Exhibit 99.1 Form of Prospectus Supplement
PROSPECTUS SUPPLEMENT
(To Prospectus Dated _________)
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$________ __________ Home Equity Loan Trust_____
Home Equity Loan Pass-Through Certificates, Series _____
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$__________ Class A-1 Group I Certificates, Variable Pass-Through Rate
$__________ Class A-2 Group I Certificates, _____% Pass-Through Rate
$__________ Class A-3 Group I Certificates, _____% Pass-Through Rate
$__________ Class A-4 Group I Certificates, _____% Pass-Through Rate
$__________ Class A-5 Group I Certificates, _____% Pass-Through Rate
$__________ Class A-6 Group II Certificates, Variable Pass-Through Rate
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LOGO Home Equity Securitization Corp.
Depositor
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The __________Home Equity Loan Asset Backed Certificates, Series _____ (the
"Certificates") will consist of six classes of offered certificates, the Class
A-1 Group I Certificates, the Class A-2 Group I Certificates, the Class A-3
Group I Certificates, the Class A-4 Group I Certificates, the Class A-5 Group I
Certificates, (collectively, the "Class A Group I Certificates" or the "Group I
Certificates"), and the Class A-6 Group II Certificates (the "Class A-6 Group II
Certificates" or the "Group II Certificates", together with the Group I
Certificates and the Group II Certificates, the "Class A Certificates") which
represent beneficial ownership interests in __________ Home Equity Loan Trust
_____ (the "Trust"). The assets of the Trust consist of a pool (the "Pool") of
fixed and adjustable rate, amortizing home equity loans which are secured by
first or second liens on residential properties (the "Home Equity Loans"), the
Certificate Insurance Policy (as defined below; see the Index of Principal
Definitions on page i hereof) covering the Class A Certificates and amounts held
from time to time in certain trust accounts.
The Company has obtained a financial guaranty insurance policy (the "Certificate
Insurance Policy") from ____________________ (the "Certificate Insurer") which
will unconditionally and irrevocably guarantee payment of certain amounts due to
the Owners of the Class A Certificates to the extent described herein; see "The
Certificate Insurance Policy and the Certificate Insurer -- The Certificate
Insurance Policy" in this Prospectus Supplement.
INSURER LOGO (Cover continued on next page)
For a discussion of certain risk factors regarding an investment in the Class A
Certificates, see "Risk Factors" on page herein and on page __ of the
accompanying Prospectus.
[__________ and ___________ (the "Underwriters") have agreed to purchase from
the Trust the Class A-1 Group I Certificates at an aggregate price of _____% of
the principal amount thereof, the Class A-2 Group I Certificates at an aggregate
price of _____% of the principal amount thereof, the Class A-3 Group I
Certificates at an aggregate price of _____% of the principal amount thereof,
the Class A-4 Group I Certificates at an aggregate price of _____% of the
principal amount thereof, the Class A-5 Group I Certificates at an aggregate
price of _____% of the principal amount thereof, and the Class A-6 Group II
Certificates at an aggregate price of _____% of the principal amount thereof,
(representing $__________ aggregate proceeds to the Company before deducting
expenses payable by the Company, estimated at $______) plus accrued interest, if
any, from __________ for the Class A-2, A-3, A-4 and A-5 Group I Certificates
(together, the "Class A Fixed Rate Certificates") subject to the terms and
conditions set forth in the Underwriting Agreement dated __________ among the
Underwriters and the Company. See "Plan of Distribution" in this Prospectus
Supplement.]
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The Class A Certificates are offered hereby by the Underwriters when, as and if
issued by the Trust, delivered and accepted by the Underwriters and subject to
their right to reject orders in whole or in part. It is expected that
delivery of the Class A Certificates will be made in book-entry form only
through the facilities of The Depository Trust Company, CEDEL, S.A. and
Euroclear on or about __________ against payment in immediately available funds.
(Cover continued from previous page)
[The Underwriters propose to offer the Class A Certificates from time to time
for sale in negotiated transactions or otherwise, at market prices prevailing at
the time of sale or at negotiated prices. For further information with respect
to the plan of distribution and any discounts, commissions or profits on resale
that may be deemed underwriting discounts or commissions, see "Plan of
Distribution" in this Prospectus Supplement.]
[This Prospectus Supplement is to be used by First Union Capital Markets Corp.,
an affiliate of the Depositor, in connection with offers and sales related to
market-making transactions in the Certificates in which First Union Capital
Markets Corp. acts as principal. First Union Capital Markets Corp. may
also act as agent in such transactions. Sales will be made at negotiated prices
determined at the time of sale.]
The Class A Group I Certificates will represent undivided ownership interests in
a group ("Group I") of Home Equity Loans in the Trust which bear fixed rates of
interest, and the Class A-6 Group II Certificates will represent undivided
ownership interests in a group ("Group II") of Home Equity Loans in the Trust
which bear adjustable rates of interest. Group I and Group II are collectively
referred to herein as the "Home Equity Loan Groups" and each singularly, a "Home
Equity Loan Group".
The Certificates will be issued pursuant to a Pooling and Servicing Agreement
(the "Pooling and Servicing Agreement") among Home Equity Securitization Corp.
as the Depositor (the "Depositor"), __________, as Master Servicer (the "Master
Servicer"), and __________ (the "Trustee"). On or prior to the Closing Date, the
Company will acquire the Home Equity Loans from the Originators, as described
herein. Pursuant to a Purchase and Sale Agreement dated as of __________ (the
"Sale Agreement"), the Company will sell the Home Equity Loans to the
Depositor. The Depositor will in turn sell the Home Equity Loans to the Trust
pursuant to the Pooling and Servicing Agreement. In addition to the Class A
Certificates, the Trust will also issue a subordinate Class of Certificates with
respect to Group I and Group II (the "Class B Certificates"), and one or more
Classes of Residual Certificates. Only the Class A Certificates are offered
hereby. Distributions of interest on the Class A Certificates are of an equal
priority to the extent described herein, and distributions on the Class B
Certificates and on the Residual Certificates are subordinate to distributions
on the Class A Certificates to the extent described herein. See "Description of
the Certificates" herein.
All of the Home Equity Loans were originated under the Company's Home Equity
Loan Program by unaffiliated originators (the "Originators"). Except for certain
representations and warranties relating to the Home Equity Loans and certain
other matters, Home Equity Securitization Corp., __________, ________________,
the Master Servicer, any Sub-Servicers and the Originators will have no
obligations with respect to the Certificates.
Distributions of principal and interest on the Class A Certificates will be made
to the extent funds are available therefor on the __ day of each month or if
such day is not a business day, on the next succeeding business day commencing
___________ (each, a "Payment Date") to holders of record as of the close of
business on the first business day of the current calendar month (with respect
to the Class A Fixed Rate Certificates) or as of the close of business on the
business day immediately preceding such Payment Date (with respect to the Class
A-1 Group I Certificates and the Class A-6 Group II Certificates), except in the
case of the first Payment Date, on which distributions will be made to holders
of record as of the Closing Date (each such date being the applicable "Record
Date").
An ERISA Plan purchasing the Class A Certificates should consult with its legal
advisors concerning the impact of ERISA and the Code with respect to such
purchase. See "Risk Factors" and "ERISA Considerations" herein.
There is currently no secondary market for any Class of the Class A
Certificates. There can be no assurance that a secondary market for any of the
Class A Certificates will develop, or if it does develop, that it will continue.
One or more elections will be made to treat certain assets of the Trust as "real
estate mortgage
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investment conduits" ("REMICs") for federal income tax purposes, pursuant to the
Internal Revenue Code of 1986, as amended (the "Code"). See "Federal Tax
Consequences" herein.
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THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT THE
OFFERING OF THE SECURITIES. ADDITIONAL INFORMATION IS CONTAINED IN THE
PROSPECTUS AND PROSPECTIVE INVESTORS ARE URGED TO READ BOTH THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS IN FULL. SALES OF THE SECURITIES MAY NOT BE
CONSUMMATED UNLESS THE PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT
AND THE PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
CERTIFICATES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE CLASS A CERTIFICATES REPRESENT INTERESTS IN THE TRUST ONLY AND DO NOT
REPRESENT INTERESTS IN OR OBLIGATIONS OF HOME EQUITY SECURITIZATION CORP.,
__________, THE TRUSTEE, THE CERTIFICATE INSURER, ANY SUB-SERVICER OR ANY OF
THEIR RESPECTIVE AFFILIATES, EXCEPT TO THE EXTENT DESCRIBED HEREIN. THE CLASS A
CERTIFICATES AND THE HOME EQUITY LOANS ARE NOT INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY, NOR HAS ANY GOVERNMENTAL AGENCY PASSED UPON THE ACCURACY OF
THE INFORMATION CONTAINED IN THIS PROSPECTUS.
AVAILABLE INFORMATION
The Depositor has filed a Registration Statement under the
Securities Act of 1933, as amended, (the "1933 Act") with the Securities and
Exchange Commission (the "Commission") on behalf of the Trust with respect to
the Class A Certificates offered pursuant to this Prospectus Supplement and the
related Prospectus. For further information, reference is made to the
Registration Statement and amendments thereof and to the exhibits thereto, which
are available for inspection without charge at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
7 World Trade Center, 13th Floor, New York, New York 10048; and 500 West Madison
Street, Chicago, Illinois 60661. Copies of the Registration Statement and
amendments thereof and exhibits thereto may be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. In addition, the Commission maintains a site on the
World Wide Web at http://www.sec.gov containing reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
REPORTS TO THE HOLDERS
So long as the Class A Certificates are in book-entry form,
monthly and annual reports concerning such Certificates and the Trust will be
sent by the Trustee to Cede & Co. ("Cede"), as the nominee of The Depository
Trust Company ("DTC") and as registered holder of the Class A Certificates
pursuant to the Pooling and Servicing Agreement. DTC will forward such reports
to the Participants and indirect participants by mail for forwarding to the
Owner of any Class A Certificates (the "Owner" or "Certificateholder"). See
"Risk Factors" and "Description of the Certificates -- Reports to Owners". The
Trust will not provide any financial information to the Owners which has been
examined and reported upon, with an opinion expressed by, an independent public
accountant. The Company and the Depositor have determined that their respective
financial statements are not material to the offering made hereby. The Trust
will have no assets or obligations prior to issuance of the Certificates and
will engage in no activities other than those described herein. Accordingly, no
financial statements with respect to the Trust are included in this Prospectus
Supplement and the related Prospectus.
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SUMMARY
This summary is qualified in its entirety by reference to the detailed
information appearing elsewhere in this Prospectus Supplement and the
accompanying Prospectus. Reference is made to the Indices of Principal
Definitions for the location in either the Prospectus or this Prospectus
Supplement of the definitions of certain capitalized terms.
Issuer __________ Home Equity Loan Trust _____ (the "Trust").
Securities Offered $________ aggregate principal amount of Class A-1 Group I
Certificates, Variable Pass-Through Rate; $________
aggregate principal amount of Class A-2 Group I
Certificates, _____% Pass-Through Rate; $_________ aggregate
principal amount of Class A-3 Group I Certificates, _____%
Pass-Through Rate; $________ aggregate principal amount of
Class A-4 Group I Certificates, _____% Pass-Through Rate;
$_________ aggregate principal amount of Class A-5 Group I
Certificates, _____% Pass-Through Rate; and $________
aggregate principal amount of Class A-6 Group II
Certificates.
Company ___________ (the "Company").
Depositor Home Equity Securitization Corp., a Delaware corporation
(the "Depositor").
Master Servicer __________, a __________ corporation (the "Master
Servicer").
Trustee __________ (the "Trustee").
Originators of the Home Equity Loans The Home Equity Loans to be acquired by the Trust have been
acquired by the Company from the Originators, in accordance
with the Company's underwriting criteria.
Original Pool Principal Balance $___________ as of the close of business on the Cut-Off Date.
Original Group I Pool Principal Balance $___________ as of the close of business on the Cut-Off Date.
Original Group II Pool Principal Balance $___________ as of the close of business on the Cut-Off Date.
Closing Date On or about __________.
Cut-Off Date ___________.
Description of the Certificates The Certificates will be issued by the Trust pursuant to a
Pooling and Servicing Agreement to be dated as of
___________ (the "Pooling and Servicing Agreement") among
the Master Servicer, the Depositor and the Trustee. The
$________ aggregate principal amount of Class A Group I
Certificates (collectively, the "Class A Group I
Certificates" or the "Group I Certificates"), and the
$________ aggregate principal amount of Class A-6 Group II
Certificates (the "Class A-6 Group II Certificates" or the
"Group II
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Certificates"), are senior certificates as described herein.
The assets of the Trust initially will include two groups
(each, a "Home Equity Loan Group") of closed-end home equity
loans (the "Home Equity Loans") secured by mortgages or
deeds of trust (the "Mortgages") on one-to-four family
residential properties (the "Mortgaged Properties") to be
conveyed to the Trust on the Closing Date. The Group I
Certificates will represent undivided ownership interests in
a group of fixed-rate Home Equity Loans ("Group I"). The
Group II Certificates will represent undivided ownership
interests in a group of adjustable-rate Home Equity Loans
("Group II").
The Trust will issue a subordinate Class of Certificates
with respect to Group I and Group II (the "Class B
Certificates"), which are subordinated to the Class A Group
I Certificates and the Class A-6 Group II Certificates. The
Class B Certificates are not being offered hereby. The Trust
will also issue one residual class of Certificates with
respect to each REMIC election made by the Trust (the
"Residual Certificates") which are not being offered hereby
and will initially be retained by the Depositor or its
affiliates. The Class A Group I Certificates, the Class A-6
Group II Certificates, the Class B Certificates and the
Residual Certificates are collectively referred to as the
"Certificates". The Class A Group I Certificates and the
Class A-6 Group II Certificates are collectively referred to
as the "Class A Certificates"
A. Class A Group I The Class A Group I Certificates represents senior beneficial
ownership interests in Group I. One hundred percent (100%) of
the Group I Insured Distribution Amount (as described herein
Certificates under "Description of the Certificates") due to the Owners of
the Class A Group I Certificates on each Payment Date is
guaranteed by the Certificate Insurer. The final scheduled
Payment Date for the Class A-1 Group I Certificates is
___________, for the Class A-2 Group I Certificates is
_______, for the Class A-3 Group I Certificates is _______,
for the Class A-4 Group I Certificates is _________ and for
the Class A-5 Group I Certificates is _______. Each Class of
Class A Group I Certificates is issuable in original
principal amounts of $1,000 and integral multiples thereof
except that one certificate for each Class of Class A Group I
Certificates may be issued in a different amount
B. Class A-6 Group The Class A-6 Group II Cetificates represent senior
beneficial ownership interests in Group II. One hundred
II Certificates percent (100%) of the Group II Insured Distribution Amount
(as described herein under "Description of the Certificates")
due to the Owners of the Class A-6 Group II Certificates on
each Payment Date is guaranteed by the Certificate Insurer.
The final scheduled Payment Date for the Class A-6 Group II
Certificates is _______. The Class A-6 Group II Certificates
are issuable in original principal amounts of $1,000 and
integral multiples thereof except that one certificate may be
issued in a different amount.
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The Home Equity Loan Pool The statistical information concerning the Pool of Home
Equity Loans is based upon Pool information as of the close
of business on ___________ (the "Cut-Off Date").
The Pool of Home Equity Loans consists of Notes secured by
mortgages, deeds of trust or other instruments creating
liens or estates in fee simple interests ("Mortgages") on
one- to four-family residential properties, including
investment properties. The Home Equity Loans will not be
insured by primary mortgage insurance policies, nor will any
pool insurance insure the Home Equity Loans. The Home Equity
Loans are not guaranteed by the Company, the Depositor, the
Master Servicer, the Sub-Servicers, the Trustee or any of
their respective affiliates. The Home Equity Loans will be
serviced by the Master Servicer on a "scheduled/actual"
basis (i.e., "scheduled" interest and "actual" principal
receipts are required to be remitted by the Master Servicer
to the Trustee each month).
Each Home Equity Loan in the Trust will be assigned to one
of two home equity loan groups ("Group I" or "Group II",
each, a "Home Equity Loan Group") comprised of Home Equity
Loans which bear fixed-interest rates only in the case of
Group I, and Home Equity Loans which bear adjustable
interest rates only in the case of Group II. As of the
Cut-Off Date, the Home Equity Loans in Group I had an
aggregate principal balance of approximately $________ (the
"Original Group I Pool Principal Balance") and the Home
Equity Loans in Group II had an aggregate principal balance
of approximately $________ (the "Original Group II Pool
Principal Balance"). The sum of the Original Group I Pool
Principal Balance and the Original Group II Pool Principal
Balance is equal to the "Original Pool Principal Balance".
The Pool of Home Equity Loans in Group I consists of
approximately _____ Mortgages secured by Mortgaged
Properties located in __ states and the District of
Columbia. The Pool of Home Equity Loans in Group I consists
as of the Cut-Off Date and as a percentage of the Original
Group I Pool Principal Balance, of approximately _____% of
loans secured by first liens on the related Mortgaged
Properties and approximately ____% of loans secured by
second liens on the related Mortgaged Properties. The Pool
of Home Equity Loans in Group I consists of approximately
_____% of loans secured by primary residences. _____% of the
Home Equity Loans in Group I will be fully amortizing and
_____% of the Home Equity Loans in Group I are partially
amortizing loans ("Balloon Loans"). The weighted average
Combined Loan-to-Value Ratio (with property values
calculated as of the time of origination of the related Home
Equity Loan) of the Pool of Home Equity Loans in Group I is
approximately _____% with a range from approximately ______%
to approximately ______%; the weighted average stated
remaining term to maturity is approximately ___ months, with
a range from ___ months to ___ months; the weighted average
number of months since origination is approximately months;
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the average principal balance of the Home Equity Loans in
Group I is approximately $______, the highest principal
balance is approximately $______ and the lowest principal
balance is approximately $________; the coupon rates (the
"Coupon Rates") of the Home Equity Loans in Group I range
from ___% per annum to ______% per annum, with a weighted
average Coupon Rate of approximately ____% per annum.
The Pool of Home Equity Loans in Group II consists of
approximately _____ Mortgages secured by Mortgaged
Properties located in __ states and the District of
Columbia. The Pool of Home Equity Loans in Group II consists
as of the Cut-Off Date and as a percentage of the Original
Group II Pool Principal Balance, of ___% of loans secured by
first liens on the related Mortgaged Properties. The Pool of
Home Equity Loans in Group II consists of approximately
____% of loans secured by primary residences. _____% of the
Home Equity Loans in Group II will be fully amortizing and
_____% of the Home Equity Loans in Group II are Balloon
Loans. The weighted average Loan-to-Value Ratio (with
property values calculated as of the time of origination of
the related Home Equity Loan) of the Pool of Home Equity
Loans in Group II is approximately _____% with a range from
approximately _____% to approximately ______%; the weighted
average stated remaining term to maturity is approximately
____ months, with a range from ___ months to ___ months; the
weighted average number of months since origination is
approximately _ month; the average principal balance of the
Home Equity Loans in Group II is approximately $_____, the
highest principal balance is approximately $______ and the
lowest principal balance is approximately $______; the
Coupon Rates of the Home Equity Loans in Group II range from
____% per annum to ____% per annum, with a weighted average
Coupon Rate of approximately ____% per annum; the margins of
the Home Equity Loans in Group II range from ____% to ____%
with a weighted average margin of approximately ____% per
annum. The Coupon Rates of Home Equity Loans in Group II
bear interest rates that adjust semi-annually based on
six-month LIBOR. In general the interest rates on the Home
Equity Loans in Group II are subject to periodic interest
rate caps and lifetime interest rate ceilings. ____% of the
aggregate principal balance of the Home Equity Loans in
Group II were fixed rate loans that, in 2 years from
origination, will be converted into variable rate loans and
____% of the aggregate principal balance of the Home Equity
Loans in Group II were fixed rate loans that, in 3 years
from origination, will be converted into variable rate
loans.
Class A-1 Pass- On each Payment Date, the "Class A-1 Pass-Through Rate" will
be equal to the lesser of (i) the London interbank offered
Through Rate rate for one-month United States dollar deposits ("LIBOR")
(calculated as described under "Description of the
Certificates -- Calculation of LIBOR") as of the second to
last business day prior to the immediately preceding Payment
Date (or as of the second to the last business day prior to
the Closing Date in the case of the first
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Payment Date) plus ____% per annum and (ii) the weighted
average net coupon rate (i.e., the weighted average coupon
rate on the Home Equity Loans in Group I less the sum of the
per annum rates at which the Servicing Fees, Trustee fees
and Certificate Insurer premiums are calculated, which sum
shall not exceed ___% for any Payment Date) for Group I for
such Payment Date (the "Group I Available Funds Pass-Through
Rate").
Class a-2 Pass-Through Rate _____% per annum.
Class A-3 Pass Through Rate _____% per annum.
Class A-4 Pass-Through Rate _____% per annum; provided, that on no Payment Date will the
Class A-4 Pass-Through Rate be greater than the Group I
Available Funds Pass-Through Rate.
Class A-5 Pass-Through Rate ____% per annum.
Class A-6 Pass-Through Rate On each Payment Date, the "Class A-6 Pass-Through Rate" will
be equal to the lesser of (i) LIBOR as of the second to last
business day prior to the immediately preceding Payment Date
(or as of the second to the last business day prior to the
Closing Date in the case of the first Payment Date) plus
____% per annum, and (ii) the weighted average net coupon
rate (i.e., the weighted average coupon rate on the Home
Equity Loans in Group II less the sum of the per annum rates
at which the Servicing Fees, Trustee fees and Certificate
Insurer premiums are calculated, which sum shall not exceed
___% for any Payment Date) for Group II for such Payment
Date and less ___% on the ___ Payment Date and thereafter
(the "Class A-6 Available Funds Pass-Through Rate").
The "Class A-6 Formula Pass-Through Rate" for a Payment Date
is the rate described in clause (i) of the definition of
"Class A-6 Group II Pass-Through Rate" on such Payment Date.
The excess, if any, of (x) the interest due on the Class A-6
Certificates on any Payment Date calculated at the Class A-6
Formula Pass-Through Rate over (y) the interest due on the
Class A-6 Certificates calculated at the Class A-6 Available
Funds Pass-Through Rate is the "Group II Supplemental
Interest Amount" for such Payment Date.
If,on any Payment Date, there is a Group II Supplemental
Interest Amount calculated for any Payment Date, such amount
shall be payable from amounts that would otherwise be
distributed to the Owners of the Class B Certificates, and
the Owners of certain of the Class R Certificates have
agreed to pay any remaining amounts. If the full amount of
the Group II Supplemental Interest Amount is not paid on a
Payment Date, then the amount not paid will accrue interest
at the Class A-6 Formula Pass-Through Rate until actual
payment.
The Certificate Insurer does not guarantee the payment of,
nor do the ratings assigned to the Class A-6 Certificates
address the
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likelihood of the payment of, any Supplemental Interest
Amount.
Payment Dates, Record Dates On the __ day of each month, or, if such day is not a
business day, then the next succeeding business day,
commencing ___________ (each such day being a "Payment
and Accrual Periods Date"), the Trustee will be required to distribute to the
Owners of record of the Certificates as of the close of
business on the first business day of the current calendar
month (with respect to the Class A Fixed Rate Certificates)
or as of the close of business on the business day
immediately preceding such Payment Date (with respect to the
Class A-1 Group I Certificates and the Class A-6 Group II
Certificates), except in the case of the first Payment Date,
on which distributions will be made to holders of record as
of the Closing Date (each such date being the applicable
"Record Date") such Owners' Percentage Interests in the
amounts required to be distributed to the Owners of each
Class of Certificates on such Payment Date.
Interest will accrue on each Class A-2, A-3, A-4 and A-5
Group I Certificate during the period from and including the
second day of the month preceding the month in which a
Payment Date occurs through and including the first day of
the month in which such Payment Date occurs and on each
Class A-1 Group I Certificate and Class A-6 Group II
Certificate from and including each Payment Date (or the
Closing Date, with respect to the initial Payment Date) to
and including the day preceding the current Payment Date.
Each period referred to in the immediately preceding
sentence relating to the accrual of interest is the "Accrual
Period" for the related Class of Certificates. Interest will
be calculated on the basis of a 360-day year consisting of
twelve 30-day months for the Class A-2, A-3, A-4 and A-5
Group I Certificates. Interest for the Class A-1 Group I
Certificates and the Class A-6 Group II Certificates will be
calculated based upon the actual number of days in the
related Accrual Period, divided by 360.
Distributions on the Certificates
A. Priority of Distributions As more fully described herein, each Class of Certificates
has a specified priority to the collections on the Pool of
Home Equity Loans which comprise the related Home Equity
Loan Group, subject to the credit enhancement and
cross-collateralization provisions hereinafter described. In
addition, ________________, as Certificate Insurer, is
required pursuant to the Certificate Insurance Policy to
make available to the Trustee on each Payment Date 100% of
the related Class A Insured Distribution Amount for the
related Home Equity Loan Group to the extent that available
funds remaining after payment of the Trustee's fee are
insufficient to cover such amount.
The Owners of the Class A Group I Certificates and the Class
A-6 Group II Certificates will receive certain monthly
distributions of
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principal on each Payment Date which generally reflect
collections of principal during the prior Remittance Period
with respect to the related Home Equity Loan Group. The
Certificate Insurance Policy only guarantees the amount by
which the sum of the related Interest Distribution Amount
and the related Subordination Deficit, if any, exceeds Total
Available Funds.
B. Distributions on the Class A
Certificates
1. Interest Distributions Interest will accrue on each Class of Class A Certificates
at the related Class A Pass-Through Rate during each Accrual
Period for such Class of Certificates, and will be
distributed, to the extent of the Total Available Funds for
the related Home Equity Loan Group plus the proceeds of any
Insured Payments, on each Payment Date. Interest accruing
during the related Accrual Period at the related Class A
Pass-Through Rate on the related Class A Principal Balance
immediately preceding such Payment Date is referred to
herein as the "Class A Interest Distribution Amount" for the
related Class of Class A Certificates. The "Class A Interest
Distribution Amount" does not include the amounts, if any,
of the Supplemental Interest Amount applicable to the Class
A-6 Group II Certificates. See "Description of the
Certificates -- Flow of Funds and Distributions on the Class
A Certificates" herein.
2. Principal Distributions The Holders of the Class A Certificates issued with respect
to each Home Equity Loan Group will be entitled to receive
on each Payment Date a distribution allocable to principal
(the "Class A Principal Distribution Amount" for such Home
Equity Loan Group and Payment Date) which will be equal to
the lesser of:
(a) the Total Available Funds for the related Home Equity
Loan Group plus any related Insured Payment minus the
interest then due on account of the related Class A
Certificates; and (1)
(b)(i) the sum, without duplication, of:
(x) for the Home Equity Loans in the related Home Equity
Loan Group, the sum of (i) the principal portion of all
scheduled and unscheduled payments received on the Home
Equity Loans during the related Remittance Period, including
(a) any full or partial principal prepayments of any Home
Equity Loans ("Prepayments") received during the related
Remittance Period, (b) the proceeds received on any
insurance policy relating to a Home Equity Loan, a Mortgaged
Property or a REO Property, net of proceeds to be applied to
the repair of the Mortgaged Property or released to the
Mortgagor (as defined herein) and net of expenses
reimbursable therefrom ("Insurance Proceeds"), (c) proceeds
received in connection with the liquidation of any defaulted
Home Equity Loans, whether by trustee's sale, foreclosure
sale or otherwise ("Liquidation Proceeds"), net of fees and
advances reimbursable therefrom ("Net Liquidation Proceeds")
and (d) proceeds received in connection with a taking of a
Mortgaged Property by
S-11
condemnation or the exercise of eminent domain or in
connection with a release of part of the Mortgaged Property
from the related lien ("Released Mortgaged Property
Proceeds"), (ii) the principal portion of all amounts
deposited into the Principal and Interest Account on the
related Remittance Date in connection with the repurchase
of, or the substitution of a substantially similar home
equity loan for, a Mortgage as to which there is defective
documentation or a breach of a representation or warranty
contained in the Pooling and Servicing Agreement, and (iii)
the proceeds received by the Trustee in connection with any
termination of the Trust, to the extent that such proceeds
relate to principal.
(y) the amount of any Subordination Deficit with respect to
the related Home Equity Loan Group for such Payment Date;
and
(z) the amount of any Subordination Increase Amount with
respect to the related Home Equity Loan Group for such
Payment Date;
minus
(ii) the amount of any Subordination Reduction Amount with
respect to the related Home Equity Loan Group for such
Payment Date.
The amount of any Subordination Deficit or Subordination
Increase Amount to be paid to the Holders of the Class A
Certificates will be paid to the Holders of the Class A
Certificates then entitled to receive distributions of
principal. Similarly, the amount of any Subordination
Reduction Amount to be deducted from the Class A Principal
Distribution Amount for the Class A Certificates will be
deducted from such amounts otherwise due to the Holders of
the Class A Certificates then entitled to receive
distributions of principal.
The amount of any loss on a Liquidated Home Equity Loan in
the related Home Equity Loan Group (i.e., a Realized Loss)
may or may not be allocated to the Owners of the Class A
Certificates issued with respect to such Home Equity Loan
Group on the Payment Date which immediately follows the
event of loss. However, the Owners of each Class of the
Class A Certificates are entitled to receive ultimate
recovery of 100% of the original principal balance for such
Class.
Principal distributions with respect to the Class A Group I
Certificates will generally be distributed in a
sequential-pay fashion, subject to the "lockout" provisions
applicable to the Class A-5 Group I Certificates.
The Owners of the Class A-5 Group I Certificates are
entitled to receive payments of the Class A-5 Lockout
Distribution Amount specified herein; provided, that if on
any Payment Date the Class
S-12
A-4 Certificate Principal Balance is zero, the Owners of the
Class A-5 Group I Certificates will be entitled to receive
the entire Class A Principal Distribution Amount for Group I
for such Payment Date.
The "Class A-5 Lockout Distribution Amount" for any Payment
Date will be the product of (i) the applicable Class A-5
Lockout Percentage for such Payment Date and (ii) the Class
A-5 Lockout Pro Rata Distribution Amount for such Payment
Date.
The "Class A-5 Lockout Percentage" for each Payment Date
shall be as follows:
Payment Dates Lockout Percentage
The "Class A-5 Lockout Pro Rata Distribution Amount" for any
Payment Date will be an amount equal to the product of (x) a
fraction, the numerator of which is the Certificate
Principal Balance of the Class A-5 Group I Certificates
immediately prior to such Payment Date and the denominator
of which is the aggregate Certificate Principal Balance of
all Classes of the Group I Certificates immediately prior to
such Payment Date and (y) the Class A Principal Distribution
Amount for Group I for such Payment Date.
After payment of the Class A-5 Lockout Distribution Amount,
the remaining Class A Principal Distribution Amount for
Group I shall be paid to the Owners of the other Classes of
Class A Group I Certificates sequentially, such that the
Class A-4 Group I Certificates are entitled to receive no
principal distributions until the Class A-3 Certificate
Principal Balance has been reduced to zero, the Class A-3
Group I Certificates are entitled to receive no principal
distributions until the Class A-2 Certificate Principal
Balance has been reduced to zero, the Class A-2 Group I
Certificates are entitled to receive no principal
distributions until the Class A-1 Certificate Principal
Balance has been reduced to zero.
As of any Payment Date, the "Class A Certificate Principal
Balance" for a Class of Class A Certificates, prior to any
distribution on such Payment Date, will equal the original
Class A Certificate Principal Balance of such Class less the
sum of all
S-13
amounts previously distributed to the Owners of the related
Class of Class A Certificates on account of principal.
"Class A Group I Certificate Principal Balance" refers to
the Class A Group I Certificates and the "Class A Group II
Certificate Principal Balance" refers to the Class A-6 Group
II Certificates.
C. Class A Distribution Amounts and The "Class A Distribution Amount" with respect to each Class
Class A Insured Distribution Amounts of Class Insured Distribution Amounts A Certificates and
Payment Date is the sum, without duplication, of (x) the
Class A Interest Distribution Amount with respect to such
Class and Payment Date, (y) the Class A Principal
Distribution Amount, if any, with respect to such Class and
Payment Date and (z) the Class A Carry-Forward Amount, if
any, with respect to such Class and Payment Date.
The "Class A Carry-Forward Amount" means, with respect to
each Class of Class A Certificates and Payment Date, the
sum, without duplication, of (a) the amount, if any, by
which (x) the Class A Distribution Amount for the related
Class of Class A Certificates as of the immediately
preceding Payment Date exceeded (y) the amount of the actual
distribution, exclusive of any portion thereof representing
the proceeds of an Insured Payment, to the Owners of the
related Class of Class A Certificates on such immediately
preceding Payment Date and (b) interest on the amount, if
any, described in clause (a) at the related Class A
Pass-Through Rate from such immediately preceding Payment
Date.
The "Class A Insured Distribution Amount" with respect to
each Class of Class A Certificates and Payment Date is the
sum, without duplication, of (x) the Class A Interest
Distribution Amount with respect to such Class and Payment
Date, less interest shortfalls arising from Prepayments of
principal and from application of the Soldiers' and Sailors'
Civil Relief Act of 1940, as amended (the "Relief Act") and
(y) the amount of any Subordination Deficit with respect to
such Class and Payment Date.
To the extent that the Certificate Insurer pays Insured
Payments the Certificate Insurer, as subrogee, will be
entitled to receive the Class A Carry-Forward Amount.
The Pooling and Servicing Agreement provides that to the
extent any portion of a Class A Carry-Forward Amount relates
to principal such portion shall be treated as a distribution
of principal, with any portion which relates to interest
being treated as a distribution of interest.
Registration of the Class A Certificates The Class A Certificates will initially be issued in
book-entry form. Persons acquiring beneficial ownership
interests in such Class A Certificates ("Beneficial
Certificate Owners") may elect to hold their interests
through The Depository Trust Company ("DTC"), in the United
States, or Centrale de Livraison de Valeurs Mobiliers, S.A.
("CEDEL") or the Euroclear System ("Euroclear"), in Europe.
Transfers within DTC, CEDEL or Euroclear, as the case may
be, will be in accordance with the usual rules and operating
procedures of the relevant system. So long as the Class A
S-14
Certificates are book-entry certificates, such Class A
Certificates will be evidenced by one or more Class A
Certificates registered in the name of Cede & Co. ("Cede"),
as the nominee of DTC or one of the relevant depositories
(collectively, the "European Depositories"). Cross-market
transfers between persons holding directly or indirectly
through DTC, on the one hand, and counterparties holding
directly or indirectly through CEDEL or Euroclear, on the
other, will be effected in DTC through Citibank N.A.
("Citibank") or The Chase Manhattan Bank ("Chase"), the
relevant depositories of CEDEL or Euroclear, respectively,
and each a participating member of DTC. The Class A
Certificates will initially be registered in the name of
Cede. The interests of the Owners of such Class A
Certificates will be represented by book-entries on the
records of DTC and participating members thereof. No
Beneficial Certificate Owner will be entitled to receive a
definitive certificate representing such person's interest,
except in the event that Definitive Certificates (as defined
herein) are issued under the limited circumstances described
herein. All references herein to any Class A Certificates
reflect the rights of Beneficial Certificate Owners only as
such rights may be exercised through DTC and its
participating organizations for so long as such Class A
Certificates are held by DTC. See "Risk Factors" and
"Description of the Certificates -- Book-Entry Registration
of the Class A Certificates" herein.
Servicing of the Home Equity Loans The Master Servicer has agreed to service the Home Equity
Loans in accordance with the Pooling and Servicing
Agreement. In certain limited circumstances and with the
consent of the Certificate Insurer, the Master Servicer may
be removed as Master Servicer under the Pooling and
Servicing Agreement. In the event that Home Equity
Securitization Corp. is removed as Master Servicer under the
Pooling and Servicing Agreement, a successor Master Servicer
will be appointed thereunder. See "Servicing" herein.
Monthly Servicing Fee The Master Servicer will retain fees not in excess of ___%
per annum (the "Servicing Fee"), payable monthly at
one-twelfth the annual rate, of the then outstanding
principal amount of each Home Equity Loan serviced by it as
of the close of business on the first day of the preceding
calendar month.
Subordination of Class B Certificates The Class B Certificates are subordinated to the Class A
Certificates. Such subordination is intended to enhance the
likelihood that the Owners of the Class A Certificates will
receive full and timely receipt of all amounts due to them.
See "Description of the Certificates -- Subordination of
Class B Certificates" herein.
Certificate Insurer ________________, a ___________________.
Certificate Insurance Policy Pursuant to an Insurance and Indemnity Agreement dated as of
__________ (the "Insurance Agreement"), the Depositor will
obtain the Certificate Insurance Policy, which is
non-cancelable, in favor of the Trustee on behalf of the
Owners of the Class A
S-15
Certificates. On each Payment Date, the Certificate Insurer
is required to make available to the Trustee the amount of
any insufficiency in Total Available Funds for the related
Home Equity Loan Group as of such = Payment Date necessary,
after the application of the cross-collateralization
provisions described herein, to distribute the Class A
Insured Distribution Amount with respect to the related =
Home Equity Loan Group. The Certificate Insurance Policy
does not guarantee any specified rate of Prepayments. See
"The Certificate Insurance Policy and the Certificate
Insurer" and "Description of the Certificates --
Subordination of Class B Certificates" herein.
The Trustee or paying agent will (i) receive as
attorney-in-fact of each Owner of the Class A Certificates,
any Insured Payment from the Certificate Insurer and (ii)
disburse the same to each Owner of the related Class A
Certificates in accordance with the Pooling and Servicing
Agreement. The Pooling and Servicing Agreement will provide
that to the extent the Certificate Insurer makes Insured
Payments, either directly or indirectly (as by paying
through the Trustee or a paying agent), to the Owners of any
Class A Certificates, the Certificate Insurer will be
subrogated to the rights of such Owners of such Class A
Certificates with respect to such Insured Payments. The
Certificate Insurer will receive reimbursement for such
Insured Payments, but only from the sources and in the
manner provided in the Pooling and Servicing Agreement. Such
subrogation and reimbursement will have no effect on the
Certificate Insurer's obligations under the Certificate
Insurance Policy.
Optional Termination The Depositor will have the right to purchase all the Home
Equity Loans on any Payment Date when the aggregate
principal balances of the Home Equity Loans has declined to
ten percent or less of the Original Pool Principal Balance
(the "Depositor Optional Termination Date"), subject to the
consent of the Certificate Insurer in certain circumstances.
See "Description of the Certificates -- Optional Termination
by the Depositor" herein.
Auction Sale The Pooling and Servicing Agreement requires that, within
ninety days following the Depositor Optional Termination
Date, if the Depositor has not exercised its optional
termination right by such date, the Trustee solicit bids for
the purchase of all Home Equity Loans remaining in the
Trust. In the event that satisfactory bids are received as
described in the Pooling and Servicing Agreement, the net
sale proceeds will be distributed to Certificateholders, in
the same order of priority as collections received in
respect of the Home Equity Loans. If satisfactory bids are
not received, the Trustee shall decline to sell the Home
Equity Loans and shall not be under any obligation to
solicit any further bids or otherwise negotiate any further
sale of the Home Equity Loans. Such sale and consequent
termination of the Trust must constitute a "qualified
liquidation" of each REMIC established by the Trust under
Section 860F of the Internal Revenue Code of 1986, as
amended, including, without limitation, the requirement that
the qualified liquidation takes place over a period not to
exceed 90
S-16
days. Such sale shall be subject to the consent of the
Certificate Insurer in certain circumstances.
Ratings It is a condition of the original issuance of the Class A
Certificates that the Class A Certificates receive ratings
of ___ or ___ by __________ ("___") and __________ ("___"),
respectively. 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 entity.
Such ratings address credit risk, but do not purport to
address any prepayment risk associated with the Class A
Certificates, nor do such ratings cover the payment of the
Supplemental Interest Amounts.
Federal Income One or more elections will be made to treat certain assets of
the Trust as one or more REMICs for federal income tax
Tax Consequences purposes. Each Class of the Class A Certificates will be
designated as a "regular interest" in a REMIC and a separate
class of certificates will be designated as the "residual
interest" with respect to each REMIC. Certificateholders that
would otherwise report income under a cash method of
accounting will be required to include in income interest on
the Class A Certificates (including original issue discount,
if any) in accordance with an accrual method of accounting.
See "Federal Income Tax Consequences" herein and in the
Prospectus.
ERISA Consequences As described under "ERISA Considerations" herein, the Class
A Certificates may be purchased by a pension or other
employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or by
individual retirement accounts or Keogh plans covering only
a sole proprietor or partner which are not subject to ERISA
but are subject to Section 4975 of the Code ("Plans"). See
"ERISA Considerations" herein and in the Prospectus.
Legal Investment Conderations The Class A Certificates will not constitute "mortgage
related securities" for purposes of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA"). Accordingly, many
institutions may not be legally authorized to invest in the
Class A Certificates.
Risk Factors For a discussion of certain factors that should be
considered by prospective investors in the Class A
Certificates, see "Risk Factors" herein and in the
accompanying Prospectus.
S-17
RISK FACTORS
For a discussion of all material risk factors that could make an
investment in the Class A Certificates speculative or one of high risk,
prospective investors should consider the following risk factors (as well as the
factors set forth under "Risk Factors" in the accompanying Prospectus) in
connection with the purchase of the Class A Certificates.
Prepayment May Affect the Yield to Maturity of the Notes.
All of the Home Equity Loans are prepayable in full or in part at any
time. The rate of Prepayments on the Home Equity Loans may be influenced by a
variety of economic, social and other factors, including interest rates, the
availability of alternative financing and homeowner mobility. Although there is
little significant data available on the effects of interest rates on prepayment
rates for non-purchase money, non-conforming credit home equity loans, a number
of factors suggest that the prepayment behavior of a pool of such home equity
loans may be significantly different from that of a pool of purchase money,
conforming-credit home equity loans. One such factor is the typically smaller
principal balance of the average non-purchase money home equity loan than that
of the average purchase money mortgage conventional loan in the typical pool. A
smaller principal balance is easier for a borrower to prepay than a larger
balance and therefore a higher prepayment rate may result for a non-purchase
money home equity loan pool than for a pool of purchase money home equity loans,
irrespective of the relative average interest rates in the two pools and the
general interest rate environment. A small principal balance, however, also may
make refinancing a non-purchase money home equity loan at a lower loan rate less
attractive to the borrower relative to refinancing a larger principal balance
non-purchase money home equity loan, as the perceived impact to the borrower of
lower interest rates on the size of the monthly payment on a home equity loan is
much less than for a larger principal balance non-purchase money home equity
loan. Other factors that might be expected to affect the prepayment rate of a
pool of home equity loans include the amounts of, and interest rates on, the
related senior home equity loans, if one exists, and the use of the first home
equity loans as long-term financing for home purchase and junior home equity
loans as shorter-term financing for a variety of purposes, including debt
consolidation, home improvement, education expenses and purchases of consumer
durables such as automobiles. See "Risk Factors" in the accompanying Prospectus.
The weighted average life of a pool of loans is the average amount of
time for which each dollar of principal on such loans is outstanding. Because it
is expected that there will be payments of principal of Home Equity Loans in
advance of the scheduled due date for the payments of such principal (the
"Prepayments") and defaults on the Home Equity Loans, the actual weighted
average life of the Home Equity Loans is expected to vary substantially from the
weighted average life of the Home Equity Loans based upon their amortization
schedules. Prepayments may result from voluntary early payments by borrowers
(including payments in connection with refinancings of the related first home
equity loans or the Home Equity Loan itself), the sale of Properties subject to
due-on-sale clauses, and liquidations due to default, as well as the receipt of
proceeds from physical damage insurance policies. In addition, repurchases of
Home Equity Loans from the Trust will have the same effect as Prepayments of the
related Home Equity Loans. Substantially all of the Home Equity Loans contain
"due-on-sale" provisions, and the Pooling and Servicing Agreement generally
requires the Master Servicer to enforce such provisions unless such enforcement
is not permitted by applicable law. See "Description of the Certificates -- Flow
of Funds and Distributions on the Class A Certificates", " -- General Servicing
Procedures", " -- Termination of the Trust", "Legal Investment Considerations",
and "Maturity, Prepayment and Yield Considerations" herein.
S-18
Home Equity Loans with Balloon Payments May Cause Risk of Higher
Default Rates.
_____% of the Original Group I Pool Principal Balance of the Home
Equity Loans in Group I, and ___% of the Original Group II Pool Principal
Balance of the Home Equity Loans in Group II are Balloon Loans. See "Risk
Factors" in the accompanying Prospectus.
Geographic Concentration of Home Equity Loans. Approximately ___% of
the Original Group I Pool Principal Balance represents Home Equity Loans
relating to Mortgaged Properties located in five states: Florida _____%,
Michigan _____%, Ohio _____%, Georgia _____% and North Carolina _____%.
Approximately _____% of the Original Group II Pool Principal Balance represents
Home Equity Loans relating to Mortgaged Properties located in five states:
Michigan _____%, Minnesota _____%, Wisconsin _____%, Illinois ____% and Texas
_____%. See "Risk Factors" in the Prospectus.
Junior Lien Loans May Create a Risk of Higher Default Rates.
____% of the Original Group I Pool Principal Balance of the Home Equity
Loans relates to Home Equity Loans secured by liens which are in a second
position. See "Risk Factors" in the Prospectus.
Optional or Mandatory Termination of the Trust May Adversely Affect an
Owner's Yield to Maturity.
The Trust may be terminated subject to the consent of the Certificate
Insurer in certain circumstances, when the aggregate principal balances of the
Home Equity Loans has declined to ten percent or less of the Original Pool
Principal Balance, either by the Depositor, exercising its optional termination
right, or pursuant to the Auction Sale. See "Description of Certificates --
Optional Termination by the Depositor" and "Description of the Certificates --
Auction Sale". Such a termination would be the equivalent of a prepayment of all
the Home Equity Loans. The Owners of the Class A Certificates would receive from
the proceeds resulting from any such termination, any interest accrued and
unpaid, together with any distribution of principal owed and unpaid, in the
order of priority set forth under "Description of Certificates -- Distributions
on the Class A Certificates". Any such termination of the Trust will reduce the
yield to maturity on Class A Certificates purchased at a premium. See
"Description of the Certificates -- Termination of the Trust" herein.
Basis Risk on the Class A-1 and Class A-6 Certificates May Reduce
Interest Rate Borne by such Certificates.
The Class A-1 Pass-Through Rate is based upon the value of an
adjustable index (one-month LIBOR), while the Coupon Rates on the Group I Home
Equity Loans are fixed. Consequently, the interest which becomes due on such
Home Equity Loans in Group I (net of the Servicing Fees, the Trustee fees and
the Certificate Insurer premiums) during any Remittance Period may be less than
the amount of interest that would accrue at one-month LIBOR plus the margin on
the Class A-1 Group I Certificates, during the related Accrual Period, and will
be limited to such lower amount. The Class A-1 Group I Certificates do not
contain any "carry-forward" or "catch-up" feature if the amount of interest paid
is so limited.
The Class A-6 Group II Pass-Through Rate is based upon the value of an
index (one-month LIBOR) which is different from the value of the indices
applicable to the Home Equity Loans in Group II, as described under "The
Mortgage Pool -- Group II" (either as a result of the use of a different index,
rate determination date, rate adjustment date or rate cap or floor). The Home
Equity Loans in Group II primarily adjust semi-annually based upon a six-month
LIBOR index whereas the Class A-6 Group II Pass-Through Rate adjusts monthly
based on a one-month LIBOR index and is limited by the Class A-6 Available Funds
Pass-Through Rate, unless Supplemental Interest Amounts (the payment of which is
not insured by the Certificate Insurer and which is not rated) are funded in
full. Consequently the actual Class A-6 Pass-Through Rate for a Payment Date may
not equal the Class A-6 Formula Pass-Through Rate, for such Payment Date. In
particular, the interest rates on the Home Equity Loans in Group II adjust less
frequently, with the result that the actual Class A-6 Pass-Through Rate may be
lower than the Class A-6 Formula Pass-Through Rate, for extended
S-19
periods in a rising interest rate environment. In addition, one-month LIBOR and
six-month LIBOR may respond to different economic and market factors, and there
is not necessarily any correlation between them. Thus, it is possible, for
example, that one-month LIBOR may rise during periods in which one or more
Indices are falling or that, even if both one-month LIBOR and six-month LIBOR
Indices rise during the same period, one-month LIBOR may rise much more rapidly
than six-month LIBOR. See "Class A-6 Pass-Through Rate" in the Summary for this
Prospectus Supplement.
[Limited Liquidity
In connection with the initial offering of the Certificates, First
Union Capital Markets Corp. has indicated that it intends to make a market in
the Certificates and to deliver this Prospectus Supplement, in connection with
such market-making activity. First Union Capital Markets Corp. has no obligation
to make a secondary market in the Certificates, or if it does develop, there can
be no assurance that any secondary market will continue until the termination of
the Trust.]
USE OF PROCEEDS
The Trust will acquire the Home Equity Loans from the Depositor (the
Depositor having obtained the Home Equity Loans from the Company) concurrently
with the sale of the Certificates and the net proceeds from the sale of the
Certificates will be paid to the Depositor. Such net proceeds will, in effect,
represent the purchase price paid by the Trust to the Depositor for the Home
Equity Loans. The net proceeds, after funding transaction costs, to be received
from the sale of the Home Equity Loans will be added to the Depositor's general
funds and will be available for general corporate purposes.
THE COMPANY
[description]
SERVICING
The Master Servicer
As Master Servicer, __________ will be obligated to service the Home
Equity Loans pursuant to the Pooling and Servicing Agreement. See "Description
of the Certificates -- General Servicing Procedures" herein.
Delinquency Experience on the Company's Portfolio of Home Equity Loans
As of
------------------------------------------------------------------------------
------------------------------------------------------------------------------
Number of Home
Equity Loans.........
Dollar amount of
Home Equity Loans....
Delinquency
Period30-59 Days
% of number of
loans (1)........
% of dollar
amount of loans
(2)..............
60-89 days
% of number of
loans (1)........
% of dollar
amount of loans
(2)..............
S-20
90 days and over
% of number of
loans (1)........
% of dollar
amount of loans
(2)..............
Foreclosed
Properties
% of number of
loans (1)........
% of dollar
amount of loans
(2)..............
(1) The number of delinquent Home Equity Loans or the number of foreclosed
properties as a percentage of the total "Number of Home Equity Loans" as
of the date indicated.
(2) The dollar amount of delinquent Home Equity Loans or the dollar amount of
foreclosed properties as a percentage of the total "Dollar amount of Home
Equity Loans" as of the date indicated.
S-21
LOAN LOSS EXPERIENCE ON THE COMPANY'S PORTFOLIO OF HOME EQUITY LOANS
-----------------------------------
Average amount outstanding(1).............
Gross losses(2)...........................
Recoveries(3).............................
Net losses(4).............................
Net losses as a percentage of average amount
outstanding ..............................
(1) "Average Amount Outstanding" during the period is the arithmetic average
of the principal balances of the home equity loans outstanding on the
last business day of each month during the period.
(2) "Gross Losses" are the principal amounts of the home equity loans for
each respective period which have been determined to be uncollectible.
(3) "Recoveries" represent the excess of (x) the sum of recoveries from
liquidation proceeds and deficiency judgments over (y) the sum of
expenses and accrued interest.
(4) "Net Losses" represents "Gross Losses" minus "Recoveries".
While the above delinquency and loan loss experience represents the
recent experience of the Company's portfolio of Home Equity Loans, there can be
no assurance that the future delinquency and loan loss experience on the Home
Equity Loans included in the Pool will be similar. The Company can neither
quantify the impact of any recent property value declines on the Home Equity
Loans nor predict whether, to what extent or how long such declines may
continue. In a period of such decline, the rates of delinquencies, foreclosures
and losses on the Home Equity Loans could be higher than those heretofore
experienced in the mortgage lending industry in general. In addition, adverse
economic conditions (which may or may not affect real property values) may
affect the timely payment by borrowers of scheduled payments of principal and
interest on the Home Equity Loans and, accordingly, the actual rates of
delinquencies, foreclosures and losses.
THE HOME EQUITY LOAN POOL
General
The statistical information concerning the Pool of Home Equity Loans is
based upon Pool information as of the close of business on ___________ (the
"Cut-Off Date").
The Home Equity Loans consist of _____ home equity loans evidenced by
promissory notes (the "Notes") secured by deeds of trust, security deeds or
mortgages on the properties (the "Properties" or "Mortgaged Properties"), which
are located in __ states and the District of Columbia. The Properties securing
the Home Equity Loans consist of one- to four-family residences (which may be
detached, part of a one- to four-family dwelling, a manufactured home, modular
housing, a condominium unit, a townhouse, rowhouse or a unit in a planned unit
development). The Properties may be owner-occupied (which includes second and
vacation homes) and non-owner occupied investment properties.
Each Home Equity Loan in the Trust will be assigned to one of two home
equity loan groups: "Group I" or "Group II", (each a "Home Equity Loan Group")
comprised of Home Equity Loans which bear fixed interest rates only, in the case
of Group I, and Home Equity Loans which bear adjustable interest rates only, in
the case of Group II. The Class A Group I Certificates will be issued in respect
of Group I, and the Class A-6 Group II Certificates will be issued in respect of
Group II.
S-22
The Home Equity Loans in Group I consist of _____% of fully amortizing
home equity loans and ______% of Balloon Loans; consist of approximately _____%
of loans secured by first liens on the related Properties, with the remainder
representing second liens; and consist of approximately _____% of loans secured
by primary residences. No Group I Home Equity Loan is more than 60 days
contractually delinquent as of the Cut-Off Date.
The Home Equity Loans in Group II consist of _____% of fully amortizing
home equity loans and _____% of Balloon Loans; consist of _____% of loans
secured by first liens on the related Properties; and consist of approximately
_____% of Loans secured by primary residences. No Group II Home Equity Loan is
more than 60 days contractually delinquent as of the Cut-Off Date.
Group I
The Home Equity Loans in Group I consist of approximately _____ loans
under which the related Mortgaged Properties are located in __ states and the
District of Columbia as set forth herein. As of the Cut-Off Date, the Home
Equity Loans in Group I had an aggregate principal balance of $______, the
maximum principal balance of any of the Home Equity Loans in Group I was
$_______, the minimum principal balance thereof was $______, and the principal
balance of the Home Equity Loans in Group I averaged $_______. As of the Cut-Off
Date, Coupon Rates on the Home Equity Loans in Group I ranged from _____% to
______% per annum, and the weighted average Coupon Rate of the Home Equity Loans
in Group I was _____% per annum. As of the Cut-Off Date, the original term to
stated maturity of the Home Equity Loans in Group I ranged from __ months to ___
months, the remaining term to stated maturity ranged from __ months to ___
months, the weighted average original term to stated maturity was ___ months and
the weighted average remaining term to stated maturity was ___ months. No Home
Equity Loan in Group I had a stated maturity later than ________. ______% of the
aggregate principal balance of the Home Equity Loans in Group I require monthly
payments of principal that will fully amortize the Home Equity Loans by their
respective maturity dates, and _____% of the aggregate principal balance of the
Home Equity Loans in Group I are Balloon Loans.
The sum of the percentage columns set forth in the following tables may
not equal 100% due to rounding.
S-23
Geographic Distribution
Group I
Number Aggregate Unpaid
of Principal Balance % of
Home Equity as of the Aggragate
State Loans Cut-Off Date Principal Balance
------------------ ----------- ----------------- -----------------
- ------------------------------------------------------------------------------------------------
================================================================================================
The Combined Loan-to-Value Ratios shown above were calculated based
upon the appraised values of the Properties at the time of origination of the
Home Equity Loans or in the case of a purchase money home equity loan the lesser
of the purchase price or the appraised value at the time of origination (the
"Appraised Values"). No assurance can be given that values of the Properties
have remained or will remain at their levels on the dates of origination of the
related Home Equity Loans. If the residential real estate market should
experience an overall decline in property values such that the unpaid principal
balances of the Home Equity Loans, together with the unpaid principal balances
of any senior home equity loans, become equal to or greater than the value of
the Properties, the actual rates of delinquencies, foreclosures and losses could
be higher than those now generally experienced in the mortgage lending industry.
S-24
Combined Loan-To-Value Ratio Distribution
Group I
Number of Aggregate Unpaid
Home Principal Balance
Range of Combined Loan-to-Value Equity as of the % of Aggregate
Ratios Loans Cut-Off Date Principal Balance
-------------------------------- --------- -------------------- ------------------
- ------------------------------------------------------------------------------------------------
===============================================================================================
The Combined Loan-to-Value Ratios shown above were calculated based
upon the appraised values of the Properties at the time of origination of the
Home Equity Loans or in the case of a purchase money home equity loan the lesser
of the purchase price or the appraised value at the time of origination (the
"Appraised Values"). No assurance can be given that values of the Properties
have remained or will remain at their levels on the dates of origination of the
related Home Equity Loans. If the residential real estate market should
experience an overall decline in property values such that the unpaid principal
balances of the Home Equity Loans, together with the unpaid principal balances
of any senior home equity loans, become equal to or greater than the value of
the Properties, the actual rates of delinquencies, foreclosures and losses could
be higher than those now generally experienced in the mortgage lending industry.
S-25
Coupon Rate Distribution
Group I
Number Aggregate Unpaid
of Principal Balance % of
Range of Mortgage as of the Aggregate
Coupon Rates (%) Loans Cut-Off Date Principal Balance
- ------------------ --------- ----------------- ------------------
S-26
Distribution of Unpaid Principal Balances as of the Cut-Off Date
Group I
Aggregate Unpaid
Number Principal Balance % of
Range of Unpaid of as of the Aggregate
Principal Balances ($) Home Equity Loans Cut-Off Date Principal Balance
- ---------------------------------- ------------------------ -------------------- --------------------
- --------------------------------------------------------------------------------------------------------------------
====================================================================================================================
Lien Status and Occupancy Status
Group I
Number Aggregate Unpaid
of Principal Balance % of
Lien Status and Mortgage as of the Aggregate
Occupancy Status Loans Cut-Off Date Principal Balance
------------------- ---------- ----------------- --------------------
====================================================================================================================
====================================================================================================================
Distribution of Age (in months) from Origination to the Cut-Off Date
Group I
Number Aggregate Unpaid Principal
of Balance % of
Months Elapsed Mortgage as of the Aggregate
Since Origination Loans Cut-Off Date Principal Balance
---------------------- ----------------------- --------------------------- ---------------------
=====================================================================================================================
=====================================================================================================================
S-27
Property Type
Group I
Number Aggregate Unpaid
of Principal Balance % of
Mortgage as of the Aggregate
Property Type Loans Cut-Off Date Principal Balance
-------------------- ----------------- -------------------- ---------------------
Distribution of Remaining Term to Maturity(in months) as of the Cut-Off Date
Group I
Number Aggregate Unpaid
of Principal Balance % of
Months Remaining Mortgage as of the Aggregate
to Maturity Loans Cut-Off Date Principal Balance
- ----------------------------- -------------- ------------------- ---------------------
- --------------------------------------------------------------------------------------------------
==================================================================================================
S-28
Group I
The Home Equity Loans in Group II consist of approximately _____ loans
under which the related Mortgaged Properties are located in __ states and the
District of Columbia as set forth herein. As of the Cut-Off Date, the Home
Equity Loans in Group II had an aggregate principal balance of $_________, the
maximum principal balance of any of the Home Equity Loans in Group II was
$__________, the minimum principal balance thereof was $_________ and the
principal balance of the Home Equity Loans in Group II averaged $_________. As
of the Cut-Off Date, Coupon Rates of the Home Equity Loans in Group II ranged
from _____% per annum to _____% per annum. As of the Cut-Off Date, the weighted
average Coupon Rate of the Home Equity Loans in Group II was ______%. As of the
Cut-Off Date, margins of the Home Equity Loans in Group II ranged from _____%
per annum to _____% per annum, and the weighted average margin was _____%. As of
the Cut-Off Date, the maximum coupons of the Home Equity Loans in Group II
ranged from _____% per annum to ______% per annum, and the weighted average
maximum coupon was ______%. _____% of the aggregate principal balance of the
Home Equity Loans in Group II had a periodic interest rate cap of ____% and
____% of the aggregate principal balance of the Home Equity Loans in Group II
had a periodic interest rate cap of ____%. _____% of the aggregate principal
balance of the Home Equity Loans in Group II were fixed rate loans that, in 2
years from origination, will be converted into variable rate loans with an
interest rate cap of ____% on the date of such conversion and with a periodic
interest rate cap of ___% or ___% thereafter. ____% of the aggregate principal
balance of the Home Equity Loans in Group II were fixed rate loans that, in 3
years from origination, will be converted into variable rate loans with an
interest rate cap of ___% on the date of such conversion and with a periodic
interest rate cap of ____% thereafter.
As of the Cut-Off Date, the original term to stated maturity of the
Home Equity Loans in Group II ranged from ___ months to ___ months, the
remaining term to stated maturity ranged from ___ months to ___ months, the
weighted average original term to stated maturity was ___ months and the
weighted average remaining term to stated maturity was ___ months. No Home
Equity Loan in Group II had a stated maturity later than May _______. _____% of
the aggregate principal balance of the Home Equity Loans in Group II require
monthly payments of principal that will fully amortize the Home Equity Loans by
their respective dates and 0.04% of the aggregate principal balance of the Home
Equity Loans in Group II are Balloon Loans.
The Coupon Rates of the Home Equity Loans in Group II adjust
semi-annually based on six month LIBOR.
S-29
The sum of the percentage columns set forth on the following tables may
not equal 100% due to rounding.
Geographic Distribution
Group II
Number Aggregate Unpaid
of Principal Balance % of
Mortgage as of the Aggregate
State Loans Cut-Off Date Principal Balance
- ----------- -------------- ------------------ --------------------
- ---------------------------------------------------------------------------------------------
TOTAL
=============================================================================================
S-30
The combined loan-to-value ratio of a Home Equity Loan is equal to the
ratio (expressed as a percentage) of (x) the sum of the (i) original principal
balance of such Home Equity Loan and (ii) the outstanding principal balances of
any senior home equity loans (computed at the date of origination of such Home
Equity Loan) to (y) the appraised value of the related Mortgaged Property at the
time of origination or in the case of a purchase money home equity loan the
lesser of the purchase price or the appraised value at the time of origination
(the "Combined Loan-to-Value Ratio"). The Combined Loan-to-Value Ratios are
distributed as follows:
Combined Loan-To-Value Ratio Distribution
Group II
Number Aggregate Unpaid
of Principal Balance % of
Range of Combined Mortgage as of the Aggregate
Loan-to-Value Ratios Loans Cut-Off Date Principal Balance
- ----------------------- ----------- ----------------- ------------------
The Combined Loan-to-Value Ratios shown above were calculated based
upon the appraised values of the Properties at the time of origination of the
Home Equity Loans or in the case of a purchase money home equity loan the lesser
of the purchase price or the appraised value at the time of origination (the
"Appraised Values"). No assurance can be given that values of the Properties
have remained or will remain at their levels on the dates of origination of the
related Home Equity Loans. If the residential real estate market should
experience an overall decline in property values such that the unpaid principal
balances of the Home Equity Loans, together with the unpaid principal balances
of any senior home equity loans, become equal to or greater than the value of
the Properties, the actual rates of delinquencies, foreclosures and losses could
be higher than those now generally experienced in the mortgage lending industry.
S-31
Distribution of Unpaid Principal Balances as of the Cut-Off Date
Group II
Aggregate Unpaid % of
Number of Principal Balance Aggregate
Range of Unpaid Mortgage as of the Principal
Principal Balances ($) Loans Cut-Off Date Balance
--------------------------------------- --------------- ------------------ ----------------
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
Lien Status and Occupancy Status
Group II
Number Aggregate Unpaid
of Principal Balance % of
Lien Status and Mortgage as of the Aggragate
Occupancy Status Loans Cut-Off Date Principal Balance
--------------------- ----------------- ------------------- ----------------------
- ---------------------------------------------------------------------------------------------------------------------
=====================================================================================================================
Distribution of Age (in months) from Origination to the Cut-Off Date
Group II
Number Aggregate Unpaid
of Principal Balance % of
Months Elapsed Mortgage as of the Aggregate
Since Origination Loans Cut-Off Date Principal Balance
---------------------- ----------- ------------------- ---------------------
- ----------------------------------------------------------------------------------------------------------------
===============================================================================================================
S-32
Property Type
Group II
Number Aggregate Unpaid
of Principal Balance % of
Mortgage as of the Aggregate
Property Type Loans Cut-Off Date Principal Balance
---------------- ---------- ------------------- --------------------
- -----------------------------------------------------------------------------------------------
===============================================================================================
Distribution of Remaining Term to Maturity
(in months) as of the Cut-Off Date
Group II
Number Aggregate Unpaid
of Principal Balance % of
Months Remaining Mortgage as of the Aggregate
to Maturity Loans Cut-Off Date Principal Balance
----------------- -------------- ------------------- --------------------
- -----------------------------------------------------------------------------------------------
===============================================================================================
Distribution of Current Coupon Rates
as of the Cut Off Date
Group II
Number Aggregate Unpaid
of Principal Balance
Mortgage as of the % of Aggregate
Current Coupon Rates (%) Loans Cut-Off Date Principal Balance
------------------------------- ------------------ ------------------- ---------------------
- ------------------------------------------------------------------------------------------------------
======================================================================================================
S-33
Distribution of Maximum Coupon Rates
Group II
Aggregate Unpaid
Principal Balance % of Aggregate
Number of Mortgage as of the Principal
Maximum Coupon Rates (%) Loans Cut-Off Date Balance
----------------------------- --------------------- ------------------- -----------------
- ----------------------------------------------------------------------------------------------------
===================================================================================================
Distribution of Margins
as of the Cut Off Date
Group II
Aggregate Unpaid
Number of Principal Balance
Mortgage as of the % of Original Pool
Margins (%) Loans Cut-Off Date Principal Balance
---------------------- ------------------- ------------------------- ----------------------
- ---------------------------------------------------------------------------------------------------------
=========================================================================================================
S-34
Next Interest Adjustment Date
Group II
Number Aggregate Unpaid
of Principal Balance
Next Interest Mortgage as of the % of Aggregate
Adjustment Date Loans Cut-Off Date Principal Balance
------------------------ ---------------- ----------------- --------------------
- ---------------------------------------------------------------------------------------------
==================================================================================================
Distribution of Minimum
Coupon Rates
Group II
Aggregate Unpaid
Number of Principal Balance
Minimum Mortgage as of the % of
Coupon Rates (%) Loans Cut-Off Date Principal Balance
- ------------------------------ ------------------- ----------------- ----------------------
- -----------------------------------------------------------------------------------------------------
=====================================================================================================
S-35
The Home Equity Loan Program -- Underwriting Standards; Representations
[describe]
MATURITY, PREPAYMENT AND YIELD CONSIDERATIONS
Class A Certificates
The weighted average life of, and, if purchased at other than par, the
yield to maturity on, a Class A Certificate will be directly related to the rate
of payment of principal of the Home Equity Loans in the related Home Equity Loan
Group, including for this purpose Prepayments, liquidations due to defaults,
casualties and condemnations, and repurchases of Home Equity Loans by the
Company, or purchases of Home Equity Loans by the Master Servicer or a
Sub-Servicer. The Home Equity Loans in the related Home Equity Loan Group may be
prepaid by the related obligors on the Notes ("Mortgagors") at any time. The
actual rate of principal prepayments on pools of home equity loans is influenced
by a variety of economic, tax, geographic, demographic, social, legal and other
factors and has fluctuated considerably in recent years. In addition, the rate
of principal prepayments may differ among pools of home equity loans at any time
because of specific factors relating to the home equity loans in the particular
pool, including, among other things, the age of the home equity loans, the
geographic locations of the properties securing the loans, the extent of the
mortgagors' equity in such properties, and changes in the mortgagors' housing
needs, job transfers and unemployment.
Generally, however, because the Home Equity Loans in Group I bear
interest at fixed rates, and the rate of prepayment on fixed rate home equity
loans is sensitive to prevailing interest rates, if prevailing interest rates
were to fall, the Home Equity Loans in Group I may be subject to higher
prepayment rates. Conversely, if prevailing interest rates were to rise, the
rate of prepayments on Home Equity Loans in Group I would be likely to decrease.
If purchased at other than par, the yield to maturity on a Class A
Certificate will be affected by the rate of the payment of principal of the Home
Equity Loans in the related Home Equity Loan Group. If the actual rate of
payments on the Home Equity Loans in the related Home Equity Loan Group is
slower than the rate anticipated by an investor who purchases a Class A
Certificate at a discount, the actual yield to such investor will be lower than
such investor's anticipated yield. If the actual rate of payments on the Home
Equity Loans in the related Home Equity Loan Group is faster than the rate
anticipated by an investor who purchases a Class A Certificate at a premium, the
actual yield to such investor will be lower than such investor's anticipated
yield.
All of the Home Equity Loans in Group II are adjustable rate home
equity loans. As is the case with conventional fixed rate home equity loans,
adjustable rate home equity loans may be subject to a greater rate of principal
prepayments in a declining interest rate environment. For example, if prevailing
interest rates fall significantly, adjustable rate home equity loans could be
subject to higher prepayment rates than if prevailing interest rates remain
constant because the availability of fixed rate home equity loans at competitive
interest rates may encourage Mortgagors to refinance their adjustable rate home
equity loans to "lock in" a lower fixed interest rate. However, no assurance can
be given by the Company as to the level of prepayments that the Home Equity
Loans in Group II will experience.
The final scheduled Payment Date for the A-1 Group I Certificates is
______________, for the Class A-2 Group I Certificates is _____________, for the
Class A-3 Group I Certificates is ________________, for the A-4 Group I
Certificates is _____________, for the A-5 Group I Certificates is
_____________, and for the Class A-6 Group II Certificates is ____________. Such
dates are the dates on which the related Class A Certificate Principal Balance
would be reduced to zero, assuming, among other things that with respect to the
Class A-1 Group I Certificates, the Class A-2 Group I Certificates and the Class
A-3 Group I Certificates (i) no Prepayments are received on any of the Home
Equity Loans, (ii) distributions of principal and interest on
S-36
each of the Home Equity Loans is timely received, (iii) Class B Interest will
not be used to make accelerated payments of principal (i.e. Subordination
Increase Amounts) to the Holders of the Class A Certificates and (iv) the Home
Equity Loans in each Home Equity Loan Group have the applicable characteristics
set forth in the "Weighted Average Lives of Class A Certificates" section
herein. The final scheduled Payment Date for the Class A-4 Group I Certificates
and the Class A-5 Group I Certificates is the Payment Date in the calendar month
after the month in which the stated maturity of the Home Equity Loan in the
related Home Equity Loan Group having the latest stated maturity occurs. The
final scheduled Payment Date for the Class A-6 Group II Certificates is the
Payment Date in the calendar month in which the stated maturity of the Home
Equity Loan in Group II having the last stated maturity occurs. The weighted
average life of the Class A Certificates of each Class is likely to be shorter
than would be the case if payments actually made on the Home Equity Loans in the
related Home Equity Loan Group conformed to the foregoing assumptions, and the
final Payment Dates with respect to the Class A Certificates of each Class could
occur significantly earlier than such final scheduled Payment Dates because (i)
Prepayments are likely to occur, (ii) the Company may repurchase Home Equity
Loans in the related Home Equity Loan Group in the event of breaches of
representations and warranties and (iii) subject to the Certificate Insurer's
consent in certain circumstances, the Depositor may cause, and the Trustee may,
pursuant to the Auction Sale, cause a termination of the Trust when the Pool
Principal Balance has declined to ten percent or less of the Original Pool
Principal Balance.
"Weighted average life" refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average lives of the Classes of
Class A Certificates will be influenced by the rate at which principal payments
(including scheduled payments and prepayments) on the Home Equity Loans in the
related Home Equity Loan Group are made. Principal payments on Home Equity Loans
may be in the form of scheduled amortization or prepayments (for this purpose,
the term "prepayment" includes prepayments and liquidations due to a default or
other dispositions of the Home Equity Loans). The weighted average lives of the
Class A Certificates will also be influenced by delays associated with realizing
on defaulted Home Equity Loans in the related Home Equity Loan Group. The model
used in this Prospectus Supplement assumes that, (i) with respect to Group I,
the pool of loans prepays in the first month at a constant prepayment rate of
2.4% and increases by an additional 2.4% each month thereafter until the tenth
month, where it remains at a constant prepayment rate equal to 24% (the "Home
Equity Prepayment" Model or "HEP"), and (ii) with respect to Group II, the pool
of loans prepays a constant prepayment rate equal to 26% ("CPR") ((i) and (ii)
together, the "Prepayment Assumption"). HEP represents an assumed annualized
rate of prepayment relative to the then outstanding principal balance on a pool
of new home equity loans.
Weighted Average Lives of Class A Certificates
For the purpose of the tables below, it is assumed that: (i) the Home
Equity Loans of each Home Equity Loan Group consist of pools of loans with
level-pay and balloon amortization methodologies, Cut-Off Date principal
balances, gross coupon rates, net coupon rates, original and remaining terms to
maturity, and original amortization terms as applicable, as set forth below,
(ii) the Closing Date for the Certificates occurs on __________, (iii)
distributions on the Certificates are made on the __ day of each month
regardless of the day on which the Payment Date actually occurs, commencing in
__________ in accordance with the priorities described herein, (iv) the
difference between the gross coupon rate and the net coupon rate is sufficient
to pay Servicer Fees, Trustee fees and Certificate Insurer premiums (the sum of
which is assumed to be ___%), (v) the Home Equity Loans' prepayment rates are a
multiple of the Prepayment Assumption, (vi) prepayments include 30 days'
interest thereon, (vii) optional termination is not exercised, (viii) the
Specified Subordinated Amount for each Home Equity Loan Group is set initially
as specified in the Insurance Agreement and thereafter changes in accordance
with the provisions of the Insurance Agreement, (ix) no delinquencies in the
payment by Mortgagors of principal and interest on the Home Equity Loans are
experienced, (x) no Home Equity Loan is repurchased for breach of a
representation and warranty or otherwise, (xi) the Coupon Rate for each Home
Equity Loan in Group II is adjusted on its next rate adjustment date (and on
subsequent rate adjustment dates, if necessary) to equal the sum of (a) an
assumed level of the applicable index (_____%) and (b) the respective gross
margin (such sum being subject to the
S-37
applicable periodic adjustment cap and maximum interest rate), (xii) the Class
A-1 Group I Pass-Through Rate remains constant at ____%, and (xiii) the Class
A-6 Group II Pass-Through Rate remains constant at ______%.
S-38
GROUP I CHARACTERISTICS
Original Remaining Original
Term to Term to Amortization
Pool Gross Coupon Net Coupon Maturity Maturity Term Amortization
Number Principal Balance Rate (%) Rate (%) (in months) (in months) (in months) Method
- ------------ ------------------ ------------------ -------------- ---------------- -------------- ---------------- ----------------
GROUP II CHARACTERISTICS
Net Original Remaining
Gross Maximum Term to Term to
Principal Coupon Net Coupon Months to Interest Maturity Maturity
Pool Number Balance (1) Rate (%) Rate (%) Rate Change Margin (%) Rate (%) (in months) (in months)
- ------------ -------------- ------------ ------------- ------------ ------------ ------------ ------------ -------------
Original
Amortization
Term Periodic Amortitation
(in months) Cap (%) Method
- ------------- ------------- -------------
- -----------------------------------------------------
S-39
PERCENTAGE OF CERTIFICATE PRINCIPAL BALANCE
Class A-1 Group I Certificates Class A-2 Group I Certificates Class A-3 Group I Certificates
HEP HEP HEP
Payment Date
- -----------------------------------------------------
(0) For purposes of calculating the percentages and the weighted average lives
with respect to the Group I Certificates, the Home Equity Loans in Group II
are assumed to prepay at 26% CPR and for purposes of calculating the
percentages and the weighted average lives with respect to the Group II
Certificates, the Home Equity Loans in Group I are assumed to prepay at 24%
HEP.
(1) The weighted average life of the Class A Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years
from the Closing Date to the related Payment Date, (ii) adding the results,
and (iii) dividing the sum by the initial respective Certificate Principal
Balance for such Class of Class A Certificates.
S-40
PERCENTAGE OF CERTIFICATE PRINCIPAL BALANCE (1)-
Class A-1 Group I Certificates Class A-2 Group I Certificates Class A-3 Group I Certificates
HEP HEP HEP
Payment Date
- -----------------------------------------------------
(2) For purposes of calculating the percentages and the weighted average lives
with respect to the Group I Certificates, the Home Equity Loans in Group II
are assumed to prepay at 26% CPR and for purposes of calculating the
percentages and the weighted average lives with respect to the Group II
Certificates, the Home Equity Loans in Group I are assumed to prepay at 24%
HEP.
S-41
(3) The weighted average life of the Class A Certificates is determined by (i)
multiplying the amount of each principal payment by the number of years
from the Closing Date to the related Payment Date, (ii) adding the results,
and (iii) dividing the sum by the initial respective Certificate Principal
Balance for such Class of Class A Certificates.
S-42
The Home Equity Loans will not have the characteristics assumed above,
and there can be no assurance that (i) the Home Equity Loans will prepay at any
of the rates shown in the table or at any other particular rate or will prepay
proportionately or (ii) the weighted average lives of each Class of the Class A
Group I Certificates, or the weighted average life of the Class A-6 Group II
Certificates will be as calculated above. Because the rate of distributions of
principal of the Class A Certificates will be a result of the actual
amortization (including prepayments) of the Home Equity Loans in the related
Home Equity Loan Group, which will include Home Equity Loans that have remaining
terms to stated maturity shorter or longer than those assumed and Coupon Rates
higher or lower than those assumed, the weighted average lives of the Class A
Group I Certificates and the Class A-6 Group II Certificates will differ from
those set forth above, even if all of the Home Equity Loans in the related Home
Equity Loan Group prepay at the indicated constant prepayment rates.
Payment Delay Feature of Class A-2, A-3, A-4 and A-5 Group I Certificates
The effective yield to the Owners of the Class A-2, A-3, A-4 and A-5
Group I Certificates will be lower than the yield which would otherwise apply
because distributions will not be payable to such Owners until at least the __
day of the month in which the related Accrual Period ends, without any
additional distribution of interest or earnings thereon in respect of such
delay.
DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued in classes (each, a "Class") pursuant
to a Pooling and Servicing Agreement to be dated as of __________ (the "Pooling
and Servicing Agreement") among the Master Servicer, the Depositor and the
Trustee. The Trustee will make available for inspection a copy of the Pooling
and Servicing Agreement (without exhibits or schedules) to the Owners of the
Certificates on written request. The following describes certain terms of the
Pooling and Servicing Agreement, but does not purport to be complete and is
qualified in its entirety by reference to the Pooling and Servicing Agreement.
The Class A-1 Group I Certificates, the Class A-2 Group I Certificates,
the Class A-3 Group I Certificates, the Class A-4 Group I Certificates, the
Class A-5 Group I Certificates and the Class A-6 Group II Certificates are
senior certificates as described herein. The Class B Certificates are not being
offered hereby. Each Class of Class A Certificates will be issued in original
principal amounts of $1,000 and integral multiples thereof, except that one
certificate for each class of Class A Certificates may be issued in a different
amount. The Trust will also issue a residual class in each REMIC created by the
Trust (the "Residual Certificates") which are not being offered hereby and will
initially be retained by the Company or its affiliates. The Class A
Certificates, the Class B Certificates and the Residual Certificates are
collectively referred to as the "Certificates".
Payment Dates and Distributions
On the __ day of each month, or, if such day is not a business day then
the next succeeding business day, commencing ___________ (each such day being a
"Payment Date"), the Trustee will be required to distribute to the Owners of
record of the Certificates as of the related Record Date, such Owners'
Percentage Interest in the amounts required to be distributed to the Owners of
each Class of Certificates on such Payment Date. For so long as any Class A
Certificate is in book-entry form with DTC, the only "Owner" of such Class A
Certificates will be Cede. See " -- Book-Entry Registration of the Class A
Certificates" herein.
S-43
Each Owner of record of a Certificate as of each Record Date will be
entitled to receive such Owner's Percentage Interest in the amounts due on the
related Payment Date to the Owners of the related Class of Certificates. The
"Percentage Interest" of each Class A Certificate as of any date of
determination will be equal to the percentage obtained by dividing the principal
balance of such Class A Certificate as of the Cut-Off Date by the related Class
A Certificate Principal Balance as of the Cut-Off Date.
Flow of Funds and Distributions on the Class A Certificates
The Principal and Interest Account. The Pooling and Servicing Agreement
requires the Master Servicer to establish a custodial account (the "Principal
and Interest Account") on behalf of the Trustee at a depository institution
meeting the requirements set forth in the Pooling and Servicing Agreement. The
Pooling and Servicing Agreement requires the Master Servicer to deposit all
collections (other than amounts escrowed for taxes and insurance) related to the
Home Equity Loans to the Principal and Interest Account on a daily basis (but no
later than the first business day after receipt). All funds in the Principal and
Interest Account can only be invested in Eligible Investments. Investment
earnings on funds held in the Principal and Interest Account are for the account
of the Master Servicer, and the Master Servicer will be responsible for any
losses.
The Master Servicer is required pursuant to the Pooling and Servicing
Agreement on the thirteenth day or, if such day is not a business day, on the
next following business day (the "Remittance Date") of each month to remit to
the Trustee the following amounts with respect to the Home Equity Loans in each
Home Equity Loan Group: (i) an amount equal to the sum, without duplication, of
(x) the aggregate portions of the interest payments (whether or not collected)
becoming due on the Home Equity Loans during the immediately preceding
Remittance Period, and (y) any Compensating Interest calculated at the Coupon
Rate on the related Home Equity Loan, less the Servicing Fee with respect to the
Home Equity Loans serviced by the Master Servicer due with respect to such Home
Equity Loans with respect to the immediately preceding Remittance Period (the
amount described in this clause (i) for the Home Equity Loans in Group I being
the "Group I Interest Remittance Amount" and the amount in this clause (i) for
the Home Equity Loans in Group II being the "Group II Interest Remittance
Amount"), (ii) an amount equal to the sum, without duplication, of (x) the
aggregate portions of the scheduled principal payments, but only to the extent
collected, on the Home Equity Loans during the immediately preceding Remittance
Period, (y) any Prepayments, Insurance Proceeds and Net Liquidation Proceeds
(but only to the extent that such Net Liquidation Proceeds do not exceed the
principal balance of the related Home Equity Loan) and Released Mortgaged
Property Proceeds, in each case only to the extent collected on the Home Equity
Loans during the preceding Remittance Period and (z) all Loan Purchase Prices
and Substitution Amounts with respect to the related Home Equity Loans at such
Remittance Date paid or received by the Master Servicer for deposit to the
Principal and Interest Account (the amount described in this clause (ii) for the
Home Equity Loans in Group I being the "Group I Principal Remittance Amount",
and the amount described in this clause (ii) for the Home Equity Loans in Group
II being the "Group II Principal Remittance Amount". For any Remittance Date,
the sum of the Group I Interest Remittance Amount and the Group I Principal
Remittance Amount is the "Group I Monthly Remittance" for such Remittance Date
and the sum of the Group II Interest Remittance Amount and the Group II
Principal Remittance Amount is the "Group II Monthly Remittance" for such
Remittance Date. The sum of the Group I Interest Remittance Amount and the Group
II Interest Remittance Amount is the "Interest Remittance Amount". The sum of
the Group I Principal Remittance Amount and the Group II Principal Remittance
Amount is equal to the "Principal Remittance Amount". For any Remittance Date,
the sum of the Interest Remittance Amount and the Principal Remittance Amount is
the "Monthly Remittance" for such Remittance Date.
A "Remittance Period" is the period commencing at the opening of
business on the second day of each month and ending at the close of business on
the first day of the following month.
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Delinquency Advances. The Pooling and Servicing Agreement requires that
if, on any Remittance Date, the amount then on deposit in the Principal and
Interest Account from Home Equity Loan collections and relating to interest is
less than the Interest Remittance Amount applicable to such Remittance Period,
then the Master Servicer is required to deposit into the Principal and Interest
Account a sufficient amount of its own funds ("Delinquency Advances") to make
such amount equal to such Interest Remittance Amount. The Master Servicer is not
required to make a Delinquency Advance if it believes that such Delinquency
Advance will not be recoverable from the related Home Equity Loan. The Trustee,
as successor Master Servicer, will not be required to make a Delinquency Advance
if it believes that such Delinquency Advance will not be recoverable from the
related Home Equity Loan.
The Certificate Account. The Pooling and Servicing Agreement provides
that the Trustee shall create and maintain one or more accounts for the purpose
of funding distributions to the Owners (collectively, the "Certificate
Account"). The Pooling and Servicing Agreement provides that the Trustee shall
deposit to the Certificate Account monthly, the Monthly Remittance received from
the Master Servicer on the related Remittance Date.
The Policy Payments Account. The Pooling and Servicing Agreement
requires that the Trustee shall establish a separate special purpose trust
account for the benefit of Owners of the Class A Certificates and the
Certificate Insurer (the "Policy Payments Account"). On the second business day
prior to each Payment Date, in preparation of making distributions on such
Payment Date, if the Trustee determines with respect to either Home Equity Loan
Group that the Total Available Funds to be on deposit in the Certificate Account
with respect to such Home Equity Loan Group will be insufficient to pay the full
amount of the related Insured Distribution Amount and the fees of the Trustee
for such Payment Date, the Trustee will then be required to make a draw on the
Certificate Insurance Policy for the deficiency (the amount of any such
deficiency being the amount of the "Insured Payment" required to be made) and to
deposit the amount received with respect to such draw into the Policy Payments
Account. The Trustee will then distribute such amount only for purposes of
payment to Owners of Class A Certificates of the Insured Payments for which a
claim was made.
The Supplemental Interest Account. The Pooling and Servicing Agreement
also establishes the "Group II Supplemental Interest Account" (the "Supplemental
Interest Account") which is held in trust by the Trustee, but does not
constitute a part of the Trust. The Supplemental Interest Account will hold
certain amounts and other property relating to the funding of Supplemental
Interest Amounts, if any, to the Owners of the Class A-6 Group II Certificates.
"Group II Supplemental Interest Amounts" are payments due on any Payment Date
which result from any shortfall between Class A-6 Group II Certificate interest
calculated at the Class A-6 Formula Pass-Through Rate, and such interest
calculated at the Class A-6 Available Funds Pass-Through Rate.
Distributions on the Class A Certificates. On each Payment Date, the
Trustee shall be required to make the following disbursements and transfers from
the Certificate Account in the following order of priority, and each such
transfer and disbursement shall be treated as having occurred only after all
preceding transfers and disbursements have occurred:
(i) first, the Trustee shall pay first, to itself the
Trustee's fees then due;
(ii) second, the Trustee shall pay to the Certificate
Insurer the premium amount then due and any other amounts then due the
Certificate Insurer under the Insurance Agreement;
(iii) third, the Trustee shall pay, pari passu, to the
Owners of each of the Class A Certificates, the related Class A
Distribution Amount for such Class and such Payment Date; and
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(iv) fourth, the Trustee shall distribute any remaining
amount in the Certificate Account to the Owners of the related Class B
Certificates and as otherwise required by the Pooling and Servicing
Agreement.
Principal distributions with respect to the Class A Group I
Certificates will generally be distributed in a sequential-pay fashion, subject
to the "lockout" provisions applicable to the Class A-5 Group I Certificates.
The Owners of the Class A-5 Group I Certificates are entitled to
receive payments of the Class A-5 Lockout Distribution Amount specified herein;
provided, that if on any Payment Date the Class A-4 Certificate Principal
Balance is zero, the Owners of the Class A-5 Group I Certificates will be
entitled to receive the entire Class A Principal Distribution Amount for Group I
for such Payment Date.
The "Class A-5 Lockout Distribution Amount" for any Payment Date will
be the product of (i) the applicable Class A-5 Lockout Percentage for such
Payment Date and (ii) the Class A-5 Lockout Pro Rata Distribution Amount for
such Payment Date.
The "Class A-5 Lockout Percentage" for each Payment Date shall be as
follows:
Payment Dates Lockout Percentage
----------------- --------------------------
The "Class A-5 Lockout Pro Rata Distribution Amount" for any Payment
Date will be an amount equal to the product of (x) a fraction, the numerator of
which is the Certificate Principal Balance of the Class A-5 Group I Certificates
immediately prior to such Payment Date and the denominator of which is the
aggregate Certificate Principal Balance of all Classes of the Group I
Certificates immediately prior to such Payment Date and (y) the Class A
Principal Distribution Amount for Group I for such Payment Date.
After payment of the Class A-5 Lockout Distribution Amount, the
remaining Class A Principal Distribution Amount for Group I shall be paid to the
Owners of the other Classes of Class A Group I Certificates sequentially, such
that the Class A-4 Group I Certificates are entitled to receive no principal
distributions until the Class A-3 Certificate Principal Balance has been reduced
to zero, the Class A-3 Group I Certificates are entitled to receive no principal
distributions until the Class A-2 Certificate Principal Balance has been reduced
to zero, and the Class A-2 Group I Certificates are entitled to receive no
principal distributions until the Class A-1 Certificate Principal Balance has
been reduced to zero.
The Pooling and Servicing Agreement provides that to the extent the
Certificate Insurer makes Insured Payments, the Certificate Insurer will be
subrogated to the rights of the Owners of the related Class A Certificates with
respect to such Insured Payments and shall be deemed, to the extent of the
payments so made, to be a registered Owner of Class A Certificates and shall be
entitled to reimbursement for such Insured Payments, as provided in the Pooling
and Servicing Agreement.
Calculation of LIBOR
On the second business day preceding each Payment Date or, in the case
of the first Payment Date, on the second business day preceding the Closing Date
(each such date, an "Interest Determination Date"),
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the Trustee will determine the London interbank offered rate for one-month U.S.
dollar deposits ("LIBOR") for the next Accrual Period for the Class A-1 Group I
Certificates and the Class A-6 Group II Certificates on the basis of the offered
rates of the Reference Banks for one-month U.S. dollar deposits, as such rates
appear on the Reuters Screen LIBO Page, as of 11:00 a.m. (London time) on such
Interest Determination Date. As used in this section, "business day" means a day
on which banks are open for dealing in foreign currency and exchange in London
and New York City; "Reuters Screen LIBO Page" means the display designated as
page "LIBO" on the Reuter Monitor Money Rates Service (or such other page as may
replace the LIBO page on that service for the purpose of displaying London
interbank offered rates of major banks); and "Reference Banks" means leading
banks selected by the Trustee and engaged in transactions in Eurodollar deposits
in the international Eurocurrency market (i) with an established place of
business in London, (ii) whose quotations appear on the Reuters Screen LIBO Page
on the Interest Determination Date in question, (iii) which have been designated
as such by the Trustee and (iv) not controlling, controlled by, or under common
control with, the Company or the Trustee.
On each Interest Determination Date, LIBOR for the related Accrual
Period for the Class A-1 Group I Certificates and the Class A-6 Group II
Certificates will be established by the Trustee as follows:
(a) If on such Interest Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the related Accrual Period for the
Class A-1 Group I and the Class A-6 Group II Certificates shall be the
arithmetic mean of such offered quotations (rounded upwards if necessary to the
nearest whole multiple of 1/16%).
(b) If on such Interest Determination Date fewer than two Reference
Banks provide such offered quotations, LIBOR for the related Accrual Period for
the Class A-1 Group I and the Class A-6 Group II Certificates shall be the
higher of (x) LIBOR as determined on the previous Interest Determination Date
and (y) the Reserve Interest Rate. The "Reserve Interest Rate" shall be the rate
per annum that the Trustee determines to be either (i) the arithmetic mean
(rounded upwards if necessary to the nearest whole multiple of 1/16%) of the
one-month U.S. dollar lending rates which New York City banks selected by the
Trustee are quoting on the relevant Interest Determination Date to the principal
London offices of leading banks in the London interbank market or, in the event
that the Trustee can determine no such arithmetic mean, (ii) the lowest
one-month U.S. dollar lending rate which New York City banks selected by the
Trustee are quoting on such Interest Determination Date to leading European
banks.
The establishment of LIBOR on each Interest Determination Date by the
Trustee and the Trustee's calculation of the rate of interest applicable to the
Class A-1 Group I and the Class A-6 Group II Certificates for the related
Accrual Period shall (in the absence of manifest error) be final and binding.
Each such rate of interest may be obtained by telephoning the Trustee at
__________.
Subordination of Class B Certificates
The Class B Certificates are subordinated to the Class A Certificates.
Such subordination is intended to enhance the likelihood that the Owners of the
Class A Certificates will receive full and timely receipt of all amounts due to
them.
The Pooling and Servicing Agreement requires that the excess of the
aggregate principal balance of the Home Equity Loans in Group I over the Class A
Certificate Principal Balance for all Classes of the Class A Group I
Certificates be maintained at a certain amount (which amount may vary over time)
over the life of the transaction, which amount is specified by the Certificate
Insurer. The actual amount of this excess is the "Subordinated Amount" for Group
I, and the specified target amount of the excess at a point in time is the
"Specified Subordinated Amount" for Group I.
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Similarly, the Pooling and Servicing Agreement requires that the excess
of the Group II Pool Principal Balance over the Class A Certificate Principal
Balance for the Class A-6 Group II Certificates be maintained at a certain
amount (which amount may vary over time) over the life of the transaction, which
amount is specified by the Certificate Insurer. The actual amount of this excess
is the "Subordinated Amount" for Group II, and the specified target amount of
the excess at a point in time is the "Specified Subordinated Amount" for Group
II.
The Certificate Insurer may permit the reduction of the Specified
Subordinated Amount without the consent of, or the giving of notice to, the
Owners of the related Class A Certificates; provided, that the Certificate
Insurer is not then in default; and provided, further, that such reduction would
not change materially the weighted average life of the related Class A
Certificates or the current rating thereof.
The Pooling and Servicing Agreement generally provides that the Owners
of the Class B Certificates will only receive distributions of principal to the
extent that the actual related Subordinated Amount exceeds the then related
Specified Subordinated Amount; i.e., to the extent that there is a level of
subordination greater than that required by the Certificate Insurer, as will be
the case when the Specified Subordinated Amount decreases or "steps down" in
accordance with its terms. Consequently, unless there exists on any particular
Payment Date such related excess subordination, the Owners of the related Class
A Certificates will be entitled to receive 100% of the principal to be
distributed on such Payment Date with respect to the related Home Equity Loan
Group.
Subject to the prior rights of the Owners of the Class A Certificates
to receive Class B Interest as discussed below, the Class B Certificates are
also entitled to receive all excess interest available on any Payment Date for
the related Home Equity Loan Group, i.e., the interest remitted by the Master
Servicer to the Trustee relating to the prior Remittance Period (which interest
remittance is itself net of the aggregate monthly Servicing Fees) less the
interest due and payable to the Owners of the related Class A Certificates,
together with the fees and premium due and payable to the Trustee and the
Certificate Insurer (such interest to which the related Class B Certificates are
entitled, the "Class B Interest" for the related Home Equity Loan Group).
On each Payment Date the Class B Interest will be used, to the extent
available and prior to any distribution thereof to the Class B Certificates, to
fund any shortfalls in amounts due to the Owners of the Class A Certificates on
such Payment Date. In addition, to the extent that the related Specified
Subordinated Amount increases or "steps up" due to the effect of the triggers
set forth in the definition thereof, or if, due to Realized Losses, the related
Subordinated Amount has been reduced below the related Specified Subordinated
Amount, the Pooling and Servicing Agreement requires that Class B Interest be
used to make payments of principal to the Owners of the Class A Group I
Certificates and the Class A-6 Group II Certificates for the purposes of
accelerating the amortization thereof relative to the amortization of the Home
Equity Loans in the related Home Equity Loan Group. Such accelerated payments of
principal will be made to the extent necessary to increase the related
Subordinated Amount to its then-applicable Specified Subordinated Amount. To the
extent that, on any Payment Date, the actual related Subordinated Amount is less
than the related Specified Subordinated Amount, a "Subordination Deficiency"
will exist. The Insurance Agreement defines a "Group I Subordination Deficit"
with respect to a Payment Date to be the amount, if any, by which (x) the
aggregate Certificate Principal Balance of the Class A Group I Certificates as
of such Payment Date, and following the making of all distributions to be made
on such Payment Date (except for any payment to be made as to principal from
proceeds of the Certificate Insurance Policy), exceeds (y) an amount equal to
the aggregate principal balances of the Home Equity Loans in Group I as of the
close of business on the last day of the preceding Remittance Period and a
"Group II Subordination Deficit" with respect to a Payment Date is the amount,
if any, by which (x) the aggregate Certificate Principal Balance of the Class
A-6 Group II Certificates as of such Payment Date, and following the making of
all distributions to be made on such Payment Date (except for any payment to be
made as to principal from proceeds of the
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Certificate Insurance Policy) exceeds (y) the aggregate principal balances of
the Home Equity Loans in Group II as of the close of business on the last day of
the preceding Remittance Period.
"Subordination Increase Amount" means, as of any Payment Date and with
respect to the related Home Equity Loan Group, the lesser of (i) the
Subordination Deficiency applicable to such Home Equity Loan Group as of such
Payment Date and (ii) the sum of (x) the actual amount available to pay the
Class B Interest on the related Home Equity Loan Group and (y) the actual amount
allocable to the Class A Certificates for such Home Equity Loan Group from the
Class B Interest with respect to the other Home Equity Loan Group, on such
Payment Date.
"Subordination Reduction Amount" means, with respect to any Payment
Date and with respect to the related Home Equity Loan Group, an amount equal to
the lesser of (x) the excess of the actual Subordinated Amount applicable to
such Home Equity Loan Group over the Specified Subordinated Amount for such
Payment Date and (y) the amount described in clause (b)(i)(x) of the definition
of Class A Principal Distribution Amount for such Payment Date.
Overcollateralization and the Certificate Insurance Policy. The Pooling
and Servicing Agreement requires the Trustee to make a claim for an Insured
Payment under the Certificate Insurance Policy not later than 12:00 p.m., New
York City time on the second business day prior to any Payment Date as to which
the Trustee has determined that a Subordination Deficit will occur for the
purpose of applying the proceeds of such Insured Payment to the extent of such
Subordination Deficit as a payment of principal to the Owners of the Class A
Group I Certificates or the Class A-6 Group II Certificates, as the case may be,
on such Payment Date. Investors in the Class A Group I Certificates of each
Class and the Class A-6 Group II Certificates should realize that, under extreme
loss or delinquency scenarios applicable to the related Home Equity Loan Pool,
they may temporarily receive no distributions of principal.
Crosscollateralization Provisions
The Pooling and Servicing Agreement provides that the Class B Interest
generated by a Home Equity Loan Group may be used to fund certain shortfalls
with respect to the other Home Equity Loan Group, provided that such Class B
Interest must first be applied to fund certain required payments with respect to
the related Home Equity Loan Group. Specifically, the Class B Interest generated
by one Home Equity Loan Group is to be applied in the following order of
priority: (i) first, to fund a Subordination Increase Amount payment in response
to a Subordination Deficit in the related Home Equity Loan Group; (ii) second,
to fund a Subordination Increase Amount payment in response to a Subordination
Deficit or interest shortfall in the other Home Equity Loan Group; (iii) third,
to fund a Subordination Increase Amount payment in response to a Subordination
Deficiency in the related Home Equity Loan Group; and (iv) fourth, to fund a
Subordination Increase Amount payment in response to a Subordination Deficiency
with respect to the other Home Equity Loan Group.
Credit Enhancement Does Not Apply to Prepayment Risk
In general, the protection afforded by the subordination provisions and
by the Certificate Insurance Policy is protection for credit risk and not for
prepayment risk. The subordination provisions may not be adjusted, nor may a
claim be made under the Certificate Insurance Policy to guarantee or insure that
any particular rate of prepayment is experienced by either of the two Home
Equity Loan Groups.
Class A Certificate Distributions and Insured Payments
No later than the second business day prior to each Payment Date the
Trustee will be required to determine the amounts to be on deposit in the
Certificate Account on such Payment Date, following (i)
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payment of the applicable Trustee's fee and the premiums due the Certificate
Insurer and (ii) the application of the cross-collateralization provisions
described above with respect to each of the two Home Equity Loan Groups, such
amounts being the "Group I Total Available Funds" and the "Group II Total
Available Funds", respectively, or, collectively, the "Total Available Funds".
If the aggregate Class A Insured Distribution Amount related to the Class A
Group I Certificates for any Payment Date exceeds the Group I Total Available
Funds for such Payment Date and the amounts available by reason of the
application of the cross-collateralization provisions described above, the
Trustee will be required to draw the amount of such insufficiency from the
Certificate Insurer under the Certificate Insurance Policy. If on any Payment
Date the Class A Insured Distribution Amount related to the Class A-6 Group II
Certificates exceeds the Group II Total Available Funds for such Payment Date
and the amounts available by reason of the application of the
cross-collateralization provisions described above, the Trustee will be required
to draw the amount of such insufficiency from the Certificate Insurer under the
Certificate Insurance Policy. The Trustee will be required to deposit to the
Policy Payments Account the amount of any Insured Payment made by the
Certificate Insurer. The Pooling and Servicing Agreement provides that amounts
which cannot be distributed to the Owners of the Certificates as a result of
final, non-appealable proceedings under the United States Bankruptcy Code or
similar insolvency laws will not be considered in determining the amount of
Total Available Funds with respect to any Payment Date.
Book-Entry Registration of the Class A Certificates
The Class A Certificates will be book-entry certificates (the
"Book-Entry Certificates"). The Beneficial Certificate Owners may elect to hold
their Class A Certificates through DTC in the United States, or CEDEL or
Euroclear (in Europe) if they are participants of such systems ("Participants"),
or indirectly through organizations which are Participants in such systems. The
Book-Entry Certificates will be issued in one or more certificates per class of
Class A Certificates which in the aggregate equal the principal balance of such
Class A Certificates and will initially be registered in the name of Cede, the
nominee of DTC. CEDEL and Euroclear will hold omnibus positions on behalf of
their Participants through customers' securities accounts in CEDEL's and
Euroclear's names on the books of their respective depositories which in turn
will hold such positions in customers' securities accounts in the depositories'
names on the books of DTC. Citibank will act as depository for CEDEL and Chase
will act as depository for Euroclear (in such capacities, individually the
"Relevant Depository" and collectively the "European Depositories"). Investors
may hold such beneficial interests in the Book-Entry Certificates in minimum
denominations representing principal amounts of $1,000. Except as described
below, no Beneficial Certificate Owner will be entitled to receive a physical
certificate representing such Certificate (a "Definitive Certificate"). Unless
and until Definitive Certificates are issued, it is anticipated that the only
"Owner" of such Class A Certificates will be Cede, as nominee of DTC. Beneficial
Certificate Owners will not be Owners as that term is used in the Pooling and
Servicing Agreement. Beneficial Certificate Owners are only permitted to
exercise their rights indirectly through Participants and DTC.
The Beneficial Certificate Owner's ownership of a Book-Entry
Certificate will be recorded on the records of the brokerage firm, bank, thrift
institution or other financial intermediary (each, a "Financial Intermediary")
that maintains the Beneficial Certificate Owner's account for such purpose. In
turn, the Financial Intermediary's Ownership of such Book-Entry Certificate will
be recorded on the records of DTC (or of a participating firm that acts as agent
for the Financial Intermediary, whose interest will in turn be recorded on the
records of DTC, or, if the Beneficial Certificate Owner's Financial Intermediary
is not a DTC Participant, then on the records of CEDEL or Euroclear, as
appropriate).
Beneficial Certificate Owners will receive all distributions of
principal of, and interest on, the Class A Certificates from the Trustee through
DTC and DTC Participants. While such Class A Certificates are outstanding
(except under the circumstances described below), under the rules, regulations
and procedures creating and affecting DTC and its operations (the "Rules"), DTC
is required to make book-entry transfers
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among Participants on whose behalf it acts with respect to such Class A
Certificates and is required to receive and transmit distributions of principal
of, and interest on, such Class A Certificates. Participants and indirect
participants with whom Beneficial Certificate Owners have accounts with respect
to Class A Certificates are similarly required to make book-entry transfers and
receive and transmit such distributions on behalf of their respective Beneficial
Certificate Owners. Accordingly, although Beneficial Certificate Owners will not
possess certificates, the Rules provide a mechanism by which Beneficial
Certificate Owners will receive distributions and will be able to transfer their
interest.
Beneficial Certificate Owners will not receive or be entitled to
receive certificates representing their respective interests in the Class A
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Beneficial Certificate Owners who are
not Participants may transfer ownership of Class A Certificates only through
Participants and indirect participants by instructing such Participants and
indirect participants to transfer such Class A Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Class A
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of such Class A Certificates will be executed through DTC and the
accounts of the respective Participants at DTC will be debited and credited.
Similarly, the Participants and indirect participants will make debits or
credits, as the case may be, on their records on behalf of the selling and
purchasing Beneficial Certificate Owners.
Because of time zone differences, credits of securities received in
CEDEL or Euroclear as a result of a transaction with a Participant will be made
during subsequent securities settlement processing and dated the business day
following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or CEDEL Participants on such business day. Cash received in CEDEL or
Euroclear as a result of sales of securities by or through a CEDEL Participant
(as defined below) or Euroclear Participant (as defined below) to a DTC
Participant will be received with value on the DTC settlement date but will be
available in the relevant CEDEL or Euroclear cash account only as of the
business day following settlements in DTC. For information with respect to tax
documentation procedures relating to the Certificates, see "Federal Income Tax
Consequences -- Foreign Investors" and " -- Backup Withholding" in the
Prospectus and "Global Clearance, Settlement and Tax Documentation Procedures --
Certain U.S. Federal Income Tax Documentation Requirements" in Annex I hereto.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between CEDEL Participants and Euroclear Participants will occur in
accordance with their respective rules and operating procedures.
Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through CEDEL
Participants or Euroclear Participants, on the other, will be effected in DTC in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depository; however, such cross-market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depository to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. CEDEL Participants and Euroclear Participants may not deliver instructions
directly to the European Depositories.
DTC, which is a New York-chartered limited purpose trust company,
performs services for its Participants ("DTC Participants"), some of which
(and/or their representatives) own DTC. In accordance with its normal
procedures, DTC is expected to record the positions held by each DTC Participant
in the Book-
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Entry Certificates, whether held for its own account or as a nominee for another
person. In general, beneficial ownership of Book-Entry Certificates will be
subject to the rules, regulations and procedures governing DTC and DTC
Participants as in effect from time to time.
CEDEL is incorporated under the laws of Luxembourg as a professional
depository. CEDEL holds securities for its participant organizations ("CEDEL
Participants") and facilitates the clearance and settlement of securities
transactions between CEDEL Participants through electronic book-entry changes in
accounts of CEDEL Participants, thereby eliminating the need for physical
movement of certificates. Transactions may be settled in CEDEL in any of 28
currencies, including United States dollars. CEDEL provides to its CEDEL
Participants, among other things, services for safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. CEDEL interfaces with domestic markets in several
countries. As a professional depository, CEDEL is subject to regulation by the
Luxembourg Monetary Institute. CEDEL Participants are recognized financial
institutions around the world, including underwriters, securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations. Indirect access to CEDEL is also available to others, such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a CEDEL Participant, either directly or indirectly.
Euroclear was created in 1968 to hold securities for participants of
Euroclear ("Euroclear Participants") and to clear and settle transactions
between Euroclear Participants through simultaneous electronic book-entry
delivery against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may now be settled in any of 31 currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by the Brussels, Belgium office of Morgan
Guaranty Trust Company of New York (the "Euroclear Operator"), under contract
with Euroclear Clearance Systems S.C., a Belgian cooperative corporation (the
"Cooperative"). All operations are conducted by the Euroclear Operator, and all
Euroclear Securities clearance accounts and Euroclear cash accounts are accounts
with the Euroclear operator, not the Cooperative. The Cooperative establishes
policy for Euroclear on behalf of Euroclear Participants. Euroclear Participants
include banks (including central banks), securities brokers and dealers and
other professional financial intermediaries. Indirect access to Euroclear is
also available to other firms that clear through or maintain a custodial
relationship with a Euroclear Participant, either directly or indirectly.
The Euroclear Operator is the Belgian branch of a New York banking
corporation which is a member bank of the Federal Reserve System. As such, it is
regulated and examined by the Board of Governors of the Federal Reserve System
and the New York State Banking Department, as well as the Belgian Banking
Commission.
Securities clearance accounts and cash accounts with the Euroclear
operator are governed by the Terms and Conditions Governing Use of Euroclear and
the related Operating Procedures of the Euroclear System and applicable Belgian
law (collectively, the "Terms and Conditions"). The Terms and Conditions govern
transfers of securities and cash within Euroclear, withdrawals of securities and
cash from Euroclear, and receipts of payments with respect to securities in
Euroclear. All securities in Euroclear are held on a fungible basis without
attribution of specific certificates to specific securities clearance accounts.
The Euroclear Operator acts under the Terms and Conditions only on behalf of
Euroclear Participants, and has no record of or relationship with persons
holding through Euroclear Participants.
Distributions on the Book-Entry Certificates will be made on each
Payment Date by the Trustee to DTC. DTC will be responsible for crediting the
amount of such payments to the accounts of the applicable DTC Participants in
accordance with DTC's normal procedures. Each DTC Participant will be
responsible for
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disbursing such payment to the Beneficial Certificate Owners of the Book-Entry
Certificates that it represents and to each Financial Intermediary for which it
acts as agent. Each such Financial Intermediary will be responsible for
disbursing funds to the Beneficial Certificate Owners of the Book-Entry
Certificates that it represents.
Under a book-entry format, Beneficial Certificate Owners of the
Book-Entry Certificates may experience some delay in their receipt of payments,
since such payments will be forwarded by the Trustee to Cede. Distributions with
respect to Class A Certificates held through CEDEL or Euroclear will be credited
to the cash accounts of CEDEL Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depository. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
Because DTC can only act on behalf of Financial Intermediaries, the ability of a
Beneficial Certificate Owner to pledge Book-Entry Certificates, to persons or
entities that do not participate in the Depository system, or otherwise take
actions in respect of such Book-Entry Certificates, may be limited due to the
lack of physical certificates for such Book-Entry Certificates. In addition,
issuance of the Book-Entry Certificates in book-entry form may reduce the
liquidity of such Certificates in the secondary market since certain potential
investors may be unwilling to purchase Certificates for which they cannot obtain
physical certificates.
Monthly and annual reports on the Trust provided by the Master Servicer
to Cede, as nominee of DTC, may be made available to Beneficial Certificate
Owners upon request, in accordance with the rules, regulations and procedures
creating and affecting the Depository, and to the Financial Intermediaries to
whose DTC accounts the Book-Entry Certificates of such Beneficial Certificate
Owners are credited.
DTC has advised the Trustee that, unless and until Definitive
Certificates are issued, DTC will take any action permitted to be taken by the
holders of the Book-Entry Certificates under the Pooling and Servicing Agreement
only at the direction of one or more Financial Intermediaries to whose DTC
accounts the Book-Entry Certificates are credited, to the extent that such
actions are taken on behalf of Financial Intermediaries whose holdings include
such Book-Entry Certificates. CEDEL or the Euroclear Operator, as the case may
be, will take any action permitted to be taken by an Owner under the Pooling and
Servicing Agreement on behalf of a CEDEL Participant or Euroclear Participant
only in accordance with its relevant rules and procedures and subject to the
ability of the Relevant Depository to effect such actions on its behalf through
DTC. DTC may take actions, at the direction of the related Participants, with
respect to some Class A Certificates which conflict with actions taken with
respect to other Class A Certificates.
Definitive Certificates will be issued to Beneficial Certificate Owners
of the Book-Entry Certificates, or their nominees, rather than to DTC, only if
(a) DTC or the Depositor advises the Trustee in writing that DTC is no longer
willing, qualified or able to discharge properly its responsibilities as a
nominee and depository with respect to the Book-Entry Certificates and the
Depositor or the Trustee is unable to locate a qualified successor, (b) the
Depositor, at its sole option, elects to terminate a book-entry system through
DTC or (c) DTC, at the direction of the Beneficial Certificate Owners
representing a majority of the outstanding Percentage Interests of the Class A
Certificates, advises the Trustee in writing that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the best
interests of Beneficial Certificate Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Beneficial
Certificate Owners of the occurrence of such event and the availability through
DTC of Definitive Certificates. Upon surrender by DTC of the global certificate
or certificates representing the Book-Entry Certificates and instructions for
re-registration, the Trustee will issue Definitive Certificates, and thereafter
the Trustee will recognize the holders of such Definitive Certificates as Owners
under the Pooling and Servicing Agreement.
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Although DTC, CEDEL and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Certificates among Participants
of DTC, CEDEL and Euroclear, they are under no obligation to perform or continue
to perform such procedures and such procedures may be discontinued at any time.
Certain Activities
The Trust has not and will not: (i) issue securities (except for the
Certificates); (ii) borrow money; (iii) make loans; (iv) invest in securities
for the purpose of exercising control; (v) underwrite securities; (vi) except as
provided in the Pooling and Servicing Agreement, engage in the purchase and sale
(or turnover) of investments; (vii) offer securities (except the Certificates)
in exchange for property; or (viii) repurchase or otherwise reacquire its
securities. See "Reports to the Holders" for information regarding reports to
the Certificateholders.
General Servicing Procedures
Acting directly or through one or more sub-servicers, __________ (the
"Master Servicer") is required to service and administer the Home Equity Loans
in accordance with the Pooling and Servicing Agreement.
The Master Servicer in its own name or in the name of a sub-servicer is
authorized and empowered pursuant to the Pooling and Servicing Agreement (i) to
execute and deliver any and all instruments of satisfaction or cancellation or
of partial or full release or discharge and all other comparable instruments
with respect to the Home Equity Loans and with respect to the Properties, (ii)
to institute foreclosure proceedings or obtain a deed in lieu of foreclosure so
as to effect ownership of any Property in its own name on behalf of the Trustee,
and (iii) to hold title in the name of the Trust to any Property upon such
foreclosure or deed in lieu of foreclosure on behalf of the Trustee; provided,
however, that to the extent any instrument described in clause (i) would be
delivered by the Master Servicer outside of its ordinary procedures for home
equity loans held for its own account, the Master Servicer is required, prior to
executing and delivering such instrument, to obtain the prior written consent of
the Certificate Insurer.
The Master Servicer, in its own name or in the name of a Sub-Servicer,
has the right to approve requests of Mortgagors for consent to (i) partial
releases of Mortgages and (ii) alterations, removal, demolition or division of
Properties subject to Mortgages. The Pooling and Servicing Agreement provides
that no such request shall be approved by the Master Servicer unless: (i) (x)
the provisions of the related Note and Mortgage have been complied with, (y) the
Combined Loan-to-Value Ratio (which may, for this purpose, be determined at the
time of any such action in a manner reasonably acceptable to the Certificate
Insurer) after any release does not exceed the Combined Loan-to-Value Ratio set
forth for such Home Equity Loan in the Schedule of Home Equity Loans, and (z)
the lien priority of the related Mortgage is not affected; or (ii) the
Certificate Insurer shall have approved the granting of such request.
On the tenth day of each month (or the immediately following business
day if the tenth day does not fall on a business day), the Master Servicer or
Sub-Servicer shall send to the Trustee a report detailing the payments on the
Home Equity Loans serviced by it in each of the two Home Equity Loan Groups
during the prior Remittance Period.
Collection of Certain Home Equity Loan Payments
The Master Servicer is required generally to service the Home Equity
Loan Pool in a prudent manner consistent with its general servicing standards
for similar home equity loans and to make reasonable efforts to collect all
payments called for under the terms and provisions of the Home Equity Loans, and
shall, to the extent such procedures shall be consistent with the provisions of
the Pooling and
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Servicing Agreement, follow collection procedures for all Home
Equity Loans at least as rigorous as those the Master Servicer would take in
servicing loans and in collecting payments thereunder for its own account.
Consistent with the foregoing, the Master Servicer, in its own name or
in the name of a Sub-Servicer, may (i) in its discretion waive or permit to be
waived any late payment charge or assumption fee or any other fee or charge
which the Master Servicer would be entitled to retain as servicing compensation,
(ii) extend the due date for payments due on a Note for a period (with respect
to each payment as to which the due date is extended) not greater than 125 days
after the initially scheduled due date for such payment, and (iii) amend any
Note to extend the maturity thereof, provided that no maturity shall be extended
beyond the maturity date of the Home Equity Loan with the latest maturity date
and that no more than 1.0% of the Original Pool Balance of the Home Equity Loans
shall have a maturity date which has been extended beyond the maturity date
thereof at the Cut-Off Date; provided that such action does not violate
applicable REMIC provisions. In the event the Master Servicer, in its own name
or in the name of a Sub-Servicer, consents to the deferment of the due dates for
payments due on a Note, the Master Servicer or Sub-Servicer is nonetheless
required to make payment of any required Delinquency Advance with respect to the
payments so extended to the same extent as if such installment were due, owing
and delinquent and had not been deferred.
Generally the Class A Certificate Owners would prefer that
"due-on-sale" clauses be waived in the event of a sale of the underlying
Mortgaged Property, that extensions and accommodations be made with delinquent
Mortgagors, and that liquidations of Home Equity Loans be deferred, since upon
prepayment due to sale or upon liquidation such Owners will receive a payment of
principal in connection with such prepayment or liquidation. If attractive
re-investment opportunities are available at the time, Class A Certificate
Owners may prefer that "due-on-sale" clauses not be waived and that no such
extensions, accommodations or deferments be made, thus hastening the return of
principal to such Owners.
Owners do not have the right under the Pooling and Servicing Agreement
to make decisions with respect to Mortgagor accounts. Such decisions are in the
nature of mortgage servicing and the Master Servicer generally has the right to
make such decisions without the requirement of consent of the Owners, the
Trustee or the Certificate Insurer. The Master Servicer will generally be
required under the Pooling and Servicing Agreement to enforce "due-on-sale"
clauses, and will make decisions with respect to liquidations in accordance with
the Pooling and Servicing Agreement.
Under certain limited circumstances the Pooling and Servicing Agreement
may require the Master Servicer to obtain the consent of the Certificate Insurer
before taking certain actions with respect to defaulted Home Equity Loans and in
connection with the waiver of "due-on-sale" clauses. Since the Certificate
Insurer's exposure increases, to the extent of interest accrued, the longer the
liquidation process, it is likely to be the case that the Certificate Insurer
will favor quick liquidations in those situations in which its consent is
required. Similarly, the Certificate Insurer would favor the enforcement of a
"due-on-sale" clause, since a prepayment in the event of a sale also reduces its
exposure by limiting the accrual of interest.
Principal and Interest Account
The Master Servicer, in its own name or in the name of a Sub-Servicer,
is required to deposit to the Principal and Interest Account all collections on
the Home Equity Loans, certain proceeds received by the Master Servicer in
connection with the termination of the Trust, Loan Purchase Prices and
Substitution Amounts received or paid by the Master Servicer, insurance and
condemnation proceeds received by the Master Servicer, other amounts related to
the Home Equity Loans received by the Master Servicer, including any income from
REO Properties (net of Servicing Advances made with respect to such REO
Properties), and Delinquency Advances together with any amounts which are
reimbursable from the Principal and Interest Account, but net of the Servicing
Fee with respect to each Home Equity Loan serviced by the
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Master Servicer and other servicing compensation to the Master Servicer as
permitted by the Pooling and Servicing Agreement.
The Master Servicer or Sub-Servicer may make withdrawals from the
Principal and Interest Account only for the following purposes: (a) to effect
the timely remittance to the Trustee of the Monthly Remittance due on the
Remittance Date; (b) to withdraw investment earnings on amounts on deposit in
the Principal and Interest Account; (c) to withdraw amounts that have been
deposited to the Principal and Interest Account in error; (d) to pay certain
miscellaneous amounts over to the Depositor and (e) to clear and terminate the
Principal and Interest Account.
On each Remittance Date the Master Servicer and any Sub-Servicer is
required to remit the Monthly Remittance amount inclusive of all Delinquency
Advances and Compensating Interest to the Trustee by wire transfer, or otherwise
make funds available in immediately available funds.
Servicing Advances
The Pooling and Servicing Agreement obligates the Master Servicer to
pay all reasonable and customary "out-of-pocket" costs and expenses (including
reasonable legal fees) incurred in the performance of its servicing obligations
including, but not limited to, the cost of (i) preservation expenses, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of REO Property (including, without limitation,
realtors' commissions) and (iv) advances made for taxes, insurance and other
charges against a Property. Each such expenditure will constitute a "Servicing
Advance". The Master Servicer may recover Servicing Advances from the Mortgagors
to the extent permitted by the Home Equity Loans or, if not theretofore
recovered from the Mortgagor on whose behalf such Servicing Advance was made,
from Liquidation Proceeds realized upon the liquidation of the related Home
Equity Loan. In no case may the Master Servicer recover Servicing Advances from
the principal and interest payments on any Home Equity Loan or from any amounts
relating to any other Home Equity Loan. The Master Servicer is not required to
make a Servicing Advance if it believes that such Servicing Advance will not be
recoverable from the related Home Equity Loan.
Compensating Interest
A full month's interest on each Home Equity Loan, calculated at a rate
equal to such Home Equity Loan's Coupon Rate less the Servicing Fee is due to
the Trustee on the outstanding principal balance of each Home Equity Loan as of
the beginning of each Remittance Period. If a Prepayment of a Home Equity Loan
occurs during any calendar month, any difference between the interest collected
from the Mortgagor during such calendar month and the full month's interest at
such rate ("Compensating Interest") that is due is required to be deposited by
the Master Servicer to the Principal and Interest Account (without any right of
reimbursement therefor) and shall be included in the Monthly Remittance and made
available to the Trustee on the next succeeding Remittance Date.
Maintenance of Insurance
The Master Servicer is required to cause to be maintained with respect
to each Home Equity Loan that it services and related Property a hazard
insurance policy with a carrier licensed in the state in which such Property is
located that provides for fire and extended coverage, and which provides for a
recovery by the Trust of insurance proceeds relating to such Home Equity Loan in
an amount not less than the least of (i) the outstanding principal balance of
the Home Equity Loan (together in the case of a Junior Mortgage, with the
outstanding principal balance of the senior lien), or (ii) the minimum amount
required to compensate for loss or damage on a replacement cost basis, or (iii)
the full insurable value of the premises.
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If a Home Equity Loan relates to a Mortgaged Property in an area
identified at the time of origination thereof in the Federal Register by the
Federal Emergency Management Agency as having special flood hazards, the Master
Servicer, in its own name or in the name of a Sub-Servicer, will be required to
maintain with respect thereto a flood insurance policy in a form meeting the
requirements of the then-current guidelines of the Federal Insurance
Administration with a generally acceptable carrier in an amount representing
coverage, and which provides for recovery by the Master Servicer or a
Sub-Servicer on behalf of the Trust of insurance proceeds relating to such Home
Equity Loan, of not less than the least of (i) the outstanding principal balance
of the Home Equity Loan, or (ii) the minimum amount required to compensate for
damage or loss on a replacement cost basis, or (iii) the maximum amount of
insurance that is available under the Flood Disaster Protection Act of 1973, as
amended.
In the event that the Master Servicer or a Sub-Servicer obtains and
maintains a blanket policy insuring against fire and other hazards with extended
coverage and against flood hazards on all of the Home Equity Loans that it
services, then, to the extent such policy names the Master Servicer or a
Sub-Servicer as loss payee and provides coverage in an amount equal to the
aggregate unpaid principal balance on the Home Equity Loans without
co-insurance, and otherwise complies with the requirements of the Pooling and
Servicing Agreement, the Master Servicer shall be deemed conclusively to have
satisfied its obligations with respect to fire and hazard insurance coverage
under the Pooling and Servicing Agreement. Such blanket policy may contain a
deductible clause, in which case the Master Servicer will be required, in the
event that there shall not have been maintained on the related Mortgaged
Property a policy complying with the Pooling and Servicing Agreement, and there
shall have been a loss that would have been covered by such policy, to deposit
in the Principal and Interest Account from the Master Servicer's own funds the
difference, if any, between the amount that would have been payable under a
policy complying with the Pooling and Servicing Agreement and the amount paid
under such blanket policy.
Pursuant to the Pooling and Servicing Agreement, the Master Servicer
will be required to indemnify the Trust out of its own funds for any loss to the
Trust resulting from the Master Servicer's failure to maintain any required
insurance.
Due-on-Sale Clauses
When a Property has been or is about to be conveyed by the Mortgagor,
the Master Servicer or a Sub-Servicer, to the extent it has knowledge of such
conveyance or prospective conveyance, is required to exercise its rights to
accelerate the maturity of the related Home Equity Loan under any "due on sale"
clause contained in the related Mortgage or Note; provided, however, that the
Master Servicer will not be required to exercise any such right if the
"due-on-sale" clause, in the reasonable belief of the Master Servicer, is not
enforceable under applicable law; and provided further, that the Master Servicer
may refrain from exercising any such right if the Certificate Insurer gives its
prior consent to such non-enforcement.
Realization Upon Defaulted Home Equity Loans
The Master Servicer, in its own name or in the name of a Sub-Servicer,
is required to foreclose upon or otherwise comparably effect the ownership in
the name of the Trust, on behalf of the Trustee, of Properties relating to
defaulted Home Equity Loans that it services as to which no satisfactory
arrangements can be made for collection of delinquent payments and which the
Master Servicer has not purchased pursuant to its purchase option described
below, unless the Master Servicer reasonably believes that Net Liquidation
Proceeds with respect to such Home Equity Loan would not be increased as a
result of such foreclosure or other action, in which case such Home Equity Loan
will be charged off and will become a Liquidated Home Equity Loan. In connection
with such foreclosure or other conversion, the Master Servicer is required to
exercise or use foreclosure procedures with the same degree of care and skill as
it would exercise or use
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under the circumstances in the conduct of its own affairs. Any amounts advanced
in connection with such foreclosure or other action shall constitute "Servicing
Advances".
The Master Servicer, in its own name or in the name of a Sub-Servicer,
is required to sell any REO Property within 23 months of its acquisition by the
Trustee, unless the Master Servicer obtains for the Trustee an opinion of
counsel experienced in federal income tax matters, addressed to the Trustee and
the Master Servicer, to the effect that the holding by the Trust of such REO
Property for a greater specified period will not result in the imposition of
taxes on "prohibited transactions" of the Trust as defined in Section 860F of
the Code or cause the Trust to fail to qualify as a REMIC.
In accordance with the Pooling and Servicing Agreement, if the Master
Servicer has actual knowledge that a Property which it is contemplating
acquiring in foreclosure or by deed in lieu of foreclosure contains
environmental or hazardous waste risks known to it, the Master Servicer shall
notify the Certificate Insurer and the Trustee prior to acquiring the Property.
The Master Servicer is not permitted to take any action with respect to such a
Property without the prior written approval of the Certificate Insurer.
The Master Servicer is required to determine, with respect to each
defaulted Home Equity Loan that it services, when it has recovered, whether
through trustee's sale, foreclosure sale or otherwise, all amounts, if any, it
expects to recover from or on account of such defaulted Home Equity Loan,
whereupon such Home Equity Loan shall become a "Liquidated Home Equity Loan".
Servicing Compensation
As compensation for its servicing activities under the Pooling and
Servicing Agreement, the Master Servicer shall be entitled to retain the amount
of the Servicing Fee with respect to each Home Equity Loan that it services.
Additional servicing compensation in the form of release fees, bad check
charges, assumption fees, late payment charges, and any other servicing-related
fees, and similar items may, to the extent collected from Mortgagors, be
retained by the Master Servicer.
Annual Statement as to Compliance
The Master Servicer is required to deliver, on its own behalf, to the
Trustee, the Depositor, the Company and the Certificate Insurer, annually,
commencing in 1998, an Officer's Certificate stating, as to each signer thereof,
that (i) a review of the activities of the Master Servicer during such preceding
calendar year and of performance under the Pooling and Servicing Agreement has
been made under such officer's supervision, and (ii) to the best of such
officer's knowledge, based on such review, the Master Servicer has fulfilled all
its obligations under the Pooling and Servicing Agreement for such year, or, if
there has been a default in the fulfillment of all such obligations, specifying
each such default known to such officer and the nature and status thereof
including the steps being taken by the Master Servicer to remedy such default.
Annual Independent Certified Public Accountants' Reports
Annually, commencing in 1998, the Master Servicer is required to cause
to be delivered, on its own behalf, to the Trustee and the Certificate Insurer a
letter or letters of a firm of independent, nationally recognized certified
public accountants reasonably acceptable to the Certificate Insurer stating that
such firm has, with respect to the Master Servicer's overall servicing
operations (i) performed applicable tests in accordance with the compliance
testing procedures as set forth in Appendix 3 of the Audit Guide for Audits of
HUD Approved Nonsupervised Mortgagees or (ii) examined such operations in
accordance with the requirements of the Uniform Single Attestation Program for
Mortgage Bankers, and stating such firm's conclusions relating thereto.
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Assignment of Agreement
The Master Servicer may not assign its obligations under the Pooling
and Servicing Agreement, in whole or in part, unless it shall have first
obtained the written consent of the Depositor, the Company, the Trustee and the
Certificate Insurer; provided, however, that any assignee must meet the
eligibility requirements set forth in the Pooling and Servicing Agreement for a
successor Master Servicer.
Removal and Resignation of the Master Servicer; Events of Default
The Certificate Insurer, or with the consent of the Certificate
Insurer, the Depositor or the Owners of Class A Certificates owning a majority
in Percentage Interest in the Class A Certificates may remove the Master
Servicer upon the occurrence of any of the following events (each, an "Event of
Default"):
(i) The Master Servicer shall (I) apply for or consent to
the appointment of a receiver, trustee, liquidator or custodian or
similar entity with respect to itself or its property, (II) admit in
writing its inability to pay its debts generally as they become due,
(III) make a general assignment for the benefit of creditors, (IV) be
adjudicated bankrupt or insolvent, (V) commence a voluntary case under
the federal bankruptcy laws of the United States of America or file a
voluntary petition or answer seeking reorganization, an arrangement
with creditors or an order for relief or seeking to take advantage of
any insolvency law or file an answer admitting the material allegations
of a petition filed against it in any bankruptcy, reorganization or
insolvency proceeding or (VI) cause corporate action to be taken by it
for the purpose of effecting any of the foregoing; or
(ii)If without the application, approval or consent of the
Master Servicer, a proceeding shall be instituted in any court of
competent jurisdiction, under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking in respect of
the Master Servicer an order for relief or an adjudication in
bankruptcy, reorganization, dissolution, winding up, liquidation, a
composition or arrangement with creditors, a readjustment of debts, the
appointment of a trustee, receiver, liquidator or custodian or similar
entity with respect to the Master Servicer or of all or any substantial
part of its assets, or other like relief in respect thereof under any
bankruptcy or insolvency law, and, if such proceeding is being
contested by the Master Servicer in good faith, the same shall (A)
result in the entry of an order for relief or any such adjudication or
appointment or (B) continue undismissed or pending and unstayed for any
period of sixty (60) consecutive days; or
(iii) The Master Servicer shall fail to perform any one or
more of its obligations under the Pooling and Servicing Agreement
(other than its obligations referenced in clauses (vi) and (vii) below)
and shall continue in default thereof for a period of thirty (30) days
after the earlier to occur of (x) the date on which an authorized
officer of the Master Servicer knows or reasonably should know of such
failure or (y) receipt by the Master Servicer of a written notice by
the Trustee, any Owner, the Depositor or the Certificate Insurer of
said failure; or
(iv)The Master Servicer shall fail to cure any breach of
any of its representations and warranties set forth in the Pooling and
Servicing Agreement which materially and adversely affects the
interests of the Owners or Certificate Insurer for a period of thirty
(30) days after the earlier of (x) the date on which an authorized
officer of the Master Servicer knows or reasonably should know of such
breach or (y) receipt by the Master Servicer of a written notice from
the Trustee, any Owner, the Depositor or the Certificate Insurer of
such breach;
(v) If the Certificate Insurer pays out any money under the
Certificate Insurance Policy, or if the Certificate Insurer otherwise
funds any shortfall with its own money, because the amounts
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available to the Trustee (other than from the Certificate Insurer) are
insufficient to make required distributions on the Class A
Certificates;
(vi)The failure by the Master Servicer to make any required
Servicing Advance for a period of 30 days following the earlier of (x)
the date on which an authorized officer of the Master Servicer knows or
reasonably should know of such failure or (y) receipt by the Master
Servicer of a written notice from the Trustee, any Owner, the Depositor
or the Certificate Insurer of such failure;
(vii) The failure by the Master Servicer to make any
required Delinquency Advance or to pay any Compensating Interest or to
pay over the Monthly Remittance;
(viii)If the delinquency or loss levels applicable to the
Home Equity Loans serviced by the Master Servicer exceed certain
"trigger" levels set forth in the Insurance Agreement; or
(ix)An "Event of Default" exists and is continuing under
the Insurance Agreement;
provided, however, that (x) prior to any removal of the Master Servicer pursuant
to clauses (ii) through (iv) and (vi) above, any applicable grace period granted
by any such clause shall have expired prior to the time such occurrence shall
have been remedied and (y) in the event of the refusal or inability of the
Master Servicer to comply with its obligations described in clause (vii) above,
such removal shall be effective (without the requirement of any action on the
part of the Depositor, the Trustee or the Certificate Insurer) at 4 p.m. (New
York City time) on the second business day following the day on which the
Trustee notifies the Master Servicer that a required amount described in clause
(vii) above has not been received by the Trustee, unless the required amount
described in clause (vii) above is paid by the Master Servicer prior to such
time or the Certificate Insurer grants an additional grace period for such
payment. Upon the Trustee's determination that a required amount described in
clause (vii) above has not been made by the Master Servicer, the Trustee shall
so notify the Master Servicer, the Depositor and the Certificate Insurer as soon
as is reasonably practical.
The Master Servicer may not resign from the obligations and duties
imposed on it under the Pooling and Servicing Agreement, except upon
determination that its duties thereunder are no longer permissible under
applicable law or are in material conflict by reason of applicable law with any
other activities carried on by it, the other activities of the Master Servicer
so causing such a conflict being of a type and nature carried on by the Master
Servicer at the date of the Pooling and Servicing Agreement. Any such
determination permitting the resignation of the Master Servicer shall be
evidenced by an opinion of counsel to such effect which shall be delivered to
the Trustee, the Depositor and the Certificate Insurer.
No removal or resignation of the Master Servicer shall become effective
until the Trustee or a successor servicer shall have assumed the Master
Servicer's responsibilities and obligations in accordance with the Pooling and
Servicing Agreement.
Successor Master Servicer
Upon removal or resignation of Home Equity Securitization Corp. as
Master Servicer under the Pooling and Servicing Agreement, the Trustee (x) may
solicit bids for a successor Master Servicer under the Pooling and Servicing
Agreement, which successor Master Servicer must be acceptable to the Certificate
Insurer, and (y) pending the appointment of a successor Master Servicer under
the Pooling and Servicing Agreement, as a result of soliciting such bids, is
required to serve as Master Servicer under the Pooling and Servicing Agreement,
unless Home Equity Securitization Corp. has been removed without cause, in which
event the Trustee prior to any such removal must designate a successor Master
Servicer under the Pooling and Servicing Agreement acceptable to the Certificate
Insurer. The Trustee, if it is unable to obtain a qualifying bid and is
prevented by law from acting as Master Servicer under the Pooling and Servicing
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Agreement, may appoint, or petition a court of competent jurisdiction to
appoint, any housing and home finance institution, bank or mortgage servicing
institution which has been designated as an approved seller-servicer by FNMA or
FHLMC for first and second home equity loans and having equity of not less than
$15,000,000, as determined in accordance with generally accepted accounting
principles, and acceptable to the Certificate Insurer.
The Trustee, or any other successor Master Servicer, upon assuming the
duties of the Master Servicer, is required immediately to make payment of all
Compensating Interest and all Delinquency Advances which the Master Servicer has
theretofore failed to remit with respect to the Home Equity Loans; provided,
however, that if the Trustee is acting as successor Master Servicer, the Trustee
is only required to make Delinquency Advances (including the Delinquency
Advances described in this sentence) if, in the Trustee's reasonable good faith
judgment, such Delinquency Advances will ultimately be recoverable from the
related Home Equity Loans.
Investment of Accounts
All or a portion of the Principal and Interest Account, the Certificate
Account and any other account which may be created by the Trustee (each, an
"Account"), may be invested and reinvested in an Eligible Investment bearing
interest or sold at a discount. The bank serving as Trustee or any affiliate
thereof, may be the obligor on any investment in any Account which otherwise
qualifies as an Eligible Investment. No investment in any Account held by the
Trustee may mature later than the business day immediately preceding the next
succeeding Payment Date; provided, however, that if the investment is an
investment of the bank serving as Trustee, then it may mature on the Payment
Date.
The Trustee will not in any way be held liable by reason of any
insufficiency in any Account resulting from any loss on any Eligible Investment
included therein (except to the extent that the bank serving as Trustee is the
obligor thereon).
All income or other gain from investments in any Account will be
required to be deposited in such Account immediately upon receipt, and any loss
resulting from such investments will be required to be charged to such Account
(except with respect to the Principal and Interest Account, as to which the
Master Servicer is entitled to retain any gain from investments and is required
to deposit an amount equal to any loss into the Principal and Interest Account
from its own funds).
Eligible Investments
The following are "Eligible Investments":
(a) Direct general obligations of the United States or the obligations
of any agency or instrumentality of the United States, the timely payment or the
guarantee of which constitutes a full faith and credit obligation of the United
States;
(b) Federal Housing Administration debentures, but excluding any such
securities whose terms do not provide for payment of a fixed dollar amount upon
maturity or call for redemption;
(c) FHLMC senior debt obligations, but excluding any such securities
whose terms do not provide for payment of a fixed dollar amount upon maturity or
call for redemption;
(d) FNMA senior debt obligations, but excluding any such securities
whose terms do not provide for payment of a fixed dollar amount upon maturity or
call for redemption;
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(e) Federal funds, certificates of deposit, time and demand deposits,
and bankers' acceptances (having original maturities of not more than 365 days)
of any domestic bank, the short-term debt obligations of which have been rated
___ or better by ___ and ___ by ___;
(f) Deposits of any bank or savings and loan association which has
combined capital, surplus and undivided profits of at least $50,000,000 which
deposits are not in excess of the applicable limits insured by the Bank
Insurance Fund or the Savings Association Insurance Fund of the FDIC, provided
that the long-term deposits of such bank or savings and loan association are
rated at least ___ by ___ and ___ by ___;
(g) Commercial paper (having original maturities of not more than 270
days) rated ___ or better by ___ and ___ by ___;
(h) Investments in money market funds rated ___ or ___ by ___ and ___
or ___ by ___; and
(i) Such other investments as have been approved in writing by ___, ___
and the Certificate Insurer;
provided that no instrument described above is permitted to evidence either the
right to receive (a) only interest with respect to obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
that no instrument described above may be purchased at a price greater than par
if such instrument may be prepaid or called at a price less than its purchase
price prior to stated maturity.
Amendments
The Trustee, the Master Servicer and the Depositor may at any time and
from time to time, with the prior written consent of the Certificate Insurer but
without the consent of the Owners, amend the Pooling and Servicing Agreement,
for the purposes of (a) curing any ambiguity, or correcting or supplementing any
provision of any such agreement which may be inconsistent with any other
provision of such agreement, (b) if accompanied by an approving opinion of
counsel experienced in federal income tax matters, removing the restriction
against the transfer of a Residual Certificate to a Disqualified Organization
(as such term is defined in the Code) or (c) complying with the requirements of
the Code; provided, however, that such action shall not, as evidenced by an
opinion of counsel delivered to the Trustee, materially and adversely affect the
interests of any Owner or materially and adversely affect (without its written
consent) the rights and interests of the Certificate Insurer.
The Pooling and Servicing Agreement may also be amended by the Trustee,
the Master Servicer and the Depositor, as applicable, at any time and from time
to time, with the prior written approval of the Certificate Insurer and of not
less than 66 2/3% of the Percentage Interest represented by each affected Class
of Certificates then outstanding, for the purpose of adding any provisions or
changing in any manner or eliminating any of the provisions thereof or of
modifying in any manner the rights of the Owners thereunder; provided, however,
that no such amendment shall (a) change in any manner the amount of, or delay
the timing of, payments which are required to be distributed to any Owner
without the consent of the Owner of such Certificate or (b) change the aforesaid
percentages of Percentage Interest which are required to consent to any such
amendments, without the consent of the Owners of all Certificates of the Class
or Classes affected then outstanding. Any such amendment must be accompanied by
an opinion of tax counsel as to REMIC matters.
The Trustee will be required to furnish a copy of any such amendment to
each Owner in the manner set forth in the Pooling and Servicing Agreement.
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Termination of the Trust
The Pooling and Servicing Agreement provides that the Trust will
terminate upon the payment to the Owners of all Certificates from amounts other
than those available under the Certificate Insurance Policy all amounts required
to be paid to such Owners upon the final payment and other liquidation (or any
advance made with respect thereto) of the last Home Equity Loan.
Optional Termination by the Depositor
At its option, but subject to the consent of the Certificate Insurer in
certain circumstances, the Depositor may purchase from the Trust all (but not
fewer than all) remaining Home Equity Loans and other property, acquired by
foreclosure, deed in lieu of foreclosure, or otherwise, then constituting the
Trust Estate, and thereby effect early retirement of the Certificates, on any
Payment Date when the Pool Principal Balance has declined to ten percent or less
of the Original Pool Principal Balance.
The termination of the Trust by the preceding method is equivalent to a
prepayment of all the Home Equity Loans and a liquidation of the Trust. The
Owners of the Class A Certificates would receive from the proceeds of such
purchase any interest owed (including any accrued but unpaid Supplemental
Interest Amounts) and the Owners of the Class A Certificates would receive any
principal not yet paid, in the order of priority set forth under "Description of
Certificates -- Distributions on Class A Certificates". Consequently, a
termination of the Trust pursuant to the preceding methods, if such Certificates
were purchased at a price in excess of par, reduces the yield to maturity on the
Class A Certificates.
Auction Sale
The Pooling and Servicing Agreement requires that, within ninety days
following the Depositor Optional Termination Date, if the Depositor has not
exercised its optional termination right by such date, the Trustee solicit bids
for the purchase of all Home Equity Loans remaining in the Trust. In the event
that satisfactory bids are received as described in the Pooling and Servicing
Agreement, the net sale proceeds will be distributed to Certificateholders, in
the same order of priority as collections received in respect of the Home Equity
Loans. If satisfactory bids are not received, the Trustee shall decline to sell
the Home Equity Loans and shall not be under any obligation to solicit any
further bids or otherwise negotiate any further sale of the Home Equity Loans.
Such sale and consequent termination of the Trust must constitute a "qualified
liquidation" of each REMIC established by the Trust under Section 860F of the
Internal Revenue Code of 1986, as amended, including, without limitation, the
requirement that the qualified liquidation takes place over a period not to
exceed 90 days. Such Auction Sale shall be subject to the consent of the
Certificate Insurer in certain circumstances.
TRUSTEE
Pursuant to the Pooling and Servicing Agreement, The Chase Manhattan
Bank will serve as trustee of the Trust. The Pooling and Servicing Agreement
sets forth provisions regarding the Trustee, certain of which are described
below.
Certain Covenants of the Trustee
Withholding. The Trustee is required to comply with all requirements of
the Code or any applicable state or local law with respect to the withholding
from any distributions made by it to any Owner of any applicable withholding
taxes imposed thereon and with respect to any applicable reporting requirements
in connection therewith.
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Unclaimed Moneys. Any money held by the Trustee in trust for the
payment of any amount due with respect to any Class A Certificate and remaining
unclaimed for the period then specified in the escheat laws of the State of New
York after such amount has become due and payable will be discharged from such
trust and be paid to the Company, and the Owner of such Class A Certificate
shall thereafter, as an unsecured general creditor, look only to the Company for
payment thereof (but only to the extent of the amounts so paid to the Company),
and all liability of the Trustee with respect to such trust money will thereupon
cease; provided, however, that the Trustee, before being required to make any
such payment, may at the expense of the Company cause to be published once, in
the eastern edition of The Wall Street Journal, notice that such money remains
unclaimed and that, after a date specified therein, which shall be not less than
30 days from the date of such publication, any unclaimed balance of such money
then remaining will be paid to the Company. The Trustee may also adopt and
employ, at the expense of the Company, any other reasonable means of
notification of such payment (including but not limited to mailing notice of
such payment to Owners whose right to or interest in moneys due and payable but
not claimed is determinable from the Register at the last address of record for
each such Owner).
Protection of Trust Estate. The trust estate (the "Trust Estate") of
the Trust primarily consists of (i) the Home Equity Loans, (ii) all moneys held
in the Accounts and (iii) the Certificate Insurance Policy. The Trustee is
required to hold the Trust Estate in Trust for the benefit of the Owners and,
upon request of and at the expense of the Company and at the expense of the
requesting party, will from time to time execute and deliver all such
supplements and amendments to the Pooling and Servicing Agreement, instruments
of further assurance and other instruments, and will take such other action upon
such request as it deems reasonably necessary or advisable, to more effectively
hold in trust all or any portion of the Trust Estate.
The Trustee has the power to enforce, and is required to enforce the
obligations of the other parties to the Pooling and Servicing Agreement by
action, suit or proceeding at law or equity, and also has the power to enjoin,
by action or suit, any acts or occurrences which may be unlawful or in violation
of the rights of the Owners; provided, however, that nothing in the Pooling and
Servicing Agreement requires any action by the Trustee unless the Trustee shall
first (i) have been furnished indemnity satisfactory to it and (ii) when
required by the Pooling and Servicing Agreement, have been requested to take
such action by the Owners and provided, further, that certain obligations may be
enforced by the Trustee only with the consent of the Certificate Insurer.
Performance and Enforcement of Obligations. The Pooling and Servicing
Agreement provides that the Trustee is under no obligation to exercise any of
the rights or powers vested in it by the Pooling and Servicing Agreement at the
request or direction of any of the Owners, unless such Owners shall have offered
to the Trustee reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request or
direction.
The Trustee may execute any of the rights or powers granted by the
Pooling and Servicing Agreement or perform any duties thereunder either directly
or by or through agents or attorneys, and the Trustee is responsible for any
misconduct or negligence on the part of any agent or attorney appointed and
supervised with due care by it thereunder.
Pursuant to the Pooling and Servicing Agreement, the Trustee is not
liable for any action it takes or omits to take in good faith which it
reasonably believes to be authorized by an authorized officer of any person or
within its rights or powers under the Pooling and Servicing Agreement.
The Pooling and Servicing Agreement provides that no Owner has any
right to institute any proceeding, judicial or otherwise, with respect to the
Pooling and Servicing Agreement or the Certificate Insurance Policy, or for the
appointment of a receiver or trustee under the Pooling and Servicing Agreement,
unless:
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(1) such Owner has previously given written notice to the
Depositor, the Certificate Insurer and the Trustee of such Owner's
intention to institute such proceeding, and the Certificate Insurer
consents thereto;
(2) the Owners of not less than 25% of the Percentage
Interests represented by any Class of Class A Certificates then
outstanding or, if there are no Class A Certificates then outstanding,
by such Percentage Interest represented by the Class B Certificates
then outstanding, shall have made written request to the Trustee to
institute such proceeding in its own name as representative of the
Owners;
(3) such Owner or Owners have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 30 days after its receipt of such notice,
request and offer of indemnity, has failed to institute such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Owners of a
majority of the Percentage Interests represented by each Class of Class
A Certificates then outstanding or, if there are no Class A
Certificates then outstanding, by a majority of the Percentage
Interests represented by the Class B Certificates then outstanding.
The Pooling and Servicing Agreement provides that no one or more Owners
shall have any right in any manner whatever by virtue of, or by availing
themselves of, any provision of the Pooling and Servicing Agreement to affect,
disturb or prejudice the rights of any other Owner of the same Class or to
obtain or to seek to obtain priority or preference over any other Owner of the
same Class or to enforce any right under the Pooling and Servicing Agreement,
except in the manner herein provided and for the equal and ratable benefit of
all the Owners of the same Class.
In the event the Trustee receives conflicting or inconsistent requests
and indemnity from two or more groups of Owners, each representing less than a
majority of the applicable Class of Certificates, the Trustee shall follow the
directions of the Certificate Insurer.
The Certificate Insurer or, with the consent of the Certificate
Insurer, the Owners of a majority of the Percentage Interests represented by
each Class of Class A Certificates then outstanding or, if there are no Class A
Certificates then outstanding, by such majority of the Percentage Interests
represented by the Class B Certificates then outstanding, may direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee with respect to the Certificates or exercising any trust or power
conferred on the Trustee with respect to the Certificates or the Trust Estate
provided that: (1) such direction is not in conflict with any rule of law or
with the Pooling and Servicing Agreement; (2) the Trustee has been provided with
indemnity satisfactory to it; and (3) the Trustee may take any other action
deemed proper by the Trustee which is not inconsistent with such direction;
provided, however, that the Trustee need not take any action which it determines
might involve it in liability or may be unjustly prejudicial to the Owners not
so directing.
Disposition of Trust Estate. The Trustee covenants not to permit the
Trust to sell, transfer, exchange or otherwise dispose of any of the Trust
Estate except as expressly permitted by the Pooling and Servicing Agreement.
Reporting Requirements. On each Payment Date the Trustee is required to
report in writing to each Owner and to the Certificate Insurer, among other
things: (i) the amount of the distribution with respect to the Class A
Certificates, the Class B Certificates and the Residual Certificates; (ii) the
amount of such distributions allocable to principal, separately identifying the
aggregate amount of any Prepayments or other recoveries of principal included
therein; (iii) the amount of such distributions allocable to interest; (iv) the
amount of such
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distributions allocable to the Class A Carry-Forward Amount or the Class B
Carry-Forward Amount; (v) the amount of any Insured Payment made with respect to
such Payment Date; (vi) the Class A Principal Balance as of such Payment Date,
together with the principal amount of each Class A Certificate (based on a
Certificate in the original principal amount of $1,000) then outstanding, in
each case after giving effect to any payment of principal on such Payment Date;
(vii) the Class B Principal Balance as of such Payment Date, together with the
principal amount of each Class B Certificate (based on a Certificate in the
original principal amount of $1,000) then outstanding, in each case after giving
effect to any payment of principal on such Payment Date; (viii) the total of any
Substitution Amounts and any Loan Purchase Prices included in such distribution;
(ix) the amount of the Servicing Fee paid with respect to such Payment Date; and
(x) the Subordinated Amount as of such Payment Date.
Removal of Trustee for Cause
The Trustee may be removed upon the occurrence of any of the following
events (whatever the reason for such event and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) the Trustee shall fail to distribute to the Owners
entitled thereto on any Payment Date amounts available for distribution
in accordance with the terms of the Pooling and Servicing Agreement; or
(2) the Trustee shall fail in the performance of, or breach,
any covenant or agreement of the Trustee in the Pooling and Servicing
Agreement, or if any representation or warranty of the Trustee made in
the Pooling and Servicing Agreement or in any certificate or other
writing delivered pursuant thereto or in connection therewith shall
prove to be incorrect in any material respect as of the time when the
same shall have been made, and such failure or breach shall continue or
not be cured for a period of 30 days after, there shall have been
given, by registered or certified mail, to the Trustee by the Depositor
or by the Certificate Insurer or by the Owners of at least 25% of the
aggregate Percentage Interest represented by any Class of Class A
Certificates then outstanding, or, if there are no Class A Certificates
then outstanding, by such Percentage Interest represented by the Class
B Certificates then outstanding, a written notice specifying such
failure or breach and requiring it to be remedied; or
(3) certain insolvency events related to the Trustee.
If any event described above occurs and is continuing, then and in
every such case (x) the Depositor or the Certificate Insurer or (y) with the
consent of the Certificate Insurer, the Owners of a majority Percentage Interest
represented by any Class of Class A Certificates or, if there are no Class A
Certificates then outstanding, by such Percentage Interest represented by the
Class B Certificates then outstanding, may immediately appoint a successor
trustee.
Liability of the Trustee
The Trustee, prior to the occurrence of an Event of Default and after
the curing of all Events of Default which may have occurred, undertakes to
perform such duties and only such duties as are specifically set forth in the
Pooling and Servicing Agreement. If an Event of Default has occurred and has not
been cured or waived, the Trustee shall exercise such of the rights and powers
vested in it by the Pooling and Servicing Agreement, and use the same degree of
care and skill in its exercise as a prudent person would exercise or use under
the circumstances in the conduct of such person's own affairs. Prior to the
occurrence of an Event of Default, and after the curing of all such Events of
Default which may have occurred, the Trustee (i)
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undertakes to perform such duties and only such duties as are specifically set
forth in the Pooling and Servicing Agreement, and no implied covenants or
obligations shall be read into the Pooling and Servicing Agreement against the
Trustee and (ii) in the absence of bad faith on its part, may conclusively rely,
as to the truth of the statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished pursuant to and conforming to
the requirements of the Pooling and Servicing Agreement; provided, however, that
such provisions do not protect the Trustee or any such person against any
liability which would otherwise be imposed by reason of negligent action,
negligent failure to act or willful misconduct in the performance of duties or
by reason of reckless disregard of obligations and duties thereunder.
The Trustee and any director, officer, employee or agent of the Trustee
may rely and will be protected in acting or refraining from acting in good faith
in reliance on any certificate, notice or other document of any kind prima facie
properly executed and submitted by the authorized officer of any person
respecting any matters arising under the Pooling and Servicing Agreement.
THE CERTIFICATE INSURANCE POLICY AND THE CERTIFICATE INSURER
Certificate Insurer
[describe]
The Certificate Insurance Policy
The Depositor will obtain the Certificate Insurance Policy, issued by
the Certificate Insurer, in favor of the Owners of the Class A Certificates. The
Certificate Insurance Policy provides for 100% coverage of the related Insured
Distribution Amount.
The Certificate Insurance Policy unconditionally guarantees the payment
of Insured Payments on the Class A Certificates. The Certificate Insurer is
required to make Insured Payments to the Trustee for the benefit of the Class A
Certificateholders on the later of the Payment Date or on the second Business
Day next following the day on which the Certificate Insurer and its fiscal
agent, if any, shall have received an appropriate written notice of claim from
the Trustee that an Insured Payment is due.
If payment of any amount avoided as a preference under applicable
bankruptcy, insolvency, receivership or similar law is required to be made under
the Certificate Insurance Policy, the Certificate Insurer will cause such
payment to be made on the later of (a) the date when due to be paid pursuant to
the Order referred to below or (b) the first to occur of (i) the fourth Business
Day following Receipt by the Certificate Insurer from the Trustee of (A) a
certified copy of the order (the "Order") of the court or other governmental
body which exercised jurisdiction to the effect that the applicable Owner of the
Class A Certificates is required to return the amount of any Class A Insured
Distribution Amount distributed with respect to the Class A Certificates during
the term of the Certificate Insurance Policy because such distributions were
avoidable as preference payments under applicable bankruptcy law, (B) a
certificate of such Owner of the Class A Certificates that the Order has been
entered and is not subject to any stay and (C) an assignment duly executed and
delivered by such Owner of the Class A Certificates, in such form as is
reasonably required by the Certificate Insurer and provided to such Owner of the
Class A Certificates by the Certificate Insurer, irrevocably assigning to the
Certificate Insurer all rights and claims of such Owner of the Class A
Certificates relating to or arising under the Class A Certificates against the
debtor which made the preference payment or otherwise with respect to such
preference payment, or (ii) the date of Receipt by the Certificate Insurer from
the Trustee of the items referred to in clauses (A), (B) and (C) above if, at
least four Business Days prior to such date of Receipt, the Certificate Insurer
has Received written notice from the Trustee that such items were to be
delivered on such date and such date was specified in such notice. Such payment
will be disbursed to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named
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in the Order and not to the Trustee or any Owner of the Class A Certificates
directly (unless an Owner of the Class A Certificates has previously paid such
amount to the receiver, conservator, debtor-in-possession or trustee in
bankruptcy named in the Order, in which case such payment will be disbursed to
the Trustee for distribution to such Owner of the Class A Certificates upon
proof of such payment reasonably satisfactory to the Certificate Insurer).
The terms "Receipt" and "Received," with respect to the Certificate
Insurance Policy, shall mean actual delivery to the Certificate Insurer and to
the fiscal agent, if any, prior to 12:00 noon, New York City time, on a Business
Day; delivery either on a day that is not a Business Day or after 12:00 noon,
New York City time, shall be deemed to be Received on the next Business Day. If
any notice or certificate given under the Certificate Insurance Policy by the
Trustee is not in proper form or is not properly completed, executed or
delivered, it shall be deemed not to have been Received, and the Certificate
Insurer or its fiscal agent will promptly so advise the Trustee and the Trustee
may submit an amended notice.
Under the Certificate Insurance Policy, "Business Day" means any day
other than a Saturday, Sunday or other day on which commercial banking
institutions or trust companies in New York, New York, or the principal place of
business of any successor Trustee is authorized or required to be closed.
The Certificate Insurance Policy is noncancelable.
THE CERTIFICATE INSURANCE POLICY IS NOT COVERED BY THE
PROPERTY/CASUALTY INSURANCE SECURITY FUND SPECIFIED IN ARTICLE 76 OF THE NEW
YORK INSURANCE LAW.
The Certificate Insurer's obligation under the Certificate Insurance
Policy will be discharged to the extent that funds are received by the Trustee
for distribution to the Class A Certificateholders, whether or not such funds
are properly distributed by the Trustee.
The Certificate Insurance Policy does not guarantee to the Owners of
the Class A Certificates any specific rate of prepayments of principal of the
Home Equity Loans. Also, the Certificate Insurance Policy does not guarantee the
payment of any Group II Supplemental Interest Amount and does not cover interest
shortfalls arising from Prepayments or the application of the Relief Act.
Claims under the Certificate Insurance Policy will rank equally with
any other unsecured debt and unsubordinated obligations of the Certificate
Insurer except for certain obligations in respect of tax and other payments to
which preference is or may become afforded by statute. Claims against the
Certificate Insurer under the Certificate Insurance Policy constitute pari passu
claims against the general assets of the Certificate Insurer. The terms of the
Certificate Insurance Policy cannot be modified or altered by any other
agreement or instrument, or by the merger, consolidation or dissolution of the
Depositor. The Certificate Insurance Policy may not be cancelled or revoked
prior to payment in full of the Class A Certificates.
Pursuant to the terms of the Pooling and Servicing Agreement, unless a
Certificate Insurer default exists, the Certificate Insurer shall be deemed to
be the Certificateholders for all purposes (other than with respect to payment
on the Certificates), will be entitled to exercise all rights of the Class A
Certificateholders thereunder, without the consent of such Certificateholders,
and the Class A Certificateholders may exercise such rights only with the prior
written consent of the Certificate Insurer. In addition, the Certificate Insurer
will, as a third party beneficiary to the Pooling and Servicing Agreement, have
among others, the following rights: (i) the right to give notices of breach or
to terminate the rights and obligations of the Master Servicer under the Pooling
and Servicing Agreement in the event of an Event of Default by the Master
Servicer; (ii) the right to direct the actions of the Trustee during the
continuation of a Master Servicer default; (iii) the right to require the
Company to repurchase Home Equity Loans for breach of representation and
warranty or defect in documentation; and (iv) the right to direct foreclosures
upon the failure of the Master Servicer to do so in
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accordance with the Pooling and Servicing Agreement. The Certificate Insurer's
consent will be required prior to, among other things, (i) the appointment of
any successor Trustee or Master Servicer or (ii) any amendment to the Pooling
and Servicing Agreement (which consent will not be unreasonably withheld).
Pursuant to the Pooling and Servicing Agreement, the Certificate
Insurer is subrogated to the rights of the Owners of the Class A Certificates to
the extent of any such payment under the Certificate Insurance Policy.
Credit Enhancement Does Not Apply to Prepayment Risk
In general, the protection afforded by the Certificate Insurance Policy
is protection for credit risk and not for prepayment risk. A claim may not be
made under the Certificate Insurance Policy in an attempt to guarantee or insure
that any particular rate of prepayment is experienced by the Trust.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the material federal income tax
consequences of the purchase, ownership and disposition of the Class A
Certificates is to be considered only in connection with "Federal Income Tax
Considerations" in the Prospectus. The discussion herein and in the Prospectus
is based upon laws, regulations, rulings and decisions now in effect, all of
which are subject to change. The discussion below and in the Prospectus does not
purport to deal with all federal tax consequences applicable to all categories
of investors, some of which may be subject to special rules. Investors should
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
Class A Certificates.
REMIC Election
The Trustee will cause one or more elections to be made with respect to
certain specified assets of the Trust as real estate mortgage investment
conduits ("REMICs") within the meaning of Code Section 860D. Dewey Ballantine
LLP, special tax counsel, will advise that, in its opinion, for federal income
tax purposes, assuming the REMIC elections are made and compliance with the
Pooling and Servicing Agreement, each Class of Class A Certificates will be
treated as a "regular interest" in a REMIC.
For federal income tax purposes, regular interests in a REMIC are
treated as debt instruments issued by the REMIC on the date on which those
interests are created, and not as ownership interests in the REMIC or its
assets. Owners of Class A Certificates that otherwise report income under a cash
method of accounting will be required to report income with respect to such
Certificates under an accrual method. The prepayment assumption that will be
used in determining the rate of accrual of original issue discount on the Class
A Certificates is the "Prepayment Assumption." See "Maturity, Prepayment and
Yield Considerations" herein and "Federal Income Tax Considerations -- Discount
and Premium" in the Prospectus.
The Owners of the Class A-6 Group II Certificates will be treated for
tax purposes as owning two separate investments: (i) Class A-6 Group II
Certificates, without the right to receive Supplemental Interest Amounts, and
(ii) the right to receive Supplemental Interest Amounts. The Owners of the Class
A-6 Group II Certificates must allocate the purchase price of their Certificates
between these two investments based on their relative fair market values. The
purchase price allocated to the first investment will be the issue price of the
Class A-6 Group II Certificates for calculating accruals of OID (if any). See
"Federal Income Tax Consequences--Discount and Premium" in the Prospectus.
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An Owner of a Class A-6 Group II Certificate and the related rights to
receive Supplemental Interest Amounts will be treated for federal income tax
purposes as having entered into a notional principal contract on the date that
it purchases its Certificate. Treasury Regulations under Section 446 of the Code
relating to notional principal contracts (the "Notional Principal Contract
Regulations") provide that taxpayers must recognize periodic payments with
respect to a notional principal contract under the accrual method of accounting.
Any Supplemental Interest Amounts will be periodic payments. Income with respect
to periodic payments under a notional principal contract for a taxable year
should constitute ordinary income. The purchase price allocated to the right to
receive the related Supplemental Interest Amounts will be treated as a
nonperiodic payment under the Notional Principal Contract Regulations. Such a
nonperiodic payment may be amortized using several methods, including the level
payment method described in the Notional Principal Contract Regulations.
The right to receive the Supplemental Interest Amounts will not
constitute: (i) a "real estate asset" within the meaning of section 858(c)(5)(A)
of the Internal Revenue Code (the "Code") if held by a real estate investment
trust; (ii) a "qualified mortgage" within the meaning of section 860G(a)(3) of
the Code or a "permitted investment" within the meaning of section 860G(a)(5) of
the Code if held by a REMIC, or (iii) an asset described in section
7701(a)(19)(C)(xi) of the Code if held by a thrift. Moreover, other special
rules may apply to certain investors, including dealers in securities and
dealers in notional principal contracts.
Taxation of Foreign Investors
In general, foreign investors will not be subject to U.S. withholding
on income from the Class A Certificates. See "Federal Income Tax Considerations
- -- Foreign Investors -- Grantor Trust Securities and REMIC Regular Securities"
in the Prospectus.
ERISA CONSIDERATIONS
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain requirements on those employee benefit plans to which
it applies ("ERISA Plan") and on those persons who are fiduciaries with respect
to such ERISA Plans. Certain employee benefit plans, such as governmental plans
(as defined in ERISA Section 3(32)) and certain church plans (as defined in
ERISA Section 3(33)), are not subject to ERISA. In accordance with ERISA's
general fiduciary standards, before investing in a Class A Certificate, an ERISA
Plan fiduciary should determine whether such an investment is permitted under
the governing ERISA Plan instruments and is appropriate for the ERISA Plan in
view of its overall investment policy and the composition and diversification of
its portfolio.
In addition, provisions of ERISA, and the corresponding provisions of
the Code, prohibit a broad range of transactions involving assets of ERISA
Plans, individual retirement accounts, and Keogh plans covering only a sole
proprietor or partners (collectively, the "Plans") and persons having certain
specified relationships to such a Plan ("parties in interest" and "disqualified
persons"). Such transactions are treated as "prohibited transactions" under
Sections 406 and 407 of ERISA and excise taxes are imposed upon such persons by
Section 4975 of the Code. Certain affiliates of the Originators, the Company,
the Master Servicer, the Depositor, any Sub-Servicer, and of the Trustee might
be considered "parties in interest" or "disqualified persons" with respect to a
Plan. If so, the acquisition or holding of Class A Certificates by or on behalf
of such Plan could be considered to give rise to a "prohibited transaction"
within the meaning of ERISA or the Code unless an exemption is available.
Furthermore, if an investing Plan's assets were deemed to include an interest in
the assets of the Home Equity Loans which constitute the Trust Estate and not
merely an interest in the Class A Certificates, transactions occurring in the
servicing of the Home Equity Loans might constitute prohibited transactions
unless an administrative exemption applies.
S-70
The DOL has issued to __________ an administrative exemption,
Prohibited Transaction Exemption ____ (the "Exemption"), which generally exempts
from the application of the prohibited transaction provisions of Section 406(a),
Section 406(b)(1) and Section 406(b)(2) of ERISA and the excise taxes imposed
pursuant to Sections 4975(a) and (b) of the Code, certain transactions relating
to the servicing and operation of asset pools, including pools of home equity
loans, and the purchase, sale and holding of asset-backed pass-through
certificates, including pass-through certificates evidencing interests in home
equity loans, such as the Class A Certificates underwritten by __________ and
certain of its affiliates, provided that certain conditions set forth in the
Exemption are satisfied.
If the general conditions of Section II of the Exemption are satisfied,
the Exemption may provide an exemption from the restrictions imposed by Sections
406(a) and 407(a) of ERISA (as well as the excise taxes imposed by Sections
4975(a) and (b) of the Code by reason of Section 4975(c)(1)(A) through (D) of
the Code) in connection with the direct or indirect sale, exchange or transfer
of Class A Certificates by Plans in the initial issue of Certificates, the
holding of Class A Certificates by Plans or the direct or indirect acquisition
or disposition in the secondary market of Class A Certificates by Plans.
However, no exemption is provided from the restrictions of Section 406(a)(1)(E),
406(a)(2) and 407 of ERISA for the acquisition or holding of a Class A
Certificate on behalf of an "Excluded Plan" (defined below) by any person who
has discretionary authority or renders investment advice with respect to the
assets of such Excluded Plan. For purposes of the Class A Certificates, an
Excluded Plan is a Plan sponsored by (1) the Underwriters, (2) the Master
Servicer and any Sub-Servicer, (3) the Certificate Insurer, (4) the Trustee, (5)
the Company, (6) the Depositor, (7) any Mortgagor with respect to Home Equity
Loans constituting more than 5 percent of the aggregate unamortized principal
balance of the Home Equity Loans as of the date of initial issuance and (8) any
affiliate or successor of a person described in (1) to (7) above (the
"Restricted Group").
If the specific conditions of paragraph I.B of Section I of the
Exemption are also satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA and the taxes
imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c)(1)(E) of the Code in connection with (1) the direct or indirect sale,
exchange or transfer of Class A Certificates in the initial issuance of Class A
Certificates between the Depositor, the Underwriters and a Plan when the person
who has discretionary authority or renders investment advice with respect to the
investment of Plan assets in Class A Certificates is (a) a mortgagor with
respect to 5 percent or less of the fair market value of the Home Equity Loans
or (b) an affiliate of such a person, (2) the direct or indirect acquisition or
disposition in the secondary market of Class A Certificates by Plans and (3) the
holding of Class A Certificates by Plans.
If the specific conditions of paragraph I.C of Section I of the
Exemption are satisfied, the Exemptions may provide an exemption from the
restrictions imposed by Sections 406(a), 406(b) and 407(a) of ERISA, and the
taxes imposed by Sections 4975(a) and (b) of the Code by reason of Section
4975(c) of the Code for transactions in connection with the servicing,
management and operation of the Trust.
The Exemption may provide an exemption from the restrictions imposed by
Section 406(a) and 407(a) of ERISA, and the taxes imposed by Sections 4975(a)
and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D) of the Code
if such restrictions are deemed to otherwise apply merely because a person is
deemed to be a "party in interest" or a "disqualified person" with respect to an
investing Plan by virtue of providing services to the Plan (or by virtue of
having certain specified relationships to such a person) solely as a result of
such Plan's ownership of Class A Certificates.
The Exemption sets forth the following seven general conditions which
must be satisfied for a transaction to be eligible for exemptive relief
thereunder.
S-71
(1) The acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as
favorable to the Plan as they would be in an arm's length transaction
with an unrelated party;
(2) The rights and interests evidenced by the certificates
acquired by the Plan are not subordinated to the rights and interests
evidenced by other certificates of the trust;
(3) The certificates acquired by the Plan have received a
rating at the time of such acquisition that is one of the three highest
generic rating categories from either Standard & Poor's, a division of
the McGraw-Hill Companies ("S&P"), Moody's Investors Service, Inc.
("Moody's"), Duff & Phelps Rating Co. ("D&P") or Fitch Investors
Service, Inc. ("Fitch");
(4) The trustee is not an affiliate of any other member of the
Restricted Group (as defined above);
(5) The sum of all payments made to and retained by the
Underwriters in connection with the distribution of certificates
represents not more than reasonable compensation for underwriting the
certificates. The sum of all payments made and retained by the seller
pursuant to the assignment of the loans to the trust fund represents
not more than the fair market value of such loans. The sum of all
payments made to and retained by the servicer represents not more than
reasonable compensation for such person's services under the pooling
and servicing agreement and reimbursement of such person's reasonable
expenses in connection therewith; and
(6) The Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the
Commission under the Securities Act of 1933.
(7) The trust fund must also meet the following requirements:
(i) the corpus of the trust fund must consist
solely of assets of the type that have been included in other
investment pools;
(ii) certificates in such other investment pools
must have been rated in one of the three highest generic
rating categories of S&P, Moody's, Fitch or D&P for at least
one year prior to the Plan's acquisition of certificates; and
(iii) certificates evidencing interests in such
other investment pools must have been purchased by investors
other than Plans for at least one year prior to any Plan's
acquisition of certificates.
It is a condition of issuance of the Class A Certificates that they be
rated ___ or ___ by ___ and ___, respectively. Before purchasing a Class A
Certificate, based on the Exemption, a fiduciary of a Plan should itself confirm
(1) that such Certificate constitutes a "certificate" for purposes of the
Exemption and (2) that the specific conditions set forth in Section I of the
Exemption, the general conditions set forth in Section II of the Exemption and
the other requirements set forth in the Exemption would be satisfied.
Any person purchasing a Class A-6 Group II Certificate and the related
right to receive Supplemental Interest Amounts will have acquired for purposes
of ERISA and for federal income tax purposes, such Class A-6 Group II
Certificate without the right to receive the Supplemental Interest Amounts,
together with the right to receive the Supplemental Interest Amounts. The
Exemption does not apply to the acquisition, holding or resale of the right to
receive the Supplemental Interest Amounts. Accordingly, the acquisition of the
right to receive the Supplemental Interest Amounts by a Plan could result in a
prohibited transaction unless another
S-72
administrative exemption to ERISA's prohibited transaction rules is applicable.
One or more alternative exemptions may be available with respect to certain
prohibited transaction rules of ERISA that might apply in connection with the
initial purchase, holding and resale of the right to receive the Supplemental
Interest Amounts, including, but not limited to: (i) Prohibited Transaction
Class Exemption ("PTCE") 91-38, regarding investments by bank collective
investment funds; (ii) PTCE 90-1, regarding investments by insurance company
pooled separate accounts; (iii) PTCE 84-14, regarding transactions negotiated by
qualified professional asset managers; or (iv) PTCE 75-1, Part II, regarding
principal transactions by broker-dealers (the "Principal Transactions
Exemption"). It is believed that the conditions of the Principal Transactions
Exemption will be met with respect to the acquisition of a right to receive the
Supplemental Interest Amounts by a Plan, so long as such Underwriter is not a
fiduciary with respect to the Plan (and is not a party in interest with respect
to the Plan by reason of being a participating employer or affiliate thereof).
Before purchasing Class A-6 Group II Certificates based on an administrative
exemption (or exemptions), a fiduciary of a Plan should determine whether the
conditions of such exemption (or exemptions) would be met and whether the scope
of the relief provided by such exemption (or exemptions) would cover all acts
that might be construed as prohibited transactions.
Prospective Plan investors in the Class A Certificates should consult
with their legal advisors concerning the impact of ERISA and the Code, the
applicability of the Exemption, and the potential consequences in their specific
circumstances, prior to making an investment in the Class A Certificates.
Moreover, each Plan fiduciary should determine whether under the general
fiduciary standards of investment prudence and diversification an investment in
the Class A Certificates is appropriate for the Plan, taking into account the
overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
In addition to the matters described above, purchasers of a Class A
Certificate that are insurance companies should 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, 114 S.CT. 517 (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 using insurance company general account assets should determine
whether the decision affects their ability to make purchases of the Class A
Certificates.
Non-ERISA Plans
Employee benefit plans that are governmental 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 requirements. Accordingly, assets of such plans
may be invested in the Class A Certificates without regard to the ERISA
restrictions described above, subject to applicable provisions of other federal
and state laws.
RATINGS
Ratings which are assigned to securities such as the Class A
Certificates generally evaluate the ability of the issuer (i.e., the Trust) and
any guarantor (i.e., the Certificate Insurer) to make timely payment when such
payments are due, as required by such securities. The amounts which are "due"
with respect to the Class A Certificates consist of principal and interest. In
general, ratings address credit risk and not prepayment risk. The ratings issued
with respect to the Class A-6 Group II Certificates do not cover the payment of
the Supplemental Interest Amounts.
It is a condition of the original issuance of the Class A Certificates
that they receive ratings of ___ or ___ by ___ and ___, respectively.
Explanations of the significance of such rating may be obtained from such rating
agency. The ratings will be the views only of such rating agencies. There is no
assurance that any such
S-73
ratings will continue for any period of time or that such ratings will not be
revised or withdrawn. Any such revision or withdrawal of such ratings may have
an adverse effect on the market price of the Class A Certificates. A security
rating is not a recommendation to buy, sell or hold securities.
LEGAL INVESTMENT CONSIDERATIONS
The Class A Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA"). Accordingly, many institutions may not be legally authorized to
invest in the Class A Certificates.
PLAN OF DISTRIBUTION
[Under the terms and subject to the conditions contained in an
Underwriting Agreement dated __________ (the "Underwriting Agreement"),
__________ and ___________ (together, the "Underwriters") have agreed to
purchase, and the Depositor has agreed to sell, the Class A Certificates offered
hereby.]
[In the Underwriting Agreement, each of the Underwriters has agreed,
subject to the terms and conditions set forth therein, to purchase, the
principal amount of the Class A Certificates set forth opposite its name below.]
Underwriter Principal Amount of Class
A Certificates
- -------------------------------------------------
- -----------......................................
- -----------......................................
- -------------------------------------------------
Total...................................
[The Underwriters have advised the Depositor that they propose to offer
the Class A Certificates for sale from time to time in one or more transactions
(which may include block transactions), in negotiated transactions or otherwise,
or a combination of such methods of sale, at market prices prevailing at the
time of sale or at negotiated prices. The Underwriters may effect such
transactions by selling the Class A Certificates to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriters and/or the purchasers of the
Class A Certificates for whom they may act as agents. In connection with the
sale of the Class A Certificates, the Underwriters may be deemed to have
received compensation from the Depositor in the form of underwriting discounts,
and the Underwriters may also receive commissions from purchasers of the Class A
Certificates for whom it may act as agent. The Underwriters and any dealers that
participate with the Underwriters in the distribution of the Class A
Certificates may be deemed to be underwriters, and any discounts or commissions
received by them and any profit on the resale of the Class A Certificates by
them may be deemed to be underwriting discounts or commissions.]
[The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all the Class A Certificates offered
hereby if any are purchased. ]
[The Class A Certificates are a new issue of securities with no
established trading market. The Underwriters have advised the Depositor that
they intend to act as market makers for the Class A Certificates. However, the
Underwriters are not obligated to do so and may discontinue any market making at
any time
S-74
without notice. No assurance can be given as to the liquidity of the trading
market for the Class A Certificates.]
[The Depositor has agreed to indemnify each Underwriter against certain
liabilities, including civil liabilities under the Securities Act of 1933, or
contribute to payments which either Underwriter may be required to make in
respect thereof.]
[This Supplement to the Prospectus is to be used by First Union Capital
Markets Corp. in connection with offers and sales related to market-making
transactions in the Certificates in which First Union Capital Markets Corp. acts
as principal. First Union Capital Markets Corp. also may act as agent in such
transactions. Sales will be made at negotiated prices determined at the time of
sale.]
EXPERTS
The consolidated balance sheets of ________________ and Subsidiaries,
as of __________ and ____ and the related consolidated statements of income,
changes in shareholder's equity and cash flows for each of the three years in
the period ended __________, incorporated by reference in this Prospectus
Supplement, have been incorporated herein in reliance upon the report of
__________, independent accountants, given on the authority of that firm as
experts in accounting and auditing.
CERTAIN LEGAL MATTERS
Certain legal matters concerning the issuance of the Certificates will
be passed upon by __________.
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the globally offered
__________ Home Equity Loan Trust _____ Class A Certificates (the "Global
Securities") will be available only in book-entry form. Investors in the Global
Securities may hold such Global Securities through any of DTC, CEDEL or
Euroclear. The Global Securities will be tradable as home market instruments in
both the European and U.S. domestic markets. settlement and all secondary trades
will settle in same-day funds.
Secondary market trading between investors through CEDEL and Euroclear
will be conducted in the ordinary way in accordance with the normal rules and
operating procedures of CEDEL and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be
conducted according to DTC's rules and procedures applicable to U.S. corporate
debt obligations.
Secondary cross-market trading between CEDEL or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositories of CEDEL and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
S-75
Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede as nominee of DTC. Investors' interests in the Global Securities
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, CEDEL and Euroclear will
hold positions on behalf of their participants through their Relevant Depository
which in turn will hold such positions in their accounts as DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow DTC settlement practices. Investor securities custody accounts will be
credited with their holdings against payment in same-day funds on the settlement
date.
Investors electing to hold their Global Securities through CEDEL or
Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no "lock-up" or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior home
equity loan asset-backed certificates issues in same-day funds.
Trading between CEDEL and/or Euroclear Participants. Secondary market
trading between CEDEL Participants or Euroclear Participants will be settled
using the procedures applicable to conventional eurobonds in same-day funds.
Trading between DTC, Company and CEDEL or Euroclear Participants. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a CEDEL Participant or a Euroclear Participant, the purchaser
will send instructions to CEDEL or Euroclear through a CEDEL Participant or
Euroclear Participant at least one business day prior to settlement. CEDEL or
Euroclear will instruct the Relevant Depository, as the case may be, to receive
the Global Securities against payment. Payment will include interest accrued on
the Global Securities from and including the last coupon payment date to and
excluding the settlement date, on the basis of the actual number of days in such
accrual period and a year assumed to consist of 360 days. For transactions
settling on the 31st of the month, payment will include interest accrued to and
excluding the first day of the following month. Payment will then be made by the
Relevant Depository to the DTC Participant's account against delivery of the
Global Securities. After settlement has been completed, the Global Securities
will be credited to the respective clearing system and by the clearing system,
in accordance with its usual procedures, to the CEDEL Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the CEDEL or Euroclear cash debt
will be valued instead as of the actual settlement date.
CEDEL Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to
ii
preposition funds for settlement, either from cash on hand or existing lines of
credit, as they would for any settlement occurring within CEDEL or Euroclear.
Under this approach, they may take on credit exposure to CEDEL or Euroclear
until the Global Securities are credited to their account one day later.
As an alternative, if CEDEL or Euroclear has extended a line of credit
to them, CEDEL Participants or Euroclear Participants can elect not to
preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, CEDEL Participants or Euroclear Participants
purchasing Global Securities would incur overdraft charges for one day, assuming
they cleared the overdraft when the Global Securities were credited to their
accounts. However, interest on the Global Securities would accrue from the value
date. Therefore, in many cases the investment income on the Global Securities
earned during that one-day period may substantially reduce or offset the amount
of such overdraft charges, although the result will depend on each CEDEL
Participant's or Euroclear Participant's particular cost of funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for crediting Global
Securities to the respective European Depository for the benefit of CEDEL
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
Trading between CEDEL or Euroclear Company and DTC Purchaser. Due to
time zone differences in their favor, CEDEL Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depository, to a DTC Participant. The seller will send
instructions to CEDEL or Euroclear through a CEDEL Participant or Euroclear
Participant at least one business day prior to settlement. In these cases CEDEL
or Euroclear will instruct the respective Depository, as appropriate, to credit
the Global Securities to the DTC Participant's account against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment to and excluding the settlement date on the basis of the
actual number of days in such accrual period and a year assumed to consist of
360 days. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
The payment will then be reflected in the account of CEDEL Participant or
Euroclear Participant the following day, and receipt of the cash proceeds in the
CEDEL Participant's or Euroclear Participant's account would be back-valued to
the value date (which would be the preceding day, when settlement occurred in
New York). In the event that the CEDEL Participant or Euroclear Participant have
a line of credit with its respective clearing system and elect to be in debt in
anticipation of receipt of the sale proceeds in its account, the back-valuation
will extinguish any overdraft incurred over that one-day period. If settlement
is not completed on the intended value date (i.e., the trade fails), receipt of
the cash proceeds in the CEDEL Participant's or Euroclear Participant's account
would instead be valued as of the actual settlement date.
Finally, day traders that use CEDEL or Euroclear and that purchase
Global Securities from DTC Participants for delivery to CEDEL Participants or
Euroclear Participants should note that these trades would automatically fail on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing through CEDEL or Euroclear for one day (until the
purchase side of the trade is reflected in their CEDEL or Euroclear accounts) in
accordance with the clearing system's customary procedures;
(b) borrowing the Global Securities in the U.S. from a DTC Participant
no later than one day prior to settlement, which would give the Global
Securities sufficient time to be reflected in their CEDEL or Euroclear account
in order to settle the sale side of the trade; or
iii
(c) staggering the value dates for the buy and sell sides of the trade
so that the value date for the purchase from the DTC Participant is at least one
day prior to the value date for the sale to the CEDEL Participant or Euroclear
Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner of Global Securities holding securities through
CEDEL or Euroclear (or through DTC if the holder has an address outside the
U.S.) will be subject to the 30% U.S. withholding tax that generally applies to
payments of interest (including original issue discount) on registered debt
issued by U.S. Persons (as defined below), unless (i) each clearing system, bank
or other financial institution that holds customers' securities in the ordinary
course of its trade or business in the chain of intermediaries between such
beneficial owner and the U.S. entity required to withhold tax complies with
applicable certification requirements and (ii) such beneficial owner takes one
of the following steps to obtain an exemption or reduced tax rate:
Exemption for Non-U.S. Persons (Form W-8). Beneficial Certificate
Owners of Global Securities that are Non-U.S. Persons (as defined below) can
obtain a complete exemption from the withholding tax by filing a signed Form W-8
(Certificate of Foreign Status). If the information shown on Form W-8 changes, a
new Form W-8 must be filed within 30 days of such change.
Exemption for Non-U.S. Persons with effectively connected income (Form
4224). A Non-U.S. Person (as defined below), including a non-U.S. corporation or
bank with a U.S. branch, for which the interest income is effectively connected
with its conduct of a trade or business in the United States, can obtain an
exemption from the withholding tax by filing Form 4224 (Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States).
Exemption or reduced rate for non-U.S. Persons resident in treaty
countries (Form 1001). Non-U.S. Persons residing in a country that has a tax
treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form 1001 (Ownership, Exemption or
Reduced Rate Certificate). If the treaty provides only for a reduced rate,
withholding tax will be imposed at that rate unless the filer alternatively
files Form W-8. Form 1001 may be filed by Certificate Owners or their agent.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Owner of a Global
Security or, in the case of a Form 1001 or a Form 4224 filer, his agent, files
for exemption by submitting the appropriate form to the person through whom it
holds (the clearing agency, in the case of persons holding directly on the books
of the clearing agency). Form W-8 and Form 1001 each are effective for three
calendar years and Form 4224 is effective for one calendar year.
On April 22, 1996 the IRS issued proposed regulations relating to (i)
withholding income tax on U.S.-source income paid to Non-U.S. Persons; (ii)
claiming Non-U.S. Person status to avoid backup withholding; and (iii) reporting
to the IRS of payments to Non-U.S. Persons. The proposed regulations would
substantially revise some aspects of the current system for withholding on and
reporting amounts paid to Non-U.S. Persons. The regulations unify current
certification procedures and forms and reliance standards are clarified. Most
forms are proposed to be combined into a single form: Form W-8. The regulations
are proposed to be effective for payments made after December 31, 1997.
Certificates issued, however, on or before the date that is 60 days after the
proposed regulations are made final will continue to be valid until they expire.
All proposed regulations are subject to change before adoption in their final
form. No reliable prediction can be made as to when, if ever, the proposed
regulations will be made final and if so, as to their final form.
iv
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity organized in or under
the laws of the United States or any political subdivision thereof, (iii) an
estate that is subject to U.S. federal income tax regardless of the source of
its income or (iv) a trust if a court within the United States can exercise
primary supervision over its administration and at least one United States
fiduciary has the authority to control all substantial decisions of the trust.
The term "Non-U.S. Person" means any person who is not a U.S. Person. This
discussion does not deal with all aspects of U.S. Federal income tax withholding
that may be relevant to foreign holders of the Global Securities. Investors are
advised to consult their own tax advisors for specific tax advice concerning
their holding and disposing of the Global Securities.
v
INDEX OF PRINCIPAL DEFINITIONS
Term Page Term Page
Cooperative........................................52
1933 Act............................................4 Coupon Rates........................................8
CPR................................................38
Account............................................61 Cut-Off Date........................................8
Appraised Values...........................25, 26, 32
D&P................................................73
Balloon Loans.......................................8 Definitive Certificate.............................51
Beneficial Certificate Owners......................16 Delinquency Advances...............................45
Book-Entry Certificates............................50 Depositor........................................3, 6
business day.......................................47 Depositor Optional Termination Date................18
DTC.............................................4, 16
Cede............................................4, 16 DTC Participants...................................52
CEDEL..............................................16
CEDEL Participants.................................52 Eligible Investments...............................62
Certificate Account................................45 ERISA..........................................19, 71
Certificate Insurance Policy........................1 ERISA Plan.........................................71
Certificate Insurer.................................1 Euroclear..........................................16
Certificateholder...................................4 Euroclear Operator.................................52
Certificates.....................................1, 6 Euroclear Participants.............................52
Chase..............................................16 European Depositories..........................16, 50
Citibank...........................................16 Exchange Act........................................5
Class..............................................43 Exemption..........................................71
Class A Carry-Forward Amount.......................15
Class A Certificate Principal Balance..............14 Financial Intermediary.............................51
Class A Certificates.............................1, 6 Fitch..............................................73
Class A Distribution Amount........................15
Class A Group I Certificate Principal Balance......14 Global Securities..................................76
Class A Group I Certificates.....................1, 6 Group I...................................3, 6, 8, 23
Class A Group II Certificate Principal Balance.....14 Group I Available Funds Pass-Through Rate..........10
Class A Insured Distribution Amount................15 Group I Certificates.............................1, 6
Class A Principal Distribution Amount..............12 Group I Monthly Remittance.........................44
Class A-1 Pass-Through Rate........................10 Group I Principal Remittance Amount................44
Class A-2 Pass-Through Rate........................10 Group I Subordination Deficit......................49
Class A-3 Pass-Through Rate........................10 Group I Total Available Funds......................50
Class A-4 Pass-Through Rate........................10 Group II..................................3, 6, 8, 23
Class A-5 Lockout Distribution Amount..........12, 46 Group II Certificates............................1, 6
Class A-5 Lockout Percentage.......................12 Group II Monthly Remittance........................44
Class A-5 Lockout Pro Rata Group II Principal Remittance Amount...............44
Distribution Amount.........................14, 46 Group II Subordination Deficit.....................49
Class A-5 Pass-Through Rate........................10 Group II Supplemental Interest Amount..............10
Class A-6 Available Funds Pass-Through Rate........10 Group II Supplemental Interest Amounts.............45
Class A-6 Formula Pass-Through Rate................10 Group II Total Available Funds.....................50
Class A-6 Group II Certificates..................1, 6
Class A-6 Pass-Through Rate........................10 HEP................................................38
Class B Certificates.............................3, 6 Home Equity Prepayment.............................38
Code................................................3
Combined Loan-to-Value Ratio.......................32 Insurance Agreement................................17
Commission..........................................4 Insurance Proceeds.................................12
Company.............................................6 Interest Determination Date........................47
i
Term Page Term Page
Interest Remittance Amount.........................44 Supplemental Interest Account......................45
LIBOR..............................................10 Terms and Conditions...............................53
Liquidation Proceeds...............................12 Total Available Funds..............................50
Trust............................................1, 6
Master Servicer..............................3, 6, 54 Trust Estate.......................................65
Monthly Remittance.................................44 Trustee..........................................3, 6
Moody's............................................73
Home Equity Loan Group..................3, 6, 8, 23 U.S. Person.........................................v
Home Equity Loan Groups...........................3 Underwriters....................................1, 75
Home Equity Loans..............................1, 6 Underwriting Agreement.............................75
Mortgaged Properties................................6
Mortgages........................................6, 8 Weighted average life..............................38
Mortgagors.........................................37
Net Liquidation Proceeds...........................12
Notional Principal Contract Regulations............70
Original Group I Pool Principal Balance.............8
Original Group II Pool Principal Balance............8
Original Pool Principal Balance.....................8
Originators.........................................3
Owner...............................................4
Participants.......................................50
Payment Date................................3, 11, 43
Plans..........................................19, 71
Policy Payments Account............................45
Pool................................................1
Pooling and Servicing Agreement..............3, 6, 43
Prepayment Assumption..........................38, 70
Prepayments........................................12
Principal and Interest Account.....................44
Principal Remittance Amount........................44
Record Date.........................................3
Reference Banks....................................47
Released Mortgaged Property Proceeds...............12
Relief Act.........................................15
REMICs..............................................3
Remittance Period..................................45
Residual Certificates...........................6, 43
Restricted Group...................................72
Reuters Screen LIBO Page...........................47
Rules..............................................51
S&P................................................72
Sale Agreement......................................3
Servicing Fee......................................17
SMMEA..............................................19
Specified Subordinated Amount......................48
Subordinated Amount................................48
Subordination Deficiency...........................49
Subordination Increase Amount......................49
Subordination Reduction Amount.....................49
ii
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No dealer, salesperson or any other person has been
authorized to give any information or to make any __________
representation not contained in this Prospectus Home Equity Loan Trust
Supplement and the Prospectus, if given or made, such _____
information or representations may not be relied upon as
having been authorized by the Company, the Depositor, or
by the Underwriters. This Prospectus Supplement and the $
Prospectus do not constitute an offer to sell, or a
solicitation of an offer to buy, the securities offered
hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Home Equity Loan Pass-Through
Neither the delivery of this Prospectus Supplement or Certificates,
Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that information
herein is correct as of any time subsequent to the date Series _____
hereof or that there has been no change in the affairs of
the Company, the Master Servicer, the Depositor, or the
Certificate Insurer since such date.
- ------------------------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
Available Information...................................4
Reports to the Holders..................................4
Incorporation of Certain Documents by ReferenceError! Boo
kmark not defined
Summary.................................................5
Risk Factors...........................................18
Use of Proceeds........................................20
The Company............................................20
Servicing..............................................20
Loan Loss Experience on the Company'sportfolio
of Home Equity Loans...............................22
The Home Equity Loan Pool.............................22
Description of the Certificates........................43
Trustee................................................63
The Certificate Insurance Policy and the
Certificate Insurer.................................67 $__________ Class A-1 Group I Certificates,
Federal Income Tax Consequences........................69 Variable Pass-Through Rate
Erisa Considerations...................................70 --------------
Ratings................................................73 $__________ Class A-2 Group I Certificates,
Legal Investment Considerations........................74 _____% Pass-Through Rate
Plan of DistributionError! Bookmark not defined. --------------
$__________ Class A-3 Group I Certificates,
Experts................................................75 _____% Pass-Through Rate
Certain Legal Matters..................................75 --------------
$_________ Class A-4 Group I Certificates,
- ------------------------------------------ _____% Pass-Through Rate
PROSPECTUS --------------
Summary of Prospectus.................................... $__________ Class A-5 Group I Certificates,
Risk Factors............................................. _____% Pass-Through Rate
Prospectus Supplement.................................... --------------
Reports to Holders....................................... $__________ Class A-6 Group II Certificates,
Available Information.................................... Variable Pass-Through Rate
Incorporation of Certain Documents by Reference.
The Home Equity Loan Pool............................... --------------
Summary of Prospectus....................................
Description of the Securities..........................43 __________
The Trust Funds........................................63 Company
Credit Enhancement.....................................67
Servicing of Loans.....................................69 --------------------------------------------
The Agreements.........................................70 PROSPECTUS SUPPLEMENT
Certain Legal Aspects..................................73
Legal Investment Considerations........................74 --------------------------------------------
Plan of DistributionError! Bookmark not defined.
Experts................................................75
Certain Legal Matters..................................75 ----------
__________
- ------------------------------------------
Until 90 days after the date of this Prospectus __________
Supplement, all dealers effecting transactions in the
Class A Certificates, whether or not participating in
this distribution, may be required to deliver a
Prospectus Supplement or a Prospectus. This is in
addition to the obligation of dealers to deliver a
Prospectus Supplement and Prospectus when acting as
underwriters and with respect to their unsold allotments
or subscriptions.
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