EXHIBIT 99.2
FORM OF PROSPECTUS SUPPLEMENT
PROSPECTUS SUPPLEMENT
(To Prospectus dated ___________)
_______________ TRUST ______
$__________ Class A-1 ____% Home Loan Asset Backed Notes
$__________ Class A-2 ____% Home Loan Asset Backed Notes
$__________ Class A-3 ____% Home Loan Asset Backed Notes
$__________ Class A-4 ____% Home Loan Asset Backed Notes
$__________ Class M-1 ____% Home Loan Asset Backed Notes
$__________ Class M-2 ____% Home Loan Asset Backed Notes
$__________ Class B ____% Home Loan Asset Backed Notes
Home Loan Asset Backed Notes
Distributions payable on the 25th day of each month, commencing in ___________
HOME EQUITY SECURITIZATION CORP.
as Depositor
[_______________]
as Servicer
The _______________ Trust _______ (the "Trust") will be formed pursuant to
a trust agreement to be dated as of _____________ (the "Trust Agreement") and
entered into by Home Equity Securitization Corp., as depositor (the
"Depositor"), __________________, as owner trustee (the "Owner Trustee"), and
__________________, as co-owner trustee (in such capacity, the "Co-Owner
Trustee"). The Trust will issue $____________ aggregate principal amount of Loan
Asset Backed Notes (the "Notes") pursuant to an indenture to be dated as of
______________ (the "Indenture"), between the Trust and ___________________, as
indenture trustee (in such capacity, the "Indenture Trustee"). The Trust will
also issue instruments evidencing in the aggregate the entire residual interest
in the Trust (each a "Residual Interest"). Only the Notes are offered hereby.
Distributions of interest on the Class B Notes will be subordinated in
priority to distributions of interest on the Class M-1 and Class M-2 Notes
(together, the "Mezzanine Notes") which, in turn, will be subordinated in
priority to distributions of interest on the Class A-1, Class A-2, Class A-3 and
Class A-4 Notes (the "Senior Notes") as described herein. Distributions of
principal on the Class B Notes will be subordinated in priority to distributions
of principal on the Mezzanine Notes which, in turn, will be subordinated in
priority to distributions of principal of the Senior Notes as described herein.
=====================================================================================================
Price to Public Underwriting Discount Proceeds to Depositor (2)
Class A-1 Notes (1) ...... % % %
Class A-2 Notes (1) ...... % % %
Class A-3 Notes (1) ...... % % %
Class A-4 Notes (1) ...... % % %
Class M-1 Notes (1) ...... % % %
Class M-2 Notes (1) ...... % % %
Class B Notes (1) ........ % % %
Total .................... $ $ $
=====================================================================================================
(1) Plus accrued interest, if any, at the applicable rate from _______________
(2) Before deducting expenses, estimated to be $____________
FOR A DISCUSSION OF MATERIAL RISKS ASSOCIATED WITH AN INVESTMENT IN THE
NOTES, SEE THE INFORMATION HEREIN UNDER "RISK FACTORS" BEGINNING ON PAGE [___]
AND IN THE PROSPECTUS BEGINNING ON PAGE [__].
THE NOTES REPRESENT INTERESTS IN OR OBLIGATIONS OF THE TRUST ONLY AND DO
NOT REPRESENT INTERESTS IN OR OBLIGATIONS OF THE DEPOSITOR, SERVICER, OWNER
TRUSTEE, INDENTURE TRUSTEE OR ANY AFFILIATE THEREOF, EXCEPT TO THE EXTENT
PROVIDED HEREIN. NEITHER THE LOANS NOR THE NOTES ARE INSURED OR GUARANTEED BY
ANY GOVERNMENTAL AGENCY.
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The yield to maturity of any Notes may vary from the anticipated yields to
the extent such Notes are purchased at a discount or premium and to the extent
the rate and timing of payments thereof are sensitive to the rate and timing of
0principal payments (including prepayments) of the Loans. Noteholders should
consider, in the case of any Notes purchased at a discount, the risk that a
lower than anticipated rate of principal payments could result in an actual
yield that is lower than the anticipated yield and, in the case of any Notes
purchased at a premium, the risk that a faster than anticipated rate of
principal payments could result in an actual yield that is lower than the
anticipated yield.
The Trust will consist of a pool (the "Pool") of home loans (the "Loans")
secured by either mortgages, deeds of trust or other similar security
instruments (the "Mortgages") as described herein under "The Loans." Loans
expected to have an aggregate unpaid principal balance as of the close of
business on _______________ (the "Initial Cut-Off Date") of approximately
$_____________ (the "Initial Loans") will be designated for inclusion in the
Pool. On or prior to______________, the Trust may purchase additional loans (the
"Subsequent Loans") having an aggregate unpaid principal balance of up to
$______________ (as adjusted pursuant to the immediately following sentence, the
"Original Pre-Funded Amount") with amounts on deposit in an account (the
"Pre-Funding Account") established for such purpose on the Closing Date. To the
extent that the aggregate unpaid principal balance (as of the Initial Cut-Off
Date) of the Initial Loans actually delivered on the Closing Date is more or
less than the amount set forth in the second preceding sentence, the Original
Pre-Funded Amount will be decreased or increased by a corresponding amount
provided that the amount of any such adjustment shall not exceed
$_______________.
Distributions on the Notes will be made to the holders of the Notes (the
"Noteholders") on the 25th day of each month or, if such day is not a Business
Day (as defined below), the next succeeding Business Day (each, a "Distribution
Date"), beginning in _____________. The Notes are secured by the assets of the
Trust pursuant to the Indenture. On each Distribution Date, the Noteholders will
be entitled to receive, from and to the extent that funds are available therefor
in the Note Distribution Account, distributions with respect to interest and
principal calculated as described herein under "Description of the
Notes--Distributions on the Notes." "Business Day" means any day other than (i)
a Saturday or a Sunday or (ii) a day on which banking institutions in New York
City or in the city in which the corporate trust office of the Indenture Trustee
is located are authorized or obligated by law or executive order to be closed.
________________ (the "Underwriter") intends to make a secondary market in
the Notes but has no obligation to do so. There is currently no secondary market
for the Notes and there can be no assurance that such a market will develop or,
if it does develop, that it will continue.
The Notes are offered by the Underwriter, subject to prior sale, when, as
and if delivered to and accepted by the Underwriter and subject to approval of
certain legal matters by counsel. It is expected that delivery of the Notes will
be made in book-entry form only through the facilities of The Depository Trust
Company (the "Depository") on or about _________________.
Certain persons participating in this offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the Notes. Such
transactions may include stabilizing and the purchase of Notes to cover
syndicate short positions. For a description of these activities, see "Method of
Distribution" herein.
This Prospectus Supplement does not contain complete information about the
offering of the Notes. Additional information is contained in the Prospectus
dated _____________ (the "Prospectus") which accompanies this Prospectus
Supplement and purchasers are urged to read both this Prospectus Supplement and
the Prospectus in full. Sales of the Notes may not be consummated unless the
purchaser has received both this Prospectus Supplement and the Prospectus.
Upon written request, [ ]. will make available its most recent
audited financial statements. Requests should be directed to [ ].,
_____________________, Attention:
Until ninety days after the date of this Prospectus Supplement, all dealers
effecting transactions in the Notes, whether or not participating in this
distribution, may be required to deliver a Prospectus Supplement and the
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus Supplement and the Prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
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To the extent statements contained herein do not relate to historical or
current information, this Prospectus Supplement may be deemed to consist of
forward looking statements that involve risks and uncertainties that may
adversely affect the distributions to be made on, or the yield of, the Notes,
which risks and uncertainties are discussed under "Risk Factors" and "Prepayment
and Yield Considerations." As a consequence, no assurance can be given as to the
actual distributions on, or the yield of, any Class of Notes.
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SUMMARY
The following summary of certain pertinent information is qualified in its
entirety by reference to the detailed information appearing elsewhere in this
Prospectus Supplement and in the accompanying Prospectus. Certain capitalized
terms used herein are defined elsewhere in the Prospectus Supplement or in the
Prospectus.
Issuer ........................ _______________ Trust ________ (the "Trust"
or the "Issuer"), a Delaware business trust,
will be established pursuant to a trust
agreement to be dated as of ______________
(the "Trust Agreement"), among the
Depositor, the Owner Trustee, and the
Co-Owner Trustee.
Depositor ..................... Home Equity Securitization Corp.. (the
"Depositor"), a North Carolina corporation.
The Depositor is a wholly owned, special
purpose subsidiary of First Union National
Bank, a national banking association with
its headquarters in Charlotte, North
Carolina. See "The Company" in the
Prospectus and "Method of Distribution"
herein. None of the Depositor, the Servicer,
the Indenture Trustee, or any of their
respective affiliates has guaranteed or is
otherwise obligated with respect to the
Notes.
Servicer ...................... _______________________, ("_____" or as
servicer, the "Servicer"), in its capacity
as servicer of the Loans.
Owner Trustee and Co-Owner
Trustee ....................... __________________, a _____________ banking
corporation, as owner trustee under the
Trust Agreement (the "Owner Trustee") and
_________________________, as co-owner
trustee under the Trust Agreement (in such
capacity, the "Co-Owner Trustee").
Indenture Trustee ............ ________________________, a national banking
association, as the indenture trustee (in
such capacity, the "Indenture Trustee")
under an indenture to be dated as of
__________________ (the "Indenture") between
the Trust and the Indenture Trustee.
Custodian ..................... ________________________, as the custodian
(the "Custodian") under the Custodial
Agreement to be dated as of _____________,
______ by and among the Trust, the
Depositor, the Servicer, the Indenture
Trustee and the Custodian.
Closing Date .................. On or about __________________.
Cut-Off Date .................. With respect to the Initial Loans, the close
of business on __________________ (the
"Initial Cut-Off Date"). With respect to the
Subsequent Loans, the close of business on
the date specified as such in the related
subsequent transfer agreement (as defined
herein).
Distribution Date ............. The 25th day of each month or, if such day
is not a Business Day, the next succeeding
Business Day, commencing in
_________________ (each, a "Distribution
Date").
Due Period .................... With respect to a Distribution Date the
calendar month immediately preceding such
Distribution Date (each, a "Due Period").
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Determination Date ............ The fourteenth calendar day of each month
or, if such day is not a Business Day, the
immediately preceding Business Day (each, a
"Determination Date").
Record Date ................... With respect to each Distribution Date
(other than the first Distribution Date),
the close of business on the last Business
Day of the month immediately preceding the
month in which each Distribution Date occurs
and, with respect to the first Distribution
Date, the Cut-off Date (each, a "Record
Date").
The Notes ..................... The Trust will issue the Classes of Notes
pursuant to the Indenture in the respective
aggregate initial principal amounts
specified on the cover hereof (each such
aggregate principal amount being the
"Original Class Principal Balance" for the
related Class). The Notes will be secured by
the assets of the Trust pursuant to the
Indenture and will be senior in right of
payment to the Residual Interests. In
addition, as described herein, the Class
A-1, Class A-2, Class A-3 and Class A-4
Notes (the "Senior Notes") will also be
senior in the right to receive certain
payments relative to the Class M-1 and Class
M-2 Notes (together, the "Mezzanine Notes"),
which will be senior in the right to receive
certain payments relative to the Class B
Notes. Payments in respect of interest on
the Notes will be made prior to payments of
principal of the Notes. Interest will accrue
on each Class of Notes at the following
applicable per annum rate (as to each such
Class, the "Note Interest Rate"):
Class A-1 Notes _____
Class A-2 Notes _____
Class A-3 Notes _____
Class A-4 Notes _____
Class M-1 Notes _____
Class M-2 Notes _____
Class B Notes _____
Interest on the Notes will accrue on the
basis of a 360-day year consisting of twelve
30-day months. See "Description of the
Notes/Distributions on the Notes" herein.
Investment Characteristics of
Notes....................... The Notes will be issued in three groups in
terms of seniority of payment. The Class
A-1, Class A-2, Class A-3 and Class A-4
Notes (the "Senior Notes") will be senior in
the right to receive certain payments
relative to the Class M-1 and Class M-2
Notes (together, the "Mezzanine Notes"),
which will be senior in the right to receive
certain payments relative to the Class B
Notes. See "--Subordination" in this
Summary. In addition, the Final Payment
Dates for the Senior Notes are expected to
occur prior to the Final Payment Dates for
the Mezzanine Notes, which are expected to
occur prior to the Final Payment Date for
the Class B Notes. See "Prepayment and Yield
Considerations" herein.
Priority of Distributions
Regular Distribution
Amount ........................ The Regular Distribution Amount (as defined
herein) will be distributed on each
Distribution Date in the following order of
priority: (i) to pay accrued and unpaid
interest on the Senior Notes (as defined
herein) pro rata, based on the amount of
interest distributable in respect of each
such Class calculated at the related Note
Interest Rate; (ii) to pay accrued and
unpaid interest, first, on the Class M-1
Notes and, second, on the Class M-2 Notes;
(iii) to pay accrued and unpaid interest on
the Class B Notes; (iv) to pay as principal
of the Class A-1, Class A-2, Class A-3 and
Class A-4 Notes, in that order, until the
respective Class Principal Balances thereof
are reduced to zero, the amount necessary to
reduce the aggregate Class Principal Balance
of the Senior Notes to the Senior Optimal
Principal Balance (as defined herein); (v)
to pay as principal of the Class M-1 and
Class M-2 Notes, in that order, the amount
necessary to reduce the Class Principal
Balances thereof to the Class M-1 and Class
M-2 Optimal Principal Balances,
respectively; (vi) to pay as principal of
the
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Class B Notes, the amount necessary to
reduce the Class Principal Balance thereof
to zero; (vii) to pay to the Class M-1,
Class M-2 and Class B Notes, in that order,
their respective Loss Reimbursement
Deficiencies (as defined herein), if any;
and (viii) to pay any remaining amount to
the holders of the Residual Interests.
Excess Spread ................ The Excess Spread (as defined below) will be
distributed on each Distribution Date in the
following order of priority (after giving
effect to all distributions specified above
under "--Regular Distribution Amount"): (i)
prior to the termination of the Spread
Deferral Period (as defined below), to be
deposited in the Certificate Distribution
Account for distribution to the holders of
the Residual Interests; (ii) upon the
termination of the Spread Deferral Period,
(A) in an amount equal to the
Overcollateralization Deficiency Amount (as
defined below), if any, as follows: (1) to
pay as principal of the Class A-1, Class
A-2, Class A-3 and Class A-4 Notes, in that
order, until the respective Class Principal
Balances thereof are reduced to zero, the
amount necessary to reduce the aggregate
Class Principal Balance of the Senior Notes
to the Senior Optimal Principal Balance; (2)
to pay as principal of the Class M-1 and
Class M-2 Notes, in that order, the amount
necessary to reduce the Class Principal
Balances thereof to the Class M-1 Optional
Principal Balance (as defined herein) and
Class M-2 Optimal Principal Balance (as
defined herein), respectively; and (3) to
pay as principal of the Class B Notes, the
amount necessary to reduce the Class
Principal Balance thereof to zero; (B) to
pay to the Class M-1, Class M-2 and Class B
Notes, in that order, their respective Loss
Reimbursement Deficiencies, if any; and (C)
to pay any remaining amount to the holders
of the Residual Interests. "Excess Spread."
means with respect to any Distribution Date,
the excess of (a) the Available Distribution
Amount over (b) the Regular Distribution
Amount. "Spread Deferral Period" means the
period beginning on the Closing Date and
ending as soon as Excess Spread in an amount
equal to _________ has been deposited in the
Certificate Distribution Account for
distribution to the holders of the Residual
Interests. "Overcollateralization Deficiency
Amount" means with respect to any date of
determination, the excess, if any, of the
Overcollateralization Amount (such
Overcollateralization Amount) to be
calculated after giving effect to all
payments of the Regular Distribution Amount
on the Notes and the Residual Interests on
such Distribution Date).
Final Maturity Dates The Class Principal Balance of each Class of
Notes, to the extent not previously paid,
will be payable in full on the Final
Maturity Dates set forth below (each a
"Final Maturity Date"), although it is
anticipated that the actual final
Distribution Date for each Class of Notes
will occur significantly earlier than its
respective Final Maturity Date.
Final
Maturity Date
Class A-1 Notes _____________
Class A-2 Notes _____________
Class A-3 Notes _____________
Class A-4 Notes _____________
Class M-1 Notes _____________
Class M-2 Notes _____________
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Class B Notes
========
Form and Registration of
the Notes ..................... The Notes will be available in book-entry
form. Persons acquiring beneficial ownership
interests in the Notes ("Note Owners") will
hold such Notes through the book-entry
facilities of The Depository Trust Company
("DTC"). Transfers within DTC will be in
accordance with the usual rules and
operating procedures of DTC. So long as each
Class of Notes is in book-entry form, each
such Class will be evidenced by one or more
certificates registered in the name of the
nominee of DTC. The interests of the Note
Owners will be represented by book-entries
on the records of DTC and participating
members thereof. No Note Owner will be
entitled to receive a definitive certificate
representing such person's interest, except
in the event that Definitive Securities are
issued under the limited circumstances
described herein. "Definitive Securities"
are Notes issued in fully registered,
certificated form, as set forth in the
Indenture. All references in this Prospectus
Supplement to any Class of Notes reflect the
rights of the Note Owners of such Class only
as such rights may be exercised through DTC
and its participating members so long as
such Class of Notes is held by DTC. See "The
Agreements Book-Entry Securities" in the
Prospectus and "Description of the
Notes--Book-Entry Registration" herein. The
Note Owners' interests in each Class of
Notes will be held only in minimum
denominations of $100,000 and integral
multiples of $1,000 on excess thereof.
Assets of the Trust ........... On the Closing Date, the Trust will purchase
from the Depositor a pool of home loans (the
"Initial Loans") expected to have an
aggregate unpaid principal balance of
approximately $_____________ as of the
Initial Cut-Off Date (the actual aggregate
unpaid principal balance (as of the Initial
Cut-off Date) of the Initial Loans, the
"Original Pool Principal Balance") pursuant
to a Sale and Servicing Agreement to be
dated as of _________________ (the "Sale and
Servicing Agreement") among the Trust, the
Depositor, the Servicer, the Indenture
Trustee and the Co-Owner Trustee. On or
prior to ______________, the Trust may
purchase additional loans (the "Subsequent
Loans," and together with the Initial Loans,
the "Loans") having an aggregate unpaid
principal balance of up to approximately
$_____________ (as adjusted pursuant to the
immediately following sentence, the
"Original Pre-Funded Amount"). To the extent
that the Original Pool Principal Balance is
more or less than the amount set forth in
the second preceding sentence, the Original
Pre-Funded Amount will be decreased or
increased by a corresponding amount provided
that the amount of any such adjustment shall
not exceed $_____________. The Loans will be
secured by mortgages, deeds of trust or
other similar security instruments (the
"Mortgages").
The Initial Loans are expected to consist
of approximately _______ loans, having an
Original Pool Principal Balance of
approximately $_________. See "The Loans"
herein. The statistical information
presented in this Prospectus Supplement
regarding the Loans is based only on the
Initial Loans identified as of the date of
this Prospectus Supplement, and does not
take into account any additional Initial
Mortgage Loans identified after the date of
this Prospectus Supplement or any
Subsequent Loans that may be sold to the
Trust during the Pre-Funding Period through
application of amounts in the Pre-Funding
Account. In addition, prior to the Closing
Date, ______ may remove any of the home
loans intended to be sold to the Trust,
substitute comparable loans therefor, or
add comparable loans thereto; however, the
aggregate principal balance of such loans
so replaced, added or removed may not
exceed ______% of the Original Pool
Principal Balance. If, prior to the Closing
Date, loans are removed (or added) as
described herein, an amount equal to the
aggregate principal balances of such loans
will be added to (or deducted from) the
Original Pre-Funded Amount on the Closing
Date. As a result of the foregoing, the
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statistical information presented herein
regarding the Loans expected to be sold to
the Trust as of the date of this Prospectus
Supplement (1) does not take into account
any (a) additional Initial Mortgage Loans
not identified as of the date of this
Prospectus Supplement and (b) Subsequent
Loans that may be sold to the Trust during
the Pre-Funding Period through the
application of amounts in the Pre-Funding
Account and (2) may vary in certain respects
from comparable information based on the
actual composition of Loans at the Closing
Date or any Subsequent Transfer Date. See
"Risk Factors--Acquisition of Subsequent
Loans" and "The Loans" herein.
The assets of the Trust will consist of the
Loans. The assets of the Trust will also
include (i) payments of interest and
principal received in respect of the Loans
after the related Cut-Off Date; (ii) amounts
on deposit in the Collection Account, Note
Distribution Account, Pre-Funding Account,
Capitalized Interest Account and Certificate
Distribution Account; and (iii) certain
other ancillary or incidental funds, rights
and properties related to the foregoing. See
"The Trust--General" herein. The Trust will
include the unpaid principal balance of each
Loan as of its applicable Cut-Off Date (the
"Cut-Off Date Principal Balance"). With
respect to any date, the "Pool Principal
Balance" will be equal to the aggregate of
the Principal Balances of all Loans as of
the last day of the immediately preceding
Due Period (as defined herein). The
Principal Balance of any Loan will be
calculated as described herein under "The
Trust--General."
The Trust will also issue instruments
evidencing in the aggregate the entire
residual interest in the assets of the Trust
(each a "Residual Interest"), which is not
being offered hereby. The Residual Interests
are subordinate in right of payment to the
Notes.
The Loans ..................... All of the Loans will be home loans that are
not insured or guaranteed by a governmental
agency the related proceeds of which were
used to finance (i) property improvements,
(ii) the acquisition of personal property
such as home appliances or furnishings,
(iii) debt consolidation, (iv) the partial
refinancing of one- to two-family
residential properties (which may include
cash-out to the borrower), (v) a combination
of property improvements, debt consolidation
and other consumer purposes or (vi) to
purchase the related mortgaged property.
Substantially all of the Mortgages for the
Loans will be junior (i.e., second) in
priority to a senior lien on the related
mortgaged properties (each a "Mortgaged
Property"), which will consist of
owner-occupied single-family residences.
Substantially all of the Loans will be
secured by liens on Mortgaged Properties in
which the borrowers have little or no equity
(i.e., the related Combined Loan-to-Value
Ratios exceed 100%) at the time of
origination. See "Risk Factors--Adequacy of
the Mortgaged Properties as Security for the
Loans" and "The Loans" herein and "The Trust
Funds--The Loans" in the Prospectus.
"Combined Loan-to-Value Ratio" means, with
respect to any Loan, the fraction, expressed
as a percentage, the numerator of which is
the principal balance of such Loan at
origination plus, in the case of a junior
lien Loan, the aggregate outstanding
principal balance of the related senior
liens on the date of origination of such
Loan, and the denominator of which is the
appraised value of the related Mortgaged
Property at the time of origination of such
Loan (determined as described herein under
"_______________--Underwriting Guidelines").
The Initial Loans are expected to consist of
approximately _______ loans having an
Original Pool Principal Balance expected to
be approximately $_____________. More or
fewer Initial Loans having an Original Pool
Principal Balance of greater or less than
such amount may actually constitute the
Initial Loans provided that the amount of
any such variance
8
in the Original Pool Principal Balance
shall not exceed $__________. See "The
Loans" herein.
_______ and the Depositor will be obligated
either to repurchase any Loan as to which
(i) a representation or warranty has been
breached or (ii) a document deficiency
exists, which breach or deficiency remains
uncured for a period of 60 days and has a
materially adverse effect on the interests
of the Noteholders in such Loan (each, a
"Defective Loan") or to remove such
Defective Loan and substitute a Qualified
Substitute Loan. In addition, ______ may at
its option purchase or remove from the Trust
and, if not purchased, substitute for such
Loan a qualified Substitute Loan, any Loan
that is 90 days or more delinquent and which
_____ determines in good faith would
otherwise become subject to foreclosure
proceedings so long as the aggregate of such
purchases does not exceed 10% of the Maximum
Collateral Amount. As used herein, a
"Qualified Substitute Loan" will have
characteristics that are substantially
similar to the characteristics of the Loan
which it replaces. The repurchase of any
Loan (rather than the replacement thereof
through substitution) will result in
accelerated payments of principal
distributions on the Notes. See
"_________________--Repurchase or Substitut-
ution of Loans" herein.
With respect to any date, the "Maximum
Collateral Amount" shall equal the sum of
the (i) the Original Pool Principal Balance
and (ii) the aggregate Cut-Off Date
Principal Balances of all Subsequent Loans
transferred to the Trust on or prior to
such date.
Credit Enhancement ............ Credit enhancement with respect to the Notes
will be provided by (i) the subordination of
distributions in respect of the Residual
Interests (as well as the subordination of
certain Classes of Notes to other Classes of
Notes, as described herein), and (ii) the
Overcollateralization Amount which results
from (a) the excess of the sum of the
Original Pool Principal Balance and the
Original Pre-Funding Amount over the
aggregate of the Class Principal Balances of
all Classes of Notes and (b) following the
Spread Deferral Period, the limited
acceleration of the principal amortization
of the Notes relative to the amortization of
the Loans by the application of Excess
Spread, as described herein.
Subordination ............... The rights of the holders of the Class M-1
Notes to receive distributions of interest
on each Distribution Date will be
subordinated to such rights of the holders
of the Senior Notes, the rights of the
holders of the Class M-2 Notes to receive
distributions of interest on each
Distribution Date will be subordinated to
such rights of the holders of the Class M-1
Notes and the Senior Notes, and the rights
of the holders of the Class B Notes to
receive distributions of interest on each
Distribution Date will be subordinated to
such rights of the holders of all other
Classes of Notes. In addition, the rights of
the holders of the Class M-1 Notes to
receive distributions of principal on each
Distribution Date generally will be
subordinated to such rights of the holders
of the Senior Notes, and the rights of the
holders of the Class M-2 Notes to receive
distributions of principal on each
Distribution Date generally will be
subordinated to such rights of the holders
of the Senior Notes and the Class M-1 Notes.
The rights of the holders of the Class B
Notes to receive distributions of principal
on each Distribution Date generally will be
subordinated to such rights of the holders
of all other Classes of Notes. In addition,
the rights of the holders of the Residual
Interests to receive any distributions from
amounts available on each Distribution Date
will be subordinated to such rights of the
holders of all Classes of Notes. The
subordination described above is intended to
enhance the likelihood of regular receipt by
the holders of the Notes of the full amount
of interest and principal distributions due
to such holders and to afford such holders
protection against losses on the Loans.
9
See "Description of Credit Enhancement--
Subordination and Allocation of Losses"
herein.
Overcollateralization ......... As of any date of determination, the
"Overcollateralization Amount" will equal
the excess of (A) the sum of (i) the Pool
Principal Balance as of the end of the
immediately preceding Due Period and (ii)
the Pre-Funded Amount as of the end of the
immediately preceding Due Period over (B)
the aggregate of the Class Principal
Balances of the Notes. On the Closing Date,
the Overcollateralization Amount will be
$___________, which is equal to ______% of
the sum of the Original Pool Principal
Balance and the Original Pre-Funded Amount.
As a result of the application of Excess
Spread in reduction of the Class Principal
Balances of the Notes following the end of
the Spread Deferral Period, the
Overcollateralization Amount is expected to
increase over time until such amount is
equal to the Overcollateralization Target
Amount.
The "Spread Deferral Period" will begin on
the Closing Date and end as soon as Excess
Spread in an amount equal to $____________
has been deposited in the Certificate
Distribution Account for distribution to the
holders of the Residual Interests. The
"Overcollateralization Target Amount" will
equal (A) with respect to any Distribution
Date occurring prior to the Stepdown Date
(as defined below), the greater of (x)
____% of the Maximum Collateral Amount and
(y) the Net Delinquency Calculation Amount
(as defined below), and (B) with respect to
any other Distribution Date, the greater of
(x) ____% of the Pool Principal Balance as
of the end of the preceding Due Period and
(y) the Net Delinquency Calculation Amount;
provided, however, that the
Overcollateralization Target Amount will in
no event be less than ____% of the Maximum
Collateral Amount. "Net Delinquency
Calculation Amount" means with respect to
any Distribution Date, the excess, if any,
of (x) the product of 2.5 and the Six-Month
Rolling Delinquency Average over (y) the
aggregate of the amounts of Excess Spread
for the three preceding Distribution Dates.
While the distribution of Excess Spread
following the Spread Deferral Period to
holders of the Notes in reduction of their
respective Class Principal Balances has been
designed to produce and maintain a given
level of overcollateralization with respect
to the Notes, there can be no assurance that
Excess Spread will be generated in
sufficient amounts to ensure that such
overcollateralization level will be achieved
or maintained at all times. See "Description
of Credit Enhancement--Subordination and
Allocation of Losses" and "Risk
Factors--Adequacy of Credit Enhancement"
herein.
Application of Allocable Loss
Amounts ....................... In the event that (a) the aggregate of the
Class Principal Balances of all Classes of
Notes on any Distribution Date (after giving
effect to all distributions on such date)
exceeds (b) the sum of the Pool Principal
Balance and the Pre-Funded Amount, each as
of the end of the immediately preceding Due
Period (such excess, an "Allocable Loss
Amount"), such Allocable Loss Amount will be
applied, sequentially, in reduction of the
Class Principal Balances of the Class B,
Class M-2 and Class M-1 Notes, in that
order, until the respective Class Principal
Balances thereof have been reduced to zero.
Allocable Loss Amounts will not be applied
to the reduction of the Class Principal
Balance of any Class of Senior Notes.
Allocable Loss Amounts applied to any
applicable Class of Notes will entitle such
Class to reimbursement (such entitlement, a
"Loss Reimbursement Deficiency") under the
circumstances and to the extent provided
herein. See "Description of the
Notes--Application of Allocable Loss
Amounts" herein.
10
Fees and Expenses of
the Trust ..................... As compensation for its services pursuant to
the Sale and Servicing Agreement, the
Servicer will be entitled to receive a fee
(the "Servicing Fee") and the additional
compensation described under "Description of
Transfer and Servicing Agreements--
Servicing" (together, the "Servicing
Compensation"). As compensation for their
services pursuant to the Indenture, the Sale
and Servicing Agreement, the Administration
Agreement, the Custodial Agreement and the
Trust Agreement as applicable (the "Transfer
and Servicing Agreements") the Indenture
Trustee will be entitled to its accrued and
unpaid fee (the "Indenture Trustee Fee") and
the Owner Trustee will be entitled to its
accrued and unpaid fee (the "Owner Trustee
Fee"). The Servicing Compensation, the
Indenture Trustee Fee and the Owner Trustee
Fee are collectively referred to as the
"Trust Fees and Expenses."
Pre-Funding Account ........... On the Closing Date, the Original Pre-Funded
Amount will be deposited in the Pre-Funding
Account, which account will be in the name
of the Indenture Trustee, will form part of
the Trust and will be used to acquire
Subsequent Loans. The Original Pre-Funded
Amount is expected to equal $____________ on
the Closing Date but such account may be
increased or decreased to by an amount equal
to the amount by which the Original Pool
Principal Balance falls short of or exceeds
$___________; provided that the amount of
any such increase or decrease shall not
exceed $___________. During the Pre-Funding
Period (as defined below), the amount on
deposit in the Pre-Funding Account (net of
investment earnings thereon) (the
"Pre-Funded Amount") will be reduced by the
amount thereof used to purchase Subsequent
Loans in accordance with the Sale and
Servicing Agreement. The "Pre-Funding
Period" is the period commencing on the
Closing Date and ending generally on the
earlier to occur of (i) the date on which
the amount on deposit in the Pre-Funding
Account (net of any investment earnings
thereon) is less than $_________ and (ii)
______________. On the Distribution Date
following the Due Period in which the
termination of the Pre-Funding Period
occurs, if the Pre-Funded Amount at the end
of the Pre-Funding Period is less than
$___________, any such Pre-Funded Amount
will be distributed to holders of the
Classes of Notes then entitled to receive
principal on such Distribution Date in
reduction of the related Class Principal
Balances, thus resulting in a partial
redemption of the related Notes on such
date. On the Distribution Date following the
Due Period in which the termination of the
Pre-Funding Period occurs, if the Pre-Funded
Amount at the end of the Pre-Funding Period
is greater than or equal to $__________
(such event, a "Pre-Funding Pro Rata
Distribution Trigger"), such Pre-Funded
Amount will be distributed to the holders of
all Classes of Notes and the Residual
Interests (which initially are represented
by the Overcollateralization Amount on the
Closing Date), pro rata, based on the
Original Class Principal Balances thereof
and the Residual Interests in relation to
the sum of the Original Pool Principal
Balance and the Original Pre-Funded Amount.
Capitalized Interest Account .. On the Closing Date, a portion of the sales
proceeds of the Notes will be deposited in
an account (the "Capitalized Interest
Account") for application by the Indenture
Trustee on the Distribution Dates in
______________, _____________ and
_______________ to cover shortfalls in
interest on the Notes that may arise due to
the utilization of the Pre-Funding Account
as described herein. Any amounts remaining
in the Capitalized Interest Account at the
end of the Pre-Funding Period will be paid
to ______.
Optional Termination .......... The holders of Residual Interests exceeding
in the aggregate a 50% percentage interest
(the "Majority Residual Interestholders")
may, at their option, effect an early
termination of the Trust on or after any
Distribution Date on which the Pool
Principal Balance declines to ____% or less
of the Maximum Collateral Amount, by
purchasing all of the Loans at a price
11
equal to or greater than the Termination
Price. The "Termination Price" shall be on
an amount equal to the sum of (i) the then
outstanding Principal Balances of the Loans
plus all accrued and unpaid interest
thereon, (ii) any Trust Fees Expenses due
and unpaid on such date and (iii) any
unreimbursed Servicing Advances including
such Servicing Advances deemed to be
nonrecoverable. "Servicing Advances" are
reasonable and customary expense advances
with respect to such loan. The proceeds from
such sale will be distributed in the order
and priority set forth above under
"Distribution Priorities." The proceeds from
any such sale will be distributed in the
amounts and subject to the priorities
described herein under "Description of the
Notes--Distributions on the Notes." See
"Description of the Notes--Optional
Termination of the Trust" herein.
Tax Status .................... In the opinion of (Dewey Ballantine LLP "Tax
Counsel" herein) for Federal income tax
purposes, the Notes will be characterized as
debt and the Trust will not be characterized
as an association (or a publicly traded
partnership) taxable as a corporation. Each
Noteholder, by the acceptance of a Note,
will agree to treat the Notes as
indebtedness for Federal income tax
purposes. Alternative characterizations of
the Trust are possible, but would not result
in materially adverse tax consequences to
Noteholders. See "Certain Federal Income Tax
Consequences" herein and "Certain Federal
Income Tax Consequences" in the Prospectus
for additional information concerning the
application of Federal income tax laws to
the Trust and the Notes.
ERISA ......................... Subject to the considerations discussed
under "ERISA Considerations" herein and in
the Prospectus, plans that are subject to
the requirements of the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), and the Internal Revenue Code of
1986, as amended (the "Code"), may purchase
the Notes. Any fiduciary considering whether
to purchase the Notes on behalf of such a
plan must determine that the purchase of a
Note is consistent with its fiduciary duties
under ERISA and does not result in a
nonexempt prohibited transaction as defined
in Section 406 of ERISA or Section 4975 of
the Code.
See "ERISA Considerations" herein and in the
Prospectus.
Servicing of the Loans ........ The Servicer will perform the loan servicing
functions with respect to the Loans pursuant
to the Sale and Servicing Agreement and will
be entitled to receive a fee (the "Servicing
Fee") and other servicing compensation
(collectively, the "Servicing
Compensation"), payable monthly, as
described herein (See "Description of the
Transfer and Servicing
Agreements--Servicing" herein). The Servicer
may subcontract its servicing obligations
and duties with respect to certain Loans to
certain qualified servicers pursuant to one
or more subservicing agreements (each such
servicer, in this capacity, a
"Subservicer"). However, the Servicer will
not be relieved of its servicing obligations
and duties with respect to any subserviced
Loans. In addition, the Servicer will be
responsible for paying the fees of any such
Subservicer.
Legal Investment .............. The Notes will not constitute "mortgage
related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of
1984 "SMMEA"), because some of the Mortgages
securing the Loans are not first mortgages.
Accordingly, many institutions with legal
authority to invest in comparably rated
securities based solely on first mortgages
may not be legally authorized to invest in
the Notes. See "Legal Investment Matters"
herein and "Legal Investment" in the
Prospectus.
Ratings of the Notes .......... It is a condition to the issuance of the
Notes that each of the Senior Notes be rated
"[AAA]" by [Fitch Investors Service, L.P.
("Fitch")] and "[Aaa]"
12
by [Moody's Investor Service] ["Moody's" and
together with Fitch,] the "Rating
Agencies"), and that the Class M-1 Notes be
rated "[AA]" by [Fitch] and "[A2]" by
[Moody's], the Class M-2 Notes be rated
"[A]" by Fitch] and "[A2]" by [Moody's] and
the Class [B] Notes be rated "[BBB]" by
[Fitch] and "[Baa3]" by [Moody's]. A
security rating does not address the
frequency of principal prepayments or the
corresponding effect on yield to holders of
the Notes. The security rating does not
address the ability of the Trust to acquire
Subsequent Loans, any potential redemption
with respect thereto or the effect on yield
resulting therefrom. None of the Depositor,
Servicer, Indenture Trustee, Owner Trustee,
Co-Owner Trustee or any other person is
obligated to maintain the rating on any
Class of Notes.
13
RISK FACTORS
For a discussion of all material risk factors in connection with the
purchase of the Notes, prospective investors in the Notes should consider the
following risk factors (as well as the factors set forth under "Risk Factors" in
the Prospectus). These factors are intended to identify the significant sources
of risk affecting an investment in the Notes. Unless the context indicates
otherwise, any numerical or statistical information presented in this Prospectus
Supplement is based upon the characteristics of the Initial Loans identified as
of ______________ (such date, the "Statistic Calculation Date").
The Statistical Distribution of Characteristics As Of The Initial Cut-Off Date
For The Initial Loans will Vary Somewhat From The Statiscal Distribution Of Such
Characteristics As Of The Statistic Calculation Date.
The statistical information presented in this Prospectus Supplement
concerning the Initial Loans is based on the characteristics of a portion of
such Initial Loans as of Statistic Calculation Date. Such portion aggregated $
_______________ as of the Statistic Calculation Date. _____ expects that the
actual aggregate principal balance of the Initial Loans as of the Initial
Cut-Off Date will be approximately $_____________. The additional Initial Loans
will represent Loans originated by or on behalf of ______ or purchased and
re-underwritten by ______ in accordance with ______'s program on or prior to the
Initial Cut-Off Date. Moreover, certain Initial Loans included as of the
Statistic Calculation Date may prepay in full, or may be determined not to meet
the eligibility requirements for the Loans, and thus not be included as Initial
Loans. As a result of the foregoing, the statistical distribution of
characteristics as of the Initial Cut-Off Date for the Initial Loans will vary
somewhat from the statistical distribution of such characteristics as of the
Statistic Calculation Date as presented in this Prospectus Supplement, although
such variance will not be material.
Variation in Credit Quality May Affect the Ability of _____________ to Acquire
or Originate Subsequent Loans
The ability of ______ to acquire or originate loans subsequent to the
Closing Date and on or prior to ___________________ that meet the requirements
for transfer during the Pre-Funding Period under the Sale and Servicing
Agreement is and will be affected by a variety of factors, including interest
rates, employment levels, the rate of inflation and consumer perception of
economic conditions generally. On the Distribution Date following the Due Period
in which the termination of the Pre-Funding Period occurs, if the Pre-Funded
Amount at the end of the Pre-Funding Period is less than $_________, any such
Pre-Funded Amount will be distributed to holders of the Classes of Notes then
entitled to receive principal on such Distribution Date in reduction of the
related Class Principal Balances, thus resulting in a partial redemption of the
related Notes on such date. On the Distribution Date following the Due Period in
which the termination of the Pre-Funding Period occurs, if the Pre-Funded Amount
at the end of the Pre-Funding Period is greater than or equal to $___________
(such event, a "Pre-Funding Pro Rata Distribution Trigger"), such Pre-Funded
Amount will be distributed to the holders of all Classes of Notes and the
Residual Interests (which initially represent the Overcollateralization Amount
on the Closing Date), pro rata, based on the Original Class Principal Balances
of the Notes and original balance of the Residual Interests in relation to the
sum of the Original Pool Principal Balance and the Original Pre-Funded Amount.
Any conveyance of Subsequent Loans is subject to the conditions set forth
in the Sale and Servicing Agreement, which conditions include among others: (i)
each Subsequent Loan must satisfy the representations and warranties specified
in the Sale and Servicing Agreement; (ii) ______ will not select Subsequent
Loans in a manner that it believes is adverse to the interests of the
Noteholders; and (iii) as of the related Cut-Off Date, all of the Loans,
including the Subsequent Loans to the conveyed to the Trust by the Depositor as
of such Cut-Off Date, must satisfy certain statistical criteria set forth in the
Sale and Servicing Agreement. Although each Subsequent Loan must satisfy the
eligibility criteria referred to above at the time of its transfer to the Trust,
the Subsequent Loans may have been originated or purchased by ______ using
credit criteria different from those which were applied to the Initial Loans and
may be of a different credit quality and have different loan characteristics
from the Initial Loans. After the transfer of the Subsequent Loans to the Trust,
the aggregate statistical characteristics of the Loan Pool may vary from those
of the Initial Loans that have been identified as of the Statistic Calculation
Date as described herein. See "The Loans Initial Loan Statistics", and
"Conveyance of Subsequent Loans" herein.
Prepayment May Affect the Yield to Maturity of the Notes
All of the Loans may be prepaid in whole or in part at any time; however,
with respect to certain Loans, a prepayment charge, as permitted by applicable
law, may apply to full and partial prepayments during the first three years
after origination as described below under "Prepayment and Yield
Considerations." Home loans, such as the Loans, have been originated in
significant volume only during the past few years and neither the Depositor nor
the Servicer is aware of any publicly available studies or statistics on the
rate of prepayment of such loans. The Trust's prepayment experience may be
affected by a wide variety of factors, including general economic conditions,
interest rates, the availability of alternative financing, homeowner mobility
and the Combined Loan-to-Value Ratios of the
14
Loans. In addition, substantially all of the Loans contain due-on-sale
provisions and the Servicer intends to enforce such provisions unless (i) the
Servicer, in a manner consistent with accepted servicing practices, permits the
purchaser of the related Mortgaged Property to assume the Loan or (ii) such
enforcement is not permitted by applicable law. To the extent permitted by
applicable law, such assumption will not release the original borrower from its
obligation under any such Loan. See "Certain Legal Aspects of the
Loans--Due-on-Sale Clauses in Mortgage Loans" in the Prospectus.
In certain cases, the Servicer may, in a manner consistent with its
servicing practices, permit a borrower who is selling his principal residence
and purchasing a new one to substitute the new Mortgaged Property as collateral
for the related Loan. In such event, the Servicer will generally require the
borrower to make a partial prepayment in reduction of the principal balance of
the Loan to the extent that the borrower has received proceeds from the sale of
the prior residence that will not be applied to the purchase of the new
residence.
The extent to which the yield to maturity of a Note may vary from the
anticipated yield will depend upon (i) the degree to which it is purchased at a
premium or discount, (ii) the degree to which the timing of distributions to
holders thereof is sensitive to scheduled payments, prepayments, liquidations,
defaults, delinquencies, substitutions, modifications and repurchases of Loans
and to the distribution of Excess Spread and (iii) the application of Allocable
Loss Amounts to certain Classes of Notes as specified herein. In the case of any
Note purchased at a discount, an investor should consider the risk that a slower
than anticipated rate of principal distributions to the holder of such Note
(including without limitation principal prepayments on the Loans) could result
in an actual yield to such investor that is lower than the anticipated yield
and, in the case of any Note purchased at a premium, the risk that a faster than
anticipated rate of principal distributions to the holder of such Note
(including without limitation principal prepayments on the Loans) could result
in an actual yield to such investor that is lower than the anticipated yield. On
each Distribution Date following the Spread Deferral Period and until the
Overcollateralization Amount is at least equal to the Overcollateralization
Target Amount, the allocation of the Excess Spread for such Distribution Date as
an additional distribution of principal of the Notes will accelerate the
amortization of the Notes relative to the amortization of the Loans. Further, in
the event that significant distributions of principal are made to holders of the
Notes as a result of prepayments, liquidations, repurchases and purchases of the
Loans or distributions of Excess Spread, there can be no assurance that holders
of the Notes will be able to reinvest such distributions in a comparable
alternative investment having a comparable yield. See "Risk Factors--Prepayment
and Yield Considerations" herein.
In The Event Of Higher Rates Of Delinquencies, Defaults And Losses, The Amounts
Available From the Credit Enhancement May Not Be Adequate For Cover The Delays
Or Short Falls in Distributions To The Holders Of The Notes
Credit enhancement with respect to the Notes will be provided by (i) the
subordination of distributions in respect of the Residual Interests (as well as
the subordination of certain Classes of Notes to other Classes of Notes, as
described herein), and (ii) the Overcollateralization Amount which results from
(a) the excess of the sum of the Original Pool Principal Balance and the
Original Pre-Funded Amount over the aggregate of the Class Principal Balances
for all Classes as of Notes and (b) following the Spread Deferral Period, the
limited acceleration of the principal amortization of the Notes relative to the
amortization of the Loans by the application of Excess Spread, as described
herein. If the Loans experience higher rates of delinquencies, defaults and
losses than initially anticipated in connection with the ratings of the Notes,
or if the Loan Rates on those Initial Loans which have adjustable interest rates
("Adjustable Rate Loans") decrease, the amounts available from the credit
enhancement may not be adequate to cover the delays or shortfalls in
distributions to the holders of the Notes that result from such higher
delinquencies, defaults and losses. If the amounts available from the credit
enhancement are inadequate, the holders of the Notes will bear the risk of any
delays and losses resulting from the delinquencies, defaults and losses on the
Loans.
The rights of the holders of the Class M-1 Notes to receive distributions
of interest on each Distribution Date generally will be subordinated to such
rights of the holders of the Senior Notes, the rights of the holders of the
Class M-2 Notes to receive distributions of interest on each Distribution Date
generally will be subordinated to such rights of the holders of the Class M-1
Notes and the Senior Notes, and the rights of the holders of the Class B Notes
to receive distributions of interest on each Distribution Date generally will be
subordinated to such rights of the holders of all other Classes of Notes. In
addition, the rights of the holders of the Class M-1 Notes to receive
distributions of principal on each Distribution Date generally will be
subordinated to such rights of the holders of the Senior Notes, and the rights
of the holders of the Class M-2 Notes to receive distributions of principal on
each Distribution Date generally will be subordinated to such rights of the
holders of the Senior Notes and the Class M-1 Notes. Further, distributions of
principal of the Class B Notes generally will be subordinated in priority of
payment to all other Classes of Notes. See "Description of Credit
Enhancement--Subordination and Allocation of Losses" herein.
While the distribution of Excess Spread to the holders of the Notes in the
manner specified herein has been designed to produce and maintain a given level
of overcollateralization with respect to the Notes, there can be no assurance
that Excess Spread will be generated in sufficient amounts to ensure that such
overcollateralization level will be achieved or maintained at all times. In
particular, as a result of delinquencies on the Loans during any Due Period,
the amount of interest received on the Loans during such Due Period may be less
than the amount of interest distributable on the Notes on the related
Distribution Date. Such an occurrence will cause the Class Principal Balances of
the Classes of Notes to decrease at a slower rate relative to the
15
Pool Principal Balance, resulting in a reduction of the Overcollateralization
Amount and, in some circumstances, an Allocable Loss Amount.
The holders of the Residual Interests will not be required to refund any
amounts previously distributed to them pursuant to the Transfer and Servicing
Agreements, including any distributions of Excess Spread, regardless of whether
there are sufficient funds on a subsequent Distribution Date to make a full
distribution to holders of the Notes.
The Mortgaged Properties May Not Provide Adequate Security For The Loans
As of the Statistic Calculation Date, the Combined Loan-to-Value Ratios for
the Initial Loans ranged from approximately ______% to _______%, with
approximately ______% of the Statistic Principal Balance consisting of Loans
having Combined-Loan-to-Value Ratios in excess of _______%. As of the Statistic
Calculation Date the weighted average Combined Loan-to-Value Ratio of the
Initial Loans was ________%. As a result of the foregoing, the Mortgaged
Properties may not provide adequate security for the Loans. Even assuming that a
Mortgaged Property provides adequate security for the related Loan, substantial
delays could be encountered in connection with the liquidation of a Loan that
would result in current shortfalls in distributions to the Noteholders to the
extent such shortfalls are not covered by the credit enhancement described
herein. In addition, liquidation expenses relating to any Liquidated Loan (such
as legal fees, real estate taxes, and maintenance and preservation expenses)
would reduce the liquidation proceeds otherwise payable to the Noteholders. In
the event that any Mortgaged Property fails to provide adequate security for the
related Loan, any losses in connection with such Loan will be borne by
Noteholders as described herein to the extent that the credit enhancement
described herein is insufficient to absorb all such losses.
Should The Loan Rates On The Adjustable Loans Decrease, The Amount Available For
Distribution May Be Lessened
While all of the Notes are fixed rate obligations, as of the Statistic
Calculation Date, Initial Loans representing approximately ______% of the
Statistic Principal Balance, are Adjustable Rate Loans. Should the Loan Rates on
the Adjustable Rate Loans decrease, the amount of Excess Spread available for
deposit to the Certificate Distribution Account to cause the termination of the
Spread Deferral Period and then to make payments to achieve the required
Overcollateralization Amount will be lessened. See "Prepayment and Yield
Considerations--Excess Spread and Reduction of Overcollateralization Amount."
Book-Entry Registration of Notes May Reduce The Liquidity Of Such Notes In The
Secondary Trading Market
Issuance of the Notes in book-entry form may reduce the liquidity of such
Notes in the secondary trading market because investors may be unwilling to
purchase Notes for which they cannot obtain physical certificates. Moreover,
because transactions in the Notes can be effected only through DTC,
participating organizations, indirect participants and certain banks, the
ability of a beneficial owner of a Note to pledge its interest in a Note to
persons or entities that do not participate in the DTC system, or otherwise to
take actions in respect of such Note, may be limited due to lack of a physical
certificate representing such Note.
Additional Factors Affecting Delinquencies, Defaults and Losses on Loans
Underwriting Guidelines May Not Consider The Adequacy Of The Value Of The
Related Mortgage Property
The evaluation of the adequacy of the value of the related Mortgaged
Property in relation to the Loan, together with the amount of all liens senior
to the Loan, is given less and in some cases no consideration in underwriting
the Loans. Although the creditworthiness of the related borrowers is the primary
consideration in the underwriting of the Loans, no assurance can be given that
such creditworthiness of the borrowers will not deteriorate as a result of
future economic and social factors, which deterioration may result in a
delinquency or default by such borrowers on the related Loans. In general, the
credit quality of the borrowers on the Loans as well as the Loans is lower than
that of borrowers and mortgage loans conforming to the Federal National Mortgage
Association ("FMNA") or Federal Home Loan Corporation ("FHLMC") underwriting
guidelines for first-lien, single-family mortgage loans. Accordingly, the Loans
are likely to experience higher rates of delinquencies, defaults and losses
(which rates could be substantially higher) than those rates that would be
experienced by similar types of loans underwritten in a manner which is more
similar to the FNMA or FHLMC underwriting guidelines.
In response to changes and developments in the consumer finance area as
well as the refinement of ______'s credit evaluation methodology, ______'s
underwriting requirements for certain types of home loans may change from time
to time, which in certain instances may result in more stringent and, in other
instances, less stringent underwriting requirements. Depending upon the date on
which the Loans were originated or purchased by ______, such Loans may have been
originated or purchased by ______ under different underwriting requirements, and
accordingly, certain Loans may be of a different credit
16
quality and have different characteristics than other Loans. Furthermore, to the
extent that certain Loans were originated or purchased by ______ under less
stringent underwriting requirements, such Loans may be more likely to experience
higher rates of delinquencies, defaults and losses than those Loans originated
or purchased under more stringent underwriting requirements.
Geographic Concentration Of The Loans Within Certain States May Mean That
Delinquencies And Losses On The Loans May Be Higher
Approximately ______%, ______%, ______%, ______%, ______%,
______%,______% and ____% of the Statistic Principal Balance consisted of
Initial Loans that are secured by Mortgaged Properties located in the States of
__________, ____________, ___________, __________, ___________, ____________ and
__________, respectively. Because of the relative geographic concentration of
the Loans within these States, delinquencies and losses on the Loans may be
higher than would be the case if the Loans were more geographically diversified.
Adverse economic conditions in these States or geographic regions (which may or
may not affect real property values) may affect the ability of the related
borrowers to make timely payments of their scheduled monthly payments of
principal and interest and, accordingly, the actual rates of delinquencies,
defaults and losses on such Loans could be higher than those currently
experienced in the home lending industry for similar types of loans. In
addition, with respect to the Loans in these States, certain of the Mortgaged
Properties may be more susceptible to certain types of special hazards that are
not covered by any casualty insurance, such as earthquakes, floods and other
natural disasters and major civil disturbances, than residential properties
located in other parts of the country. In general, declines in one or more of
the related residential real estate markets may adversely affect the values of
the Mortgaged Properties securing such Loans such that the outstanding principal
balances of such Loans, together with the outstanding principal amount of any
senior lien mortgage loans on such Mortgaged Properties, will exceed the value
of such Mortgaged Properties to an increasing degree. Accordingly, the actual
rates of delinquencies, foreclosures and losses on such Loans could be higher
than those currently experienced in the home lending industry in general.
Reloading of Debt Could Impair The Ability Of Certain Borrowers To Service
Their Debts, which In Turn Could Result In Higher Rates Of Delinquencies,
Defaults And Losses On The Loans
With respect to Loans which in combination with superior liens have
loan-to-value ratios in excess of 100%, there is a risk that if the related
borrowers relocate, such borrowers will be unable to discharge the Loans in full
from the sale proceeds of the related Mortgaged Properties and any other funds
available to these borrowers, in which case the pool of Loans sold to the Trust
could experience higher rates of delinquencies, defaults and losses. With
respect to Loans, the proceeds of which were used in whole or in part for debt
consolidation, there can be no assurance that, following the debt consolidation,
the related borrower will not incur further consumer debt to third party
lenders. This reloading of debt could impair the ability of such borrowers to
service their debts, which in turn could result in higher rates of
delinquencies, defaults and losses on the Loans.
Loans Acquired From Third Parties May Be Subject To A Higher Incidence Of
Delinquency of Default
Substantially all of the Loans will have been either originated by or on
behalf of ______ or purchased and re-underwritten by ______ in accordance with
_________________________. A significant portion of the Loans will have been
acquired by ______ through purchases from a network of correspondent lenders or
through a portfolio acquisition program. See "The Loans General" herein. All of
such Loans will have been re-underwritten and reviewed for compliance with
______'s underwriting guidelines. ______ may have acquired certain Loans which
were originated by originators that, at the time of origination thereof, were
not approved Federal Housing Administration ("FHA") lenders or approved FNMA or
FHLMC seller/servicers, and therefore did not have an internal quality control
program substantially similar to the FNMA or FHLMC required quality control
programs with respect to the underwriting and origination of such Loans. Such
Loans may be subject to a higher incidence of delinquency or default. As
described herein, ______ will make certain representations and warranties
regarding each Loan and, in the event of a breach of any such representation or
warranty that materially and adversely affects the Noteholders, ______ will be
required either to cure such breach, repurchase the related Loan or Loans or
substitute one or more Qualified Substitute Loans therefor.
Because The Servicer Is under Not Obligation To Advance Scheduled
Monthly Payments Of Principal Or Interest with Respect to Delinquent Loans. The
Amount of Interest Received May Be Less Than The Amount Of Interest
Distributable On The Notes.
In the event of a delinquency or a default with respect to a Loan, the
Servicer will have no obligation to advance scheduled monthly payments of
principal or interest with respect to such Loan. As a result of the foregoing,
the amount of interest received on the Loans during any Due Period may be less
than the amount of interest distributable on the Notes on the related
Distribution Date. Such an occurrence will cause the Class Principal Balances of
the Classes of Notes to decrease at a slower rate relative to the Pool Principal
Balance, resulting in a reduction of the Overcollateralization Amount and, in
some circumstances, an Allocable Loss Amount. However, the Servicer will make
such reasonable and customary expense advances
17
with respect to the Loans as generally would be required in accordance with its
servicing practices. See "Description of the Transfer and Servicing
Agreements--Servicing" herein.
The Manner In Which The Servicer Performs Its Servicing Obligations Will
Affect the Amount And Timing Of The Principal And Interest Payments Received On
The Loans
Pursuant to the Sale and Servicing Agreement, the Servicer will perform the
daily loan servicing functions for the Loans that include, without limitation,
the collection of payments from the Loans, the remittance of funds from such
collections for distribution to the holders of the Notes, the bookkeeping and
accounting for such collections, all other servicing activities relating to the
Loans, the preparation of the monthly servicing and remittance reports pursuant
to the Sale and Servicing Agreement and the maintenance of all records and files
pertaining to such servicing activities. Upon the Servicer's failure to remedy
an Event of Default under the Sale and Servicing Agreement, a majority of the
holders of the Notes or the Indenture Trustee or the Owner Trustee on behalf of
the Trust may remove the Servicer and appoint a successor servicer pursuant to
the terms of the Sale and Servicing Agreement. Absent such a replacement, the
holders of the Notes will be dependent upon the Servicer to adequately and
timely perform its servicing obligations and remit to the Indenture Trustee the
funds from the payments of principal and interest received on the Loans. The
manner in which the Servicer, and each Subservicer, as applicable, performs its
servicing obligations will affect the amount and timing of the principal and
interest payments received on the Loans. The principal and interest payments
received on the Loans are the sole source of funds for the distributions due to
the holders of the Notes under the Sale and Servicing Agreement. Accordingly,
the holders of the Notes will be dependent upon the Servicer to adequately and
timely perform its servicing obligations and such performance will affect the
amount and timing of distributions to the holders of the Notes. See "______
_____________, _____________________ The Servicer" and "_____________________
____________________ Delinquency and Loan Loss Experience" herein.
No Assurance Can Be Given That Any Proceeds Or A Significant Amount Of
Proceeds Will Be Recovered From The Liquidation Of Defaulted Loans
Substantially all of the Loans are secured by junior liens, and the related
loans secured by senior liens are not included in the Pool. The primary risk
with respect to any Loan secured by a junior lien is the possibility that
adequate funds will not be received in connection with a foreclosure of the
related Mortgaged Property to satisfy fully both any loan(s) secured by senior
lien(s) and the Loan. In accordance with the loan servicing practices of the
Servicer for home loans secured by junior liens, the Servicer may, in connection
with any Defaulted Loan, (i) pursue the foreclosure of a Defaulted Loan, (ii)
satisfy the senior mortgage(s) at or prior to the foreclosure sale of the
Mortgaged Property, or (iii) advance funds to keep the senior mortgage(s)
current. The Trust will have no source of funds to satisfy the senior
mortgage(s) or make payments due to the senior mortgagee(s), and, therefore,
holders of the Notes should not expect that any senior mortgage(s) will be
satisfied or kept current by the Trust for the purpose of protecting any junior
lien Loan. See "Certain Legal Aspects of the Loans--Junior Mortgages; Rights of
Senior Mortgages" in the Prospectus. Furthermore, it is unlikely that any of the
foregoing methods of realizing upon a defaulted junior lien Loan will be an
economically viable alternative with respect to any Loans having a Combined
Loan-to-Value Ratio that exceeds 100% at the time of default. As a result, the
Servicer may, in accordance with accepted servicing procedures, pursue
alternative methods of servicing Defaulted Loans to maximize proceeds therefrom,
including without limitation, the modification of Defaulted Loans, which, among
other things, may include the abatement of accrued interest or the reduction of
a portion of the outstanding Principal Balance of such Defaulted Loans. The
costs incurred in the collection and liquidation of Defaulted Loans in relation
to the smaller Principal Balances thereof are proportionately higher than with
respect to first-lien single-family mortgage loans, and because substantially
all of the Loans will have Combined Loan-to-Value Ratios at the time of
origination that exceed 100%, losses sustained from Defaulted Loans are likely
to be more severe (and could be total losses) in relation to the outstanding
Principal Balance of such Defaulted Loans. In fact, no assurance can be given
that any proceeds, or a significant amount of proceeds will be recovered from
the liquidation of Defaulted Loans.
There is Limited Historical Delinquency, Loss and Prepayment Information
Since January 1996, the Servicer has substantially increased the volume of
conventional home loans that it has originated, purchased, sold and/or serviced,
and thus, it has limited historical experience with respect to the performance,
including the delinquency and loss experience and the rate of prepayments, of
these conventional home loans, with respect to its entire portfolio of loans and
in particular with respect to such increased volume. Accordingly, it is possible
that neither the delinquency experience and loan loss and liquidation experience
set forth under " _________________ Delinquency and Loss Experience" herein nor
the prepayment scenarios set forth under "Prepayment and Yield Considerations
Weighted Average Lives of the Notes" herein will be indicative of the
performance of the Loans. Prospective investors should make their investment
determination based on the Loan underwriting criteria, the availability of the
credit enhancement described herein, the characteristics of the initial Loans
and other information provided here, and not based on any prior delinquency
experience and loan loss and liquidation experience information set forth herein
or any rate of prepayment assumed herein.
18
A Deterioration In Economic Conditions May Affect The Ability Of Borrowers
To Repay Their Loans
For the limited period of time during which loans in the nature of the
Loans have been originated, economic conditions nationally and in most regions
of the country have been generally favorable. A deterioration in economic
conditions could be expected to adversely affect the ability and willingness of
borrowers to repay their Loans; however, because of lenders' limited experience
with loans similar to the Loans, no prediction can be made as to the severity of
the effect of a general economic downturn on the rate of delinquencies and
defaults on the Loans. Because borrowers under the Loans generally have little
or no equity in the related Mortgaged Properties, any significant increase in
the rate of delinquencies and defaults could result in substantial losses to
holders of Notes, in particular the Class B Notes, the Class M-2 Notes and the
Class M-1 Notes. See "Adequacy of the Mortgaged Properties as Security for the
Loans" and "Additional Factors Affecting Delinquencies, Defaults and Losses on
Loans" and "Prepayment and Yield Considerations" above.
Recharacterization Of The Sale Of The Loans As A Borrowing Secured By A
Pledge Could Result In Possible Reductions In The Amounts Available For
Distribution On The Notes.
The Initial Loans have been transferred from ______ to the Depositor, an
affiliate of ______. Each such transfer will be treated by ______ as a sale of
the Initial Loans. ______ has warranted that its transfer to the Depositor is a
sale of ______'s interest in the Loans. The Depositor has warranted that its
transfer to the Trust is a sale of the Depositor interest in the Initial Loans.
In the event of an insolvency of ______ or the Depositor, the receiver or
bankruptcy trustee of such entity may attempt to recharacterize the related sale
of the Initial Loans as a borrowing by such entity secured by a pledge of the
Initial Loans and possible reductions could occur in the amounts thereof
available for distribution on the Notes.
The Underwriting Origination, Servicing And Collection Of The Loans Are
Subject To A Variety Of State And Federal Laws, Public Policies And Principles
Of Equity And May Affect Distributions To The Holders Of The Notes
The underwriting, origination, servicing and collection of the Loans are
subject to a variety of State and Federal laws, public policies and principles
of equity. For example, the Federal District Court for the Eastern District of
Virginia recently announced a decision indicating that Federal law prohibited
lenders from paying independent mortgage brokers a premium for loans with
above-market interest rates. Depending on the provisions of applicable law and
the specific facts and circumstances involved, violations of these laws,
policies or principles may limit the ability of the Servicer to collect all or
part of the principal or interest on the Loans, may entitle the borrower to a
refund of amounts previously paid, and, in addition, could subject the Servicer
to damages and administrative sanctions. If the Servicer is unable to collect
all or part of the principal or interest on any Loans because of a violation of
the aforementioned laws, public policies or general principles of equity, then
the Trust may be delayed or unable to make all distributions owed to the holders
of the Notes to the extent any related losses are not otherwise covered by
amounts available from the credit enhancement provided for the Notes.
Furthermore, depending upon whether damages and sanctions are assessed against
the Servicer or the Depositor, such violations may materially impact (i) the
financial ability of the Servicer to continue to act in such capacity or (ii)
the ability of the Depositor or ______ to repurchase or replace Defective Loans.
See "Risk Factors Consumer Protection Laws" in the Prospectus. ______ will be
required to repurchase or replace any Loan which did not comply with applicable
State and Federal laws and regulations as of the Closing Date. See "Limitations
on Repurchase or Replacement of Defective Loans" below.
The National Bankruptcy Review Commission (the "Bankruptcy Commission"), an
independent commission established under the Bankruptcy Reform Act of 1994 to
study issues and make recommendations relating to the United States Bankruptcy
Code (the "Bankruptcy Code"), recently indicated that it may recommend that
debtors in proceedings under Chapter 13 of the Bankruptcy Code be permitted to
treat the portion of any mortgage debt that exceeds the value of the real
property securing such debt as an unsecured claim if such mortgage is not a
first lien mortgage. If such a change in the Bankruptcy Code were to be enacted,
and if such change were to apply to loans originated prior to enactment, a
substantial majority of the Loans would likely be treated as unsecured debt in a
case under Chapter 13 of the Bankruptcy Code. As a consequence, borrowers who
become Chapter 13 debtors would have substantially less incentive to make
arrangements for repayment of their Loans, and the likelihood that the Trust
Fund would recover any amounts in respect of the related Loans would be remote.
The Bankruptcy Commission is required to submit a report on its findings,
including recommendations for legislation to effect changes to the Bankruptcy
Code, to the President and Congress no later than October 20, 1997. The
Bankruptcy Commission's recommendations will be advisory only; any change in the
Bankruptcy Code must be effected through Congressional action.
19
As A Result Of Non-Recordation Of Assignments In Some States, Some
Noteholders Could Lose The Right To Future Payments Of Principal And Interest
From Such Loans And Could Suffer A Loss Of Principal And Interest On The Notes
Subject to confirmation by the Rating Agencies, with respect to the Loans
secured by Mortgaged Properties located in certain states where ______ has been
advised by counsel that recordation of an assignment of mortgage is not
necessary in order to perfect an interest in a Loan, ______ will not be required
to record assignments to the Indenture Trustee of the Mortgages in the real
property records of these states for such Loans, but rather ______, in its
capacity as the Servicer, will retain record title to such Mortgages on behalf
of the Indenture Trustee, then the Noteholders could lose the right to future
payments of principal and interest from such Loans and could suffer a loss of
principal and interest to the extent that such loss is not otherwise covered by
amounts available from the credit enhancement provided for such Notes.
Although the recordation of the assignments of the Mortgages in favor of
the Indenture Trustee is not necessary to effect a transfer of the Loans to the
Indenture Trustee, If ______ or the Depositor were to sell, assign, satisfy or
discharge any Loan prior to recording the related assignments in favor of the
Indenture Trustee, the other parties to such sale, assignment, satisfaction or
discharge may have rights superior to those of the Indenture Trustee. In some
states, in the absence of such recordation of the assignments of the Mortgages,
the transfer to the Indenture Trustee of the Loans may not be effective against
certain creditors or purchasers from ______ or, a trustee in bankruptcy of
______ . In such other parties, creditors or purchasers have rights to the Loans
that are superior to those of the Indenture Trustee, then the Noteholders could
lose the right to future payments of principal and interest from such Loans and
could suffer a loss of principal and interest to the extent that such loss is
not otherwise covered by amounts available from the credit enhancement provided
for such Notes.
Limitations on Repurchase or Replacement of Defective Loans will Mean That
Resulting Losses Will Be Borne By The Holders Of The Notes
Pursuant to the Sale and Servicing Agreement, each of the Depositor and
______ has agreed to cure in all material respects any breach of its respective
representations and warranties set forth in the Sale and Servicing Agreement
with respect to Defective Loans. If the Depositor or ______ cannot cure such
breach within a specified period of time, it will be required to repurchase such
Defective Loans from the Trust or substitute other loans for such Defective
Loans. Although a significant portion of the Loans will have been acquired from
unaffiliated correspondent lenders, the Depositor and ______ will make the
representations and warranties with respect to each Loan. For a summary
description of the Depositor's or ______'s representations and warranties, See
"The Agreements Assignment of Primary Assets" in the Prospectus.
No assurance can be given that, at any particular time, the Depositor or
______ will be capable, financially or otherwise, of repurchasing or replacing
any Defective Loan(s) in the manner described above. If ______ repurchases, or
is obligated to repurchase, any defective home loan(s) from any other series of
asset backed securities, its financial ability to repurchase any Defective
Loan(s) from the Trust may be adversely affected. In addition, other events
relating to the Depositor or ______ and its home lending can occur that would
adversely affect its financial ability to repurchase Defective Loans from the
Trust, including, without limitation, the sale or other disposition of all or
any significant portion of its assets. If the Depositor or ______ is unable to
repurchase or replace a Defective Loan, then the Servicer, on behalf of the
Trust, will utilize customary servicing practices to recover the maximum amount
possible with respect to such Defective Loan, and any resulting loss will be
borne by the holders of the Notes to the extent that such loss is not otherwise
covered by amounts available from the credit enhancement provided for the Notes.
______, in its capacity as seller of the Loans to the Depositor, has agreed to
be bound by the same requirements as the Depositor with respect to Defective
Loans. See "______ Savings Bank, Federal Savings Bank" herein.
20
THE TRUST
General
The Trust, _______________ Trust ________, will be a business trust formed
under the laws of the State of Delaware pursuant to the Trust Agreement for the
transactions described in this Prospectus Supplement. After its formation, the
Trust will not engage in any activity other than (i) acquiring, holding and
managing the Loans and the other assets of the Trust and proceeds therefrom,
(ii) issuing the Notes and any Residual Interest, (iii) making payments on the
Notes and any Residual Interest and (iv) engaging in other activities that are
necessary, suitable or convenient to accomplish the foregoing or are incidental
thereto or in connection therewith.
The Residual Interests in the aggregate represent the entire residual
interest in the assets of the Trust. The Residual Interests, together with the
Notes, will be delivered by the Trust to the Depositor as consideration for the
delivery of the Initial Loans and the deposit of the Original Pre-Funded Amount
pursuant to the Sale and Servicing Agreement.
On the Closing Date, the Trust will purchase Initial Loans expected to have
an aggregate principal balance of approximately $___________ as of the Initial
Cut-Off Date (the actual aggregate unpaid principal balance (as of the Initial
Cut-Off Date) of the Initial Loans, the "Original Pool Principal Balance") from
the Depositor pursuant to a sale and servicing agreement dated as of
______________ (the "Sale and Servicing Agreement"), among the Trust, the
Depositor, the Servicer, the Indenture Trustee and the Co-Owner Trustee. On or
prior to _______________, the Trust may purchase additional loans (the
"Subsequent Loans" and together with the Initial Loans, the "Loans") having an
aggregate unpaid principal balance of up to $_______________ (as adjusted
pursuant to the immediately following sentence, the "Original Pre-Funded
Amount"). To the extent that the Original Pool Principal Balance is more or less
than the amount set forth in the second preceding sentence, the Original
Pre-Funded Amount will be decreased or increased by a corresponding amount
provided that the amount of any such adjustment shall not exceed $____________.
The assets of the Trust will consist of the Loans secured by Mortgages. See
"The Loans" herein. The assets of the Trust will also include (i) payments of
interest and principal received after the applicable Cut-Off Date in respect of
the Loans; (ii) amounts on deposit in the Collection Account (excluding
investment earnings thereon), Note Distribution Account, Pre-Funding Account,
Capitalized Interest Account and Certificate Distribution Account; and (iii)
certain other ancillary or incidental funds, rights and properties related to
the foregoing.
The Trust will include the unpaid Principal Balance of each Loan as of its
applicable Cut-Off Date (the "Cut-Off Date Principal Balance"). With respect to
any date, the "Pool Principal Balance" will be equal to the aggregate of the
Principal Balances of all Loans as of the last day of the preceding Due Period.
The "Principal Balance" of a Loan on any day is equal to the outstanding unpaid
principal balance of the Loan as of the close of business on the last day of the
preceding Due Period (after giving effect to all payments received thereon and
the allocation of any Net Loan Losses thereto pursuant to clause (B) of the
definition thereof); provided, however, that any Loan that became a Liquidated
Loan during the preceding Due Period shall have a Principal Balance of zero.
With respect to any Distribution Date, any Loans repurchased in the month of
such Distribution Date prior to the related Determination Date in such month
shall be deemed (i) to have been repurchased during the related Due Period and
(ii) to have a Principal Balance of zero as of the end of such related Due
Period.
The Servicer will service the Loans pursuant to the Sale and Servicing
Agreement (collectively with the Indenture, the Administration Agreement and the
Trust Agreement, the "Transfer and Servicing Agreements") and will be
compensated for such services as described under "Description of the Transfer
and Servicing Agreements--Servicing" herein.
The Trust's principal offices are located in ___________, Delaware, in care
of ____________________, as Owner Trustee, at the address set forth below under
"--The Owner Trustee and Co-Owner Trustee."
The Owner Trustee and Co-Owner Trustee
______________________will act as the Owner Trustee under the Trust
Agreement. __________________ is a _______________ banking corporation and its
principal offices are located at _____________________.
Certain functions of the Owner Trustee under the Trust Agreement and the
Sale and Servicing Agreement will be performed by _________________________
___________, in its capacity as Co-Owner Trustee under the Trust Agreement and
the Sale and Servicing Agreement, including maintaining the Certificate
Distribution Account and making distributions therefrom. However, upon the
occurrence and continuation of an event of default under the Indenture, the
Co-Owner Trustee will resign and the Owner Trustee will assume the duties of the
Co-Owner Trustee under the Trust Agreement and the Sale and Servicing Agreement.
21
THE LOANS
General
All of the Loans will be home loans (i.e., not insured or guaranteed by a
governmental agency) for which the related proceeds were used to finance (i)
property improvements, (ii) the acquisition of personal property such as home
appliances or furnishings, (iii) debt consolidation, (iv) the refinancing of
one- to four-family residential properties (which may include cash-out to the
borrower) or (v) a combination of property improvements, debt consolidation and
other consumer purposes. Substantially all of the Mortgages for the Loans will
be junior (i.e., second, third, etc.) in priority to one or more senior liens on
the related Mortgaged Properties, which will consist primarily of owner-occupied
single-family residences. As of the Statistic Calculation Date, approximately
_______% of the Loans will be secured by liens on Mortgaged Properties in which
the borrowers have little or no equity therein (i.e., the related Combined
Loan-to-Value Ratios equal or exceed ____%) at the time of origination of such
Loans. The characteristics of the Initial Loans actually delivered on the
Closing Date are not expected to vary materially from the characteristics of
those of such Loans that have been identified on the Statistic Calculation Date
and the characteristics of the Subsequent Loans are not expected to vary
materially from those of the Initial Loans.
______ originates and purchases loans principally through its nationwide
network of correspondents, other third party originators and independent
mortgage brokers.
For a description of the underwriting criteria applicable to the Loans, See
"_________________, ______________________ Underwriting Guidelines" herein. All
of the Initial Loans will be sold by ______ to the Depositor, whereupon the
Depositor will sell the Loans to the Trust pursuant to the Sale and Servicing
Agreement. All of the Subsequent Loans will be sold by ______ to the Depositor
for and by the Depositor to the Trust pursuant to a Subsequent Transfer
Agreement. Pursuant to the Indenture, the Trust will pledge and assign the Loans
to the Indenture Trustee for the benefit of the holders of the Notes. The Trust
will be entitled to all payments of interest and principal received in respect
of the Loans after the applicable Cut-Off Dates.
Payments on the Loans
The Loans generally provide for a schedule of payments which, if timely
paid, will be sufficient to amortize fully the principal balance of the related
Loan on or before its maturity date. The Loans have scheduled monthly payment
dates which occur throughout a month. Interest with respect to the Loans will
accrue on an "actuarial interest" method. No Loan provides for deferred interest
or negative amortization.
The actuarial interest method provides that interest is charged and
payments are due as of a scheduled day of each month which is fixed at the time
of origination, and payments received after a grace period following such
scheduled day are subject to late charges. For example, a scheduled payment on a
Loan received either earlier or later (other than delinquent) than the scheduled
due date thereof will not affect the amortization schedule or the relative
application of such payment to principal and interest in respect of such Loan.
Characteristics of Loans
The following is a brief description of certain terms of those of the
Initial Loans that have been identified as of the Statistic Calculation Date.
Neither the characteristics of the Initial Loans as of the Closing Date nor the
characteristics of the Subsequent Loans are expected to vary materially from the
characteristics of those of the Initial Loans that have been identified as of
the Statistic Calculation Date.
The Initial Loans will have the characteristics set forth below and in the
tables that follow.
This description does not take into account any (a) Initial Loans not
identified as of the date of this Prospectus Supplement and (b) Subsequent Loans
that may be sold to the Trust during the Pre-Funding Period through the
application of amounts on deposit in the Pre-Funding Account. In addition, prior
to the Closing Date, ______ may remove any of the Initial Loans intended to be
transferred to the Trust, substitute comparable loans therefor, or add
comparable loans thereto; provided, however, that the aggregate principal
balance of Initial Loans so replaced, added or removed will not exceed ____% of
the Original Pool Principal Balance. To the extent that, prior to the Closing
Date, Loans are removed from or sold to the Trust, an amount equal to the
aggregate principal balances of such Loans will be added to or deducted from,
respectively, the Original Pre-Funding Amount on the Closing Date; provided that
the amount of any such adjustment may not exceed $____________. As a result, the
statistical information presented below regarding the characteristics of the
Initial Loans expected to be sold to the Trust as of the date of this Prospectus
Supplement may vary in certain respects from comparable information based on the
actual Initial Loans sold to the Trust on the Closing Date. In addition, after
the _____________ Cut-Off Date, the characteristics of the actual Loans may vary
from the information below due to a number of factors, including prepayments
after the ____________ Cut-Off
22
Date or the purchase of any Subsequent Loans after the Closing Date. See
"Conveyance of Subsequent Loans" below. A schedule of the Initial Loans sold to
the Trust as of the Closing Date will be attached to the Sale and Servicing
Agreement. A current report on Form 8-K containing a description of the Loans as
of the end of the Pre-Funding Period will be filed with the Commission.
Initial Loan Statistics
As of the Statistic Calculation Date, the Initial Loans consisted of
_______ Loans secured by mortgages or deeds of trust on Mortgaged Properties
located in ___ States and the District of Columbia. As of the Statistic
Calculation Date, the aggregate of the Principal Balances of the Initial Loans
was approximately $_______________ (the "Statistic Principal Balance"). As of
the Statistic Calculation Date, Initial Loans representing ________% of the
Statistic Principal Balance were secured by first liens, Initial Loans
representing approximately _______% of the Statistic Principal Balance were
secured by second liens. As of the Statistic Calculation Date, Adjustable Rate
Loans represented ______% of the Statistic Principal Balance and the remainder
of the Initial Loans have fixed Loan Rates ("Fixed Rate Loans"). The lowest
Statistic Calculation Date principal balance of any Initial Loan was $__________
and the highest was $___________. The average Statistic Calculation Date
principal balance of the Initial Loans was approximately $___________. The
weighted average remaining term to stated maturity of the Initial Loans as of
the Statistic Calculation Date was approximately ______ months. As of the
Statistic Calculation Date, the weighted average number of months that have
elapsed since origination of the Initial Loans was approximately 1 month. The
lowest and highest Combined Loan-to-Value Ratios of the Initial Loans at
origination were ______% and ____%, respectively. As of the Statistic
Calculation Date approximately ____ Loans representing approximately ______% of
the Statistic Principal Balance had a combined Loan-to-Value Ratio of less than
_____%. The weighted average Combined Loan-to-Value Ratio of the Initial Loans
as of the Statistic Calculation Date was approximately _______%.
Each Adjustable Rate Loan bears interest at an adjustable rate. The
interest rate borne by each Adjustable Rate Loan first adjusts on the date set
forth in the related Note for the Adjustable Rate Loans and then every six
months thereafter (each such date thereafter, a "Change Date"). The Loan Rate
with respect to each Adjustable Rate Loan will adjust on each applicable Change
Date to equal the sum of (i) the London Interbank Offered Rate for six-month
U.S. dollar deposits (the "LIBOR Index") either as announced by FNMA, and
available as of the date 45 days before each Change Date, or as published in The
Wall Street Journal generally on a day of the month preceding the month of the
Change Date and (ii) the gross margin (the "Gross Margin") set forth in the
related Note subject to rounding and to the effects of the Periodic Rate Cap (as
defined below), the applicable ______time Cap (as defined below) and the
applicable ______time Floor (as defined below).
The Initial Loans that are Fixed Rate Loans bear interest at fixed Loan
Rates that ranged from approximately ____% to approximately _______% per annum
as of the Statistic Calculation Date. The weighted average Loan Rate for the
Initial Loans that are Fixed Rate Loans was approximately _______% per annum as
of the Statistic Calculation Date.
As of the Statistic Calculation Date, the Loan Rates for the Adjustable
Rate Loans ranged from _______% to ______% and the Gross Margins for the
Adjustable Rate Loans ranged from ______% to ______%. As of the Statistic
Calculation Date, the weighted average Loan Rate of the Adjustable Rate Loans
was _______% and the weighted average Gross Margin of the Adjustable Rate Loans
was approximately _______%. The "Periodic Rate Cap" limits changes in the Rate
for each Adjustable Rate Loan on each Change Date to 100 to 150 basis points in
the case of Adjustable Rate Loans based on a LIBOR Index. The "______time Cap"
for each Adjustable Rate Loan is the rate which is generally 600 to 700 basis
points greater than the initial Loan Rate for such Adjustable Rate Loan, and the
______time Floor is the lowest rate to which the Loan Rate can adjust for such
Adjustable Rate Loan. As of the Statistic Calculation Date the ______time Caps
of the Adjustable Rate Loans ranged from ______% to ______% and the ______time
Floors of the Adjustable Rate Loans ranged from ______% to _______%. As of the
Statistic Calculation Date, the weighted average ______time Cap of the
Adjustable Rate Loans was approximately ______% and the weighted average
______time Floor was approximately ______%. As of the Statistic Calculation
Date, the number of months to the next Change Date of the Adjustable Rate Loans
ranged from two months to six months. As of the Statistic Calculation Date, the
weighted average months to next Change Date was approximately _____ months. The
Adjustable Rate Loans do not provide for negative amortization.
As of the Statistic Calculation Date, approximately _____% by principal
balance of the Initial Loans (each of which was a Fixed Rate Loan) had final
payments substantially in excess of the other monthly payments (the "Balloon
Loans") and the remainder of the Initial Loans were fully amortizing loans
having original stated maturities of not more than 30 years. As of the Statistic
Calculation Date, no Initial Loan was scheduled to mature later than September
_____.
As of the Closing Date, no Initial Loan will be 30 or more days past due.
As of the Statistic Calculation Date, _______% of the Mortgaged Properties
by principal balance of the related Loan were owner-occupied (based on
representations of the related borrowers at origination). As of the Statistic
Calculation Date, the obligors on Initial Loans representing approximately
89.08% of the Statistic Principal Balance had "A", "A+", "Ax" or "A-"
23
credit ratings, under ______'s programs, the obligors on Initial Loans
representing approximately 10.82% of the Statistic Principal Balance had "B" or
"B+" credit ratings under ______'s programs and the obligors on Initial Loans
representing approximately _______% of the Statistic Principal Balance had "C"
or "Cx" credit ratings under ______'s programs.
The following tables are based on certain statistical characteristics with
respect to those of the Initial Loans that have been identified as of the
Statistic Calculation Date. The sum of the percentages in the following tables
may not equal the total due to rounding.
24
FIXED RATE LOANS
Geographic Distribution of the Mortgaged Properties
% of Aggregate
Principal Balance
Number of Aggregate of Fixed Rate
State Initial Loans Principal Balance Loans
- ----------------- --------------- ----------------- -----------------
_________________ _____ $ _______ ______%
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
_________________ _____ _______ ______
25
% of Aggregate
Principal Balance
Number of Aggregate of Fixed Rate
State Initial Loans Principal Balance Loans
- - ----------------- -------------- ----------------- ---------------
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
-------------- ----------------- -----------------
Total ....... _____ $ _______ ______%
============== ================= =================
26
Loan Rates
% of Aggregate
Principal Balance
Range of Number of Aggregate of Fixed Rate
Loan Rates Initial Loans Principal Balance Loans
- - ------------------------ -------------- ----------------- ---------------
8.000% to 8.999% ...... _____ $_______ ______%
9.000% to 9.999% ...... _____ _______ ______
10.000% to 10.999% ..... _____ _______ ______
11.000% to 11.999% ..... _____ _______ ______
12.000% to 12.999% ..... _____ _______ ______
13.000% to 13.999% ..... _____ _______ ______
14.000% to 14.999% ..... _____ _______ ______
15.000% to 15.999% ..... _____ _______ ______
16.000% to 16.999% ..... _____ _______ ______
17.000% to 17.999% ..... _____ _______ ______
-------------- ----------------- -----------------
Total ....... _____ $ _______ ______%
============== ================= =================
As of the Statistic Calculation Date, the weighted average Loan Rate of the
Initial Loans that are Fixed Rate Loans was approximately _________% per annum.
Mortgaged Property Types
% of Aggregate
Mortgaged Principal Balance
Property Number of Aggregate of Fixed Rate
Types Initial Loans Principal Balance Loans
- - ------------------------ -------------- ----------------- ---------------
One Family ............. _____ $_______ ______%
Two- to Four- Family ... _____ _______ ______
Condominium ............ _____ _______ ______
PUD .................... _____ _______ ______
-------------- ----------------- -----------------
Total ....... _____ $ _______ ______%
============== ================= =================
27
Combined Loan-to-Value Ratios***
Range of % of Aggregate
Combined Aggregate Average Principal Balance
Loan-to-Value Number of Principal Principal of Fixed Rate
Ratios Initial Loans Balance Balance Loans
- - -------------------------------- -------------- --------- --------- -----------------
less than or equal to 49.99% ... ________ $______ _______ _______%
50.00% to 59.99% ............... ________ ______ _______ _______
60.00% to 69.99% ............... ________ ______ _______ _______
70.00% to 79.99% ............... ________ ______ _______ _______
80.00% to 89.99% ............... ________ ______ _______ _______
90.00% to 99.99% ............... ________ ______ _______ _______
100.00% to 109.99% ............. ________ ______ _______ _______
110.00% to 119.99% ............. ________ ______ _______ _______
120.00% to 125.00% ............. ________ ______ _______ _______
-------------- --------- --------- -----------------
Total ................ $______ _______ 100.00%
============== ========= ========= =================
As of the Statistic Calculation Date, the weighted average combined
loan-to-value ratio of the Initial Loans that are Fixed Rate Loans was ________.
FICO Scores
Weighted % of Aggregate
Aggregate Average Principal Balance
Number of Principal FICO of Fixed Rate
Range of FICO Scores Initial Loans Balance Scores Loans
- - -------------------------------- -------------- --------- --------- -----------------
600 to 619 ..................... ________ $______ _______ _______%
620 to 639 ..................... ________ ______ _______ _______
640 to 659 ..................... ________ ______ _______ _______
660 to 679 ..................... ________ ______ _______ _______
680 to 699 ..................... ________ ______ _______ _______
700 to 719 ..................... ________ ______ _______ _______
28
720 to 739 ..................... ________ ______ _______ _______
740 to 759 ..................... ________ ______ _______ _______
760 to 779 ..................... ________ ______ _______ _______
780 to 799 ..................... ________ ______ _______ _______
800 to 819 ..................... ________ ______ _______ _______
-------------- --------- --------- -----------------
Total .................... ________ $______ _______ 100.00%
============== ========= ========= =================
As of the Statistic Calculation Date, the weighted average FICO scores of
the Initial Loans that are Fixed Rate Loans was _______.
29
Occupancy
% of Aggregate
Principal Balance
Number of Aggregate of Fixed Rate
Initial Loans Principal Balance Loans
- - ---------------------- -------------- ----------------- ---------------
Non-Owner-Occupied ... _____ $_______ ______%
Owner-Occupied ....... _____ _______ ______
-------------- ----------------- -----------------
Total _____ $_______ 100.00%
============== ================= =================
Purpose of Loan
% of Aggregate
Principal Balance
Number of Aggregate of Fixed Rate
Purpose of Loan Initial Loans Principal Balance Loans
- - ---------------------- -------------- ----------------- ---------------
Cash Out ............. _____ $_______ ______%
Purchase ............. _____ _______ ______
Refinance ............ _____ _______ ______
-------------- ----------------- -----------------
Total ................ _____ $_______ 100.00%
============== ================= =================
30
FIXED RATE TABLE Principal Balances
% of Aggregate
Aggregate
Number of Principal Balance
Range of Initial Principal of Fixed Rate
Principal Balances Loans Balance Loans
- - ------------------------------------ --------- --------- ---------------
Less than or equal to $15,000.00 ... _______ $______ __________%
$15,000.01 to $20,000.00 ........... _______ ______ __________
$20,000.01 to $25,000.00 ........... _______ ______ __________
$25,000.01 to $30,000.00 ........... _______ ______ __________
$30,000.01 to $35,000.00 ........... _______ ______ __________
$35,000.01 to $40,000.00 ........... _______ ______ __________
$40,000.01 to $45,000.00 ........... _______ ______ __________
$45,000.01 to $50,000.00 ........... _______ ______ __________
$50,000.01 to $55,000.00 ........... _______ ______ __________
$55,000.01 to $60,000.00 ........... _______ ______ __________
$60,000.01 to $65,000.00 ........... _______ ______ __________
$65,000.01 to $70,000.00 ........... _______ ______ __________
$70,000.01 to $75,000.00 ........... _______ ______ __________
$75,000.01 to $80,000.00 ........... _______ ______ __________
$80,000.01 to $85,000.00 ........... _______ ______ __________
Greater than or equal to $85,000.01 _______ ______ __________
--------- --------- -----------------
Total _______ $______ 100.00%
========= ========= =================
31
Remaining Terms to Maturity
% of Aggregate
Number of Aggregate
Initial Principle Balance
Range of Remaining Principal of Fixed Rate
Terms to Maturity Loans Balance Loans
- - ------------------------------------ --------- --------- ---------------
Less than or equal to 149 Months ... _______ $______ __________%
150 to 179 Months .................. _______ ______ __________
180 to 209 Months .................. _______ ______ __________
210 to 239 Months .................. _______ ______ __________
240 to 269 Months .................. _______ ______ __________
270 to 299 Months .................. _______ ______ __________
300 to 329 Months .................. _______ ______ __________
--------- --------- -----------------
Total .................. _______ $______ 100.00%
========= ========= =================
As of the Statistic Calculation Date, the weighted average original term to
maturity of the Initial Loans that are Fixed Rate Loans was _______ months.
As of the Statistic Calculation Date, the weighted average remaining term
to maturity of the Initial Loans that are Fixed Rate Loans was _______ months.
32
ADJUSTABLE RATE SECTION ADJUSTABLE RATE LOANS
Geographic Distribution of the Mortgaged Properties
% of Aggregate
Number of
Initial Principal Balance
Aggregate of Fixed Rate
State Loans Principal Balance Loans
- - ----------------- --------------- ----------------- ---------------
____________ _____ $ _______ ______%
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
33
% of Aggregate
Number of
Initial Principal Balance
Aggregate of Adjustable Rate
State Loans Principal Balance Loans
- - ----------------- --------------- ----------------- ---------------
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
____________ _____ _______ ______
-------------- ----------------- -----------------
Total ....... _____ $ _______ 100.00%
============== ================= =================
34
Loan Rates (as of the Statistic Calculation Date)
% of Aggregate
Number of Aggregate
Initial Principal Principal Balance
Range of of Adjustable Rate
Loan Rates Loans Balance Loans
- - ------------------------ -------------- ----------------- ---------------
9.000% to 9.999% ...... _____ $_______ ______%
10.000% to 10.999% ..... _____ _______ ______
11.000% to 11.999% ..... _____ _______ ______
12.000% to 12.999% ..... _____ _______ ______
13.000% to 13.999% ..... _____ _______ ______
14.000% to 14.999% ..... _____ _______ ______
-------------- ----------------- -----------------
TOTAL ....... _____ $_______ ______%
============== ================= =================
As of the Statistic Calculation Date, the weighted average Loan Rate of the
Initial Loans that are Adjustable Rate Loans was _______%.
Gross Margins
% of Aggregate
Principal Balance
Number of Aggregate of Adjustable Rate
Margin Initial Loans Principal Balance Loans
- - --------------------- --------------- ----------------- ---------------
4.000% to 4.999% .... _____ $_______ ______%
5.000% to 5.999% .... _____ _______ ______
6.000% to 6.999% .... _____ _______ ______
7.000% to 7.999% .... _____ _______ ______
8.000% to 8.999% .... _____ _______ ______
--------------- ----------------- -----------------
TOTAL ..... _____ $_______ 100.00%
=============== ================= =================
As of the Statistic Calculation Date, the weighted average Gross Margin for
the Initial Loans that are Adjustable Rate Loans was _____%.
35
______time Caps
% of Aggregate
Aggregate Principal Balance
Number of Principal of Adjustable Rate
Lifetime Cap Initial Loans Balance Loans
- - -------------------------- ------------- ---------- --------------
15.001% to 16.000% ....... _____ $_______ ______%
16.001% to 17.000% ....... _____ _______ ______
17.001% to 18.000% ....... _____ _______ ______
18.001% to 19.000% ....... _____ _______ ______
19.001% to 20.000% ....... _____ _______ ______
Greater than 20.00% ...... _____ _______ ______
------------- ---------- ----------------
TOTAL .................... _____ $_______ 100.00%
============= ========== ================
As of the Statistic Calculation Date, the weighted average Lifetime Cap for
the Initial Loans that are Adjustable Rate Loans was ______%.
Lifetime Floors
% of Aggregate
Aggregate Principal Balance
Number of Principal of Adjustable Rate
Lifetime Floor Initial Loans Balance Loans
- - --------------------------------- ------------- ---------- --------------
less than or equal to 11.000% ... _____ $_______ ______%
11.001% to 12.000% .............. _____ _______ ______
12.001% to 13.000% .............. _____ _______ ______
13.001% to 14.000% .............. _____ _______ ______
Greater than 14.000% ............ _____ _______ ______
------------- ---------- ----------------
TOTAL ........................... _____ $_______ 100.00%
============= ========== ================
As of the Statistic Calculation Date, the weighted average Lifetime Floor
for the Initial Loans that are Adjustable Rate Loans was _____%
36
Mortgaged Property Types
Number of % of Aggregate
Initial
Mortgaged Aggregate Principal Balance
Property of Adjustable Rate
Types Loans Principal Balance Loans
- - ------------------------ -------------- ----------------- --------------
One Family ............. _____ $_______ ______%
Two- to Four- Family ... _____ _______ ______
Condominium ............ _____ _______ ______
-------------- ----------------- -----------------
Total ....... _____ $ _______ 100.00%
============== ================= =================
Combined Loan-to-Value Ratios
% of Aggregate
Range of
combined Aggregate Average Principal Balance
Loan-to-Value Number of Principal Principal of Adjustable Rate
Ratios Initial Loans Balance Balance Loans
- - -------------------------------- -------------- --------- --------- -----------------
70.00% to 79.99% ............... ________ $______ $_______ _______%
80.00% to 89.99% ............... ________ ______ _______ _______
90.00% to 99.99% ............... ________ ______ _______ _______
100.00% to 109.99% ............. ________ ______ _______ _______
110.00% to 119.99% ............. ________ ______ _______ _______
120.00% to 125.00% ............. ________ ______ _______ _______
-------------- --------- --------- -----------------
Total ................ $______ $_______
============== ========= ========= =================
As of the Statistic Calculation Date, the weighted average Combined
Loan-to-Value Ratio of the Initial Loans that are Adjustable Rate Loans was
_______%.
37
FICO Scores
% of Aggregate
Weighted
Aggregate Average Principal Balance
Number of Principal FICO of Adjustable Rate
Range of FICO Scores Initial Loans Balance Scores Loans
- - -------------------------------- -------------- --------- --------- -----------------
600 to 619 ..................... ________ $______ _______ _______%
620 to 639 ..................... ________ ______ _______ _______
640 to 659 ..................... ________ ______ _______ _______
660 to 679 ..................... ________ ______ _______ _______
680 to 699 ..................... ________ ______ _______ _______
700 to 719 ..................... ________ ______ _______ _______
720 to 739 ..................... ________ ______ _______ _______
740 to 759 ..................... ________ ______ _______ _______
760 to 779 ..................... ________ ______ _______ _______
780 to 799 ..................... ________ ______ _______ _______
800 to 819 ..................... ________ ______ _______ _______
-------------- --------- --------- -----------------
Total .................... ________ $______ _______ _______%
============== ========= ========= =================
As of the Statistic Calculation Date, the weighted average FICO scores of
the Initial Loans that are Adjustable Rate Loans was ________.
38
Occupancy
The Mortgaged Property relating to each of the Adjustable Rate Loans was,
based on representations made by the borrower at the closing of the Loan, owner
occupied.
% of Aggregate
Principal Balance
Number of Aggregate of Adjustable Rate
Purpose of Loan Initial Loans Principal Balance Loans
- - ---------------------- -------------- ----------------- ---------------
Cash Out ............. _____ $_______ ______%
Purchase ............. _____ _______ ______
Refinance ............ _____ _______ ______
-------------- ----------------- -----------------
Total ................ _____ $_______ 100.00%
============== ================= =================
Principal Balances
% of Aggregate
Aggregate
Number of Principal Balance
Range of Initial Principal of Adjustable Rate
Principal Balances Loans Balance Loans
- - ------------------------------------ --------- --------- ---------------
Less than or equal to $20,000.00 ... _______ $______ __________%
$20,000.01 to $25,000.00 ........... _______ ______ __________
$25,000.01 to $30,000.00 ........... _______ ______ __________
$30,000.01 to $35,000.00 ........... _______ ______ __________
$35,000.01 to $40,000.00 ........... _______ ______ __________
$40,000.01 to $45,000.00 ........... _______ ______ __________
greater than $50,000.00 ........... _______ ______ __________
--------- --------- -----------------
Total _______ $______ 100.00%
========= ========= =================
39
Remaining Terms to Maturity
% of Aggregate
Aggregate
Number of Principal Balance
Range of Remaining Initial Principal of Adjustable Rate
Terms to Maturity Loans Balance Loans
- - ------------------------------------ --------- --------- ----------------
___________ ........................ _______ $______ __________%
___________ ........................ _______ ______ __________
___________ ........................ _______ ______ __________
___________ ........................ _______ ______ __________
___________ ........................ _______ ______ __________
___________ ........................ _______ ______ __________
--------- --------- -----------------
_______ $______ 100.00%
========= ========= =================
As of the Statistic Calculation Date, the weighted average original term to
maturity for the Initial Loans that are Adjustable Rate Loans was ______ months.
As of the Statistic Calculation Date, the weighted average remaining term
for the Initial Loans that are Adjustable Rate Loans was _______ months.
40
Conveyance of Subsequent Loans
The Sale and Servicing Agreement permits the Trust to purchase from ______,
subsequent to the Closing Date and prior to _______________, Subsequent Loans in
an amount not to exceed the Original Pre-Funded Amount in aggregate principal
balance for inclusion in the Trust. Accordingly, the statistical characteristics
of the Loans after giving effect to the acquisition of any Subsequent Loans will
likely differ from the information specified above (which is based exclusively
on the Initial Loans as of the Statistic Calculation Date). The date or dates on
which the Trust acquires the Subsequent Loans are referred to herein as
"Subsequent Transfer Dates." Any Subsequent Loans conveyed to the Trust Fund
will be subject to the approval of and must satisfy criteria established by the
Rating Agencies and are not expected to cause the characteristics of the Loans
to vary materially in the aggregate from the characteristics of the Initial
Loans.
[Description of the Servicer]
Delinquency and Loan Loss Experience
The following tables set forth information relating to the delinquency and
loan loss experience on the mortgage loans included in the Servicer's servicing
portfolio for the periods shown. The delinquency and loan loss experience
represents the historical experience of the Servicer, and there can be no
assurance that the future experience on the Loans in the Trust will be the same
as, or more favorable than, that of the total mortgage loans in the Servicer's
servicing portfolio. See "Risk Factors--Additional Factors Affecting
Delinquencies, Defaults and Losses on Loans -- Limited Historical Delinquency,
Loss and Prepayment Information."
Delinquency and Foreclosure Experience
(Dollars in Thousands)
At _______________ At ________________ At ________________
---------------------------------------------------------------------------------------------------------------------
Number % of % of Number % of % of Number % of
Delinquency of Loans Loans Amount Amount of Loans Loans Amount Amount of Loans Loans
Status (1) Serviced Serviced Serviced Serviced Serviced Serviced Serviced Serviced Serviced Serviced
30 to 59 _____ _____% $_____ _____% _____ _____% _____ _____% _____ _____%
60 to 89 _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
90 + (2) _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
Bankruptcy _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
Foreclosure _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
REO (3) _____ _____ _____ _____ _____ _____ _____ _____ _____ _____
====================================================================================================================================
Total _____ _____% $_____ _____% _____ _____% $_____ _____% _____ _____%
- - ----------
(1) The past due period is based on the actual number of days that a
payment is contractually past due. A loan as to which a monthly
payment was due 60-89 days prior to the reporting period is considered
60-89 days past due, etc.
(2) Statistic for 90+ delinquencies does not include loans in bankruptcy
or foreclosure.
(3) An "REO Property" is a property acquired and held as a result of
foreclosure or deed in lieu of foreclosure.
41
Total Servicing Portfolio
(Dollars in Thousands)
At Or For The
At Or For The At Or For The Six Months
Year Ended Year Ended
__________ __________ __________
_____________ _____________ _____________
Servicing portfolio at period end $__________ $__________ $__________
Average outstanding (1) $__________ $__________ $__________
Number of loans outstanding __________ __________ __________
Owned Portfolio and
Loan Charge-Off Experience
(Dollars in Thousands)
At Or For The
At Or For The At Or For The Six Months
Year Ended Year Ended Ended
__________ __________ __________
_____________ _____________ _____________
Owned portfolio at period end $__________ $__________ $__________
Average outstanding owned
portfolio $__________ $__________ $__________
Loan charge-offs __________ __________ __________
Loan recoveries __________ __________ __________
Net loan charge-offs __________ __________ __________
Net loan charge-offs as a
percentage of the average
outstanding (2) __________% __________% __________%
Net loan charge-offs as a
percentage of the portfolio
at period end (2) __________% __________% __________%
- - ----------
(1) "Average outstanding" presented is the arithmetic average of the end of
month principal balances of the loans in __________'s servicing portfolio
outstanding at the close of business for each period.
(2) Percentages presented are for the Servicer's owned portfolio only. The loss
percentages for loans serviced for others is not available because in many
instances the servicing client handles the disposition of foreclosed
property.
While the above delinquency and foreclosure and loan charge-off experience
reflect the Servicer's historical experiences at the dates and for the periods
indicated, there can be no assurance that the delinquency and foreclosure and
loan charge-off experience of the Loans will be similar. See "Risk
Factors--Additional Factors Affecting Delinquencies, Defaults and Losses on
Loans -- Limited Historical Delinquency, Loss and Prepayment Information."
Accordingly, the information should not be considered to reflect the credit
quality of the Loans included in the Trust or
used as a basis of assessing the likelihood, amount or severity of losses on the
Loans. The statistical data in the tables are based on all of the loans in the
Servicer's servicing
42
portfolio. The Loans are likely to have characteristics which distinguish them
from the majority of the loans in the Servicer's servicing portfolio.
The Servicer may resign its obligations to service the Loans only in
accordance with the terms of the Sale and Servicing Agreement. No removal or
resignation will become effective until the Indenture Trustee or a successor
servicer has assumed the Servicer's responsibilities and obligations in
accordance therewith.
The Servicer may not assign its obligations under the Sale and Servicing
Agreement unless it first obtains the written consent of the Indenture Trustee;
provided, however, that any assignee must meet the eligibility requirements for
a successor servicer set forth in the Sale and Servicing Agreement.
Notwithstanding anything in the preceding sentence to the contrary, the Servicer
may delegate certain of its obligations to a sub-servicer pursuant to one or
more sub-servicing agreements. A sub-servicer must meet certain eligibility
requirements, as set forth in the Sale and Servicing Agreement, and each
sub-servicing agreement shall require servicing of the Loans consistent with the
terms of the Sale and Servicing Agreement.
Repurchase or Substitution of Loans
Each of __________ and the Depositor is required (i) within 60 days after
discovery or notice thereof to cure in all material respects any breach of the
representations or warranties made with respect to any Loan or any document
deficiency with respect to any Loan (each, a "Defective Loan") or (ii) on or
before the Determination Date next succeeding the end of such 60-day period, to
repurchase such Defective Loan at a price (the "Purchase Price") equal to the
Principal Balance of such Defective Loan as of the date of repurchase, plus all
accrued and unpaid interest on such Defective Loan to but not including the due
date in the Due Period relating to the Distribution Date on which such Purchase
Price is to be distributed, computed at the Loan Rate. In addition, __________
may at its option purchase from the Trust any Loan that is 90 days or more
delinquent and which __________ determines in good faith would otherwise become
subject to foreclosure proceedings so long as the aggregate of such purchases
does not exceed 10% of the Maximum Collateral Amount. In lieu of repurchasing a
Defective Loan, each of __________ and the Depositor may replace such Defective
Loan with one or more Qualified Substitute Loans. If the aggregate outstanding
principal balance of the Qualified Substitute Loan(s) is less than the
outstanding Principal Balance of the Defective Loan(s), either __________ or the
Depositor will also remit for distribution to the holders of the Notes an amount
(a "Substitution Adjustment") equal to such shortfall, which will result in a
prepayment of principal on the Notes for the amount of such shortfall. As used
herein, a "Qualified Substitute Loan" is a home loan that (i) has an interest
rate which differs by no more than two percentage points from the Loan Rate for
the Defective Loan which it replaces (each, a "Deleted Loan"), (ii) has a
principal balance (after application of all payments received on or prior to the
date of such substitution) equal to or less than the Principal Balance of the
Deleted Loan as of such date, (iii) has a lien priority no lower than that of
the Deleted Loan, (iv) complies as of the date of substitution with each
representation and warranty set forth in the Sale and Servicing Agreement with
respect to the Loans, and (v) has a borrower with a credit grade classification
comparable to that of the borrower with respect to the Deleted Loan.
No assurance can be given that, at any particular time, __________ will be
capable, financially or otherwise, of repurchasing Defective Loans or
substituting Qualified Substitute Loans for Defective Loans in the manner
described above. If __________ or the Depositor repurchases, or is obligated to
repurchase, Defective Loans from any additional series of asset backed
securities, its financial ability to repurchase Defective Loans from the Trust
may be adversely affected. In addition, other events relating to the Depositor,
__________ and __________'s mortgage lending and consumer finance operations can
occur that would adversely affect the financial ability of __________ or the
Depositor to repurchase Defective Loans from the Trust, including without
limitation the sale or other disposition of all or any significant portion of
its assets. If __________ or the Depositor is unable to repurchase or replace a
Defective Loan, the Servicer, on behalf of the Trust, will make other customary
and reasonable efforts to recover the maximum amount possible with respect to
such Defective Loan. If the Servicer is unable to collect all amounts due to the
Trust with respect to such Defective Loan, the resulting loss will be borne by
the holders of the Notes to the extent that such loss is not otherwise covered
by amounts available from the credit enhancement provided for the Notes. See
"Risk Factors --Adequacy of Credit Enhancement" and "Risk Factors--Additional
Factors Affecting Delinquencies, Defaults and Losses on Loans "Limitations on
Repurchase or Replacement of Defective Loans" herein.
DESCRIPTION OF CREDIT ENHANCEMENT
Credit enhancement with respect to the Notes will be provided by (i) the
subordination of distributions in respect of the Residual Interests (as well as
the subordination of certain Classes of Notes to other Classes of Notes, as
described herein), and (ii) the Overcollateralization Amount which results from
(a) the excess of the sum of the Original Pool Principal Balance and the
Original Pre-Funded Amount over the aggregate of the Class Principal
Balances for all Classes as of Notes and (b) following the Spread Deferral
Period, the limited acceleration of the principal amortization of the Notes
relative to the amortization of the Loans by the application of Excess Spread,
as described herein.
43
Subordination and Allocation of Losses
Distributions of interest on the Notes will be made first to the Senior
Notes and then to the Class M-1, Class M-2 and Class B Notes, in that order,
such that no interest will be paid on the Class B Notes until all required
interest payments have been made on the Mezzanine and Senior Notes and no
interest will be paid on the Mezzanine Notes until all required interest
payments have been made on the Senior Notes. In addition, distributions of
principal of the Notes will be made first to the Senior Notes, then to the Class
M-1, Class M-2 Notes and Class B Notes, in that order. Any distributions of
principal to the Classes of Senior Notes will be made sequentially in the order
of increasing numerical Class designations. All Allocable Loss Amounts applied
in reduction of the Class Principal Balances of the Mezzanine Notes will be
applied first to the Class M-2 Notes and then to the Class M-1 Notes, until
their respective Class Principal Balances have been reduced to zero. In
addition, no Allocable Loss Amounts will be applied in reduction of the Class
Principal Balance of any Class of Mezzanine Notes until the Class Principal
Balance of the Class B Notes has been reduced to zero. Further, no Allocable
Loss Amounts will be applied in reduction of the Class Principal Balance of the
Class B Notes until the Overcollateralization Amount has been reduced to zero.
No Allocable Loss Amounts will be applied to the Classes of Senior Notes. The
rights of the holders of the Residual Interests to receive any distributions on
any Distribution Date generally will be subordinated to the rights of the
holders of the Notes. The subordination described above is intended to enhance
the likelihood of the regular receipt of interest and principal due to the
holders of the Classes of Notes and to afford such holders protection against
losses on the Loans, with the greatest amount of such enhancement and protection
being provided to the Classes of Senior Notes, a lesser amount of such
enhancement and protection being provided to the Class M-1 and, in particular,
the Class M-2 Notes, and the least amount of such enhancement and protection
being provided to the Class B Notes. See "Risk Factors--Adequacy of Credit
Enhancement" herein.
On each Distribution Date, the "Allocable Loss Amount" will be equal to the
excess, if any, of (a) the aggregate of the Class Principal Balances of all
Classes of Notes (after giving effect to all distributions on such Distribution
Date) over (b) the sum of the Pool Principal Balance and the Pre-Funded Amount
as of the end of the immediately preceding Due Period.
On each Distribution Date, the "Net Loan Losses" will be equal to the sum
of (A) with respect to the Loans that will have become Liquidated Loans during
the immediately preceding Due Period, an amount (but not less than zero)
determined as of the related Determination Date equal to: (i) the aggregate
uncollected Principal Balances of such Liquidated Loans as of the last day of
such Due Period, minus (ii) the aggregate amount of any recoveries attributable
to principal from whatever source received during any Due Period, with respect
to such Liquidated Loans, including any Due Period subsequent to the Due Period
wherein such Loan became a Liquidated Loan, and including without limitation any
Net Liquidation Proceeds, any Insurance Proceeds, any Released Mortgaged
Property Proceeds, any post-liquidation proceeds, any payments from the related
Obligor and any payments made in connection with the repurchase of or
substitution for a Defective Loan, less the amount of any expenses incurred in
connection with such recoveries; and (B) any reduction to the Principal Balances
of any Loans resulting from an order issued by a court of appropriate
jurisdiction in an insolvency proceeding.
Overcollateralization
As of any Distribution Date, the "Overcollateralization Amount" will equal
the excess of the sum of the Pool Principal Balance as of the end of the
immediately preceding Due Period and the Pre-Funded Amount as of the end of the
immediately preceding Due Period over the aggregate of the Class Principal
Balances of all Classes of Notes (after giving effect to all distributions of
the Regular Distribution Amount on such Distribution Date). On the Closing Date,
the Overcollateralization Amount is expected to equal $__________. Following the
termination of the Spread Deferral Period, limited acceleration of the principal
amortization of the Notes relative to the principal amortization of the Loans
has been designed to increase the Overcollateralization Amount over time by
making additional distributions of principal to the holders of the Notes from
the distribution of Excess Spread until the Overcollateralization Amount is at
least equal to the Overcollateralization Target Amount.
The "Spread Deferral Period" will begin on the Closing Date and end as soon
as Excess Spread in an amount equal to $____________ has been deposited in the
Certificate Distribution Account for distribution to the holders of the Residual
Interests. The "Overcollateralization Target Amount" will equal (A) with respect
to any Distribution Date occurring prior to the Stepdown Date, the greater of
(x) ___% of the Maximum Collateral Amount and (y) the Net Delinquency
Calculation Amount, and (B) with respect to any other Distribution Date, the
greater of (x) ______% of the Pool Principal Balance as of the end of the
related Due Period and (y) the Net Delinquency Calculation Amount; provided,
however, that the Overcollateralization Target Amount will in no event be less
than _____% of the Maximum Collateral Amount.
If on any Distribution Date an Overcollateralization Deficiency (as defined
herein) exists, distributions of Excess Spread, if any, will be made as an
additional distribution of principal to the holders of the Notes, to be
allocated among the Classes of Notes in the order of priority set forth under
"Description of the Notes--Distributions on the Notes" herein. Such
distributions of Excess Spread are intended to accelerate the amortization of
the Class Principal Balances of all Classes of Notes relative to the
amortization of the Loans, thereby increasing the Overcollateralization Amount.
The relative percentage of the
44
aggregate of the Class Principal Balances of the Classes of Notes to the sum of
the Pool Principal Balance and Pre-Funded Amount will decrease as a result of
the application of Excess Spread to reduce such Class Principal Balances.
On any Distribution Date (i) prior to the termination of the Spread
Deferral Period or (ii) with respect to which the Overcollateralization
Deficiency Amount is equal to zero, all or a portion of the Excess Spread may be
distributed to the holders of the Residual Interests rather than as principal to
the holders of the Notes, thereby ceasing the acceleration of principal
amortization of the Notes in relation to the principal amortization of the
Loans, until such time as the Overcollateralization Deficiency Amount is greater
than zero (i.e., due to a reduction in the Overcollateralization Amount as a
result of Net Loan Losses or delinquencies or due to an increase in the
Overcollateralization Target Amount as a result of the failure to satisfy
certain delinquency criteria).
While the application of Excess Spread in the manner specified above has
been designed to produce and maintain a given level of overcollateralization,
there can be no assurance that Excess Spread will be generated in sufficient
amounts to ensure that such overcollateralization level will be achieved or
maintained at all times. In particular, a high rate of delinquencies on the
Loans during any Due Period could cause the amount of interest received on the
Loans during such Due Period to be less than the amount of interest
distributable on the Notes on the related Distribution Date. In such a case, the
Class Principal Balances of the Classes of Notes would decrease at a slower rate
relative to the Pool Principal Balance, resulting in a reduction of the
Overcollateralization Amount and, in some circumstances, an Allocable Loss
Amount. In addition, Net Loan Losses will reduce the Overcollateralization
Amount to zero before Allocable Loss Amounts are applied in reduction of the
Class Principal Balances of certain Classes of Notes. See "Risk
Factors--Adequacy of Credit Enhancement" herein.
DESCRIPTION OF THE NOTES
General
The _______________ Trust ________ (the "Trust") will issue ________
Classes of Asset Backed Notes (collectively, the "Notes") having the
designations and aggregate initial principal amounts specified on the cover
hereof pursuant to an Indenture to be dated as of _______________ (the
"Indenture"), between the Trust and the Indenture Trustee. The Trust will also
issue instruments representing the residual interest (each a "Residual
Interest") in the Trust pursuant to the terms of a Trust Agreement dated as of
_____________ (the "Trust Agreement"), among the Depositor, the Co-Owner Trustee
and the Owner Trustee. The Notes are secured by the assets of the Trust pursuant
to the Indenture.
The Notes offered hereby will be issued pursuant to the terms of the
Indenture. The following summary describes certain terms of the Notes and the
Indenture. It does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Notes and
the Indenture.
Beneficial ownership interests in each Class of Notes will be held in
minimum denominations of $_________ and integral multiples of $1,000 in excess
thereof in book-entry form only. Persons acquiring beneficial interests in the
Notes will hold their interests through DTC.
Book-Entry Registration
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to Section 17A of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). DTC accepts securities for deposit
from its participating organizations Participants") and facilitates the
clearance and settlement of transactions in such securities between Participants
through electronic book-entry changes in accounts of its Participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants").
Noteholders which are not Participants or Indirect Participants but desire
to purchase, sell or otherwise transfer ownership of Notes may do so only
through Participants or Indirect Participants (unless and until Definitive
Securities (as defined herein) are issued). In addition, Noteholders will
receive all distributions of principal and interest on the Notes through DTC and
its Participants. Under a book-entry format, Noteholders may experience some
delay in their receipt of payments, since such payments will be forwarded by the
Indenture Trustee to Cede & Co. ("Cede"), as nominee for DTC. DTC will forward
such payments to its Participants which thereafter will forward them to Indirect
Participants or Noteholders. Noteholders will not be recognized by the Indenture
Trustee as Noteholders, as such term will be used in the Indenture, and
Noteholders will only be permitted to exercise the rights of Noteholders
indirectly through DTC and its Participants. Noteholders will not receive or be
45
entitled to receive Definitive Securities representing their respective
interests in the Notes, except under the limited circumstances described below.
While the Notes are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC will be required to make book-entry
transfers among Participants on whose behalf it acts with respect to the Notes
and will be required to receive and transmit distributions of principal and
interest on the Notes. Participants and Indirect Participants with which
Noteholders have accounts with respect to the Notes will similarly be required
to make book-entry transfers and receive and transmit such payments on behalf of
their respective Noteholders.
Because DTC can only act on behalf of Participants, which in turn act on
behalf of Indirect Participants, the ability of a Noteholder to pledge Notes to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such Notes, may be limited due to the lack of physical
certificates for such Notes.
Unless and until Definitive Securities are issued, Noteholders which are
not Participants may transfer ownership of Notes only through Participants by
instructing such Participants to transfer such Notes, by book-entry transfer,
through DTC for the account of the purchasers of such Notes, which account is
maintained with their respective Participants. Under the Rules and in accordance
with DTC's normal procedures, transfer of ownership of Notes will be executed
through DTC and the accounts of the respective Participants at DTC will be
debited and credited. Similarly, the respective Participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Noteholders.
DTC has advised the Issuer and the Indenture Trustee that, unless and until
Definitive Securities are issued, DTC will take any action permitted to be taken
by a Noteholder under the Indenture only at the direction of one or more
Participants to whose DTC accounts the Notes are credited. DTC may take
conflicting actions with respect to different undivided interests as a result of
different directions from Participants whose holdings include such undivided
interests.
Neither the Issuer nor the Indenture Trustee will have any liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests of the Notes held by Cede, as nominee for DTC, or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
Definitive Securities
Under certain circumstances set forth in the Indenture, the Notes will be
issued in fully registered, certificated form ("Definitive Securities") to the
Noteholders of a given series or their nominees, rather than to DTC or its
nominee, only if (i) the Servicer, in respect of the Notes, advises the
Indenture Trustee in writing that DTC is no longer willing or able to discharge
properly its responsibilities as depository with respect to such Notes, and the
Servicer is unable to locate a qualified successor, (ii) the Servicer, at its
option advises the Indenture Trustee in writing that it elects to terminate the
book-entry system through DTC or (iii) after the occurrence of an Event of
Default under the Indenture Noteholders representing beneficial interests
aggregating at least a majority of the outstanding amount of the Notes advise
the DTC in writing that the continuation of the book-entry system through DTC
(or a successor thereto) is no longer in the best interests of the Noteholders.
Upon the occurrence of any event described in the immediately preceding
paragraph, DTC will be required to notify all Noteholders and the Indenture
Trustee of the availability of Definitive Notes. Upon surrender to the Indenture
Trustee of the typewritten Notes representing book-entry Notes and receipt of
instructions for registration, the Issuer shall execute and the Indenture
Trustee shall authenticate the Definitive Notes in accordance with the
instructions of DTC.
Distributions of principal of, and interest on, such Notes will thereafter
be made by the Indenture Trustee in accordance with the procedures set forth in
the Indenture directly to Noteholders in whose names the Definitive Notes were
registered at the close of business on the applicable Record Date specified for
such Notes.
Distributions on the Notes
For the definitions of certain of the defined terms used in the following
subsections, See "--Related Definitions" below.
On the 25th day of each month or, if such day is not a Business Day, the
first Business Day immediately following, commencing in ______________ (each
such date, a "Distribution Date"), the Indenture Trustee or its designee will
distribute to the persons in whose names the Notes are registered on the related
Record Date the portion of the aggregate distribution to be made to each
Noteholder as described below. The "Record Date" with respect to any
Distribution Date shall be the close of business on the last Business Day of the
month preceding the month in which such Distribution Date occurs. Prior to any
46
termination of the book-entry provisions, distributions on the book-entry Notes
will be made to beneficial owners of interests therein only through DTC and its
Participants. See "Description of the Notes--Book-Entry Registration" herein.
Available Collection Amount. Distributions on the Notes on each
Distribution Date will be made from the Available Collection Amount. The
Servicer will calculate the Available Collection Amount on the fourteenth
calendar day of each month or, if such day is not a Business Day, then the
immediately preceding Business Day (each such day, a "Determination Date"). With
respect to each Distribution Date, the "Available Collection Amount" is the sum
of (i) all amounts received on the Loans or required to be paid by __________ or
the Depositor during the related Due Period (exclusive of such amounts not
required to be deposited by the Servicer in the Collection Account and amounts
permitted to be withdrawn by the Indenture Trustee from the Collection Account)
as reduced by any portion thereof that may not be withdrawn therefrom pursuant
to an order of a United States bankruptcy court of competent jurisdiction
imposing a stay pursuant to Section 362 of the United States Bankruptcy Code;
(ii) with respect to the final Distribution Date for the Class B Notes or an
early redemption or termination of the Notes pursuant to the Sale and Servicing
Agreement, the Termination Price; (iii) the Purchase Price paid for any Loans
required to be purchased and the Substitution Adjustment to be deposited to the
Collection Account in connection with any substitution, in each case prior to
the related Determination Date; and (iv) the Capitalized Interest Requirement
(as defined herein), if any, with respect to such Distribution Date.
Distributions of Interest. Interest on the Class Principal Balance of each
Class of Notes will accrue thereon at the applicable Note Interest Rate, and
will be payable to the holders of such Class of Notes monthly on each
Distribution Date, commencing in ___________. Interest on each Class of Notes
will be calculated on the basis of a 360-day year of twelve 30-day months.
With respect to any Distribution Date, interest distributions on the Notes
will be made from the Available Collection Amount (plus, if applicable, the
amount, if any, of Pre-Funding Earnings and, on the Distribution Date relating
to the Due Period in which the termination of the Pre-Funding Period occurred,
the amount on deposit in the Pre-Funding Account at such time) net of the Trust
Fees and Expenses (the "Available Distribution Amount"). Interest payments will
be made, first, to the Classes of Senior Notes, pro rata, based on the amount of
interest distributable in respect of each such Class calculated at the related
Note Interest Rate, second, to the Classes of Mezzanine Notes, sequentially, in
the order of their numerical Class designation, and then to the Class B Notes.
Under certain circumstances, the amount available for interest payments could be
less than the amount of interest payable on all Classes of Notes on any
Distribution Date. In such event, each affected Class will receive its ratable
share (based upon the aggregate amount of interest due to such Class) of the
remaining amount available to be distributed as interest after the payment of
all interest due on each Class having a higher interest payment priority. In
addition, any such interest deficiency will be carried forward as a Noteholders'
Interest Carry-Forward Amount (as defined herein) for such Class and will be
distributed to holders of each such Class of Notes on subsequent Distribution
Dates to the extent that sufficient funds are available. Any such interest
deficiency could occur, for example, if delinquencies or losses realized on the
Loans were exceptionally high or were concentrated in a particular month. No
interest will accrue on any Noteholders' Interest Carry-Forward Amount for any
Class.
Distributions of Principal. Principal distributions will be made to the
holders of the Notes on each Distribution Date in an amount generally equal to
the sum of (i) the Regular Principal Distribution Amount (less, in certain
circumstances, the excess of the Overcollateralization Amount over the
Overcollateralization Target Amount) and (ii) to the extent of the
Overcollateralization Deficiency Amount, any Excess Spread for such Distribution
Date.
A. On each Distribution Date, the Regular Distribution Amount will be
distributed in the following order of priority:
Distribution Priorities.
(i) to the holders of the Senior Notes, the Senior Noteholders'
Interest Distributable Amount for such Distribution Date allocated to each Class
of Senior Notes, pro rata, based on the amount of interest distributable in
respect of each such Class calculated at the related Note Interest Rate;
(ii) sequentially, to the holders of the Class M-1 and Class M-2
Notes, in that order, the Class M-1 Noteholders' Interest Distributable Amount
and the Class M-2 Noteholders' Interest Distributable Amount, respectively, for
such Distribution Date;
(iii) to the holders of the Class B Notes, the Class B Noteholders'
Interest Distributable Amount for such Distribution Date;
(iv) if with respect to such Distribution Date the Pre-Funding Pro
Rata Distribution Trigger has occurred, the amount on deposit in the Pre-Funding
Account at the end of the Pre-Funding Period will be distributed as principal
47
to all Classes of Notes and the Residual Interests (which initially represent
the Overcollateralization Amount on the Closing Date), pro rata, based on the
Original Class Principal Balances thereof and the Residual Interests in relation
to the sum of the Original Pool Principal Balance and the Original Pre-Funded
Amount;
(v) to the holders of the Class A-1, Class A-2, Class A-3 and Class
A-4 Notes, in that order, until the respective Class Principal Balances thereof
are reduced to zero, in an amount necessary to reduce the aggregate Class
Principal Balance of the Senior Notes to the Senior Optimal Principal Balance
for such Distribution Date,
(vi) sequentially, to the holders of the Class M-1 and Class M-2
Notes, in that order, in an amount necessary to reduce the Class Principal
Balances thereof to the Class M-1 Optimal Principal Balance and the Class M-2
Optimal Principal Balance, respectively, for such Distribution Date;
(vii) to the holders of the Class B Notes, in an amount necessary to
reduce the Class Principal Balance thereof to zero;
(viii) sequentially, to the Class M-1, Class M-2 and Class B Notes, in
that order, until their respective Loss Reimbursement Deficiencies have been
paid in full; and
(ix) any remaining amount to the holders of the Residual Interests.
B. On each Distribution Date, the Indenture Trustee shall distribute the
Excess Spread, if any, in the following order of priority (in each
case after giving effect to all payments specified in paragraph A.
above):
(i) prior to the termination of the Spread Deferral Period, to the
Certificate Distribution Account for distribution to the holders of the Residual
Interests;
(ii) upon the termination of the Spread Deferred Period, (A) in an
amount equal to the Overcollateralization Deficiency Amount, if any, as follows:
(1) to the holders of the Class A-1, Class A-2, Class A-3 and Class
A-4 Notes, in that order, until the respective Class Principal Balances thereof
are reduced to zero, in an amount necessary to reduce the aggregate Class
Principal Balance of the Senior Notes to the Senior Optimal Principal Balance
for such Distribution Date;
(2) sequentially, to the holders of the Class M-1 and Class M-2 Notes,
in that order, until the respective Class Principal Balances thereof have been
reduced to the Class M-1 Optimal Principal Balance and Class M-2 Optimal
Principal Balance, respectively, for such Distribution Date; and
(3) to the holders of the Class B Notes until the Class Principal Balance
thereof has been reduced to zero; and
C. sequentially, to the Class M-1, Class M-2 and Class B Notes, in that
order, until their respective Loss Reimbursement Deficiencies, if any,
have been paid in full; and
D. any remaining amount to the holders of the Residual Interests.
Notwithstanding the priorities specified above, on any Distribution Date as
to which the Class Principal Balances of each of the Class M-1, Class M-2 and
Class B Notes and the Overcollateralization Amount have been reduced to zero,
distributions of principal on the Classes of Senior Notes on such Distribution
Date will be applied to such Classes pro rata based on their respective Class
Principal Balances.
Related Definitions
For purposes hereof, the following terms shall have the following meanings:
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a day
on which banking institutions in New York City or in the city in which the
corporate trust office of the Indenture Trustee is located are authorized or
obligated by law or executive order to be closed.
48
Class A Excess Spread Distribution Amount: With respect to any Distribution
Date, the least of (i) the excess of (x) the Class Principal Balance of all
Senior Notes (after giving effect to all distributions of the Regular
Distribution Amount) over (y) the Senior Optimal Principal Balance for such
Distribution Date, (ii) the Overcollateralization Deficiency Amount for such
Distribution Date, and (iii) the Excess Spread for such Distribution Date.
Class A Principal Distribution Amount: With respect to any Distribution
Date, the lesser of (i) the Regular Principal Distribution Amount and (ii) the
excess of (x) the aggregate Class Principal Balance of all Senior Notes (prior
to giving effect to distributions on such Distribution Date, other than any
distributions in respect of the Pre-Funded Amount on the Distribution Date on
which a Pre-Funding Pro Rata Distribution Trigger has occurred) over (y) the
Senior Optimal Principal Balance for such Distribution Date.
Class B Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and the Class B Notes, the excess of (A) the Class B
Noteholders' Monthly Interest Distributable Amount for the preceding
Distribution Date and any outstanding Class B Noteholders' Interest
Carry-Forward Amount for such preceding Distribution Date over (B) the amount in
respect of interest that is actually distributed to such Notes on such preceding
Distribution Date.
Class B Noteholders' Interest Distributable Amount: With respect to any
Distribution Date and the Class B Notes, the sum of the Class B Noteholders'
Monthly Interest Distributable Amount for such Distribution Date and the Class B
Noteholders' Interest Carry-Forward Amount for such Distribution Date.
Class B Noteholders' Monthly Interest Distributable Amount: With respect to
each Distribution Date and the Class B Notes, the aggregate amount of interest
accrued during the related Interest Period at the Class B Note Interest Rate on
the sum of (i) the Class Principal Balance of the Class B Notes immediately
preceding such Distribution Date and (ii) any Class B Noteholders' Interest
Carry-Forward Amount remaining outstanding for such Distribution Date.
Class M-1 Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and the Class M-1 Notes, the excess of (A) the Class M-1
Noteholders' Monthly interest Distributable Amount for the preceding
Distribution Date and any outstanding Class M-1 Noteholders' Interest
Carry-Forward Amount for such preceding Distribution Date over (B) the amount in
respect of interest that is actually distributed to such Notes on such preceding
Distribution Date.
Class M-1 Noteholders' Interest Distributable Amount: With respect to any
Distribution Date and the Class M-1 Notes, the sum of the Class M-1 Noteholders'
Monthly Interest Distributable Amount for such Distribution Date and the Class
M-1 Noteholders' Interest Carry-Forward Amount for such Distribution Date.
Class M-1 Noteholders' Monthly Interest Distributable Amount: With respect
to each Distribution Date and the Class M-1 Notes, the aggregate amount of
interest accrued during the related Interest Period at the Class M-1 Note
Interest Rate on the sum of (i) the Class Principal Balance of the Class M-1
Notes immediately preceding such Distribution Date and (ii) any Class M-1
Noteholders' Interest Carry-Forward Amount remaining outstanding for such
Distribution Date.
Class M-1 Optimal Principal Balance: With respect to any Distribution Date
prior to the Stepdown Date, zero; and with respect to any other Distribution
Date, the Pool Principal Balance as of the preceding Determination Date minus
the sum of (i) the aggregate Class Principal Balance of the Senior Notes (after
taking into account distributions made on such Distribution Date in reduction of
the Class Principal Balances of the Classes of Senior Notes made prior to such
determination) and (ii) the greater of (x) the sum of (1) ___% of the Pool
Principal Balance as of the preceding Determination Date and (2) the
Overcollateralization Target Amount for such Distribution Date (calculated
without giving effect to the proviso in the definition thereof) and (y) ____% of
the Maximum Collateral Amount; provided, however, that the Class M-1 Optimal
Principal Balance shall never be less than zero or greater than the Original
Class Principal Balance of the Class M-1 Notes.
Class M-2 Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and the Class M-2 Notes, the excess of (A) the Class M-2
Noteholders' Monthly Interest Distributable Amount for the preceding
Distribution Date and any outstanding Class M-2 Noteholders' Interest
Carry-Forward Amount for such preceding Distribution Date over (B) the amount in
respect of interest that is actually distributed to such Notes on such preceding
Distribution Date.
Class M-2 Noteholders' Interest Distributable Amount: With respect to any
Distribution Date and the Class M-2 Notes, the sum of the Class M-2 Noteholders'
Monthly Interest Distributable Amount for such Distribution Date and the Class
M-2 Noteholders' Interest Carry-Forward Amount for such Distribution Date.
Class M-2 Noteholders' Monthly Interest Distributable Amount: With respect
to each Distribution Date (other than the first Distribution Date) and the Class
M-2 Notes, the aggregate amount of interest accrued during the related Interest
Period at the Class M-2 Note Interest Rate on the sum of (i) the Class Principal
Balance of the Class M-2 Notes immediately preceding such
49
Distribution Date and (ii) any Class M-2 Noteholders' Interest Carry-Forward
Amount remaining outstanding for such Distribution Date.
Class M-2 Optimal Principal Balance: With respect to any Distribution Date
prior to the Stepdown Date, zero; and with respect to any other Distribution
Date, the Pool Principal Balance as of the preceding Determination Date minus
the sum of (i) the aggregate Class Principal Balance of the Senior Notes (after
taking into account any distributions made on such Distribution Date in
reduction of the Class Principal Balances of the Classes of Senior Notes made
prior to such determination) plus the Class Principal Balance of the Class M-1
Notes (after taking into account any distributions made on such Distribution
Date in reduction of the Class Principal Balance of the Class M-1 Notes prior to
such determination) and (ii) the greater of (x) the sum of (1) ___% of the Pool
Principal Balance as of the preceding Determination Date and (2) the
Overcollateralization Target Amount for such Distribution Date (without giving
effect to the proviso in the definition thereof) and (y) ______% of the Maximum
Collateral Amount; provided, however, that the Class M-2 Optimal Principal
Balance shall never be less than zero or greater than the Original Class
Principal Balance of the Class M-2 Notes.
Excess Spread: With respect to any Distribution Date, the excess of (a) the
Available Distribution Amount over (b) the Regular Distribution Amount.
Insurance Proceeds: With respect to any Loan, the proceeds paid to the
Servicer by any insurer pursuant to any insurance policy covering a Loan,
Mortgaged Property or REO Property or any other insurance policy that relates to
a Loan, net of any expenses which are incurred by the Servicer in connection
with the collection of such proceeds and not otherwise reimbursed to the
Servicer, but excluding the proceeds of any insurance policy that are to be
applied to the restoration or repair of the Mortgaged Property or released to
the borrower in accordance with accepted loan servicing procedures.
Interest Period: With respect to any Distribution Date and each Class of
Notes, the calendar month preceding the month of such Distribution Date based on
a 360-day year consisting of twelve 30-day months.
Liquidated Loan: With respect to any date of determination and any Loan as
to which the Servicer has determined that all recoverable liquidation and
insurance proceeds have been received, which will be deemed to occur upon the
earliest of: (a) the liquidation of the related Mortgaged Property acquired
through foreclosure or similar proceedings, (b) the Servicer's determination in
accordance with customary accepted practices that no further amounts are
collectible from the Loan and (c) any portion of a scheduled monthly payment of
principal and interest is past due in excess of 180 days.
Loss Reimbursement Deficiency: As of any date of determination and as to
the Class M-1 Notes, Class M-2 Notes or Class B Notes, the amount of Allocable
Loss Amounts, together with interest thereon, applied to the reduction of the
Class Principal Balance of such Class and not reimbursed pursuant to the Sale
and Servicing Agreement.
Net Delinquency Calculation Amount: With respect to any Distribution Date,
the excess, if any, of (x) the product of 2.5 and the Six-Month Rolling
Delinquency Average over (y) the aggregate of the amounts of Excess Spread for
the three preceding Distribution Dates.
Net Liquidation Proceeds: With respect to any Distribution Date, any cash
amounts received from Liquidated Loans during the related Due Period, whether
through trustee's sale, foreclosure sale, disposition of Mortgaged Properties or
otherwise (other than Insurance Proceeds and Released Mortgaged Property
Proceeds), and any other cash amounts received in connection with the management
of the Mortgaged Properties related to Defaulted Loans, in each case, net of any
reimbursements made to the Servicer from such amounts for any unreimbursed
Servicing Compensation and Servicing Advances (including nonrecoverable
Servicing Advances) made and any other fees and expenses paid by the Servicer in
connection with the foreclosure, conservation and liquidation of the related
Liquidated Loans or Mortgaged Properties pursuant to the Sale and Servicing
Agreement.
Note Interest Rate: With respect to each Class of Notes, the interest rate
per annum set forth or described below:
Class A-1: ________%
Class A-2: ________%
Class A-3: ________%
Class A-4: ________%
Class M-1: ________%
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Class M-2: ________%
Class B: ________%
Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date, any of the Senior Noteholders' Interest Carry-Forward Amount,
the Class M-1 Interest Carry-Forward Amount, the Class M-2 Interest
Carry-Forward Amount or the Class B Interest Carry-Forward Amount.
Noteholders' Interest Distributable Amount: With respect to any
Distribution Date, the sum of the Senior Noteholders' Interest Distributable
Amount, the Class M-1 Interest Distributable Amount, the Class M-2 Interest
Distributable Amount and the Class B Interest Distributable Amount.
Overcollateralization Amount: With respect to any Distribution Date, the
amount equal to the excess of (a) the sum of the Pool Principal Balance as of
the end of the immediately preceding Due Period and the Pre-Funded Amount as of
such Distribution Date over (b) the aggregate of the Class Principal Balances of
the Classes of Notes (after giving effect to distributions on the Notes and the
Residual Interests on such Distribution Date).
Overcollateralization Deficiency Amount: With respect to any date of
determination, the excess, if any, of the Overcollateralization Target Amount
over the Overcollateralization Amount (such Overcollateralization Amount to be
calculated after giving effect to all payments of the Regular Distribution
Amount on the Notes and the Residual Interests on such Distribution Date).
Overcollateralization Target Amount: (A) With respect to any Distribution
Date occurring prior to the Stepdown Date, an amount equal to the greater of (x)
______% of the Maximum Collateral Amount and (y) the Net Delinquency
Calculation; and (B) with respect to any other Distribution Date, an amount
equal to the greater of (x) 14% of the Pool Principal Balance as of the end of
the related Due Period and (y) the Net Delinquency Calculation Amount; provided,
however, that the Overcollateralization Target Amount shall in no event be less
than _____% of the Maximum Collateral Amount.
Regular Distribution Amount: With respect to any Distribution Date, the
lesser of (a) the Available Distribution Amount and (b) the sum of (i) the
aggregate of the Noteholders' Interest Distributable Amounts, (ii) the Regular
Principal Distribution Amount and (iii) if such Distribution Date relates to the
Due Period in which the Pre-Funding Period ended and at the termination of such
Pre-Funding Period a Pre-Funding Pro Rata Distribution Trigger had occurred, the
amount on deposit in the Pre-Funding Account on such date.
Regular Principal Distribution Amount: On each Distribution Date, an amount
equal to the lesser of:
A. the sum of (i) each payment of principal collected by the Servicer
during the related Due Period, (ii) all partial and full principal prepayments
applied by the Servicer during such related Due Period, (iii) the principal
portion of all Net Liquidation Proceeds, Insurance Proceeds and Released
Mortgaged Property Proceeds received during the related Due Period, (iv) that
portion of the purchase price of any repurchased Loan which represents
principal, (v) the principal portion of any Substitution Adjustments required to
be deposited in the Collection Account as of the related Determination Date,
(vi) on the Distribution Date in which the Trust is to be terminated pursuant to
the Sale and Servicing Agreement, that portion of the Termination Price to be
applied to the payment of principal of the Notes and (v) if such Distribution
Date relates to the Due Period in which the Pre-Funding Period ended and at the
termination of such Pre-Funding Period a Pre-Funding Pro Rata Distribution
Trigger had not occurred, the amount on deposit in the Pre-Funding Account on
such date; and
B. the aggregate of the Class Principal Balances of the Classes of Notes
immediately prior to such Distribution Date.
Released Mortgaged Property Proceeds: With respect to any Distribution
Date, the proceeds received by the Servicer in connection with (i) a taking of
an entire Mortgaged Property by exercise of the power of eminent domain or
condemnation or (ii) any release of part of the Mortgaged Property from the lien
of the related Mortgage, whether by partial condemnation, sale or otherwise,
which in either case are not released to the related borrower in accordance with
applicable law, accepted mortgage servicing procedures and the Sale and
Servicing Agreement.
Senior Noteholders' Interest Carry-Forward Amount: With respect to any
Distribution Date and the Senior Notes, the excess of (A) the Senior
Noteholders' Monthly Interest Distributable Amount for the preceding
Distribution Date and any outstanding Senior Noteholders' Interest Carry-Forward
Amount for such preceding Distribution Date over (B) the amount in respect of
interest that is actually distributed to such Notes on such preceding
Distribution Date.
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Senior Noteholders' Interest Distributable Amount: With respect to any
Distribution Date and the Senior Notes, the sum of the Senior Noteholders'
Monthly Interest Distributable Amount for such Distribution Date and the Senior
Noteholders' Interest Carry-Forward Amount for such Distribution Date.
Senior Noteholders' Monthly Interest Distributable Amount: With respect to
each Distribution Date and the Classes of Senior Notes, the aggregate amount of
interest accrued during the related Interest Period at the respective Note
Interest Rates on the sum of (i) the Class Principal Balance of the Classes of
Senior Notes immediately preceding such Distribution Date and (ii) any Senior
Noteholders' Interest Carry-Forward Amount remaining outstanding for such
Distribution Date.
Senior Optimal Principal Balance: With respect to any Distribution Date
prior to the Stepdown Date, zero; with respect to any other Distribution Date,
an amount equal to the Pool Principal Balance as of the preceding Determination
Date minus the greater of (a) the sum of (1) _____% of the Pool Principal
Balance as of the preceding Determination Date and (2) the Overcollateralization
Target Amount for such Distribution Date (without giving effect to the proviso
in the definition thereof) and (b) ______% of the Maximum Collateral Amount;
provided, however, that the Senior Optimal Principal Balance shall never be less
than zero or greater than aggregate Class Principal Balance of the Senior Notes
as of the Closing Date.
Six-Month Rolling Delinquency Average: With respect to any Distribution
Date, the average of the applicable 60-Day Delinquency Amounts for each of the
six immediately preceding Due Periods, where the 60-Day Delinquency Amount for
any Due Period is the aggregate of the Principal Balances of all Loans that are
60 or more days delinquent, in foreclosure or REO Property as of the end of such
Due Period.
Spread Deferral Period: The period beginning on the Closing Date and ending
as soon as Excess Spread in an amount equal to $______ has been deposited in the
Certificate Distribution Account for distribution to the holders of the Residual
Interests.
Stepdown Date: The first Distribution Date occurring after __________ as to
which all of the following conditions exist:
(1) the Pool Principal Balance has been reduced to an amount less than or
equal to ____% of the Maximum Collateral Amount;
(2) the Net Delinquency Calculation Amount is less than ____% of the
Maximum Collateral Amount; and
(3) the aggregate Class Principal Balance of the Senior Notes (after giving
effect to distributions of principal on such Distribution Date) will be able to
be reduced on such Distribution Date (such determination to be made by the
Indenture Trustee prior to making actual distributions on such Distribution
Date) to an amount equal to the excess of (i) the Pool Principal Balance as of
the preceding Determination Date over (ii) the greater of (a) the sum of (1)
_____% of the Pool Principal Balance as of the preceding Determination Date and
(2) the Overcollateralization Target Amount for such Distribution Date (such
Overcollateralization Target Amount calculated without giving effect to the
proviso in the definition thereof and calculated pursuant only to clause (B) in
the definition thereof) and (b) _____% of the Maximum Collateral Amount.
Application of Allocable Loss Amounts
Following any reduction of the Overcollateralization Amount to zero, any
Allocable Loss Amounts will be applied, sequentially, in reduction of the Class
Principal Balances of the Class B, Class M-2 and Class M-1 Notes, in that order,
until their respective Class Principal Balances have been reduced to zero. The
Class Principal Balances of the Classes of Senior Notes will not be reduced by
any application of Allocable Loss Amounts. The reduction of the Class Principal
Balance of any applicable Class of Notes by the application of Allocable Loss
Amounts entitles such Class to reimbursement in an amount equal to the Loss
Reimbursement Deficiency. Each such Class of Notes will be entitled to receive
its Loss Reimbursement Deficiency, or any portion thereof, in accordance with
the payment priorities specified herein. Payment in respect of Loss
Reimbursement Deficiencies will not reduce the Class Principal Balance of each
related Class. The Loss Reimbursement Deficiency with respect to any Class will
remain outstanding until the earlier of (x) the payment in full of such amount
to the holders of such Class and (y) the occurrence of the applicable Final
Maturity Date (although there is no guarantee that such amounts will be paid on
such date).
Pre-Funding Account
On the Closing Date, $_________ (as adjusted pursuant to the immediately
following sentence, the "Original Pre-Funded Amount") will be deposited in an
account (the "Pre-Funding Account"), which account will be in the name of the
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Indenture Trustee and shall be part of the Trust and be used to acquire
Subsequent Loans. To the extent that the Original Pool Principal Balance is more
or less than $_________, the Original Pre-Funded Amount will be decreased or
increased by a corresponding amount provided that the amount of any such
adjustment shall not exceed $_________. During the Pre-Funding Period, the
amount on deposit in the Pre-Funding Account (net of investment earnings
thereon) (the "Pre-Funded Amount") will be reduced by the amount thereof used to
purchase Subsequent Loans in accordance with the Sale and Servicing Agreement.
The "Pre-Funding Period" is the period commencing on the Closing Date and ending
generally on the earlier to occur of (i) the date on which the amount on deposit
in the Pre-Funding Account (net of any investment earnings thereon) is less than
$________ and (ii) _________. On the Distribution Date following the Due Period
in which the termination of the Pre-Funding Period occurs, if the Pre-Funded
Amount at the end of the Pre-Funding Period is less than $__________, any such
Pre-Funded Amount will be distributed to holders of the Classes of Notes then
entitled to receive principal on such Distribution Date in reduction of the
related Class Principal Balances, thus resulting in a partial redemption of the
related Notes on such date. On the Distribution Date following the Due Period in
which the termination of the Pre-Funding Period occurs, if the Pre-Funded Amount
at the end of the Pre-Funding Period is greater than or equal to $__________
(such event, a "Pre-Funding Pro Rata Distribution Trigger"), such Pre-Funded
Amount will be distributed to the holders of all Classes of Notes and the
Residual Interests (which initially represent the Overcollateralization Amount
on the Closing Date), pro rata, based on the Original Class Principal Balances
thereof and the Residual Interests in relation to the sum of the Original Pool
Principal Balance and the Original Pre-Funded Amount.
Amounts on deposit in the Pre-Funding Account will be invested in eligible
investments. All interest and any other investment earnings on amounts on
deposit in the Pre-Funding Account will be deposited in the Note Distribution
Account.
Capitalized Interest Account
On the Closing Date, a portion of the sales proceeds of the Notes will be
deposited in an account (the "Capitalized Interest Account") for application by
the Indenture Trustee on the Distribution Dates in ___________, _____________
and __________________1997 to cover shortfalls in interest on the Notes that may
arise due to the utilization of the Pre-Funding Account as described herein. Any
amounts remaining in the Capitalized Interest Account at the end of the
Pre-Funding Period will be paid to ______.
Optional Termination of the Trust
The holders of an aggregate percentage interest in the Residual Interests
in excess of ___% (the "Majority Residual Interestholders") may, at their
option, effect an early termination of the Trust on or after any Distribution
Date on which the Pool Principal Balance declines to ____% or less of the
Maximum Collateral Amount, by purchasing all of the Loans at a price equal to or
greater than the Termination Price. The "Termination Price" shall be an amount
equal to the sum of (i) the then outstanding Principal Balances of the Loans
plus all accrued and unpaid interest thereon, (ii) any Trust Fees and Expenses
due and unpaid on such date and (iii) any unreimbursed Servicing Advances
including such Servicing Advances deemed to be nonrecoverable. The proceeds from
such sale will be distributed in the order and priority set forth above under
"Distribution Priorities".
DESCRIPTION OF THE TRANSFER AND SERVICING AGREEMENTS
The following summary describes certain terms of the Indenture, the Sale
and Servicing Agreement, the Administration Agreement, the Custodial Agreement
and the Trust Agreement (collectively, the "Transfer and Servicing Agreements").
Forms of certain of the Transfer and Servicing Agreements have been filed as
exhibits to the Registration Statement. Copies of the Transfer and Servicing
Agreements will be filed with the Commission following the issuance of the
Notes. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all the provisions of the Transfer
and Servicing Agreements. The following summary supplements, and to the extent
inconsistent therewith replaces, the description of the general terms and
provisions of the Transfer and Servicing Agreements set forth under the headings
"The Agreements" in the Prospectus, to which description reference is hereby
made.
Sale and Assignment of the Loans
On the Closing Date, the Depositor will sell, convey, transfer and assign
the Initial Loans to the Trust. The Trust, concurrently with the sale,
conveyance, transfer and assignment of the Initial Loans, will deliver (or cause
to be delivered) to the Depositor the Notes in exchange for the Loans. The Trust
will pledge and assign the Loans (including any rights it may acquire from time
to time in the Subsequent Loans) to the Indenture Trustee in exchange for the
Notes. Each Loan will be identified in a schedule appearing as an exhibit to the
Sale and Servicing Agreement delivered to the Indenture Trustee as such Schedule
may from time to time be amended (the "Loan Schedule").
In addition, the Depositor will deliver (or cause to be delivered), as to
each Loan, to the Indenture Trustee or to the Custodian, the related Note
endorsed in blank or to the order of the Indenture Trustee, without recourse,
any assumption and modification agreements and the Mortgage with evidence of
recording indicated thereon (except for any Mortgage not returned
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from the public recording office), an assignment of the Mortgage in blank or in
the name of the Indenture Trustee, in recordable form, and any intervening
assignments of the Mortgage (collectively, as to each Loan, an "Indenture
Trustee's Loan File"). Subject to confirmation by the Rating Agencies, with
respect to Loan secured by Mortgaged Properties located in certain states where
______ has been advised by counsel that recordation of an assignment of mortgage
is not necessary in order to perfect an interest in a Loan, assignments of
Mortgage will not be filed to reflect the transfer of the Loans to the Trust and
the pledge of the Loans to Indenture Trustee. Rather, ______ in its capacity as
the Servicer will retain record title to such mortgages on behalf of the
Indenture Trustee and the Noteholders. See "Risk Factors--Additional Factors
Affecting Delinquencies, Defaults and Losses on Loans--Non-recordation of
Assignments". In all other cases, assignments to the Indenture Trustee of the
Mortgages will be recorded in order to protect the Trust and the Indenture
Trustee's interest in the Loans against the claims of certain creditors of
______ or subsequent purchasers. ______ will deliver or cause to be delivered to
the Indenture Trustee after recordation the assignments of the Mortgages and the
Mortgages. In the event that ______ cannot deliver the Mortgage or any
assignment with evidence of recording thereon concurrently with the conveyance
thereof under the Sale and Servicing Agreement because it has or they have not
yet been returned by the public recording office or because such office retains
the original thereof, then ______ will deliver or cause to be delivered to the
Indenture Trustee or the Custodian a certified true photocopy of such Mortgage
or assignment. ______ will deliver or cause to be delivered to the Indenture
Trustee or the Custodian any such Mortgage or assignment with evidence of
recording indicated thereon upon receipt thereof from the public recording
office. The Indenture Trustee or the Custodian will agree, for the benefit of
the holders of the Notes, to review (or cause to be reviewed) each Indenture
Trustee's Loan File within 30 days after the conveyance of the related Loan to
the Trust to ascertain that all required documents have been executed and
received, subject to the applicable cure period in the Transfer and Servicing
Agreements.
Trust Fees and Expenses
As compensation for its services pursuant to the Sale and Servicing
Agreement, the Servicer is entitled to the Servicing Fee and additional
servicing compensation and reimbursement as described under "Servicing" below.
As compensation for their services pursuant to the applicable Transfer and
Servicing Agreements, the Indenture Trustee is entitled to the Indenture Trustee
Fee and the Owner Trustee is entitled to the Owner Trustee Fee.
Servicing
In consideration for the performance of the daily loan servicing functions
for the Loans, the Servicer is entitled to a monthly fee (the "Servicing Fee")
equal to 1.00% (100 basis points) per annum (the "Servicing Fee Rate") of the
Pool Principal Balance as of the first day of the immediately preceding Due
Period. See "Risk Factors-- Additional Factors Affecting Delinquencies, Defaults
and Losses on Loans - Dependence on Servicer for Servicing Loans" herein. The
Servicer will pay the fees of any Subservicer out of the amounts it receives as
the Servicing Fee. In addition to the Servicing Fee, the Servicer is entitled to
retain additional servicing compensation in the form of assumption and other
administrative fees, release fees, insufficient funds charges, late payment
charges and any other servicing-related penalties and fees (such additional
compensation and Servicing Fee, collectively the "Servicing Compensation").
In the event of a delinquency or a default with respect to a Loan, the
Servicer will have no obligation to advance scheduled monthly payments of
principal or interest with respect to such Loan. However, the Servicer will make
reasonable and customary expense advances with respect to the Loans (each, a
"Servicing Advance") in accordance with their servicing obligations under the
Sale and Servicing Agreement and will be entitled to receive reimbursement for
such Servicing Advances as described herein. For example, with respect to a
Loan, such Servicing Advances may include costs and expenses advanced for the
preservation, restoration and protection of any Mortgaged Property, including
advances to pay delinquent real estate taxes and assessments. Any Servicing
Advances previously made and determined by the Servicer to be nonrecoverable, in
accordance with accepted servicing procedures will be reimbursable from amounts
in the Collection Account prior to distributions to Noteholders.
Collection Account, Note Distribution Account and Certificate Distribution
Account
The Servicer is required to use its best efforts to deposit in a segregated
account (the "Collection Account"), within two Business Days of receipt, all
payments received after the Cut-Off Date on account of principal and interest,
all Net Liquidation Proceeds, Insurance Proceeds, Released Mortgaged Property
Proceeds, post-liquidation proceeds, any amounts payable in connection with the
repurchase or substitution of any Loan and any amount required to be deposited
in the Collection Account in connection with the termination of the Notes. The
foregoing requirements for deposit in the Collection Account will be exclusive
of payments on account of principal and interest collected on the Loans on or
before the applicable Cut-Off Date. Withdrawals will be made from the Collection
Account only for the purposes specified in the Sale and Servicing Agreement
(including the payment of Servicing Compensation). The Collection Account may be
maintained at any depository institution which satisfies the requirements set
forth in the definition of "Eligible Account" in the Sale and Servicing
Agreement.
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The Servicer will establish and maintain with the Indenture Trustee an
account, in the name of the Indenture Trustee on behalf of the Noteholders, into
which amounts released from the Collection Account for distribution to the
Noteholders will be deposited and from which all distributions to the
Noteholders will be made (the "Note Distribution Account").
On the Business Day prior to each Distribution Date, the Indenture Trustee
will deposit the Available Collection Amount into the Note Distribution Account
by making the appropriate withdrawals from the Collection Account. On each
Distribution Date, the Indenture Trustee will make withdrawals from the Note
Distribution Account for application of the amounts specified below in the
following order of priority:
(i) to provide for the payment of certain fees of the Trust in the
following order: (a) to the Indenture Trustee, an amount equal to the
Indenture Trustee Fee and all unpaid Indenture Trustee Fees from prior Due
Periods and (b) to the Servicer on behalf of the Owner Trustee, an amount
equal to the Owner Trustee Fee and all unpaid Owner Trustee Fees from prior
Due Periods; and
(ii) to provide for the payments to the holders of the Notes, the
holders of the Residual Interests and the Servicer of the amounts specified
herein under "Description of the Notes--Distributions on the Notes."
Income from Accounts
So long as no Event of Default shall have occurred and be continuing,
amounts on deposit in the Note Distribution Account (together with the
Collection Account, the "Accounts") will be invested by the Indenture Trustee,
as directed by the Servicer, in one or more Permitted Investments (as defined in
the Sale and Servicing Agreement) bearing interest or sold at a discount. No
such investment in any Account will mature later than the Business Day
immediately preceding the next Distribution Date. All income or other gain from
investments in any Account will be deposited in such Account immediately on
receipt, unless otherwise specified herein. Income from investments of amounts
on deposit in the Note Distribution Account will be for the benefit of and
withheld by the Indenture Trustee.
Withdrawals from the Collection Account
The Indenture Trustee, at the direction of the Servicer, shall make the
following withdrawals from the Collection Account, in no particular order of
priority: (i) to withdraw any amount not required to be deposited in the
Collection Account or deposited therein in error; (ii) on each Distribution
Date, to pay to the Servicer any accrued and unpaid Servicing Compensation not
otherwise withheld as permitted by the Sale and Servicing Agreement; (iii) on
each Distribution Date, to pay to the Servicer any unreimbursed Servicing
Advances; provided, however, that, except as set forth in clause (iv) below, the
Servicer's right to reimbursement for unreimbursed Servicing Advances shall be
limited to late collections on the related Loans, including, without limitation,
late collections constituting Liquidation Proceeds, Released Mortgaged Property
Proceeds, Insurance Proceeds, post-liquidation proceeds and such other amounts
as may be collected by the Servicer from the related Obligor or otherwise
relating to the Loan in respect of which such unreimbursed amounts are owed;
(iv) on each Distribution Date, to reimburse the Servicer for any Servicing
Advances determined by the Servicer in good faith to have become nonrecoverable
Servicing Advances; and (v) make payments as set forth in the Sale and Servicing
Agreement.
The Owner Trustee and the Indenture Trustee
The Owner Trustee, the Indenture Trustee and any of their respective
affiliates may hold Notes in their own names or as pledgees. For the purpose of
meeting the legal requirements of certain jurisdictions, the Servicer, the
Owner Trustee and the Indenture Trustee acting jointly (or in some instances,
the Owner Trustee or the Indenture Trustee acting alone) will have the power to
appoint co-trustees or separate trustees of all or any part of the Trust. In the
event of such an appointment, all rights, powers, duties and obligations
conferred or imposed upon the Owner Trustee by the Trust Agreement and upon the
Indenture Trustee by the Sale and Servicing Agreement and the Indenture will be
conferred or imposed upon the Owner Trustee and the Indenture Trustee,
respectively, and in each such case such separate trustee or co-trustee jointly,
or, in any jurisdiction in which the Owner Trustee or the Indenture Trustee will
be incompetent or unqualified to perform certain acts, singly upon such separate
trustee or co-trustee who will exercise and perform such rights, powers, duties
and obligations solely at the direction of the Owner Trustee or the Indenture
Trustee, respectively.
The Owner Trustee and the Indenture Trustee may resign at any time, in
which event the Servicer will be obligated to appoint a successor thereto. The
Servicer may remove the Owner Trustee or the Indenture Trustee if either ceases
to be eligible to continue as such under the Trust Agreement, the Sale and
Servicing Agreement or the Indenture, as the case may be, or becomes legally
unable to act or becomes insolvent. In such circumstances, the Servicer will be
obligated to appoint a successor Owner Trustee or a successor Indenture Trustee,
as applicable. Any resignation or removal of the Owner Trustee or the Indenture
Trustee and appointment of a successor thereto will not become effective until
acceptance of the appointment by such successor. Upon the occurrence and
continuation of an event of default under the Indenture, the Co-Owner Trustee
will resign
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and the Owner Trustee will assume the duties of the Co-Owner Trustee under the
Trust Agreement and the Sale and Servicing Agreement.
The Trust Agreement and Indenture will provide that the Owner Trustee and
the Indenture Trustee will be entitled to indemnification by the Depositor or
______, and will be held harmless against, any loss, liability or expense
incurred by the Owner Trustee or the Indenture Trustee not resulting from its
own willful misfeasance, bad faith or negligence (other than by reason of a
breach of any of its representations or warranties to be set forth in the Trust
Agreement, the Indenture or the Sale and Servicing Agreement, as the case may
be).
Duties of the Owner Trustee and the Indenture Trustee
The Owner Trustee will make no representations as to the validity or
sufficiency of the Trust Agreement, the Notes or of any Loans or related
documents, and will not be accountable for the use or application by the
Depositor or the Servicer of any funds paid to the Depositor or the Servicer in
respect of the Notes, the Loans, or the investment of any monies by the Servicer
before such monies are deposited into the Accounts. So long as no Event of
Default has occurred and is continuing, the Owner Trustee will be required to
perform only those duties specifically required of it under the Trust Agreement.
Generally, those duties will be limited to the receipt of the various
certificates, reports or other instruments required to be furnished to the Owner
Trustee under the Trust Agreement, in which case it will only be required to
examine them to determine whether they conform to the requirements of the Trust
Agreement. The Owner Trustee will not be charged with knowledge of a failure by
the Servicer to perform its duties under the Trust Agreement or the Sale and
Servicing Agreement which failure constitutes an Event of Default unless the
Owner Trustee obtains actual knowledge of such failure as will be specified in
the Trust Agreement or the Sale and Servicing Agreement.
The Indenture Trustee will make no representations as to the validity or
sufficiency of the Indenture, the Sale and Servicing Agreement, the Notes (other
than the execution and authentication thereof) or of any Loans or related
documents, and will not be accountable for the use or application by the
Depositor or the Servicer of any funds paid to the Depositor or the Servicer in
respect of the Notes or the Loans, or the investment of any monies by the
Servicer before such monies are deposited into any of the Accounts. So long as
no Event of Default under the Indenture or the Sale and Servicing Agreement has
occurred and is continuing, the Indenture Trustee will be required to perform
only those duties specifically required of it under the Indenture or the Sale
and Servicing Agreement. Generally, those duties will be limited to the receipt
of the various certificates, reports or other instruments required to be
furnished to the Indenture Trustee under the Indenture, in which case it will
only be required to examine them to determine whether they conform to the
requirements of the Indenture. The Indenture Trustee will not be charged with
knowledge of a failure by the Servicer to perform its duties under the Trust
Agreement, Sale and Servicing Agreement or Administration Agreement which
failure constitutes an Event of Default under the Indenture or the Sale and
Servicing Agreement unless the Indenture Trustee obtains actual knowledge of
such failure as will be specified in the Indenture or the Sale and Servicing
Agreement.
The Indenture Trustee will be under no obligation to exercise any of the
rights or powers vested in it by the Indenture or the Sale and Servicing
Agreement or to make any investigation of matters arising thereunder or to
institute, conduct or defend any litigation thereunder or in relation thereto at
the request, order or direction of any of the Noteholders, unless such
Noteholders have offered to the Indenture Trustee reasonable security or
indemnity against the costs, expenses and liabilities that may be incurred
therein or thereby. No Noteholder will have any right under the Indenture or the
Sale and Servicing Agreement to institute any proceeding with respect to the
Indenture or the Sale and Servicing Agreement, unless such holder previously
shall have given to the Indenture Trustee written notice of the occurrence of an
Event of Default and (i) the Event of Default arises from the Servicer's failure
to remit payments when due or (ii) Noteholders evidencing not less than 25% of
the voting interests of each Class of Notes, acting together as a single class,
shall have made written request upon the Indenture Trustee to institute such
proceeding in its own name as the Indenture Trustee thereunder and offered to
the Indenture Trustee reasonable indemnity and the Indenture Trustee for 30 days
shall have neglected or refused to institute any such proceedings.
PREPAYMENT AND YIELD CONSIDERATIONS
Except as otherwise provided herein, no principal distributions will be
made on any Class of Senior Notes until the Class Principal Balance of each
Class of Senior Notes having a lower numerical designation has been reduced to
zero, and no principal distributions will be made on the Mezzanine Notes until
all required principal distributions have been made in respect of the Senior
Notes. In addition, except as otherwise provided, no distributions of principal
with respect to the Class B Notes will be made until the required principal
distributions have been made in respect of all Classes of Senior Notes and
Mezzanine Notes. See "Description of the Notes--Distributions on the Notes"
herein. As the rate of payment of principal of each Class of Notes depends
primarily on the rate of payment (including prepayments) of the Loans, final
payment of any Class of Notes could occur significantly earlier than its Final
Maturity Date. Holders of the Notes will bear the risk of being able to reinvest
principal payments on the Notes at yields at least equal to the yields on their
respective Notes. No prediction can be made as to the rate of prepayments on the
Loans in either stable or changing interest rate environments. Any reinvestment
risk resulting from the rate
56
of prepayment of the Loans and the distribution of such payments to the holders
of the Notes will be borne entirely by the holders of the Notes.
The subordination of the Class B Notes to the Senior Notes and Mezzanine
Notes will provide limited protection to the holders of the Senior and Mezzanine
Notes against losses on the Loans. Accordingly, the yield on the Class B Notes
(and to a lesser extent, the Mezzanine Notes and Senior Notes) will be extremely
sensitive to the delinquency and loss experience of the Loans, the timing of any
such delinquencies and losses, the weighted average coupon of the Loans
(including the Adjustable Rate Loans) as well as the amount of Excess Spread
from time to time. If the actual rate and amount of delinquencies and losses
experienced by the Loans exceed the rate and amount of such delinquencies and
losses assumed by an investor or the actual weighted average coupon of the Loans
(including the Adjustable Rate Loans) is less than the weighted average coupon
assumed by an investor, the yield to maturity on the Notes may be lower than
anticipated.
The effective yield to the holders of any Class of Notes will be lower than
the yield otherwise produced by the applicable Note Interest Rate, because the
distribution of the interest accrued during each Interest Period (a calendar
month consisting of thirty days) will not be made until the Distribution Date
occurring in the month following such Due Period. See "Description of the
Notes--Distributions on the Notes" herein. This delay will result in funds being
passed through to the holders of the Notes approximately 25 days after the end
of the monthly accrual period, during which 25-day period no interest will
accrue on such funds. As discussed in greater detail below, greater than
anticipated distributions of principal can also affect the yield on Notes
purchased at a price greater or less than par.
The rate of principal payments on the Notes, the aggregate amount of each
interest payment on the Notes and the yield to maturity on the Notes will be
directly related to and affected by the rate and timing of principal reductions
on the Loans, the application of Excess Spread to reduce the Class Principal
Balances of the Notes to the extent described herein under "Description of
Credit Enhancement--Overcollateralization," and, under certain circumstances,
the delinquency rate experienced by and the weighted average coupon of the
Loans. The reductions in principal of such Loans may be in the form of scheduled
amortization payments or unscheduled payments or reductions, which may include
prepayments, repurchases and liquidations or write-offs due to default,
casualty, insurance or other dispositions. On or after any Distribution Date on
which the Pool Principal Balance declines to ____% or less of the Maximum
Collateral Amount, the Majority Residual Interestholders may effect an early
termination of the Trust, resulting in a redemption of the Notes. See
"Description of the Notes--Optional Termination of the Trust" herein.
The "weighted average life" of a Note refers to the average amount of time
that will elapse from ______________ (the "Closing Date") to the date on which
each dollar in respect of principal of such Note will have repaid. The weighted
average lives of the Notes will be influenced by the rate at which principal
reductions occur on the Loans, the extent to which high rates of delinquencies
on the Loans during any Due Period result in interest collections on the Loans
in amounts less than the amount of interest distributable on the Notes, the rate
at which Excess Spread is distributed to holders of the Notes as described
herein, and the extent to which any reduction of the Overcollateralization
Amount is paid to the holders of the Residual Interests as described herein. If
substantial principal prepayments on the Loans are received from unscheduled
prepayments, liquidations or repurchases, then the distributions to the holders
of the Notes resulting from such prepayments may significantly shorten the
actual average lives of the Notes. If the Loans experience delinquencies and
certain defaults in the payment of principal, then the holders of the Notes will
similarly experience a delay in the receipt of principal distributions
attributable to such delinquencies and default, which in certain instances may
result in longer actual average lives of the Notes than would otherwise be the
case. However, to the extent that the Principal Balances of Liquidated Loans are
included in the principal distributions on the Notes, then the holders of the
Notes will experience an acceleration in the receipt of principal distributions
which in certain instances may result in shorter actual average lives of the
Notes than would otherwise be the case. Interest shortfalls on the Loans due to
principal prepayments in full and in part and any resulting shortfall in amounts
distributable on the Notes will be covered to the extent of amounts available
from the credit enhancement provided for the Notes. See "Risk Factors--Adequacy
of Credit Enhancement" herein.
The rate and timing of principal reductions on the Loans will be influenced
by a variety of economic, geographic, social and other factors. These factors
may include changes in borrowers' housing needs, job transfers, unemployment,
borrowers' net equity, if any, in the Mortgaged Properties, servicing decisions,
homeowner mobility, the existence and enforceability of "due-on-sale" clauses,
seasoning of Loans, market interest rates for similar types of loans and the
availability of funds for such loans. Each of the Loans may be assumed, with the
Servicer's consent, upon the sale of the related Mortgaged Property. Certain of
the Loans are subject to prepayment penalties, which may reduce the amount or
the likelihood of prepayments on such Loans. The remaining Loans may be prepaid
in full or in part at any time without penalty. As with fixed rate obligations,
generally, the rate of prepayment on a pool of loans is likely to be affected by
prevailing market interest rates for similar types of loans of a comparable term
and risk level. If prevailing interest rates were to fall significantly below
the respective Loan Rates on the Loans, the rate of prepayment (and refinancing)
would be expected to increase. Conversely, if prevailing interest rates were to
rise significantly above the respective Loan Rates on the Loans, the rate of
prepayment on the Loans would be expected to decrease. In addition, depending on
prevailing market interest rates, the future outlook for market interest rates
and economic
57
conditions generally, some borrowers may sell or refinance mortgaged properties
in order to realize their equity in the mortgaged properties, if any, to meet
cash flow needs or to make other investments. In addition, any future
limitations on the rights of borrowers to deduct interest payments on mortgage
loans for Federal income tax purposes may result in a higher rate of prepayment
on the Loans. ______ makes no representations as to the particular factors that
will affect the prepayment of the Loans, as to the relative importance of such
factors, or as to the percentage of the Principal Balances of the Loans that
will be paid as of any date.
Distributions of principal to holders of the Notes at a faster rate than
anticipated will increase the yields on Notes purchased at discounts but will
decrease the yields on Notes purchased at premiums, which distributions of
principal may be attributable to scheduled payments and prepayments of principal
as a result of repurchases and liquidations or write-offs due to default,
casualty or insurance on the Loans and to the application of Excess Spread. The
effect on an investor's yield due to distributions of principal to the holders
of the Notes (including, without limitation, prepayments on the Loans) occurring
at a rate that is faster (or slower) than the rate anticipated, by the investor
during any period following the issuance of the Notes will not be offset
entirely by a subsequent like reduction (or increase) in the rate of such
distributions of principal during any subsequent period.
The rate of delinquencies and defaults on the Loans and the recoveries, if
any, on Defaulted Loans and foreclosed properties will also affect the rate and
timing of principal payments on the Loans, and accordingly, the weighted average
lives of the Notes, and could cause a delay in the payment of principal or a
slower rate of principal amortization to the holders of Notes. Certain factors
may influence such delinquencies and defaults, including origination and
underwriting standards, Combined Loan-to-Value Ratios and delinquency history.
In general, defaults on home loans are expected to occur with greater frequency
in their early years, although few data are available with respect to the rate
of default on home loans similar to the Loans. The rate of default on Loans with
high Combined Loan-to-Value Ratios, secured by junior liens may be higher than
that on home loans with lower Combined Loan-to-Value Ratios or secured by first
liens on comparable properties. Furthermore, the rate and timing of prepayments,
defaults and liquidations on the Loans will be affected by the general economic
conditions of the regions of the country in which the related Mortgaged
Properties are located or the related borrower is residing. See "The Loans"
herein. The risk of delinquencies and loss is greater and voluntary principal
prepayments are less likely in regions where a weak or deteriorating economy
exists, as may be evidenced by increasing unemployment or falling property
values.
Because principal distributions generally are paid to certain Classes of
Notes before other Classes, holders of the Class B Notes and, to a lesser
extent, the Classes of Mezzanine Notes bear a greater risk of losses from
delinquencies and defaults on the Loans than holders of the Classes of Notes
having higher priorities for payment of principal. See "Description of Credit
Enhancement--Subordination and Allocation of Losses" herein.
Although some data have been published with respect to the historical
prepayment experience of certain residential mortgage loans, such mortgage loans
may differ in material respects from the Loans and such data may not be
reflective of conditions applicable to the Loans. No prepayment history is
generally available with respect to the types of Loans included in the Pool or
similar types of loans, and there can be no assurance that the Loans will
achieve or fail to achieve any particular rate of principal prepayment. A number
of factors suggest that the prepayment experience of the Pool may be
significantly different from that of a pool of conventional first-lien, single
family mortgage loans with equivalent interest rates and maturities. One such
factor is that the Principal Balance of the average 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 Pool than for a pool of 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 liens.
However, a small Principal Balance may make refinancing a 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 Pool include general economic conditions, the amounts of and interest
rates on the underlying senior mortgage loans, and the tendency of borrowers to
use real property mortgage loans as long-term financing for home purchase and
junior liens as shorter-term financing for a variety of purposes, which may
include the direct or indirect financing of home improvement, education
expenses, debt consolidation, purchases of consumer durables such as
automobiles, appliances and furnishings and other consumer purposes.
Furthermore, because at origination a substantial majority of the Loans had
combined loan-to-value ratios that exceeded 100%, the related borrowers for
these Loans will generally have significantly less opportunity to refinance the
indebtedness secured by the related Mortgaged Properties and, therefore, a lower
prepayment rate may be experienced by the Pool than for a pool of mortgage
(including first or junior lien) loans that have combined loan-to-value ratios
less than 100%. Given these characteristics, the Loans may experience a higher
or lower rate of prepayment than first-lien mortgage loans.
Excess Spread and Reduction of Overcollateralization Amount
An overcollateralization feature has been designed to accelerate the
principal amortization of the Notes relative to the principal amortization of
the Loans. If on any Distribution Date following the termination of the Spread
Deferral Period, the
58
Overcollateralization Target Amount exceeds the Overcollateralization Amount,
any Excess Spread will be distributed to the holders of the Classes of Notes in
the order and amounts specified herein under "Description of the
Notes--Distributions on the Notes--Distribution Priorities." Prior to the
termination of the Spread Deferral Period or if the Overcollateralization Amount
equals the Overcollateralization Target Amount for such Distribution Date,
Excess Spread otherwise distributable to the holders of the Notes as described
above will instead be distributed in respect of Loss Reimbursement Deficiencies,
if any, and thereafter to the holders of the Residual Interests. On the Stepdown
Date and on each Distribution Date thereafter as to which the
Overcollateralization Amount is or, after taking into account all other
distributions to be made on such Distribution Date, would be at least equal to
the Overcollateralization Target Amount, amounts otherwise distributable as
principal to the holders of the Notes on such Distribution Date in reduction of
their Class Principal Balances may, under certain circumstances, instead be
distributed in respect of the applicable Classes in payment of their respective
Loss Reimbursement Deficiencies and thereafter to the holders of the Residual
Interests, thereby reducing the rate of and under certain circumstances delaying
the principal amortization with respect to the Notes, until the
Overcollateralization Amount is reduced to the Overcollateralization Target
Amount.
While all of the Notes are fixed rate obligations, ______% of the Original
Pool Principal Balance consists of Adjustable Rate Loans. If the Loan Rates on
the Adjustable Rate Loans decrease, the amount of the Excess Spread available
(i) to cause the termination of the Spread Deferral Period and then (ii) to
achieve the required Overcollateralization Amount will be lessened.
In addition, high rates of delinquencies on the Loans during any Due Period
may cause the amount of interest received on the Loans during such Due Period to
be less than the amount of interest distributable on the Notes on the related
Distribution Date. Such an occurrence will cause the Class Principal Balances of
the Notes to decrease at a slower rate relative to the Pool Principal Balance,
resulting in a reduction of the Overcollateralization Amount and, in some
circumstances, an Allocable Loss Amount. As described herein, the yield to
maturity on a Note purchased at a premium or a discount will be affected by the
extent to which any amounts are paid to the holders of the Residual Interests in
lieu of payment to the holders of the Classes of Notes in reduction of their
Class Principal Balances. If the actual distributions of any such amounts to the
holders of the Residual Interests occur sooner than anticipated by an investor
who purchases a Note at a discount, the actual yield to such investor may be
lower than such investor's anticipated yield. If the actual distributions of any
such amounts to the holders of the Residual Interests occur later than
anticipated by an investor who purchases a Note at a premium, the actual yield
to such investor may be lower than such investor's anticipated yield. The amount
payable to the holders of the Residual Interests in reduction of the
Overcollateralization Amount, if any, on any Distribution Date will be affected
by the Overcollateralization Target Amount and by the actual default and
delinquency experience of the Pool and the principal amortization of the Pool.
Reinvestment Risk
The reinvestment risk with respect to an investment in the Notes will be
affected by the rate and timing of principal payments (including prepayments) in
relation to the prevailing interest rates at the time of receipt of such
principal payments. For example, during periods of falling interest rates,
holders of the Notes are likely to receive an increased amount of principal
payments from the Loans at a time when such holders may be unable to reinvest
such payments in investments having a yield and rating comparable to those of
the Notes. Conversely, during periods of rising interest rates, holders of the
Notes are likely to receive a decreased amount of principal prepayments from the
Loans at a time when such holders may have an opportunity to reinvest such
payments in investments having a higher yield than, and a comparable rating to,
those of the Notes.
Final Maturity Dates
The "Final Maturity Date" for each Class of Notes as set forth in the
"Summary of Terms" herein has been calculated as the thirteenth Distribution
Date following the Due Period in which the Class Principal Balance of such Class
of Notes would be reduced to zero assuming no losses or prepayments and that no
Excess Spread is applied to reduce the principal balance of such Class of Notes.
The actual maturity of any Class of Notes may be substantially earlier than its
Final Maturity Date set forth herein.
Weighted Average Lives of the Notes
The following information is given solely to illustrate the effect of
prepayments of the Loans on the weighted average lives of the Notes under
certain stated assumptions and is not a prediction of the prepayment rate that
might actually be experienced by the Loans. Weighted average life refers to the
average amount of time that will elapse from the date of delivery of a security
until each dollar of principal of such security will be repaid to the investor.
The weighted average lives of the Notes will be influenced by the rate at which
principal of the Loans is paid, which may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
reductions of principal, including without limitation those resulting from
unscheduled full or partial prepayments, refinancings, liquidations and
write-offs due to defaults, casualties, insurance or other dispositions,
substitutions and repurchases by or on behalf of the Depositor or ______), the
rate at which
59
Excess Spread is distributed to holders of the Notes as described herein, the
delinquency rate of the Loans from time to time and the extent to which any
amounts are distributed to the holders of the Residual Interests as described
herein.
Prepayments on loans such as the Loans are commonly measured relative to a
prepayment standard or model. The model used in this Prospectus Supplement is
the prepayment assumption (the "Prepayment Assumption"), which represents an
assumed rate of prepayment each month relative to the then outstanding principal
balance of the pool of loans for the life of such loans. A 100% Prepayment
Assumption assumes a constant prepayment rate ("CPR") of _____% per annum of the
outstanding principal balance of such loans in the first month of the life of
the loans and an additional approximate ______% (expressed as a percentage per
annum) in each month thereafter until the twelfth month; beginning in the
twelfth month and in each month thereafter during the life of the loans, a CPR
of _______% each month is assumed. As used in the table below, 0% Prepayment
Assumption assumes prepayment rates equal to 0% of the Prepayment Assumption
(i.e., no prepayments). Correspondingly, ____% Prepayment Assumption assumes
prepayment rates equal to ____% of the Prepayment Assumption, and so forth. The
Prepayment Assumption does not purport to be a historical description of
prepayment experience or a prediction of the anticipated rate of prepayment of
any pool of loans, including the Loans. None of ______ or the Depositor makes
any representations about the appropriateness of the Prepayment Assumption or
the CPR model.
Modeling Assumptions. For purposes of preparing the tables below, the
following assumptions (the "Modeling Assumptions") have been made:
(i) all scheduled principal and interest payments on the Loans are
timely received on the first day of a Due Period, which will begin on the first
day of each month and end on the last day of the month (with the first Due
Period commencing on __________________), no delinquencies or losses occur on
the Loans and all Loans have a first payment date that occurs thirty (30) days
after the origination thereof; it is assumed that the scheduled payments of
interest include 30 days' accrued interest;
(ii) the scheduled payments on the Loans have been calculated on the
outstanding Principal Balance (prior to giving effect to prepayments), the Loan
Rate and the remaining term to stated maturity such that the Loans (other than
the Balloon Loans) will fully amortize by their remaining term to stated
maturity and the Balloon Loans will amortize according to their terms and the
balloon payment will be made on the final payment date;
(iii) all scheduled payments of interest and principal in respect of
the Loans have been made through the applicable Cut-Off Date for purposes of
calculating remaining term to stated maturity;
(iv) all Loans prepay monthly at the specified percentages of the
Prepayment Assumption, no optional or other early termination of the Notes
occurs (except with respect to the calculation of the Weighted Average Life - To
Call (Years) figures in the following tables) and no substitutions or
repurchases of the Loans occur;
(v) all prepayments in respect of the Loans are received on the last
day of each month commencing in the month of the Closing Date and include 30
days of interest thereon;
(vi) the Closing Date for the Notes is ______________ and each year
will consist of 360 days;
(vii) cash distributions are received by the holders of the Notes on
the 25th day of each month, commencing in _____________;
(viii) the Overcollateralization Target Amount will be as defined
herein;
(ix) the Pre-Funding Pro Rata Distribution Trigger does not occur;
(x) the Note Interest Rate for each Class of Notes is as set forth
herein;
(xi) the additional fees deducted from the interest collections in
respect of the Loans include the Indenture Trustee Fee, the Custodian Fee, the
Owner Trustee Fee and the Servicing Fee;
(xii) no reinvestment income from any Account is earned and available
for distribution;
(xiii) Sub-Pools 11, 12 and 13 (specified in the table below) are
transferred to the Trust in ____________ with principal payments on such Loans
being received by the Servicer in ____________ and passed through to holders of
the Notes on the Distribution Date in _________________;
60
(xiv) sufficient funds will be available in the Capitalized Interest
Account to cover any shortfalls in interest due to the Pre-Funding Account and
the transfer of Loans described in clause (xiii);
(xv) interest will accrue on the Notes for each related Distribution
Date at the related Note Interest Rate and based on the related Interest Period;
(xvi) all of the Original Pre-Funded Amount is used to acquire
Subsequent Loans as set forth in clause (xiii); and
(xvii) each Adjustable Rate Loan adjusts every six months following
its initial adjustment date and the Pool consists of thirteen Loans having the
following additional characteristics:
61
Assumed Loan Characteristics
Number of
Remaining Months to
Cut-Off Date Original Term to Final
Principal Term Maturity Balloon Gross Lifetime Lifetime
Sub-Pool Loan Rate Balance (Months) (Months) Payment Margin Cap Floor
- --------- ---------- ------------ --------- --------- ------- ------ --------- ---------
1 ________% $________ ________ _________ ________ ______ ________ ________
2 ________ ________ ________ _________ ________ ______ ________ ________
3 ________ ________ ________ _________ ________ ______ ________ ________
4 ________ ________ ________ _________ ________ ______ ________ ________
5 ________ ________ ________ _________ ________ ______ ________ ________
6 ________ ________ ________ _________ ________ ______ ________ ________
7 ________ ________ ________ _________ ________ ______ ________ ________
8 ________ ________ ________ _________ ________ ______ ________ ________
9 ________ ________ ________ _________ ________ ______ ________ ________
10 ________ ________ ________ _________ ________ ______ ________ ________
11 ________ ________ ________ _________ ________ ______ ________ ________
12 ________ ________ ________ _________ ________ ______ ________ ________
13 ________ ________ ________ _________ ________ ______ ________ ________
14 ________ ________ ________ _________ ________ ______ ________ ________
Months to
Next
Sub-Pool Periodic Cap Adjustment
- --------- ------------ ----------
1 ____________ __________
2 ____________ __________
3 ____________ __________
4 ____________ __________
5 ____________ __________
6 ____________ __________
7 ____________ __________
8 ____________ __________
9 ____________ __________
10 ____________ __________
11 ____________ __________
12 ____________ __________
13 ____________ __________
14 ____________ __________
The tables on the following pages indicate the weighted average lives of
each Class of Notes corresponding to the specified percentages of the Prepayment
Assumption.
These tables have been prepared based on the Modeling Assumptions
(including the assumptions regarding the characteristics and performance of the
Loans which may differ from the actual characteristics and performance thereof)
and should be read in conjunction therewith.
62
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class A-1 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent ... _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
______ ............ _____ _____ _____ _____ _____ _____
Weighted Average Life
_____ _____ _____ _____ _____ _____
To Maturity (Years)
_____ _____ _____ _____ _____ _____
- -----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
63
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class A-2 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average Life
To Maturity (Years)_____ _____ _____ _____ _____ _____
- ------------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
64
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class A-3 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average Life
To Maturity (Years)_____ _____ _____ _____ _____ _____
- - ----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
65
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class A-4 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
66
Class A-4 Notes: $________________
-----------------------------------------------------------
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average Life
To Maturity (Years)_____ _____ _____ _____ _____ _____
- - ----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
67
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class M-1 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
68
Class M-1 Notes: $________________
-----------------------------------------------------------
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average Life
To Maturity (Years)_____ _____ _____ _____ _____ _____
- - ----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
69
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class M-2 Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent ... _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
70
Class M-2 Notes: $________________
-----------------------------------------------------------
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average Life
To Maturity (Years)_____ _____ _____ _____ _____ _____
- - ----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
71
Percent of Original Class Principal Balance Outstanding
at the Following Percentages of Prepayment Assumption(1)
Class B Notes: $________________
-----------------------------------------------------------
Date 0% 50% 75% 100% 125% 150%
---- ----- ----- ----- ----- ----- -----
Initial Percent _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
72
Class B Notes: $________________
-----------------------------------------------------------
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
______ _____ _____ _____ _____ _____ _____
Weighted Average Life
To Maturity (Years)_____ _____ _____ _____ _____ _____
- -----------
(1) The percentages in this table have been rounded to the nearest whole
number.
(2) The weighted average life of a Class is determined by (a) multiplying the
amount of each distribution of principal thereof by the number of years
from the date of issuance to the related Distribution Date, (b) summing the
results and (c) dividing the sum by the aggregate distributions of
principal referred to in clause (a) and rounding to one decimal place.
73
The amortization scenarios for the Notes set forth in the foregoing tables
are subject to significant uncertainties and contingencies (including those
discussed above under "Prepayment and Yield Considerations"). As a result, there
can be no assurance that any of the foregoing amortization scenarios and the
Modeling Assumptions on which they were made will prove to be accurate or that
the actual weighted average lives of the Notes will not vary from those set
forth in the foregoing tables, which variations may be shorter or longer, and
which variations may be greater with respect to later years. Furthermore, it is
unlikely that the Loans will prepay at a constant rate or that all of the Loans
will prepay at the same rate. Moreover, the Loans actually included in the Pool,
the payment experience of such Loans and certain other factors affecting the
distributions on the Notes will not conform to the Modeling Assumptions made in
preparing the above tables. In fact, the characteristics and payment experience
of the Loans will differ in many respects from such Modeling Assumptions. See
"The Loans" herein. To the extent that the Loans actually included in the Pool
have characteristics and a payment experience that differ from those assumed in
preparing the foregoing tables, the Notes are likely to have weighted average
lives that are shorter or longer than those set forth in the foregoing tables.
See "Risk Factors--Prepayment and Yield Considerations" herein.
In light of the uncertainties inherent in the foregoing paydown scenarios,
the inclusion of the weighted average lives of the Notes in the foregoing tables
should not be regarded as a representation by the Servicer, the Depositor, the
Underwriter, or any other person that such weighted average lives will be
achieved or that any of the foregoing paydown scenarios will be experienced.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the material anticipated federal
income tax considerations to investors of the purchase, ownership and
disposition of the securities offered hereby. The discussion is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change. The discussion below does not purport to deal with all federal tax
considerations applicable to all categories of investors, some of which may be
subject to special rules. Investors are urged to consult their own tax advisors
in determining the federal, state, local and any other tax consequences to them
of the purchase, ownership and disposition of the Notes.
Treatment of the Notes as Indebtedness. The Depositor agrees, and the
Noteholders will agree by their purchase of Notes, to treat the Notes as debt
for all federal, state and local income tax purposes. There are no regulations,
published rulings or judicial decisions involving the characterization for
federal income tax purposes of securities with terms substantially the same as
the Notes. In general, whether instruments such as the Notes constitute
indebtedness for federal income tax purposes is a question of fact, the
resolution of which is based primarily upon the economic substance of the
instruments and the transaction pursuant to which they are issued rather than
merely upon the form of the transaction or the manner in which the instruments
are labeled. The Internal Revenue Service (the "IRS") and the courts have set
forth various factors to be taken into account in determining, for federal
income tax purposes, whether or not an instrument constitutes indebtedness and
whether a transfer of property is a sale because the transferor has relinquished
substantial incidents of ownership in the property or whether such transfer is a
borrowing secured by the property. On the basis of its analysis of such factors
as applied to the facts and its analysis of the economic substance of the
contemplated transaction, Dewey Ballantine LLP, tax counsel to ______ ("Tax
Counsel") will conclude that, for federal income tax purposes, the Notes will be
treated as indebtedness of the Trust, and not as an ownership interest in the
Loans, or an equity interest in the Trust or in a separate association taxable
as a corporation or other taxable entity.
If the Notes are characterized as indebtedness, interest paid or accrued on
a Note will be treated as ordinary income to the Noteholders and principal
payments on a Note will be treated as a return of capital to the extent of the
Noteholder's basis in the Note allocable thereto. An accrual method taxpayer
will be required to include in income interest on the Notes when earned, even if
not paid, unless it is determined to be uncollectible. The Trust will report to
Noteholders of record and the Internal Revenue Service (the "IRS") in respect of
the interest paid and original issue discount, if any, accrued on the Notes to
the extent required by law.
Although, as described above, it is the opinion of Tax Counsel that, for
federal income tax purposes, the Notes will be characterized as debt, such
opinion is not binding on the IRS and thus no assurance can be given that such a
characterization will prevail. If the IRS successfully asserted that one or more
Classes of the Notes did not represent debt for federal income tax purposes,
holders of the Notes would likely be treated as owning an interest in a
partnership and not an interest in an association (or publicly traded
partnership) taxable as a corporation. If the Noteholders were treated as owning
an equitable interest in a partnership, the partnership itself would not be
subject to federal income tax; rather each partner would be taxed individually
on their respective distributive share of the partnership's income, gain, loss,
deductions and credits. The amount, timing and characterization of items of
income and deductions for a Noteholder would differ if the Notes were held to
constitute partnership interests, rather than indebtedness and would cause a
tax-exempt entity subject to tax on unrelated business taxable income ("UBTI")
(including an individual retirement account) to recognize UBTI under the Code.
Since the parties will treat the Notes as indebtedness for federal income tax
purposes, none of the Servicer, the Indenture Trustee or the Owner Trustee will
attempt to satisfy the tax reporting requirements that would apply under this
alternative characterization of the Notes. Investors that are
74
foreign persons are strongly urged to consult their own tax advisors in
determining the federal, state, local and other tax consequences to them of the
purchase, ownership and disposition of the Notes.
Original Issue Discount. It is anticipated that the Notes will not have any
original issue discount ("OID") other than possibly OID within a de minimis
exception and that accordingly the provisions of sections 1271 through 1273 and
1275 of the Internal Revenue Code of 1986, as amended (the "Code"), generally
will not apply to the Notes. OID will be considered de minimis if it is less
than 0.25% of the principal amount of a Note multiplied by its expected weighted
average life. The prepayment assumption that will be used for purpose of
computing original issue discount, if any, for federal income tax purposes is
100% of the Prepayment Assumption.
Market Discount. A subsequent purchaser who buys a Note for less than its
principal amount may be subject to the "market discount" rules of Section 1276
through 1278 of the Code. If a subsequent purchaser of a Note disposes of such
Note (including certain nontaxable dispositions such as a gift), or receives a
principal payment, any gain upon such sale or other disposition will be
recognized, or the amount of such principal payment will be treated, as ordinary
income to the extent of any "market discount" accrued for the period that such
purchaser holds the Note. Such holder may instead elect to include market
discount in income as it accrues with respect to all debt instruments acquired
in the year of acquisition of the Notes and thereafter. Market discount
generally will equal the excess, if any, of the then current unpaid principal
balance of the Note over the purchaser's basis in the Note immediately after
such purchaser acquired the Note. In general, market discount on a Note will be
treated as accruing over the term of such Note in the ratio of interest for the
current period over the sum of such current interest and the expected amount of
all remaining interest payments, or at the election of the holder, under a
constant yield method (taking into account the Prepayment Assumption). At the
request of a holder of a Note, information will be made available that will
allow the holder to compute the accrual of market discount under the first
method described in the preceding sentence.
The market discount rules also provide that a holder who incurs or
continues indebtedness to acquire a Note at a market discount may be required to
defer the deduction of all or a portion of the interest on such indebtedness
until the corresponding amount of market discount is included in income.
Notwithstanding the above rules, market discount on a Note will be
considered to be zero if it is less than a de minimis amount, which is 0.25% of
the remaining principal balance of the Note multiplied by its expected weighted
average remaining life. If OID or market discount is de minimis, the actual
amount of discount must be allocated to the remaining principal distributions on
the Notes and, when each such distribution is received, capital gain equal to
the discount allocated to such distribution will be recognized.
Market Premium. A subsequent purchaser who buys a Note for more than its
principal amount generally will be considered to have purchased the Note at a
premium. Such holder may amortize such premium, using a constant yield method,
over the remaining term of the Note and, except as future regulations may
otherwise provide, may apply such amortized amounts to reduce the amount of
interest reportable with respect to such Note over the period from the purchase
date to the date of maturity of the Note. Legislative history to the Tax Reform
Act of 1986 indicates that the amortization of such premium on an obligation
that provides for partial principal payments prior to maturity should be
governed by the methods for accrual of market discount on such an obligation
(described above). Proposed regulations implementing the provisions of the Tax
Reform Act of 1986 provide for the use of the constant yield method to determine
the amortization of premiums. Such proposed regulations will apply to bonds
acquired on or after 60 days after the final regulations are published. A holder
that elects to amortize premium must reduce the tax basis in the related
obligation by the amount of the aggregate deductions (or interest offsets)
allowable for amortizable premium. If a debt instrument purchased at a premium
is redeemed in full prior to its maturity, a purchaser who has elected to
amortize premium should be entitled to a deduction for any remaining unamortized
premium in the taxable year of redemption.
Sale or Redemption of Notes. If a Note is sold or retired, the seller will
recognize gain or loss equal to the difference between the amount realized on
the sale and such holder's adjusted basis in the Note. Such adjusted basis
generally will equal the cost of the Note to the seller, increased by any
original issue discount included in the seller's gross income in respect of the
Note (and by any market discount which the taxpayer elected to include in income
or was required to include in income), and reduced by payments other than
payments of qualified stated interest in respect of the Note received by the
seller and by any amortized premium. Similarly, a holder who receives a payment
other than a payment of qualified stated interest in respect of a Note, either
on the date on which such payment is scheduled to be made or as a prepayment,
will recognize gain equal to the excess, if any, of the amount of the payment
over his adjusted basis in the Note allocable thereto. A Noteholder who receives
a final payment which is less than his adjusted basis in the Note will generally
recognize a loss in the amount of the shortfall on the last day of his taxable
year. Generally, any such gain or loss realized by an investor who holds a Note
as a "capital asset" within the meaning of Code Section 1221 should be capital
gain or loss, except as described above in respect of market discount and except
that a loss attributable to accrued but unpaid interest may be an ordinary loss.
75
Taxation of Certain Foreign Investors. Interest payments (including OID) on
the Notes made to a Noteholder who is a nonresident alien individual, foreign
corporation or other non-United States person (a "foreign person") generally
will be "portfolio interest" which is not subject to United States tax if such
payments are not effectively connected with the conduct of a trade or business
in the United States by such foreign person and if the Trust (or other person
who would otherwise be required to withhold tax from such payments) is provided
with an appropriate statement that the beneficial owner of the Note identified
on the statement is a foreign person.
Backup Withholding. Distributions of interest and principal as well as
distributions of proceeds from the sale of the Notes, may be subject to the
"backup withholding tax" under Section 3406 of the Code at rate of 31% if
recipients of such distributions fail to furnish to the payor certain
information, including their taxpayer identification numbers, or otherwise fail
to establish an exemption from such tax. Any amounts deducted and withheld from
a distribution to a recipient would be allowed as a credit against such
recipient's federal income tax. Furthermore, certain penalties may be imposed by
the IRS on a recipient of distributions that is required to supply information
but does not do so in the proper manner.
STATE AND LOCAL TAX CONSIDERATIONS
Potential Noteholders should consider the state and local income tax
consequences of the purchase, ownership and disposition of the Notes. State and
local income tax laws may differ substantially from the corresponding federal
law, and this discussion does not purport to describe any aspect of the income
tax laws of any state or locality. Therefore, potential Noteholders are urged to
consult their own tax advisors with respect to the various state and local tax
consequences of an investment in the Notes.
STATE TAX CONSEQUENCES
In addition to the Federal income tax consequences described in "Material
Federal Income Tax Consequences" herein, potential investors should consider the
state income tax consequences of the acquisition, ownership, and disposition of
the Notes. State income tax law may differ substantially from the corresponding
Federal tax law, and this discussion does not purport to describe any aspect of
the income tax laws of any state. Therefore, potential investors are urged to
consult their own tax advisors with respect to the various tax consequences of
investments in the Notes.
ERISA CONSIDERATIONS
Section 406 of ERISA and/or Section 4975 of the Code prohibit a pension,
profit sharing, or other employee benefit plan, as well as individual retirement
accounts and certain types of Keogh Plans, and entities deemed to hold assets of
such plans (each, a "Benefit Plan") from engaging in certain transactions
involving "plan assets" with persons that are "parties in interest" under ERISA
or "disqualified persons" under the Code with respect to the plan. A violation
of these "prohibited transaction" rules may generate excise tax and other
liabilities under ERISA and the Code for such persons. ERISA also imposes
certain duties on persons who are fiduciaries of plans subject to ERISA Under
ERISA, any person who exercises any authority or control respecting the
management or disposition of the assets of a plan is considered to be a
fiduciary of such plan (subject to certain exceptions not here relevant).
In addition to the matters described below, purchasers of Notes that are
insurance companies are urged to consult with their counsel with respect to the
United States Supreme Court case interpreting the fiduciary responsibility rules
of ERISA, John Hancock Mutual Life Insurance Co. v. Harris Trust and Savings
Bank 510 U.S. 86 (1993). In John Hancock, the Supreme Court ruled that assets
held in an insurance company's general account may be deemed to be "plan assets"
for ERISA purposes under certain circumstances. Prospective purchasers should
determine whether the decision affects their ability to make purchases of the
Class A Notes.
Certain transactions involving the Issuer might be deemed to constitute
prohibited transactions under ERISA and the Code if assets of the Issuer were
deemed to be "plan assets" of a Benefit Plan. Under a regulation issued by the
United States Department of Labor (the "Plan Assets Regulation"), the assets of
the Issuer would be treated as plan assets of a Benefit Plan for the purposes of
ERISA and the Code only if the Benefit Plan acquired an "equity interest" in the
Issuer and none of the exceptions contained in the Plan Assets Regulation is
applicable. An equity interest is defined under the Plan Assets Regulation as an
interest other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features. Although
there is little guidance on the subject, the Issuer believes that the Notes
should be treated as indebtedness without substantial equity features for
purposes of the Plan Assets Regulation. This determination is based in part upon
the traditional debt features of the Notes, including the reasonable expectation
of purchasers of Notes that the Notes will be repaid when due, as well as the
absence of conversion rights, warrants and other typical equity features. The
debt treatment of the Notes for ERISA purposes could change if the Issuer
incurred losses. However, without regard to whether the Notes are
76
treated as an equity interest for such purposes, the acquisition or holding of
Notes by or on behalf of a Benefit Plan could be considered to give rise to a
prohibited transaction if the Issuer or any affiliate thereof, is or becomes a
party in interest or a disqualified person with respect to such Benefit Plan. In
such case, certain exemptions from the prohibited transaction rules could be
applicable depending on the type and circumstances of the Benefit Plan fiduciary
making the decision to acquire a Note. Included among these exemptions are:
Prohibited Transaction Class Exemption ("PTCE") 90-1, regarding investments by
insurance company pooled separate accounts; PTCE 95-60, regarding investments by
insurance company general accounts; PTCE 91-38, regarding investments by bank
collective investment funds; PTCE 96-23, regarding transactions effected by
"in-house asset managers"; and PTCE 84-14, regarding transactions effected by
"qualified professional asset managers" Each investor using the assets of a
Benefit Plan that acquires notes, or to whom the Notes are transferred, will be
deemed to have represented that the acquisition and continued holding of the
Notes will be covered by one of the exemptions listed above or by another
Department of Labor Class Exemption.
Employee plans that are government plans (as defined in Section 3(32) of
ERISA) and certain church plans (as defined in Section 3(33) of ERISA are not
subject to ERISA; however, such plans may be subject to comparable restrictions
under applicable law.
Any Benefit Plan fiduciary considering the purchase of a Note is urged to
consult with its counsel with respect to the potential applicability of ERISA
and the Code to such investment, including the need for and availability of
exemptive relief from the prohibited transaction rules. Moreover, each fiduciary
of a Benefit Plan subject to ERISA should determine whether, under the general
fiduciary standards of investment prudence and diversification, an investment in
the Notes is appropriate for the Benefit Plan, taking into account the overall
investment policy of the Benefit Plan and the composition of the Benefit Plan's
investment portfolio.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting Agreement
between the Depositor and _______________________ (an affiliate of the
Depositor), the Depositor has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase from the Depositor, the principal amount of
the Notes set forth on the cover hereof. Distribution of the Notes will be made
by the Underwriter from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. In connection with the sale
of the Notes, the Underwriter may be deemed to have received compensation from
the Depositor in the form of underwriting discounts.
The Depositor has been advised by the Underwriter that it intends to make a
market in the Notes; however, the Underwriter has no obligation to do so.
Accordingly, there can be no assurance that a secondary market for the Notes
will develop or, if it does develop, that it will continue.
The Underwriter proposes to offer the Notes in part directly to purchasers
at the initial public offering prices set forth on the cover page of this
Prospectus Supplement and in part to certain securities dealers at such prices
less concessions not to exceed _______%, ________%, ______%, ______%, ______%,
_____% and _______% of the respective Class Principal Balances of the Class A-1,
Class A-2, Class A-3, Class A-4, Class M-1, Class M-2 and Class B Notes. The
Underwriter may allow, and such dealers may reallow, concessions not to exceed
_______%, ______%, _______%, ______%, ______%, ______% and ______% of the
respective Class Principal Balances of the Class A-1, Class A-2, Class A-3,
Class A-4, Class M-1, Class M-2 and Class B Notes to certain brokers and
dealers. After the Notes are released for sale to the public, the offering price
and other selling terms may be varied by the Underwriter.
Until the distribution of the Notes, is completed, rules of the Commission
may limit the ability of the Underwriter and certain selling group members to
bid for and purchase the Notes. As an exception to these rules, the Underwriter
is permitted to engage in certain transactions that stabilize the price of the
Notes. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Notes.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Depositor nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the prices of the Notes. In addition, neither the
Depositor nor the Underwriter makes any representation that the Underwriter will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
After the initial public offering of the Notes, the public offering price
and such concessions may be changed.
77
The Depositor has agreed to indemnify the Underwriter against, or make
contributions to the Underwriter with respect to, certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
An affiliate of the Underwriter and the Depositor has significant
contractual relations with ______ and provides periodic funding of its
origination of mortgage loans, including the Loans. Accordingly, a portion of
the proceeds payable to ______ will be paid to such affiliate in connection with
the sale of the Loans.
LEGAL INVESTMENT MATTERS
The Notes will not constitute "mortgage related securities" under the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") because a
substantial number of the Loans are secured by liens on real estate that are not
first liens. Accordingly, many institutions with legal authority to invest in
"mortgage related securities" may not be legally authorized to invest in the
Notes.
There may be restrictions on the ability of certain investors, including
depository institutions, either to purchase the Notes or to purchase Notes
representing more than a specified percentage of the investor's assets.
Investors are urged to consult their own legal advisors in determining whether
and to what extent the Notes constitute legal investments for such investors.
LEGAL MATTERS
Certain legal matters will be passed upon for the Underwriter by
_______________________. Certain legal matters will be passed upon for the
Depositor and for ______ by ____________________________________.
RATINGS
It is a condition to the issuance of the Notes that each of the Class A-1,
Class A-2, Class A-3, and Class A-4 Notes be rated "[AAA]" by [Fitch] and
"[Aaa]" by [Moody's]; and that the Class M-1 Notes be rated "[AA]" by [Fitch]
and "[A2]" by [Moody's], the Class M-2 Notes be rated "[A]" by [Fitch] and
"[A2]" by [Moody's] and the Class B Notes be rated "[BBB]" by [Fitch] and
"[Baa3]" by [Moody's].
The ratings on the Notes address the likelihood of the receipt by the
holders of the Notes of all distributions on the Loans to which they are
entitled. The ratings on the Notes also address the structural, legal and
issuer-related aspects associated with the Notes, including the nature of the
Loans. In general, the ratings on the Notes address credit risk and not
prepayment risk. The ratings on the Notes do not represent any assessment of the
likelihood that principal prepayments of the Loans will be made by borrowers or
the degree to which the rate of such prepayments might differ from that
originally anticipated. As a result, the initial ratings assigned to the Notes
do not address the possibility that holders of the Notes might suffer a lower
than anticipated yield in the event of principal payments on the Notes resulting
from rapid prepayments of the Loans or the application of Excess Spread as
described herein, or in the event that the Trust is terminated prior to the
Final Maturity Date of the Classes of Notes. The ratings on the Notes do not
address the ability of the Trust to acquire Subsequent Loans, any potential
redemption with respect thereto or the effect on yield resulting therefrom.
The Depositor has not solicited ratings on the Notes with any rating agency
other than the Rating Agencies. However, there can be no assurance as to whether
any other rating agency will rate the Notes, or, if it does, what rating would
be assigned by any such other rating agency. Any rating on the Notes by another
rating agency, if assigned at all, may be lower than the ratings assigned to the
Notes by the Rating Agencies.
A security rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the ratings initially assigned to any
of the Notes by the Rating Agencies are subsequently lowered for any reason, no
person or entity is obligated to provide any additional support or credit
enhancement with respect to such Notes.
78
INDEX
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Page
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- --
______ time cap...............................................................23
A
Adjustable Rate Loans.........................................................15
Allocable Loss Amount.........................................................10
B
Bankruptcy Code...............................................................19
Bankruptcy Commission.........................................................19
Benefit Plan..................................................................76
Business Day...................................................................2
C
Capitalized Interest Account..................................................11
Cede..........................................................................45
Change Date...................................................................23
Class M-1 Optimal Principal Balance............................................6
Class M-2 Optimal Principal Balance............................................6
Closing Date..................................................................57
Code..........................................................................12
Combined Loan-to-Value Ratio...................................................8
Co-Owner Trustee...............................................................1
Custodian......................................................................4
Cut-Off Date Principal Balance.................................................8
D
Defective Loan.................................................................9
Definitive Notes..............................................................46
Definitive Securities..........................................................7
Deleted Loan..................................................................43
Depositor......................................................................1
Depository.....................................................................2
Determination Date.............................................................5
Distribution Date..............................................................2
DTC............................................................................7
Due Period.....................................................................4
E
ERISA.........................................................................12
Excess Spread..................................................................6
Exchange Act..................................................................45
F
FHA...........................................................................17
FHLMC.........................................................................16
Final Maturity Date............................................................6
Fitch.........................................................................12
FNMA..........................................................................16
G
Gross Margin..................................................................23
I
Indenture......................................................................1
Indenture Trustee..............................................................1
Indenture Trustee Fee.........................................................11
Indenture Trustee's Loan File.................................................54
Page
----
Indirect Participants.........................................................45
Initial Cut-Off Date...........................................................2
Initial Loans..................................................................2
Interest Carry-Forward Amount.................................................47
Issuer.........................................................................4
L
LIBOR Index...................................................................23
Loan Schedule.................................................................53
Loans..........................................................................2
Loss Reimbursement Deficiency.................................................10
M
Majority Residual Interestholders.............................................11
Maximum Collateral Amount......................................................9
Mezzanine Notes................................................................2
Modeling Assumptions..........................................................60
Moody's.......................................................................12
Mortgaged Property.............................................................8
Mortgages......................................................................2
N
Net Delinquency Calculation Amount............................................10
Net Loan Losses...............................................................44
Note Interest Rate.............................................................5
Noteholders....................................................................2
Notes..........................................................................1
O
OID...........................................................................75
Original Class Principal Balance...............................................5
Original Pool Principal Balance................................................7
Original Pre-Funded Amount.....................................................2
Overcollateralization Amount..................................................10
Overcollateralization Deficiency Amount........................................6
Overcollateralization Target Amount...........................................10
Owner Trustee..................................................................1
Owner Trustee Fee.............................................................11
P
Participants..................................................................45
Periodic Rate Cap.............................................................23
Plan Assets Regulation........................................................76
Pool...........................................................................2
Pool Principal Balance.........................................................8
Pre-Funded Amount.............................................................11
Prefunding Account.............................................................2
Pre-Funding Period............................................................11
Pre-Funding Pro Rata Distribution Trigger.....................................11
Prepayment Assumption.........................................................60
Prospectus.....................................................................2
PTCE..........................................................................77
Q
Qualified Substitute Loan......................................................9
R
Record Date....................................................................5
Regular Distribution Amount....................................................5
Residual Interest..............................................................1
i
INDEX
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Page
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Rules.........................................................................46
S
Sale and Servicing Agreement...................................................7
Senior Notes...................................................................2
Senior Optimal Principal Balance...............................................5
Servicer.......................................................................4
Servicing Advances............................................................12
Servicing Compensation........................................................11
Servicing Fee.................................................................11
Servicing Fee Rate............................................................54
SMMEA.........................................................................12
Spread Deferral Period.........................................................6
Statistic Calculation Period..................................................14
Page
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Statistic Principal Balance...................................................23
Subsequent Loans...............................................................2
Subservicer...................................................................12
T
Tax Counsel...................................................................12
Termination Price.............................................................12
Transfer and Servicing Agreements.............................................11
Trust..........................................................................1
Trust Agreement................................................................1
U
Underwriter....................................................................2
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No dealer , salesman or other person has been authorized to give any information
or to make any representations other than those contained in or incorporated by
reference 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 securities in any
state or jurisdiction in which, or to any person to whom, such offer would be
unlawful. The delivery of this Prospectus Supplement or the Prospectus at any
time does not imply that information herein or therein is correct as of any time
subsequent to its date.
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TABLE OF CONTENTS
Page
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Prospectus Supplement
Incorporation of Certain Documents by Reference ..........................
Summary ..................................................................
Risk Factors .............................................................
The Trust ................................................................
The Pool .................................................................
- - -------------------.......................................................
- - ---------- ...............................................................
Description of Credit Enhancement ........................................
Description of the Notes .................................................
Description of Transfer and Servicing Agreement ..........................
Prepayment and Yield Considerations ......................................
Material Federal Income Tax Consequences .................................
State Tax Consequences ...................................................
ERISA Considerations .....................................................
Method of Distribution ...................................................
Legal Investment Matters .................................................
Legal Investment Matter ..................................................
Legal Matters ............................................................
Ratings ..................................................................
Prospectus
Summary of Prospectus .................................................... 5
Risk Factors .............................................................
Prospectus Supplement .................................................... 3
Reports to Holders ....................................................... 3
Available Information .................................................... 3
Incorporation of Certain Documents by Reference .......................... 4
Summary of Prospectus .................................................... 5
Risk Factors ............................................................. 15
Description of the Securities ............................................ 18
The Trust Funds .......................................................... 22
Credit Enhancement ....................................................... 27
Servicing of Loans ....................................................... 30
The Agreements ........................................................... 36
Certain Legal Aspects of the Loans ....................................... 43
The Depositor ............................................................ 51
Use of Proceeds .......................................................... 51
Material Federal Income Tax Consequences ................................. 51
State Tax Considerations ................................................. 63
ERISA Considerations ..................................................... 63
Legal Investment ......................................................... 66
Plan of Distribution ..................................................... 66
Legal Matters ............................................................ 66
Glossary of Terms ........................................................ 67
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_______________ TRUST ________
$________ Class A-1,
________% Home Loan Asset Backed Notes
$________ Class A-2,
________% Home Loan Asset Backed Notes
$________ Class A-3,
________% Home Loan Asset Backed Notes
$________ Class A-4,
________% Home Loan Asset Backed Notes
$________ Class M-1,
________% Home Loan Asset Backed Notes
$________ Class M-2,
________% Home Loan Asset Backed Notes
$________ Class B,
________% Home Loan Asset Backed Notes
________% Home Loan Asset Backed Notes
HOME EQUITY SECURITIZATION CORP.
(DEPOSITOR)
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PROSPECTUS SUPPLEMENT
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