986, as amended (the "Code"), the
Class A Certificates as "regular interests," and the Class R Certificate as the
sole class of "residual interests," in a REMIC generally comprised of the
Mortgage Pool, the Collection Account, the Certificate Account [and the
Certificate Insurance Policy] (the "REMIC Pool"). The Prefunding Account and the
Capitalized Interest Account will not be part of the REMIC Pool. The Closing
Date will be designated as the "Startup Day" (within the meaning of the Code) of
the REMIC. See "Certain Federal Income Tax Consequences" in the Prospectus.
The Class A Certificates will be issued in minimum denominations of $1,000
and integral dollar multiples of $1 in excess thereof.
The Class A Certificates initially will be book-entry Certificates (the
"Book-Entry Certificates"). Persons acquiring beneficial ownership interests in
the Class A Certificates ("Certificate Owners") will hold such Certificates
through the Depository Trust Company ("DTC"), in the United States, or Cedel
Bank, societe anonyme ("Cedel") or the Euroclear System ("Euroclear"), in
Europe, if they are participants of such systems, or indirectly through
organizations which are participants in such systems. The Book-Entry
Certificates will be issued in one or more certificates per Class, representing
the aggregate principal balance of each such Class of Class A Certificates, and
will initially be registered in the name of Cede & Co. ("Cede"), the nominee of
DTC. Cedel and Euroclear will hold omnibus positions on behalf of Cedel
Participants and Euroclear Participants (each as defined herein, respectively,
through customers' securities accounts in Cedel's and Euroclear's names on the
books of their respective depositaries which in turn will hold such positions in
customers' securities accounts in the depositaries' names on the books of DTC.
Citibank N.A. ("Citibank") will act as depositary for Cedel and Morgan Guaranty
Trust Company of New York ("Morgan") will act as depositary for Euroclear
(Citibank and Morgan, in such capacities, individually the "Relevant Depositary"
and, collectively, the "European Depositaries"). Investors may hold such
beneficial interests in the Book-Entry Certificates in minimum denominations
representing Certificate Principal Balances of $1,000 and in integral multiples
of $1 in excess thereof. Except as described below, no person acquiring a
Book-Entry Certificate will be entitled to receive a physical certificate
representing such Certificate (a "Definitive Certificate"). Unless and until
Definitive Certificates are issued, it is anticipated that the only
"Certificateholder" of the Class A Certificates will be Cede, as nominee of DTC.
Certificate Owners will not be Certificateholders as that term is used in the
Pooling and Servicing Agreement. Certificate Owners are permitted to exercise
their rights only indirectly through DTC and its Participants (including Cedel
and Euroclear).
The beneficial ownership of a Book-Entry Certificate will be recorded on
the records of the brokerage firm, bank, thrift institution or other financial
intermediary (each, a "Financial Intermediary") that maintains the Certificate
Owner's account for such purpose. In turn, the Financial Intermediary's
ownership of such Book-Entry Certificate will be recorded on the records of DTC
(or of a participating firm that acts as agent for the Financial Intermediary,
whose interest will in turn be recorded on the records of DTC, if the beneficial
owner's Financial Intermediary is not a Participant and on the records of Cedel
or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of, and
interest on, the Class A Certificates from the Trustee through DTC and its
Participants (including Cedel and Euroclear). While the Class A Certificates 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 Certificates and is required to receive
and transmit distributions of principal of, and interest on, such Certificates.
Participants and indirect participants with whom Certificate Owners have
accounts with respect to Book-Entry Certificates are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess certificates, the Rules provide a mechanism by which
Certificate Owners will receive distributions and will be able to transfer their
interests.
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Certificate Owners will not receive or be entitled to receive certificates
representing their respective interests in the Class A Certificates, except
under the limited circumstances described below. Unless and until Definitive
Certificates are issued, Certificate Owners who are not Participants may
transfer ownership of Class A Certificates only through Participants and
indirect participants by instructing such Participants and indirect participants
to transfer Class A Certificates, by book-entry transfer, through DTC for the
account of the purchasers of such Class A Certificates, which account is
maintained with their respective Participants. Under the Rules and in accordance
with DTC's normal procedures, transfers of ownership of Class A Certificates
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 Certificate Owners.
Because of time zone differences, credits of securities received in Cedel
or Euroclear as a result of a transaction with a Participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. Such credits or any transactions in such securities
settled during such processing will be reported to the relevant Euroclear or
Cedel Participants on such business day. Cash received in Cedel or Euroclear as
a result of sales of securities by or through a Cedel Participant or Euroclear
Participant to a Participant will be received with value on the DTC settlement
date but will be available in the relevant Cedel or Euroclear cash account only
as of the business day following settlement in DTC. For information with respect
to tax documentation procedures relating to the Certificates, see "Certain
Federal Income Tax Consequences -- Non-U.S. Persons -- Senior Certificates" and
"-- Information Reporting and Backup Withholding" in the Prospectus and in
"ANNEX B: Global Clearance, Settlement and Tax Documentation
Procedures -- Certain U.S. Federal Income Tax Documentation Requirements"
hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Cedel Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Cedel
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Cedel Participants and Euroclear Participants may not deliver instructions
directly to the European Depositaries.
DTC, which is a New York-chartered limited purpose trust company, performs
services for its participants ("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 Participant in the Book-Entry
Certificates, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of Book-Entry Certificates will be
subject to the rules, regulations and procedures governing DTC and its
Participants as in effect from time to time.
Cedel is incorporated under the laws of Luxembourg as a professional
depository. Cedel holds securities for its participating organizations ("Cedel
Participants") and facilitates the clearance and settlement of securities
transactions between Cedel Participants through electronic book-entry changes in
accounts of Cedel Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in Cedel in any of 28
currencies, including United States dollars. Cedel provides to its Cedel
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Cedel interfaces with domestic markets in several
countries. As a professional depository, Cedel is subject to regulation by the
Luxembourg Monetary Institute. Cedel Participants are recognized financial
institutions around the world, including underwriters, securities
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brokers and dealers, banks, trust companies, clearing corporations and certain
other organizations. Indirect access to Cedel is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Cedel Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants, through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled through Euroclear in any of 32 currencies,
including United States dollars. Euroclear provides various other services,
including securities lending and borrowing, and interfaces with domestic markets
in several countries generally similar to the arrangements for cross-market
transfers with DTC described above. Euroclear is operated by the Brussels,
Belgium office of Morgan Guaranty Trust Company of New York (the "Euroclear
Operator"), under contract with Euroclear Clearance Systems S.C., a Belgian
cooperative corporation (the "Cooperative"). All operations are conducted by the
Euroclear Operator, and all Euroclear securities clearance accounts and
Euroclear cash accounts are accounts with the Euroclear Operator, not the
Cooperative. The Cooperative establishes policy for Euroclear on behalf of
Euroclear Participants. Euroclear Participants include banks (including central
banks), securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with 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 to specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to DTC. DTC will be responsible for crediting
the amount of such payments to the accounts of the applicable Participants in
accordance with DTC's normal procedures. Each Participant will be responsible
for disbursing such payments to the Certificate Owners 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 Certificate Owners
that it represents.
Under a book-entry format, Certificate Owners may experience some delay in
their receipt of payments because such payments will be forwarded by the Trustee
to Cede. Distributions with respect to Certificates held through Cedel or
Euroclear will be credited to the cash accounts of Cedel Participants or
Euroclear Participants in accordance with the relevant system's rules and
procedures, to the extent received by the Relevant Depositary. Such
distributions will be subject to tax reporting in accordance with relevant
United States tax laws and regulations. See "Certain Federal Income Tax
Consequences -- Non-U.S. Persons -- Senior Certificates" in the Prospectus and
"-- Information Reporting and Backup Withholding" in "ANNEX B: Global Clearance,
Settlement and Tax Documentation Procedures" hereto. Because DTC has indicated
that it will act only on behalf of Financial Intermediaries, the ability of
Certificate Owners to pledge Book-Entry Certificates to persons or entities that
do not participate in the depository system or otherwise take actions in respect
of such Book-Entry Certificates may be limited due to the lack of physical
certificates representing such Book-Entry Certificates. In addition, issuance of
the Book-Entry Certificates in book-entry form may reduce the liquidity of such
Certificates in the secondary market because certain potential investors may be
unwilling to purchase Certificates for which they cannot obtain physical
certificates.
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Monthly and annual reports on the Trust will be provided to Cede, as
nominee of DTC, and may be made available by Cede to Certificate Owners upon
request, in accordance with the Rules, and to the Financial Intermediaries to
whose DTC accounts the related Book-Entry Certificates are credited.
DTC has advised the Trustee that, unless and until Definitive Certificates
are issued, DTC will take any action permitted to be taken by a
Certificateholder under the Pooling and Servicing Agreement only at the
direction of one or more Financial Intermediaries to whose DTC accounts the
Book-Entry Certificates are credited, to the extent that such actions are taken
on behalf of Financial Intermediaries whose holdings include such Book-Entry
Certificates. Cedel or the Euroclear Operator, as the case may be, will take any
other action permitted to be taken by a Certificateholder under the Pooling and
Servicing Agreement on behalf of a Cedel Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to the
ability of the Relevant Depositary to effect such actions on its behalf through
DTC. DTC may take actions, at the direction of the related Participants, with
respect to some Class A Certificates which conflict with actions taken with
respect to other Class A Certificates.
Definitive Class A Certificates will be issued in registered form to
Certificate Owners, or their nominees, rather than to DTC, only if (i) DTC or
the Sponsor advises the Trustee in writing that DTC is no longer willing or able
to discharge properly its responsibilities as nominee and depository with
respect to the Class A Certificates and the Sponsor or the Trustee is unable to
locate a qualified successor, (ii) the Sponsor, at its option, advises the
Trustee that it elects to terminate the book-entry system through DTC, or (iii)
after an Event of Default under the Pooling and Servicing Agreement, the
Certificate Owners representing not less than 51% of the Class A Certificate
Principal Balance of the book-entry certificates advise the Trustee and DTC that
the book-entry system is no longer in the best interests of such Certificate
Owners. Upon issuance of Definitive Class A Certificates to Certificate Owners,
such Class A Certificates will be transferable directly (and not exclusively on
a book-entry basis) and registered holders will deal directly with the Trustee
with respect to transfers, notices and distributions. See "Description of the
Certificates -- Form of Certificates -- General " in the Prospectus.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Certificate
Owners of the occurrence of such event and the availability through DTC of
Definitive Certificates. Upon surrender by DTC of the global certificates
representing the Book-Entry Certificates and instructions for re-registration,
the Trustee will issue Definitive Certificates and thereafter the Trustee will
recognize the holders of such Definitive Certificates as Certificateholders
under the Pooling and Servicing Agreement.
Although DTC, Cedel and Euroclear have agreed to the foregoing procedures
in order to facilitate transfer of Class A Certificates among participants of
DTC, Cedel and Euroclear, they are under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
ASSIGNMENT OF MORTGAGE LOANS
At the time of issuance of the Certificates, the Sponsor will assign to the
Trustee all of its right, title and interest in and to the Initial Mortgage
Loans, including all principal and interest on or in respect of the Initial
Mortgage Loans received on or after the Cut-off Date, together with its right,
title and interest in and to the proceeds of any related insurance policies
received on and after the Cut-off Date. The Trustee, concurrently with such
assignment, will deliver the Certificates at the direction of the Sponsor in
exchange for, among other things, the Initial Mortgage Loans. Each Initial
Mortgage Loan will be identified in a schedule appearing as an exhibit to the
Pooling and Servicing Agreement (the "Mortgage Loan Schedule") that will provide
information about each Mortgage Loan, including, among other things, its
identifying number and the name of the related Mortgagor, the street address of
the related Mortgaged Property, its date of origination, the original number of
months to stated maturity, the original stated maturity, its original Principal
Balance, its Principal Balance as of the Cut-off Date (the "Cut-off Date
Principal Balance"), its interest rate as of the Cut-off Date and its monthly
payment as of the Cut-off Date.
Following the Closing Date, the Trust will be obligated to purchase from
the Sponsor, from time to time on or before [ ], subject to the
availability thereof, Subsequent Mortgage Loans consisting of closed-
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end fixed and adjustable rate home equity mortgage loans. In connection with
each purchase of Subsequent Mortgage Loans, the Trustee on behalf of the Trust
will pay to the Sponsor from amounts comprising the Prefunding Account Deposit a
cash purchase price of not more than 100% of the principal balance thereof; the
Trust may pay a cash purchase price of less than 100% for the purpose of
increasing the Coverage Amount, but in no event less than the fair market value
of the Subsequent Mortgage Loans. In connection with any purchase of Subsequent
Mortgage Loans, pursuant to the Pooling and Servicing Agreement, the Sponsor
will assign to the Trustee all of its right, title and interest in and to such
Subsequent Mortgage Loans as provided above with respect to the Initial Mortgage
Loans.
The Pooling and Servicing Agreement will require the Sponsor to deliver to
the Trustee the Mortgage Loans, the related Mortgage Notes endorsed without
recourse to the Trustee, the related mortgages or deeds of trust with evidence
of recording thereon, assignments of the Mortgages in recordable form, the title
policies with respect to the related Mortgaged Properties, all intervening
mortgage assignments, if applicable, and certain other documents relating to the
Mortgage Loans (the "Mortgage Files"). Assignments of the Mortgage Loans to the
Trustee (or its nominee) will be recorded in the appropriate public office for
real property records in the states where such recording is required to protect
the Trustee's interest in the Mortgage Loans against the claims of any
subsequent transferee or any successor to or creditor of the Sponsor. The
Trustee will hold such documents in trust for the benefit of the
Certificateholders [and the Certificate Insurer].
The Trustee will review the Mortgage Files delivered to it within 45 days
following such delivery, and if any document required to be included in any
Mortgage File is found to be missing or to be defective in any material respect
and such defect is not cured within 60 days following notification thereof to
the Sponsor by the Trustee, the Sponsor will be obligated to repurchase the
related Mortgage Loan from the Trust or substitute a Qualified Replacement
Mortgage (as defined below), in the manner described below.
Because certain of the assignments by the Sponsor to the Trustee of
Mortgage Loans will not be recorded, it may be possible for the Sponsor to
transfer such Mortgage Loans to bona fide purchasers for value without notice,
notwithstanding the rights of the Trustee. However, in most instances, the
Sponsor would not be able to deliver the original documents evidencing the
Mortgage Notes or the mortgages because, under the terms of the Pooling and
Servicing Agreement, such documents will be retained in the possession of the
Trustee, except when released to the Servicer in connection with its servicing
activities. Moreover, a subsequent transferee who failed to obtain delivery of
the original evidence of indebtedness generally would not, in the absence of
special facts, be able to defeat the interests of the Trustee in a Mortgage Loan
so long as such evidence of indebtedness remained in the possession of the
Trustee.
The Sponsor will make certain representations and warranties as to the
accuracy in all material respects of the information set forth on the Mortgage
Loan Schedule. In addition, the Sponsor will make certain other representations
and warranties regarding the Mortgage Loans, including, for instance, that each
Mortgage Loan, at its origination, complied in all material respects with
applicable state and federal laws, that each mortgage is a valid lien of the
applicable priority, no Mortgage Loan had three or more monthly payments past
due, that each Mortgaged Property consists of a one- to four-family residential
property or condominium, that the Sponsor had good title to each Mortgage Loan
prior to the sale and assignment by the Sponsor and that the Originator was
authorized to originate each Mortgage Loan. See "The Pooling and Servicing
Agreement -- Assignment of Mortgage Loans" in the Prospectus.
If with respect to any Mortgage Loan (1) a defect in any document
constituting a part of the related Mortgage File remains uncured and materially
and adversely affects the interests of the Certificateholders [or the
Certificate Insurer] in such Mortgage Loan or (2) a breach of any representation
or warranty made by the Sponsor in the Pooling and Servicing Agreement relating
to such Mortgage Loan occurs and such breach materially and adversely affects
the interests of the Certificateholders [or the Certificate Insurer] in such
Mortgage Loan, the Sponsor will be required to repurchase the related Mortgage
Loan (any such Mortgage Loan, a "Defective Mortgage Loan") from the Trust at a
price equal to its Principal Balance together with one month's interest at the
Mortgage Interest Rate (net of the applicable Servicing Fee Rate) on such
Defective Mortgage Loan, less any payments received during the related
Collection Period in respect of such
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Defective Mortgage Loan (the "Purchase Price"). The Sponsor will also have the
option, but not the obligation, during the two years (or such longer period as
permitted by the applicable REMIC Regulations) immediately following the Closing
Date, to substitute for such Defective Mortgage Loan a Mortgage Loan conforming
to the requirements of the Pooling and Servicing Agreement (a "Qualified
Replacement Mortgage"). Upon delivery of a Qualified Replacement Mortgage and
deposit of certain amounts in the Collection Account as set forth in the Pooling
and Servicing Agreement, or deposit of the Purchase Price in the Collection
Account and receipt by the Trustee of written notification of any such
substitution or repurchase, as the case may be, the Trustee shall execute and
deliver an instrument of transfer or assignment necessary to vest in the Sponsor
legal and beneficial ownership of such Defective Mortgage Loan (including any
property acquired in respect thereof or proceeds of any insurance policy with
respect thereto).
The obligation of the Sponsor to cure, repurchase or substitute any
Mortgage Loan as described above will constitute the sole remedy available to
Certificateholders or the Trustee for a Defective Mortgage Loan.
The Pooling and Servicing Agreement additionally provides that the Servicer
will have the option, but not the obligation, to purchase from the Trust at the
Purchase Price (i) any Mortgage Loan as to which the related Mortgagor has
failed to make scheduled payments thereon for three consecutive months at any
time following the Cut-off Date and (ii) during the 90-day period following the
Closing Date, any Mortgage Loan as to which a scheduled payment thereon becomes
60 or more days contractually delinquent; provided, however, that the aggregate
of the Principal Balances of the Mortgage Loans so purchased by the Servicer may
not exceed 5% of the sum of the Cut-off Date Pool Balance and the Prefunding
Account Deposit. See "The Pooling and Servicing Agreement -- Realization upon
Defaulted Mortgage Loans" in the Prospectus.
PAYMENTS ON MORTGAGE LOANS AND DEPOSITS TO THE COLLECTION ACCOUNT
The Servicer shall establish and maintain an account or, with respect to
certain Mortgage Loans serviced by a Sub-Servicer (as defined herein), shall
cause the related Sub-Servicer to establish and maintain an account
(collectively, the "Collection Account") into which all collections on or with
respect to the Mortgage Loans in each Mortgage Loan Group will be deposited and
the Trustee shall establish and maintain an account (the "Certificate Account"
and, together with the Collection Account, the "Accounts") from which all
distributions with respect to the Certificates will be made. All amounts held in
the Accounts shall be invested in Permitted Investments (as defined herein) that
mature not later than the date which is one Business Day prior to the Deposit
Date (as defined herein) for the related Distribution Date next succeeding the
date of investment. A "Business Day" will be any day other than a Saturday or
Sunday or a day on which banking institutions in the State of California or the
State of New York are required or authorized by law, executive order or
governmental decree to be closed. "Permitted Investments" will be specified in
the Pooling and Servicing Agreement and will be limited to investments [which
are approved by the Certificate Insurer and] meet the criteria of the Rating
Agencies (as defined herein) from time to time as being consistent with their
then current ratings of the Class A Certificates. See "The Pooling and Servicing
Agreement -- Permitted Investments" in the Prospectus. No Permitted Investment
shall be sold or disposed of at a gain prior to maturity unless the Servicer has
obtained a satisfactory opinion of counsel that such sale or disposition will
not cause the REMIC Pool to be subject to the tax on income from prohibited
transactions imposed by Code Section 860F(a)(1), otherwise subject the REMIC
Pool to tax or cause the REMIC Pool to fail to qualify as a REMIC. Investment
income on monies on deposit in the Certificate Account and the Collection
Account will not be available for distribution to Certificateholders or
otherwise subject to any claims or rights of the Certificateholders and will be
paid to Servicer as additional servicing compensation. The Servicer will be
liable for any losses resulting from such investments.
The Servicer will deposit, or cause the related Sub-Servicer to deposit,
into the Collection Account not later than two Business Days after receipt, all
payments on or in respect of the Mortgage Loans received from or on behalf of
Mortgagors and all proceeds of Mortgage Loans. On the date in each month
specified in the Pooling and Servicing Agreement, which date shall be no later
than three Business Days prior to the related Distribution Date (the "Deposit
Date"), funds to be distributed in respect of the Class A Monthly Interest,
Monthly Principal and any Excess Cash in respect of each Class of Class A
Certificates will be transferred from the Collection Account to the Certificate
Account. Notwithstanding the foregoing, payments and
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collections that do not constitute Available Funds (e.g., fees, late payment
charges, prepayment charges, charges for checks returned for insufficient funds,
extension or other administrative charges or other amounts received for
application towards the payment of taxes, insurance premiums, assessments and
similar items) will not be required to be deposited into the Collection Account.
The Servicer may make withdrawals from the Collection Account to make the
deposits to the Certificate Account, to pay the monthly Servicing Fee for each
Mortgage Loan Group to itself, to reimburse itself for certain Advances (as
defined herein) that it has made and for which it may be entitled to
reimbursement under the Pooling and Servicing Agreement and for any other
expenses incurred by it for which it may be entitled to reimbursement under the
Pooling and Servicing Agreement.
DISTRIBUTIONS ON THE CERTIFICATES
Distributions of principal and interest on the Class A Certificates will be
made by the Trustee (in such capacity, the "Paying Agent") on the fifteenth day
of each month or, if such day is not a Business Day, on the next succeeding
Business Day (each, a "Distribution Date") commencing in [ ] to holders of
record of the related Class of Class A Certificates as of the close of business
on the last Business Day of the calendar month immediately preceding such
Distribution Date (each, a "Record Date") in an amount equal to the product of
such Certificateholders' Percentage Interest and the amount distributed in
respect of the related Class of Class A Certificates. The "Percentage Interest"
represented by any Class A-1A Certificate, Class A-1B Certificate, Class A-1C
Certificate or Class A-2 Certificate will be equal to the percentage obtained by
dividing the Certificate Principal Balance of such Class A-1A Certificate, Class
A-1B Certificate, Class A-1C Certificate or Class A-2 Certificate, respectively,
by the aggregate of the principal balances of all Certificates of the same Class
or subclass, as applicable.
On each Distribution Date, the Paying Agent will distribute the following
amounts in the following order of priority, to the extent of Available Funds for
the Fixed Rate Group and any available Excess Cash from the Adjustable Rate
Group:
[(a) to the Certificate Insurer, the aggregate amount necessary to
reimburse the Certificate Insurer for any unreimbursed payments of Insured
Amounts in respect of the Class A-1 Certificates on prior Distribution
Dates and the amount of any unpaid Certificate Insurer Premium in respect
of the Class A-1 Certificates on prior Distribution Dates; provided,
however, that the Certificate Insurer's right to such reimbursement is
subject to the right of Class A-1A Certificateholders, Class A-1B
Certificateholders and Class A-1C Certificateholders to receive Class A-1A
Monthly Interest, Class A-1B Monthly Interest and Class A-1C Monthly
Interest, respectively, and any Coverage Deficit for the Class A-1
Certificates with respect to such Distribution Date;
(b) to the Certificate Insurer, an amount equal to the Certificate
Insurer Premium (as defined herein) attributable to the Fixed Rate Group;]
(c) concurrently to the Class A-1A Certificateholders, Class A-1B
Certificateholders and Class A-1C Certificateholders, Class A-1A Monthly
Interest, Class A-1B Monthly Interest and Class A-1C Monthly Interest,
respectively;
(d) to the Class A-1A Certificateholders, the amount of Monthly
Principal for the Class A-1 Certificates, in reduction of the Class A-1A
Certificate Principal Balance until such Class A-1A Certificate Principal
Balance is reduced to zero, then to Class A-1B Certificateholders, the
amount of any remaining Monthly Principal for the Class A-1 Certificates,
in reduction of the Class A-1B Certificate Principal Balance, until such
Class A-1B Certificate Principal Balance is reduced to zero, and then to
Class A-1C Certificateholders, the amount of any remaining Monthly
Principal for the Class A-1 Certificates, in reduction of the Class A-1C
Certificate Principal Balance, until such Class A-1C Certificate Principal
Balance is reduced to zero;
(e) to the Class A-1A Certificateholders, the amount, if any, of
Excess Cash for the Fixed Rate Group in reduction of the Class A-1A
Certificate Principal Balance, up to an amount equal to the lesser of (1)
the amount necessary for the Coverage Amount of the Class A-1 Certificates
to equal the
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Required Coverage Amount for such Class A-1 Certificates on such
Distribution Date and (2) the amount necessary to reduce the Class A-1A
Certificate Principal Balance to zero;
(f) to the Class A-1B Certificateholders, the amount, if any, of
Excess Cash for the Fixed Rate Group retaining after distribution pursuant
to clause (e) above in reduction of the Class A-1B Certificate Principal
Balance, up to an amount equal to the lesser of (1) the amount necessary
for the Coverage Amount of the Class A-1 Certificates to equal the Required
Coverage Amount for such Class A-1 Certificates on such Distribution Date
and (2) the amount necessary to reduce the Class A-1B Certificate Principal
Balance to zero;
(g) to the Class A-1C Certificateholders, the amount, if any, of
Excess Cash for the Fixed Rate Group remaining after distribution pursuant
to clauses (e) and (f) above in reduction of the Class A-1C Certificate
Principal Balance, up to an amount equal to the lesser of (1) the amount
necessary for the Coverage Amount of the Class A-1 Certificates to equal
the Required Coverage Amount for such Class A-1 Certificates on such
Distribution Date and (2) the amount necessary to reduce the Class A-1C
Certificate Principal Balance to zero;
(h) to the Class A-2 Certificateholders, the amount, if any, of Excess
Cash for the Fixed Rate Group, remaining after the distributions pursuant
to clauses (e), (f) and (g) above, to be applied first to cover any
shortfalls in the Class A Monthly Interest of the Class A-2 Certificates,
and second to reduce the Class A-2 Certificate Principal Balance, up to an
amount equal to the lesser of (1) the amount necessary for the Coverage
Amount of Class A-2 Certificates to equal the Required Coverage Amount for
such Class A-2 Certificates on such Distribution Date and (2) the amount
necessary to reduce the Class A-2 Certificate Principal Balance to zero
(after taking into account the Monthly Principal and Excess Cash
distributed on such date in reduction of the Class A-2 Certificate
Principal Balance);
[(i) to the Certificate Insurer, the amount of any Available Funds for
the Fixed Rate Group remaining in the Certificate Account, to the extent
necessary to reimburse the Certificate Insurer for any Insured Amounts paid
on prior Distribution Dates in respect of the Class A-2 Certificates and
not previously reimbursed;] and
(j) to the Class R Certificateholder, subject to the right of the
Servicer to be reimbursed for any prior unreimbursed Advances, any
Available Funds for the Fixed Rate Group remaining in the Certificate
Account.
On each Distribution Date, the Paying Agent will distribute the following
amounts in the following order of priority, to the extent of Available Funds for
the Adjustable Rate Group and any available Excess Cash from the Fixed Rate
Group:
[(a) to the Certificate Insurer, the aggregate amount necessary to
reimburse the Certificate Insurer for any unreimbursed payments of Insured
Amounts in respect of the Class A-2 Certificates on prior Distribution
Dates and the amount of any unpaid Certificate Insurer Premium in respect
of the Class A-2 Certificates on prior Distribution Dates; provided,
however, that the Certificate Insurer's right to such reimbursement is
subject to the right of such Class A-2 Certificateholders to receive Class
A Monthly Interest and any Coverage Deficit for the Class A-2 Certificates
with respect to such Distribution Date;
(b) to the Certificate Insurer, an amount equal to the Certificate
Insurer Premium (as defined herein) attributable to the Adjustable Rate
Group;]
(c) to the Class A-2 Certificateholders, the Class A Monthly Interest
for the Class A-2 Certificates;
(d) to the Class A-2 Certificateholders, Monthly Principal for the
Class A-2 Certificates in reduction of the Class A-2 Certificate Principal
Balance;
(e) to the Class A-2 Certificateholders, the amount of Excess Cash for
the Adjustable Rate Group in reduction of the Class A-2 Certificate
Principal Balance up to an amount equal to the lesser of (1) the amount
necessary for the Coverage Amount of the Class A-2 Certificates to equal
the Required Coverage
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Amount for such Class A-2 Certificates on such Distribution Date and (2)
the amount necessary to reduce the Class A-2 Certificate Principal Balance
to zero;
(f) concurrently, to the Class A-1A Certificateholders, the Class A-1B
Certificateholders and the Class A-1C Certificateholders, the amount, if
any, of such Excess Cash for the Adjustable Rate Group remaining after
distribution pursuant to clause (e) above, to be applied pro rata to cover
any shortfalls in Class A-1A Monthly Interest, Class A-1B Monthly Interest
and Class A-1C Monthly Interest;
(g) to the Class A-1A Certificateholders, the amount, if any, of
Excess Cash for the Adjustable Rate Group remaining after the distributions
pursuant to clauses (e) and (f) above, to reduce the Class A-1A Certificate
Principal Balance, up to an amount equal to the lesser of (1) the amount
necessary for the Coverage Amount of the Class A-1 Certificates to equal
the Required Coverage Amount for such Class A-1 Certificates on such
Distribution Date and (2) the amount necessary to reduce the Class A-1A
Certificate Principal Balance to zero (after taking into account the
Monthly Principal and Excess Cash distributed on such date in reduction of
the Class A-1 Certificate Principal Balance);
(h) to the Class A-1B Certificateholders, the amount, if any, of
Excess Cash for the Adjustable Rate Group remaining after the distributions
pursuant to clauses (e), (f) and (g) above, to reduce the Class A-1B
Certificate Principal Balance, up to an amount equal to the lesser of (1)
the amount necessary for the Coverage Amount of the Class A-1 Certificates
to equal the Required Coverage Amount for such Class A-1 Certificates on
such Distribution Date and (2) the amount necessary to reduce the Class
A-1B Certificate Principal Balance to zero (after taking into account the
Monthly Principal and Excess Cash distributed on such date in reduction of
the Class A-1 Certificate Principal Balance);
(i) to the Class A-1C Certificateholders, the amount, if any, of
Excess Cash for the Adjustable Rate Group remaining after the distributions
pursuant to clauses (e), (f), (g) and (h) above, to reduce the Class A-1C
Certificate Principal Balance, up to an amount equal to the lesser of (1)
the amount necessary for the Coverage Amount of the Class A-1 Certificates
to equal the Required Coverage Amount for such Class A-1 Certificates on
such Distribution Date and (2) the amount necessary to reduce the Class
A-1C Certificate Principal Balance to zero (after taking into account the
Monthly Principal and Excess Cash distributed on such date in reduction of
the Class A-1 Certificate Principal Balance);
[(j) to the Certificate Insurer, the amount of any Available Funds for
the Adjustable Rate Group remaining in the Certificate Account to the
extent necessary to reimburse the Certificate Insurer for any unreimbursed
Insured Amounts paid on prior Distribution Dates in respect of the Class
A-1 Certificates; and]
(k) to the Class R Certificateholder, subject to the right of the
Servicer to be reimbursed for any prior unreimbursed Advances, any
Available Funds remaining in the Certificate Account.
[In the event that, on a particular Distribution Date, the Available Funds
with respect to the related Mortgage Loan Group and any available Excess Cash
with respect to the other Mortgage Loan Group on such date are not sufficient to
pay any portion of the Class A Monthly Interest for the related Class of Class A
Certificates, the Trustee will make a claim on the Certificate Insurance Policy
in an amount equal to such deficiency and apply the Insured Amount received in
respect of such claim to the payment of the deficiency in such Class A Monthly
Interest. In addition, the Trustee will make a claim on the Certificate
Insurance Policy in an amount equal to any Coverage Deficit with respect to the
related Class of Class A Certificates on a Distribution Date (after taking into
account distributions in respect of Monthly Principal and Excess Cash from the
related Mortgage Loan Group and, if applicable, from the other Mortgage Loan
Group) and apply the portion of the Insured Amount related to such Coverage
Deficit to reduce the Class A Certificate Principal Balance of such Class on
such Distribution Date by the amount of such Coverage Deficit. Any Insured
Amount distributed in respect of the Class A-1 Certificates to make up any
Coverage Deficit shall be distributed first to Class A-1A Certificateholders, in
reduction of the Class A-1A Certificate Principal
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Balance, until such Class A-1A Certificate Principal Balance is reduced to zero
and then to Class A-1B Certificateholders, in reduction of the Class A-1B
Certificate Principal Balance, until such Class A-1B Certificate Principal
Balance is reduced to zero and thereafter to the Class A-1C Certificateholders,
in reduction of the Class A-1C Certificate Principal Balance until such Class
A-1C Certificate Principal Balance is reduced to zero.]
In no event will the aggregate distributions of principal to holders of the
Class A-1A Certificates, Class A-1B Certificates, Class A-1C Certificates or
Class A-2 Certificates exceed the Original Class A-1A Certificate Principal
Balance, the Original Class A-1B Certificate Principal Balance, the Original
Class A-1C Certificate Principal Balance or the Original Class A-2 Certificate
Principal Balance, respectively.
Distributions of principal and interest on the Certificates will be made by
the Trustee (in such capacity, the "Paying Agent") on each Distribution Date
commencing in [ ] to holders of record of the related Class of
Certificates as of the related Record Date. The Pooling and Servicing Agreement
establishes the Pass-Through Rate for each Class of Certificates as set forth in
the Summary of Terms herein. On each Distribution Date, the Paying Agent will
distribute Monthly Interest and the Principal Distribution Amounts in the
amounts and orders of priority set forth below.
INTEREST
On each Distribution Date, interest distributions will be made in the
following order of priority:
First, with respect to the Adjustable Rate Group, if the Financial Guaranty
Insurer has not defaulted on its obligations under the Financial Guaranty
Insurance Policy or any such default is not continuing, to the Financial
Guaranty Insurer the amount of any unreimbursed payments of Insured Amounts
(together with interest accrued on any unreimbursed payments of Insured Amounts
with respect to any prior Distribution Date) and any accrued and unpaid
Financial Guaranty Insurer Premium.
Second, to the Fixed Rate Group Class A Certificateholders and Adjustable
Rate Group Certificateholders, Monthly Interest with respect to the related
Mortgage Loan Group on a pro rata basis based on the aggregate amount of Accrued
Certificate Interest due to the holders of the Certificates of each such Class
within the Fixed Rate Group Certificates or Adjustable Rate Group Certificates,
as the case may be, up to the amount of Accrued Certificate Interest with
respect to such Class plus any outstanding Interest Carry Forward Amount with
respect to such Class;
Third, to the Class M-1F Certificateholders, Monthly Interest with respect
to the Fixed Rate Group then remaining, up to the amount of Accrued Certificate
Interest with respect to such Class;
Fourth, to the Class M-2F Certificateholders, Monthly Interest with respect
to the Fixed Rate Group then remaining, up to the amount of Accrued Certificate
Interest with respect to such Class;
Fifth, to the Class B-1F Certificateholders, Monthly Interest with respect
to the Fixed Rate Group then remaining, up to the amount of Accrued Certificate
Interest with respect to such Class; and
Sixth, the related "Monthly Excess Cashflow Amount" shall be applied as
described below under "Credit Enhancement -- Application of Monthly Excess
Cashflow Amounts."
PRINCIPAL
Fixed Rate Group. With respect to the Fixed Rate Group and each
Distribution Date before the related Stepdown Date, the Fixed Rate Group Class A
Certificateholders will be entitled to receive payment of 100% of the Fixed Rate
Group Principal Distribution Amount for such Distribution Date as follows:
first, to the Class A-6F Certificateholders, the Class A-6F Lockout Distribution
Amount, and then to all Fixed Rate Group Class A Certificateholders, by Class in
sequential order until the Certificate Principal Balance of each such Class has
been reduced to zero.
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With respect to the Fixed Rate Group and each Distribution Date on or after
the Stepdown Date, the Fixed Rate Group Certificateholders will be entitled to
receive payments of principal in the order of priority and amounts set forth
below up to the Principal Distribution Amount with respect to the Fixed Rate
Group:
First, the Fixed Rate Group Principal Distribution Amount, not to exceed
the Class A Principal Distribution Amount, shall be distributed to the Class
A-6F Certificateholders up to the Class A-6F Lockout Distribution Amount, and
any remaining amount thereof shall be distributed to the Fixed Rate Group Class
A Certificateholders, in sequential order by Class, until the Certificate
Principal Balance of each such Class has been reduced to zero;
Second, any remaining Fixed Rate Group Principal Distribution Amount, not
to exceed the related Class M-1F Principal Distribution Amount, shall be
distributed to the Class M-1F Certificateholders, until the Certificate
Principal Balance thereof has been reduced to zero;
Third, any remaining Fixed Rate Group Principal Distribution Amount, not to
exceed the Class M-2F Principal Distribution Amount, shall be distributed to the
Class M-2F Certificate holders, until the Certificate Principal Balance thereof
has been reduced to zero;
Fourth, any remaining Fixed Rate Group Principal Distribution Amount, not
to exceed the Class B-1F Principal Distribution Amount, shall be distributed to
the Class B-1F Certificateholders, until the Certificate Principal Balance
thereof has been reduced to zero; and
Fifth, any remaining Fixed Rate Group Principal Distribution Amount shall
be distributed as part of the Monthly Excess Cashflow Amount with respect to the
Fixed Rate Group as described herein under "Credit Enhancement -- Application of
Monthly Excess Cashflow Amounts."
The Fixed Rate Group Class A Certificates (other than the Class A-6F
Certificates) are "sequential pay" classes such that the Class A-5F
Certificateholders will receive no payments of principal until the Class A-4F
Certificate Principal Balance is reduced to zero, the Class A-4F
Certificateholders will receive no payments of principal until the Class A-3F
Certificate Principal Balance is reduced to zero, the Class A-3F
Certificateholders will receive no payments of principal until the Class A-2F
Certificate Principal Balance is reduced to zero and the Class A-2F
Certificateholders will receive no payments of principal until the Class A-1F
Certificate Principal Balance has been reduced to zero; provided, however, that
on any Distribution Date on which the sum of the Certificate Principal Balances
of the Subordinate Certificates and the related Overcollateralization Amount is
zero, any amounts of principal payable to the Fixed Rate Group Class A
Certificateholders on such Distribution Date shall instead be distributed pro
rata based on the outstanding Certificate Principal Balances of each such Class.
Adjustable Rate Group. On each Distribution Date, principal will be
distributed to the Adjustable Rate Group Certificateholders in an amount equal
to the Adjustable Rate Group Principal Distribution Amount, until the
Certificate Principal Balance on each such Class of Adjustable Rate Group
Certificates has been reduced to zero. The Adjustable Rate Group Certificates
are "concurrent pay" classes such that the Certificateholders of each such class
receives a fixed allocation percentage of the Adjustable Rate Group Principal
Distribution Amount until the Certificate Principal Balance of the Class A-1A
Certificates has been reduced to zero. Once the Class A-1A Certificates have
been reduced to zero, 100% of the Adjustable Rate Group Principal Distribution
Amount shall be paid to the Class A-2A Certificateholders. For the Class A-1A
Certificates, such allocated percentage (the "Class A-1A Percentage") shall be
(a) 50%, until the Class A-1A Certificate Principal Balance has been reduced to
zero and (b) thereafter will be zero. For the Class A-2A Certificates, such
allocated percentage (the "Class A-2A Principal Percentage") shall be 100% minus
the Class A-1A Principal Percentage. Any Adjustable Rate Group Principal
Distribution Amount remaining after the foregoing distribution shall be
distributed as part of the Monthly Excess Cash Flow Amount with respect to the
Adjustable Rate Group as described herein under "Credit Enhancement --
Application of Monthly Excess Cash Flow Amounts."
"LIBOR" shall mean the London interbank offered rate for one-month U.S.
dollar deposits. LIBOR for each Interest Period shall be determined on the
second business day preceding the first day of any Interest Period (each, a
"LIBOR Determination Date"), on the basis of the offered rates of the Reference
Banks for
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one-month U.S. dollar deposits, as such rates appear on the Reuters Screen LIBO
Page, as of 11:00 a.m. (London time) on such LIBOR Determination Date. As used
in this section, "business day" means a day on which banks are open for dealing
in foreign currency and exchange in London and New York City; "Reuters Screen
LIBO Page" means the display designated as page "LIBO" on the Reuters Monitor
Money Rates Service (or such other page as may replace the LIBO page on that
service for the purpose of displaying London interbank offered rates of major
banks); and "Reference Banks" means leading banks selected by the Trustee and
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market (i) with an established place of business in London, (ii) whose
quotations appear on the Reuters Screen LIBO Page on the LIBOR Determination
Date in question, (iii) which have been designated as such by the Trustee and
(iv) not controlling, controlled by or under common control with the Sponsor or
any Originator.
On each LIBOR Determination Date, LIBOR will be established by the Trustee
as follows:
(a) If on such LIBOR Determination Date two or more Reference Banks
provide such offered quotations, LIBOR shall be the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 0.0625%) of
such offered quotations.
(b) If on such LIBOR Determination Date fewer than two Reference Banks
provide such offered quotations, LIBOR shall be the greater of (x) LIBOR as
determined on the previous LIBOR Determination Date and (y) the Reserve
Interest Rate. The "Reserve Interest Rate" shall be the rate per annum that
the Trustee determines to be either (i) the arithmetic mean (rounded
upwards if necessary to the nearest whole multiple of 0.0625%) of the
one-month U.S. dollar lending rates which New York City banks selected by
the Trustee are quoting on the relevant LIBOR Determination Date to the
principal London offices of leading banks in the London interbank market
or, in the event that the Trustee can determine no such arithmetic mean,
(ii) the lowest one-month U.S. dollar lending rate which New York City
banks selected by the Trustee are quoting on such LIBOR Determination Date
to leading European banks.
The establishment of LIBOR on each LIBOR Determination Date by the Trustee
and the Trustee's calculation of the rate of interest applicable to the Class
A-2 Certificates for the related Interest Period shall (in the absence of
manifest error) be final and binding. Each such rate of interest may be obtained
by telephoning the Trustee at [ ].
The "Class A-1 Certificate Principal Balance" will equal, as of any
Distribution Date, the sum of the Class A-1A Certificate Principal Balance for
such Distribution Date, Class A-1B Certificate Principal Balance for such
Distribution Date and Class A-1C Certificate Principal Balance for such
Distribution Date. The "Class A-1A Certificate Principal Balance" will equal, as
of any Distribution Date, the Original Class A-1A Certificate Principal Balance
less all Monthly Principal and Excess Cash from either Mortgage Loan Group
distributed to holders of Class A-1A Certificates on previous Distribution Dates
[(exclusive, for the sole purpose of effecting the Certificate Insurer's
subrogation rights, of payments made by the Certificate Insurer in respect of
any Coverage Deficit for the Class A-1 Certificates and paid to the Class A-1A
Certificates under the Certificate Insurance Policy, except to the extent
reimbursed to the Certificate Insurer pursuant to the Pooling and Servicing
Agreement)]. The "Class A-1B Certificate Principal Balance" will equal, as of
any Distribution Date, the Original Class A-1B Certificate Principal Balance
less all Monthly Principal and Excess Cash from either Mortgage Loan Group
distributed to holders of Class A-1B Certificates on previous Distribution Dates
[(exclusive, for the sole purpose of effecting the Certificate Insurer's
subrogation rights, of payments made by the Certificate Insurer in respect of
any Coverage Deficit for the Class A-1 Certificates and paid to the Class A-1B
Certificates under the Certificate Insurance Policy, except to the extent
reimbursed to the Certificate Insurer pursuant to the Pooling and Servicing
Agreement)]. The "Class A-1C Certificate Principal Balance" will equal, as of
any Distribution Date, the Original Class A-1C Certificate Principal Balance
less all Monthly Principal and Excess Cash from either Mortgage Loan Group
distributed to holders of Class A-1C Certificates on previous Distribution Dates
[(exclusive, for the sole purpose of effecting the Certificate Insurer's
subrogation rights, of payments made by the Certificate Insurer in respect of
any Coverage Deficit for the Class A-1 Certificates and paid to the Class A-1C
Certificates under the Certificate
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Insurance Policy, except to the extent reimbursed to the Certificate Insurer
pursuant to the Pooling and Servicing Agreement)].
The "Class A-2 Certificate Principal Balance" will equal, as of any
Distribution Date, the Original Class A-2 Certificate Principal Balance less all
Monthly Principal and Excess Cash from either Mortgage Loan Group distributed to
holders of Class A-2 Certificates on previous Distribution Dates in reduction of
the Class A-2 Certificate Principal Balance [(exclusive, for the sole purpose of
effecting the Certificate Insurer's subrogation rights, of payments made by the
Certificate Insurer in respect of any Coverage Deficit for such Class under the
Certificate Insurance Policy, except to the extent reimbursed to the Certificate
Insurer pursuant to the Pooling and Servicing Agreement).]
The "Class A Certificate Principal Balance," as of any Distribution Date,
refers to either the Class A-1 Certificate Principal Balance for such
Distribution Date or the Class A-2 Certificate Principal Balance for such
Distribution Date, as applicable.
"Monthly Principal" with respect to each Class of Class A Certificates for
any Distribution Date will be an amount equal to (A) the aggregate of (i) any
Principal Payments received in respect of the Mortgage Loans in the related
Mortgage Loan Group during the related Collection Period, (ii) Net Liquidation
Proceeds (as defined herein) and Trust Insurance Proceeds (as defined herein)
allocable to principal recovered or collected in respect of the Mortgage Loans
in the related Mortgage Loan Group during the related Collection Period, (iii)
the aggregate of the amounts allocable to principal deposited in the Certificate
Account on the related Deposit Date by the Sponsor or the Servicer in connection
with a purchase, repurchase or substitution of any Mortgage Loans in the related
Mortgage Loan Group pursuant to the Pooling and Servicing Agreement, (iv) the
aggregate of amounts remitted by the Sponsor to the Trustee in connection with
the termination of the Trust upon liquidation of the remaining Mortgage Loans in
the related Mortgage Loan Group pursuant to the Pooling and Servicing Agreement,
and (v) with respect to the first Distribution Date, the amount, if any, of the
Prefunding Account Deposit allocated to the related Mortgage Loan Group to be
deposited in the Collection Account upon expiration of the Commitment Period,
reduced by (B) the amount of any Coverage Surplus for such Mortgage Loan Group
with respect to such Distribution Date. The "Principal Balance" of a Mortgage
Loan with respect to any Determination Date (as defined below) is the actual
outstanding principal balance thereof as of the close of business on the
Determination Date in the preceding month (or, in the case of the first
Distribution Date, as of the Cut-off Date), less (i) any Principal Payments
received in respect of such Mortgage Loan during the related Collection Period,
(ii) Net Liquidation Proceeds and Trust Insurance Proceeds allocable to
principal recovered or collected in respect of such Mortgage Loan during the
related Collection Period, (iii) the portion of the Purchase Price allocable to
principal remitted by the Sponsor or the Servicer to the Trustee on the next
succeeding Deposit Date in connection with a purchase, repurchase or
substitution of such Mortgage Loan pursuant to the Pooling and Servicing
Agreement, to the extent such amount is actually remitted on such Deposit Date,
(iv) the amount to be remitted by the Sponsor to the Trustee on the next
succeeding Deposit Date in connection with a substitution of a Qualified
Replacement Mortgage for such Mortgage Loan pursuant to the Pooling and
Servicing Agreement, to the extent such amount is actually remitted on such
Deposit Date and [(v) the amount to be remitted by the Certificate Insurer to
the Trustee on the next succeeding Deposit Date in connection with a purchase of
such Mortgage Loan pursuant to the Pooling and Servicing Agreement]; provided,
however, that Mortgage Loans that have become Liquidated Mortgage Loans since
the preceding Determination Date (or, in the case of the first Determination
Date, since the Cut-off Date) will be deemed to have a Principal Balance of zero
on the current Determination Date. "Determination Date" means, as to any
Distribution Date, the last day of the calendar month immediately preceding the
calendar month in which such Distribution Date occurs. "Principal Payment"
means, as to any Mortgage Loan and Collection Period, all amounts received or,
in the case of the principal portion of any Payment Ahead, deemed to have been
received by the Servicer from or on behalf of the related Mortgagor during such
Collection Period which, at the time of receipt or, in the case of any Payment
Ahead, at the time such Payment Ahead is deemed to have been received, were
applied or were required to be applied by the Servicer in reduction of the
Principal Balance of such Mortgage Loan. "Payment Ahead" means any payment of
one or more scheduled monthly payments remitted by a Mortgagor with respect to a
Mortgage Note in excess of the scheduled monthly
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payment due during such Collection Period with respect to such Mortgage Note,
which sums the related Mortgagor has instructed the Servicer to apply to
scheduled monthly payments due in one or more subsequent Collection Periods.
"Principal Prepayment" means any Mortgagor payment or other recovery in respect
of principal on a Mortgage Loan (including Net Liquidation Proceeds) which, in
the case of a Mortgagor payment, is received in advance of its scheduled due
date and is not accompanied by an amount as to interest representing scheduled
interest for any month subsequent to the month of such payment, or that was
accompanied by instructions from the related Mortgagor directing the Servicer to
apply such payment to the Principal Balance of such Mortgage Loan currently.
"Liquidated Mortgage Loan" means, as to any Distribution Date, any Mortgage Loan
as to which the Servicer has determined during the related Collection Period, in
accordance with its customary servicing procedures, that all Liquidation
Proceeds which it expects to recover from or on account of such Mortgage Loan
have been recovered.
"Available Funds" with respect to any Mortgage Loan Group and any
Distribution Date will consist of the sum of the amounts described in clauses
(a) through (j) below in respect of the related Mortgage Loan Group, less (i)
the Servicing Fee in respect of such Mortgage Loan Group and the related
Collection Period, (ii) Advances previously made in respect of the related
Mortgage Loan Group that are reimbursable to the Servicer (other than those
included in Liquidation Expenses for any Liquidated Mortgage Loan and reimbursed
from the related Liquidation Proceeds) in such Collection Period to the extent
permitted by the Pooling and Servicing Agreement and (iii) the aggregate amounts
(A) deposited into the Collection Account or Certificate Account attributable to
the related Mortgage Loan Group that may not be withdrawn therefrom pursuant to
a final and nonappealable order of a United States bankruptcy court of competent
jurisdiction imposing a stay pursuant to Section 362 of the United States
Bankruptcy Code and that would otherwise have been included in Available Funds
for such Mortgage Loan Group on such Distribution Date and (B) received by the
Trustee that are recoverable and sought to be recovered from the Trustee as a
voidable preference by a trustee in bankruptcy pursuant to the United States
Bankruptcy Code in accordance with a final nonappealable order of a court of
competent jurisdiction:
(a) the total amount of interest payments on or in respect of the
Mortgage Loans in the related Mortgage Loan Group received by or on behalf
of the Servicer during the related Collection Period, plus any Compensating
Interest Payments made by the Servicer in respect of the related Mortgage
Loans and any net income from related REO Properties (as defined herein)
for such Collection Period;
(b) all Principal Payments received or deemed to be received during
the related Collection Period in respect of the Mortgage Loans in the
related Mortgage Loan Group;
(c) the aggregate of any proceeds from or in respect of any policy of
insurance covering a Mortgage Loan in such Mortgage Loan Group that are
received during the related Collection Period and applied by the Servicer
to reduce the Principal Balance of the related Mortgage Loan ("Trust
Insurance Proceeds") (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);
(d) the aggregate of any other proceeds received by the Servicer
during the related Collection Period in connection with the liquidation of
any Mortgaged Property securing a Mortgage Loan in such Mortgage Loan
Group, whether through trustee's sale, foreclosure, condemnation, taking by
eminent domain or otherwise (including any insurance proceeds to the extent
not duplicative of amounts in clause (c) above) ("Liquidation Proceeds"),
less expenses incurred by the Servicer in connection with the liquidation
of such Mortgage Loan ("Net Liquidation Proceeds");
(e) the aggregate of the amounts received in respect of any Mortgage
Loans in such Mortgage Loan Group that are required or permitted to be
purchased, repurchased or substituted by the Sponsor or the Servicer, as
the case may be, during the related Collection Period as described in "
-- Assignment of Mortgage Loans" and "Origination and Servicing of the
Mortgage Loans -- Servicing of Mortgage Loans" herein, to the extent such
amounts are received by the Trustee on or before the related Deposit Date;
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(f) the amount of any Monthly Advances made in respect of such
Mortgage Loan Group for such Distribution Date;
(g) the aggregate of amounts deposited in the Certificate Account by
the Servicer [or the Certificate Insurer, as the case may be,] during such
Collection Period in connection with a termination of the Trust as
described under " -- Termination; Retirement of the Certificates" herein;
(h) in the case of the [ ] Distribution Date, amounts, if
any, remaining in the Prefunding Account and the Capitalized Interest
Account immediately prior to such Distribution Date and attributable to the
related Mortgage Loan Group at the end of the Commitment Period (in each
case net of reinvestment income payable to the Sponsor); and
(i) in the case of the [ ] Distribution Date, amounts
deposited by the Sponsor representing 30 days of interest on each Mortgage
Loan that does not have a Monthly Payment due in the Collection Period
relating to such Distribution Date.
PREFUNDING ACCOUNT
On the Closing Date, cash in the aggregate amount of approximately
$[ ] (the "Prefunding Account Deposit") will be deposited by the
Sponsor in a Prefunding Account, which account will be part of the Trust and
will be maintained as an Eligible Account with the Trustee, in its corporate
trust department. Approximately $[ ] of the Prefunding Account Deposit
will be allocated for the purchase of Mortgage Loans bearing fixed rates of
interest that will be included in the Fixed Rate Group and approximately
$[ ] of the Prefunding Account Deposit will be allocated for the
purchase of Mortgage Loans bearing adjustable rates of interest that will be
included in the Adjustable Rate Group. All Mortgage Loans purchased by the Trust
through application of amounts on deposit in the Prefunding Account are referred
to herein 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,
provided that any such increase shall not exceed $5,000,000. During the period
(the "Commitment Period") from the Closing Date until the earlier of (i) the
date on which the Prefunding Account Deposit is reduced to zero, and (ii)
[ ], the Prefunding Account Deposit will be reduced by the amount
thereof used to purchase 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 [and must be approved by the Certificate Insurer]. On the
Distribution Date in [ ], the portion of the Prefunding Account Deposit
allocated to the Fixed Rate Group that is remaining at the end of the Commitment
Period (net of reinvestment income payable to the Sponsor) will be applied to
reduce the Class A-1 Certificate Principal Balance and the portion of the
Prefunding Account Deposit allocated to the Adjustable Rate Group that is
remaining at the end of the Commitment Period (net of reinvestment income
payable to the Sponsor) will be applied to reduce the Class A-2 Certificate
Principal Balance. 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 in reduction of the
Class A Certificate Principal Balance of either Class of Class A Certificates,
no assurance can be given that such a distribution with respect to either Class
or both Classes of Class A Certificates will not occur on the Distribution Date
in [ ]. 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, and any portion of the Prefunding Account
Deposit allocated to the related Mortgage Loan Group remaining at the end of the
Commitment Period will be distributed on the [ ] Distribution Date in
reduction of the Class A Certificate Principal Balances of the related Classes,
thereby reducing the weighted average lives of such Certificates.
Amounts remaining on deposit in the Prefunding Account after the purchase
of Subsequent Mortgage Loans will be invested in Permitted Investments as
defined in the Pooling and Servicing Agreement. Permitted Investments are
required to mature as may be necessary for the purchase of Subsequent Mortgage
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Loans on any Subsequent Transfer Date no later than the Business Day prior to
the related Subsequent Transfer Date, and in any case, no later than the
Business Day prior to the [ ] Distribution Date. All interest and any
other investment earnings on amounts on deposit in the Prefunding Account will
be distributed to the Sponsor on the [ ] Distribution Date. The
Prefunding Account will not be part of the REMIC Pool.
CAPITALIZED INTEREST ACCOUNT
On the Closing Date, cash will be deposited by the Sponsor in the
Capitalized Interest Account, which account will be part of the Trust and will
be maintained as an Eligible Account with the Trustee, in its corporate trust
department. The amount on deposit in the Capitalized Interest Account will be
specifically allocated to cover shortfalls in interest on each Class of Class A
Certificates that may arise as a result of the utilization of the Prefunding
Account for the purchase by the Trust of Subsequent Mortgage Loans after the
Cut-off Date and will be so applied by the Trustee on the [ ]
Distribution Date. In the unlikely event that the full amount allocated to cover
interest shortfalls in respect of a Class of Class A Certificates is not
required for such purpose, the amount remaining (net of reinvestment income
payable to the Sponsor) will be applied on the [ ] Distribution Date to
reduce the Certificate Principal Balance of the related Class of Class A
Certificates.
Amounts on deposit in the Capitalized Interest Account will be invested in
Permitted Investments as defined in the Pooling and Servicing Agreement. All
such Permitted Investments are required to mature no later than the Business Day
prior to the [ ] Distribution Date as specified in the Pooling and
Servicing Agreement. All interest and any other investment earnings on amounts
on deposit in the Capitalized Interest Account will be distributed to the
Sponsor on the [ ] Distribution Date. The Capitalized Interest Account
will not be part of the REMIC Pool.
OVERCOLLATERALIZATION FEATURE
Credit enhancement with respect to the Class A-1 Certificates is expected
to result from the application of Excess Cash on each Distribution Date to the
reduction of the Certificate Principal Balance of the Class A-1 Certificates so
that over time the Aggregate Principal Balance of the Mortgage Loans in the
Fixed Rate Group will exceed the aggregate of the Certificate Principal Balance
of the Class A-1 Certificates. Credit enhancement with respect to the Class A-2
Certificates initially will be provided in part by overcollateralization
resulting from the Aggregate Principal Balance of the Initial Mortgage Loans in
the Adjustable Rate Group as of the Cut-off Date and the Prefunding Account
Deposit attributable to such Adjustable Rate Group exceeding the Original Class
A-2 Certificate Principal Balance which is expected to be supplemented by the
application of Excess Cash on each Distribution Date so that over time such
overcollateralization will increase. In either case, such overcollateralization
is intended to result in receipts, collections and recoveries on the Mortgage
Loans in the related Mortgage Loan Group in excess of the amount necessary to
pay the related Class A Monthly Interest required to be distributed on the
related Class of Class A Certificates on any Distribution Date and to reduce the
Class A Certificate Principal Balances to zero no later than the respective
Final Scheduled Payment Date (as defined herein) of each such Class or subclass,
as applicable. Excess Cash attributable to a Mortgage Loan Group will be
distributed on the related Class of Class A Certificates on each Distribution
Date to the extent necessary to reduce the Class A Certificate Principal Balance
of such Class until the related Coverage Amount equals the Required Coverage
Amount for such Class. Any Excess Cash that is not distributed on the related
Class of Class A Certificates on a given Distribution Date will be distributed
on the other Class of Class A Certificates, first to cover any shortfall in the
Class A Monthly Interest for such Class and Distribution Date and then to the
extent necessary to reduce the Class A Certificate Principal Balance of such
Class until the related Coverage Amount equals the applicable Required Coverage
Amount. Once the then applicable Required Coverage Amount for each Class of
Class A Certificates is reached, and so long thereafter as such Required
Coverage Amount for such Class of Class A Certificates is maintained, Excess
Cash with respect to such Class of Class A Certificates shall be applied first,
[to reimburse the Certificate Insurer for amounts to which it then may be
entitled in respect of Insured Amounts for the other Class and to pay amounts of
any unpaid Certificate Insurer Premium on prior
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Distribution Dates; second,] to reimburse the Servicer for any amounts to which
it may then be entitled; and thereafter, any remaining amount shall be
distributed to the holder of the Class R Certificate. Amounts distributed to the
Class R Certificateholder on any Distribution Date will not be available to pay
amounts due to Class A Certificateholders on subsequent Distribution Dates.
The "Excess Cash" for each Class of Class A Certificates on any
Distribution Date will be equal to Available Funds for the related Mortgage Loan
Group and such Distribution Date, reduced by (i) the amount of the Class A
Monthly Interest for such Class and such Distribution Date, (ii) the Monthly
Principal for such Mortgage Loan Group and such Distribution Date, [(iii) the
Certificate Insurer Premium (as defined herein) with respect to such Class on
such Distribution Date and (iv) any amounts payable to the Certificate Insurer
for unreimbursed Insured Amounts attributable to such Class paid on prior
Distribution Dates and the amount of any unpaid Certificate Insurer Premium from
prior Distribution Dates for the related Class].
The "Coverage Amount" with respect to any Distribution Date and each Class
of Class A Certificates is the amount, if any, by which (x) the Aggregate
Principal Balance of the Mortgage Loans in the related Mortgage Loan Group as of
the end of the related Collection Period exceeds (y) the Class A Certificate
Principal Balance of the related Class of Class A Certificates as of such
Distribution Date after taking into account distributions of Monthly Principal
(disregarding any permitted reduction in Monthly Principal due to a Coverage
Surplus in respect of such Class of Class A Certificates) made on such
Distribution Date. The required level of the Coverage Amount with respect to any
Distribution Date (the "Required Coverage Amount") will be equal to the amount
specified as such in the Pooling and Servicing Agreement. With respect to the
Class A-1 Certificates and the Class A-2 Certificates, the Pooling and Servicing
Agreement will provide that the applicable Required Coverage Amount in respect
of the related Class of Class A Certificates may increase or decrease during the
period such Class A Certificates remain outstanding. With respect to the Class
A-2 Certificates, if on any Distribution Date occurring after [ ], the
amount of Excess Cash distributable on the Class A-2 Certificates is less than
an amount specified in the Pooling and Servicing Agreement, the Required
Coverage Amount for the Class A-2 Certificates will be increased (any such
Distribution Date, a "Class A-2 Trigger Event Date"); provided, however, that
upon the satisfaction of certain cash flow requirements in respect of the Class
A-2 Certificates for a period of six consecutive Distribution Dates as specified
in the Pooling and Servicing Agreement, such Required Coverage Amount will
return to its original level. Any increase in the applicable Required Coverage
Amount for a Class of Class A Certificates (including, in the case of the Class
A-2 Certificates, an increase required on a Class A-2 Trigger Event Date) may
result in an accelerated amortization of such Class until such Required Coverage
Amount is reached. Conversely, any decrease in the Required Coverage Amount with
respect to such Class will result in a decelerated amortization of such Class
until such Required Coverage Amount is reached.
The application of Excess Cash to reduce the Class A Certificate Principal
Balance of the related Class and thereafter to reduce the Class A Certificate
Principal Balance of the other Class on any Distribution Date will have the
effect of accelerating the amortization of the Class A Certificates relative to
the amortization of the Mortgage Loans in the related Mortgage Loan Group.
In the event that the Required Coverage Amount with respect to a Class of
Class A Certificates is permitted to decrease or "step down" on any Distribution
Date in the future, the Pooling and Servicing Agreement will provide that all or
a portion of the Excess Cash that would otherwise be distributed to the related
Class of Class A Certificates on any such Distribution Date in reduction of the
Class A Certificate Principal Balance of such Class will be distributed to the
other Class of Class A Certificates in reduction of the Class A Certificate
Principal Balance of such Class until the Required Coverage Amount with respect
to the other Class of Class A Certificates is reached, and thereafter applied to
reimburse [the Certificate Insurer and] the Servicer[, in that order,] for any
amounts to which they may then be entitled. Any remaining Excess Cash shall be
distributed to the holder of the Class R Certificate. This may have the effect
of decelerating the amortization of the Class A Certificates relative to the
amortization of the related Mortgage Loans, and of reducing the related Coverage
Amount. If, on any Distribution Date, the Coverage Surplus with respect to the
related Class of Class A Certificates is, or, after taking into account
distributions of Monthly Principal (without taking into account any reduction
thereof as a result of a Coverage Surplus on such Distribution Date), would be,
greater than zero (i.e., the Coverage Amount is or would be greater than the
then applicable
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Required Coverage Amount), then any amounts that would otherwise be distributed
to such Class on such Distribution Date as Monthly Principal will instead be
distributed to the other Class of Class A Certificates in reduction of the Class
A Certificate Principal Balance of such Class until the then applicable Required
Coverage Amount with respect to the other Class of Class A Certificates, is
reached, and thereafter applied to reimburse [the Certificate Insurer and] the
Servicer, in that order, for any amounts to which they may be then entitled. Any
remaining Excess Cash will be paid to the holder of the Class R Certificate, in
an amount equal to [the lesser of (x) the remaining amount of such Coverage
Surplus not used to reimburse the Certificate Insurer for such Mortgage Loan
Group and (y)] the amount of the Monthly Principal for such Distribution Date.
With respect to any Distribution Date and any Class of Class A Certificates, a
"Coverage Surplus" means, the amount, if any, by which (x) the Coverage Amount
for such Class and such Distribution Date exceeds (y) the then applicable
Required Coverage Amount for such Class and such Distribution Date. As a
technical matter, a Coverage Surplus may result even prior to the occurrence of
any decrease or "step down" in the related Required Coverage Amount because the
related Class of Class A Certificates will be entitled to receive 100% of
collected principal on the Mortgage Loans, even though the related Class A
Certificate Principal Balance will, as a result of the initial
overcollateralization and the accelerated amortization caused by the application
of the Excess Cash, be less than the Aggregate Principal Balance of the Mortgage
Loans in the related Mortgage Loan Group, in the absence of any Realized Losses
(as defined herein) on the Mortgage Loans.
The Pooling and Servicing Agreement will provide that, on any Distribution
Date, all amounts collected on the Mortgage Loans in the related Mortgage Loan
Group in respect of principal during the applicable Collection Period will be
distributed to holders of the related Class of Class A Certificates in reduction
of the Class A Certificate Principal Balance of such Class on such Distribution
Date, except as provided above with respect to any Distribution Date for which
there exists a Coverage Surplus. If any Mortgage Loan became a Liquidated
Mortgage Loan during such prior Collection Period, the Net Liquidation Proceeds
related thereto and allocated to principal may be less than the Principal
Balance of the related Mortgage Loan; the amount of any such deficiency is a
"Realized Loss." In addition, the Pooling and Servicing Agreement will provide
that the Principal Balance of any Mortgage Loan that becomes a Liquidated
Mortgage Loan shall equal zero. The Pooling and Servicing Agreement will not
require that the amount of any Realized Loss be distributed to Class A
Certificateholders on the Distribution Date following the event of loss.
However, the occurrence of a Realized Loss will reduce the Coverage Amount for
the related Class of Class A Certificates, and will result in more Excess Cash,
if any, being distributed on the related Class of Class A Certificates in
reduction of the Class A Certificate Principal Balance of such Class on
subsequent Distribution Dates than would be the case in the absence of such
Realized Loss. The effect of the foregoing is to allocate losses to the holder
of the Class R Certificate by reducing, or eliminating entirely, payments of
Excess Cash to which such Certificateholder would otherwise be entitled.
[Overcollateralization and the Certificate Insurance Policy. The Pooling
and Servicing Agreement will require the Trustee to make a claim for an Insured
Amount under the Certificate Insurance Policy not later than the second Business
Day prior to any Distribution Date as to which the Trustee has determined that a
Coverage Deficit with respect to a Class of Class A Certificates will occur for
the purpose of applying the proceeds of such Insured Amount as a payment of
principal to the related Class of Class A Certificateholders on such
Distribution Date. With respect to any Distribution Date and any Class of Class
A Certificates, a "Coverage Deficit" will mean the amount, if any, by which (x)
the related Class A Certificate Principal Balance, after taking into account all
distributions to be made on such Distribution Date in reduction thereof,
including any Excess Cash distributions in respect of the Mortgage Loan Group
relating to the other Class of Class A Certificates, exceeds (y) the Aggregate
Principal Balance of the Mortgage Loans in the related Mortgage Loan Group as of
the end of the applicable Collection Period. Accordingly, the Certificate
Insurance Policy is similar to the provisions described above insofar as the
Certificate Insurance Policy guarantees ultimate collection of the full amount
of the Class A Certificate Principal Balance of each Class of Class A
Certificates, rather than current payments of the amounts of any Realized Losses
to the holders of each Class of Class A Certificates. INVESTORS IN THE CLASS A
CERTIFICATES SHOULD REALIZE THAT, UNDER CERTAIN LOSS OR DELINQUENCY SCENARIOS
APPLICABLE TO THE MORTGAGE LOAN GROUPS, THEY MAY TEMPORARILY RECEIVE NO
DISTRIBUTIONS IN REDUCTION OF THE CLASS A CERTIFICATE PRINCIPAL BALANCE OF THEIR
RESPECTIVE CLASS.]
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[THE CERTIFICATE INSURANCE POLICY
The Certificate Insurer will issue a Certificate Insurance Policy in favor
of the Trustee for the benefit of the related Class A Certificateholders. The
Certificate Insurance Policy unconditionally and irrevocably guarantees payment
of the Class A Monthly Interest and any Coverage Deficit in respect of each
Class of Class A Certificates on each Distribution Date. Insured Amounts paid by
the Certificate Insurer under the Certificate Insurance Policy will not cover
any Interest Shortfalls for the related Distribution Date.
In the event that, on any Distribution Date, (i) the Available Funds for
any Mortgage Loan Group and any available Excess Cash from the other Mortgage
Loan Group are less than the full amount of the Class A Monthly Interest for the
related Class of Class A Certificates and such Distribution Date or (ii) a
Coverage Deficit exists for the related Class of Class A Certificates, the
Trustee will make a claim on the Certificate Insurance Policy for payment of:
(a) an amount equal to the amount necessary to pay the full amount of the Class
A Monthly Interest for such Class on such Distribution Date and (b) an amount
equal to any such Coverage Deficit (the amount of any shortfalls in the Class A
Monthly Interest, together with any Coverage Deficit for such Class with respect
to any Distribution Date is the "Insured Amount"). The Certificate Insurer will
be obligated to pay to the Trustee on each Distribution Date the full amount of
the Insured Amount under the Certificate Insurance Policy for such Distribution
Date. See "The Certificate Insurance Policy and the Certificate Insurer" herein.
Any portion of an Insured Amount distributed to the related Class of Class
A Certificateholders will be allocated first to make up any shortfall on such
Distribution Date in the related Class A Monthly Interest and second to make up
any Coverage Deficit on such Distribution Date. Any Insured Amount distributed
in respect of the Class A-1 Certificates to make up any shortfall in Class A
Monthly Interest shall be distributed pro rata to Class A-1A Certificateholders,
Class A-1B Certificateholders and Class A-1C Certificateholders in proportion to
the shortfalls in Class A-1A Monthly Interest, Class A-1B Monthly Interest and
Class A-1C Monthly Interest. Any Insured Amount distributed in respect of the
Class A-1 Certificates to make up any Coverage Deficit shall be distributed
first to Class A-1A Certificateholders, in reduction of the Class A-1A
Certificate Principal Balance, until the Class A-1A Certificate Principal
Balance is reduced to zero, then to Class A-1B Certificateholders, in reduction
of the Class A-1B Certificate Principal Balance, until the Class A-1B
Certificate Principal Balance is reduced to zero and thereafter to Class A-1C
Certificateholders, in reduction of the Class A-1C Certificate Principal
Balance, until the Class A-1C Certificate Principal Balance is reduced to zero.
The Certificate Insurer will be subrogated to the rights of holders of the
Class A Certificates to receive any payments on the related Class or subclass of
Class A Certificates for which the Certificate Insurer paid Insured Amounts that
were not subsequently reimbursed; provided, however, that the Certificate
Insurer is not entitled to reimbursement on any Distribution Date for previously
paid Insured Amounts unless the holders of the related Class or subclass of
Class A Certificates will receive the full amount of the applicable Class A
Monthly Interest on such Distribution Date and no Coverage Deficit exists with
respect to the related Class of Class A Certificates.]
[THE CERTIFICATE INSURER PREMIUM
The Certificate Insurer will be entitled to receive a monthly premium from
the Trust (the "Certificate Insurer Premium") payable out of Available Funds on
each Distribution Date in respect of the related Class of Class A Certificates.
The Certificate Insurer Premium as of any Distribution Date will equal
one-twelfth (1/12) of the product of the applicable Insurer Premium Rate and the
Class A Certificate Principal Balance of the related Class of Class A
Certificates for such Distribution Date. The "Insurer Premium Rate" will be
[ ]%; provided, however, that with respect to the Class A-2 Certificates and
each Distribution Date commencing on the Distribution Date after
[ ], if the Coverage Amount for the Class A-2 Certificates is less
than the then applicable Required Coverage Amount for such Class as of the
immediately preceding Distribution Date, the Insurer Premium Rate with respect
to the Class A-2 Certificates and such Distribution Date shall be equal to [ ]%
See "-- Distributions on the Certificates" herein.]
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SUBORDINATION OF SUBORDINATE CERTIFICATES
The rights of the Subordinate Certificateholders and Retained
Certificateholders to receive distributions of interest and principal will be
subordinated to such rights of the Fixed Rate Group Class A Certificates, to the
extent described herein. This subordination is intended to enhance the
likelihood of regular receipt by such .
Certificateholders of the full amount of their scheduled monthly payments
of interest and principal and to afford them protection against Realized Losses
with respect to the Fixed Rate Group.
The protection afforded to the Fixed Rate Group Class A Certificates by
means of the subordination of the Subordinate Certificates, the Class C
Certificates and the Class R Certificates will be accomplished by the
preferential right of such Certificateholders to receive on each Distribution
Date, prior to any distribution being made to the Subordinate
Certificateholders, the Class C Certificateholders and the Class R
Certificateholders, the amounts of interest due them and principal available for
distribution to them on such Distribution Date and, if necessary, by the right
of such Certificateholders to receive future distributions of amounts that would
otherwise be payable to the Subordinate Certificateholders, the Class C
Certificateholders and the Class R Certificateholders.
Similarly, and for the same reasons, the rights of the Class C
Certificateholders, the Class R Certificateholders and of the Class M-2F and
Class B-1F Certificateholders to receive distributions will be subordinated, to
the extent described herein, to such rights of the Fixed Rate Group Class A and
Class M-1F Certificateholders. Also for the same reasons, the rights of the
Class C Certificateholders and the Class R Certificateholders, and the Class
B-1F Certificateholders to receive distributions will be subordinated in the
same manner to such rights of the Fixed Rate Group Class A and Class M
Certificateholders. Finally, the rights of the Class C Certificateholders and
the Class R Certificateholders to receive distributions will be subordinated in
the same manner to all such rights of all of the Certificateholders such that
such Class C Certificateholders and the Class R Certificateholders will receive
no distributions in respect of interest or principal until all holders of
Certificates relating to both Mortgage Loan groups have received all interest
and principal due them on each Distribution Date.
APPLICATION OF REALIZED LOSSES
If with respect to any Mortgage Loan that becomes a Liquidated Mortgage
Loan during a Collection Period, the Net Liquidation Proceeds relating thereto
and allocated to principal are less than the Principal Balance of such Mortgage
Loan, the amount of such insufficiency shall constitute a "Realized Loss". To
the extent that a Mortgage Loan Group experiences Realized Losses, such Realized
Losses will reduce the aggregate of the outstanding principal balances of the
Mortgage Loans in such Mortgage Loan Group and accordingly will reduce the
related Overcollateralization Amount. The application of related Monthly Excess
Interest Amounts to fund Extra Principal Distribution Amounts and thereby reduce
the Certificate Principal Balances of the related Certificates will increase the
related Overcollateralization Amount. Realized Losses which occur in a Mortgage
Loan Group will, in effect, be absorbed first, by the related Retained
Certificates, both through the application of the Monthly Excess Interest Amount
to fund such deficiency and through a reduction in the related
Overcollateralization Amount.
In the case of the Fixed Rate Group, if on any Distribution Date, after
taking into account the foregoing and (i) all Realized Losses experienced with
respect to a Mortgage Loan Group during the prior Collection Period, (ii) the
distribution of principal (including the Extra Principal Distribution Amount)
with respect to the Fixed Rate Group Certificates on such Distribution Date and
(iii) the application of any Excess Monthly Cashflow Amount available from the
Adjustable Rate Group to cover such Realized Losses to the extent described
herein, the related Overcollateralization Amount is negative, then the
Certificate Principal Balance of the Subordinate Certificates will be reduced
without a corresponding principal distribution until such Overcollateralization
Amount equals zero (the amount of such reduction, the "Applied Realized Loss
Amount") in reverse order of seniority (i.e., first, against the Class B-1F
Certificate Principal Balance until it is reduced to zero, second, against the
Class M-2F Certificate Principal Balance, until it is reduced to zero, and
third, against the Class M-1F Certificate Principal Balance until it is reduced
to zero). The Certificate
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Principal Balances of the Fixed Rate Group Class A Certificates and the
Adjustable Rate Group Certificates will not be so written down. Once the
Certificate Principal Balance of a Class of Subordinate Certificates has been
"written down," the amount of such write down will no longer bear interest, nor
will such amount thereafter be "reinstated" or "written up," although the amount
of such reductions may, on future Distribution Dates, be reimbursed to
Subordinate Certificateholders sequentially by Class (i.e., first, the Class
M-1F Certificates, second, the Class M-2F Certificates and, third, the Class
B-1F Certificates). Any such reimbursements will be made from any related
Monthly Excess Cashflow Amount remaining on a future Distribution Date after the
funding of any related Extra Principal Distribution Amount, any Interest Carry
Forward Amounts and any Realized Loss Amortization Amounts with respect to
related Subordinate Certificates of higher priority as described herein.
In the case of the Adjustable Rate Group, Realized Losses remaining after
such absorption by the Class R Certificates and Class C Certificates and the
application of the related Monthly Excess Interest Amount and through the
reduction of the related Overcollateralization Amount (including giving effect
to the cross-collateralization feature of the Trust) to the extent of any
Coverage Deficit will be covered by a draw on the Financial Guaranty Insurance
Policy in the amount of such remaining Realized Losses. With respect to the
Adjustable Rate Group only, the Financial Guaranty Insurer will have the right,
but not the obligation, to fund related Realized Losses with respect to any
Collection Period, which may have the effect of increasing the rate of
amortization of either such class.
OVERCOLLATERALIZATION AND APPLICATION OF MONTHLY EXCESS CASHFLOW AMOUNTS
The weighted average net Coupon Rate for the Mortgage Loans in each
Mortgage Loan Group is generally expected to be higher than the weighted average
of the Pass-Through Rates on the related Offered Certificates, and to the extent
that there is overcollateralization, such Mortgage Loans will be generating
still further excess interest relative to the coupons payable on the related
Certificates. Any resulting excess interest collections (the "Monthly Excess
Interest Amount") will first be applied to cover interest distributions on the
related Certificates to the extent necessitated by losses or delinquencies. The
remainder will be applied to make accelerated payments of principal (the "Extra
Principal Distribution Amount") to the extent described herein. Any such
application will cause the aggregate of the related Certificate Principal
Balances to amortize more rapidly than the Mortgage Loans in such Mortgage Loan
Group, increasing the amount of collateralization.
The overcollateralization mechanics of the Trust result in a limited
acceleration of the Certificates relative to the amortization of the Mortgage
Loans in the related Mortgage Loan Group, generally in the early months of the
transaction. The accelerated amortization is achieved by the application of the
excess interest amounts described above and certain amounts released from the
other Mortgage Loan Group as described below, to the payment of the Certificate
Principal Balances of the related Certificates. These features are intended to
create overcollateralization equal to the excess of the aggregate Principal
Balances of the Mortgage Loans in the related Mortgage Loan Group over the
aggregate Certificate Principal Balance of the related Certificates. Once the
required level of overcollateralization is reached, and subject to the
provisions described in the next paragraph, such accelerated amortization
features will cease, unless necessary to maintain the required level of
overcollateralization.
The Pooling and Servicing Agreement provides that, based on the delinquency
and loss experience of each Mortgage Loan Group and Cumulative Loss Events
relating to loss experience with respect to the Adjustable Rate Group, the
required level of overcollateralization with respect to such Mortgage Loan Group
may increase or decrease over time. In addition, the Pooling and Servicing
Agreement provides that the required level of overcollateralization with respect
to the Adjustable Rate Group may be modified, reduced or eliminated without the
consent of any Certificateholders. An increase would result in a temporary
period of accelerated amortization of the related Certificates to increase the
actual level of overcollateralization to its required level; a decrease would
result in a temporary period of decelerated amortization to reduce the actual
level of overcollateralization to its required level.
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As of the Closing Date, the Overcollateralization Amount with respect to
each Mortgage Loan Group is less than the related Targeted Overcollateralization
Amount. Absent Realized Losses, any Monthly Excess Interest Amounts will be paid
as Extra Principal Distribution Amounts increasing each related
Overcollateralization Amount up to the related Targeted Overcollateralization
Amount. On each Distribution Date as of which the related Targeted
Overcollateralization Amount has not been met (whether or not as a result of
Realized Losses), an Extra Principal Distribution Amount will be distributed
(subject to the availability of related Monthly Excess Interest Amounts). On any
Distribution Date on which the Targeted Overcollateralization Amount steps down,
the related Overcollateralization Release Amounts will not be passed through as
a distribution of principal to the holders of the related Certificates on such
Distribution Date such that the new Targeted Overcollateralization Amounts are
not exceeded. The amortization of the related Certificates will accordingly be
decelerated.
Any Monthly Excess Cashflow Amount (i.e., the sum of the related Monthly
Excess Interest Amount and the related Overcollateralization Release Amount)
with respect to the Fixed Rate Group and any Distribution Date shall be applied
in the following order of priority on such Distribution Date:
(1) to fund any Interest Carry Forward Amount for the Fixed Rate Group
Class A Certificates;
(2) to fund the related Extra Principal Distribution Amount for such
Distribution Date;
(3) to fund any Interest Carry Forward Amount for the Class M-1F
Certificates;
(4) to fund any Class M-1F Realized Loss Amortization Amount;
(5) to fund any Interest Carry Forward Amount for the Class M-2F
Certificates;
(6) to fund any Class M-2F Realized Loss Amortization Amount;
(7) to fund any Interest Carry Forward Amount for the Class B-1F
Certificates;
(8) to fund any Class B-1F Realized Loss Amortization Amount;
(9) to the Servicer to the extent of any unreimbursed Monthly Advances
or Servicing Advances with respect to the Fixed Rate Group;
(10) to fund any amounts listed in clauses (1)through (5) below for
such Distribution Date with respect to the Adjustable Rate Group to the
extent such amounts have not been funded in full through the application of
the Monthly Excess Cashflow Amount with respect to the Adjustable Rate
Group on such Distribution Date;
(11) to fund a distribution to the Class C Certificateholders; and
(12) to fund a distribution to the Class R Certificateholders.
Any Monthly Excess Cashflow Amount with respect to the Adjustable Rate
Group shall be applied in the following order of priority on any Distribution
Date:
(1) to fund any Interest Carry Forward Amount for the Adjustable Rate
Group Certificates;
(2) if the Financial Guaranty Insurer has not defaulted on its
obligations under the Financial Guaranty Insurance Policy or any such
default is not continuing, to the Financial Guaranty Insurer the amount of
any unreimbursed payments of Insured Amounts (together with interest
accrued on any unreimbursed payments of Insured Amounts with respect to any
prior Distribution Date) and any accrued and unpaid Financial Guaranty
Insurer Premium;
(3) to fund the related Extra Principal Distribution Amount for such
Distribution Date;
(4) to reimburse the Financial Guaranty Insurer for any amounts due
and owing under the Financial Guaranty Insurance Policy;
(5) to the Servicer to the extent of any unreimbursed Monthly Advances
or Servicing Advances with respect to the Adjustable Rate Group;
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(6) to fund any amounts listed in clauses (2), (4), (6) and (8) above
for such Distribution Date with respect to the Fixed Rate Group, to the
extent such amounts have not been funded in full through the application of
Monthly Excess Cashflow Amount with respect to the Fixed Rate Group on such
Distribution Date; provided that any portion of the Monthly Excess Cashflow
Amount with respect to the Adjustable Rate Group Certificates that consists
of any payment by the Financial Guaranty Investor will be excluded from
such funding;
(7) to fund a distribution to the Class C Certificateholder or make a
payment of any Supplemental Interest Amount (which shall be made to the
Adjustable Rate Group Certificates on a pro rata basis based on the
outstanding Supplemental Interest Amounts due thereon), as the case may be;
and
(8) to fund a distribution to one or more of the Class R
Certificateholders.
The "Class A Certificate Principal Balance" of any Class of the Class A
Certificates is the original Certificate Principal Balance of such Class as
reduced by all Principal Distribution Amounts actually distributed to the Fixed
Rate Group Class A Certificateholders on all prior Distribution Dates.
"Class B-1F Certificate Principal Balance" means, as of any date of
determination, the original Class B-1F Certificate Principal Balance as reduced
by the sum of (x) all amounts actually distributed to the Class B-1F
Certificateholders on all prior Distribution Dates on account of principal and
(y) the aggregate cumulative amount of Class B-1F Applied Realized Loss Amounts
on all prior Distribution Dates.
"Class M-1F Certificate Principal Balance" means, as of any date of
determination, the original Class M-1F Certificate Principal Balance as reduced
by the sum of (x) all amounts actually distributed to the Class M-1F
Certificateholders on all prior Distribution Dates on account of principal and
(y) the aggregate, cumulative amount of related Class M-1F Applied Realized Loss
Amounts on all prior Distribution Dates.
"Class M-2F Certificate Principal Balance" means, as of any date of
determination, the Original Class M-2F Certificate Principal Balance as reduced
by the sum of (x) all amounts actually distributed to the Class M-2F
Certificateholders on all prior Distribution Dates on account of principal and
(y) the aggregate, cumulative amount of related Class M-2F Applied Realized Loss
Amounts on all prior Distribution Dates.
"Class B-1F Applied Realized Loss Amount" means, as to the Class B-1F
Certificates and as of any Distribution Date, the lesser of (x) the related
Class B-1F Certificate Principal Balance (after taking into account the
distribution of the related Principal Distribution Amount on such Distribution
Date, but prior to the application of the related Class B-1F Applied Realized
Loss Amount, if any, on such Distribution Date) and (y) the related Applied
Realized Loss Amount as of such Distribution Date.
"Class M-1F Applied Realized Loss Amount" means, as of any Distribution
Date, the lesser of (x) the related Class M-1F Certificate Principal Balance
(after taking into account the distribution of the related Principal
Distribution Amount on such Distribution Date, but prior to the application of
the related Class M-1F Applied Realized Loss Amount, if any, on such
Distribution Date) and (y) the excess of (i) the related Applied Realized Loss
Amount as of such Distribution Date over (ii) the sum of the related Class M-2F
Applied Realized Loss Amount and the related Class B-1F Applied Realized Loss
Amount, in each case as of such Distribution Date.
"Class M-2F Applied Realized Loss Amount" means, as of any Distribution
Date, the lesser of (x) the related Class M-2F Certificate Principal Balance
(after taking into account the distribution of the related Principal
Distribution Amount, but prior to the application of the related Class M-2F
Applied Realized Loss Amount, if any) and (y) the excess of (i) the related
Applied Realized Loss Amount over (ii) the Class B-1F Applied Realized Loss
Amount as of such Distribution Date.
"Class B-1F Realized Loss Amortization Amount" means, as of any
Distribution Date, the lesser of (x) the Class B-1F Unpaid Realized Loss Amount
as of such Distribution Date and (y) the related Monthly Excess Cashflow Amount
remaining after distributions of the Interest Carry Forward Amounts payable to
the Fixed Rate Group Class A Certificateholders, the related Extra Principal
Distribution Amount, the Class M-1F Realized Loss Amortization Amount, the Class
M-2F Realized Loss Amortization Amount, the
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Class M-1F Interest Carry Forward Amount, the Class M-2F Interest Carry Forward
Amount and the Class B-1F Interest Carry Forward Amount, in each case for such
Distribution Date.
"Class M-1F Realized Loss Amortization Amount" means, as of any
Distribution Date, the lesser of (x) the related Class M-1F Unpaid Realized Loss
Amount and (y) the related Monthly Excess Cashflow Amount remaining after
distributions of the Interest Carry Forward Amounts payable to Fixed Rate Group
Class A Certificateholders, the related Extra Principal Distribution Amount and
the related Class M-1F Interest Carry Forward Amount.
"Class M-2F Realized Loss Amortization Amount" means, as of any
Distribution Date, the lesser of (x) the related Class M-2F Unpaid Realized Loss
Amount and (y) the related Monthly Excess Cashflow Amount remaining after
distributions of the related Class A Interest Carry Forward Amounts payable to
Fixed Rate Group Class A Certificateholders, the related Extra Principal
Distribution Amount, the related Class M-1F Realized Loss Amortization Amount,
the related Class M-1F Interest Carry Forward Amount and the related Class M-2F
Interest Carry Forward Amount.
"Unpaid Realized Loss Amount" means for any Class of the Subordinate
Certificates and as to any Distribution Date, the excess of (x) the aggregate
cumulative amount of related Applied Realized Loss Amounts with respect to such
Class for all prior Distribution Dates over (y) the aggregate, cumulative amount
of related Realized Loss Amortization Amounts with respect to such Class for all
prior Distribution Dates.]
MONTHLY ADVANCES; SERVICING ADVANCES; COMPENSATING INTEREST AND INTEREST
SHORTFALLS
Not later than the close of business on the Deposit Date prior to each
Distribution Date, the Servicer will be required to remit a Monthly Advance, if
any, to the Trustee for deposit in the Certificate Account to be distributed on
the related Distribution Date. A "Monthly Advance" with respect to each Class of
Class A Certificates will be equal to the sum of the interest portions of the
aggregate amount of monthly payments (net of the related Servicing Fee) due on
the Mortgage Loans in the related Mortgage Loan Group during the related
Collection Period but delinquent as of the close of business on the last day of
the related Collection Period, plus, with respect to each Mortgaged Property in
the related Mortgage Loan Group which was acquired in foreclosure or similar
action (each, an "REO Property") during or prior to the related Collection
Period and as to which final sale did not occur during the related Collection
Period, an amount equal to the excess, if any, of interest on the Principal
Balance of the Mortgage Loan relating to such REO Property for the related
Collection Period at the related Mortgage Interest Rate (net of the Servicing
Fee) over the net income from the REO Property transferred to the Certificate
Account for such Distribution Date.
In the course of performing its servicing obligations during any Collection
Period with respect to each Mortgage Loan Group, the Servicer will pay all
reasonable and customary "out-of-pocket" costs and expenses incurred in the
performance of its servicing obligations as it deems appropriate and advisable
under the circumstances ("Servicing Advances" and together with Monthly
Advances, "Advances"), including, but not limited to, the cost of (i)
maintaining REO Properties; (ii) any enforcement or judicial proceedings,
including foreclosures; (iii) the management and liquidation of any Mortgaged
Property acquired in satisfaction of the related Mortgage Loan; and (iv)
payments in respect of real estate taxes and assessments [and insurance
premiums]. The Pooling and Servicing Agreement provides that the Servicer may
pay all or a portion of any Advance out of amounts on deposit in the Collection
Account which are being held for distribution on a subsequent Distribution Date
relating to such Collection Period; any such amounts so used are required to be
replaced by the Servicer by deposit to the Collection Account on or before the
Deposit Date relating to such subsequent Distribution Date.
The Servicer may recover Monthly Advances and Servicing Advances, if not
theretofore recovered from the Mortgagor on whose behalf such Servicing Advance
or Monthly Advance was made, from late collections on the related Mortgage Loan,
including Liquidation Proceeds, Trust Insurance Proceeds and such other amounts
as may be collected by the Servicer from the Mortgagor or otherwise relating to
the Mortgage Loan. To the extent the Servicer, in its good faith business
judgment, determines that any Servicing Advance will not be ultimately
recoverable from late collections, Trust Insurance Proceeds, Liquidation
Proceeds on the related
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Mortgage Loans or otherwise ("Nonrecoverable Advances"), the Servicer may
reimburse itself on the first Distribution Date thereafter on which Available
Funds remaining in the Certificate Account would otherwise be distributable to
the Class R Certificateholder.
The Servicer will not be required to make any Servicing Advance which it
determines would be a Nonrecoverable Advance.
With respect to each Mortgage Loan as to which a prepayment was received,
which became a Liquidated Mortgage Loan or was otherwise charged off during the
Collection Period related to a Distribution Date, the Servicer will be required
with respect to such Distribution Date to remit to the Trustee, from amounts
otherwise payable to the Servicer as the Servicing Fee for the related Mortgage
Loan Group and Collection Period, an amount equal to the excess, if any, of (a)
30 days' interest on the Principal Balance of each such Mortgage Loan
(immediately prior to such payment) at the related Mortgage Interest Rate, net
of the applicable Servicing Fee, less (b) the amount of interest actually
received on such Mortgage Loan during such Collection Period ("Compensating
Interest Payments") for distribution on the related Class of Class A
Certificates on such Distribution Date. The Servicer will not be entitled to be
reimbursed from collections on the Mortgage Loans or any assets of the Trust for
any Compensating Interest Payments made. If the Servicing Fee for the related
Mortgage Loan Group in respect of such Collection Period is insufficient to make
the entire required Compensating Interest Payment, the resulting shortfall (a
"Prepayment Interest Shortfall") will reduce the amount of interest due and
payable on the related Class of Class A Certificates on such Distribution Date
and such reduction will not be recoverable thereafter. In addition, the
application of the Soldiers' and Sailors' Civil Relief Act of 1940, as amended
(the "Relief Act"), or similar legislation to any Mortgage Loan may adversely
affect, for an indeterminate period of time, the ability of the Servicer to
collect full amounts of interest on such Mortgage Loan ("Relief Act Shortfalls";
Relief Act Shortfalls and Prepayment Interest Shortfalls are, collectively,
"Interest Shortfalls"). See "Risk Factors -- Limitations on Interest Payments
and Foreclosures" in the Prospectus. [Interest Shortfalls will not be covered by
the Certificate Insurance Policy.]
REPORTS TO CERTIFICATEHOLDERS
Concurrently with each distribution to Certificateholders, the Trustee will
mail a statement to each Class A-1A Certificateholder, Class A-1B
Certificateholder, Class A-1C Certificateholder and Class A-2 Certificateholder
in the form required by the Pooling and Servicing Agreement and setting forth
the following information:
(a) the amount of such distribution to Class A-1A Certificateholders,
Class A-1B Certificateholders, Class A-1C Certificateholders and Class A-2
Certificateholders allocable to (i) Monthly Principal and (ii) any Excess
Cash distribution;
(b) the amount of such distribution to Class A-1A Certificateholders,
Class A-1B Certificateholders, Class A-1C Certificateholders and Class A-2
Certificateholders allocable to Class A Monthly Interest;
(c) the amount of such distribution to Class A-1A Certificateholders,
Class A-1B Certificateholders and Class A-1C Certificateholders allocable
to any Excess Cash distribution attributable to the Adjustable Rate Group
and the amount of such distribution to Class A-2 Certificateholders
allocable to any Excess Cash distribution attributable to the Fixed Rate
Group;
(d) the Class A-1A Certificate Principal Balance, the Class A-1B
Certificate Principal Balance, the Class A-1C Certificate Principal Balance
and the Class A-2 Certificate Principal Balance of the related Class or
subclass after giving effect to the distribution of Monthly Principal and
any Excess Cash applied to reduce the related Certificate Principal Balance
on such Distribution Date with respect to such Class or subclass;
(e) the Aggregate Principal Balance of the related Mortgage Loan Group
and the Group Factor (as defined below) for the following Distribution
Date;
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(f) the amount of unreimbursed Monthly Advances and/or Servicing
Advances, if any, with respect to the related Mortgage Loan Group;
(g) the number and the aggregate of the Principal Balances of the
Mortgage Loans in the related Mortgage Loan Group delinquent (i) one month,
(ii) two months and (iii) three or more months as of the end of the related
Collection Period;
(h) the aggregate of the Principal Balances of the Mortgage Loans in
the related Mortgage Loan Group in foreclosure or other similar proceedings
and the book value of any real estate acquired through foreclosure or grant
of a deed in lieu of foreclosure;
[(i) the Insured Amount, if any, relating to the related Class of
Class A Certificates and such Distribution Date;]
(j) the amount of the Servicing Fee paid to or retained by the
Servicer in respect of the related Mortgage Loan Group for the related
Collection Period; and
(k) the Coverage Amount, the then applicable Required Coverage Amount,
the Coverage Surplus, if any, and the Coverage Deficit, if any, in respect
of the related Mortgage Loan Group.
In the case of information furnished pursuant to clauses (a) through (c)
above, the amounts shall be expressed as a dollar amount per Class A-1A
Certificate, Class A-1B Certificate, Class A-1C Certificate and Class A-2
Certificate with a $1,000 principal denomination.
As to any Distribution Date, the "Group Factor" will be the percentage
obtained (carried to eight decimal places, rounded down) by dividing the
Aggregate Principal Balance of the related Mortgage Loan Group on such
Distribution Date (after giving effect to any distribution of principal on the
Class A Certificates on such Distribution Date) by the Aggregate Principal
Balance of the related Mortgage Loan Group as of the Cut-off Date.
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 Class A-1A
Certificateholder, Class A-1B Certificateholder, Class A-1C Certificateholder
and Class A-2 Certificateholder and to the Underwriters a statement containing
the information set forth in clauses (a) through (c) above, aggregated for such
calendar year or, in the case of each person who was a Class A-1A
Certificateholder, Class A-1B Certificateholder, Class A-1C Certificateholder
and Class A-2 Certificateholder for a portion of such calendar year, setting
forth such information for each month thereof.
TERMINATION; RETIREMENT OF THE CERTIFICATES
The obligations created by the Pooling and Servicing Agreement will
terminate upon the payment to Certificateholders of all amounts held in the
Certificate Account or by or on behalf of the Servicer and required to be paid
to the Certificateholders pursuant to the Pooling and Servicing Agreement
following the earlier of (a) the purchase by the Servicer of all Mortgage Loans
and all property acquired in respect of any Mortgage Loan remaining in the Trust
at a price not less than the sum of (x) 100% of the Principal Balance of each
Mortgage Loan (other than any Mortgage Loan as to which title to the underlying
Mortgaged Property has been acquired and whose fair market value is included
pursuant to clause (y) below) as of the final Distribution Date, and (y) the
fair market value of each Mortgaged Property then held by the Trust (as
determined by the Servicer as of the close of business on the third Business Day
next preceding the date upon which notice of any such termination is furnished
to Certificateholders), plus one month's interest at the interest rate on each
Mortgage Loan (including any Mortgage Loan as to which title to the underlying
Mortgaged Property has been acquired by the Trust) less any payments of
principal and interest received during the related Collection Period in respect
of such Mortgage Loans; and (b) the final payment or other liquidation of the
Principal Balance of the last Mortgage Loan remaining in the Trust or the
disposition of all property remaining in the Trust acquired in respect of any
Mortgage Loan. In no event, however, will the Trust continue beyond the
expiration of 21 years from the death of the last survivor of certain persons
named in such Pooling and Servicing Agreement. Written notice of termination of
the Pooling and Servicing Agreement will
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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.
The right of the Servicer to make the purchase described in clause (a) above is
conditioned upon the Pool Balance prior to such purchase being less than [ ]%
of the sum of the Pool Balance as of the Cut-off Date and the Prefunding Account
Deposit.
[In addition, the Certificate Insurer will have the option to purchase from
the Trust all Mortgage Loans and all property acquired in respect of any
Mortgage Loan then remaining in the Trust at the price set forth in the
immediately preceding paragraph plus the amount of any outstanding and unpaid
fees and expenses of the Trustee and the Servicer if, on any Distribution Date,
Mortgage Loans with aggregate Cut-off Date Principal Balances that equal or
exceed [ ]% of the sum of the Pool Balance as of the Cut-off Date and the
Prefunding Account Deposit have become Liquidated Mortgage Loans.]
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, (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.
If the termination of the Trust is in connection with a purchase of the
assets of the Trust by the Servicer [or the Certificate Insurer] and the fair
market value of any acquired property is less than the Principal Balance of the
related Mortgage Loan, then the excess of such Principal Balance over such fair
market value shall be allocated in reduction of the amounts otherwise
distributable on the final Distribution Date in the following order of priority:
first, to the holder of the Class R Certificate and, second, to the holders of
the Class A Certificates. The distribution on the final Distribution Date in
connection with the purchase by the Servicer [or the Certificate Insurer] of the
assets of the Trust shall be in lieu of the distribution otherwise required to
be made on such Distribution Date in respect of the Class A Certificates.
Any such termination of the Trust by the Servicer [or the Certificate
Insurer] will be effected only pursuant to a "qualified liquidation" as defined
in Code Section 860F(a)(4)(A) and the receipt by the Trustee of a satisfactory
opinion of counsel that such purchase will not (i) result in the imposition of a
tax on "prohibited transactions" under Code Section 860F(a)(1) or (ii) cause the
REMIC Pool to fail to qualify as a REMIC.
THE TRUSTEE
[Name of Trustee] will be the Trustee under the Pooling and Servicing
Agreement. The Pooling and Servicing Agreement will provide that the Trustee is
entitled to certain fees 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 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. See "The Pooling and Servicing Agreement -- The Trustee" in the
Prospectus.
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THE MORTGAGE LOANS
GENERAL
The following is a brief description of certain terms of the Initial
Mortgage Loans based on the Initial Mortgage Loans and each Mortgage Loan Group
as of the date of this Prospectus Supplement. Certain mortgage loans may be
removed, prior to the Closing Date, from the Mortgage Pool and each Mortgage
Loan Group as described herein, in which case an amount equal to the aggregate
principal balances of such mortgage loans, but in no event more than
$[ ] will be added to the Prefunding Account Deposit on the Closing
Date. As a result, the statistical information presented below regarding the
Initial Mortgage Loans and each Mortgage Loan Group set forth herein may vary in
certain limited respects from comparable information based on the actual
composition of the Mortgage Pool and each Mortgage Loan Group at the Closing
Date. In addition, the Mortgage Pool may vary from the description below due to
a number of factors, including prepayments and the purchase of Subsequent
Mortgage Loans. See "-- Conveyance of Subsequent Mortgage Loans" herein.
None of the Mortgage Loans is or will be insured or guaranteed by the
Sponsor, the Servicer, the Trustee, any Originator or any of their respective
affiliates, or by any governmental agency or other person.
A schedule of the Initial Mortgage Loans included in the 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 Commitment Period in a form
comparable to the description of the Initial Mortgage Loans contained in "ANNEX
A: Description of the Mortgage Pool" will be filed with the Securities and
Exchange Commission within 15 days after the expiration of the Commitment
Period.
The term "Aggregate Principal Balance" means the aggregate of the Principal
Balances of the Mortgage Loans in the related Mortgage Loan Group or in the
Mortgage Pool, as specified. The information expressed as a percentage of the
Aggregate Principal Balance may not total 100% due to rounding. For a more
detailed description of certain characteristics of the Initial Mortgage Loans in
tabular form, see "ANNEX A: Description of the Mortgage Pool" at the end of this
Prospectus Supplement.
Each Mortgage Loan in the Trust will be assigned to one of two mortgage
loan groups (the "Fixed Rate Group" and the "Adjustable Rate Group," and each a
"Mortgage Loan Group") comprised of Mortgage Loans which bear fixed interest
rates only, in the case of the Fixed Rate Group, and Mortgage Loans which bear
adjustable interest rates only, in the case of the Adjustable Rate Group. The
Initial Mortgage Loans contained in the Fixed Rate Group are secured by first,
second and third liens with respect to the related Mortgaged Properties.
Substantially all of the Initial Mortgage Loans contained in the Adjustable Rate
Group are secured by first and second liens on the related Mortgaged Properties.
The Class A-1 Certificates represent undivided beneficial ownership interests in
all Mortgage Loans contained in the Fixed Rate Group, and the Class A-2
Certificates represent undivided beneficial ownership interests in all Mortgage
Loans contained in the Adjustable Rate Group.
Each Mortgage Loan will have the interest due thereon computed on an
actuarial basis. Each Mortgage Loan generally will provide for the payment of a
charge if the principal thereof is paid prior to its stated maturity date. Such
charge, however, will not be available to the Trust but will instead be paid to
the Servicer as additional servicing compensation. All of the Mortgage Loans
will be required to be covered by standard hazard insurance policies insuring
against certain losses.
In connection with the assignment of the Initial Mortgage Loans to the
Trust, the Sponsor will represent and warrant that, among other things, as of
the opening of business on the Cut-off Date, and excluding Mortgage Loans for
which a substitution is made prior to the Closing Date, no Mortgage Loan had
three or more monthly payments past due, not more than [ ]% of the Initial
Mortgage Loans (by Cut-off Date Principal Balance) had two or more monthly
payments past due and not more than [ ]% of the Initial Mortgage Loans (by
Cut-off Date Principal Balance) had one or more monthly payments past due.
However, investors in the Class A Certificates should be aware that only
approximately [ ]% and approximately [ ]%
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(by Cut-off Date Principal Balance) of the Mortgage Loans in the Fixed Rate
Group and the Adjustable Rate Group, respectively, had a first monthly payment
due on or before [ ] and it was not possible for any Mortgage Loan other
than such Mortgage Loans to have had two or more monthly payments past due as of
the Cut-off Date.
FIXED RATE GROUP
As of the Cut-off Date, the Aggregate Principal Balance of the Initial
Mortgage Loans in the Fixed Rate Group was $[ ]. Approximately [ ]%, [ ]%
and [ ]% of the related Mortgaged Properties (by Cut-off Date Principal
Balance) were single family residences, two-to four-family residences and units
in condominium developments, respectively, and no more than [ ]% of the
Mortgage Loans in the Fixed Rate Group (by Cut-off Date Principal Balance) were
secured by Mortgaged Properties located in any single ZIP code.
The original weighted average Combined Loan-to-Value Ratio of all Initial
Mortgage Loans in the Fixed Rate Group was approximately [ ]%. The maximum and
average current balances as of the Cut-off Date were approximately $[ ] and
$[ ], respectively. The average appraised value of the Mortgaged Properties
securing Mortgage Loans in the Fixed Rate Group was approximately $[ ]. The
"Combined Loan-to-Value Ratio" is the sum of the outstanding principal balance
(at origination of each Mortgage Loan) of each mortgage loan, if any, senior to
such Mortgage Loan and the Original Principal Balance of such Mortgage Loan as a
percentage of the appraised valuation (or, if the Mortgage Loan was obtained in
connection with the purchase of the related Mortgaged Property, the purchase
price, if less) of the related Mortgaged Property determined by the Originator
at the time of origination of such Mortgage Loan. See "Risk Factors -- Risks
Associated with Underwriting Standards" herein.
The interest rates borne by the Initial Mortgage Loans (each, a "Mortgage
Interest Rate") in the Fixed Rate Group as of the Cut-off Date ranged from
approximately [ ]% per annum to [ ]% per annum. As of the Cut-off Date, the
weighted average Mortgage Interest Rate of the Initial Mortgage Loans in the
Fixed Rate Group was approximately [ ]% per annum.
The weighted average remaining term to stated maturity of the Initial
Mortgage Loans in the Fixed Rate Group was approximately [ ]months. The
weighted average original term to maturity of the Initial Mortgage Loans in the
Fixed Rate Group was approximately [ ] months. As of the Cut-off Date, the
weighted average seasoning of the Initial Mortgage Loans in the Fixed Rate Group
was less than [ ] months.
Based on the Aggregate Principal Balance of the Mortgage Loans in the Fixed
Rate Group as of the Cut-off Date, approximately [ ]% of the Mortgage Loans (by
Cut-off Date Principal Balance) provide for the payment of principal and
interest on a level basis to fully amortize such Mortgage Loan over its stated
term. The remaining approximately [ ]% of the Mortgage Loans in the Fixed Rate
Group (by Cut-off Date Principal Balance) are Balloon Loans which provide for
regular monthly payments of principal and interest computed on the basis of an
amortization term of 360 months that is longer than the related term to stated
maturity, with a "balloon" payment due at stated maturity that will be
significantly larger than the monthly payments. The Mortgage Loans in the Fixed
Rate Group have original terms to stated maturity of up to 30 years.
ADJUSTABLE RATE GROUP
As of the Cut-off Date, the Aggregate Principal Balance of the Initial
Mortgage Loans in the Adjustable Rate Group was $[ ]. Approximately [ ]%,
[ ]% and [ ]% of the related Mortgaged Properties (by Cut-off Date Principal
Balance) were single family residences, two-to four-family residences and units
in condominium developments, respectively, and no more than [ ]% of the
Mortgage Loans in the Adjustable Rate Group (by Cut-off Date Principal Balance)
were secured by Mortgaged Properties located in any single ZIP code.
The original weighted average Combined Loan-to-Value Ratio of all Initial
Mortgage Loans in the Adjustable Rate Group was approximately [ ]%. The maximum
and average current balances as of the
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Cut-off Date were approximately $[ ] and $[ ], respectively. The average
appraised value of the Mortgaged Properties securing Initial Mortgage Loans in
the Adjustable Rate Group was approximately $[ ].
The Initial Mortgage Loans in the Adjustable Rate Group bear interest rates
that, after a period of approximately six months, two years, three years or five
years following the related date of origination, adjust based on either (i) the
London interbank offered rate for six-month United States Dollar deposits (the
"six-month LIBOR index") based on quotations of major banks as published in The
Wall Street Journal or (ii) the one-year CMT index. The Initial Mortgage Loans
in the Adjustable Rate Group that have interest rates adjusted on the basis of
the six-month LIBOR index have semi-annual interest rate and payment adjustment
frequencies after the applicable next interest rate adjustment date. The Initial
Mortgage Loans that have interest rates adjusted on the basis of the one-year
CMT index have annual interest rate and payment adjustment frequencies after the
applicable next interest rate adjustment date. As of the Cutoff Date, not more
than [ ]% of the Mortgage Loans in the Adjustable Rate Group (by Cut-off Date
Principal Balance) have Mortgage Interest Rates that remain fixed for a period
of approximately two years, three years or five years from the related date of
origination and thereafter are adjustable semi-annually on the basis of the
six-month LIBOR index, subject to the initial and periodic rate adjustment caps
described below. As of the Cut-off Date, the weighted average remaining period
to the next interest rate adjustment date for the Initial Mortgage Loans was
approximately [ ] months.
Each Mortgage Loan in the Adjustable Rate Group that has its interest rate
adjusted on the basis of the six-month LIBOR index has a semi-annual rate
adjustment cap of [ ]% to [ ]% above the then current interest rate for such
Mortgage Loan. In addition, each Mortgage Loan in the Adjustable Rate Group that
has an initial rate adjustment date that is approximately two years, three years
or five years from its date of origination has or will have an initial rate
adjustment cap of [ ]% to [ ]% above the related initial Mortgage Interest
Rate. Each Mortgage Loan in the Adjustable Rate Group that has its interest rate
adjusted on the basis of the one-year CMT index has an annual rate adjustment
cap of [ ]% above the then current interest rate for such Mortgage Loan. The
Mortgage Loans in the Adjustable Rate Group have a weighted average periodic
rate adjustment cap as of the Cut-off Date equal to approximately [ ]%. As of
the Cut-off Date, the weighted average Mortgage Interest Rate was approximately
[ ]% per annum. The Mortgage Loans in the Adjustable Rate Group had a weighted
average gross margin as of the Cut-off Date of approximately [ ]%. The initial
gross margin for the Initial Mortgage Loans in the Adjustable Rate Group ranged
from approximately [ ]% to [ ]%. The interest rates borne by the Mortgage
Loans in the Adjustable Rate Group as of the Cut-off Date ranged from
approximately [ ]% per annum to approximately [ ]% per annum. As of the
Cut-off Date, the maximum rates at which interest may accrue on the Mortgage
Loans in the Adjustable Rate Group (the "Maximum Rates") ranged from [ ]% per
annum to [ ]% per annum. The Mortgage Loans in the Adjustable Rate Group had a
weighted average Maximum Rate as of the Cut-off Date of approximately [ ]% per
annum. As of the Cut-off Date, the minimum rates at which interest may accrue on
the Mortgage Loans in the Adjustable Rate Group after their respective first
interest adjustment dates (the "Minimum Rates") ranged from approximately [ ]%
per annum to approximately [ ]% per annum. As of the Cut-off Date, the weighted
average Minimum Rate was approximately [ ]% per annum.
The weighted average remaining term to stated maturity of the Initial
Mortgage Loans in the Adjustable Rate Group was approximately [ ] months. The
weighted average original term to maturity of the Initial Mortgage Loans in the
Adjustable Rate Group was approximately [ ] months. As of the Cut-off Date, the
weighted average seasoning of the Initial Mortgage Loans in the Adjustable Rate
Group was less than [ ] months.
Approximately [ ]% of the Initial Mortgage Loans in the Adjustable Rate
Group (by Cut-off Date Principal Balance) are Balloon Loans.
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CONVEYANCE OF SUBSEQUENT MORTGAGE LOANS
The obligation of the Trust to purchase the Subsequent Mortgage Loans on a
Subsequent Transfer Date for assignment to the Mortgage Pool is subject to the
following requirements: (i) no Subsequent Mortgage Loans may be 30 or more days
contractually delinquent as of the related Subsequent Cut-off Date, (ii) the
original term to stated maturity of such Subsequent Mortgage Loans may not
exceed 30 years; (iii) each Subsequent Mortgage Loan will have an interest rate
of not less than [ ]% if it is a fixed rate Mortgage Loan and an initial
interest rate of not less than [ ]% if it is an adjustable rate Mortgage Loan,
(iv) such Subsequent Mortgage Loans will be underwritten or re-underwritten, as
applicable, in accordance with the criteria set forth under "The
Originators -- Underwriting Guidelines -- Sponsor's Guidelines" in the
Prospectus, and (v) following the purchase of such Subsequent Mortgage Loans by
the Trust, the Mortgage Loans in the related Mortgage Loan Group (including the
Subsequent Mortgage Loans) (a) will have a weighted average Mortgage Interest
Rate of at least [ ]% with respect to the Mortgage Loans in the Fixed Rate
Group and an initial weighted average Mortgage Interest Rate of at least [ ]%
with respect to the Mortgage Loans in the Adjustable Rate Group; (b) will each
have a principal balance not in excess of $[ ]; and (c) may include Mortgage
Loans that bear interest based on the one-year CMT index, provided that the
aggregate Subsequent Cut-off Date Principal Balance of such Mortgage Loans does
not exceed [ ]% of the sum of the Aggregate Principal Balance of the Mortgage
Loans in the Adjustable Rate Group plus the portion of the Prefunding Account
Deposit that is attributable to the Adjustable Rate Group on the Closing Date.
See "Risk Factors -- The Subsequent Mortgage Loans and the Prefunding Account"
herein. [In addition, the transfer of Subsequent Mortgage Loans to the Trust on
any Subsequent Transfer Date is subject to the approval of the Certificate
Insurer.]
PREPAYMENT AND YIELD CONSIDERATIONS
The weighted average life of and, if purchased at other than par, the yield
to maturity on a Class A Certificate will be directly related to the rate of
payment of principal of the Mortgage Loans in the related Mortgage Loan Group,
including for this purpose voluntary payment in full of Mortgage Loans prior to
stated maturity, liquidations due to defaults, casualties and condemnations, and
repurchases of Mortgage Loans by the Sponsor or the Servicer [or purchases of
the Mortgage Loans by the Certificate Insurer]. The actual rate of principal
prepayments on the Mortgage Loans may be influenced by a variety of economic,
tax, geographic, demographic, social, legal and other factors and has fluctuated
considerably in recent years. In addition, the rate of principal prepayments may
differ between the Mortgage Loan Groups at any time because of specific factors
relating to the Mortgage Loans in the particular group, including, among other
things, the age of the Mortgage Loans, the manner in which the Mortgage Interest
Rates on the Mortgage Loans are calculated, the geographic locations of the
Mortgaged Properties and the extent of the Mortgagors' equity in such Mortgaged
Properties, and changes in the Mortgagors' housing needs, job transfers and
unemployment.
Because all amounts available for distribution on each Class of Class A
Certificates after distributions in respect of the Class A Monthly Interest on
such Class, including all or a portion of the Excess Cash, are applied as
reductions of the Class A Certificate Principal Balance of the related Class,
the weighted average lives of such Certificates will be influenced by the amount
of Excess Cash so applied. Because Excess Cash attributable to the
overcollateralization feature is derived, in part, from interest collections on
the Mortgage Loans and will be applied to reduce the related Class A Certificate
Principal Balance of each Class, the aggregate payments in reduction of the
related Class A Certificate Principal Balance of each Class on a Distribution
Date will usually be greater than the aggregate amount of principal payments
(including prepayments) on the Mortgage Loans in the related Mortgage Loan Group
distributable on such Distribution Date. As a consequence, Excess Cash available
for distribution in reduction of the Class A Certificate Principal Balance of a
Class will increase in proportion to the outstanding Class A Certificate
Principal Balance of the related Class over time in the absence of offsetting
Realized Losses on the Mortgage Loans in the related Mortgage Loan Group.
Excess Cash attributable to any Mortgage Loan Group will be distributed on
the related Class of Class A Certificates in reduction of the related Class A
Certificate Principal Balance of such Class on each
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Distribution Date to the extent the then applicable Required Coverage Amount
exceeds the Coverage Amount for such Class on such Distribution Date and, after
such Required Coverage Amount equals the Coverage Amount for such Class, any
remaining Excess Cash attributable to such Mortgage Loan Group will be
distributed on the other Class of Class A Certificates until the Coverage Amount
for that Class equals the then applicable Required Coverage Amount for such
Class (after application of Excess Cash to cover any Class A Monthly Interest
shortfall for such Class). If a Class A Certificate is purchased at other than
par, its yield to maturity will be affected by the rate at which Excess Cash is
distributed to Class A Certificateholders. If the actual rate of Excess Cash
distributions on the Class A Certificates applied in reduction of the related
Class A Certificate Principal Balance is slower than the rate anticipated by an
investor who purchases a Class A Certificate at a discount, the actual yield to
such investor will be lower than such investor's anticipated yield. If the
actual rate of Excess Cash distributions applied in reduction of the related
Class A Certificate Principal Balance is faster than the rate anticipated by an
investor who purchases a Class A Certificate at a premium, the actual yield to
such investor will be lower than such investor's anticipated yield. The amount
of Excess Cash on any Distribution Date will be affected by, among other things,
the actual amount of interest received, collected or recovered in respect of the
Mortgage Loans during the related Collection Period and such amount will be
influenced by changes in the weighted average of the Mortgage Interest Rates
resulting from prepayment and liquidations of Mortgage Loans, by adjustments of
adjustable Mortgage Interest Rates with respect to Mortgage Loans in the
Adjustable Rate Group and by adjustments in the Class A-2 Pass-Through Rate. The
amount of Excess Cash distributed to the Class A Certificateholders applied in
reduction of the related Class A Certificate Principal Balance on each
Distribution Date will be based on the Required Coverage Amount applicable to
the related Class of Class A Certificates, which may increase or decrease during
the period such Class remains outstanding. In this regard, the Pooling and
Servicing Agreement provides that on and after a Class A-2 Trigger Event Date,
the Required Coverage Amount in respect of the Class A-2 Certificates will be
increased for each Distribution Date thereafter; provided, however, that upon
the satisfaction of certain cash flow requirements in respect of the Class A-2
Certificates for a period of six consecutive Distribution Dates as specified in
the Pooling and Servicing Agreement, such Required Coverage Amount will return
to its original level. Any increase in the Required Coverage Amount for a Class
of Class A Certificates (including, in the case of the Class A-2 Certificates,
an increase required on a Class A-2 Trigger Event Date) may result in an
accelerated amortization of such Class until such Required Coverage Amount for
such Class is reached. Conversely, any decrease in the Required Coverage Amount
for a Class of Class A Certificates will result in a decelerated amortization of
such Class until such Required Coverage Amount for such Class is reached.
The timing of changes in the rate of prepayments may significantly affect
the actual yield to investors, even if the average rate of principal prepayments
is consistent with the expectations of investors. In general, the earlier the
payment of principal of the Mortgage Loans the greater the effect will be on an
investor's yield to maturity. As a result, the effect on an investor's yield of
principal prepayments occurring at a rate higher (or lower) than the rate
anticipated by the investor during the period immediately following the issuance
of the Class A Certificates will not be offset by a subsequent like reduction
(or increase) in the rate of principal prepayments. Investors must make their
own decisions as to the appropriate prepayment assumptions to be used in
deciding whether to purchase any of the Class A Certificates. The Sponsor makes
no representations or warranties as to the rate of prepayment or the factors to
be considered in connection with such determination.
If the aggregate Principal Balances of the Mortgage Loans in the Fixed Rate
Group is less than the Aggregate Certificate Principal Balance with respect to
the related Certificates, the yield to maturity on the Class B-1F Certificates
will be extremely sensitive to losses on the related Mortgage Loans (and the
timing thereof) to the extent such losses are not covered by the Monthly Excess
Cashflow Amount, because the entire amount of losses will be allocated to such
Certificates. Similarly, if the aggregate Principal Balances of the Mortgage
Loans in the Fixed Rate Group is less than the Aggregate Certificate Principal
Balance with respect to the related Certificates and the Certificate Principal
Balance of the Class B-1F Certificates has been reduced to zero, the yield to
maturity on the Class M Certificates then outstanding with the lowest payment
priority will be extremely sensitive to losses on the related Mortgage Loans
(and the timing thereof) to the extent such losses are not covered by the
Monthly Excess Cashflow Amount, because the entire amount of
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losses will be allocated to such Class M Certificates. Furthermore, because
interest and principal distributions are paid to certain Classes of the Fixed
Rate Group Certificates before other Classes, holders of Classes having a lower
priority of payment bear a greater risk with respect to Realized Losses than
holders of Classes having higher priorities for distributions of interest and
principal.
PROJECTED PREPAYMENTS AND YIELDS FOR THE CLASS A CERTIFICATES
If a Class A Certificate is purchased at other than par, 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 anticipated by an investor who purchases a Class A Certificate at a
discount, 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 a Class A 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. In general, if prevailing
interest rates fall significantly below the interest rates on fixed rate
mortgage loans, such mortgage loans are likely to be subject to higher
prepayment rates than if prevailing rates remain at or above the interest rate
on such mortgage loans. However, the monthly payment on a home equity loan is
often smaller than the monthly payment on a purchase money first mortgage loan.
Consequently, a decrease in the interest rate payable results in a smaller
reduction in the amount of the monthly payment on the smaller balance loan.
Conversely, if prevailing interest rates rise appreciably above the interest
rate on fixed rate mortgage loans, such mortgage loans are likely to experience
a lower prepayment rate than if prevailing rates remain at or below the interest
rates on such mortgage loans.
As is the case with conventional fixed rate mortgage loans, adjustable rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment. For example, if prevailing interest rates
fall significantly, adjustable rate mortgage 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 adjustable rate mortgage loans to "lock
in" a lower fixed interest rate. However, no assurance can be given as to the
expected level of prepayments on the Mortgage Loans.
The "Final Scheduled Payment Dates" for the Class A Certificates are set
forth in the "Summary of Terms" herein. For the Class A-1A Certificates and the
Class A-1B Certificates, the Final Scheduled Payment Date is the latest date on
which the Certificate Principal Balances of the Class A Certificates would be
reduced to zero, assuming (i) no prepayments are received on the Mortgage Loans;
(ii) scheduled monthly payments on the Mortgage Loans are timely received; and
(iii) Excess Cash will be used to make accelerated principal payments on the
Class A Certificates. The Final Scheduled Payment Date for the Class A-1C
Certificates and the Class A-2 Certificates is the Distribution Date two years
and two months after the latest scheduled maturity date of any Mortgage Loan in
the Mortgage Pool. The weighted average lives of the Class A Certificates are
likely to be shorter, and the actual final Distribution Date could occur
significantly earlier than the Final Scheduled Payment Dates because (i)
prepayments are likely to occur which shall be applied to the payment of the
Class A Certificate Principal Balances of the Class A Certificates, (ii)
distributions of Excess Cash may occur on each Distribution Date which will
accelerate the amortization of the Class A Certificates, (iii) the Servicer may
cause a termination of the Trust when the Aggregate Principal Balance of the
Mortgage Loans in the Trust has declined to less than 10% of the sum of the Pool
Balance as of the Cut-off Date and the Prefunding Account Deposit and [(iv) the
Certificate Insurer may cause a termination of the Trust on any Distribution
Date on which Mortgage Loans with aggregate Cut-off Date Principal Balances that
equal or exceed 25% of the sum of the Pool Balance as of the Cut-off Date and
the Prefunding Account Deposit have become Liquidated Mortgage Loans].
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The tables entitled "Weighted Average Lives" have been prepared on the
basis of the following assumptions, except as set forth in the respective
tables: (i) the Class A Certificates are purchased on [ ]; (ii) the
Trustee on behalf of the Trust purchases Subsequent Mortgage Loans equal to the
Prefunding Account Deposit; (iii) the Mortgage Interest Rate for each Mortgage
Loan in the Adjustable Rate Group is adjusted on its next Mortgage Interest Rate
change date (and on subsequent Mortgage Interest Rate change dates, if
necessary) to equal the sum of the applicable Gross Margin plus the applicable
Index (such sum being subject to the assumed periodic adjustment caps set forth
below and, in the case of Mortgage Loans with a six-month LIBOR index having
initial Mortgage Interest Rates that remain fixed for a period of approximately
two, three or five years from the related dates of origination, an assumed
initial interest rate adjustment cap of [ ]%; (iv) scheduled payments
are timely received on the first day of each month commencing in [ ]
([ ] with respect to the Subsequent Mortgage Loans); (v) distributions
on the Class A Certificates are received, in cash, on the 15th day of each
month, commencing in [ ]; (vi) 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; (vii) prepayments
represent payment in full of individual Mortgage Loans and are received on the
last day of each month, commencing in [ ] ([ ] with respect to
the Subsequent Mortgage Loans) and include 30 days' interest thereon; (viii) the
Mortgage Loans prepay according to the indicated Prepayment Scenario as
described below; (ix) six-month LIBOR is [ ]% for the first month and
for each Interest Period thereafter remains constant at [ ]%, one-year
CMT is [ ]% for the first month and for each Interest Period thereafter
remains constant at [ ]% and, for Interest Periods on or prior to the
Distribution Date in [ ], the Class A-2 Pass-Through Rate
remains constant at [ ]% and for each Interest Period thereafter
remains constant at [ ]%; (x) early termination occurs in the manner set
forth in the respective tables; (xi) no Class A-2 Trigger Event Date occurs;
(xii) the initial overcollateralization step down referred to herein under the
caption "Description of the Certificates -- Overcollateralization Feature"
occurs at the earliest possible time on a single Distribution Date, whereas
under the Pooling and Servicing Agreement such initial step down would occur
over the succeeding 12 months; and (xiii) each Mortgage Loan Group consists of
Mortgage Loans having the following characteristics:
[INITIAL FIXED RATE GROUP
REMAINING ORIGINAL
REMAINING TERM OF TERM OF
GROSS MORTGAGE TERM TO AMORTIZATION AMORTIZATION AMORTIZATION
PRINCIPAL BALANCE INTEREST RATE MATURITY (MONTHS) (MONTHS) (MONTHS) METHOD
- ----------------- -------------- ----------------- ------------ ------------ ------------
SUBSEQUENT FIXED RATE GROUP
REMAINING ORIGINAL
REMAINING TERM OF TERM OF
GROSS MORTGAGE TERM TO AMORTIZATION AMORTIZATION AMORTIZATION
PRINCIPAL BALANCE INTEREST RATE MATURITY (MONTHS) (MONTHS) (MONTHS) METHOD
- ----------------- -------------- ----------------- ------------ ------------ ------------
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INITIAL ADJUSTABLE RATE GROUP
MONTHS TO
MAXIMUM REMAINING TERM NEXT ORIGINAL
GROSS MORTGAGE GROSS MORTGAGE OF MORTGAGE TERM TO
PRINCIPAL INTEREST INTEREST AMORTIZATION GROSS RATE MATURITY AMORTIZATION
BALANCE RATE RATE (MONTHS) MARGIN CHANGE (MONTHS) METHOD
- --------- -------------- -------------- -------------- ------- ----------- ---------- ------------
PERIODIC
PRINCIPAL ADJUSTMENT
BALANCE CAP INDEX
- --------- ---------- -------
SUBSEQUENT ADJUSTABLE RATE GROUP
MONTHS TO
MAXIMUM REMAINING TERM NEXT ORIGINAL
GROSS MORTGAGE GROSS MORTGAGE OF MORTGAGE TERM TO
PRINCIPAL INTEREST INTEREST AMORTIZATION GROSS RATE MATURITY AMORTIZATION
BALANCE RATE RATE (MONTHS) MARGIN CHANGE (MONTHS) METHOD
- --------- -------------- -------------- -------------- ------- ----------- ---------- ------------
PERIODIC
PRINCIPAL ADJUSTMENT
BALANCE CAP INDEX]
- --------- ---------- -------
"Weighted average life" refers to the average amount of time that will
elapse from the date of issuance of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average lives of the
Class A 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 (for this purpose, the term
"prepayment" includes prepayments and liquidations due to default). The weighted
average lives of the Class A Certificates also will be influenced by the
overcollateralization of the Class A-1 Certificates and the Class A-2
Certificates because collections otherwise payable to the Class R Certificate
are applied as principal prepayments to the Class A Certificates until the
outstanding Class A Certificate Principal Balance of the related Class is less
than the Aggregate Principal Balance of the related Mortgage Loan Group by the
Required Coverage Amount for such Mortgage Loan Group. These prepayments have
the effect of accelerating the amortization of the Class A Certificates, thereby
shortening their respective weighted average lives.
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. A common model (the "Constant Prepayment Rate" or
"CPR") represents an assumed annualized rate of prepayment relative to the then
outstanding principal balance on a pool of new mortgage loans. The Class A
Certificates are priced at various Home Equity Prepayment ("HEP") assumptions.
HEP assumes that a pool of loans prepays in the first month at a constant
prepayment rate that corresponds in CPR to one-tenth ( 1/10) the given HEP
percentage and increases by an additional one-tenth ( 1/10) each month
thereafter until the tenth month, whereupon it remains at a CPR equal to the
given HEP percentage.
Neither the CPR or HEP nor any other prepayment model or assumption
purports to be an historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans,
including the Mortgage Loans included in the Trust. Variations in the actual
prepayment experience and the balance of the Mortgage Loans that prepay may
increase or decrease each weighted average life shown in the following tables.
Such variations may occur even if the average prepayment experience of all such
Mortgage Loans equals any of the specified percentages of the CPR or HEP, as
applicable. The Sponsor is not aware of any existing statistics that provide a
reliable basis for prospective investors in the Class A Certificates to predict
the amount or timing of receipt of prepayments on the Mortgage Loans.
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The Prepayment Scenarios are defined as follows:
PERCENTAGES OF HEP
----------------------------------------------------------------------
SCENARIO I SCENARIO II SCENARIO III SCENARIO IV SCENARIO V
---------- ----------- ------------ ----------- ----------
Fixed Rate Group...............
Adjustable Rate Group..........
WEIGHTED AVERAGE LIFE
CLASS A-1A CERTIFICATES
WEIGHTED AVERAGE LIFE EARLIEST
PREPAYMENT SCENARIO (YEARS) RETIREMENT DATE(1)
- ---------------------------------------------------- --------------------- ------------------
I...................................................
II..................................................
III.................................................
IV..................................................
V...................................................
- ---------------
(1) Assuming early termination of the Mortgage Loans when the Aggregate
Principal Balance of the Mortgage Loans declines to a level less than or
equal to 10% of the sum of the Aggregate Principal Balance of the Mortgage
Loans as of the Cut-off Date and the Prefunding Account Deposit.
CLASS A-1B CERTIFICATES
WEIGHTED AVERAGE LIFE EARLIEST RETIREMENT
PREPAYMENT SCENARIO (YEARS) DATE(1)
- --------------------------------------------------------- --------------------- -------------------
I........................................................
II.......................................................
III......................................................
IV.......................................................
V........................................................
- ---------------
(1) Assuming early termination of the Mortgage Loans when the Aggregate
Principal Balance of the Mortgage Loans declines to a level less than or
equal to 10% of the sum of the Aggregate Principal Balance of the Mortgage
Loans as of the Cut-off Date and the Prefunding Account Deposit.
CLASS A-1C CERTIFICATES
WEIGHTED AVERAGE LIFE EARLIEST RETIREMENT
PREPAYMENT SCENARIO (YEARS) DATE(1)
- --------------------------------------------------------- --------------------- -------------------
I........................................................
II.......................................................
III......................................................
IV.......................................................
V........................................................
- ---------------
(1) Assuming early termination of the Mortgage Loans when the Aggregate
Principal Balance of the Mortgage Loans declines to a level less than or
equal to 10% of the sum of the Aggregate Principal Balance of the Mortgage
Loans as of the Cut-off Date and the Purchase Account Deposit.
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CLASS A-2 CERTIFICATES
WEIGHTED AVERAGE LIFE EARLIEST RETIREMENT
PREPAYMENT SCENARIO (YEARS) DATE(1)
- --------------------------------------------------------- --------------------- -------------------
I........................................................
II.......................................................
III......................................................
IV.......................................................
V........................................................
- ---------------
(1) Assuming early termination of the Mortgage Loans when the Aggregate
Principal Balance of the Mortgage Loans declines to a level less than or
equal to 10% of the sum of the Aggregate Principal Balance of the Mortgage
Loans as of the Cut-off Date and the Prefunding Account Deposit.
ORIGINATION AND SERVICING OF THE MORTGAGE LOANS
THE ORIGINATORS
Approximately [ ]% of the Initial Mortgage Loans (by Cut-off Date
Principal Balance) were originated by one or more affiliates of the Sponsor (the
"Affiliated Originators"). The remaining [ ]% of the Initial Mortgage Loans
were originated by entities not affiliated with the Sponsor (the "Unaffiliated
Originators" and, together with the Affiliated Originators, the "Originators")
and acquired by the Sponsor in arm's-length transactions. Certain of the
Subsequent Mortgage Loans may be originated by Unaffiliated Originators, but the
Sponsor does not anticipate that the proportion of Mortgage Loans in the final
Mortgage Pool (after inclusion of any Subsequent Mortgage Loans) that have been
originated by Unaffiliated Originators will be materially different from the
proportion of Initial Mortgage Loans originated by Unaffiliated Originators. See
"The Originators" in the Prospectus.
UNDERWRITING OF MORTGAGE LOANS
The Mortgage Loans originated by Affiliated Originators were underwritten
in accordance with standard guidelines (the "Sponsor's Guidelines") developed by
the Sponsor and the related Affiliated Originator for customary application in
the Affiliated Originator's loan origination activities, as described in the
Prospectus. The Mortgage Loans originated by Unaffiliated Originators are
re-underwritten in accordance with applicable Sponsor's Guidelines. See "The
Originators -- Underwriting Guidelines" in the Prospectus.
MORTGAGE LOAN DELINQUENCY AND FORECLOSURE EXPERIENCE
Certain information concerning the delinquency and foreclosure experience,
for the three year period ended [ ], with respect to home equity
mortgage loans serviced by affiliates of the Sponsor, including home equity
loans pooled and sold in the secondary market, is set forth under the caption
"The Sponsor -- Mortgage Loan Delinquency and Foreclosure Experience" in the
Prospectus. Such information includes delinquency and foreclosure experience
with respect to home equity mortgage loans originated by Affiliated Originators
or purchased by the Sponsor and, in each case, serviced by or on behalf of the
Sponsor as of the end of the period indicated.
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The following table sets forth delinquency and foreclosure experience of
home equity loans included in the Sponsor's servicing portfolio for the
[ ] months ended [ ].
[ ] MONTHS
ENDED
[ ]
----------------
Percentage of dollar amount of delinquent loans to loans serviced
(period end)(1)(2)(3).....................................................
One month................................................................. [ ]%
Two months................................................................ [ ]%
Three or more months:
Not foreclosed(4)...................................................... [ ]%
Foreclosed(5).......................................................... [ ]%
Percentage of dollar amount of loans foreclosed to loans serviced (period
end)(2)(3)................................................................ [ ]%
Number of loans foreclosed.................................................. [ ]
Principal amount at time of foreclosure of foreclosed loans (in
thousands)(3)............................................................. [$ ]
Losses on foreclosed loans originated or purchased and serviced (in
thousands)................................................................ [$ ]
- ---------------
(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 home equity mortgage loans originated by
Affiliated Originators or purchased by the Sponsor and, in each case,
serviced by or on behalf of the Sponsor as of the end of the period
indicated. The total outstanding principal balance of such loans serviced by
the Sponsor as of the end of the period indicated includes many loans that
will not have been outstanding long enough to give rise to the indicated
periods of delinquency.
(3) Does not include loans for which only the servicing rights were purchased by
the Company.
(4) Loans for which foreclosure proceedings have not concluded.
(5) Properties acquired by the Sponsor or private investors following
foreclosure sale.
Affiliates of the Sponsor commenced the pooling and securitization of home
equity loans for sale in the secondary market in [ ] and the Sponsor
has been pooling and securitizing home equity loans for sale in the secondary
market on a quarterly basis since [ ]. During the period from
[ ] through [ ], the percentage of properties that secured
home equity loans pooled and sold in the secondary market which were acquired by
foreclosure to total home equity loans pooled and sold in the secondary market
by the Sponsor or its affiliates during such period based on the principal
balance of the foreclosed loans at foreclosure and the aggregate principal
balances of such pooled and sold home equity loans, was approximately
[ ]%. The number of such home equity loans foreclosed during such
period ending [ ] was [ ]; the aggregate outstanding principal
balances of such foreclosed loans at foreclosure was approximately $[ ]
million. The number of such foreclosed loans which became liquidated loans
during such period was [ ]; the aggregate outstanding principal
balances at foreclosure of such liquidated loans were approximately
$[ ]; and losses realized on such liquidated loans totaled
approximately $[ ]. The foregoing information excludes any gains
realized on such foreclosed properties during such period ending
[ ]. In addition, because foreclosures and losses typically
occur months or years after a loan is originated, data relating to
delinquencies, foreclosures and losses as a percentage of the current portfolio
can understate the risk of future delinquencies, foreclosures and losses.
There is no assurance that the delinquency, foreclosure and loss experience
with respect to any of the Mortgage Loans or with respect to either Mortgage
Loan Group will be comparable to the experience reflected above or in the
Prospectus. Because certain Mortgage Loans may have been underwritten pursuant
to standards that rely primarily on the value of the related Mortgaged
Properties rather than the creditworthiness of the related Mortgagor, the actual
rates of delinquencies, foreclosures and losses on such 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. 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. See "Risk
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Factors -- Nature of the Security for Mortgage Loans" and "The
Originators -- Underwriting Guidelines" in the Prospectus.
SERVICING OF MORTGAGE LOANS
The Servicer will service the Mortgage Loans in accordance with the
provisions of the Pooling and Servicing Agreement and the policies, procedures
and practices customarily employed by the Servicer in servicing other comparable
mortgage loans. Consistent with the foregoing, the Servicer may, in its
discretion (a) waive any assumption fees, late payment charges, charges for
checks returned for insufficient funds, or other fees which may be collected in
the ordinary course of servicing a Mortgage Loan, (b) arrange a schedule for the
payment of delinquent payments on the related Mortgage Loan, subject to
conditions set forth in the Pooling and Servicing Agreement if a Mortgagor is in
default or about to be in default because of such Mortgagor's financial
condition, or (c) modify monthly payments on Mortgage Loans in accordance with
the Servicer's general policy on mortgage loans subject to the Relief Act.
In any case in which the Servicer becomes aware that a Mortgaged Property
has been or is about to be conveyed by the related Mortgagor, the Pooling and
Servicing Agreement will require the Servicer to enforce any due-on-sale clause
contained in the related Mortgage Note or mortgage, to the extent permitted by
the related Mortgage Note and mortgage and applicable law or regulation, but
only to the extent such enforcement will not adversely affect or jeopardize
coverage under any related insurance policy or result in legal action by the
Mortgagor. Additionally, the Servicer may, [with the prior written consent of
the Certificate Insurer,] enter into an assumption and modification agreement
with the person to whom such Mortgaged Property has been or is about to be
conveyed, pursuant to which such person becomes liable under the related
promissory note and, to the extent permitted by applicable law, the Mortgagor
remains liable thereon or, if such person satisfies the Servicer's then current
underwriting standards for mortgage loans similar to the Mortgage Loans and the
Servicer finds it appropriate, the Mortgagor is released from liability thereon.
Any fees collected by the Servicer for entering into an assumption or
substitution of liability agreement will be retained by the Servicer as
additional servicing compensation. See "Certain Legal Aspects of the Mortgage
Loans and Related Matters -- Enforceability of Due-on-Sale Clauses" in the
Prospectus.
The Servicer, acting as agent for the Trust, will not consent to the
subsequent placement of a deed of trust or mortgage, as applicable, on any
Mortgaged Property that is of equal or higher priority to that of the lien
securing the related Mortgage Loan unless such Mortgage Loan is prepaid in full,
thereby removing such Mortgage Loan from the Trust. If, notwithstanding the
foregoing, the placement of a lien or liens of equal or higher priority to that
of the lien securing the related Mortgage Loan is consented to by the Servicer,
the Pooling and Servicing Agreement will require that the Servicer purchase such
Mortgage Loan at the applicable Purchase Price.
The procedures of the Servicer with respect to day to day servicing of the
Mortgage Loans may vary considerably depending on the particular Mortgage Loan,
the Mortgaged Property, the Mortgagor, the presence of an acceptable party to
assume a Mortgage Loan and the laws of the jurisdiction in which the Mortgaged
Property is located. Generally, it is the current practice of the Servicer to
send borrowers a monthly billing statement ten days prior to the monthly payment
due date. Although borrowers generally make loan payments within ten to fifteen
days after the due date, if a borrower fails to pay the monthly payment within
such time period, the Servicer will commence collection efforts by notifying the
borrower of the delinquency. Under the terms of each Mortgage Loan, the
Mortgagor agrees to pay a late charge (which the Servicer is entitled to retain
as additional servicing compensation under the Pooling and Servicing Agreement)
if a Monthly Payment on a Mortgage Loan is not received within the number of
days specified in the Mortgage Note after its due date. If the Mortgage Loan
remains delinquent, the Servicer will attempt to contact the Mortgagor to
determine the cause of the delinquency and to obtain a commitment to cure the
delinquency at the earliest possible time.
A a general matter, if efforts to obtain payment have not been successful
shortly after the due date of the next subsequently scheduled installment, a
pre-foreclosure notice will be sent to the Mortgagor providing 30 days' notice
of impending foreclosure action. During the 30 day notice period, collection
efforts continue.
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However, if no substantial progress has been made in obtaining delinquent monies
from the Mortgagor, foreclosure proceedings will be commenced.
Regulations and practices regarding foreclosure vary greatly from state to
state. Generally, the Servicer will have commenced foreclosure proceedings prior
to the time when a loan is 90 days delinquent. If the Servicer determines that
purchasing a property securing a mortgage loan will minimize the loss associated
with such defaulted loan, the Servicer may bid at the foreclosure sale for such
property or accept a deed in lieu of foreclosure. After the Servicer acquires
title to a mortgaged property by foreclosure or deed in lieu of foreclosure, a
real estate broker is selected to list and advertise the property.
Servicing and collection practices may change over time in accordance with,
among other things, the Servicer's business judgment, changes in portfolio and
applicable laws and regulations.
Due to changes in interest rates, property appreciation, loan seasoning and
other factors, borrowers with mortgage loans serviced by the Servicer may be the
subject of solicitations from competitors of the Servicer to refinance their
loans (including the Mortgage Loans). In order to maintain an ongoing
relationship with such borrowers, the Servicer or an Affiliated Originator will
usually solicit the refinancing of such loans pursuant to criteria that are
applied to all loans then being serviced by the Servicer and not pursuant to
criteria that would specifically target the Mortgage Loans. Such solicitations
by the Servicer or an Affiliated Originator may include certain incentives (such
as reduced origination or closing costs or pre-approved applications). Any such
loans actually refinanced by the Servicer or an Affiliated Originator will
generate fee income to the refinancing lender. Any refinancing of the Mortgage
Loans, whether such refinancing is effected by the Servicer, an Affiliated
Originator or a competitor, will affect the rate of prepayment of the Mortgage
Loans.
SUB-SERVICING
The Servicer intends to enter into sub-servicing agreements with other
mortgage servicing institutions, which may include affiliates of the Sponsor,
meeting the requirements set forth in the Pooling and Servicing Agreement (each,
a "Sub-Servicer"), to service certain Mortgage Loans on behalf of the Servicer.
Any such sub-servicing arrangements will provide that the Sub-Servicer will
service the Mortgage Loans specified therein in accordance with the provisions
and requirements of the Pooling and Servicing Agreement, but will not relieve
the Servicer of any liability associated with servicing the Mortgage Loans.
Compensation for the services of the Sub-Servicer will be paid by the Servicer.
REALIZATION UPON DEFAULTED MORTGAGE LOANS
The Servicer will foreclose upon or otherwise comparably convert to
ownership Mortgaged Properties securing such of the Mortgage Loans as come into
default and as to which no satisfactory arrangements can be made for the
collection of delinquent payments; provided, however, that if the Servicer has
actual knowledge or reasonably believes that any Mortgaged Property is
contaminated by hazardous or toxic wastes or substances, the Servicer need not
cause the Trust to acquire title to such Mortgaged Property in a foreclosure or
similar proceeding. In connection with such foreclosure or other conversion, the
Servicer will follow such practices as it deems necessary or advisable and as
are in keeping with its general mortgage loan servicing activities; provided,
however, that the Servicer will not be required to expend its own funds in
connection with foreclosure or other conversion, correction of a default on a
senior deed of trust or restoration of any Mortgaged Property unless the
Servicer determines that such foreclosure, correction or restoration will
increase Net Liquidation Proceeds.
In the event that the Trust acquires any Mortgaged Property in connection
with a default or imminent default on a Mortgage Loan, such Mortgaged Property
will be disposed of by or on behalf of the Trust within two years after its
acquisition by the Trust, unless (i) the Servicer, on behalf of the Trust, has
applied for and received an extension of such two-year period pursuant to the
applicable Code provisions, in which case the Servicer shall sell such Mortgage
Property within the applicable extension period or (ii) at the request of the
Servicer, the Trustee shall have received a satisfactory opinion of counsel to
the effect that the holding by the Trust of such Mortgaged Property more than
two years after its acquisition will not result in a tax on prohibited
transactions imposed by the Code, otherwise subject the REMIC Pool to tax or
cause it to fail to qualify as a REMIC at any time any Certificates are
outstanding. The Servicer will further ensure that the
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Mortgaged Property is administered so that it constitutes "foreclosure property"
as defined in the Code, that the sale of such Mortgaged Property does not result
in the receipt by the REMIC Pool of any income from non-permitted assets as
described in the Code and that the REMIC Pool does not derive any "net income
from foreclosure property" as defined in the Code.
HAZARD INSURANCE
Each Mortgage Loan that is secured by a first- or second-lien mortgage or
deed of trust, as applicable, on the related Mortgaged Property requires the
Mortgagor to maintain a hazard insurance policy for the corresponding Mortgaged
Property. Hazard insurance policies generally insure against loss by fire and by
hazards included within the term "extended coverage" for the term of the
corresponding Mortgage Loan. Upon acquisition by the Sponsor of each Mortgage
Loan, the Sponsor will have confirmed the existence of such hazard insurance and
required that it be named as a joint loss-payee on the policy. In the event that
the Mortgagor did not obtain such hazard insurance prior to the close of escrow,
the Originator obtains a hazard insurance policy on behalf of the borrower and
deducts the cost of such policy from the net funds paid to the borrower.
However, if the Mortgagor obtains the necessary insurance within 30 days from
the close of escrow, the Originator will refund a prorated portion of the cost
of such Originator-obtained insurance to the Mortgagor. Such Originator-obtained
insurance insures only against loss by fire.
When a Mortgage Loan that is originated in California is secured by a
second or third priority deed of trust on the related Mortgaged Property, the
Originator will generally attempt to obtain, on the Mortgagor's behalf, a policy
of contingent dual insurance (a "CDI Policy") which insures the Mortgaged
Property against loss by fire in an amount equal to the original principal
amount of the Mortgage Loan, naming the Originator as joint loss-payee. Any
transfer of the related Mortgage Loan will include an assignment of the benefits
of such CDI Policy. The entire premium for such CDI Policy is deducted from the
net funds paid to the Mortgagor. In the event that the principal amount of such
Mortgage Loan exceeds $100,000, the Mortgagor must provide additional hazard
insurance to cover such amounts in excess thereof. In the event that the
Mortgagor declines to obtain a CDI Policy, he may provide an endorsement of an
existing hazard insurance policy or obtain new hazard insurance covering the
full amount of the Mortgage Loan. In addition, if a CDI Policy is obtained on
behalf of a Mortgagor who shows proof of the necessary insurance within 30 days
after the close of escrow, the Originator will refund the cost of such CDI
Policy to the Mortgagor. CDI Policies are generally not obtained with respect to
loans secured by Mortgaged Properties located outside of California.
In general, the standard form of fire and extended coverage policy covers
physical damage to or destruction of the improvements on the property by hazards
such as fire, lightning, explosion and smoke. Other hazards may be covered if
specified in the policy. Although the policies are underwritten by different
insurers and therefore do not contain identical terms and conditions, generally
such policies do not cover physical damage resulting from the following: war,
revolution, governmental actions, floods and other water-related causes, earth
movement (including earthquakes, landslides and mudflows), nuclear reactions,
pollution, wet or dry rot, vermin, rodents, insects or domestic animals, theft
and, in certain cases, vandalism. The foregoing list is merely indicative of
certain kinds of uninsured risks and is not intended to be all-inclusive. The
existence of a hazard insurance policy is verified upon origination of any
Mortgage Loan meeting the criteria set forth above and the Servicer will
maintain a record and monitor scheduled expirations of the related coverage,
except with respect to policies that have no stated scheduled expiration. In the
event the Servicer is made aware of any such expiration or cancellation, the
Servicer will generally force-place hazard insurance covering loss by fire in an
amount equal to 110% of the Principal Balance of the related Mortgage Loan.
The Servicer will be required under the Pooling and Servicing Agreement to
maintain on property acquired in foreclosure, or by deed in lieu of foreclosure,
hazard insurance with extended coverage in an amount which is at least equal to
the lesser of (a) the maximum insurable value of the improvements which are a
part of the Mortgaged Property or (b) the combined Principal Balance of such
Mortgage Loan and the principal balance of each senior mortgage loan plus
accrued interest and estimated Liquidation Expenses. The Pooling and Servicing
Agreement will provide that the Servicer may satisfy this obligation by
maintaining a blanket policy insuring against hazard losses on the Mortgage
Loans issued by an insurer acceptable to the Rating Agencies [and the
Certificate Insurer]. If such blanket policy contains a deductible clause, the
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Servicer will deposit in the Collection Account in respect of the related
Distribution Date amounts which would have been deposited therein but for such
clause. Generally, the Servicer will maintain no other policies of insurance on
the Mortgage Loans or the Mortgaged Properties.
SERVICING AND OTHER COMPENSATION; PAYMENT OF EXPENSES
The Servicing Fee will be the primary compensation to be paid to the
Servicer in respect of its servicing activities and will be paid to the Servicer
on each Deposit Date out of collections of interest received on or in respect of
the Mortgage Loans for the related Collection Period. The Servicing Fee will
equal one-twelfth ( 1/12) of the product of (a) the applicable Servicing Fee
Rate and (b) the Aggregate Principal Balance of the Mortgage Loans in the
related Mortgage Loan Group at the beginning of such Collection Period. The
"Servicing Fee Rate" for each Mortgage Loan Group will be [ ]% for each
Collection Period. In addition, the Servicer will retain the benefit, if any,
from any investment of funds in the Collection Account and the Certificate
Account. Assumption fees, late payment charges, prepayment charges, charges for
checks returned for insufficient funds, and extension and other administrative
charges, to the extent collected from Mortgagors, will be retained by the
Servicer as additional servicing compensation.
The Servicer will pay certain ongoing expenses associated with the Trust
and incurred by it in connection with its responsibilities as Servicer under the
Pooling and Servicing Agreement, including, among other things, the payment of
fees for any Sub-Servicers. In addition, the Servicer will be entitled to
reimbursement for certain expenses incurred by it in connection with Liquidated
Mortgage Loans and the restoration of Mortgaged Properties, such right of
reimbursement being prior to the rights of Certificateholders to receive any
related insurance proceeds or Net Liquidation Proceeds. See "Description of the
Certificates -- Monthly Advances; Servicing Advances; Compensating Interest and
Interest Shortfalls" herein.
CERTAIN MATTERS REGARDING SERVICER'S SERVICING OBLIGATIONS
The Pooling and Servicing Agreement will provide that the Servicer may not
resign from its obligations and duties as the Servicer thereunder, except upon
determination that its duties thereunder are no longer permissible under
applicable law or regulation or are in material conflict by reason of applicable
law or regulation with any other of its activities carried on as of the date of
the Pooling and Servicing Agreement. No such resignation will become effective
until the Trustee or a successor servicer has assumed the servicing obligations
and duties of the Servicer under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement will also provide that neither the
Servicer, nor any of its directors, officers, employees or agents, will be
liable to the Trustee, the Trust or the Certificateholders for any action taken
or for refraining from the taking of any action by the Servicer pursuant to the
Pooling and Servicing Agreement, or for errors in judgment; provided, however,
that neither the Servicer nor any such person will be protected against any
liability which would otherwise be imposed by reason of willful misfeasance, bad
faith or negligence in the performance of duties of the Servicer, or by reason
of reckless disregard of obligations and duties of the Servicer, thereunder.
In addition, the Pooling and Servicing Agreement will provide that the
Servicer will not be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its duties to service the Mortgage Loans
under the Pooling and Servicing Agreement and which in its opinion may involve
it in any expense or liability.
The Pooling and Servicing Agreement will provide that any corporation or
other entity (a) into which the Servicer may be merged or consolidated, (b)
which may result from any merger, conversion, or consolidation to which the
Servicer shall be a party, or (c) which may succeed to all or substantially all
of the business of the Servicer, will, in any case where an assumption is not
effected by operation of law, execute an agreement of assumption to perform
every obligation of the Servicer under the Pooling and Servicing Agreement, and
will be the successor to the Servicer thereunder without the execution or filing
of any document or any further act by any of the parties to the Pooling and
Servicing Agreement; provided, however, that if the Servicer in any of the
foregoing cases is not the surviving entity, the surviving entity shall execute
an agreement of assumption to perform every obligation of the Servicer
thereunder.
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[THE CERTIFICATE INSURANCE POLICY AND THE CERTIFICATE INSURER]
[THE CERTIFICATE INSURER
The information set forth in this section has been provided by
[ ] (the "Certificate Insurer"). No representation is made by
the Sponsor or any of its affiliates as to the accuracy or completeness of any
such information.
The Certificate Insurer is a monoline insurance company incorporated in
[ ] under the laws of the State of New York. The Certificate Insurer is
licensed to engage in financial guaranty insurance business in all 50 states,
the District of Columbia and Puerto Rico.
The Certificate Insurer and its subsidiaries are engaged in the business of
writing financial guaranty insurance, principally in respect of securities
offered in domestic and foreign markets. In general, financial guaranty
insurance consists of the issuance of a guaranty of scheduled payments of an
issuer's securities -- thereby enhancing the credit rating of those
securities -- in consideration for the payment of a premium to the insurer. The
Certificate Insurer and its subsidiaries principally insure asset-backed,
collateralized and municipal securities. Asset-backed securities are generally
supported by residential mortgage loans, consumer or trade receivables,
securities or other assets having an ascertainable cash flow or market value.
Collateralized securities include public utility first mortgage bonds and
sale/leaseback obligation bonds. Municipal securities consist largely of general
obligation bonds, special revenue bonds and other special obligations of state
and local governments. The Certificate Insurer insures both newly issued
securities sold in the primary market and outstanding securities sold in the
secondary market that satisfy the Certificate Insurer's underwriting criteria.
The Certificate Insurer is a wholly owned subsidiary of [ ]
("[ ]"), a New York Stock Exchange listed company. Major shareholders of
[ ] include [ ], [ ] and [ ].
No shareholder of Holdings is obligated to pay any debt of the Certificate
Insurer or any claim under any insurance policy issued by the Certificate
Insurer or to make any additional contribution to the capital of the Certificate
Insurer.
The principal executive offices of the Certificate Insurer are located at
[ ], and its telephone number at that location is [ ].
Reinsurance. Pursuant to an intercompany agreement, liabilities on
financial guaranty insurance written or reinsured from third parties by the
Certificate Insurer or any of its domestic operating insurance company
subsidiaries are reinsured among such companies on an agreed-upon percentage
substantially proportional to their respective capital, surplus and reserves,
subject to applicable statutory risk limitations. In addition, the Certificate
Insurer reinsures a portion of its liabilities under certain of its financial
guaranty insurance policies with other reinsurers under various quota share
treaties and on a transaction-by-transaction basis. Such reinsurance is utilized
by the Certificate Insurer as a risk management device and to comply with
certain statutory and rating agency requirements; it does not alter or limit the
Certificate Insurer's obligations under any financial guaranty insurance policy.
Ratings of Claims-Paying Ability. The Certificate Insurer's claims-paying
ability is rated "[ ]" by [ ] and "[ ]" by
[ ]. Such ratings reflect only the views of the respective
rating agencies, are not recommendations to buy, sell or hold securities and are
subject to revision or withdrawal at any time by such rating agencies.
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Capitalization. The following tables sets forth the capitalization of the
Certificate Insurer and its wholly owned subsidiaries on the basis of generally
accepted accounting principles as of [ ] (in thousands):
[AS OF DATE]
------------
(Unaudited)
Unearned Premium Reserve (net of prepaid reinsurance premiums)...........
Shareholder's Equity:
Common Stock...........................................................
Additional Paid-In Capital.............................................
Unrealized Loss on Investments (net of deferred income taxes)............
Accumulated Earnings...................................................
Total Shareholder's Equity..........................................
Total Unearned Premium Reserve and Shareholder's Equity........
For further information concerning the Certificate Insurer, see the
consolidated financial statements of the Certificate Insurer and its
subsidiaries, and the notes thereto, incorporated by reference herein. Copies of
the statutory quarterly and annual statements filed with the State of New York
Insurance Department by the Certificate Insurer are available upon request to
the State of New York Insurance Department.
Incorporation of Certain Documents by Reference. The consolidated financial
statements of the Certificate Insurer and its subsidiaries for the year ended
[ ], included as an exhibit to the Annual Report on Form 10-K for the
year ended [ ], and the unaudited financial statements of the
Certificate Insurer and its subsidiaries for the three month period ended
[ ], included as an exhibit to the Quarterly Report on Form 10-Q for
the period ended [ ], each of which has been filed with the
Securities and Exchange Commission by Holdings, are hereby incorporated by
reference in this Prospectus Supplement. All financial statements of the
Certificate Insurer included in documents filed by [ ] pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, subsequent to the date of this Prospectus Supplement and prior to the
termination of the offering of the Certificates shall be deemed to be
incorporated by reference into this Prospectus Supplement and to be a part
hereof from the respective dates of filing of such documents.
Such consolidated financial statements of the Certificate Insurer and its
subsidiaries have been prepared on the basis of generally accepted accounting
principles. The New York State Insurance Department recognizes only statutory
accounting practices for determining and reporting the financial conditions and
results of operations of an insurance company, for determining solvency under
the New York Insurance Law, and for determining whether its financial condition
warrants the payment of a dividend to its stockholders. No consideration is
given by the New York State Insurance Department to financial statements
prepared in accordance with generally accepted principles in making such
determinations.
Insurance Regulation. The Certificate Insurer is licensed and subject to
regulation as a financial guaranty insurance corporation under the laws of the
State of New York, its state of domicile. In addition, the Certificate Insurer
and its insurance subsidiaries are subject to regulation by insurance laws of
the various other jurisdictions in which they are licensed to do business. As a
financial guaranty insurance corporation licensed to do business in the State of
New York, the Certificate Insurer is subject to Article 69 of the New York
Insurance Law which, among other things, limits the business of each such
insurer to financial guaranty insurance and related lines, requires that each
such insurer maintain a minimum surplus to policyholders, establishes
contingency, loss and unearned premium reserve requirements for each such
insurer, and limits the size of individual transactions ("single risks") and the
volume of transactions ("aggregate risks") that may be underwritten by each such
insurer. Other provisions of the New York Insurance Law, applicable to non-life
insurance companies such as the Certificate Insurer, regulate, among other
things, permitted investments, payment of dividends, transactions with
affiliates, mergers, consolidations, acquisitions or sales of assets and
incurrence of liabilities for borrowings.]
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[THE CERTIFICATE INSURANCE POLICY
The Sponsor will obtain the Certificate Insurance Policy, issued by the
Certificate Insurer, in favor of the holders of the Class A Certificates. Under
the Certificate Insurance Policy, the Certificate Insurer shall unconditionally
and irrevocably guaranty to the Trustee for the benefit of each Class A
Certificateholder the full and complete payment of Class A Monthly Interest and
any Coverage Deficit in respect of the related Class or subclass, as applicable,
of Class A Certificates for the related Distribution Date. The Certificate
Insurance Policy does not insure final payment of the Class A Certificates on
any specific Distribution Date and does not cover Interest Shortfalls.
The Certificate Insurer is required to pay Insured Amounts to the Trustee
as paying agent following Receipt (as defined below) by the Certificate Insurer
of the appropriate notice for payment on the later to occur of (a) 12:00 noon,
New York City time, on the second Business Day following Receipt of such notice
for payment and (b) 12:00 noon, New York City time, on the related Distribution
Date.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Certificate Insurance Policy, the Certificate Insurer shall cause such
payment to be made on the latter of (a) the date when due to be paid pursuant to
the Order referred to below or (b) the first to occur of (i) the fourth Business
Day following Receipt by the Certificate Insurer from the Trustee of (A) a
certified copy of the order (the "Order") of the court or other governmental
body which exercised jurisdiction to the effect that the relevant
Certificateholders are required to return principal or interest paid with
respect to such Certificates during the term of the Certificate Insurance Policy
because such payments were avoidable as preference payments under applicable
bankruptcy law, (B) a certificate of each relevant Certificateholder that the
Order has been entered and is not subject to any stay and (C) an assignment duly
executed and delivered by each relevant Certificateholder, in such form as is
reasonably required by the Certificate Insurer and provided to the relevant
Certificateholder by the Certificate Insurer, irrevocably assigning to the
Certificate Insurer all rights and claims of the Certificateholder relating to
or arising under the relevant Certificates held by such Certificateholder
against the debtor that made such preference payment or otherwise with respect
to such preference payment or (ii) the date of Receipt by the Certificate
Insurer from the Trustee of the items referred to in clauses (A), (B) and (C) of
(i) above if, at least four Business Days prior to such date of Receipt, the
Certificate Insurer shall have Received written notice from the Trustee that
such items were to be delivered on such date and such date was specified in such
notice. Such payment shall be disbursed to the receiver, conservator,
debtor-in-possession or trustee in bankruptcy named in the Order and not to the
Trustee or any Certificateholder directly (unless such Certificateholder has
previously paid such amount to the receiver, conservator, debtor-in-possession
or trustee in bankruptcy named in the Order in which such case payment shall be
disbursed to the Trustee for distribution to such Certificateholder upon proof
of such payment reasonably satisfactory to the Certificate Insurer). In
connection with the foregoing, the Certificate Insurer shall have certain rights
of subrogation, as described in the Pooling and Servicing Agreement.
The terms "Receipt" and "Received," with respect to the Certificate
Insurance Policy, mean actual delivery to the Certificate Insurer and to the
Certificate Insurer's fiscal agent, if any, prior to 12:00 noon, New York City
time, on a Business Day; delivery either on a day that is not a Business Day or
after 12:00 noon, New York City time, shall be deemed to be Received on the next
succeeding Business Day. If any notice or certificate given under the
Certificate Insurance Policy by the Trustee is not in proper form or is not
properly completed, executed or delivered, it shall be deemed not to have been
Received, and the Certificate Insurer or its fiscal agent shall promptly so
advise the Trustee and the Trustee may submit an amended notice.
Under the Certificate Insurance Policy, "Business Day" means any day other
than (i) a Saturday or Sunday or (ii) a day on which banking institutions in the
City of New York, New York are authorized or obligated by law or executive order
to be closed.
The Certificate Insurer has the right to terminate the Trust if Mortgage
Loans with aggregate original Principal Balances that equal or exceed 25% of the
sum of the Cut-off Date Pool Balance and the Prefunding Account Deposit have
become Liquidated Mortgage Loans. See "Description of the
Certificates -- Termination; Retirement of the Certificates" herein.
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The Certificate Insurance Policy is non-cancelable.
THE CERTIFICATE INSURANCE POLICY IS NOT COVERED BY THE PROPERTY/CASUALTY
INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW YORK INSURANCE LAW.
The Certificate Insurer's obligation under the Certificate Insurance Policy
will be discharged to the extent that funds are disbursed by the Certificate
Insurer in accordance with the Certificate Insurance Policy, whether or not such
funds are properly distributed by the Trustee.
The Certificate Insurance Policy does not guarantee to the holders of
either Class of Class A Certificates any specific rate of prepayments of
principal of the Mortgage Loans in the related Mortgage Loan Group. Payments of
principal on the Class A Certificates are covered only to the extent of any
Coverage Deficit on a Distribution Date, but such coverage will result in
ultimate collection of the Certificate Principal Balance of each Class of Class
A Certificates.
Pursuant to the terms of the Pooling and Servicing Agreement, unless a
Certificate Insurer Default exists, the Certificate Insurer shall be deemed to
be the Certificateholders for all purposes (other than with respect to payment
on the Certificates), will be entitled to exercise all rights of the Class A
Certificateholders thereunder, without the consent of such Certificateholders,
and the Class A Certificateholders may exercise such rights only with the prior
written consent of the Certificate Insurer. In addition, the Certificate Insurer
will, as a third party beneficiary to the Pooling and Servicing Agreement, have
among others, the following rights: (i) the right to give notices of breach or
to terminate the rights and obligations of the Servicer under the Pooling and
Servicing Agreement in the event of an Event of Default by the Servicer; (ii)
the right to direct the actions of the Trustee during the continuation of a
Servicer default; (iii) the right to require the Sponsor to repurchase Mortgage
Loans for breach of representation and warranty or defect in documentation; and
(iv) the right to direct foreclosures upon the failure of the Servicer to do so
in accordance with the Pooling and Servicing Agreement. The Certificate
Insurer's consent will be required prior to, among other things, (i) the
appointment of any successor Trustee or Servicer or (ii) any amendment to the
Pooling and Servicing Agreement (which consent will not be unreasonably
withheld).]
[CREDIT ENHANCEMENT DOES NOT APPLY TO PREPAYMENT RISK
In general, the protection afforded by the Certificate Insurance Policy is
protection for credit risk and not for prepayment risk. A claim may not be made
under the Certificate Insurance Policy, in an attempt to guarantee or insure
that any particular rate of prepayment is experienced by the Trust.]
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
An election will be made to treat the Trust (other than the Prefunding
Account and the Capitalized Interest Account), and the Trust (other than the
Prefunding Account and the Capitalized Interest Account) will qualify, as a
REMIC for federal income tax purposes. The Class A-1A Certificates, Class A-1B
Certificates, Class A-1C Certificates and the Class A-2 Certificates will be
designated as regular interests in the REMIC, and the Class R Certificate will
be designated as the residual interest in the REMIC. See "Certain Federal Income
Tax Consequences" in the Prospectus.
The Class A Certificates generally will be treated as newly originated debt
instruments for federal income tax purposes. Beneficial owners of the Class A
Certificates will be required to report income on such Certificates in
accordance with the accrual method of accounting. It is anticipated that the
Class A Certificates will be issued without original issue discount for federal
income tax purposes. However, it is possible that the Internal Revenue Service
could treat a portion of the additional interest which would become payable on
the Class A-2 Certificates after the Distribution Date in [ ] as original
issue discount. Certificateholders are urged to consult their tax advisors with
respect to the tax consequences of holding the Class A Certificates.
The Prepayment Assumption (as defined in the Prospectus) that is to be used
in determining whether any Class of Class A Certificates is issued with original
issue discount and the rate of accrual of original issue discount is [ ]%
of HEP (as defined under "Prepayment and Yield Considerations -- Projected
Prepayments and Yields for the Class A Certificates"). No representation is made
as to the actual rate at which the Mortgage Loans will prepay. See "Certain
Federal Income Tax Consequences -- Taxation of Regular Certificates" in the
Prospectus.
SUPPLEMENTAL INTEREST AMOUNTS
The beneficial owners of the Adjustable Rate Group Certificates and the
related rights to receive Supplemental Interest Amounts will be treated for tax
purposes as owning two separate investments: (i) the respective Adjustable Rate
Group Certificates without the right to receive Supplemental Interest Amounts
and (ii) the right to receive the Supplemental Interest Amounts. The beneficial
owners of the respective Adjustable Rate Group Certificates must allocate the
purchase price of their Certificates between these two investments based on
their relative fair market values. The purchase price allocated to the first
investment will be the issue price of the respective Adjustable Rate Group
Certificates for calculating accruals of original issue discount. See "Certain
Federal Income Tax Consequences -- Discount and Premium" in the Prospectus.
A beneficial owner of an Adjustable Rate Group Certificate and the related
rights to receive Supplemental Interest Amounts will be treated for federal
income tax purposes as having entered into a notional principal contract on the
date that it purchases the Certificate. Treasury Regulations under Section 446
of the Code relating to notional principal contracts (the "Notional Principal
Contract Regulations") provide that taxpayers, regardless of their method of
accounting, generally must recognize the ratable daily portion of a period
payment for the taxable year to which that portion relates. Any Supplemental
Interest Amounts will be periodic payments. Income with respect to periodic
payments under a notional principal contract for a taxable year should
constitute ordinary income. The purchase price allocated to the right to receive
the related Supplemental Interest Amounts will be treated as a nonperiodic
payment under the Notional Principal Contract Regulations. Such a nonperiodic
payment may be amortized using several methods, including the level payment
method described in the Notional Principal Contract Regulations.
The right to receive the Supplemental Interest Amounts will not constitute:
(i) a "real estate asset" within the meaning of section 858(c)(5)(A) of the Code
if held by a real estate investment trust; (ii) a "qualified mortgage" within
the meaning of section 860G(a)(3) of the Code or a "permitted investment" within
the meaning of section 860G(a)(5) of the code if held by a REMIC; or (iii)
assets described in section 7701(a)(19)(C)(xi) of the Code if held by a thrift.
Moreover, other special rules may apply to certain investors, including dealers
in securities and dealers in notional principal contracts.
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If the Servicer, acting directly or through a permitted designee, exercises
its right to an Optional Termination, any Supplemental Interest Amount may not
be paid in full.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
and the Code impose certain requirements on employee benefit plans and certain
other retirement plans and arrangements, as well as on collective investment
funds and separate accounts in which such plans or arrangements are invested
(all of which are hereinafter referred to as a "Plan") and on persons who are
fiduciaries with respect to such Plans. Any Plan fiduciary which proposes to
cause a Plan to acquire any of the Class A Certificates will be required to
determine whether such an investment is permitted under the governing Plan
instruments and is prudent and appropriate for the Plan in view of its overall
investment policy and the composition and diversification of its portfolio. In
addition, ERISA and the Code prohibit certain transactions involving the assets
of a Plan and "disqualified persons" (within the meaning of the Code) and
certain specified relationships to the Plan. Therefore, a Plan fiduciary
considering an investment in the Class A Certificates should also consider
whether such an investment might constitute or give rise to a prohibited
transaction under ERISA or the Code. Any Plan fiduciary which proposes to cause
a Plan to acquire any of the Class A 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 Class A Certificates.
The U.S. Department of Labor has granted to [ ] an administrative
exemption (Prohibited Transaction Exemption [ ], as amended; Exemption
Application No. [ ], [ ] Fed. Reg. [ ] ([ ])) (the
"Exemption") from certain of the prohibited transaction rules of ERISA and the
related excise tax provisions of Section 4975 of the Code with respect to the
initial purchase, the holding and the subsequent resale by Plans of certificates
in pass-through trusts that consist of certain receivables, loans and other
obligations that meet the conditions and requirements of the Exemption. The
loans covered by the Exemption include mortgage loans such as the Mortgage
Loans.
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(1) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as favorable
to the Plan as they would be in an arm's-length transaction with an
unrelated party;
(2) the rights and interests evidenced by the certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by
other certificates of the trust;
(3) the certificates acquired by the Plan have received a rating at
the time of such acquisition that is one of the three highest generic
rating categories from Moody's Investors Service ("Moody's"), Standard &
Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P" and, together
with Moody's, the "Rating Agencies"), Duff & Phelps Credit Rating Co.
("D&P") or Fitch Investors Service, Inc. ("Fitch");
(4) the trustee must not be an affiliate of any other member of the
Restricted Group (as defined below);
(5) the sum of all payments made to and retained by the underwriters
in connection with the distribution of the certificates represents not more
than reasonable compensation for underwriting the certificates; the sum of
all payments made to and retained by the sponsor pursuant to the assignment
of the mortgage loans to the trust represents not more than the fair market
value of such mortgage loans; the sum of all payments made to and retained
by the servicer and any other servicer represents not more than reasonable
compensation for such person's services under the pooling and servicing
agreement and reimbursement of such person's reasonable expenses in
connection therewith;
(6) the Plan investing in the certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933, as amended; and
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(7) the trust must also meet the following requirements:
(i) the corpus of the trust must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates in such investment pools must have been rated in
one of the three highest rating categories of Moody's, S&P, D&P or Fitch
for at least one year prior the Plan's acquisition of certificates; and
(iii) certificates evidencing interest in such other investment
pools must have been purchased by investors other than Plans for at
least one year prior to any Plan's acquisition of certificates.
Moreover, the Exemption provides relief from certain self-dealing/conflict
of interest prohibited transactions that may occur when the Plan fiduciary
causes a Plan to acquire certificates in a trust in which the fiduciary (or its
affiliate) is an obligor on the receivables held in the trust provided that,
among other requirements, (i) in the case of an acquisition in connection with
the initial issuance of certificates, at least fifty percent of each class of
certificates in which Plans have invested is acquired by persons independent of
the Restricted Group (as defined herein); (ii) such fiduciary (or its affiliate)
is an obligor with respect to 5% or less of the fair market value of the
obligations contained in the trust; (iii) the Plan's investment in certificates
of any class does not exceed 25% of all of the certificates of that class
outstanding at the time of the acquisition; and (iv) immediately after the
acquisition, no more than 25% of the assets of the Plan with respect to which
such person is a fiduciary are invested in certificates representing an interest
in one or more trusts containing assets sold or served by the same entity. The
Exemption does not apply to Plans sponsored by the Sponsor, the Underwriters,
the Trustee, the Servicer, [the Certificate Insurer], any obligor 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 such parties (the "Restricted Group").
It is believed that the Exemption will apply to the acquisition and holding
of Class A Certificates by Plans and that all conditions of the Exemptions as
they relate to the acquisition and holding by Plans of Class A Certificates
other than those within the control of the investors will be met after such
time, provided that either the Subsequent Mortgage Loans are identified as of
the Closing Date or the Subsequent Mortgage Loans have been acquired by the
Trust on the Closing Date. The Sponsor expects to satisfy one or both of these
conditions.
USE OF PROCEEDS
The Sponsor intends to use the net proceeds to be received from the sale of
the Class A Certificates to pay off certain indebtedness incurred in connection
with the acquisition of the Initial Mortgage Loans, to fund the Prefunding
Account and the Capitalized Interest Account 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 Certificates will not constitute "mortgage related securities"
for purposes of SMMEA. Accordingly, many institutions with legal authority to
invest in comparably rated securities may not be legally authorized to invest in
the Class A Certificates. No representation is made herein as to whether the
Class A Certificates constitute legal investments for any entity under any
applicable statute, law, rule, regulation or order. Prospective purchasers are
urged to consult with their counsel concerning the status of the Class A
Certificates as legal investments for such purchasers prior to investing in the
Class A Certificates.
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UNDERWRITING
Under the terms set forth in the Underwriting Agreement and the related
Pricing Agreement, (collectively, the "Underwriting Agreement") for the sale of
the Class A Certificates, dated [ ], the Sponsor has agreed to sell and
[ ] (collectively, the "Underwriters") have severally agreed to purchase
the respective principal amounts of Class A Certificates set forth opposite
their respective names. 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 Class A Certificates.
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A-1A CLASS A-1B CLASS A-1C CLASS A-2
UNDERWRITER CERTIFICATES CERTIFICATES CERTIFICATES CERTIFICATES
- -------------------------------------------------- ------------ ------------ ------------ -----------
Total.............................................
The Underwriters have informed the Sponsor that they propose to offer the
Class A Certificates for sale 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 the related sale. The Underwriters may effect such transactions by
selling the Class A Certificates to or through dealers, and such dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriters. In connection with the sale of the Class A
Certificates, the Underwriters may be deemed to have received compensation from
the Sponsor in the form of underwriting compensation. The Underwriters and any
dealers that participate with the Underwriters in the distribution of the Class
A Certificates may be deemed to be underwriters and any commissions received by
them and any profit on the resale of the Class A Certificates by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Sponsor has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act.
The Sponsor has been advised by the Underwriters that the Underwriters
intend to make a market in the Class A Certificates, as permitted by applicable
laws and regulations. The Underwriters are not obligated, however, to make a
market in the Class A Certificates and such market-making may be discontinued at
any time at the sole discretion of the Underwriters. Accordingly, no assurance
can be given as to the liquidity of, or trading markets for, the Class A
Certificates.
[ ], a United Kingdom broker-dealer and a member of the
Securities and Futures Authority Limited, has agreed that, as part of the
distribution of the Class A Certificates offered hereby and subject to certain
exceptions, it will not offer or sell any Class A Certificates within the United
States, its territories or possessions or to persons who are citizens thereof or
residents therein. The Underwriting Agreement does not limit sales of Class A
Certificates offered hereby outside of the United States.
Each of the Underwriters has further represented that: (i) it has not
offered or sold and will not offer or sell, prior to the date six months after
their date of issuance, any Class A 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 which 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) it has
complied and will comply with all applicable
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provisions of the Financial Services Act 1986 with respect to anything done by
it in relation to the Class A Certificates in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection with the
issuance of the Class A 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.
[REPORT OF EXPERTS
The consolidated balance sheets of the Certificate Insurer and its
subsidiaries as of [ ] and [ ] and the related consolidated
statements of income, changes in shareholder's equity and cash flows for each of
the [ ] years in the period ended [ ] incorporated by reference in
this Prospectus Supplement, have been incorporated herein in reliance on the
report of [ ], independent accountants, given on the authority of that
firm as experts in accounting and auditing.]
LEGAL MATTERS
Certain legal matters with respect to the Certificates will be passed upon
for the Sponsor by [ ]. [ ] will act as counsel for the
Underwriters. [Certain legal matters relating to the Certificate Insurer and the
Certificate Insurance Policy will be passed upon by inside counsel to the
Certificate Insurer.]
RATING OF THE CLASS A CERTIFICATES
It is a condition to the issuance of each of the Class A-1A Certificates,
the Class A-1B Certificates, the Class A-1C Certificates and the Class A-2
Certificates that each shall be rated "[ ]" by [ ] and "[ ]"
by [ ].
Explanations of the significance of such ratings may be obtained from
[ ] and [ ]. Each rating will be the view only of the assigning
Rating Agency.
[The ratings on the Class A Certificates are based in substantial part on
the claims-paying ability of the Certificate Insurer. Any change in the ratings
of the Certificate Insurer by the Rating Agencies may result in a change in the
ratings of the Class A Certificates.]
There is no assurance that any rating assigned to the Class A 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 Class A Certificates.
The ratings of the Class A 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 Class A Certificates, or, if one does, what rating will be assigned by such
other rating agency. A rating on the Class A Certificates by another rating
agency, if assigned at all, may be lower than the ratings assigned to the Class
A Certificates by [ ] and [ ].
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ANNEX A
DESCRIPTION OF THE MORTGAGE POOL
The following is a brief description of certain terms of the Initial
Mortgage Loans based on the Initial Mortgage Loans and each Mortgage Loan Group
as of the Cut-off Date. Certain mortgage loans may be removed, prior to the
Closing Date, from the Mortgage Pool and each Mortgage Loan Group as described
herein, in which case an amount equal to the aggregate principal balances of
such mortgage loans, but in no event more than $5,000,000, will be added to the
Prefunding Account Deposit on the Closing Date. As a result, the statistical
information presented below regarding the Initial Mortgage Loans and each
Mortgage Loan Group as of the Cut-off Date may vary in certain limited respects
from comparable information based on the actual composition of the Mortgage Pool
and each Mortgage Loan Group at the Closing Date. In addition, the actual
Mortgage Pool may vary from the description below due to a number of factors,
including the purchase of Subsequent Mortgage Loans on the Closing Date and
prepayments of the Initial Mortgage Loans. See "-- Conveyance of Subsequent
Mortgage Loans" herein.
The term "Aggregate Principal Balance" means the aggregate Principal
Balance of the Mortgage Loans in the specified Mortgage Loan Group. The
information expressed as a percentage of the Aggregate Principal Balance may not
total 100% due to rounding.
Each Mortgage Loan in the Trust will be assigned to one of two mortgage
loan groups (the "Fixed Rate Group" and the "Adjustable Rate Group," and each a
"Mortgage Loan Group"). The Initial Mortgage Loans comprising the Fixed Rate
Group will be secured by first, second and third liens with respect to the
related Mortgaged Properties and will bear fixed rates of interest.
Substantially all of the Initial Mortgage Loans comprising the Adjustable Rate
Group will be secured by first liens on the related Mortgaged Properties and
will bear interest at rates that adjust based on the index described in the
related mortgage notes. The Class A-1 Certificates represent undivided ownership
interests in all Mortgage Loans contained in the Fixed Rate Group, and the Class
A-2 Certificates represent undivided ownership interests in all Mortgage Loans
contained in the Adjustable Rate Group.
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FIXED RATE GROUP
TYPE OF MORTGAGED PROPERTY
[INSERT TABLE HERE]
FIXED RATE GROUP
OCCUPANCY STATUS
[INSERT TABLE HERE]
A-2
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FIXED RATE GROUP
PRIORITY OF LIEN
[INSERT TABLE HERE]
FIXED RATE GROUP
TYPE OF LOAN BY AMORTIZATION METHOD
[INSERT TABLE HERE]
A-3
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FIXED RATE GROUP
COMBINED LOAN-TO-VALUE RATIOS
[INSERT TABLE HERE]
FIXED RATE GROUP
ORIGINAL TERM TO MATURITY
[INSERT TABLE HERE]
A-4
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FIXED RATE GROUP
REMAINING TERM TO MATURITY
[INSERT TABLE HERE]
FIXED RATE GROUP
RANGE OF MORTGAGE INTEREST RATES
[INSERT TABLE HERE]
A-5
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FIXED RATE GROUP
CUT-OFF DATE PRINCIPAL BALANCE
[INSERT TABLE HERE]
FIXED RATE GROUP
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
[INSERT TABLE HERE]
A-6
91
FIXED RATE GROUP
ORIGINATORS OF THE MORTGAGE LOANS
[insert Table here]
ADJUSTABLE RATE GROUP
TYPE OF MORTGAGED PROPERTY
[insert Table here]
A-7
92
ADJUSTABLE RATE GROUP
OCCUPANCY STATUS
[insert Table here]
ADJUSTABLE RATE GROUP
PRIORITY OF LIEN
[insert Table here]
A-8
93
ADJUSTABLE RATE GROUP
TYPE OF LOAN BY AMORTIZATION METHOD
[insert Table here]
ADJUSTABLE RATE GROUP
COMBINED LOAN-TO-VALUE RATIOS
[insert Table here]
ADJUSTABLE RATE GROUP
ORIGINAL TERM TO MATURITY
[insert Table here]
A-9
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ADJUSTABLE RATE GROUP
REMAINING TERM TO MATURITY
[insert Table here]
ADJUSTABLE RATE GROUP
RANGE OF MORTGAGE INTEREST RATES
AS OF CUT-OFF DATE
[insert Table here]
A-10
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ADJUSTABLE RATE GROUP
CUT-OFF DATE PRINCIPAL BALANCE
[INSERT TABLE HERE]
ADJUSTABLE RATE GROUP
RANGE OF GROSS MARGINS
[INSERT TABLE HERE]
A-11
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ADJUSTABLE RATE GROUP
RANGE OF MAXIMUM MORTGAGE INTEREST RATES
[INSERT TABLE HERE]
ADJUSTABLE RATE GROUP
RANGE OF MINIMUM MORTGAGE RATES
[INSERT TABLE HERE]
A-12
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ADJUSTABLE RATE GROUP
GEOGRAPHICAL DISTRIBUTION OF MORTGAGED PROPERTIES
[INSERT TABLE HERE]
ADJUSTABLE RATE GROUP
ORIGINATORS OF THE MORTGAGE LOANS
[INSERT TABLE HERE]
A-13
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ANNEX B
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered Mortgage
Pass-Through Certificates, Series 199[ ]-[ ] (the "Global
Securities") will be available only in book-entry form. Investors in the Global
Securities may hold such Global Securities through DTC, Cedel or Euroclear. The
Global Securities will be tradeable 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 Cedel 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 procedure applicable to
U.S. corporate debt obligations and prior Mortgage Pass-Through Certificates
issues.
Secondary cross-market trading between participants of Cedel or Euroclear
and DTC Participants holding Certificates will be effected on a
delivery-against-payment basis through the Relevant Depositaries of Cedel and
Euroclear (in such capacity) and as DTC Participants.
Non-U.S. holders (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, 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, Cedel and Euroclear will hold
positions on behalf of their participants through their 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
DTC settlement practice. 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 Cedel 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
securities custody accounts on the settlement date against payment in same-day
funds.
SECONDARY MARKET TRADING
Because 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. Second market trading between DTC
Participants will be settled using the procedures applicable to prior mortgage
pass-through certificates issues in same-day funds.
Trading between Cedel and/or Euroclear Participants. Secondary market
trading between Cedel Participants or Euroclear Participants will be settled
using the Procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC Seller and Cedel or Euroclear Participants. When Global
Securities are to be transferred from the account of a DTC Participant to the
account of a Cedel Participant or a Euroclear Participant, the purchaser will
send instructions to Cedel or Euroclear through a Cedel Participant or Euroclear
Participant at least one business day prior to settlement. Cedel or Euroclear
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
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excluding the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. 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 to 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 Cedel 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 Cedel or Euroclear cash debt
will be valued instead as of the actual settlement date.
Cedel 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 Cedel or Euroclear. Under this approach,
they may take on credit exposure to Cedel or Euroclear until the Global
Securities are credited to their accounts one day later.
As an alternative, if Cedel or Euroclear has extended a line of credit to
them, Cedel Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, Cedel Participants or Euroclear Participants purchasing Global
Securities would incur overdraft charges for one day, assuming they clear the
overdraft when the Global Securities are 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 Cedel Participants or
Euroclear Participant's particular cost of funds.
Because 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 Cedel 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 Cedel or Euroclear Seller and DTC Purchaser. Due to time
zone differences in their favor, Cedel 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 Depositary, to a DTC Participant. The seller will send instructions
to Cedel or Euroclear through a Cedel Participant or Euroclear Participant at
least one business day prior to settlement. In these cases, Cedel or Euroclear
will instruct the 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 the actual
number of days in such accrual period and a year assumed to consist of 360 days.
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 Cedel Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
Cedel 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 Cedel 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 Cedel Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
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Finally, day traders that use Cedel or Euroclear and that purchase Global
Securities from DTC Participants for delivery to Cedel 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 though Cedel or Euroclear for one day (until the
purchase side of the day trade is reflected in their Cedel 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 settlement, which would give the Global
Securities sufficient time to be reflected in their Cedel 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 Cedel Participant
or Euroclear Participant.
CERTAIN U.S. FEDERAL INCOME TAX DOCUMENTATION REQUIREMENTS
A beneficial owner of Global Securities holding securities through Cedel or
Euroclear (or through DTC if the holder has an address outside the U.S.) will be
subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) 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 such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8). 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-8 (Certificate of Foreign Status). If
the information shown on Form W-8 changes, a new Form W-8 must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
4224). 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 4224 (Exemption from Withholding of Tax on Income
Effectively Connected with the Conduct of a Trade or Business in the United
States).
Exemption or reduced rate for non-U.S. Persons resident in treaty countries
(Form 1001). Non-U.S. Persons 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 1001 (Ownership, Exemption or Reduced Rate
Certificate). If the treaty provides only for a reduced rate, withholding tax
will be imposed at that rate unless the filer alternatively files Form W-8. Form
1001 may be filed by the Certificate Owners or their agents.
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 (Payer's Request for
Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form 1001 or a Form 4224 filer, his agent,
files by submitting the appropriate form to the person though whom it holds (the
clearing agency, in the case of persons holding directly on the books of the
clearing agency). Form W-8 and Form 1001 are effective for three calendar years,
and Form 4224 is effective for one calendar year.
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation or partnership organized in or under the laws of the
United States or any political subdivision thereof or (iii) an estate or trust
that is subject to United States federal income tax, regardless of the source of
its income. The term "Non-U.S. Person" means any person who is not a U.S.
Person. This summary does not deal with all aspects of U.S. federal income tax
withholding that may be relevant to foreign holders of Global Securities.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of Global Securities.
B-3