PROSPECTUS SUPPLEMENT
(To Prospectus dated December 1, 2003)
[C-BASS LOGO] [RADAR VIEWER LOGO]
$414,616,000 (Approximate)
C-BASS Mortgage Loan Asset-Backed Certificates, Series 2003-CB6
$134,439,000 Class 1AV-1 Floating Pass-Through Rate $10,189,000 Class AF-5 Fixed Pass-Through Rate
$ 61,200,000 Class 2AV-1 Floating Pass-Through Rate $ 9,000,000 Class AF-6 Fixed Pass-Through Rate
$ 38,729,000 Class 2AV-2 Floating Pass-Through Rate $26,076,000 Class M-1 Floating Pass-Through Rate
$ 49,500,000 Class AF-1 Floating Pass-Through Rate $21,730,000 Class M-2 Floating Pass-Through Rate
$ 19,300,000 Class AF-2 Fixed Pass-Through Rate $ 4,128,000 Class M-3 Floating Pass-Through Rate
$ 17,400,000 Class AF-3 Fixed Pass-Through Rate $ 5,432,000 Class M-4 Floating Pass-Through Rate
$ 12,930,000 Class AF-4 Fixed Pass-Through Rate $ 4,563,000 Class M-5 Floating Pass-Through Rate
Financial Asset Securities Corp.
Depositor
Credit-Based Asset Servicing and Securitization LLC
Seller
Litton Loan Servicing LP
Servicer
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Consider carefully the risk factors beginning on page S-12 in this prospectus
supplement and on page 6 in the prospectus.
The offered certificates are not insured or guaranteed by any governmental
agency or instrumentality.
The certificates represent obligations of the trust only and do not represent
an interest in or obligation of the depositor, the seller, the servicer, the
trustee or any of their affiliates.
This prospectus supplement may be used to offer and sell the offered
certificates only if accompanied by the prospectus.
- -------------------------------------------------------------------------------
The Certificates
o The certificates represent ownership interests in a trust consisting of a
pool of first and second lien residential mortgage loans. The mortgage
loans will be segregated into three loan groups. Loan group 1 will
consist of FHA insured and conventional fixed-rate and adjustable-rate
mortgage loans, loan group 2 will consist of conventional fixed-rate
mortgage loans and adjustable-rate mortgage loans, and loan group 3 will
consist of FHA insured and conventional fixed-rate mortgage loans.
o The Class 1AV-1, Class 2AV-1, Class 2AV-2, Class AF-1, Class AF-2, Class
AF-3, Class AF-4, Class AF-5 and Class AF-6 Certificates will be senior
certificates. The Class M-1, Class M-2, Class M-3, Class M-4, Class M-5,
Class M-6, Class N and Class X Certificates will be subordinate
certificates. The Class XR and Class R Certificates will be residual
certificates.
o Only the Class 1AV-1, Class 2AV-1, Class 2AV-2, Class AF-1, Class AF-2,
Class AF-3, Class AF-4, Class AF-5, Class AF-6, Class M-1, Class M-2,
Class M-3, Class M-4 and Class M-5 Certificates are being offered by this
prospectus supplement and the accompanying prospectus. The Class M-6,
Class N, Class X, Class XR and Class R Certificates are not being offered
by this prospectus supplement and the accompanying prospectus. The Class
M-6, Class N and Class X Certificates will be delivered to the Seller as
partial consideration for the mortgage loans.
o Each class of offered certificates will bear interest at the applicable
interest rate calculated as described in this prospectus supplement.
Credit Enhancement
o Subordination -- The subordinate certificates will be subordinate in
right of certain payments to the senior certificates and may be
subordinate to certain other classes of subordinate certificates as
described in this prospectus supplement.
o Allocation of Losses -- Losses on the mortgage loans generally will be
allocated to the classes of subordinate certificates in reverse
numerical order until the principal balances of those classes are
reduced to zero. Losses will not be allocated to the senior
certificates.
o Overcollateralization -- Certain excess interest received from the mortgage
loans will be applied as payments of principal on the Certificates to
maintain a required level of overcollateralization.
o Certain of the mortgage loans will be covered, to a limited extent, by
insurance from the Federal Housing Administration or a primary mortgage
insurance provider.
Neither the SEC nor any state securities commission has approved these
securities or determined that this prospectus supplement or the prospectus is
accurate or complete. Any representation to the contrary is a criminal
offense.
The offered certificates are being offered by Greenwich Capital Markets, Inc.,
Residential Funding Securities Corporation and Blaylock & Partners, L.P. from
time to time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to the depositor with respect to the
offered certificates are expected to be approximately 99.71% plus accrued
interest, if applicable, before deducting issuance expenses payable by the
depositor.
Delivery of the offered certificates will be made in book-entry form through
the facilities of The Depository Trust Company, or upon request through
Clearstream, Luxembourg or the Euroclear System on or about December 4, 2003.
RBS GREENWICH CAPITAL
GMAC RFC SECURITIES BLAYLOCK & PARTNERS, L.P.
December 1, 2003
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
SUMMARY OF PROSPECTUS SUPPLEMENT..................S-3
RISK FACTORS.....................................S-12
THE MORTGAGE POOL................................S-24
THE SELLER.......................................S-66
UNDERWRITING STANDARDS...........................S-66
THE SERVICER.....................................S-68
THE POOLING AND SERVICING AGREEMENT..............S-70
DESCRIPTION OF THE CERTIFICATES..................S-77
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS....S-99
USE OF PROCEEDS.................................S-127
CERTAIN MATERIAL FEDERAL INCOME TAX
CONSEQUENCES...................................S-127
STATE TAXES.....................................S-130
ERISA CONSIDERATIONS............................S-130
LEGAL INVESTMENT................................S-132
METHOD OF DISTRIBUTION..........................S-133
LEGAL MATTERS...................................S-134
RATINGS.........................................S-134
INDEX OF DEFINED TERMS..........................S-135
ANNEX I...........................................I-1
ANNEX II.........................................II-1
PROSPECTUS
Page
IMPORTANT NOTICE ABOUT
INFORMATION IN THIS PROSPECTUS
AND EACH ACCOMPANYING
PROSPECTUS SUPPLEMENT..............................5
RISK FACTORS........................................6
THE TRUST FUND.....................................15
USE OF PROCEEDS....................................30
THE DEPOSITORS.....................................30
LOAN PROGRAM.......................................31
DESCRIPTION OF THE SECURITIES......................34
CREDIT ENHANCEMENT.................................42
YIELD AND PREPAYMENT CONSIDERATIONS................52
OPERATIVE AGREEMENTS...............................55
MATERIAL LEGAL ASPECTS OF THE LOANS................73
MATERIAL FEDERAL INCOME TAX CONSEQUENCES...........93
STATE TAX CONSIDERATIONS..........................132
ERISA CONSIDERATIONS..............................133
LEGAL INVESTMENT CONSIDERATIONS...................138
METHOD OF DISTRIBUTION............................140
LEGAL MATTERS.....................................141
FINANCIAL INFORMATION.............................141
AVAILABLE INFORMATION.............................141
RATINGS...........................................141
GLOSSARY OF TERMS.................................143
S-2
Summary of Prospectus Supplement
Because this is a summary, it does not contain all the information that
may be important to you. You should read the entire accompanying prospectus (the
"Prospectus") and this prospectus supplement (the "Prospectus Supplement")
carefully before you decide to purchase a certificate. If capitalized terms are
not defined in this Prospectus Supplement, they are defined in the Prospectus.
Issuer
2003-CB6 Trust (the "Trust").
Title of Series
C-BASS Mortgage Loan Asset-Backed Certificates, Series 2003-CB6.
Designations
o Class A Certificates
Class 1AV-1 Certificates, Class 2AV Certificates and Class AF Certificates
o Class 2AV Certificates
Class 2AV-1 Certificates and Class 2AV-2 Certificates
o Class AF Certificates
Class AF-1 Certificates, Class AF-2 Certificates, Class AF-3 Certificates, Class
AF-4 Certificates, Class AF-5 Certificates and Class AF-6 Certificates
o Class M Certificates
Class M-1 Certificates, Class M-2 Certificates, Class M-3 Certificates, Class
M-4 Certificates, Class M-5 Certificates and Class M-6 Certificates
o Subordinate Certificates
Class M Certificates, Class N Certificates and Class X Certificates
o Residual Certificates
Class XR Certificates and Class R Certificates
The Certificates
The Class 1AV-1, Class 2AV, Class AF, Class M, Class N, Class X, Class XR and
Class R Certificates are the entire ownership interest in a trust fund which is
composed of first and second lien mortgage loans. The Trust will issue the
certificates pursuant to a pooling and servicing agreement among Credit-Based
Asset Servicing and Securitization LLC, as seller, Financial Asset Securities
Corp., as depositor, Litton Loan Servicing LP, as servicer, and JPMorgan Chase
Bank, as trustee. The Trust will issue the Class 1AV-1, Class 2AV-1, Class
2AV-2, Class AF-1, Class AF-2, Class AF-3, Class AF-4, Class AF-5, Class AF-6,
Class M-1, Class M-2, Class M-3, Class M-4, Class M-5 and Class M-6 Certificates
as book-entry securities clearing through The Depository Trust Company ("DTC")
(in the United States) or, upon request, Clearstream Banking ("Clearstream") or
the Euroclear System ("Euroclear") (in Europe). See "Description of the
Certificates--Book-Entry Certificates" in this Prospectus Supplement.
The Offered Certificates
The underwriters are offering to sell the Class 1AV-1, Class 2AV-1, Class 2AV-2,
Class AF-1, Class AF-2, Class AF-3, Class AF-4, Class AF-5, Class AF-6 Class
M-1, Class M-2, Class M-3, Class M-4 and Class M-5 Certificates. The Class M-6,
Class N, Class X, Class XR and Class R Certificates are not being offered. The
Class M-6, Class N and Class X Certificates will be delivered to the Seller as
partial consideration for the Mortgage Loans.
Depositor of Mortgage Loans
Financial Asset Securities Corp. will deposit the mortgage loans in the trust
fund. The depositor is a Delaware corporation and an affiliate of Greenwich
Capital Markets, Inc., one of the underwriters.
Mortgage Loan Seller
On the closing date, the mortgage loans will be sold to the depositor by
Credit-Based Asset Servicing and Securitization LLC. The mortgage loans were
acquired generally in accordance with the underwriting standards described in
"Underwriting Standards" in this Prospectus Supplement.
S-3
Servicer
Litton Loan Servicing LP will service the mortgage loans. Subject to certain
limitations, the servicer must advance delinquent payments of principal and
interest on the mortgage loans, other than with respect to simple interest
mortgage loans. The servicer will only advance interest with respect to second
lien mortgage loans and REO Properties and will make only limited advances with
respect to the unpaid principal balance remaining at maturity of a balloon loan.
See "The Pooling and Servicing Agreement--Advances" in this Prospectus
Supplement and "Description of the Securities--Advances" in the Prospectus. The
servicer is a wholly-owned subsidiary of the seller of the mortgage loans.
Trustee
JPMorgan Chase Bank, a New York banking corporation.
Interest Rate Cap Provider
The Royal Bank of Scotland plc.
Cut-off Date
November 1, 2003.
Closing Date
On or about December 4, 2003.
Distribution Date
The 25th day of each month, or, if the 25th day is not a business day, the next
succeeding business day, commencing on December 26, 2003.
Final Scheduled Distribution Dates
The final scheduled distribution date for each class of offered certificates is
December 26, 2033.
The final scheduled distribution date has been calculated as described under
"Yield, Prepayment and Maturity Considerations--Final Scheduled Distribution
Dates" in this Prospectus Supplement.
The Mortgage Pool
On the closing date, the Trust will acquire a pool of fixed-rate and
adjustable-rate mortgage loans.
The total mortgage pool has the following aggregate characteristics (percentages
are based on the aggregate principal balance as of the cut-off date):
Aggregate Current Principal Balance $434,611,886
Average Outstanding Principal Balance $156,504
Range of Outstanding Principal
Balances $3,349 to
$834,963
Average Original Principal Balance $158,430
Range of Original Principal Balances $10,000 to
$840,000
Loans with Prepayment Penalties 67.64%
Product Type:
Fixed-Rate 50.15%
2/28 ARM 44.22%
3/27 ARM 3.42%
Other 2.22%
Weighted Average Mortgage Interest
Rate 7.365%
Range of Mortgage Interest Rates 4.100% to
16.500%
Weighted Average Original Combined LTV 84.50%
Weighted Average Original Term to
Maturity 346 months
Weighted Average Remaining Term to
Stated Maturity 338 months
Percentage of Interest Only Loans 1.69%
Percentage of Balloon Loans 1.63%
Percentage of Simple Interest Loans 0.69%
Percentage of Loans Covered by
Private Mortgage Insurance 6.25%
Percentage of Second Lien Loans 1.73%
Percentage of FHA Insured Loans 0.10%
Percentage of FHA Uninsured Loans 0.62%
Percentage of Sub-Prime Loans 80.89%
Percentage of Performing Loans 100.00%
Percentage Forbearance Plan Loans 0.33%
Percentage Bankruptcy Plan Loans 0.19%
Percentage of Owner-Financed Loans 4.14%
Max ZIP Code Concentration (%) 0.45%
Max ZIP Code Concentration (ZIP) 11368
Top Geographic Concentrations:
California 35.53%
New York 10.28%
New Jersey 6.41%
Florida 5.91%
S-4
For the ARM loans only:
Weighted Average Mortgage Interest
Rates by Index:
Six-Month LIBOR 7.479%
One-Month LIBOR 4.831%
Other 5.307%
Weighted Average Gross Margin by
Index:
Six-Month LIBOR 5.776%
One-Month LIBOR 3.648%
Other 2.742%
Weighted Average Maximum Mortgage
Interest Rate 14.210%
Range of Maximum Mortgage Interest
Rates 10.000% to
21.800%
Weighted Average Minimum Mortgage
Interest Rate 6.978%
Range of Minimum Mortgage Interest
Rates 0.000% to
15.300%
Weighted Average Initial Rate Cap 1.834%
Range of Initial Rate Caps 1.000% to 5.000%
Weighted Average Periodic Rate Cap 1.447%
Range of Periodic Rate Caps 1.000% to 3.000%
Weighted Average Months to Next
Adjustment Date 20 months
Range of Months to Next Adjustment
Date 1 month to 58
months
Weighted Average Interest Adjustment
Frequency 6 months
The group 1 mortgage loans will consist of FHA
insured and conventional fixed-rate and
adjustable-rate mortgage loans. The group 1
mortgage loans will have original principal
balances that conform to Fannie Mae and Freddie Mac
standards. The group 1 mortgage loans will have the
following characteristics (percentages are based on
the aggregate principal balance of the group 1
mortgage loans as of the cut-off date):
Aggregate Current Principal Balance $165,168,400
Average Outstanding Principal Balance $148,050
Range of Outstanding Principal
Balances $3,349 to
$447,454
Average Original Principal Balance $149,288
Range of Original Principal Balances $12,500 to
$450,000
Loans with Prepayment Penalties 75.27%
Product Type:
2/28 ARM 70.65%
Fixed Rate 19.96%
3/27 ARM 6.72%
Other 2.66%
Weighted Average Mortgage Interest
Rate 7.548%
Range of Mortgage Interest Rates 4.100% to
13.000%
Weighted Average Original Combined LTV 84.60%
Weighted Average Original Term to
Maturity 355 months
Weighted Average Remaining Term to
Stated Maturity 348 months
Percentage of Interest Only Loans 1.82%
Percentage of Balloon Loans 0.36%
Percentage of Simple Interest Loans 0.37%
Percentage of Loans Covered by
Private Mortgage Insurance 2.63%
Percentage of Second Lien Loans 0.65%
Percentage of FHA Insured Loans 0.16%
Percentage of FHA Uninsured Loans 0.00%
Percentage of Sub-Prime Loans 90.11%
Percentage of Performing Loans 100.00%
Percentage of Forbearance Plan Loans 0.51%
Percentage of Bankruptcy Plan Loans 0.00%
Percentage of Owner-Financed Loans 2.58%
Max ZIP Code Concentration (%) 0.58%
Max ZIP Code Concentration (ZIP) 90047
Top Geographic Concentrations:
California 36.55%
Illinois 7.67%
Florida 6.92%
For the ARM loans only:
Weighted Average Mortgage Interest
Rate by Index:
Six-Month LIBOR 7.629%
One-Month LIBOR 4.735%
Other 5.325%
Weighted Average Gross Margin by
Index:
Six-Month LIBOR 5.806%
One-Month LIBOR 3.523%
Other 2.740%
Weighted Average Maximum Mortgage
Interest Rate 14.369%
Range of Maximum Mortgage Interest
Rates 10.125% to
19.400%
Weighted Average Minimum Mortgage
Interest Rate 7.134%
S-5
Range of Minimum Mortgage Interest
Rates 0.000% to
12.900%
Weighted Average Initial Rate Cap 1.840%
Range of Initial Rate Caps 1.000% to 5.000%
Weighted Average Periodic Rate Cap 1.436%
Range of Periodic Rate Caps 1.000% to 3.000%
Weighted Average Months to Next
Adjustment Date 20 months
Range of Months to Next Adjustment
Date 1 month to 58
months
Weighted Average Interest Adjustment
Frequency 6 months
The group 2 mortgage loans will consist of conventional
fixed-rate and adjustable-rate mortgage loans. Some of the
group 2 mortgage loans will have original principal balances
that conform to Fannie Mae and Freddie Mac standards and some
will not. The group 2 mortgage loans will have the following
characteristics (percentages are based on the aggregate
principal balance of the group 2 mortgage loans as of the
cut-off date):
Aggregate Current Principal Balance $123,139,433
Average Outstanding Principal Balance $206,264
Range of Outstanding Principal
Balances $9,496 to
$834,963
Average Original Principal Balance $208,480
Range of Original Principal Balances $15,900 to
$840,000
Loans with Prepayment Penalties 69.28%
Product Type:
2/28 ARM 61.01%
Fixed Rate 31.74%
3/27 ARM 3.01%
Other 4.24%
Weighted Average Mortgage Interest
Rate 7.222%
Range of Mortgage Interest Rates 4.140% to
15.300%
Weighted Average Original Combined LTV 85.44%
Weighted Average Original Term to
Maturity 350 months
Weighted Average Remaining Term to
Stated Maturity 342 months
Percentage of Interest Only Loans 3.48%
Percentage of Balloon Loans 1.15%
Percentage of Simple Interest Loans 0.36%
Percentage of Loans Covered by
Private Mortgage Insurance 5.95%
Percentage of Second Lien Loans 0.79%
Percentage of FHA Insured Loans 0.00%
Percentage of FHA Uninsured Loans 0.86%
Percentage of Sub-Prime Loans 86.99%
Percentage of Performing Loans 100.00%
Percentage of Forbearance Plan Loans 0.19%
Percentage of Bankruptcy Plan Loans 0.26%
Percentage of Owner-Financed Loans 3.06%
Max ZIP Code Concentration (%) 1.10%
Max ZIP Code Concentration (ZIP) 92683
Top Geographic Concentrations:
California 47.28%
New York 8.78%
For the ARM loans only:
Weighted Average Mortgage Interest
Rate by Index:
Six-Month LIBOR 7.237%
One-Month LIBOR 4.898%
Other 5.250%
Weighted Average Gross Margin by
Index:
Six-Month LIBOR 5.728%
One-Month LIBOR 3.737%
Other 2.750%
Weighted Average Maximum Mortgage
Interest Rate 13.958%
Range of Maximum Mortgage Interest
Rates 10.000% to
21.800%
Weighted Average Minimum Mortgage
Interest Rate 6.731%
Range of Minimum Mortgage Interest
Rates 0.000% to
15.300%
Weighted Average Initial Rate Cap 1.825%
Range of Initial Rate Caps 1.000% to 5.000%
Weighted Average Periodic Rate Cap 1.464%
Range of Periodic Rate Caps 1.000% to 3.000%
Weighted Average Months to Next
Adjustment Date 19 months
Range of Months to Next Adjustment
Date 1 month to 54
months
S-6
Weighted Average Interest Adjustment
Frequency 6 months
The group 3 mortgage loans will consist of FHA insured and
conventional fixed-rate mortgage loans. The group 3 mortgage
loans will have original principal balances that conform to
Fannie Mae and Freddie Mac standards. The group 3 mortgage
loans will have the following characteristics (percentages are
based on the aggregate principal balance of the group 3
mortgage loans as of the cut-off date):
Aggregate Current Principal Balance $145,804,053
Average Outstanding Principal Balance $137,421
Range of Outstanding Principal
Balances $7,184 to
$738,658
Average Original Principal Balance $139,909
Range of Original Principal Balances $10,000 to
$740,000
Loans with Prepayment Penalties 57.57%
Weighted Average Mortgage Interest
Rate 7.279%
Range of Mortgage Interest Rates 4.500% to
16.500%
Weighted Average Original Combined LTV 83.60%
Weighted Average Original Term to
Maturity 333 months
Weighted Average Remaining Term to
Stated Maturity 323 months
Percentage of Interest Only Loans 0.05%
Percentage of Balloon Loans 3.48%
Percentage of Simple Interest Loans 1.33%
Percentage of Loans Covered by
Private Mortgage Insurance 10.62%
Percentage of Second Lien Loans 3.76%
Percentage of FHA Insured Loans 0.12%
Percentage of FHA Uninsured Loans 1.11%
Percentage of Sub-Prime Loans 65.27%
Percentage of Performing Loans 100%
Percentage of Forbearance Plan Loans 0.24%
Percentage of Bankruptcy Plan Loans 0.35%
Percentage of Owner-Financed Loans 6.81%
Max ZIP Code Concentration (%) 0.98%
Max ZIP Code Concentration (ZIP) 11207
Top Geographic Concentrations:
California 24.44%
New York 17.62%
New Jersey 11.00%
Florida 6.92%
Texas 6.22%
See "The Mortgage Pool" in this Prospectus Supplement for more information about
the mortgage loans.
Relationship Between the Loan Groups and the Certificates
The Class 1AV-1 Certificates generally relate to the mortgage loans in loan
group 1, the Class 2AV Certificates generally relate to the mortgage loans in
loan group 2 and the Class AF Certificates generally relate to the mortgage
loans in loan group 3. The Class M Certificates generally relate to the mortgage
loans in loan groups 1, 2 and 3. The certificates generally receive
distributions based on principal, interest and other amounts collected from the
mortgage loans in the related loan group or loan groups.
Distributions--General
The distribution date will be the 25th day of each month or, if such day is not
a business day, the next business day, beginning on December 26, 2003.
Distributions will generally include payments made on the related mortgage loans
during the related collection period. The collection period for any distribution
date is the period from the second day of the calendar month preceding the month
in which the distribution date occurs through the first day of the calendar
month in which the distribution date occurs.
Record Date
The record date for each distribution date will be as follows: for the Class
1AV-1, Class 2AV , Class AF-1 and Class M Certificates, the business day before
such distribution date (unless definitive certificates are issued) and for the
Class AF Certificates (other than the Class AF-1 Certificates) and any
definitive certificates, the last business day of the month preceding the month
in which the distribution date occurs (or the closing date, in the case of the
first distribution date).
Interest Distributions
On each distribution date, you will be entitled to receive interest accrued on
your certificate during the related accrual period and any interest which you
earned previously but which you did not receive. Except for the first accrual
period, the accrual period for the Class 1AV-1, Class 2AV, Class AF-1 and Class
M Certificates, is the period from the distribution date in the prior month
through the day prior to the current distribution date. The first accrual period
for such certificates will begin on the closing date and end on December 25,
2003. The accrual period for the Class AF Certificates (other than the Class
AF-1 Certificates) is the month immediately preceding the month in which such
distribution date occurs. Interest will be calculated for the Class 1AV-1, Class
2AV, Class AF-1 and Class M Certificates, on the basis of the actual number of
days in the accrual period, based on a 360-day year. Interest will be calculated
for Class AF Certificates (other than the Class AF-1 Certificates) on the basis
of a 360-day year consisting of twelve 30-day months.
S-7
There are certain circumstances which could reduce the amount of interest paid
to you. See "Description of the Certificates--Interest Distributions" in this
Prospectus Supplement.
Pass-Through Rates
Interest will accrue on the Class 1AV-1, Class 2AV, Class AF-1 and Class M
Certificates, during each accrual period at a rate equal to the lesser of (i)
the sum of one-month LIBOR plus the margin set forth in the table below and (ii)
the related Rate Cap, in each case as described under "Description of the
Certificates--Pass-Through Rates" in this Prospectus Supplement.
Margin On and
Prior to the Margin After the
Optional Optional
Class Termination Date Termination Date
Class 1AV-1 0.370% 0.740%
Class 2AV -1 0.230% 0.460%
Class 2AV-2 0.530% 1.060%
Class AF-1 0.170% 0.340%
Class M-1 0.700% 1.050%
Class M-2 1.500% 2.250%
Class M-3 1.700% 2.550%
Class M-4 2.050% 3.075%
Class M-5 2.650% 3.975%
Class M-6 2.650% 3.975%
Interest will accrue on the Class AF Certificates (other than the Class AF-1
Certificates), during each accrual period at a rate equal to the lesser of (i)
the rate set forth in the table below and (ii) the related Rate Cap, in each
case as described under "Description of the Certificates--Pass-Through Rates" in
this Prospectus Supplement.
Rate On and
Prior to the Rate After the
Optional Optional
Class Termination Date Termination Date
Class AF-2 2.925% 2.925%
Class AF-3 3.490% 3.490%
Class AF-4 4.607% 4.607%
Class AF-5 5.474% 5.974%
Class AF-6 4.570% 5.070%
Interest Rate Cap Agreements
The assets of the trust will include the Trustee's rights in four interest rate
cap agreements between the Trustee and the Cap Provider. Each of the four
interest rate cap agreements will relate to a certain class or classes of
offered certificates. Under each interest rate cap agreement, the Cap Provider
may be required to make cap payments on each Interest Rate Cap Agreement Payment
Date. Any amounts received under each interest rate cap agreement will be
available to pay Net Rate Carryover Amounts first to the related class of
offered certificates and second to the other classes of certificates entitled
thereto. See "Description of the Certificates--The Interest Rate Cap Agreement"
in this Prospectus Supplement.
Principal Distributions
On each distribution date, you will receive a distribution of principal if there
are funds available on that date for your class of certificates. You should
review the priority of payments described under "Description of the
Certificates--Principal Distributions" in this Prospectus Supplement.
S-8
The manner of distributing principal among the classes of certificates will
differ, as described in this prospectus supplement, depending upon whether a
distribution date occurs before the stepdown date, or on or after that date, and
depending on the delinquency performance of the mortgage loans. See "Description
of the Certificates--Principal Distributions" in this Prospectus Supplement.
Credit Enhancement
Credit enhancement reduces the risk of harm caused to holders of certificates by
shortfalls in payments received on the mortgage loans. Credit enhancement can
reduce the effect of shortfalls on all classes, or it can allocate shortfalls so
they affect some classes before others. This transaction employs the following
four forms of credit enhancement. See "Description of the Certificates" in this
Prospectus Supplement.
Subordination. On each distribution date, classes that are lower in order of
payment priority will not receive payments until the classes that are higher in
order of payment priority have been paid. If there are insufficient funds on a
distribution date to pay all classes, the subordinate classes are the first to
forego payment.
Overcollateralization. If the total assets in the Trust exceed the total
principal amount of the certificates, there is overcollateralization available
to absorb losses on the mortgage loans before such losses affect the
certificates. On the closing date, the total initial principal balance of the
mortgage loans will equal approximately $434,611,886, while the total initial
principal amount of the offered certificates and the Class M-6 Certificates is
only $423,308,000. This results in overcollateralization equal to approximately
2.60% of the total initial principal balance of the mortgage loans. If the level
of overcollateralization falls below what is required under the pooling and
servicing agreement, the excess interest described in the next section will be
paid to the certificates as principal. This will have the effect of reducing the
principal balance of the certificates faster than the principal balance of the
mortgage loans until the required level of overcollateralization is reached.
Monthly Excess Cashflow. Because more interest is expected to be paid by the
mortgagors than is necessary to pay the interest earned on the offered
certificates and the Class M-6 Certificates, we expect there to be excess
interest each month. The excess interest will be used to maintain
overcollateralization, to pay interest that was previously earned but not paid
to these certificates, and to reimburse the certificates for losses and certain
shortfalls that they experienced previously.
Application of Realized Losses. If, on any distribution date after the balances
of the certificates have been reduced by the amount of cash paid on that date,
the total principal balance of the certificates is greater than the total
principal balance of the mortgage loans, the principal balance of the class of
subordinate certificates that is lowest in order of payment priority will be
reduced by the amount of such excess. Realized losses will not be allocated to
the senior certificates.
Advances
The servicer is required to advance delinquent payments of principal and
interest on any mortgage loan, other than simple interest mortgage loans,
subject to the limitations described in this prospectus supplement. The servicer
is entitled to be reimbursed for these advances, and therefore these advances
are not a form of credit enhancement. The servicer will not make any advances
with respect to simple interest mortgage loans, will make only limited advances
with respect to the unpaid principal balance remaining at maturity of a balloon
loan and will only advance interest with respect to second lien mortgage loans
and REO properties. See "Pooling and Servicing Agreement--Advances" in this
prospectus supplement and "Description of the Securities--Advances in respect of
Delinquencies" in the prospectus.
Optional Termination
The servicer (or an affiliate) has the option to purchase all the mortgage loans
and any properties that the trust acquired in satisfaction of any of the
mortgage loans. This option can be exercised when the total principal balance of
the mortgage loans, including the mortgage loans related to the properties which
the trust has acquired, is 10% or less of the total principal balance of the
mortgage loans on the cut-off date. If the option is exercised, your certificate
will be retired early and you will be entitled to the following amounts:
o the outstanding principal balance of your certificate;
S-9
o one month's interest on such balance at the related pass-through rate;
o any interest previously earned but not paid; and
o any "Net Rate Carryover Amount," as described in this Prospectus
Supplement, from all previous distribution dates.
The option of the servicer (or an affiliate) to purchase all the mortgage loans
and any properties that the trust acquired in satisfaction of any of the
mortgage loans will be conditioned upon the payment of a minimum purchase price
that is sufficient to pay all such amounts due and owing on the certificates and
any amounts due and owing on any net interest margin securities secured by all
or a portion of the Class X and Class N Certificates. See "The Pooling and
Servicing Agreement--Optional Termination" in this Prospectus Supplement.
Certain Material Federal Income Tax Consequences
The trustee will elect to treat the assets of the Trust, exclusive of the
interest rate cap account and the basis risk reserve fund, as comprised of
multiple real estate mortgage investment conduits (each, a "REMIC") organized in
a tiered structure for federal income tax purposes.
For further information regarding the federal income tax consequences of
investing in the offered certificates, see "Certain Material Federal Income Tax
Consequences" in this Prospectus Supplement and "Material Federal Income Tax
Consequences" in the Prospectus.
Ratings
The Trust will not issue the certificates unless they receive the respective
ratings set forth below from Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P"), Moody's Investors Service, Inc. ("Moody's") and Fitch
Ratings ("Fitch"):
Class S&P Moody's Fitch
1AV-1 AAA Aaa AAA
2AV-1 AAA Aaa AAA
2AV-2 AAA Aaa AAA
AF-1 AAA Aaa AAA
AF-2 AAA Aaa AAA
AF-3 AAA Aaa AAA
AF-4 AAA Aaa AAA
AF-5 AAA Aaa AAA
AF-6 AAA Aaa AAA
M-1 AA Aa2 AA
M-2 A A2 A
M-3 A- A3 A-
M-4 BBB+ Baa1 BBB+
M-5 BBB Baa2 BBB
The ratings on the certificates indicate the likelihood that you will receive
all funds to which you are entitled by the terms of your certificate. The rating
agency that issues the rating reviews the nature and credit quality of the
mortgage loans and the soundness of the structure which the depositor has
created to allow the payments on the mortgage loans to flow to the holders of
the certificates. A rating is not a recommendation to buy, sell or hold
securities and the rating agency can revise or withdraw it at any time. A rating
does not address the likelihood of the payment of any Net Rate Carryover Amount,
the frequency of prepayments on the mortgage loans or the effect of such
prepayments on your yield. See "Yield, Prepayment and Maturity Considerations"
and "Ratings" in this Prospectus Supplement and "Yield and Prepayment
Considerations" in the Prospectus.
Legal Investment
You should consult with counsel to see if you are permitted to buy the offered
certificates, since legal investment rules will vary depending on the type of
entity purchasing the offered certificates, whether that entity is subject to
regulatory authority, and if so, by whom. The offered certificates will not be
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984, as amended, because the trust contains second lien
mortgage loans and owner-financed mortgage loans that were originated by
individuals and not by financial institutions or mortgagees approved by the
Secretary of Housing and Urban Development. See "Legal Investment" in this
Prospectus Supplement and "Legal Investment Considerations" in the Prospectus.
S-10
ERISA Considerations
It is expected that the Class 1AV-1, Class 2AV and Class AF Certificates may be
purchased by a pension or other employee benefit plan subject to the Employee
Retirement Income Security Act of 1974 or Section 4975 of the Internal Revenue
Code of 1986, so long as certain conditions are met. If you are a fiduciary of
any employee benefit plan or other retirement arrangement subject to the
Employee Retirement Income Security Act of 1974, as amended, or Section 4975 of
the Internal Revenue Code of 1986 or any materially similar provisions of
applicable federal, state or local law, you should consult with counsel as to
whether you can buy or hold an offered certificate. Sales of the Class M
Certificates to these plans or retirement accounts are prohibited. See "ERISA
Considerations" in this Prospectus Supplement and in the Prospectus.
S-11
Risk Factors
The following information, which you should carefully consider,
identifies certain significant sources of risk associated with an investment in
the certificates. You should also carefully consider the information set forth
under "Risk Factors" in the Prospectus.
Nature of sub-prime mortgage
loans may increase risk
of loss............................. Approximately 90.11% of the mortgage
loans in loan group 1, approximately
86.99% of the mortgage loans in loan
group 2 and approximately 65.27% of
the mortgage loans in loan group 3 (in
each case by aggregate principal
balance of that loan group as of the
cut-off date) are of sub-prime credit
quality; i.e., do not meet the
customary credit standards of Freddie
Mac and Fannie Mae. Delinquencies and
liquidation proceedings are more
likely with these mortgage loans than
with mortgage loans that satisfy such
credit standards. In the event these
mortgage loans do become delinquent or
subject to liquidation, you may face
delays in receiving payment and losses
if the credit enhancements are
insufficient to cover the delays and
losses.
There are risks involving
unpredictability of
prepayments and the effect of
prepayments on yields................ Mortgagors may prepay their mortgage
loans in whole or in part at any time.
We cannot predict the rate at which
mortgagors will repay their mortgage
loans. A prepayment of a mortgage loan
generally will result in a prepayment
on the certificates.
o If you purchase your
certificates at a discount and
principal is repaid more slowly
than you anticipate, then your
yield may be lower than you
anticipate.
o The rate of prepayments on the
mortgage loans will be sensitive
to prevailing interest rates.
Generally, if prevailing interest
rates decline significantly below
the interest rates on the
fixed-rate mortgage loans, those
mortgage loans are more likely to
prepay than if prevailing rates
remain above the interest rates on
such mortgage loans. Conversely,
if prevailing interest rates rise
significantly, the prepayments on
fixed-rate mortgage loans are
likely to decrease.
o The prepayment behavior of the
adjustable-rate mortgage loans and
of the fixed-rate mortgage loans
may respond to different factors,
or may respond differently to the
same factors. If at the time of
their first adjustment, the
interest rates on any of the
adjustable-rate mortgage loans
would be subject to adjustment to
a rate higher than the then
prevailing mortgage interest rates
available to the related
borrowers, such borrowers may
prepay their adjustable-rate
mortgage loans. Adjustable-rate
mortgage loans may also suffer an
increase in defaults and
liquidations following upward
adjustments of their interest
rates, especially following their
initial adjustments.
o Approximately 75.27% of the
mortgage loans in loan group 1,
approximately 69.28% of the
mortgage loans in loan group 2 and
approximately 57.57% of the
mortgage loans in loan group 3 (in
each case by aggregate principal
balance of that loan group as of
the cut-off date) require the
mortgagor to pay a penalty if the
mortgagor prepays the mortgage
loan during periods ranging from 3
months to 60 months after the
mortgage loan was originated. A
prepayment penalty may discourage
a mortgagor from prepaying the
mortgage loan during the
applicable period. Such prepayment
penalties will be distributed
first to the holders of the Class
N Certificates and then to the
holders of the Class X
Certificates and will not be
distributed to holders of the
offered certificates.
S-12
o The seller may be required to
purchase mortgage loans from the
Trust in the event certain
breaches of representations and
warranties have not been cured. In
addition, the servicer (or its
affiliate) has the option to
purchase mortgage loans that are
at least 120 days or more
delinquent under the circumstances
described in the pooling and
servicing agreement. These
purchases will have the same
effect on the holders of the
offered certificates as a
prepayment of the mortgage loans.
o The servicer may purchase all
of the mortgage loans when the
aggregate principal balance of the
mortgage loans is equal to or less
than 10% of their aggregate
principal balance as of the
cut-off date. Such purchase will
result in an earlier return of the
principal on the certificates and
will affect the yield on the
certificates in a manner similar
to the manner in which principal
prepayments on the mortgage loans
will affect the yield on the
certificates.
If the rate of default and the amount
of losses on the mortgage loans is
higher than you expect, then your
yield may be lower than you expect... o As a result of the absorption
of realized losses on the
mortgage loans by excess
interest and overcollateralization
as described herein, liquidations
of defaulted mortgage loans,
whether or not realized losses
are incurred upon such
liquidations, will result in
an earlier return of the
principal of the certificates
and will influence the yield
on the certificates in a
manner similar to the manner
in which principal prepayments
on the mortgage loans will
influence the yield on the
certificates.
o The overcollateralization
provisions are intended to result
in an accelerated rate of
principal distributions to holders
of the certificates then entitled
to principal distributions at
any time that the
overcollateralization provided by
the mortgage pool falls below the
required level. An earlier return
of principal to the holders of the
certificates as a result of the
overcollateralization provisions
will influence the yield on the
certificates in a manner similar
to the manner in which principal
prepayments on the mortgage loans
will influence the yield on the
certificates. In addition, if the
senior certificates are entitled
to distributions of principal at
any time that
overcollateralization is required
to be restored to the required
level, then the amounts available
for such purpose will be allocated
between the Class 1AV-1, Class 2AV
and Class AF Certificates based on
the amount of principal actually
received on the group 1 mortgage
loans group 2 mortgage loans and
group 3 mortgage loans,
respectively, for the related
distribution date. This, as well
as the relative sizes of the three
loan groups, may magnify the
prepayment effect on the senior
certificates caused by the
relative rates of prepayments and
defaults experienced by the three
loan groups.
S-13
o Because distributions of
principal will be made to the
classes of certificates according
to the priorities described in
this prospectus supplement, the
yield to maturity on the
certificates will be sensitive to
the rates of prepayment on the
related mortgage loans experienced
both before and after the
commencement of principal
distributions on such classes. In
particular, the subordinate
certificates do not receive
(unless the certificate principal
balances of the senior
certificates have been reduced to
zero) any portion of the amount of
principal payable to the
certificates prior to, at the
earliest, the distribution date in
December 2006. Thereafter, subject
to the loss and delinquency
performance of the mortgage pool,
the subordinate certificates may
continue (unless the certificate
principal balances of the senior
certificates have been reduced to
zero) to receive no portion of the
amount of principal then payable
to the certificates. The weighted
average lives of the subordinate
certificates will therefore be
longer than would otherwise be the
case. The effect on the market
value of the subordinate
certificates of changes in market
interest rates or market yields
for similar securities may be
greater than for the senior
certificates.
See "Yield, Prepayment and Maturity
Considerations" for a description of
factors that may influence the rate and
timing of prepayments on the mortgage
loans.
There are risks related to
owner-financed mortgage loans....... Reduced underwriting standards.
Approximately 2.58% of the mortgage
loans in loan group 1, approximately
3.06% of the mortgage loans in group 2
and approximately 6.81% of the
mortgage loans in loan group 3 (in
each case by aggregate principal
balance of that loan group as of the
cut-off date) are owner-financed
mortgage loans. These mortgage loans
were originated by the individual
sellers of the related mortgaged
property who generally are
inexperienced in matters pertaining to
mortgage banking. These mortgage loans
were originated with less stringent
standards than the other mortgage
loans. The mortgagor under an
owner-financed mortgage loan generally
does not complete a mortgage loan
application and the seller of the
related property generally does not
verify the income or employment of the
related mortgagor, nor obtain other
information customarily obtained
during the mortgage loan origination
process. As a result, certain
information concerning the
owner-financed mortgage loans that may
be of interest to you is not
available. In connection with an
acquisition of an owner-financed
mortgage loan, the seller obtained and
reviewed the credit history and
payment history of the mortgagor, as
well as conducted an assessment of the
value of the property.
Appraisals may be inaccurate. In
acquiring owner-financed mortgage
loans, the seller assesses the value of
a property, generally using either a
prior appraisal if completed within one
year of the seller's purchase of the
Mortgage Loan, which generally must be
re-certified, or a drive-by appraisal.
A drive-by appraisal is not as accurate
as a full real estate appraisal because
the appraiser does not have access to
the interior of the mortgaged property
and may not have access to the rear of
the mortgaged property. As a result,
the appraisal may reflect assumptions
the appraiser made regarding the
interior or the rear of the mortgaged
property which may not be accurate. To
the extent the seller has
over-appraised the value of a property,
such amount may not be recovered during
a liquidation proceeding.
S-14
The recovery of defaulted amounts
under FHA programs is uncertain.....
Approximately 0.16% of the mortgage
loans in loan group 1 and approximately
0.12% of the mortgage loans in loan
group 3 (in each case by aggregate
principal balance of that loan group as
of the cut-off date) are covered by
insurance from the Federal Housing
Administration. As described in this
Prospectus Supplement, the amount of
coverage may be limited. In addition,
recovery of the insured amounts from
this agency is dependent upon material
compliance by the originator and the
servicer with applicable regulations.
These regulations are subject to
interpretative uncertainties. If upon
filing a claim for recovery of a
defaulted amount, it is discovered that
the mortgage loan did not comply with a
regulation, the servicer may not be
able to fully recover the insured
amounts. Defaults on mortgage loans
insured by the Federal Housing
Administration should have the same
effect on the related certificates as a
prepayment of such mortgage loans.
However, in the event that such
insurance is no longer available to
provide protection or does not cover
the full amount of the loss, any losses
on such mortgage loans will be borne by
the related certificateholders. See
"The Mortgage Pool--FHA Mortgage Loans"
in this Prospectus Supplement.
There are risks relating to
alternatives to foreclosure......... None of the mortgage loans will be
delinquent as of the closing date.
Some mortgage loans may become
delinquent after the closing date. The
servicer may either foreclose on any
such mortgage loan or work out an
agreement with the mortgagor, which
may involve waiving or modifying
certain terms of the mortgage loan. If
the servicer extends the payment
period or accepts a lesser amount than
stated in the mortgage note in
satisfaction of the mortgage note,
your yield may be reduced.
There is a risk that interest payments
may be insufficient to maintain
overcollateralization............... Because the weighted average of the
interest rates on the mortgage loans
is expected to be higher than the
weighted average of the interest rates
on the offered certificates and the
Class M-6 Certificates, the mortgage
loans are expected to generate more
interest than is needed to pay
interest owed on these certificates as
well as certain fees and expenses of
the Trust. After these financial
obligations of the Trust are covered,
the available excess interest will be
used to maintain
overcollateralization. Any remaining
interest will then be used to
compensate for losses that occur on
the mortgage loans. We cannot assure
you, however, that enough excess
interest will be generated to maintain
the overcollateralization level
required by the rating agencies. The
factors described below will affect
the amount of excess interest that the
mortgage loans will generate:
o Every time a mortgage loan is
prepaid in full or repurchased,
excess interest will be reduced
because the mortgage loan will no
longer be outstanding and
generating interest or, in the
case of a partial prepayment, will
be generating less interest.
o Every time a mortgage loan is
liquidated or written off, excess
interest will be reduced because
such mortgage loans will no longer
be outstanding and generating
interest.
S-15
o If the rates of delinquencies,
defaults or losses on the mortgage
loans are higher than expected,
excess interest will be reduced by
the amount necessary to compensate
for any shortfalls in cash
available on such date to pay
certificateholders.
o The pass-through rates of the
Class 1AV-1, Class 2AV, Class AF-1
and Class M Certificates are based
on one-month LIBOR while all the
adjustable-rate mortgage loans
have rates that are fixed for some
period of time after origination
or that are adjustable based on an
index that in certain cases is
different from the index used to
determine the pass-through rate on
such certificates. As a result,
the pass-through rate on such
certificates may increase relative
to interest rates on the mortgage
loans, thus requiring that more of
the interest generated by the
mortgage loans be applied to cover
interest on such certificates.
There is a risk that
mortgage interest
rates will affect the
offered certificates................. The Class 1AV-1, Class 2AV, Class AF-1
and Class M Certificates will accrue
interest at a pass-through rate based
on the one-month LIBOR index plus a
specified margin, but are subject to
caps. The Class AF Certificates (other
than the Class AF-1 Certificates) will
accrue interest at a fixed
pass-through rate but are subject to a
cap. The caps on interest paid on all
such certificates will be based on the
weighted average of the interest rates
on the mortgage loans related to such
certificates, net of the servicing fee
and certain expenses of the Trust. If
the mortgage loans with relatively
high interest rates in any loan group
prepay at a faster rate than the
mortgage loans with lower interest
rates in that loan group, the related
cap will decrease and the pass-through
rates on the related certificates may
be adversely affected.
The pass-through rates on the Class
1AV-1, Class 2AV, Class AF-1 and Class
M Certificates adjust monthly while the
mortgage interest rates on the
adjustable-rate mortgage loans may
adjust less frequently. Furthermore,
some of the adjustable-rate mortgage
loans have fixed mortgage rates for
some certain period of time after
origination and the first adjustment to
their mortgage rates will not occur
until two to five years after
origination. Substantially all of the
adjustable-rate mortgage loans have
periodic and maximum limitations on
adjustments to the mortgage loan rate.
Consequently, the fact that the
mortgage rate is fixed for some period
of time after origination and the
operation of these interest rate caps
may limit increases in the pass-through
rate for extended periods in a rising
interest rate environment.
Although holders of the Class 1AV-1,
Class 2AV, Class AF-1 and Class M
Certificates will be entitled to
receive any net rate carryover amount
from and to the limited extent of funds
available for such payments, there is
no assurance that those funds will be
available or sufficient to pay such net
rate carryover amount.
There are risks relating to
subordinate loans................... Approximately 0.65% of the mortgage
loans in loan group 1, approximately
0.79% of the mortgage loans in loan
group 2 and approximately 3.76% of the
mortgage loans in loan group 3 (in
each case by aggregate principal
balance of that loan group as of the
cut-off date) evidence a second lien
that is subordinate to the rights of
the mortgagee under a first mortgage.
The proceeds from any liquidation,
insurance or condemnation proceedings
will be available to satisfy the
outstanding principal balance of such
junior mortgage loans only to the
extent that the claims of any senior
mortgage loans have been satisfied in
full, including any foreclosure costs.
In circumstances where the servicer
determines that it would be
uneconomical to foreclose on the
related mortgaged property, the
servicer may write-off the entire
outstanding principal balance of the
related mortgage loan as bad debt. The
foregoing considerations will be
particularly applicable to junior
mortgage loans that have high combined
loan-to-value ratios because the
servicer is more likely to determine
that foreclosure would be
uneconomical. You should consider the
risk that to the extent losses on
mortgage loans are not covered by
available credit enhancement, such
losses will be borne by the holders of
such certificates.
S-16
There are risks in holding
subordinate certificates............. The protections afforded the senior
certificates in this transaction
create risks for the subordinate
certificates. Prior to any purchase of
any subordinate certificates, consider
the following factors that may
adversely impact your yield:
o Because the subordinate
certificates receive interest and
principal distributions after the
senior certificates receive such
distributions, there is a greater
likelihood that the subordinate
certificates will not receive the
distributions to which they are
entitled on any distribution date.
o If a simple interest mortgage
loan becomes delinquent or the
servicer determines not to advance
a delinquent payment on an
actuarial mortgage loan because
such amount is not recoverable
from a mortgagor, there may be a
shortfall in distributions on the
certificates which will impact the
subordinate certificates.
o With respect to simple
interest mortgage loans, if
monthly payments are made in any
month less than 30 days after the
previous payment or shortfalls in
interest collections result from
prepayments in full, there may be
a shortfall in distributions on
the certificates. This will
disproportionately impact the
subordinate certificates. In
addition, the portion of the
shortfalls in the amount of
interest collections on actuarial
mortgage loans that are
attributable to prepayments in
full and are not covered by the
servicer and shortfalls in
interest collections on any
mortgage loans arising from the
timing of partial principal
prepayments may result in a
shortfall in distributions on the
certificates, which will
disproportionately impact the
subordinate certificates.
o The subordinate certificates
are not expected to receive
principal distributions until at
the earliest December 26, 2006
unless the certificate principal
balances of the senior
certificates have been reduced to
zero.
o Losses resulting from the
liquidation of defaulted mortgage
loans, to the extent not covered
by excess interest collections,
will first reduce the level of
overcollateralization, if any, for
the certificates. If there is no
overcollateralization, such losses
will be allocated to the
subordinate certificates. A loss
allocation results in a reduction
in a certificate balance without a
corresponding distribution of cash
to the holder. A lower certificate
balance will result in less
interest accruing on the
certificate.
S-17
o The earlier in the transaction
that a loss on a mortgage loan
occurs, the greater the impact on
yield.
See "Description of the Certificates"
and "Yield, Prepayment and Maturity
Considerations" in this Prospectus
Supplement for more detail.
Losses on the mortgage loans in one
loan group may reduce the yield on
senior certificates related to the
other loan groups...................
Investors in the Class 1AV-1, Class 2AV
and Class AF Certificates should note
that because the subordinate
certificates represent interests in all
three loan groups, the certificate
principal balances of the subordinate
certificates could be reduced
significantly as a result of realized
losses on the mortgage loans in any of
the loan groups. Therefore, the
allocation of realized losses on the
mortgage loans in any of the loan
groups to the subordinate certificates
will reduce the subordination provided
by the subordinate certificates to all
classes of senior certificates. See
"Description of the Certificates" in
this Prospectus Supplement for more
detail.
There is a risk that interest payments
on the mortgage loans may be
insufficient to pay interest on your
certificates........................ When a mortgage loan is prepaid in
full, the mortgagor is charged
interest only up to the date on which
payment is made, rather than for an
entire month. This may result in a
shortfall in interest collections
available for payment on the next
distribution date. Similarly, with
respect to simple interest mortgage
loans, the mortgagor is only charged
interest up to the date on which
payment is made. Therefore, if a
mortgagor makes a payment on a simple
interest mortgage loan in any month
less than 30 days after the previous
payment date, a shortfall in interest
collections available for payment on
the next distribution date may result.
The servicer is required to cover a
portion of the shortfall in interest
collections that are attributable to
prepayments in full on actuarial
mortgage loans, but only up to
one-half of the servicing fee for the
related accrual period. The servicer
is not required to cover any shortfall
in interest collections that are
attributable to prepayments in full,
or the timing of monthly payments, on
simple interest mortgage loans. If the
credit enhancement is insufficient to
cover this shortfall in excess of the
amount covered by the servicer, you
may incur a loss. In addition, the
servicer will not cover shortfalls in
interest collections arising from the
application of the Soldiers' and
Sailors' Civil Relief Act of 1940, as
amended or similar state laws.
There is a risk relating to the
potential inadequacy of credit
enhancement for the offered
certificates........................ The credit enhancement features
described in the summary are intended
to enhance the likelihood that holders
of the offered certificates will
receive regular payments of interest
and principal.
If delinquencies or defaults occur on
the mortgage loans, neither the
servicer nor any other entity will
advance scheduled monthly payments of
interest and principal on delinquent or
defaulted actuarial mortgage loans if
such advances are not likely to be
recovered. Neither the servicer nor any
other entity will advance scheduled
monthly payments of principal and
interest on simple interest mortgage
loans. We cannot assure you that the
applicable credit enhancement will
adequately cover any shortfalls in cash
available to pay your certificates as a
result of such delinquencies or
defaults.
S-18
If substantial losses occur as a result
of defaults and delinquent payments on
the mortgage loans, you may suffer
losses.
There is a risk because the
certificates are not obligations of
any entity.......................... The offered certificates represent an
interest in the Trust only. No other
person will insure or guarantee the
offered certificates or will have any
obligation with respect to the
certificates except for the
obligations of (i) the depositor and
the seller pursuant to certain limited
representations and warranties made
with respect to the mortgage loans,
and (ii) the servicer with respect to
its servicing obligations under the
pooling and servicing agreement. No
government agency or instrumentality
will guarantee or insure the
certificates or the mortgage loans
(other than approximately 6.35% of the
mortgage loans (by aggregate principal
balance as of the cut-off date) which
are covered by either insurance from
the Federal Housing Administration or
a primary mortgage insurance
provider). Proceeds of the assets
included in the Trust will be the sole
source of payments on the offered
certificates. You will not be able to
receive money from any entity in the
event that such proceeds are not
enough to make all payments provided
for under the offered certificates.
There is a risk that there may be a
delay in receipt of liquidation
proceeds, and that liquidation
proceeds may be less than the
outstanding balance of the mortgage
loan................................ Substantial delays could be
encountered in connection with the
liquidation of delinquent mortgage
loans. Further, liquidation expenses
such as legal fees, real estate taxes
and maintenance and preservation
expenses will reduce the portion of
liquidation proceeds payable to you.
If a mortgaged property fails to
provide adequate security for the
mortgage loan, you will incur a loss
on your investment if the credit
enhancements are insufficient to cover
the loss.
There is an increased risk of loss
relating to high combined
loan-to-value ratios at origination.. Mortgage loans with original combined
loan-to-value ratios in excess of 80%
may present a greater risk of loss
than mortgage loans with original
combined loan-to-value ratios of equal
to or below 80%. Approximately 62.67%
of the mortgage loans in loan group 1,
approximately 59.95% of the mortgage
loans in loan group 2 and
approximately 49.51% of the mortgage
loans in loan group 3 (in each case by
aggregate principal balance of that
loan group as of the cut-off date) had
an original combined loan-to-value
ratio in excess of 80% as of the
cut-off date, and are not covered by a
primary mortgage insurance policy or
insurance from the Federal Housing
Administration.
There are risks relating to
geographic concentration of
the mortgage loans................... The following states have the highest
concentrations of mortgage loans, based
on the aggregate principal balance of
the mortgage loans as of the cut-off
date: approximately 35.53% in
California, approximately 10.28% in New
York, approximately 6.41% in New Jersey
and approximately 5.91% in Florida.
S-19
Property in California may be
particularly susceptible to certain
types of uninsurable hazards, such as
earthquakes, hurricanes, floods,
mudslides and other natural disasters.
Properties in Florida may be
particularly susceptible to certain
types of uninsurable hazards such as
hurricanes.
In addition, the conditions below will
have a disproportionate impact on the
mortgage loans in general:
Economic conditions in states listed
above which may or may not affect real
property values may affect the ability
of mortgagors to repay their loans on
time.
Declines in the residential real estate
markets in the states listed above may
reduce the values of properties located
in those states, which would result in
an increase in the loan-to-value ratios
or combined loan-to-value ratios, as
applicable.
Any increase in the market value of
properties located in the states listed
above would reduce the loan-to-value
ratios or combined loan-to-value ratios
and could, therefore, make alternative
sources of financing available to the
mortgagors at lower interest rates,
which could result in an increased rate
of prepayment of the mortgage loans.
Terrorist attacks and
related military response
pose additional risks................ The long term economic impact of the
terrorist attacks in the United States
on September 11, 2001 and the military
response of the United States to this
and other potential international
crises remain uncertain. In addition,
current political and military tensions
in the Middle East have resulted in a
significant deployment of United States
military personnel to the region.
Investors should consider the possible
effects of past and possible future
terrorist attacks and any resulting
military response by the United States
on the delinquency, default and
prepayment experience of the mortgage
loans. In accordance with the servicing
standard set forth in the pooling
agreement, the servicer may defer,
reduce or forgive payments and delay
foreclosure proceedings in respect of
mortgage loans to borrowers affected in
some way by past and possible future
events.
In addition, the current deployment of
United States military personnel in the
Middle East and the activation of a
substantial number of United States
military reservists and members of the
National Guard may significantly
increase the proportion of mortgage
loans whose mortgage rates are reduced
by the application of the Soldiers' and
Sailors' Civil Relief Act of 1940 or
similar state laws. Certain shortfalls
in interest collection arising from the
application of the Relief Act or any
state law providing for similar relief
will not be covered by the servicer.
There are risks relating to balloon
loans............................... Balloon loans pose a risk because a
mortgagor must make a large lump sum
payment of principal at the end of the
loan term. If the mortgagor is unable
to pay the lump sum or refinance such
amount, you may suffer a loss.
Approximately 0.36% of the mortgage
loans in loan group 1, approximately
1.15% of the mortgage loans in loan
group 2 and approximately 3.48% of the
mortgage loans in loan group 3 (in
each case by aggregate principal
balance of that loan group as of the
cut-off date) are balloon loans.
S-20
There are risks relating to interest
only loans.......................... Approximately 1.82% of the group 1
mortgage loans, approximately 3.48% of
the group 2 mortgage loans and
approximately 0.05% of the group 3
mortgage loans (in each case by
aggregate principal balance of the
related loan group as of the cut-off
date) require the borrowers to make
monthly payments only of accrued
interest for a term ranging from the
first 24 months to the first 120
months following origination, with a
majority making payments of interest
only for the first 120 months
following origination. After such
interest-only period, the borrower's
monthly payment will be recalculated
to cover both interest and principal
so that the mortgage loan will
amortize fully prior to its final
payment date. If the monthly payment
increases, the related borrower may
not be able to pay the increased
amount and may default or may
refinance the related mortgage loan to
avoid the higher payment. Because no
principal payments are required to be
made on such mortgage loans for an
initial period following origination,
the certificateholders will receive
smaller principal distributions during
such period than they would have
received if the related borrowers were
required to make monthly payments of
interest and principal for the entire
lives of such mortgage loans. This
slower rate of principal distributions
may reduce the return on an investment
in the offered certificates that are
purchased at a discount.
The lack of a secondary market may
limit your ability to sell your
certificates........................ The underwriters intend to make a
secondary market in the certificates
they purchase, but they have no
obligation to do so. There is no
assurance that such a secondary market
will develop or, if it develops, that
it will continue. Consequently, you
may not be able to sell your
certificates readily or at prices that
will enable you to realize your
desired yield. The market values of
the certificates are likely to
fluctuate; these fluctuations may be
significant and could result in
significant losses to you.
The secondary markets for mortgage
backed securities have experienced
periods of illiquidity and can be
expected to do so in the future.
Illiquidity can have a severely adverse
effect on the prices of securities that
are especially sensitive to prepayment,
credit, or interest rate risk, or that
have been structured to meet the
investment requirements of limited
categories of investors.
Violations of federal and
state laws may cause losses
on your certificates................. Federal and state laws regulate the
underwriting, origination, servicing
and collection of the loans. These laws
have changed over time and have become
more restrictive or stringent with
respect to specific activities of the
servicer and the originators. Recently,
a number of legislative proposals have
been introduced at both the federal and
state level that are designed to
discourage predatory lending practices.
Some states have enacted, or may enact,
laws or regulations that prohibit
inclusion of some provisions in
mortgage loans that have mortgage rates
or origination costs in excess of
prescribed levels, and require that
borrowers be given certain disclosures
prior to the consummation of such
mortgage loans. Actual or alleged
violations of these federal and state
laws may, among other things:
o limit the ability of the servicer to
collect principal or interest on the
mortgage loans,
o provide the mortgagors with a right
to rescind the loans,
o entitle the mortgagors to refunds of
amounts previously paid or to set-off
those amounts against their mortgage
loan obligations,
S-21
o result in a litigation proceeding
being brought against the Trust, and
o subject the Trust to liability for
expenses, penalties and damages
resulting from the violations.
As a result, these violations or
alleged violations could result in
shortfalls in the distributions due on
your certificates. See "Risk
Factors--Violations of applicable
federal laws may reduce or delay
mortgage loan collections" and
"Material Legal Aspects of the
Loans--Anti-Deficiency Legislation and
Other Limitations on Lenders" in the
Prospectus. The seller will make
representations and warranties with
respect to each mortgage loan relating
to compliance with federal and state
laws at the time of origination. The
seller will also represent that none of
the mortgage loans originated in the
State of Georgia are subject to the
Georgia Fair Lending Act as in effect
from October 1, 2002 through March 6,
2003. The seller will be required to
repurchase or replace any mortgage loan
that is not originated or serviced in
compliance with all federal, state or
local laws. However, repurchase or
replacement of the affected mortgage
loans will not necessarily fully
compensate the Trust or
certificateholders for any losses
arising from the related breach. For
example, if a mortgagor brings legal
action against the Trust, the Trustee
will be entitled to indemnification
from Trust property for its defense
costs. The seller will not indemnify
the Trust or have any other
responsibility to the Trust or
certificateholders (other than to
repurchase or replace such loan) for
any losses and liabilities the Trust
may suffer with respect to mortgage
loans except that the seller will be
required to reimburse the Trust for any
damages or costs incurred by the Trust
as a result of a breach of the
representation as to compliance with
predatory or abusive lending laws. . As
a result, shortfalls in the
distributions due on your certificates
could occur.
In the event the seller is not able to
repurchase or replace defective
mortgage loans you may suffer losses
on your certificates................ The seller will make various
representations and warranties related
to the mortgage loans. If the seller
fails to cure a material breach of its
representations and warranties with
respect to any mortgage loan in a
timely manner, the seller will be
required to repurchase or replace the
defective loan. See "The Pooling and
Servicing Agreement--Assignment of the
Mortgage Loans" in this Prospectus
Supplement. In the event that the
seller is not able to repurchase or
replace any defective mortgage loans
at the date such action is required,
for financial or other reasons, you
may suffer losses on your
certificates. The inability of the
seller to repurchase or replace
defective mortgage loans would likely
cause the mortgage loans to experience
higher rates of delinquencies,
defaults and losses. As a result,
shortfalls in the distributions due on
your certificates could occur.
There are risks of non-payment of
insured amounts under primary mortgage
insurance policies.................. Approximately 2.63% of the mortgage
loans in loan group 1, approximately
5.95% of the mortgage loans in loan
group 2 and approximately 10.62% of
the mortgage loans in loan group 3 (in
each case by aggregate principal
balance of that loan group as of the
cut-off date) are covered under a
borrower-paid mortgage insurance
policy. There can be no assurance that
any company issuing a primary mortgage
insurance policy covering a mortgage
loan will not experience adverse
financial circumstances that will
affect their ability to pay any claim
filed under such policy. Furthermore,
there can be no assurance that any
such filed claim will be filed
properly, which may adversely affect
the recovery of insurance proceeds on
the related mortgage loan. This may
have an adverse affect on your
certificates. See "The Mortgage
Pool--Primary Mortgage Insurance" in
this Prospectus Supplement.
S-22
A reduction or withdrawal of ratings
on the offered certificates may
adversely affect the value of your
certificates........................ Each rating agency rating the offered
certificates may change or withdraw
its initial ratings at any time in the
future if, in its judgment,
circumstances warrant a change. No
rating agency is obligated to maintain
the ratings at their initial levels.
If a rating agency reduces or
withdraws its rating on one or more
classes of the offered certificates,
the liquidity and market value of the
affected certificates is likely to be
reduced.
The offered certificates are not
suitable for certain investors...... The offered certificates are not
suitable investments for any investor
that requires a regular or predictable
schedule of monthly payments or
payment on any specific date. The
offered certificates are complex
investments that should be considered
only by investors who, either alone or
with their financial, tax and legal
advisors, have the expertise to
analyze the prepayment, reinvestment,
default and market risk, the tax
consequences of an investment and the
interaction of these factors.
Consequences of owning book-entry
certificates........................ Issuance of the offered certificates
in book-entry form may reduce the
liquidity of such certificates in the
secondary trading market since
investors may be unwilling to purchase
certificates for which they cannot
obtain physical certificates.
Since transactions in the offered
certificates can be effected only
through certain depositories,
participating organizations, indirect
participants and certain banks, your
ability to transfer or pledge an
offered certificate to persons or
entities that are not affiliated with
these organizations or otherwise to
take actions in respect of such
certificates, may be limited due to
lack of a physical certificate
representing the offered certificates.
You may experience some delay in the
receipt of distributions on the offered
certificates since the distributions
will be forwarded by the trustee to a
depository to credit the accounts of
its participants which will thereafter
credit them to your account either
directly or indirectly through indirect
participants, as applicable. See
"Description of the
Certificates--Book-Entry Certificates"
in this prospectus supplement for more
detail.
S-23
The Mortgage Pool
Credit-Based Asset Servicing and Securitization LLC (the "Seller")
provided the information in the following paragraphs. None of the Depositor, any
Underwriter, the Servicer, the Trustee or any of their respective affiliates
have made or will make any representation as to the accuracy or completeness of
such information.
Certain information with respect to the Mortgage Loans to be included
in the Mortgage Pool is set forth herein. Prior to the Closing Date, Mortgage
Loans may be removed from the Mortgage Pool and other Mortgage Loans may be
substituted therefor. The Seller believes that the information set forth herein
with respect to the Mortgage Pool as presently constituted is representative of
the characteristics of the Mortgage Pool as it will be constituted at the
Closing Date, although certain characteristics of the Mortgage Loans may vary.
General
The assets included in the Trust (the "Trust Fund") will consist of a
pool of 2,777 closed-end, fixed-rate and adjustable-rate mortgage loans (the
"Mortgage Pool") having original terms to maturity ranging from 36 months to 413
months (the "Mortgage Loans") and an aggregate principal balance as of November
1, 2003 (the "Cut-off Date") of approximately $436,611,886. All Mortgage Loan
statistics set forth herein are based on principal balances, interest rates,
terms to maturity, mortgage loan counts and similar statistics as of the Cut-off
Date. All weighted averages specified herein are based on the principal balances
of the Mortgage Loans as of the Cut-off Date, as adjusted for the principal
payments received or advanced on or before such date (each, a "Cut-off Date
Principal Balance"). The "Principal Balance" of a Mortgage Loan, as of any date,
is equal to the principal balance of such Mortgage Loan at its origination, less
the sum of scheduled and unscheduled payments and other recoveries in respect of
principal made or advanced on such Mortgage Loan. References to percentages of
the Mortgage Loans mean percentages based on the aggregate of the Cut-off Date
Principal Balances of the Mortgage Loans, unless otherwise specified. The "Pool
Balance" is equal to the aggregate Principal Balance of the Mortgage Loans.
The Depositor will purchase the Mortgage Loans from the Seller pursuant
to the Mortgage Loan Purchase Agreement (the "Mortgage Loan Purchase
Agreement"), dated as of the Cut-off Date, between the Seller and the Depositor.
Pursuant to the Pooling and Servicing Agreement, the Depositor will cause the
Mortgage Loans to be assigned to the Trustee for the benefit of the
Certificateholders. See "The Pooling and Servicing Agreement" in this Prospectus
Supplement.
Each of the Mortgage Loans in the Mortgage Pool was selected from the
Seller's portfolio of mortgage loans. The Mortgage Loans were acquired by the
Seller in the secondary market in the ordinary course of its business, including
from affiliates of the underwriters, and re-underwritten by the Seller in
accordance with its underwriting standards as described in "Underwriting
Standards." The Mortgage Loans in the Mortgage Pool were originated or acquired
by various mortgage loan originators. Approximately 33.94%, 11.13% and 8.75% of
the Mortgage Loans were originated or acquired by New Century Mortgage
Corporation, Encore Credit Corp. and WMC Mortgage Corp., respectively.
Under the Pooling and Servicing Agreement, the Seller will make certain
representations and warranties to the Trustee relating to, among other things,
the due execution and enforceability of the Pooling and Servicing Agreement, its
title to the Mortgage Loans and certain characteristics of the Mortgage Loans
and, subject to certain limitations, will be obligated to repurchase or
substitute a similar mortgage loan for any Mortgage Loan as to which there
exists deficient documentation or an uncured breach of any such representation
or warranty, if such breach of any such representation or warranty materially
and adversely affects the Certificateholders' interests in such Mortgage Loan.
The Depositor will make no representations or warranties with respect to the
Mortgage Loans and will have no obligation to repurchase or substitute for
Mortgage Loans with deficient documentation or that are otherwise defective. The
Seller is selling the Mortgage Loans without recourse and will have no
obligation with respect to the Certificates in its capacity as Seller other than
the repurchase or substitution obligations described above.
The Mortgage Pool will include fixed-rate Mortgage Loans (the
"Fixed-Rate Mortgage Loans") and adjustable-rate Mortgage Loans (the
"Adjustable-Rate Mortgage Loans") and will consist of three loan groups ("Loan
Group 1", "Loan Group 2" and "Loan Group 3" and each, a "Loan Group"). The
Mortgage Loans in Loan Group 1 (the "Group 1 Mortgage Loans") consist of 3 FHA
insured Mortgage Loans, 818 Adjustable-Rate Mortgage Loans and 298 Fixed-Rate
Mortgage Loans not covered by FHA Insurance and have an aggregate Principal
Balance of $165,668,400 as of the Cut-off Date. The Mortgage Loans in Loan Group
1 have original Principal Balances that conform to Fannie Mae and Freddie Mac
standards. The Mortgage Loans in Loan Group 2 (the "Group 2 Mortgage Loans")
consist of 323 Fixed-Rate Mortgage Loans and 274 Adjustable-Rate Mortgage Loans,
and have an aggregate Principal Balance of $123,139,433 as of the Cut-off Date.
Some of the Group 2 Mortgage Loans have original principal balances that conform
to Fannie Mae and Freddie Mac standards and some do not. The Mortgage Loans in
Loan Group 3 (the "Group 3 Mortgage Loans") consist of 2 FHA insured Mortgage
Loans and 1,059 Fixed-Rate Mortgage Loans not covered by FHA insurance and have
an aggregate Principal Balance of $145,804,053 as of the Cut-off Date. Some of
the Mortgage Loans in Loan Group 3 have original Principal Balances that conform
to Fannie Mae and Freddie Mac standards and some do not.
S-24
The Mortgage Loans consist of Performing Mortgage Loans as defined
below. A "Performing Mortgage Loan" is a Mortgage Loan (that might be a
Forbearance Plan Mortgage Loan or a Bankruptcy Plan Mortgage Loan) pursuant to
which no payment due under the related mortgage note (or any modification
thereto) prior to the Cut-off Date, is 30 or more days Delinquent. Certain
Mortgage Loans have been modified in writing and are also characterized as
follows:
o If a Mortgage Loan is a "Forbearance Plan Mortgage Loan," the related
mortgagor must make monthly payments ("Modified Scheduled Payments") in an
amount at least equal to the sum of (i) the amount of the monthly scheduled
payment of principal and interest determined in accordance with such
Mortgage Loan's original amortization schedule ("Regular Scheduled
Payments") plus (ii) an additional amount to be applied to pay down the
total amount of Regular Scheduled Payments due thereon on or before the
Cut-off Date but not received prior to the Cut-off Date plus the aggregate
amount of tax and insurance advances made with respect to such Mortgage
Loan to the extent remaining outstanding as of the Cut-off Date.
o If a Mortgage Loan is a "Bankruptcy Plan Mortgage Loan," the related
mortgagor defaulted and, after default, became the subject of a case under
either Chapter 7 or 13 of the United States Bankruptcy Code, 11 U.S.C.
ss.ss. 101 et seq. (the "Bankruptcy Code") and, as of the Cut-off Date, had
a confirmed bankruptcy plan. Each such bankruptcy plan generally requires
the related mortgagor to make Modified Scheduled Payments in an amount at
least equal to (i) the Regular Scheduled Payment plus (ii) an additional
amount sufficient to pay down overdue amounts resulting from the period of
default, generally over a period of three to five years from the
commencement of such bankruptcy plan.
A Mortgage Loan (including a Forbearance Plan Mortgage Loan or a
Bankruptcy Plan Mortgage Loan) is "Delinquent" if the scheduled monthly payment
of principal and interest (or, in the case of a Forbearance Plan Mortgage Loan
or a Bankruptcy Plan Mortgage Loan, the Modified Scheduled Payment) on such
Mortgage Loan which is payable by the related mortgagor under the related
Mortgage Note (the "Monthly Payment") due on a due date is not paid by the close
of business on the next scheduled due date for such Mortgage Loan. Thus, a
Mortgage Loan for which the mortgagor failed to make the Monthly Payment due on
November 1, 2003 will be reported as Delinquent on December 2, 2003 if the
payment is not made by the close of business on December 1, 2003.
Some of the Adjustable-Rate Mortgage Loans provide for semi-annual
adjustment to the Mortgage Interest Rate thereon and for corresponding
adjustments to the Monthly Payment amount due thereon, in each case on each
adjustment date applicable thereto (each such date, an "Adjustment Date"). On
each Adjustment Date for each Adjustable-Rate Mortgage Loan, the Mortgage
Interest Rate thereon will be adjusted to equal the sum of the index applicable
to determining the Mortgage Interest Rate on each such Mortgage Loan (the
"Index") and a fixed percentage amount (the "Gross Margin"). The Mortgage
Interest Rate on each Adjustable-Rate Mortgage Loan will not increase or
decrease by a percentage ranging from 1.000% to 5.000% per annum on the first
related Adjustment Date (the "Initial Rate Cap") and from 1.000% to 3.000% per
annum on any Adjustment Date thereafter (the "Periodic Rate Cap"). The
Adjustable-Rate Mortgage Loans have a weighted average Initial Rate Cap of
approximately 1.834% per annum and a weighted average Periodic Rate Cap of
approximately 1.447% per annum thereafter. Each Mortgage Interest Rate on each
Adjustable-Rate Mortgage Loan will not exceed a specified maximum Mortgage
Interest Rate over the life of such Adjustable-Rate Mortgage Loan (the "Maximum
Mortgage Interest Rate") or be less than a specified minimum Mortgage Interest
Rate over the life of such Adjustable-Rate Mortgage Loan (the "Minimum Mortgage
Interest Rate"). Effective with the first Monthly Payment due on each
Adjustable-Rate Mortgage Loan after each related Adjustment Date, the Monthly
Payment amount will be adjusted (other than for the Adjustable-Rate Mortgage
Loans that are Balloon Loans and for the Adjustable-Rate Mortgage Loans that may
negatively amortize, as described below) to an amount that will amortize fully
the outstanding Principal Balance of the related Mortgage Loan over its
remaining term, and pay interest at the Mortgage Interest Rate as so adjusted.
Due to the application of the Periodic Rate Caps and the Maximum Mortgage
Interest Rates, the Mortgage Interest Rate on each such Mortgage Loan, as
adjusted on any related Adjustment Date, may be less than the sum of the Index
and the related Gross Margin, rounded as described herein. See "--The Index" in
this Prospectus Supplement. None of the Adjustable-Rate Mortgage Loans permit
the related mortgagor to convert the adjustable Mortgage Interest Rate thereon
to a fixed Mortgage Interest Rate.
S-25
None of the Adjustable-Rate Mortgage Loans has the possibility of
negative amortization.
The Adjustable-Rate Mortgage Loans had Mortgage Interest Rates as of
the Cut-off Date of not less than 4.100% per annum and not more than 15.300% per
annum and the weighted average Mortgage Interest Rate was approximately 7.401%
per annum. As of the Cut-off Date, the Adjustable-Rate Mortgage Loans had Gross
Margins ranging from 2.250% to 10.860%, Minimum Mortgage Interest Rates ranging
from 0.000% per annum to 15.300% per annum and Maximum Mortgage Interest Rates
ranging from 10.000% per annum to 21.800% per annum. As of the Cut-off Date, the
weighted average Gross Margin was approximately 5.708%, the weighted average
Minimum Mortgage Interest Rate was approximately 6.978% per annum and the
weighted average Maximum Mortgage Interest Rate was approximately 14.210% per
annum. The latest next Adjustment Date following the Cut-off Date on any
Adjustable-Rate Mortgage Loan occurs in September 2008 and the weighted average
number of months to the next Adjustment Date following the Cut-off Date for all
of the Adjustable-Rate Mortgage Loans is approximately 20 months.
Group 1 Mortgage Loan Statistics
The Group 1 Mortgage Loans consist of Fixed-Rate Mortgage Loans and
Adjustable-Rate Mortgage Loans. The aggregate Principal Balance of the Group 1
Mortgage Loans as of the Cut-off Date is equal to $165,668,400. The Group 1
Mortgage Loans have original terms to maturity ranging from 60 to 370 months.
The following statistical information, unless otherwise specified, is based upon
the aggregate Principal Balance of the Group 1 Mortgage Loans as of the Cut-off
Date.
The Group 1 Mortgage Loans are secured by mortgages, deeds of trust or
other similar security instruments (each, a "Mortgage") creating first or second
liens on one- to four-family residential properties consisting of one- to
four-family dwelling units and individual condominium units (each, a "Mortgaged
Property"). Approximately 62.83% of the Group 1 Mortgage Loans had a Combined
Loan-to-Value Ratio as of the Cut-off Date in excess of 80% and do not have
primary mortgage insurance. There can be no assurance that the Combined
Loan-to-Value Ratio of any Group 1 Mortgage Loan determined at any time after
origination is less than or equal to its Original Combined Loan-to-Value Ratio.
Of the Group 1 Mortgage Loans, 92.27% have scheduled Monthly Payments due on the
first day of the month (the day such Monthly Payments are due with respect to
each Mortgage Loan, a "Due Date").
Each Group 1 Mortgage Loan has an original Principal Balance that
conforms to Fannie Mae and Freddie Mac standards. None of the Mortgage Loans in
Loan Group 1 is a Section 32 Mortgage Loan.
Approximately 0.16% of the Group 1 Mortgage Loans are FHA insured
Mortgage Loans.
All of the Group 1 Mortgage Loans are Performing Mortgage Loans,
approximately 0.51% of which are Forbearance Plan Mortgage Loans and none of
which are Bankruptcy Plan Mortgage Loans.
Approximately 75.27% of the Group 1 Mortgage Loans provide for payment
by the mortgagor of a prepayment charge in limited circumstances on certain
prepayments. No such prepayment charge will be distributed to the holders of the
Offered Certificates.
S-26
Approximately 0.36% of the Group 1 Mortgage Loans will not fully
amortize by their respective maturity dates (each, a "Balloon Loan"). The
Monthly Payment for each Balloon Loan is based on an amortization schedule
ranging from 360 months to 361 months, except for the final payment (the
"Balloon Payment") which is due and payable in the 180th month following
origination of such Mortgage Loan, depending on the terms of the related
mortgage note. With respect to the majority of the Balloon Loans, the Monthly
Payments for such Balloon Loans amortize over 360 months, but the Balloon
Payment is due in the 180th month following origination. The amount of the
Balloon Payment on each Balloon Loan is substantially in excess of the amount of
the scheduled Monthly Payment for such Mortgage Loan.
Approximately 2.58% of the Group 1 Mortgage Loans are Owner-Financed
Mortgage Loans.
As of the Cut-off Date, each Group 1 Mortgage Loan accrues interest at
a per annum rate (the "Mortgage Interest Rate") of not less than 4.100% per
annum and not more than 13.000% per annum and as of the Cut-off Date the
weighted average Mortgage Interest Rate of the Group 1 Mortgage Loans was
approximately 7.548% per annum.
The earliest date of origination of any Group 1 Mortgage Loan is August
4, 1988. The weighted average remaining term to maturity of the Group 1 Mortgage
Loans will be approximately 348 months as of the Cut-off Date. None of the Group
1 Mortgage Loans had a first Due Date prior to October 1, 1988 or after November
9, 2003 or will have a remaining term to maturity of less than 8 months or
greater than 360 months as of the Cut-off Date. The latest maturity date of any
Group 1 Mortgage Loan is October 9, 2033.
The average Principal Balance of the Group 1 Mortgage Loans at
origination was approximately $149,288. No Group 1 Mortgage Loan had a Cut-off
Date Principal Balance of greater than approximately $447,454 or less than
approximately $3,349. The average Cut-off Date Principal Balance of the Group 1
Mortgage Loans was approximately $148,050.
The Group 1 Mortgage Loans that are Adjustable-Rate Mortgage Loans (the
"Group 1 Adjustable-Rate Mortgage Loans") have a weighted average Initial Rate
Cap of approximately 1.840% per annum and a weighted average Periodic Rate Cap
of approximately 1.436% per annum thereafter. None of the Group 1 Mortgage Loans
permits the related mortgagor to convert the adjustable Mortgage Interest Rate
thereon to a fixed Mortgage Interest Rate. None of the Group 1 Adjustable-Rate
Mortgage Loans has the possibility of negative amortization.
The Group 1 Adjustable-Rate Mortgage Loans had Mortgage Interest Rates
as of the Cut-off Date of not less than 4.100% per annum and not more than
12.900% per annum and the weighted average Mortgage Interest Rate for such
Mortgage Loans was approximately 7.566% per annum. As of the Cut-off Date, the
Group 1 Adjustable-Rate Mortgage Loans had Gross Margins ranging from 2.250% to
10.860%, Minimum Mortgage Interest Rates ranging from 0% per annum to 12.900%
per annum and Maximum Mortgage Interest Rates ranging from 10.125% per annum to
19.400% per annum. As of the Cut-off Date, the weighted average Gross Margin of
such Mortgage Loans was approximately 5.750%, the weighted average Minimum
Mortgage Interest Rate was approximately 7.134% per annum and the weighted
average Maximum Mortgage Interest Rate was approximately 14.369% per annum. The
latest next Adjustment Date following the Cut-off Date on any Group 1
Adjustable-Rate Mortgage Loan occurs in September 2008 and the weighted average
number of months to the next Adjustment Date following the Cut-off Date for the
Group 1 Adjustable-Rate Mortgage Loans is approximately 20 months.
Approximately 0.65% of the Group 1 Mortgage Loans are secured by a
Mortgage that is junior to a senior mortgage lien (a "Senior Lien") on the
related Mortgaged Property.
The Group 1 Mortgage Loans are expected to have the following
characteristics as of the Cut-off Date (the sum in any column may not equal the
total indicated due to rounding):
S-27
Loan Programs for the Group 1 Mortgage Loans
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Product Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
2/28 Arm 726 $117,048,092.90 70.65%
Fixed Rate 290 32,486,137.93 19.61
3/27 Arm 70 11,137,086.71 6.72
1 Month LIBOR 12 2,344,024.48 1.41
Fixed Rate Balloon 11 589,291.39 0.36
5/25 Arm 8 1,790,533.25 1.08
6 Month LIBOR 1 160,006.21 0.10
1/29 Arm 1 113,227.10 0.07
-------------- --------------------- ---------------------
Total 1,119 $165,668,399.97 100.00%
============== ===================== =====================
Cut-off Date Principal Balances of the Group 1 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Current Balance ($) Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
3,349 - 50,000 101 $3,414,520.35 2.06%
50,001 - 100,000 262 19,828,185.71 11.97
100,001 - 150,000 256 31,589,294.85 19.07
150,001 - 200,000 217 37,691,813.37 22.75
200,001 - 250,000 136 30,087,430.29 18.16
250,001 - 300,000 95 25,982,158.07 15.68
300,001 - 350,000 44 13,878,015.56 8.38
350,001 - 400,000 5 1,903,252.15 1.15
400,001 - 447,454 3 1,293,729.62 0.78
-------------- --------------------- ---------------------
Total 1,119 $165,668,399.97 100.00%
============== ===================== =====================
- -------------
(1) The average Cut-off Date Principal Balance of the Group 1 Mortgage
Loans was approximately $148,050.
S-28
Original Terms to Maturity of the Group 1 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Original Terms (months) Mortgage Loans Cut-off Date Cut-off Date
- -------------------------------------- -------------- --------------------- ---------------------
60.00 - 60.00 2 $53,864.10 0.03%
60.01 - 72.00 1 25,334.45 0.02
72.01 - 84.00 2 51,279.69 0.03
96.01 - 108.00 1 42,209.53 0.03
108.01 - 120.00 4 136,082.08 0.08
132.01 - 144.00 2 57,070.31 0.03
144.01 - 156.00 1 40,561.15 0.02
168.01 - 180.00 44 2,398,470.70 1.45
180.01 - 192.00 1 46,166.39 0.03
216.01 - 228.00 1 68,486.16 0.04
228.01 - 240.00 25 1,419,867.52 0.86
240.01 - 252.00 1 47,157.53 0.03
252.01 - 264.00 1 36,749.29 0.02
288.01 - 300.00 13 2,392,412.09 1.44
312.01 - 324.00 2 185,172.24 0.11
324.01 - 336.00 1 25,847.38 0.02
348.01 - 360.00 1,013 158,372,445.82 95.60
> 360.00 4 269,223.54 0.16
-------------- --------------------- ---------------------
Total 1,119 $165,668,399.97 100.00%
============== ===================== =====================
- --------------
(1) The weighted average original term of the Group 1 Mortgage Loans was
approximately 355 months.
S-29
Stated Remaining Terms to Maturity of the Group 1 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Stated Remaining Terms (months) Mortgage Loans Cut-off Date Cut-off Date
- -------------------------------------------- -------------- --------------------- ---------------------
8.00 - 12.00 1 $3,349.36 0.00%
24.01 - 36.00 1 25,551.84 0.02
36.01 - 48.00 1 28,312.26 0.02
48.01 - 60.00 1 21,783.01 0.01
60.01 - 72.00 14 596,288.40 0.36
72.01 - 84.00 4 78,140.00 0.05
84.01 - 96.00 5 240,531.98 0.15
96.01 - 108.00 1 27,821.55 0.02
108.01 - 120.00 2 70,477.53 0.04
120.01 - 132.00 2 147,310.98 0.09
132.01 - 144.00 3 97,486.50 0.06
144.01 - 156.00 5 273,173.46 0.16
156.01 - 168.00 6 293,011.12 0.18
168.01 - 180.00 16 1,123,521.25 0.68
180.01 - 192.00 6 249,617.35 0.15
192.01 - 204.00 1 48,387.61 0.03
204.01 - 216.00 3 126,909.51 0.08
216.01 - 228.00 2 189,913.57 0.11
228.01 - 240.00 23 1,375,223.65 0.83
240.01 - 252.00 4 277,765.31 0.17
252.01 - 264.00 3 152,880.95 0.09
264.01 - 276.00 4 269,231.95 0.16
276.01 - 288.00 4 383,000.13 0.23
288.01 - 300.00 17 2,870,864.06 1.73
300.01 - 312.00 3 277,857.37 0.17
312.01 - 324.00 5 237,920.63 0.14
324.01 - 336.00 12 1,499,272.47 0.90
336.01 - 348.00 66 7,883,431.02 4.76
348.01 - 360.00 904 146,799,365.15 88.61
-------------- --------------------- ---------------------
Total 1,119 $165,668,399.97 100.00%
============== ===================== =====================
- ---------------
(1) The weighted average stated remaining term of the Group 1 Mortgage
Loans was approximately 348 months.
S-30
Property Types of the Group 1 Mortgage Loans
% of Aggregat
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Property Type Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Single Family 862 $120,101,622.35 72.50%
Condominium 81 13,291,277.86 8.02
PUD 66 11,178,583.76 6.75
Two Family 61 10,973,167.79 6.62
Three Family 24 5,285,419.68 3.19
Four Family 15 3,529,815.30 2.13
Townhouse 3 543,152.67 0.33
Condo High-Rise 3 429,242.20 0.26
Manufactured Housing 4 336,118.36 0.20
-------------- --------------------- ---------------------
Total 1,119 $165,668,399.97 100.00%
============== ===================== =====================
- --------------
(1) PUD refers to a Planned Unit Development.
Occupancy Status of the Group 1 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Occupancy Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Primary 1,002 $149,381,862.62 90.17%
Investor 107 14,793,188.50 8.93
Secondary 10 1,493,348.85 0.90
-------------- --------------------- ---------------------
Total 1,119 $165,668,399.97 100.00%
============== ===================== =====================
- -------------
(1) Based on a representation made by the borrower at the time of
origination.
Purpose of the Group 1 Mortgage Loans
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Purpose Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Cash Out Refinance 576 $89,290,296.42 53.90%
Purchase 449 64,402,322.65 38.87
Refinance 94 11,975,780.90 7.23
-------------- --------------------- ---------------------
Total 1,119 $165,668,399.97 100.00%
============== ===================== =====================
S-31
Mortgage Interest Rates of the Group 1 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Mortgage Rate (%) Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
4.100 - 4.500 1 $114,152.32 0.07%
4.501 - 5.000 12 2,512,391.85 1.52
5.001 - 5.500 7 1,449,624.25 0.88
5.501 - 6.000 63 10,769,399.23 6.50
6.001 - 6.500 99 17,779,029.60 10.73
6.501 - 7.000 162 28,739,976.69 17.35
7.001 - 7.500 173 28,465,787.01 17.18
7.501 - 8.000 200 31,333,507.09 18.91
8.001 - 8.500 117 16,467,584.69 9.94
8.501 - 9.000 101 11,715,637.27 7.07
9.001 - 9.500 43 5,087,760.97 3.07
9.501 - 10.000 52 4,622,771.07 2.79
10.001 - 10.500 22 2,192,088.83 1.32
10.501 - 11.000 32 2,311,523.35 1.40
11.001 - 11.500 8 558,423.94 0.34
11.501 - 12.000 17 860,756.54 0.52
12.001 - 12.500 5 374,686.19 0.23
12.501 - 13.000 5 313,299.08 0.19
-------------- --------------------- ---------------------
Total 1,119 $165,668,399.97 100.00%
============== ===================== =====================
- ------------
(1) The weighted average Mortgage Interest Rate of the Group 1 Mortgage
Loans as of the Cut-off Date was approximately 7.548% per annum.
S-32
Original Combined Loan-to-Value Ratios of the Group 1 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Original Combined LTV (%) Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
16.43 - 20.00 1 $3,349.36 0.00%
20.01 - 30.00 4 237,073.35 0.14
30.01 - 40.00 10 833,190.61 0.50
40.01 - 50.00 18 1,988,540.62 1.20
50.01 - 60.00 36 5,408,485.65 3.26
60.01 - 70.00 57 7,508,598.09 4.53
70.01 - 80.00 259 41,236,042.63 24.89
80.01 - 90.00 467 72,244,577.11 43.61
90.01 - 100.00 260 35,944,925.95 21.70
100.01 - 110.00 6 243,556.20 0.15
110.01 - 117.14 1 20,060.40 0.01
-------------- --------------------- ---------------------
Total 1,119 $165,668,399.97 100.00%
============== ===================== =====================
- --------------
(1) The weighted average Original Combined Loan-to-Value Ratio of the Group
1 Mortgage Loans as of the Cut-off Date was approximately 84.60%.
The "Original Combined Loan-to-Value Ratio" of a Mortgage Loan shall
generally mean the ratio, expressed as a percentage of (i) the sum of (a) the
principal amount of the Mortgage Loan at origination plus (b) the outstanding
balance of the Senior Liens, if any, at origination of the Mortgage Loan over
(ii) the appraised value of the related Mortgaged Property at origination or the
sale price (or the lesser of the appraised value and the sale price if both are
available).
S-33
Credit Scores of the Group 1 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Credit Scores Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Not Available 1 $35,954.05 0.02%
441 - 460 1 122,450.95 0.07
461 - 480 10 1,354,142.26 0.82
481 - 500 26 2,918,490.14 1.76
501 - 520 65 7,958,353.13 4.80
521 - 540 52 7,426,638.64 4.48
541 - 560 73 9,787,767.66 5.91
561 - 580 77 9,792,850.22 5.91
581 - 600 133 19,829,015.50 11.97
601 - 620 128 20,832,888.01 12.58
621 - 640 130 21,203,245.24 12.80
641 - 660 128 19,019,363.29 11.48
661 - 680 77 10,837,964.46 6.54
681 - 700 63 10,126,790.65 6.11
701 - 720 61 10,076,591.42 6.08
721 - 740 42 6,410,144.00 3.87
741 - 760 30 5,124,675.70 3.09
761 - 780 15 2,113,242.54 1.28
781 - 800 6 661,525.28 0.40
801 1 36,306.83 0.02
-------------- --------------------- ---------------------
Total 1,119 $165,668,399.97 100.00%
============== ===================== =====================
- --------------
(1) The weighted average Credit Score of the Group 1 Mortgage Loans as of
the Cut-off Date was approximately 624.
S-34
Geographic Distribution of the Group 1 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
State Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Alabama 7 $460,670.43 0.28%
Alaska 1 51,721.73 0.03
Arizona 18 2,234,567.07 1.35
Arkansas 4 366,006.66 0.22
California 311 60,555,657.89 36.55
Colorado 23 3,352,558.67 2.02
Connecticut 7 1,308,569.07 0.79
Delaware 1 95,825.95 0.06
District of Columbia 2 241,011.40 0.15
Florida 93 11,466,066.79 6.92
Georgia 25 2,231,259.40 1.35
Hawaii 1 246,889.29 0.15
Idaho 6 509,733.08 0.31
Illinois 88 12,703,799.03 7.67
Indiana 18 1,653,864.19 1.00
Iowa 5 379,432.54 0.23
Kansas 5 695,962.66 0.42
Kentucky 8 1,196,119.65 0.72
Louisiana 6 565,080.47 0.34
Maine 1 60,876.12 0.04
Maryland 16 2,807,217.22 1.69
Massachusetts 18 3,932,255.88 2.37
Michigan 53 5,310,504.82 3.21
Minnesota 10 1,644,701.76 0.99
Mississippi 2 157,276.31 0.09
Missouri 16 2,162,454.03 1.31
Montana 1 98,191.95 0.06
Nebraska 10 990,714.47 0.60
Nevada 17 2,640,639.08 1.59
New Hampshire 2 436,649.18 0.26
New Jersey 35 6,462,370.57 3.90
New Mexico 10 1,545,511.09 0.93
New York 50 8,156,631.25 4.92
North Carolina 13 1,456,456.56 0.88
Ohio 32 3,084,705.43 1.86
Oklahoma 5 439,043.59 0.27
Oregon 14 1,878,891.84 1.13
Pennsylvania 27 2,921,672.22 1.76
Rhode Island 2 431,928.46 0.26
South Carolina 8 779,125.88 0.47
South Dakota 1 101,816.86 0.06
Tennessee 20 2,446,382.58 1.48
Texas 58 5,526,758.24 3.34
Utah 9 1,246,897.48 0.75
Virginia 20 3,406,506.17 2.06
Washington 23 3,484,982.43 2.10
West Virginia 3 232,677.47 0.14
Wisconsin 14 1,509,765.06 0.91
-------------- --------------------- ---------------------
Total 1,119 $165,668,399.97 100.00%
============== ===================== =====================
- --------------
(1) The greatest ZIP Code geographic concentration of the Group 1 Mortgage
Loans, by aggregate Principal Balance of the Group 1 Mortgage Loans as
of the Cut-off Date, was approximately 0.58% in the 90047 ZIP Code.
S-35
Documentation Levels of the Group 1 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Documentation Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Stated 435 $74,434,298.02 44.93%
Full 539 72,905,063.40 44.01
No Documentation 85 8,589,024.16 5.18
Limited 37 6,108,118.05 3.69
Alternative 22 3,582,130.57 2.16
Streamlined 1 49,765.77 0.03
-------------- --------------------- ---------------------
Total 1,119 $165,668,399.97 100.00%
============== ===================== =====================
- --------------
(1) For a description of each documentation level, see "Underwriting
Standards" in this Prospectus Supplement.
Status of the Group 1 Mortgage Loans
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Delinquency Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Current 1,119 $165,668,399.97 100.00%
-------------- --------------------- ---------------------
Total 1,119 $165,668,399.97 100.00%
============== ===================== =====================
S-36
Maximum Mortgage Interest Rates of the Group 1 Adjustable-Rate Mortgage Loans
% of Aggregate
Principal Balance of
Group 1 Adjustable-Rate
Principal Balance Mortgage Loans
Number of Outstanding as of the Outstanding as of the
Maximum Mortgage Interest Rate Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
10.125% to 11.000% 5 $1,109,253.56 0.84%
11.001% to 12.000% 33 5,753,617.28 4.34
12.001% to 13.000% 70 12,548,628.79 9.46
13.001% to 14.000% 168 31,649,435.79 23.87
14.001% to 15.000% 278 47,058,507.10 35.49
15.001% to 16.000% 173 23,743,739.35 17.91
16.001% to 17.000% 60 7,761,169.74 5.85
17.001% to 18.000% 25 2,431,438.91 1.83
18.001% to 19.000% 5 420,819.67 0.32
19.001% to 19.400% 1 116,360.46 0.09
-------------- --------------------- ---------------------
Total 818 $132,592,970.65 100.00%
============== ===================== =====================
- ---------------
(1) The weighted average Maximum Mortgage Interest Rate of the Group 1
Adjustable-Rate Mortgage Loans as of the Cut-off Date was approximately
14.369%.
Minimum Mortgage Interest Rates of the Group 1 Adjustable-Rate Mortgage Loans
% of Aggregate
Principal Balance of
Group 1 Adjustable-Rate
Principal Balance Mortgage Loans
Number of Outstanding as of the Outstanding as of the
Minimum Mortgage Interest Rate Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Less than 1.000% 49 $7,965,757.47 6.01%
4.001% to 5.000% 11 2,182,524.48 1.65
5.001% to 6.000% 37 6,976,490.28 5.26
6.001% to 7.000% 175 32,754,656.79 24.70
7.001% to 8.000% 282 48,327,227.08 36.45
8.001% to 9.000% 159 22,008,692.05 16.60
9.001% to 10.000% 55 7,210,123.69 5.44
10.001% to 11.000% 36 3,820,261.67 2.88
11.001% to 12.000% 8 810,057.01 0.61
12.001% to 12.900% 6 537,180.13 0.41
-------------- --------------------- ---------------------
Total 818 $132,592,970.65 100.00%
============== ===================== =====================
(1) The weighted average Minimum Mortgage Interest Rate of the Group 1
Adjustable-Rate Mortgage Loans as of the Cut-off Date was approximately
7.134%.
S-37
Gross Margins of the Group 1 Adjustable-Rate Mortgage Loans
% of Aggregate
Principal Balance of
Group 1 Adjustable-Rate
Principal Balance Mortgage Loans
Number of Outstanding as of the Outstanding as of the
Gross Margin Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
2.250% to 3.000% 4 $829,045.68 0.63%
3.001% to 4.000% 13 2,732,686.25 2.06
4.001% to 5.000% 41 6,390,175.01 4.82
5.001% to 6.000% 535 90,799,610.52 68.48
6.001% to 7.000% 183 26,707,933.08 20.14
7.001% to 8.000% 21 2,765,436.84 2.09
8.001% to 9.000% 14 1,581,440.74 1.19
9.001% to 10.000% 6 648,245.56 0.49
10.001% to 10.860% 1 138,396.97 0.10
-------------- --------------------- ---------------------
Total 818 $132,592,970.65 100.00%
============== ===================== =====================
- -------------
(1) The weighted average Gross Margin of the Group 1 Adjustable-Rate
Mortgage Loans as of the Cut-off Date was approximately 5.750%.
Initial Rate Caps of the Group 1 Adjustable-Rate Mortgage Loans(1)
% of Aggregate Principal
Balance of Group 1
Adjustable- Rate
Principal Balance Mortgage Loans
Number of Outstanding as of the Outstanding as of the
Initial Rate Cap (%) Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
1.00 37 $4,035,027.42 3.04%
1.50 585 98,357,531.25 74.18
2.00 10 1,618,340.48 1.22
2.99 4 926,587.50 0.70
3.00 164 24,294,144.13 18.32
3.03 1 139,400.00 0.11
3.06 4 751,257.00 0.57
4.00 9 1,535,495.11 1.16
5.00 4 935,187.76 0.71
-------------- --------------------- ---------------------
Total 818 $132,592,970.65 100.00%
============== ===================== =====================
- ------------
(1) The weighted average Initial Rate Cap of the Group 1 Adjustable-Rate
Mortgage Loans as of the Cut-off Date was approximately 1.840%.
S-38
Periodic Rate Caps of the Group 1 Adjustable-Rate Mortgage Loans(1)
% of Aggregate Principal
Balance of Group 1
Adjustable- Rate
Principal Balance Mortgage Loans
Number of Outstanding as of the Outstanding as of the
Periodic Rate Cap (%) Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
1.00 195 $27,852,898.03 21.01%
1.50 599 100,176,651.74 75.55
2.00 3 683,901.29 0.52
2.50 9 1,535,495.11 1.16
3.00 12 2,344,024.48 1.77
-------------- --------------------- ---------------------
Total 818 $132,592,970.65 100.00%
============== ===================== =====================
- ------------
(1) The weighted average Periodic Rate Cap of the Group 1 Adjustable-Rate
Mortgage Loans as of the Cut-off Date was approximately 1.436%.
S-39
Next Adjustment Dates of the Group 1 Adjustable-Rate Mortgage Loans
% of Aggregate Principal
Balance of Group 1
Adjustable- Rate
Principal Balance Mortgage Loans
Number of Outstanding as of the Outstanding as of the
Next Adjustment Date (Months) Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
1.00 11 $2,179,458.74 1.64%
2.00 8 906,495.58 0.68
3.00 2 119,897.09 0.09
4.00 3 325,797.66 0.25
5.00 5 519,902.84 0.39
6.00 5 635,314.42 0.48
7.00 1 202,048.55 0.15
8.00 5 361,798.95 0.27
9.00 10 1,056,483.33 0.80
10.00 4 381,052.58 0.29
11.00 2 123,923.36 0.09
12.00 22 3,072,792.69 2.32
13.00 7 703,110.43 0.53
14.00 2 113,089.75 0.09
15.00 1 264,732.86 0.20
16.00 3 238,659.75 0.18
17.00 31 4,886,306.47 3.69
18.00 239 39,536,772.27 29.82
19.00 14 2,948,232.43 2.22
20.00 38 5,919,661.47 4.46
21.00 287 48,309,598.93 36.43
22.00 51 8,141,437.63 6.14
23.00 5 849,288.25 0.64
24.00 1 307,536.05 0.23
25.00 2 432,928.09 0.33
26.00 2 186,817.53 0.14
27.00 5 957,491.14 0.72
28.00 2 472,535.00 0.36
29.00 7 1,114,647.98 0.84
30.00 4 531,845.38 0.40
31.00 4 748,266.17 0.56
32.00 2 375,651.02 0.28
33.00 19 2,699,944.44 2.04
34.00 6 1,178,918.57 0.89
53.00 2 375,741.66 0.28
56.00 2 573,564.50 0.43
58.00 4 841,227.09 0.63
-------------- --------------------- ---------------------
Total 818 $132,592,970.65 100.00%
============== ===================== =====================
S-40
Group 2 Mortgage Loan Statistics
The Group 2 Mortgage Loans consist of Fixed-Rate Mortgage Loans and
Adjustable-Rate Mortgage Loans. The aggregate Principal Balance of the Group 2
Mortgage Loans as of the Cut-off Date is equal to $123,139,433. The Group 2
Mortgage Loans have original terms to maturity ranging from 60 to 362 months.
The following statistical information, unless otherwise specified, is based upon
the aggregate Principal Balance of the Group 2 Mortgage Loans as of the Cut-off
Date.
The Group 2 Mortgage Loans are secured by Mortgages which the Seller
has represented create first or second liens on the related Mortgaged
Properties. Approximately 59.95% of the Group 2 Mortgage Loans had an Original
Combined Loan-to-Value Ratio as of the Cut-off Date in excess of 80% and do not
have primary mortgage insurance. There can be no assurance that the Original
Combined Loan-to-Value Ratio of any Group 2 Mortgage Loan determined at any time
after origination is less than or equal to its Original Combined Loan-to-Value
Ratio. Approximately 92.53% of the Group 2 Mortgage Loans have a Due Date on the
first day of each month.
None of the Group 2 Mortgage Loans is a Section 32 Mortgage Loan.
Approximately 0.86% of the Group 2 Mortgage Loans are FHA Uninsured
Mortgage Loans. See "--FHA Mortgage Loans."
All of the Group 2 Mortgage Loans are Performing Mortgage Loans,
approximately 0.19% of which are Forbearance Plan Mortgage Loans and
approximately 0.26% of which are Bankruptcy Plan Mortgage Loans.
Approximately 69.28% of the Group 2 Mortgage Loans provide for payment
by the mortgagor of a prepayment charge in limited circumstances on certain
prepayments. No such prepayment charge will be distributed to the holders of the
Offered Certificates.
Approximately 1.15% of the Group 2 Mortgage Loans will not fully
amortize by their respective maturity dates (each, a "Balloon Loan"). The
Monthly Payment for each Balloon Loan is based on an amortization schedule
ranging from 357 months to 360 months, except for the final payment (the
"Balloon Payment") which is due and payable between the 84th month and the 240th
month following origination of such Mortgage Loan, depending on the terms of the
related mortgage note. With respect to the majority of the Balloon Loans, the
Monthly Payments for such Balloon Loans amortize over 360 months, but the
Balloon Payment is due in the 180th month following origination. The amount of
the Balloon Payment on each Balloon Loan is substantially in excess of the
amount of the scheduled Monthly Payment for such Mortgage Loan.
Approximately 3.06% of the Group 2 Mortgage Loans are Owner-Financed
Mortgage Loans.
As of the Cut-off Date, each Group 2 Mortgage Loan had a Mortgage
Interest Rate of not less than 4.140% per annum and not more than 15.300% per
annum and the weighted average Mortgage Interest Rate of the Group 2 Mortgage
Loans was approximately 7.222% per annum.
The earliest date of origination of any Group 2 Mortgage Loan is August
13, 1986. The weighted average remaining term to maturity of the Group 2
Mortgage Loans will be approximately 342 months as of the Cut-off Date. None of
the Group 2 Mortgage Loans had a first Due Date prior to October 1, 1986 or
after November 1, 2003 or will have a remaining term to maturity of less than 23
months or greater than 359 months as of the Cut-off Date. The month of the
latest maturity date of any Group 2 Mortgage Loan is October 2033.
The average Principal Balance of the Group 2 Mortgage Loans at
origination was approximately $208,480. No Group 2 Mortgage Loan had a Cut-off
Date Principal Balance of greater than approximately $834,963 or less than
approximately $9,496. The average Cut-off Date Principal Balance of the Group 2
Mortgage Loans was approximately $206,264.
S-41
The Group 2 Mortgage Loans that are Adjustable-Rate Mortgage Loans (the
"Group 2 Adjustable-Rate Mortgage Loans") have a weighted average Initial Rate
Cap of approximately 1.825% per annum and a weighted average Periodic Rate Cap
of approximately 1.464% per annum thereafter. None of the Group 2
Adjustable-Rate Mortgage Loans permit the related mortgagor to convert the
adjustable Mortgage Interest Rate thereon to a fixed Mortgage Interest Rate.
None of the Group 2 Adjustable-Rate Mortgage Loans has the possibility of
negative amortization.
The Group 2 Adjustable-Rate Mortgage Loans had Mortgage Interest Rates
as of the Cut-off Date of not less than 4.140% per annum and not more than
15.300% per annum and the weighted average Mortgage Interest Rate for such
Mortgage Loans was approximately 7.140% per annum. As of the Cut-off Date, the
Group 2 Adjustable-Rate Mortgage Loans had Gross Margins ranging from 2.750% to
9.500%, Minimum Mortgage Interest Rates ranging from 0.000% per annum to 15.300%
per annum and Maximum Mortgage Interest Rates ranging from 10.000% per annum to
21.800% per annum. As of the Cut-off Date, the weighted average Gross Margin of
such Mortgage Loans was approximately 5.642%, the weighted average Minimum
Mortgage Interest Rate was approximately 6.731% per annum and the weighted
average Maximum Mortgage Interest Rate was approximately 13.958% per annum. The
latest next Adjustment Date following the Cut-off Date on any Group 2
Adjustable-Rate Mortgage Loan occurs in May 2008 and the weighted average number
of months to the next Adjustment Date following the Cut-off Date for all of the
Adjustable-Rate Mortgage Loans is approximately 19 months.
Approximately 0.79% of the Group 2 Mortgage Loans are secured by a
Mortgage that is junior to a Senior Lien on the related Mortgaged Property.
The Group 2 Mortgage Loans are expected to have the following
characteristics as of the Cut-off Date (the sum in any column may not equal the
total indicated due to rounding):
S-42
Loan Programs for the Group 2 Mortgage Loans
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Product Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Fixed Rate 308 $37,668,707.14 30.59%
2/28 Arm 246 75,125,258.89 61.01
3/27 Arm 15 3,708,207.92 3.01
Fixed Rate Balloon 15 1,414,241.24 1.15
1 Month LIBOR 8 $3,305,311.80 2.68
6 Month LIBOR 3 1,332,061.23 1.08
5/25 Arm 1 371,275.49 0.30
1 Year Treasury 1 214,369.02 0.17
-------------- --------------------- ---------------------
Total 597 $123,139,432.73 100.00%
============== ===================== =====================
S-43
Cut-off Date Principal Balances of the Group 2 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Current Balance Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
9,496 - 50,000 91 $3,085,786.53 2.51%
50,001 - 100,000 98 7,245,959.01 5.88
100,001 - 150,000 81 10,003,881.99 8.12
150,001 - 200,000 82 14,139,450.90 11.48
200,001 - 250,000 37 8,206,625.94 6.66
250,001 - 300,000 32 8,565,672.87 6.96
300,001 - 350,000 45 14,802,998.30 12.02
350,001 - 400,000 57 21,292,494.38 17.29
400,001 - 450,000 23 9,816,150.49 7.97
450,001 - 500,000 32 15,106,289.72 12.27
500,001 - 550,000 11 5,770,397.73 4.69
550,001 - 600,000 4 2,326,556.99 1.89
600,001 - 650,000 2 1,269,158.14 1.03
650,001 - 700,000 1 673,046.86 0.55
800,001 - 834,963 1 834,962.88 0.68
-------------- --------------------- ---------------------
Total 597 $123,139,432.73 100.00%
============== ===================== =====================
- ------------
(1) The average Cut-off Date Principal Balance of the Group 2 Mortgage
Loans was approximately $206,264.
Original Terms to Maturity of the Group 2 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Original Terms (months) Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
60.00 - 60.00 1 $68,965.66 0.06%
72.01 - 84.00 1 47,370.27 0.04
84.01 - 96.00 1 36,402.14 0.03
96.01 - 108.00 1 35,611.42 0.03
108.01 - 120.00 5 152,447.66 0.12
132.01 - 144.00 3 179,535.92 0.15
144.01 - 156.00 2 41,299.69 0.03
168.01 - 180.00 41 3,548,544.69 2.88
180.01 - 192.00 1 32,329.28 0.03
216.01 - 228.00 3 170,520.96 0.14
228.01 - 240.00 36 1,751,053.56 1.42
252.01 - 264.00 1 46,243.34 0.04
276.01 - 288.00 1 34,405.39 0.03
288.01 - 300.00 10 3,443,087.57 2.80
324.01 - 336.00 1 52,618.59 0.04
336.01 - 348.00 1 148,289.64 0.12
348.01 - 360.00 485 113,133,953.89 91.87
> 360.00 3 216,753.06 0.18
-------------- --------------------- ---------------------
Total 597 $123,139,432.73 100.00%
============== ===================== =====================
- ------------
(1) The weighted average original term of the Group 2 Mortgage Loans was
approximately 350 months.
S-44
Stated Remaining Terms to Maturity of the Group 2 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Stated Remaining Terms (months) Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
23.00 - 24.00 1 $68,965.66 0.06%
36.01 - 48.00 1 47,370.27 0.04
48.01 - 60.00 1 11,118.62 0.01
60.01 - 72.00 9 270,664.06 0.22
72.01 - 84.00 4 119,909.69 0.10
84.01 - 96.00 4 128,728.82 0.10
96.01 - 108.00 2 144,644.38 0.12
120.01 - 132.00 4 169,285.92 0.14
132.01 - 144.00 3 97,951.79 0.08
144.01 - 156.00 5 269,201.71 0.22
156.01 - 168.00 4 177,829.88 0.14
168.01 - 180.00 27 3,122,994.93 2.54
180.01 - 192.00 6 434,260.06 0.35
192.01 - 204.00 1 88,917.40 0.07
204.01 - 216.00 1 22,883.46 0.02
216.01 - 228.00 5 303,633.24 0.25
228.01 - 240.00 36 1,792,870.71 1.46
240.01 - 252.00 2 130,551.00 0.11
252.01 - 264.00 4 301,645.60 0.24
276.01 - 288.00 6 428,900.42 0.35
288.01 - 300.00 16 4,191,737.12 3.40
300.01 - 312.00 1 94,960.74 0.08
312.01 - 324.00 4 425,386.27 0.35
324.01 - 336.00 2 110,826.02 0.09
336.01 - 348.00 13 3,234,056.89 2.63
348.01 - 359.00 435 106,950,138.07 86.85
-------------- --------------------- ---------------------
Total 597 $123,139,432.73 100.00%
============== ===================== =====================
- ------------
(1) The weighted average stated remaining term of the Group 2 Mortgage
Loans was approximately 342 months.
S-45
Property Types of the Group 2 Mortgage Loans
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Property Type Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Single Family 473 $92,326,798.01 74.98%
PUD 37 11,213,022.16 9.11
Two Family 39 9,065,654.72 7.36
Condominium 35 6,593,837.70 5.35
Four Family 7 2,263,933.57 1.84
Condo High-Rise 1 621,788.20 0.50
Two-Four Family 2 543,456.82 0.44
Three Family 2 415,978.83 0.34
Mobile Home 1 94,962.72 0.08
-------------- --------------------- ---------------------
Total 597 $123,139,432.73 100.00%
============== ===================== =====================
- ------------
(1) PUD refers to a Planned Unit Development.
Occupancy Status of the Group 2 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Occupancy Status Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Primary 535 $113,301,434.35 92.01%
Investor 57 8,814,664.25 7.16
Second Home 5 1,023,334.13 0.83
-------------- --------------------- ---------------------
Total 597 $123,139,432.73 100.00%
============== ===================== =====================
- ------------
(1) Based on a representation made by the borrower at the time of
origination.
Purpose of the Group 2 Mortgage Loans
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Purpose Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Cash Out Refinance 295 $66,016,090.75 53.61%
Purchase 265 49,163,981.92 39.93
Refinance 37 7,959,360.06 6.46
-------------- --------------------- ---------------------
Total 597 $123,139,432.73 100.00%
============== ===================== =====================
S-46
Mortgage Interest Rates of the Group 2 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Mortgage Rate (%) Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
4.140 - 4.500 1 $484,271.18 0.39%
4.501 - 5.000 6 2,103,419.21 1.71
5.001 - 5.500 17 3,983,378.81 3.23
5.501 - 6.000 43 10,915,632.17 8.86
6.001 - 6.500 76 18,070,800.25 14.68
6.501 - 7.000 100 27,342,514.35 22.20
7.001 - 7.500 78 20,453,760.44 16.61
7.501 - 8.000 94 18,098,405.52 14.70
8.001 - 8.500 47 8,348,749.19 6.78
8.501 - 9.000 45 6,783,715.47 5.51
9.001 - 9.500 13 1,469,721.56 1.19
9.501 - 10.000 20 1,586,464.88 1.29
10.001 - 10.500 7 423,923.62 0.34
10.501 - 11.000 27 1,043,573.98 0.85
11.001 - 11.500 8 1,183,570.07 0.96
11.501 - 12.000 10 316,137.58 0.26
12.001 - 12.500 1 187,280.70 0.15
12.501 - 13.000 3 183,993.39 0.15
15.001 - 15.300 1 160,120.36 0.13
-------------- --------------------- ---------------------
Total 597 $123,139,432.73 100.00%
============== ===================== =====================
- ------------
(1) The weighted average Mortgage Interest Rate of the Group 2 Mortgage
Loans as of the Cut-off Date was approximately 7.22% per annum.
S-47
Original Combined Loan-to-Value Ratios of the Group 2 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Original Combined LTV Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
15.24 - 20.00 1 $9,495.88 0.01%
20.01 - 30.00 2 72,836.79 0.06
30.01 - 40.00 1 109,818.79 0.09
40.01 - 50.00 8 968,149.68 0.79
50.01 - 60.00 13 2,200,545.18 1.79
60.01 - 70.00 35 8,049,634.37 6.54
70.01 - 80.00 125 30,582,517.70 24.84
80.01 - 90.00 209 50,442,531.13 40.96
90.01 - 100.00 197 30,315,658.14 24.62
100.01 - 110.00 5 377,126.45 0.31
120.01 - 120.86 1 11,118.62 0.01
-------------- --------------------- ---------------------
Total 597 $123,139,432.73 100.00%
============== ===================== =====================
- ------------
(1) The weighted average Original Combined Loan-to-Value Ratio of the Group
2 Mortgage Loans as of the Cut-off Date was approximately 85.44%.
Credit Scores of the Group 2 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Credit Scores Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Not Available 2 $80,084.28 0.07%
461 - 480 1 74,617.98 0.06
481 - 500 6 1,041,033.54 0.85
501 - 520 19 4,111,316.55 3.34
521 - 540 28 4,555,495.59 3.70
541 - 560 36 7,037,890.69 5.72
561 - 580 45 8,185,556.64 6.65
581 - 600 47 9,982,722.23 8.11
601 - 620 71 16,713,837.92 13.57
621 - 640 71 17,489,265.65 14.20
641 - 660 83 15,997,994.98 12.99
661 - 680 49 11,439,528.85 9.29
681 - 700 32 6,303,650.31 5.12
701 - 720 40 8,524,041.01 6.92
721 - 740 33 5,417,000.06 4.40
741 - 760 18 3,829,750.94 3.11
761 - 780 12 1,887,955.96 1.53
781 - 800 1 89,669.02 0.07
801 - 809 3 378,020.53 0.31
-------------- --------------------- ---------------------
Total 597 $123,139,432.73 100.00%
============== ===================== =====================
- ------------
(1) The weighted average Credit Score of the Group 2 Mortgage Loans as of
the Cut-off Date was approximately 633.
S-48
Geographic Distribution of the Group 2 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
State Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Alabama 4 $572,894.50 0.47%
Arizona 10 1,632,394.65 1.33
Arkansas 5 372,929.99 0.30
California 194 58,219,448.34 47.28
Colorado 9 2,251,066.65 1.83
Connecticut 3 1,050,622.91 0.85
Delaware 1 65,403.81 0.05
District of Columbia 1 351,647.03 0.29
Florida 35 4,106,696.59 3.33
Georgia 17 1,930,695.23 1.57
Hawaii 1 186,878.59 0.15
Idaho 2 202,713.51 0.16
Illinois 23 4,643,678.14 3.77
Indiana 8 890,949.92 0.72
Iowa 2 100,818.73 0.08
Kansas 1 228,002.50 0.19
Kentucky 5 318,627.56 0.26
Louisiana 6 520,997.59 0.42
Maryland 12 1,814,195.02 1.47
Massachusetts 8 2,278,781.61 1.85
Michigan 14 2,892,533.12 2.35
Minnesota 3 944,099.03 0.77
Mississippi 4 731,356.27 0.59
Missouri 5 628,293.38 0.51
Montana 4 346,937.41 0.28
Nebraska 3 242,815.11 0.20
Nevada 9 1,523,448.92 1.24
New Hampshire 2 235,125.22 0.19
New Jersey 24 5,347,233.14 4.34
New Mexico 5 1,053,219.55 0.86
New York 47 10,806,802.05 8.78
North Carolina 13 2,039,510.83 1.66
Ohio 11 1,407,613.88 1.14
Oklahoma 3 470,222.13 0.38
Oregon 6 994,159.15 0.81
Pennsylvania 13 1,313,638.02 1.07
Rhode Island 1 112,980.42 0.09
South Carolina 6 621,116.79 0.50
Tennessee 7 809,187.71 0.66
Texas 37 3,245,835.38 2.64
Utah 2 357,266.07 0.29
Virginia 12 2,790,174.16 2.27
Washington 11 1,273,814.14 1.03
Wisconsin 7 1,180,278.70 0.96
Wyoming 1 32,329.28 0.03
-------------- --------------------- ---------------------
Total 597 $123,139,432.73 100.00%
============== ===================== =====================
- ------------
(1) The greatest ZIP Code geographic concentration of the Group 2 Mortgage
Loans, by aggregate Principal Balance of the Group 2 Mortgage Loans as
of the Cut-off Date, was approximately 1.10% in the 92683 ZIP Code.
S-49
Documentation Levels of the Group 2 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Documentation Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Full 283 $53,237,721.24 43.23%
Stated 188 50,268,484.26 40.82
No Documentation 97 12,755,329.10 10.36
Limited 17 4,996,658.76 4.06
Alternative 7 987,424.97 0.80
Streamlined 3 633,845.45 0.51
Missing 2 259,968.95 0.21
-------------- --------------------- ---------------------
Total 597 $123,139,432.73 100.00%
============== ===================== =====================
- ------------
(1) For a description of each documentation level, see "Underwriting
Standards" in this Prospectus Supplement.
Status of the Group 2 Mortgage Loans
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of the
Delinquency Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Current 597 $123,139,432.73 100.00%
-------------- --------------------- ---------------------
Total 597 $123,139,432.73 100.00%
============== ===================== =====================
Maximum Mortgage Interest Rates of the Group 2 Adjustable-Rate Mortgage Loans
% of Aggregate
Principal Balance of
Group 2 Adjustable-Rate
Principal Balance Mortgage Loans
Number of Outstanding as of the Outstanding as of the
Maximum Mortgage Interest Rate Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
10.000% 1 $371,275.49 0.44%
10.001% to 11.000% 2 668,071.76 0.79
11.001% to 12.000% 12 4,080,944.80 4.86
12.001% to 13.000% 33 11,442,085.83 13.61
13.001% to 14.000% 88 31,863,699.22 37.91
14.001% to 15.000% 86 25,286,105.44 30.08
15.001% to 16.000% 34 7,428,858.55 8.84
16.001% to 17.000% 13 1,550,121.80 1.84
17.001% to 18.000% 3 1,017,920.40 1.21
18.001% to 19.000% 1 187,280.70 0.22
21.001% to 21.800% 1 160,120.36 0.19
-------------- --------------------- ---------------------
Total 274 $84,056,484.35 100.00%
============== ===================== =====================
- ------------
(1) The weighted average Maximum Mortgage Interest Rate of the Group 2
Adjustable-Rate Mortgage Loans as of the Cut-off Date was approximately
13.958%.
S-50
Minimum Mortgage Interest Rates of the Group 2 Adjustable-Rate Mortgage Loans
% of Aggregate
Principal Balance of
Group 2 Adjustable-Rate
Principal Balance Mortgage Loans
Number of Outstanding as of the Outstanding as of the
Minimum Mortgage Interest Rate Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Less than 1.000% 16 $4,994,381.67 5.94%
4.001% to 5.000% 5 2,180,012.76 2.59
5.001% to 6.000% 25 8,556,523.40 10.18
6.001% to 7.000% 86 30,398,850.42 36.16
7.001% to 8.000% 86 25,970,746.08 30.90
8.001% to 9.000% 38 8,962,305.00 10.66
9.001% to 10.000% 9 1,312,650.84 1.56
10.001% to 11.000% 6 498,650.24 0.59
11.001% to 12.000% 1 834,962.88 0.99
12.001% to 13.000% 1 187,280.70 0.22
15.001% to 15.300% 1 160,120.36 0.19
-------------- --------------------- ---------------------
Total 274 $84,056,484.35 100.00%
============== ===================== =====================
- ------------
(1) The weighted average Minimum Mortgage Interest Rate of the Group 2
Adjustable-Rate Mortgage Loans as of the Cut-off Date was approximately
6.731%.
Gross Margins of the Group 2 Adjustable-Rate Mortgage Loans
% of Aggregate
Principal Balance of
Group 2 Adjustable-Rate
Principal Balance Mortgage Loans
Number of Outstanding as of the Outstanding as of the
Gross Margin Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
2.750% to 3.000% 4 $1,164,876.43 1.39%
3.001% to 4.000% 6 2,483,440.62 2.95
4.001% to 5.000% 18 6,588,428.73 7.84
5.001% to 6.000% 182 56,000,772.55 66.62
6.001% to 7.000% 50 14,632,646.59 17.41
7.001% to 8.000% 9 2,318,525.50 2.76
8.001% to 9.000% 3 634,985.32 0.76
9.001% to 9.500% 2 232,808.61 0.28
-------------- --------------------- ---------------------
Total 274 $84,056,484.35 100.00%
============== ===================== =====================
- ------------
(1) The weighted average Gross Margin of the Group 2 Adjustable-Rate
Mortgage Loans as of the Cut-off Date was approximately 5.642%.
S-51
Initial Rate Caps of the Group 2 Adjustable-Rate Mortgage Loans
% of Aggregate
Principal Balance of
Group 2 Adjustable-Rate
Principal Balance Mortgage Loans
Number of Outstanding as of the Outstanding as of the
Initial Rate Cap Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
1.00 14 $ 5,115,067.33 6.09%
1.50 199 59,672,595.88 70.99
2.00 5 1,489,334.01 1.77
2.99 1 361,401.78 0.43
3.00 47 14,612,924.17 17.38
3.06 2 764,397.87 0.91
4.00 5 1,669,487.82 1.99
5.00 1 371,275.49 0.44
-------------- --------------------- ---------------------
Total 274 $84,056,484.35 100.00%
============== ===================== =====================
- ------------
(1) The weighted average Initial Rate Cap of the Group 2 Adjustable-Rate
Mortgage Loans as of the Cut-off Date was approximately 1.83%.
Periodic Rate Caps of the Group 2 Adjustable-Rate Mortgage Loans
% of Aggregate
Principal Balance of
Group 2 Adjustable-Rate
Principal Balance Mortgage Loans
Number of Outstanding as of the Outstanding as of the
Periodic Rate Cap (%) Mortgage Loans Cut-off Date Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
1.00 61 $19,275,447.58 22.93%
1.50 200 59,806,237.15 71.15
2.50 5 1,669,487.82 1.99
3.00 8 3,305,311.80 3.93
-------------- --------------------- ---------------------
Total 274 $84,056,484.35 100.00%
============== ===================== =====================
- ------------
(1) The weighted average Periodic Rate Cap of the Group 2 Adjustable-Rate
Mortgage Loans as of the Cut-off Date was approximately 1.46%.
S-52
Next Adjustment Dates of the Group 2 Adjustable-Rate Mortgage Loans
% of Aggregate
Principal Balance
of Group 2
Adjustable-Rate
Principal Balance Mortgage Loans
Number of Outstanding as of Outstanding as of
Next Adjustment Date (Months) Mortgage Loans the Cut-off Date the Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
1.00 4 $1,403,199.06 1.67%
2.00 5 2,575,159.60 3.06
5.00 1 214,369.02 0.26
6.00 4 827,646.39 0.98
7.00 2 995,083.24 1.18
8.00 2 186,284.64 0.22
9.00 1 100,578.18 0.12
11.00 1 182,201.02 0.22
12.00 1 466,655.78 0.56
13.00 3 771,918.76 0.92
14.00 1 91,691.63 0.11
16.00 2 787,099.61 0.94
17.00 14 3,674,672.57 4.37
18.00 70 23,982,098.27 28.53
19.00 11 2,671,047.00 3.18
20.00 15 3,831,991.09 4.56
21.00 104 30,605,876.57 36.41
22.00 15 5,954,627.60 7.08
23.00 3 709,808.12 0.84
25.00 1 498,367.26 0.59
26.00 2 705,447.35 0.84
30.00 1 327,547.87 0.39
31.00 1 497,823.19 0.59
33.00 8 1,436,297.57 1.71
34.00 1 187,717.47 0.22
54.00 1 371,275.49 0.44
-------------- --------------------- ---------------------
Total 274 $84,056,484.35 100.00%
============== ===================== =====================
S-53
Group 3 Mortgage Loan Statistics
The Group 3 Mortgage Loans consist of Fixed-Rate Mortgage Loans. The
aggregate Principal Balance of the Group 3 Mortgage Loans as of the Cut-off Date
is equal to $145,804,053. The Group 3 Mortgage Loans have original terms to
maturity ranging from 36 to 413 months. The following statistical information,
unless otherwise specified, is based upon the aggregate Principal Balance of the
Group 3 Mortgage Loans as of the Cut-off Date.
The Group 3 Mortgage Loans are secured by Mortgages which the Seller
has represented create first or second liens on the related Mortgaged
Properties. Approximately 49.64% of the Group 3 Mortgage Loans had an Original
Combined Loan-to-Value Ratio as of the Cut-off Date in excess of 80% and do not
have primary mortgage insurance. There can be no assurance that the Original
Combined Loan-to-Value Ratio of any Group 3 Mortgage Loan determined at any time
after origination is less than or equal to its Original Combined Loan-to-Value
Ratio. Approximately 83.25% of the Group 3 Mortgage Loans have a Due Date on the
first day of each month.
None of the Mortgage Loans in Loan Group 3 is a Section 32 Mortgage
Loan.
Approximately 0.12% of the Group 3 Mortgage Loans are FHA insured
Mortgage Loans.
All of the Group 3 Mortgage Loans are Performing Mortgage Loans,
approximately 0.24% of which are Forbearance Plan Mortgage Loans and
approximately 0.35% of which are Bankruptcy Plan Mortgage Loans.
Approximately 3.48% of the Group 3 Mortgage Loans will not fully
amortize by their respective maturity dates (each, a "Balloon Loan"). The
Monthly Payment for each Balloon Loan is based on an amortization schedule
ranging from 349 months to 480 months, except for the final payment (the
"Balloon Payment") which is due and payable between the 60th month and the 360th
month following origination of such Mortgage Loan, depending on the terms of the
related mortgage note. With respect to the majority of the Balloon Loans, the
Monthly Payments for such Balloon Loans amortize over 360 months, but the
Balloon Payment is due in the 180th month following origination. The amount of
the Balloon Payment on each Balloon Loan is substantially in excess of the
amount of the scheduled Monthly Payment for such Mortgage Loan.
Approximately 57.57% of the Group 3 Mortgage Loans provide for payment
by the mortgagor of a prepayment charge in limited circumstances on certain
prepayments. No such prepayment charge will be distributed to the holders of the
Offered Certificates.
Approximately 3.48% of the Group 3 Mortgage Loans are Balloon Loans.
Approximately 6.81% of the Group 3 Mortgage Loans are Owner-Financed
Mortgage Loans.
As of the Cut-off Date, each Group 3 Mortgage Loan had a Mortgage
Interest Rate of not less than 4.500% per annum and not more than 16.500% per
annum and the weighted average Mortgage Interest Rate of the Group 3 Mortgage
Loans was approximately 7.279% per annum.
The earliest date of origination of any Group 3 Mortgage Loan is August
8, 1985. The weighted average remaining term to maturity of the Group 3 Mortgage
Loans will be approximately 323 months as of the Cut-off Date. None of the Group
3 Mortgage Loans had a first Due Date prior to October 15, 1985 or after
November 1, 2003 or will have a remaining term to maturity of less than 12
months or greater than 359 months as of the Cut-off Date. The latest maturity
date of any Group 3 Mortgage Loan is October 1, 2033.
The average Principal Balance of the Group 3 Mortgage Loans at
origination was approximately $139,909. No Group 3 Mortgage Loan had a Cut-off
Date Principal Balance of greater than approximately $738,658 or less than
approximately $7,184. The average Cut-off Date Principal Balance of the Group 3
Mortgage Loans was approximately $137,421.
Approximately 3.76% of the Group 3 Mortgage Loans are secured by a
Mortgage that is junior to a Senior Lien on the related Mortgaged Property.
S-54
The Group 3 Mortgage Loans are expected to have the following
characteristics as of the Cut-off Date (the sum in any column may not equal the
total indicated due to rounding):
Loan Programs for the Group 3 Mortgage Loans
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of
Product Mortgage Loans Cut -off Date the Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Fixed-Rate 1,006 $140,730,492.42 96.52%
Fixed-Rate Balloon 55 5,073,560.90 3.48
-------------- --------------------- ---------------------
Total 1,061 $145,804,053.32 100.00%
============== ===================== =====================
Cut-off Date Principal Balances of the Group 3 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of
Current Balance ($) Mortgage Loans Cut-off Date the Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
7,184 - 50,000 242 $8,017,747.25 5.50%
50,001 - 100,000 282 20,158,520.51 13.83
100,001 - 150,000 172 21,033,658.88 14.43
150,001 - 200,000 133 22,803,857.73 15.64
200,001 - 250,000 78 17,464,713.86 11.98
250,001 - 300,000 45 12,134,042.38 8.32
300,001 - 350,000 40 13,050,094.97 8.95
350,001 - 400,000 30 11,218,065.20 7.69
400,001 - 450,000 12 5,129,940.56 3.52
450,001 - 500,000 10 4,758,464.63 3.26
500,001 - 550,000 9 4,722,772.65 3.24
550,001 - 600,000 1 598,587.32 0.41
600,001 - 650,000 3 1,881,179.22 1.29
650,001 - 700,000 2 1,369,725.88 0.94
700,001 - 738,658 2 1,462,682.28 1.00
-------------- --------------------- ---------------------
Total 1,061 $145,804,053.32 100.00%
============== ===================== =====================
- ------------
(1) The average Cut-off Date Principal Balance of the Group 3 Mortgage
Loans was approximately $137,421.
S-55
Original Terms to Maturity of the Group 3 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of
Original Terms (months) Mortgage Loans Cut-off Date the Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
36.00 - 36.00 1 $ 23,362.71 0.02%
48.01 - 60.00 1 43,687.30 0.03
72.01 - 84.00 2 41,068.63 0.03
96.01 - 108.00 1 27,386.52 0.02
108.01 - 120.00 9 510,234.53 0.35
120.01 - 132.00 4 180,259.98 0.12
132.01 - 144.00 4 164,759.15 0.11
144.01 - 156.00 2 111,271.31 0.08
156.01 - 168.00 2 37,150.59 0.03
168.01 - 180.00 158 14,959,671.01 10.26
180.01 - 192.00 7 253,905.32 0.17
192.01 - 204.00 3 130,737.48 0.09
204.01 - 216.00 2 59,284.55 0.04
216.01 - 228.00 2 147,643.93 0.10
228.01 - 240.00 109 6,189,074.56 4.24
240.01 - 252.00 6 266,930.97 0.18
264.01 - 276.00 2 108,671.50 0.07
288.01 - 300.00 9 728,990.01 0.50
300.01 - 312.00 2 157,856.93 0.11
312.01 - 324.00 3 176,261.12 0.12
336.01 - 348.00 1 112,192.78 0.08
348.01 - 360.00 728 120,861,400.82 82.89
> 360.00 3 512,251.62 0.35
-------------- --------------------- ---------------------
Total 1,061 $145,804,053.32 100.00%
============== ===================== =====================
- ------------
(1) The weighted average original term of the Group 3 Mortgage Loans was
approximately 333 months.
S-56
Stated Remaining Terms to Maturity of the Group 3 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of
Stated Remaining Terms (months) Mortgage Loans Cut-off Date the Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
12.00 - 12.00 1 $ 10,275.18 0.01%
12.01 - 24.00 1 23,362.71 0.02
36.01 - 48.00 5 171,116.64 0.12
48.01 - 60.00 3 45,628.28 0.03
60.01 - 72.00 24 1,415,239.04 0.97
72.01 - 84.00 9 303,003.01 0.21
84.01 - 96.00 3 76,624.48 0.05
96.01 - 108.00 10 413,214.77 0.28
108.01 - 120.00 8 404,793.89 0.28
120.01 - 132.00 19 931,128.96 0.64
132.01 - 144.00 9 436,473.67 0.30
144.01 - 156.00 14 1,189,847.58 0.82
156.01 - 168.00 23 1,135,557.51 0.78
168.01 - 180.00 92 11,125,773.01 7.63
180.01 - 192.00 10 423,955.89 0.29
192.01 - 204.00 7 289,272.79 0.20
204.01 - 216.00 10 452,989.74 0.31
216.01 - 228.00 8 372,617.21 0.26
228.01 - 240.00 93 5,551,662.95 3.81
240.01 - 252.00 16 896,059.17 0.61
252.01 - 264.00 15 815,036.76 0.56
264.01 - 276.00 11 670,080.74 0.46
276.01 - 288.00 6 451,621.87 0.31
288.01 - 300.00 8 876,495.91 0.60
300.01 - 312.00 6 367,644.10 0.25
312.01 - 324.00 8 505,378.12 0.35
324.01 - 336.00 10 1,208,047.54 0.83
336.01 - 348.00 21 1,874,199.47 1.29
348.01 - 359.00 611 113,366,952.33 77.75
-------------- --------------------- ---------------------
Total 1,061 $145,804,053.32 100.00%
============== ===================== =====================
- ------------
(1) The weighted average stated remaining term of the Group 3 Mortgage
Loans was approximately 323 months.
S-57
Property Types of the Group 3 Mortgage Loans
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of
Property Type Mortgage Loans Cut-off Date the Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Single Family 828 $105,538,632.43 72.38%
Two Family 75 15,507,528.13 10.64
PUD 67 11,119,144.56 7.63
Condominium 52 7,437,093.38 5.10
Three Family 14 2,586,723.85 1.77
Four Family 8 1,667,297.49 1.14
Two-Four Family 5 852,235.99 0.58
Condo High-Rise 3 569,575.14 0.39
Manufactured Housing 6 329,529.41 0.23
5+ Units 1 84,734.47 0.06
Townhouse 1 58,956.21 0.04
Mobile Home 1 52,602.26 0.04
-------------- --------------------- ---------------------
Total 1,061 $145,804,053.32 100.00%
============== ===================== =====================
- ------------
(1) PUD refers to a Planned Unit Development.
Occupancy Status of the Group 3 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of
Occupancy Mortgage Loans Cut-off Date the Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Primary 963 $132,217,207.72 90.68%
Investor 94 12,477,365.69 8.56
Secondary 4 1,109,479.91 0.76
-------------- --------------------- ---------------------
Total 1,061 $145,804,053.32 100.00%
============== ===================== =====================
- ------------
(1) Based on a representation made by the borrower at the time of
origination.
Purpose of the Group 3 Mortgage Loans
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of the Outstanding as of
Purpose Mortgage Loans Cut-off Date the Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Cash Out Refinance 423 $71,005,610.56 48.70%
Purchase 548 60,080,087.50 41.21
Refinance 90 14,718,355.26 10.09
-------------- --------------------- ---------------------
Total 1,061 $145,804,053.32 100.00%
============== ===================== =====================
S-58
Mortgage Interest Rates of the Group 3 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of Outstanding as of
Mortgage Rate (%) Mortgage Loans the Cut-off Date the Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
4.500 - 4.500 2 $ 294,448.04 0.20%
4.501 - 5.000 3 228,997.16 0.16
5.001 - 5.500 10 2,477,234.74 1.70
5.501 - 6.000 94 21,034,136.22 14.43
6.001 - 6.500 131 27,268,283.33 18.70
6.501 - 7.000 161 27,266,634.94 18.70
7.001 - 7.500 138 20,842,672.00 14.29
7.501 - 8.000 149 20,842,868.22 14.30
8.001 - 8.500 64 7,334,897.85 5.03
8.501 - 9.000 70 5,649,231.13 3.87
9.001 - 9.500 34 2,316,716.13 1.59
9.501 - 10.000 53 3,299,694.12 2.26
10.001 - 10.500 14 958,749.02 0.66
10.501 - 11.000 62 3,273,441.43 2.25
11.001 - 11.500 16 484,840.16 0.33
11.501 - 12.000 22 1,025,036.94 0.70
12.001 - 12.500 6 146,330.85 0.10
12.501 - 13.000 9 397,675.45 0.27
13.001 - 13.500 3 103,519.97 0.07
13.501 - 14.000 13 329,572.50 0.23
14.001 - 14.500 2 59,343.74 0.04
14.501 - 15.000 1 26,986.11 0.02
15.501 - 16.000 3 73,991.13 0.05
16.001 - 16.500 1 68,752.14 0.05
-------------- --------------------- ---------------------
Total 1,061 $145,804,053.32 100.00%
============== ===================== =====================
- ------------
(1) The weighted average Mortgage Interest Rate of the Group 3 Mortgage
Loans as of the Cut-off Date was approximately 7.279% per annum.
S-59
Original Combined Loan-to-Value Ratios of the Group 3 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of Outstanding as of
Original Combined LTV (%) Mortgage Loans the Cut-off Date the Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
8.75 - 10.00 2 $ 165,877.43 0.11%
10.01 - 20.00 2 55,839.86 0.04
20.01 - 30.00 10 591,372.90 0.41
30.01 - 40.00 8 971,615.84 0.67
40.01 - 50.00 32 4,380,835.55 3.00
50.01 - 60.00 38 7,337,494.99 5.03
60.01 - 70.00 73 12,750,599.66 8.75
70.01 - 80.00 185 31,700,399.13 21.74
80.01 - 90.00 205 31,844,220.63 21.84
90.01 - 100.00 480 54,513,719.93 37.39
100.01 - 110.00 19 1,042,131.25 0.71
110.01 - 120.00 5 341,543.42 0.23
120.01 - 124.90 2 108,402.63 0.07
-------------- --------------------- ---------------------
Total 1,061 $ 145,804,053.32 100.00%
============== ===================== =====================
- ------------
(1) The weighted average Original Combined Loan-to-Value Ratio of the Group
3 Mortgage Loans as of the Cut-off Date was approximately 83.60%.
S-60
Credit Scores of the Group 3 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of Outstanding as of
Credit Score Mortgage Loans the Cut-off Date the Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Not Available 3 $ 129,847.66 0.09%
421 - 440 2 108,051.83 0.07
441 - 460 4 250,256.36 0.17
461 - 480 10 599,214.22 0.41
481 - 500 14 896,338.78 0.61
501 - 520 29 2,281,970.24 1.57
521 - 540 34 2,702,142.17 1.85
541 - 560 54 4,855,006.05 3.33
561 - 580 62 6,610,680.34 4.53
581 - 600 97 12,496,656.07 8.57
601 - 620 100 13,964,411.17 9.58
621 - 640 133 20,789,969.08 14.26
641 - 660 149 23,092,191.25 15.84
661 - 680 74 10,624,765.97 7.29
681 - 700 79 12,692,498.87 8.71
701 - 720 72 12,785,694.65 8.77
721 - 740 60 8,328,122.61 5.71
741 - 760 48 6,830,751.63 4.68
761 - 780 24 4,204,525.39 2.88
781 - 798 13 1,560,958.98 1.07
-------------- --------------------- ---------------------
Total 1,061 $ 145,804,053.32 100.00%
============== ===================== =====================
- ------------
(1) The weighted average Credit Score of the Group 3 Mortgage Loans as of
the Cut-off Date was approximately 650.
S-61
Geographic Distribution of the Group 3 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of Outstanding as of
State Mortgage Loans the Cut-off Date the Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Alabama 9 $796,979.23 0.55%
Alaska 7 456,068.57 0.31
Arizona 14 1,268,103.12 0.87
Arkansas 7 422,336.81 0.29
California 197 35,634,415.01 24.44
Colorado 12 1,991,210.68 1.37
Connecticut 12 2,290,895.22 1.57
Delaware 4 539,470.72 0.37
District of Columbia 2 382,589.15 0.26
Florida 95 10,093,334.22 6.92
Georgia 62 3,533,315.83 2.42
Idaho 3 144,696.20 0.10
Illinois 25 4,033,263.38 2.77
Indiana 12 1,305,749.93 0.90
Iowa 2 205,572.40 0.14
Kansas 1 50,668.01 0.03
Kentucky 7 635,139.73 0.44
Louisiana 19 1,608,274.36 1.10
Maryland 13 2,171,371.09 1.49
Massachusetts 5 965,112.66 0.66
Michigan 15 1,104,680.77 0.76
Minnesota 11 1,221,983.95 0.84
Mississippi 5 439,939.90 0.30
Missouri 5 374,343.88 0.26
Montana 3 366,499.57 0.25
Nebraska 7 513,981.60 0.35
Nevada 15 1,117,510.49 0.77
New Hampshire 3 384,096.27 0.26
New Jersey 60 16,040,467.44 11.00
New Mexico 2 156,788.67 0.11
New York 128 25,696,219.02 17.62
North Carolina 20 2,020,609.89 1.39
Ohio 34 4,261,460.99 2.92
Oklahoma 7 526,262.36 0.36
Oregon 7 324,742.07 0.22
Pennsylvania 31 3,190,093.49 2.19
South Carolina 10 1,141,598.37 0.78
Tennessee 21 2,252,924.24 1.55
Texas 115 9,064,701.71 6.22
Utah 8 1,095,757.83 0.75
Vermont 2 167,704.72 0.12
Virginia 25 3,582,945.92 2.46
Washington 16 1,771,239.20 1.21
Wisconsin 3 458,934.65 0.31
-------------- --------------------- ---------------------
Total 1,061 $145,804,053.32 100.00%
============== ===================== =====================
- ------------
(1) The greatest ZIP Code geographic concentration of the Group 3 Mortgage
Loans, by aggregate Principal Balance of the Group 3 Mortgage Loans as
of the Cut-off Date, was approximately 0.98% in the 11207 ZIP Code.
S-62
Documentation Levels of the Group 3 Mortgage Loans(1)
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of Outstanding as of
Documentation Mortgage Loans the Cut-off Date the Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Full 574 $ 76,993,634.96 52.81%
Stated 214 38,260,698.73 26.24
No Documentation 208 21,160,947.49 14.51
Limited 31 4,505,457.53 3.09
Alternative 28 4,403,584.61 3.02
Streamlined 4 381,055.28 0.26
Missing 2 98,674.72 0.07
-------------- --------------------- ---------------------
Total 1,061 $ 145,804,053.32 100.00%
============== ===================== =====================
- ------------
(1) For a description of each documentation level, see "Underwriting
Standards" in this Prospectus Supplement.
Status of the Group 3 Mortgage Loans
% of Aggregate
Principal Balance Principal Balance
Number of Outstanding as of Outstanding as of
Delinquency Mortgage Loans the Cut-off Date the Cut-off Date
- ------------------------------------------ -------------- --------------------- ---------------------
Current 1,061 $145,804,053.32 100.00%
-------------- --------------------- ---------------------
Total 1,061 $145,804,053.32 100.00%
============== ===================== =====================
The Index
With respect to approximately 96.98% of the Adjustable-Rate Mortgage
Loans, the Index is the average of interbank offered rates for six-month U.S.
dollar deposits in the London market based on quotations of major banks, and
most recently available as of a day specified in the related note ("Six Month
LIBOR"); with respect to approximately 2.61% of the Adjustable-Rate Mortgage
Loans, the Index is the average of interbank offered rates for one-month U.S.
dollar deposits in the London market based on quotations of major banks, and
most recently available as of a day specified in the related note ("One Month
LIBOR"); and with respect to approximately 0.41% of the Adjustable-Rate Mortgage
Loans, the Index is a variety of indices, none of which comprise more than 0.21%
of the Adjustable-Rate Mortgage Loans. All percentages listed in this paragraph
are based on the aggregate Principal Balance of the Adjustable-Rate Mortgage
Loans as of the Cut-off Date. Listed below are some historical values for the
months indicated of two of the indices.
S-63
Six-Month LIBOR
Year
Month 2003 2002 2001 2000 1999 1998 1997
- ----- ---- ---- ---- ---- ---- ---- ----
January 1.35% 2.03% 5.26% 6.29% 4.97% 5.63% 5.69%
February 1.34% 2.03% 4.91% 6.33% 5.13% 5.70% 5.69%
March 1.23% 2.33% 4.71% 6.53% 5.06% 5.75% 5.94%
April 1.29% 2.12% 4.30% 6.73% 5.04% 5.81% 6.00%
May 1.21% 2.08% 3.98% 7.11% 5.25% 5.75% 6.00%
June 1.12% 1.96% 3.91% 7.00% 5.65% 5.78% 5.91%
July 1.15% 1.87% 3.69% 6.89% 5.71% 5.75% 5.80%
August 1.20% 1.80% 3.45% 6.83% 5.92% 5.59% 5.84%
September 1.18% 1.71% 2.52% 6.76% 5.96% 5.25% 5.84%
October 1.23% 1.60% 2.15% 6.72% 6.12% 4.98% 5.79%
November - 1.47% 2.03% 6.64% 6.06% 5.15% 5.91%
December - 1.38% 1.98% 6.20% 6.13% 5.07% 5.84%
If any Index becomes unpublished or is otherwise unavailable, the
Servicer will select an alternative index which is based upon comparable
information.
FHA Mortgage Loans
As noted above, approximately 0.16% of the Group 1 Mortgage Loans and
approximately 0.12% of the Group 3 Mortgage Loans are subject to FHA insurance
as described herein (the "FHA Mortgage Loans"). An additional approximately
0.86% of the Group 2 Mortgage Loans and approximately 1.11% of the Group 3
Mortgage Loans are Mortgage Loans which were originated using FHA documents but,
for varying reasons, are not subject to FHA insurance (the "FHA Uninsured
Mortgage Loans"). All FHA Mortgage Loans must conform to HUD origination
guidelines at the time of origination. The FHA Mortgage Loans will be insured by
the Federal Housing Administration (the "FHA") of the United States Department
of Housing and Urban Development ("HUD") as authorized under the National
Housing Act of 1934, as amended (the "National Housing Act"), and the United
States Housing Act of 1937, as amended (the "United States Housing Act"). No FHA
Mortgage Loan may have an interest rate or original principal amount exceeding
the applicable FHA limits at the time of origination of such FHA Mortgage Loan.
The Servicer collects insurance premiums for the FHA Mortgage Loans and
pays them to the FHA. The regulations governing FHA-insured single-family
mortgage insurance programs generally provide that insurance benefits are
payable upon foreclosure (or other acquisition of possession) and conveyance of
the mortgaged premises to HUD. With respect to a defaulted FHA Mortgage Loan,
the Servicer may be limited in its ability to initiate foreclosure proceedings.
Historically, pursuant to an assignment program (the "Assignment Program"), HUD
in certain circumstances offered qualified mortgagors who had defaulted on an
FHA insured mortgage loan an opportunity to avoid foreclosure and retain their
homes. Under the Assignment Program, the FHA serviced FHA-insured mortgage loans
that had defaulted and been assigned to HUD under the Assignment Program. In
addition, HUD gave forbearance for a period of no longer than 36 months to
mortgagors who had demonstrated a temporary inability to make full payments due
to circumstances beyond the mortgagor's control such as a reduction in income or
increase in expenses. The Assignment Program was terminated and replaced with
mandatory loss mitigation procedures in April 1996 whereby servicers of
defaulted FHA-insured mortgage loans must choose from a variety of tools to cure
a default prior to filing an FHA insurance claim.
HUD has the option, in most cases, to pay insurance claims in cash or
in debentures issued by HUD. Presently, claims for most programs are being paid
in cash and, for the most part, claims are not paid in debentures. HUD
debentures issued in satisfaction of FHA insurance claims bear interest at the
applicable HUD debenture interest rate and mature 20 years from the date of
issue.
S-64
The amount of insurance benefits generally paid by the FHA is equal to
the entire unpaid principal amount of the defaulted FHA Mortgage Loan, adjusted
to reimburse the Servicer of that FHA Mortgage Loan for certain costs and
expenses and to deduct certain amounts the Servicer receives or retains after
default. When entitlement to insurance benefits results from foreclosure (or
other acquisition of possession) and conveyance to HUD, the Servicer is
generally compensated for no more than two-thirds of its foreclosure costs and
attorneys' fees (which fees are evaluated based upon HUD guidelines), and is
compensated for accrued and unpaid mortgage interest for a limited period prior
to the institution of foreclosure or other acquisition in general only to the
extent it was allowed pursuant to a forbearance plan approved by HUD, and the
Servicer is otherwise in material compliance with FHA regulations. Provided that
the Servicer is in material compliance with FHA regulations, the Servicer will
generally be entitled to the debenture interest which would have been earned, as
of the date the cash payment is received, had the benefits been paid in
debentures. Except where unpaid mortgage interest is recoverable pursuant to an
approved special forbearance plan, such debenture interest is generally payable
from a date 60 days after the mortgagor's first uncorrected failure to perform
any obligation or make any payment due under the mortgage loan, which results in
no recovery of interest accrued during the first two months of delinquency.
Under certain circumstances, as set forth in the regulations, HUD is
authorized to request or require the Servicer to pursue a deficiency judgment
against any defaulting mortgagor. In this regard, HUD may request or require the
Servicer (as the case may be under the regulations) to pursue a deficiency
judgment in connection with the foreclosure. Under neither case would the
Servicer be responsible for collecting on the judgment. Further, in all cases,
HUD may reimburse the Servicer for all additional costs of seeking the judgment.
Terms of the Mortgage Loans
The Mortgage Loans accrue interest on a simple interest basis (the
"Simple Interest Mortgage Loans") or a self-amortizing basis (the "Actuarial
Mortgage Loans"). Approximately 0.37% of the Group 1 Mortgage Loans,
approximately 0.36% of the Group 2 Mortgage Loans and approximately 1.33% of the
Group 3 Mortgage Loans are expected to be Simple Interest Mortgage Loans, and
approximately 97.81% of the Group 1 Mortgage Loans, approximately 96.15% of the
Group 2 Mortgage Loans and approximately 98.62% of the Group 3 Mortgage Loans
are expected to be Actuarial Mortgage Loans, in each case as a percentage of the
Cut-off Date Principal Balance of the related Loan Group.
For Simple Interest Mortgage Loans, the Mortgage Loan is amortized over
a series of equal monthly payments. Each monthly interest payment is calculated
by multiplying the outstanding Principal Balance of the loan by the stated
interest rate. Such product is then multiplied by a fraction, the numerator of
which is the number of days elapsed since the preceding payment of interest was
made and the denominator of which is either 365 or 360, depending on applicable
state law. Payments received on a Simple Interest Mortgage Loan are applied
first to interest accrued to the date payment is received and second to reduce
the unpaid Principal Balance of the Mortgage Loan. Accordingly, if a mortgagor
makes a payment on the Mortgage Loan less than 30 days after the previous
payment, the interest collected for the period since the preceding payment was
made will be less than 30 days' interest, and the amount of principal repaid in
such month will be correspondingly greater. Conversely, if a mortgagor makes a
payment on the Mortgage Loan more than 30 days after the previous payment, the
interest collected for the period since the preceding payment was made will be
greater than 30 days' interest, and the amount of principal repaid in the month
will be correspondingly reduced. As a result, based on the payment
characteristics of a particular mortgagor, the principal due on the final due
date of a Simple Interest Mortgage Loan may vary from the principal payment that
would be made if payments for such Mortgage Loan were always made on their due
dates.
For Actuarial Mortgage Loans, interest will be calculated based on a
360-day year of twelve 30-day months. When a full prepayment of principal is
made on an Actuarial Mortgage Loan during a month, the mortgagor is charged
interest only on the days of the month actually elapsed up to the date of such
prepayment, at a daily interest rate that is applied to the principal amount of
the loan so prepaid. When a partial prepayment of principal is made on an
Actuarial Mortgage Loan during a month, the mortgagor generally is not charged
interest on the amount of the partial prepayment during the month in which such
prepayment is made.
S-65
If a mortgagor pays more than one installment on a Simple Interest
Mortgage Loan at a time, the regular installment will be treated as described
above. However, the entire amount of the additional installment will be treated
as a receipt of one or more regular principal payments and applied to reduce the
Principal Balance of the related Mortgage Loan. Although such mortgagor will not
be required to make the next monthly installment, interest will continue to
accrue on the Principal Balance of such Mortgage Loan, as reduced by the
application of the early installment. As a result, when such mortgagor pays the
next required installment on a Simple Interest Mortgage Loan, such payment may
be insufficient to cover the interest that has accrued since the last payment by
the mortgagor. Notwithstanding such insufficiency, such Mortgage Loan would be
considered to be current. This situation would continue until the monthly
installments are once again sufficient to cover all accrued interest and to
reduce the Principal Balance of such Mortgage Loan. Depending on the Principal
Balance and interest rate of the related Mortgage Loan and on the number of
installments paid early, there may be extended periods of time during which
Simple Interest Mortgage Loans in respect of which such additional installments
have been made are not amortizing and are considered current.
Primary Mortgage Insurance
As of the Cut-off Date, approximately 2.63% of the Group 1 Mortgage
Loans, approximately 5.95% of the Group 2 Mortgage Loans and approximately
10.62% of the Group 3 Mortgage Loans (in each case by aggregate Principal
Balance of that Loan Group as of the Cut-off Date) are covered by a
borrower-paid primary mortgage insurance policy. None of the Mortgage Loans
covered by a borrower-paid primary mortgage insurance policy is an FHA Mortgage
Loan.
THE SELLER
Credit-Based Asset Servicing and Securitization LLC is a Delaware
limited liability company with its principal place of business in New York, New
York. The information set forth in the following paragraphs has been provided by
the Seller and neither the Depositor nor any other party makes any
representation as to the accuracy or completeness of such information.
The Seller was established in July 1996 as a venture of Mortgage
Guaranty Insurance Corporation ("MGIC"), Enhance Financial Services Group, Inc.
("EFSG") and certain members of management of the Seller. Each of MGIC and EFSG
has approximately a 46% interest in the Seller with the remainder owned by
management of the Seller. On February 28, 2001, Radian Group Inc. ("Radian")
acquired EFSG, including EFSG's 46% interest in the Seller. Radian and MGIC are
publicly traded companies which file such periodic reports with the Securities
and Exchange Commission (the "Commission") as are required by the Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Commission thereunder, as interpreted by the staff of the Commission thereunder.
At September 30, 2003, the Seller had approximately $2.76 billion in
assets, approximately $2.32 billion in liabilities and approximately $443.7
million in equity.
The Seller's principal business is the purchasing of performing,
sub-performing and non-performing residential mortgage loans from banks and
other financial institutions and individuals and mortgage-related securities,
including non-investment grade subordinate securities, for investment and
securitization. Substantially all of the mortgage loans the Seller owns are
serviced by its wholly-owned subsidiary, Litton Loan Servicing LP. The Seller
does not originate mortgages. The Seller is a HUD-approved investing mortgagee.
UNDERWRITING STANDARDS
The following is a description of the underwriting standards used by
the Seller in connection with its acquisition of the Mortgage Loans.
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Each Mortgage Loan included in the Trust Fund has satisfied the credit,
appraisal and underwriting guidelines established by the Seller that are
described below. To determine satisfaction of such guidelines, the Seller or a
loan reviewer in general reviewed the files related to the Mortgage Loans in
connection with the acquisition of the Mortgage Loans by the Seller. These files
may include the documentation pursuant to which the mortgage loan was originally
underwritten, as well as the mortgagor's payment history on the mortgage loan.
The Seller's underwriting guidelines when re-underwriting mortgage loans are
intended to evaluate the mortgagor's credit standing, repayment ability and
willingness to repay debt, as well as the value and adequacy of the mortgaged
property as collateral. In general, to establish the adequacy of the mortgaged
property as collateral, the Seller will obtain a current appraisal, broker's
price opinion, and/or drive-by or desk review of such property, prepared within
six months of the Seller's purchase. A mortgagor's ability and willingness to
repay debts (including the Mortgage Loan) in a timely fashion must be
demonstrated by the quality, quantity and durability of income history, history
of debt management, history of debt repayment, and net worth accumulation.
Accordingly, the Seller also obtains and reviews a current credit report for the
mortgagor.
The Seller purchases mortgage loans that were originated pursuant to
one of the following documentation programs:
Full Documentation. Mortgage loans originally underwritten with "Full
Documentation" include a detailed application designed to provide pertinent
credit information. As part of the description of the mortgagor's financial
condition, the mortgagor was required to fill out a detailed application
designed to provide pertinent credit information. As part of the description of
the mortgagor's financial condition, the mortgagor provided a balance sheet,
current as of the origination of the mortgage loan, describing assets and
liabilities and a statement of income and expenses, as well as authorizing the
originator to obtain a credit report which summarizes the mortgagor's credit
history with local merchants and lenders and any record of bankruptcy. In
addition, an employment verification was obtained wherein the employer reported
the length of employment with that organization, the mortgagor's salary as of
the mortgage loan's origination, and an indication as to whether it is expected
that the mortgagor will continue such employment after the mortgage loan's
origination. If a mortgagor was self-employed when such mortgagor's loan was
originated, the mortgagor submitted copies of signed tax returns. The originator
was also provided with deposit verification at all financial institutions where
the mortgagor had demand or savings accounts.
In determining the adequacy of the property as collateral at
origination, an independent appraisal was made of each property considered for
financing. The appraiser inspected the property and verified that it was in good
condition and that construction, if new, had been completed at the time of the
loan's origination. Such appraisal was based on the appraiser's judgment of
values, giving appropriate weight to both the then market value of comparable
homes and the cost of replacing the property.
Other Levels of Documentation. Other mortgage loans purchased and
re-underwritten by the Seller were originally underwritten pursuant to
alternative documentation programs that require less documentation and
verification than do traditional "Full Documentation" programs, including "No
Documentation," "Limited Documentation," "Alternative Documentation," "Stated
Documentation" and "Streamlined Documentation" programs for certain qualifying
mortgage loans. Under a "No Documentation" program, the originator does not
undertake verification of a mortgagor's income or assets. Under a "Limited
Documentation" program, certain underwriting documentation concerning income and
employment verification is waived. "Alternative Documentation" programs allow a
mortgagor to provide W-2 forms instead of tax returns, permit bank statements in
lieu of verification of deposits and permit alternative methods of employment
verification. Under "Stated Documentation" programs, a mortgagor's income is
deemed to be that stated on the mortgage application and is not independently
verified by the originator. These are underwriting programs designed to
streamline the underwriting process by eliminating the requirement for income
verification. Depending on the facts and circumstances of a particular case, the
originator of the mortgage loan may have accepted other mortgage loans based on
limited documentation that eliminated the need for either income verification
and/or asset verification. The objective use of limited documentation is to
shift the emphasis of the underwriting process from the credit standing of the
mortgagor to the value and adequacy of the mortgaged property as collateral.
"Streamlined Documentation" programs are used for mortgage loans issued to
government entities which are being refinanced by the same originator. The
originator verifies current mortgage information, but does not undertake
verification of the mortgagor's employment or assets and does not conduct a new
appraisal of the property considered for refinancing. The objective of
Streamlined Documentation programs is to streamline the underwriting process in
cases where the originator has the mortgagor's complete credit file from the
original loan transaction.
Owner-Financed Mortgage Loans. The Owner-financed Mortgage Loans
comprise approximately 2.58%, 3.06% and 6.81%, respectively, of the Mortgage
Loans in Loan Group 1, Loan Group 2 and Loan Group 3 (in each case by aggregate
Principal Balance of that Loan Group as of the Cut-off Date).
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The Seller routinely purchases mortgage loans which are owner-financed
mortgage loans ("Owner-financed Mortgage Loans"). Owner-financed Mortgage Loans
are originated by the individual sellers of the related mortgaged property who
generally are inexperienced in matters pertaining to mortgage banking. These
mortgage loans were originated with less stringent standards than the other
mortgage loans the Seller typically purchases. The mortgagor under an
Owner-financed mortgage loan generally does not complete a mortgage loan
application and the seller of the related property generally does not verify the
income or employment of the related mortgagor. In connection with the Seller's
acquisition of an Owner-financed Mortgage Loan, the Seller obtained and reviewed
the credit history and payment history of the mortgagor. In deciding to purchase
Owner-financed Mortgage Loans, the Seller generally places considerable emphasis
on the value of the mortgaged property. The Seller, in connection with its
underwriting of an Owner-financed Mortgage Loan, calculates the loan-to-value
ratio of the mortgage loan at the time of acquisition for underwriting purposes
to determine the mortgagor's equity in the related mortgaged property. A
drive-by appraisal of the market value of each mortgaged property relating to an
Owner-financed Mortgage Loan generally was obtained within 90 days prior to the
Seller's purchase of such mortgage loan. However, in certain instances, the
Seller may have utilized a previous appraisal if it was completed within one
year prior to the Seller's purchase, in which case the Seller will generally
require the appraiser to recertify the value in such appraisal. The Seller may
have acquired an Owner-financed Mortgage Loan based upon a statistical valuation
provided by independent data providers of the mortgaged property and
subsequently obtained a drive-by appraisal, generally within three months of
acquisition.
For a discussion of the certain risks related to Owner-financed
Mortgage Loans that a Certificateholder should consider prior to purchase, see
"Risk Factors--There are risks related to owner-financed mortgage loans" in this
Prospectus Supplement.
THE SERVICER
Litton Loan Servicing LP provided the information set forth in the
following paragraphs. None of the Depositor, the Trustee, any Underwriter or any
of their respective affiliates have made or will make any representation as to
the accuracy or completeness of such information.
Litton Loan Servicing LP (the "Servicer"), a Delaware limited
partnership and a wholly-owned subsidiary of the Seller, will act as the
servicer of the Mortgage Loans pursuant to the Pooling and Servicing Agreement.
Litton Loan Servicing LP was formed in December 1996. As of September 30, 2003,
the Servicer employed approximately 552 individuals. The main office of the
Servicer is located at 4828 Loop Central Drive, Houston, Texas 77081. The
Servicer is currently a Fannie Mae and Freddie Mac approved servicer and an
approved FHA and VA lender with a servicing portfolio of approximately $16.01
billion as of September 30, 2003. The Servicer specializes in servicing
sub-performing mortgage loans and entering into workouts with the related
mortgagors. The Servicer is servicing in excess of 75 securitizations for the
Seller and various third parties.
The Servicer will make available certain loan level and certificate
level information, such as delinquency and credit support data, projected and
actual loss data, roll rates, and trend analyses, through its proprietary
investor interface and asset analysis tool, RADARViewer(SM). The RADARViewer(SM)
internet website is currently located at www.radarviewer.com. The Servicer has
no obligation to continue to provide any type of information available on
RADARViewer(SM) as of the date hereof or to maintain its RADARViewer(SM) website
in the entirety, and may, in its sole discretion, discontinue such service at
any time.
Fitch assigned the Servicer its RSS1 residential special servicer
rating on November 16, 1999 and reaffirmed that rating on November 20, 2003. The
rating is based on the Servicer's ability to manage and liquidate nonperforming
residential mortgage loans and real estate owned assets. This RSS1 rating is the
highest special servicer rating attainable from Fitch which reflects the
Servicer's sophisticated proprietary default management technology, the
financial strength of its well-capitalized parent and its highly experienced
management and staff.
In January 2001, Fitch assigned the Servicer its RPS1 primary servicer
rating for sub-prime and high loan-to-value ratio product and reaffirmed that
rating on November 20, 2003. The RPS1 rating is currently the highest subprime
primary servicer rating attainable from Fitch for any subprime servicer, which
is based on the strength of the Servicer's loan administration processes
including new loan set-up procedures and related technology, loan
accounting/cash management and loan reporting. The RPS1 rating for high
loan-to-value ratio product is based on the Servicer's intensive focus on early
collection and loss mitigation.
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In March 2001, Moody's assigned the Servicer its top servicer quality
rating (SQ1) as a primary servicer of prime and subprime mortgage loans, second
liens and as a special servicer and reaffirmed that rating on June 20, 2003. The
rating is based on the servicer's outstanding ability as a servicer and the
stability of its servicing operations
In April 2001, S&P raised the Servicer's ranking from "Above Average"
to "Strong" for both its residential special and sub-prime servicing categories.
The "Strong" rating is S&P's highest possible rating for these categories. The
rankings are based on the Servicer's established history of servicing distressed
assets for a diverse investor base, technological improvements that have
increased operational efficiencies, superior management depth, and very good
internal controls.
Delinquency and Foreclosure Experience. The following table sets forth
the delinquency and foreclosure experience of the mortgage loans serviced by the
Servicer as of the dates indicated. The Servicer's portfolio of mortgage loans
may differ significantly from the Mortgage Loans in terms of interest rates,
principal balances, geographic distribution, types of properties and other
possibly relevant characteristics. There can be no assurance, and no
representation is made, that the delinquency and foreclosure experience with
respect to the Mortgage Loans will be similar to that reflected in the table
below, nor is any representation made as to the rate at which losses may be
experienced on liquidation of defaulted Mortgage Loans. The actual delinquency
experience on the Mortgage Loans will depend, among other things, upon the value
of the real estate securing such Mortgage Loans and the ability of the related
mortgagor to make required payments. It should be noted that the Servicer's
business emphasizes to a certain degree the acquisition of servicing rights with
respect to non-performing and subperforming mortgage loans and the Servicer has
been an active participant in the market for such servicing rights since 1997.
The acquisition of such servicing rights may have affected the delinquency and
foreclosure experience of the Servicer.
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Delinquency and Foreclosure Experience(1)
As of September 30, 2003 As of December 31, 2002
------------------------------------------ -------------------------------------------
% by % by
Principal Principal Principal Principal
No. of Loans Balance2 Balance No. of Loans Balance2 Balance
------------ --------------- --------- ------------ --------------- ----------
Current Loans 110,953 $11,335,008,398 70.78% 80,838 $ 6,690,592,530 64.66%
Period of Delinquency3
30-59 Days 16,975 1,624,462,834 10.14 12,780 1,040,126,117 10.05
60-89 Days 6,897 653,675,140 4.08 4,881 410,962,733 3.97
90 Days or more 5,885 501,482,834 3.13 4,407 299,691,214 2.90
------------ --------------- --------- ------------ --------------- ----------
Total Delinquency 29,757 2,779,620,809 17.36 22,068 1,750,780,064 16.92
Foreclosure/Bankruptcy4 16,638 1,513,647,828 9.45 18,294 1,550,037,579 14.98
Real Estate Owned 4,407 385,714,721 2.41 4,503 356,417,746 3.44
------------ --------------- --------- ------------ --------------- ----------
Total Portfolio 161,755 $16,013,991,756 100.00% 125,703 $10,347,827,919 100.00%
============ =============== ========= ============ =============== ==========
As of December 31, 2001 As of December 31, 2000
------------------------------------------ -------------------------------------------
% by % by
Principal Principal Principal Principal
No. of Loans Balance2 Balance No. of Loans Balance2 Balance
------------ --------------- --------- ------------ --------------- ----------
Current Loans 72,453 $5,117,899,302 62.30% 49,371 $3,500,827,158 58.83%
Period of Delinquency3
30-59 Days 12,261 918,166,282 11.18 9,285 653,499,039 10.98
60-89 Days 5,266 379,058,310 4.61 3,545 248,529,128 4.18
90 Days or more 5,229 318,992,310 3.88 10,498 664,340,263 11.16
------------ --------------- --------- ------------ --------------- ----------
Total Delinquency 22,756 1,616,216,902 19.67 23,328 1,566,368,430 26.32
Foreclosure/Bankruptcy4 13,865 1,178,073,970 14.34 9,686 743,491,868 12.49
Real Estate Owned 4,117 302,723,096 3.69 2,135 139,634,200 2.35
------------ --------------- --------- ------------ --------------- ----------
Total Portfolio 113,191 $8,214,913,270 100.00% 84,520 $5,950,321,656 100.00%
============ =============== ========= ============ =============== ==========
- ------------
(1) The table shows mortgage loans which were delinquent or for which
foreclosure proceedings had been instituted as of the date indicated.
(2) For the Real Estate Owned properties, the principal balance is at the
time of foreclosure.
(3) No mortgage loan is included in this section of the table as delinquent
until it is 30 days past due.
(4) Exclusive of the number of loans and principal balance shown in Period
of Delinquency.
It is unlikely that the delinquency experience of the Mortgage Loans in
either Loan Group or the Mortgage Pool will correspond to the delinquency
experience of the Servicer's mortgage portfolio set forth in the foregoing
table. The statistics shown above represent the delinquency experience for the
Servicer's mortgage servicing portfolio only for the periods presented, whereas
the aggregate delinquency experience on the Mortgage Loans in either Loan Group
or comprising the Mortgage Pool will depend on the results obtained over the
life of the Mortgage Pool. There can be no assurance that the Mortgage Loans in
either Loan Group or comprising the Mortgage Pool will perform consistent with
the delinquency or foreclosure experience described herein. It should be noted
that if the residential real estate market should experience an overall decline
in property values, the actual rates of delinquencies and foreclosures could be
higher than those previously experienced by the Servicer. In addition, adverse
economic conditions may affect the timely payment by mortgagors of scheduled
payments of principal and interest on the Mortgage Loans and, accordingly, the
actual rates of delinquencies and foreclosures with respect to any Loan Group or
the Mortgage Pool.
THE POOLING AND SERVICING AGREEMENT
General
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement, dated as of November 1, 2003 (the "Pooling and Servicing Agreement"),
among the Depositor, the Seller, the Servicer and the Trustee. The Trust Fund
created under the Pooling and Servicing Agreement will consist of (i) all of the
Depositor's right, title and interest in the Mortgage Loans, the related
mortgage notes, mortgages and other related documents, (ii) all payments on or
collections in respect of the Mortgage Loans due after the Cut-off Date,
together with any proceeds thereof, (iii) any Mortgaged Properties acquired on
behalf of Certificateholders by foreclosure or by deed in lieu of foreclosure,
and any revenues received thereon, (iv) the rights of the Trustee under all
insurance policies required to be maintained pursuant to the Pooling and
Servicing Agreement and any proceeds thereof (v) the rights of the Depositor
under the Mortgage Loan Purchase Agreement, (vi) the Basis Risk Reserve Fund and
Interest Rate Cap Account; and (vii) the rights of the Trustee under the
Interest Rate Cap Agreements. The Offered Certificates will be transferable and
exchangeable at the corporate trust offices of the Trustee.
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Assignment of the Mortgage Loans
On or about December 4, 2003 (the "Closing Date") the Depositor will
transfer to the Trust Fund all of its right, title and interest in and to each
Mortgage Loan, the related mortgage notes, mortgages and other related documents
(collectively, the "Related Documents"), including all scheduled payments with
respect to each such Mortgage Loan due after the Cut-off Date exclusive of any
scheduled principal due on or prior to the Cut-off Date and any interest
accruing and due prior to the Cut-off Date, and all rights under the related FHA
Insurance Agreement, as applicable. The Trustee, concurrently with such
transfer, will deliver the Certificates to the Depositor. Each Mortgage Loan
transferred to the Trust Fund will be identified on a schedule (the "Mortgage
Loan Schedule") delivered to the Trustee pursuant to the Pooling and Servicing
Agreement. Such Mortgage Loan Schedule will include information such as the
Principal Balance of each Mortgage Loan as of the Cut-off Date, its Mortgage
Interest Rate as well as other information.
The Pooling and Servicing Agreement will require that, within the time
period specified therein, the Seller will deliver or cause to be delivered to
The Bank of New York (the "Custodian"), as the Trustee's agent for such purpose,
the mortgage notes endorsed to the Trustee on behalf of the Certificateholders
and the Related Documents. In lieu of delivery of original mortgages or mortgage
notes, if such original is not available or lost, the Seller may deliver or
cause to be delivered true and correct copies thereof, or, with respect to a
lost mortgage note, a lost note affidavit executed by the Seller or the
originator of such Mortgage Loan.
Within 60 days following the Closing Date, the Trustee will review (or
cause the Custodian to review) the Mortgage Loans and the Related Documents
pursuant to the Pooling and Servicing Agreement and if any Mortgage Loan or
Related Document is found to be defective in any material respect and such
defect has a material and adverse effect on the Certificateholders and is not
cured within 120 days following notification thereof to the Seller (or within 90
days of the earlier of the Seller's discovery or receipt of notification if such
defect would cause the Mortgage Loan not to be a "qualified mortgage" for REMIC
purposes) and the Trustee by the Custodian (or 150 days following the Closing
Date, in the case of missing mortgages or assignments), the Seller will be
obligated to either (i) substitute for such Mortgage Loan an Eligible Substitute
Mortgage Loan; however, such substitution is permitted only within two years of
the Closing Date and may not be made unless an opinion of counsel is provided to
the effect that such substitution will not disqualify any of the REMICs
comprising the Trust Fund as a REMIC or result in a prohibited transaction tax
under the Code or (ii) purchase such Mortgage Loan at a price (the "Purchase
Price") equal to the outstanding Principal Balance of such Mortgage Loan as of
the date of purchase, plus all accrued and unpaid interest thereon, computed at
the Mortgage Interest Rate through the end of the calendar month in which the
purchase is effected, plus the amount of any unreimbursed Advances and Servicing
Advances made by the Servicer. If, however, a Mortgage Loan is discovered to be
defective in a manner that would cause it to be a "defective obligation" within
the meaning of Treasury regulations relating to REMICs, the Seller will be
obligated to cure the defect or make the required purchase or substitution no
later than 90 days after the earlier of its discovery or receipt of notification
of the defect. The Purchase Price will be deposited in the Collection Account on
or prior to the next succeeding Determination Date after such obligation arises.
The obligation of the Seller to cure, repurchase or substitute for a Defective
Mortgage Loan is the sole remedy regarding any defects in the Mortgage Loans and
Related Documents available to the Trustee or the Certificateholders.
In connection with the substitution of an Eligible Substitute Mortgage
Loan, the Seller will be required to deposit in the Collection Account on or
prior to the next succeeding Determination Date after such obligation arises an
amount (the "Substitution Adjustment") equal to the excess of the Principal
Balance of the related Defective Mortgage Loan over the Principal Balance of
such Eligible Substitute Mortgage Loan.
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An "Eligible Substitute Mortgage Loan" is a mortgage loan substituted
by the Seller for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Principal Balance), not in excess of, and not more than 5% less than,
the outstanding Principal Balance of the Defective Mortgage Loan; (ii) have a
Mortgage Interest Rate, with respect to a Fixed-Rate Mortgage Loan, not less
than the Mortgage Interest Rate of the Defective Mortgage Loan and not more than
1% in excess of the Mortgage Interest Rate of such Defective Mortgage Loan or,
with respect to an Adjustable-Rate Mortgage Loan, have a Maximum Mortgage
Interest Rate and Minimum Mortgage Interest Rate not less than the respective
rate for the Defective Mortgage Loan and have a Gross Margin equal to or greater
than the Defective Mortgage Loan; (iii) have the same Due Date as the Defective
Mortgage Loan; (iv) have a remaining term to maturity not more than one year
earlier and not later than the remaining term to maturity of the Defective
Mortgage Loan; (v) comply with each representation and warranty as to the
Mortgage Loans set forth in the Pooling and Servicing Agreement (deemed to be
made as of the date of substitution); (vi) have been re-underwritten by the
Seller in accordance with the same underwriting criteria and guidelines as the
Mortgage Loans being replaced; (vii) must be of the same or better credit
quality as the Mortgage Loan being replaced; and (viii) satisfy certain other
conditions specified in the Pooling and Servicing Agreement.
The Seller will make certain representations and warranties as to the
accuracy in all material respects of certain information furnished to the
Trustee with respect to each Mortgage Loan (e.g., Cut-off Date Principal Balance
and the Mortgage Interest Rate). In addition, the Seller will represent and
warrant, on the Closing Date, that, among other things: (i) at the time of
transfer to the Depositor, the Seller has transferred or assigned all of its
right, title and interest in each Mortgage Loan and the Related Documents, free
of any lien; and (ii) each Mortgage Loan complies with any and all requirements
of any local, state or federal laws with respect to the origination and
servicing of such Mortgage Loan including, without limitation, usury, truth in
lending, real estate settlement procedures, consumer credit protection, equal
credit opportunity, predatory and abusive lending laws or disclosure laws
applicable to the Mortgage Loans. Upon discovery of a breach of any such
representation and warranty which materially and adversely affects the interests
of the Certificateholders in the related Mortgage Loan and Related Documents,
the Seller will have a period of 90 days after discovery or notice of the breach
to effect a cure. If the breach cannot be cured within the 90-day period, the
Seller will be obligated to (i) substitute for such Defective Mortgage Loan an
Eligible Substitute Mortgage Loan or (ii) purchase such Defective Mortgage Loan
from the Trust Fund. The same procedure and limitations that are set forth above
for the substitution or purchase of Defective Mortgage Loans as a result of
deficient documentation relating thereto will apply to the substitution or
purchase of a Defective Mortgage Loan as a result of a breach of a
representation or warranty in the Pooling and Servicing Agreement that
materially and adversely affects the interests of the Certificateholders. In
addition to the foregoing, if a breach of the representation as to the
compliance with predatory or abusive lending laws occurs, the Seller will be
obligated to reimburse the Trust for all costs or damages incurred by the Trust
as a result of the violation of such representation (such amount the
"Reimbursement Amount").
Mortgage Loans required to be transferred to the Seller as described in
the preceding paragraphs are referred to as "Defective Mortgage Loans."
Pursuant to the Pooling and Servicing Agreement, the Servicer will
service and administer the Mortgage Loans as more fully set forth therein.
Payments on Mortgage Loans; Deposits to Collection Account and
Distribution Account
The Servicer will establish and maintain or cause to be maintained a
separate trust account (the "Collection Account") for the benefit of the holders
of the Certificates. The Collection Account will be an Eligible Account (as
defined herein). Upon receipt by the Servicer of amounts in respect of the
Mortgage Loans after the Cut-off Date (exclusive of any scheduled principal due
on or prior to the Cut-off Date, any interest accruing and due prior to the
Cut-off Date, any amounts representing the Servicing Fee, reimbursement for
Advances and Servicing Advances, insurance proceeds to be applied to the
restoration or repair of a Mortgaged Property or similar items), the Servicer
will deposit such amounts in the Collection Account. Amounts so deposited may be
invested in Permitted Investments (as described in the Pooling and Servicing
Agreement) maturing no later than one Business Day prior to the date on which
the amount on deposit therein is required to be deposited in the Distribution
Account. A "Business Day" is any day other than a Saturday, a Sunday or a day on
which banking institutions in the State of Delaware, the State of New York, the
State of Texas or in the city in which the corporate trust office of the Trustee
is located are authorized or obligated by law or executive order to be closed.
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The Trustee will establish an account (the "Distribution Account") into which
will be deposited amounts withdrawn from the Collection Account for distribution
to Certificateholders on a Distribution Date. The Distribution Account will be
an Eligible Account. Amounts on deposit therein may be invested in Permitted
Investments maturing on or before the Business Day prior to the related
Distribution Date unless such Permitted Investments are invested in investments
managed or advised by the Trustee or an affiliate thereof, in which case such
Permitted Investments may mature on the related Distribution Date.
An "Eligible Account" is a segregated account that is (i) an account or
accounts maintained with a federal or state chartered depository institution or
trust company the short-term unsecured debt obligations of which (or, in the
case of a depository institution or trust company that is the principal
subsidiary of a holding company, the short-term unsecured debt obligations of
such holding company) are rated in one of the top three rating categories by
each of the Rating Agencies at the time any amounts are held on deposit therein,
(ii) an account or accounts the deposits in which are fully insured by the
Federal Deposit Insurance Corporation (to the limits established by such
corporation), the uninsured deposits in which account are otherwise secured such
that, as evidenced by an opinion of counsel delivered to the Trustee and to each
Rating Agency, the Certificateholders will have a claim with respect to the
funds in such account or a perfected first priority security interest against
such collateral (which shall be limited to Permitted Investments) securing such
funds that is superior to claims of any other depositors or creditors of the
depository institution with which such account is maintained, (iii) a trust
account or accounts maintained with the trust department of a federal or state
chartered depository institution, national banking association or trust company
acting in its fiduciary capacity or (iv) otherwise acceptable to each Rating
Agency without reduction or withdrawal of their then current ratings of the
Certificates as evidenced by a letter from each Rating Agency to the Trustee.
Permitted Investments are specified in the Pooling and Servicing Agreement and
are limited to investments which meet the criteria of the Rating Agencies from
time to time as being consistent with their then current ratings of the
Certificates.
Advances
Subject to the following limitations, the Servicer will be obligated to
advance or cause to be advanced at least one Business Day prior to each
Distribution Date its own funds, or funds in the Collection Account that are not
included in the Available Funds for such Distribution Date, in an amount equal
to the aggregate of all payments of principal and interest, net of the Servicing
Fee, that were due during the related Collection Period on the Actuarial
Mortgage Loans, other than Balloon Payments, and that were not received by the
related Determination Date and, with respect to Balloon Loans which are
Actuarial Mortgage Loans, with respect to which the Balloon Payment is not made
when due, an assumed monthly payment that would have been due on the related Due
Date based on the original principal amortization schedule for such Balloon Loan
(any such advance, an "Advance").
The Servicer will not make any Advances of principal or interest with
respect to Simple Interest Mortgage Loans and will not make any Advances of
principal on second lien Mortgage Loans or REO Properties.
Advances with respect to Actuarial Mortgage Loans are required to be
made only to the extent the Servicer deems them to be recoverable from related
late collections, insurance proceeds or liquidation proceeds. The purpose of
making such Advances is to maintain a regular cash flow to the
Certificateholders, rather than to guarantee or insure against losses. The
Servicer will not be required, however, to make any Advances with respect to
reductions in the amount of the Monthly Payments on the Mortgage Loans due to
bankruptcy proceedings or the application of the Soldiers' and Sailors' Civil
Relief Act of 1940, as amended (the "Relief Act") or similar state laws. Subject
to the recoverability standard above, the Servicer's obligation to make Advances
as to any Actuarial Mortgage Loan will continue until the earlier of such time
as the Trust acquires title to the related Mortgaged Property or such Mortgage
Loan is paid in full by the mortgagor or disposed of by the Trust.
All Advances will be reimbursable to the Servicer from late
collections, insurance proceeds and liquidation proceeds from the Mortgage Loan
as to which such unreimbursed Advance was made. In addition, any Advances
previously made in respect of any Mortgage Loan that the Servicer deems to be
nonrecoverable from related late collections, insurance proceeds or liquidation
proceeds may be reimbursed to the Servicer out of any funds in the Collection
Account prior to the distributions on the Certificates. In addition, the
Servicer will have the right to withdraw from the collection account funds that
were not included in Available Funds for the preceding Distribution Date to
reimburse itself for Advances previously made. Any such amounts withdrawn by the
Servicer will be deposited in the collection account on subsequent Distribution
Dates in the manner set forth in the Pooling and Servicing Agreement. In the
event the Servicer fails in its obligation to make any such Advance, the
Trustee, in its capacity as successor Servicer, will be obligated to make any
such Advance, to the extent required in the Pooling and Servicing Agreement.
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In the course of performing its servicing obligations, the Servicer
will pay all reasonable and customary "out-of-pocket" costs and expenses
incurred in the performance of its servicing obligations, including, but not
limited to, the cost of (i) the preservation, restoration and protection of the
Mortgaged Properties, (ii) any enforcement or judicial proceedings, including
foreclosures, and (iii) the management and liquidation of Mortgaged Properties
acquired in satisfaction of the related mortgage. Each such expenditure will
constitute a "Servicing Advance."
The Servicer's right to reimbursement for Servicing Advances is limited
to late collections on the related Mortgage Loan, including liquidation
proceeds, released mortgaged property proceeds, insurance proceeds and such
other amounts the Servicer may collect from the related mortgagor or otherwise
relating to the Mortgage Loan in respect of which such unreimbursed amounts are
owed, unless such amounts are deemed to be nonrecoverable by the Servicer, in
which event reimbursement will be made to the Servicer from general funds in the
Collection Account.
The Pooling and Servicing Agreement will provide that (i) the Servicer
may enter into a facility with any person which provides that such person may
fund Advances and/or Servicing Advances, although no such facility will reduce
or otherwise affect the Servicer's obligation to fund such Advances and/or
Servicing Advances and (ii) the Pooling and Servicing Agreement may be revised
without the consent of the Certificateholders to provide for such a facility.
Servicing and Other Compensation and Payment of Expenses
The principal compensation (the "Servicing Fee") to be paid to the
Servicer in respect of its servicing activities for the Certificates will be at
the "Servicing Fee Rate" of (i) 0.50% per annum on the Principal Balance of each
Mortgage Loan. As additional servicing compensation, the Servicer is entitled to
retain all service-related fees, including assumption fees, modification fees,
customary real estate referral fees, extension fees and late payment charges but
excluding prepayment premiums, to the extent collected from mortgagors, together
with any interest or other income earned on funds held in the Collection Account
and any escrow accounts. The Servicer is obligated to offset any Prepayment
Interest Shortfall on Actuarial Mortgage Loans on any Distribution Date
(payments made by the Servicer in satisfaction of such obligation, "Compensating
Interest") by an amount not in excess of one-half of its Servicing Fee for such
Distribution Date. The Servicer will not offset any Prepayment Interest
Shortfall on Simple Interest Mortgage Loans on any Distribution Date. The
Servicer is obligated to pay certain insurance premiums and certain ongoing
expenses associated with the Mortgage Pool and incurred by the Servicer in
connection with its responsibilities under the Pooling and Servicing Agreement
and is entitled to reimbursement therefor as provided in the Pooling and
Servicing Agreement.
The "Determination Date" with respect to any Distribution Date will be
the 10th day of the calendar month in which such Distribution Date occurs or, if
such day is not a Business Day, the Business Day immediately preceding such 10th
day. With respect to any Determination Date and each Mortgage Loan as to which a
principal prepayment in full was applied during the prior calendar month, the
"Prepayment Interest Shortfall" is an amount equal to the interest at the
Mortgage Interest Rate for such Mortgage Loan (net of the Servicing Fee Rate) on
the amount of such principal prepayment for the number of days commencing on the
date on which the principal prepayment is applied and ending on the last day of
the prior calendar month.
Pledge and Assignment of Servicer's Rights
On the Closing Date, the Servicer may pledge and assign all of its
right, title and interest in, to and under the Pooling and Servicing Agreement
to one or more lenders (each, a "Servicing Rights Pledgee") selected by the
Servicer, including Wachovia Bank, National Association, as the representative
of certain lenders. In the event that an Event of Servicing Termination (as
defined below) occurs, the Trustee has agreed to the appointment of a Servicing
Rights Pledgee or its designee as the successor servicer, provided that at the
time of such appointment the Servicing Rights Pledgee or such designee meets the
requirements of a successor servicer described in the Pooling and Servicing
Agreement (including being acceptable to the Rating Agencies) and that the
Servicing Rights Pledgee or such designee agrees to be subject to the terms of
the Pooling and Servicing Agreement.
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The Trustee
JPMorgan Chase Bank, a New York banking corporation, will act as
trustee (the "Trustee") for the Certificates pursuant to the Pooling and
Servicing Agreement. The Trustee's offices for notices under the Pooling and
Servicing Agreement are located at 4 New York Plaza, 6th Floor, New York, New
York 10004-2477, Attention: Institutional Trust Services/Global Debt: C-BASS
2003-CB6 and its telephone number is (212) 623-5600. The principal compensation
to be paid to the Trustee in respect of its obligations under the Pooling and
Servicing Agreement will be the "Trustee Fee." The Trustee Fee for any
Distribution Date will be equal to the product of an agreed per annum rate and
the aggregate Principal Balance of the Mortgage Loans as of the first day of the
related Collection Period. The Pooling and Servicing Agreement will provide that
the Trustee and any director, officer, employee or agent of the Trustee will be
indemnified by the Trust Fund and will be held harmless against any loss,
liability or expense (not including expenses, disbursements and advances
incurred or made by the Trustee in the ordinary course of the Trustee's
performance in accordance with the provisions of the Pooling and Servicing
Agreement) the Trustee incurs arising out of or in connection with the
acceptance or administration of its obligations and duties under the Pooling and
Servicing Agreement, other than any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or negligence in the performance of the
Trustee's duties under the Pooling and Servicing Agreement, or by reason of
reckless disregard, of the Trustee's obligations and duties under the Pooling
and Servicing Agreement.
Optional Termination
The Servicer (or an affiliate) will have the right to purchase all of
the Mortgage Loans and REO Properties in the Trust Fund and thereby effect the
early retirement of the Certificates, on any Distribution Date on which the
aggregate Principal Balance of such Mortgage Loans and REO Properties is less
than 10% of the aggregate Principal Balance of the Mortgage Loans as of the
Cut-Off Date. The first Distribution Date on which such option could be
exercised is referred to herein as the "Optional Termination Date." In the event
that the option is exercised, the purchase will be made at a price (the
"Termination Price") generally equal to par plus accrued interest for each
Mortgage Loan at the related Mortgage Interest Rate to but not including the
first day of the month in which such purchase price is distributed plus the
amount of any unreimbursed Advances and Servicing Advances made by the Servicer
and any unpaid Servicing Fees; provided, however, such purchase must be
sufficient to pay all amounts due and owing on the certificates and any amounts
due and owing on any net interest margin securities secured by all or a portion
of the Class X and Class N Certificates. Proceeds from such purchase will be
included in Available Funds and will be distributed to the holders of the
Certificates in accordance with the Pooling and Servicing Agreement. Any such
purchase of Mortgage Loans and REO Properties will result in the early
retirement of the Certificates.
Optional Purchase of Defaulted Loans
As to any Mortgage Loan which is Delinquent in payment by 120 days or
more, the Servicer (or its affiliates) may, at its option, purchase such
Mortgage Loan from the Trust Fund at the Purchase Price for such Mortgage Loan,
under the circumstances described in the Pooling and Servicing Agreement.
Events of Servicing Termination
Events of Servicing Termination will consist, among other things, of:
(i) any failure by the Servicer to deposit in the Collection Account or
Distribution Account the required amounts or remit to the Trustee any payment
which continues unremedied for one Business Day following written notice to the
Servicer; (ii) any failure of the Servicer to make any Advance with respect to
an Actuarial Mortgage Loan or to cover any Prepayment Interest Shortfalls on
Actuarial Mortgage Loans, as described herein, which failure continues
unremedied for one Business Day; (iii) any failure by the Servicer to observe or
perform in any material respect any other of its covenants or agreements in the
Pooling and Servicing Agreement, which continues unremedied for 30 days after
the first date on which (x) the Servicer has knowledge of such failure or (y)
written notice of such failure is given to the Servicer; (iv) insolvency,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, and certain actions by or on behalf of the Servicer indicating its
insolvency or inability to pay its obligations; or (v) cumulative Realized
Losses as of any Distribution Date exceed the amount specified in the Pooling
and Servicing Agreement.
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Rights upon Event of Servicing Termination
So long as an Event of Servicing Termination under the Pooling and
Servicing Agreement remains unremedied, the Trustee may, subject to the rights
of the Servicing Rights Pledgee as described above and at the direction of the
holders of the Certificates evidencing not less than 51% of the Voting Rights is
required to, terminate all of the rights and obligations of the Servicer in its
capacity as servicer with respect to the Mortgage Loans, as provided in the
Pooling and Servicing Agreement, whereupon the Trustee will succeed to all of
the responsibilities and duties of the Servicer under the Pooling and Servicing
Agreement, including the obligation to make any required Advances subject to the
pledge and assignment to a Servicing Rights Pledgee as described above. No
assurance can be given that termination of the rights and obligations of the
Servicer under the Pooling and Servicing Agreement would not adversely affect
the servicing of the related Mortgage Loans, including the delinquency
experience of such Mortgage Loans.
No holder of an Offered Certificate, solely by virtue of such holder's
status as a holder of an Offered Certificate, will have any right under the
Pooling and Servicing Agreement to institute any proceeding with respect
thereto, unless such holder previously has given to the Trustee written notice
of default and unless the holders of Certificates entitled to at least 51% of
the Voting Rights evidenced by the Certificates so agree and have offered
indemnity satisfactory to the Trustee.
Voting Rights
With respect to any date of determination, the percentage of all the
Voting Rights allocated among holders of the Certificates (other than the Class
N, Class X, Class XR and Class R Certificates) will be 98%. Such Voting Rights
will be allocated among the classes of such Certificates in the proportion that
the aggregate Certificate Principal Balance of all the Certificates of such
class then outstanding bear to the aggregate Certificate Principal Balance of
all Certificates then outstanding. With respect to any date of determination,
the percentage of all the Voting Rights allocated among holders of the Class N
and Class X Certificates will be 2%. The Voting Rights allocated to a class of
Certificates will be allocated among all holders of each such class in
proportion to the outstanding certificate balances (or Percentage Interest) of
such Certificates. The Class XR and R Certificates will not have any Voting
Rights.
Amendment
The Pooling and Servicing Agreement may be amended by the Seller, the
Depositor, the Servicer and the Trustee, without the consent of the holders of
the Certificates, for any of the purposes set forth under "Operative
Agreements--Amendment" in the Prospectus. In addition, the Pooling and Servicing
Agreement may be amended by the Seller, the Depositor, the Servicer and the
Trustee with the consent of the holders of a majority in interest of any class
of Certificates affected thereby for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of the Pooling and
Servicing Agreement or of modifying in any manner the rights of the holders of
any class of Certificates; provided, however, that no such amendment may (i)
reduce in any manner the amount of, or delay the timing of, distributions
required to be made on any class of Certificates without the consent of the
holders of such Certificates; (ii) adversely affect in any material respect the
interests of the holders of any class of Certificates in a manner other than as
described in clause (i) above, without the consent of the holders of such class
evidencing percentage interests aggregating at least 66%; or (iii) reduce the
aforesaid percentage of aggregate outstanding principal amounts of Certificates,
the holders of which are required to consent to any such amendment, without the
consent of the holders of all such Certificates.
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DESCRIPTION OF THE CERTIFICATES
General
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement. Set forth below are summaries of the specific terms and provisions
pursuant to which the Offered Certificates will be issued. The following
summaries do not purport to be complete and are subject to, and are qualified in
their entirety by reference to, the provisions of the Pooling and Servicing
Agreement. When particular provisions or terms used in the Pooling and Servicing
Agreement are referenced, the actual provisions (including definitions of terms)
are incorporated by reference.
The Trust will issue the Class 1AV-1 Certificates, Class 2AV-1 and
Class 2AV-2 Certificates (the "Class 2AV Certificates"), Class AF-1, Class AF-2,
Class AF-3, Class AF-4, Class AF-5 and Class AF-6 Certificates (the "Class AF
Certificates" and, together with the Class 1AV-1 and Class 2AV Certificates, the
"Senior Certificates"), the Class M-1, Class M-2, Class M-3, Class M-4, Class
M-5 and Class M-6 Certificates (the "Class M Certificates"), the Class N and
Class X Certificates (collectively with the Class M Certificates, the
"Subordinate Certificates") and the Class XR and Class R Certificates (the
"Residual Certificates"). The Senior Certificates, the Subordinate Certificates
and the Residual Certificates are collectively referred to herein as the
"Certificates." Only the Senior and the Class M Certificates (other than the
Class M-6 Certificates) are offered hereby (the "Offered Certificates").
The Offered Certificates will have the respective original Certificate
Principal Balances specified on the cover hereof, subject to a permitted
variance of plus or minus ten percent.
The Offered Certificates and the Class M-6 Certificates will be issued
in book-entry form as described below. The Offered Certificates will be issued
in minimum dollar denominations of $25,000 and integral multiples of $1 in
excess thereof.
Distributions on the Offered Certificates will be made by the Trustee
on the 25th day of each month, or if such day is not a Business Day, on the
first Business Day thereafter, commencing in December 2003 (each, a
"Distribution Date"), to the persons in whose names such Certificates are
registered at the close of business on the Record Date. With respect to the
Class 1AV-1, Class 2AV, Class AF-1 and Class M Certificates, the "Record Date"
is the Business Day immediately preceding such Distribution Date; provided,
however, that if any of such Certificates becomes a Definitive Certificate (as
defined herein), the Record Date for such Certificate will be the last Business
Day of the month immediately preceding the month in which the related
Distribution Date occurs. With respect to the Class AF Certificates (other than
the Class AF-1 Certificates), the "Record Date" is the last Business Day of the
month immediately preceding the month in which the related Distribution Date
occurs or the Closing Date, in the case of the first Distribution Date.
Book-Entry Certificates
The Offered Certificates and the Class M-6 Certificates will be
book-entry Certificates (the "Book-Entry Certificates"). Persons acquiring
beneficial ownership interests in the Offered Certificates and the Class M-6
Certificates ("Certificate Owners") will hold such Certificates through DTC in
the United States, or, upon request, Clearstream or Euroclear (in Europe) if
they are participants of such systems (the "Participants"), or indirectly
through organizations which are participants in such systems (the "Indirect
Participants"). The Book-Entry Certificates will be issued in one or more
certificates which equal the aggregate Certificate Principal Balance or Notional
Amount of such Certificates and will initially be registered in the name of Cede
& Co., the nominee of DTC. Clearstream and Euroclear will hold omnibus positions
on behalf of their participants through customers' securities accounts in
Clearstream's and Euroclear's names on the books of their respective
depositaries which in turn will hold such positions in customers' securities
accounts in the depositaries' names on the books of DTC. Citibank, N.A. will act
as depositary for Clearstream and JPMorgan Chase Bank will act as depositary for
Euroclear (in such capacities, individually the "Relevant Depositary" and
collectively the "European Depositaries"). Investors may hold such beneficial
interests in the Book-Entry Certificates in minimum denominations of $25,000.
Except as described below, no person acquiring a Book-Entry Certificate (each, a
"Beneficial 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
"Certificateholder" of the Offered Certificates and the Class M-6 Certificates
will be Cede & Co., as nominee of DTC. Certificate Owners will not be
Certificateholders as that term is used in the Pooling and Servicing Agreement.
Certificate Owners are only permitted to exercise their rights indirectly
through Participants and DTC.
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The Beneficial Owner's ownership of a Book-Entry Certificate will be
recorded on the records of the brokerage firm, bank, thrift institution or other
financial intermediary (each, a "Financial Intermediary") that maintains the
Beneficial Owner's account for such purpose. In turn, the Financial
Intermediary's ownership of such Book-Entry Certificate will be recorded on the
records of DTC (or of a participating firm that acts as agent for the Financial
Intermediary, whose interest will in turn be recorded on the records of DTC, if
the Beneficial Owner's Financial Intermediary is not a DTC Participant and on
the records of Clearstream or Euroclear, as appropriate).
Certificate Owners will receive all distributions of principal of and
interest on the Book-Entry Certificates from the Trustee through DTC and DTC
Participants. While the Book-Entry Certificates are outstanding (except under
the circumstances described below), under the rules, regulations and procedures
creating and affecting DTC and its operations (the "Rules"), DTC is required to
make book-entry transfers among Participants on whose behalf it acts with
respect to the Book-Entry Certificates and is required to receive and transmit
distributions of principal of, and interest on, the Book-Entry Certificates.
Participants and Indirect Participants with whom Certificate Owners have
accounts with respect to Book-Entry Certificates are similarly required to make
book-entry transfers and receive and transmit such distributions on behalf of
their respective Certificate Owners. Accordingly, although Certificate Owners
will not possess certificates representing their respective interests in the
Book-Entry Certificates, the Rules provide a mechanism by which Certificate
Owners will receive distributions and will be able to transfer their interest.
Certificateholders will not receive or be entitled to receive
certificates representing their respective interests in the Book-Entry
Certificates, except under the limited circumstances described below. Unless and
until Definitive Certificates are issued, Certificateholders who are not
Participants may transfer ownership of Book-Entry Certificates only through
Participants and Indirect Participants by instructing such Participants and
Indirect Participants to transfer Book-Entry Certificates, by book-entry
transfer, through DTC for the account of the purchasers of such Book-Entry
Certificates, which account is maintained with their respective Participants.
Under the Rules and in accordance with DTC's normal procedures, transfers of
ownership of Book-Entry 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 Certificateholders.
Because of time zone differences, credits of securities received in
Clearstream or Euroclear as a result of a transaction with a Participant will be
made during subsequent securities settlement processing and dated the Business
Day following the DTC settlement date. Such credits or any transactions in such
securities settled during such processing will be reported to the relevant
Euroclear or Clearstream Participants on such Business Day. Cash received in
Clearstream or Euroclear as a result of sales of securities by or through a
Clearstream Participant or Euroclear Participant to a DTC Participant will be
received with value on the DTC settlement date but will be available in the
relevant Clearstream or Euroclear cash account only as of the Business Day
following settlement in DTC. For information with respect to tax documentation
procedures relating to the Certificates, see "Federal Income Tax
Consequences--REMIC Certificates--C. Regular Certificates--Non-U.S. Persons" and
"--Information Reporting 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 to this Prospectus Supplement.
Transfers between Participants will occur in accordance with DTC rules.
Transfers between Clearstream Participants and Euroclear Participants will occur
in accordance with their respective rules and operating procedures.
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Cross-market transfers between persons holding directly or indirectly
through DTC, on the one hand, and directly or indirectly through Clearstream
Participants or Euroclear Participants, on the other, will be effected in
accordance with DTC rules on behalf of the relevant European international
clearing system by the Relevant Depositary; however, such cross market
transactions will require delivery of instructions to the relevant European
international clearing system by the counterparty in such system in accordance
with its rules and procedures and within its established deadlines (European
time). The relevant European international clearing system will, if the
transaction meets its settlement requirements, deliver instructions to the
Relevant Depositary to take action to effect final settlement on its behalf by
delivering or receiving securities in DTC, and making or receiving payment in
accordance with normal procedures for same day funds settlement applicable to
DTC. Clearstream Participants and Euroclear Participants may not deliver
instructions directly to the European Depositaries.
DTC which is a New York-chartered limited purpose trust company,
performs services for its Participants, some of which (and/or their
representatives) own DTC. In accordance with its normal procedures, DTC is
expected to record the positions held by each DTC Participant in the Book-Entry
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, as in effect from time to time.
Clearstream, 67 Bd Grande-Duchesse Charlotte, L-1331 Luxembourg, was
incorporated in 1970 as a limited company under Luxembourg law. Clearstream is
owned by banks, securities dealers and financial institutions, and currently has
about 100 shareholders, including U.S. financial institutions or their
subsidiaries. No single entity may own more than five percent of Clearstream's
stock.
Clearstream is registered as a bank in Luxembourg, and as such is
subject to regulation by the Institute Monetaire Luxembourgeois, the Luxembourg
Monetary Authority, which supervises Luxembourg banks.
Clearstream holds securities for its customers ("Clearstream
Participants") and facilitates the clearance and settlement of securities
transactions by electronic book-entry transfers between their accounts.
Clearstream provides various services, including safekeeping, administration,
clearance and settlement of internationally traded securities and securities
lending and borrowing. Clearstream also deals with domestic securities markets
in several countries through established depository and custodial relationships.
Clearstream has established an electronic bridge with Euroclear Bank S.A./N.V.
as the Euroclear Operator in Brussels to facilitate settlement of trades between
systems. Clearstream currently accepts over 70,000 securities issues on its
books.
Clearstream's customers are world-wide financial institutions including
underwriters, securities brokers and dealers, banks, trust companies and
clearing corporations. Clearstream's United States customers are limited to
securities brokers and dealers and banks. Currently, Clearstream has
approximately 3,000 customers located in over 60 countries, including all major
European countries, Canada, and the United States. Indirect access to
Clearstream is available to other institutions which clear through or maintain a
custodial relationship with an account holder of Clearstream.
Euroclear was created in 1968 to hold securities for its participants
("Euroclear Participants") and to clear and settle transactions between
Euroclear Participants through simultaneous electronic book-entry delivery
against payment, thereby eliminating the need for physical movement of
certificates and any risk from lack of simultaneous transfers of securities and
cash. Transactions may be settled in a variety of currencies, including United
States dollars. Euroclear includes various other services, including securities
lending and borrowing and interfaces with domestic markets in several countries
generally similar to the arrangements for cross-market transfers with DTC
described above. Euroclear is operated by Euroclear Bank S.A./N.V. (the
"Euroclear Operator"), 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.
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.
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Distributions on the Book-Entry Certificates will be made on each
Distribution Date by the Trustee to Cede & Co., as nominee of DTC. DTC will be
responsible for crediting the amount of such payments to the accounts of the
applicable DTC Participants in accordance with DTC's normal procedures. Each DTC
Participant will be responsible for disbursing such payments to the Beneficial
Owners of the Book-Entry Certificates that it represents and to each Financial
Intermediary for which it acts as agent. Each such Financial Intermediary will
be responsible for disbursing funds to the Beneficial Owners of the Book-Entry
Certificates that it represents.
Under a book-entry format, Beneficial Owners of the Book-Entry
Certificates may experience some delay in their receipt of payments, since such
payments will be forwarded by the Trustee to Cede & Co. Distributions with
respect to Certificates held through Clearstream or Euroclear will be credited
to the cash accounts of Clearstream Participants or Euroclear Participants in
accordance with the relevant system's rules and procedures, to the extent
received by the Relevant Depositary. Such distributions will be subject to tax
reporting in accordance with relevant United States tax laws and regulations.
See "Federal Income Tax Consequences--REMIC Certificates--C. Regular
Certificates--Non-U.S. Persons" and "--Backup Withholding" in the Prospectus.
Because DTC can only act on behalf of DTC Participants, the ability of a
Beneficial Owner to pledge Book-Entry Certificates to persons or entities that
do not participate in the Depository system, or otherwise take actions in
respect of 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 Fund will be provided to Cede &
Co., as nominee of DTC, and may be made available by Cede & Co. to Beneficial
Owners upon request, in accordance with the rules, regulations and procedures
creating and affecting the DTC Participants to whose DTC accounts the Book-Entry
Certificates of such Beneficial Owners are credited.
DTC has advised the Depositor that, unless and until Definitive
Certificates are issued, DTC will take any action the holders of the Book-Entry
Certificates are permitted to take 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. Clearstream or the Euroclear Operator, as the case
may be, will take any other action permitted to be taken by a Certificateholder
under the Agreement on behalf of a Clearstream Participant or Euroclear
Participant only in accordance with its relevant rules and procedures and
subject to the ability of the Relevant Depositary to effect such actions on its
behalf through DTC. DTC may take actions, at the direction of the related
Participants, with respect to some Book-Entry Certificates which conflict with
actions taken with respect to other Book-Entry Certificates.
Definitive Certificates will be issued to Beneficial 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 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, with the consent of the Trustee, elects to terminate a book-entry
system through DTC or (c) after the occurrence of an Event of Default,
Beneficial Owners having Percentage Interests aggregating not less than 51% of
the Book-Entry Certificates advise the Trustee and DTC through the Financial
Intermediaries and the DTC Participants 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 Owners.
Upon the occurrence of any of the events described in the immediately
preceding paragraph, the Trustee will be required to notify all Beneficial
Owners of the 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
Certificateholders under the Agreement.
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Although DTC, Clearstream and Euroclear have agreed to the foregoing
procedures in order to facilitate transfers of Book-Entry Certificates among
participants of DTC, Clearstream and Euroclear, they are under no obligation to
perform or continue to perform such procedures and such procedures may be
discontinued at any time.
None of the Depositor, the Servicer or the Trustee will have any
responsibility for any aspect of the records relating to or payments made on
account of beneficial ownership interests of the Book-Entry Certificates held by
Cede & Co., as nominee for DTC, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. The Trustee will not be
required to monitor, determine or inquire as to compliance with the transfer
restrictions with respect to the Subordinate Certificates in the form of
Book-Entry Certificates, and the Trustee will have no liability for transfers of
Book-Entry Certificates or any interests therein made in violation of the
restrictions on transfer described in this Prospectus Supplement and the Pooling
and Servicing Agreement.
According to DTC, the foregoing information with respect to DTC has
been provided to the industry for informational purposes only and is not
intended to serve as a representation, warranty or contract modification of any
kind.
Allocation of Available Funds
Distributions to holders of each class of Offered Certificates will be
made on each Distribution Date from Available Funds. "Available Funds" will be
equal to the sum of the following amounts with respect to the Mortgage Loans,
net of amounts reimbursable or payable to the Servicer, including the Servicing
Fee and any accrued and unpaid Servicing Fee: (i) the aggregate amount of
Monthly Payments on the Mortgage Loans due during the related Collection Period
and received by the Trustee one business day prior to the related Distribution
Date, (ii) certain unscheduled payments in respect of the Mortgage Loans,
including prepayments (but excluding any prepayment penalties), insurance
proceeds and liquidation proceeds net of certain expenses received during the
related Prepayment Period, (iii) payments from the Servicer in connection with
Advances and Prepayment Interest Shortfalls for such Distribution Date, (iv) the
Purchase Price for any repurchased Mortgage Loan deposited to the Collection
Account during the related Prepayment Period, including any Reimbursement
Amount, (v) any Substitution Adjustments deposited in the Collection Account
during the related Prepayment Period, and (vi) on the Distribution Date on which
the Trust is to be terminated in accordance with the Pooling and Servicing
Agreement, the Termination Price.
The "Collection Period" with respect to any Distribution Date means the
period from the second day of the calendar month preceding the month in which
such Distribution Date occurs through the first day of the month in which such
Distribution Date occurs.
The "Prepayment Period" with respect to any Distribution Date means the
calendar month preceding the month in which such Distribution Date occurs.
Interest Distributions
On each Distribution Date, based upon the information provided to it in
the Remittance Report, the Trustee will distribute that portion of Available
Funds for such Distribution Date consisting of the Group 1 Interest Remittance
Amount, the Group 2 Interest Remittance Amount and the Group 3 Interest
Remittance Amount for such Distribution Date, in the amounts and order of
priority described below, in each case to the extent of the Group 1 Interest
Remittance Amount, the Group 2 Interest Remittance Amount or Group 3 Interest
Remittance Amount, as applicable, remaining for such Distribution Date:
(i) the Group 1 Interest Remittance Amount will be distributed:
(A) first, to the Trustee, the portion of the Trustee Fee for
such Distribution Date relating to the Group 1 Mortgage Loans;
(B) second, to the Class 1AV-1 Certificates, the Accrued
Certificate Interest and Interest Carry Forward Amount for such Class
and Distribution Date; and
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(C) third, concurrently, (1) to the Class 2AV Certificates,
the Accrued Certificate Interest and Interest Carry Forward Amount for
each such Class and such Distribution Date, and (2) to the Class AF
Certificates, the Accrued Certificate Interest and Interest Carry
Forward Amount for each such Class and such Distribution Date, in each
case to the extent not paid pursuant to clauses (ii)(B) and (iii)(B)
below, allocated pro rata based on entitlement pursuant to this clause
(i)(C);
(ii) the Group 2 Interest Remittance Amount will be distributed:
(A) first, to the Trustee, the portion of the Trustee Fee for
such Distribution Date relating to the Group 2 Mortgage Loans;
(B) second, concurrently, to the Class 2AV-1 and Class 2AV-2
Certificates, the Accrued Certificate Interest and Interest Carry
Forward Amount for each such Class and Distribution Date, allocated pro
rata based on entitlement pursuant to this clause (ii)(B); and
(C) third, concurrently, (1) to the Class 1AV-1 Certificates,
the Accrued Certificate Interest and Interest Carry Forward Amount for
such Class and such Distribution Date, and (2) to the Class AF
Certificates, the Accrued Certificate Interest and Interest Carry
Forward Amount for each such Class and such Distribution Date, in each
case to the extent not paid pursuant to clause (i)(B) above and clause
(iii)(B) below, allocated pro rata based on entitlement pursuant to
this clause (ii)(C);
(iii) the Group 3 Interest Remittance Amount will be distributed:
(A) first, to the Trustee, the portion of the Trustee Fee for
such Distribution Date relating to the Group 3 Mortgage Loans;
(B) second, concurrently, to the Class AF Certificates, the
Accrued Certificate Interest and Interest Carry Forward Amount for each
such Class and Distribution Date, allocated pro rata based on
entitlement pursuant to this clause (iii)(B); and
(C) third, concurrently, (1) to the Class 1AV-1 Certificates,
the Accrued Certificate Interest and Interest Carry Forward Amount for
such Class and such Distribution Date, and (2) to the Class 2AV
Certificates, the Accrued Certificate Interest and Interest Carry
Forward Amount for each such Class and such Distribution Date, in each
case to the extent not paid pursuant to clauses (i)(B) and (ii)(B)
above, allocated pro rata based on entitlement pursuant to this clause
(iii)(C);
(iv) any Group 1 Interest Remittance Amount, Group 2 Interest
Remittance Amount and Group 3 Interest Remittance Amount remaining undistributed
following the distributions pursuant to clauses (i), (ii) and (iii) above will
be distributed:
(A) first, to the Class M-1 Certificates, the Accrued
Certificate Interest thereon for such Distribution Date;
(B) second, to the Class M-2 Certificates, the Accrued
Certificate Interest thereon for such Distribution Date;
(C) third, to the Class M-3 Certificates, the Accrued
Certificate Interest thereon for such Distribution Date;
(D) fourth, to the Class M-4 Certificates, the Accrued
Certificate Interest thereon for such Distribution Date;
(E) fifth, to the Class M-5 Certificates, the Accrued
Certificate Interest thereon for such Distribution Date; and
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(F) sixth, to the Class M-6 Certificates, the Accrued
Certificate Interest thereon for such Distribution Date;
(v) the amount, if any, of the Group 1 Interest Remittance Amount, the
Group 2 Interest Remittance Amount and the Group 3 Interest Remittance Amount
remaining after application with respect to the priorities set forth above in
clauses (i), (ii), (iii) and (iv) above will constitute the "Monthly Excess
Interest Amount" for such Distribution Date and will be applied as described
below under "--Application of Monthly Excess Cashflow Amounts."
"Accrued Certificate Interest" means, with respect to any Distribution
Date and each class of Offered Certificates and Class M-6 Certificates, an
amount equal to the interest accrued during the related Interest Accrual Period
on the Certificate Principal Balance of such class of Certificates immediately
prior to such Distribution Date, minus such Class' Interest Percentage of
shortfalls caused by the Relief Act for such Distribution Date.
"Group 1 Balance" means, as of any date of determination, the aggregate
Principal Balance of the Group 1 Mortgage Loans.
"Group 1 Interest Remittance Amount" means, with respect to any
Distribution Date, that portion of the Available Funds for such Distribution
Date attributable to interest received or advanced with respect to the Group 1
Mortgage Loans or to Compensating Interest paid by the Servicer with respect to
the Group 1 Mortgage Loans.
"Group 2 Balance" means, as of any date of determination, the aggregate
Principal Balance of the Group 2 Mortgage Loans.
"Group 2 Interest Remittance Amount" means, with respect to any
Distribution Date, that portion of the Available Funds for such Distribution
Date attributable to interest received or advanced with respect to the Group 2
Mortgage Loans or to Compensating Interest paid by the Servicer with respect to
the Group 2 Mortgage Loans.
"Group 3 Balance" means, as of any date of determination, the aggregate
Principal Balance of the Group 3 Mortgage Loans.
"Group 3 Interest Remittance Amount" means, with respect to any
Distribution Date, that portion of the Available Funds for such Distribution
Date attributable to interest received or advanced with respect to the Group 3
Mortgage Loans or to Compensating Interest paid by the Servicer with respect to
the Group 3 Mortgage Loans.
"Group Balance" means with respect to Loan Group 1, Loan Group 2 and
Loan Group 3, the Group 1 Balance, the Group 2 Balance and the Group 3 Balance,
respectively.
"Interest Accrual Period" means, with respect to any Distribution Date
and the Class 1AV-1, Class 2AV, Class AF-1 and Class M Certificates, the period
from and including the preceding Distribution Date, or in the case of the first
Distribution Date, from the Closing Date, through and including the day prior to
the current Distribution Date. With respect to the Class 1AV-1, Class 2AV, Class
AF-1 and Class M Certificates, all calculations of interest will be made on the
basis of the actual number of days in the Interest Accrual Period and on a
360-day year. With respect to the Class AF Certificates (other than the Class
AF-1 Certificates), the "Interest Accrual Period" for any Distribution Date will
be from and including the first day of each month, commencing November 1, 2003,
to and including the last day of such month, and calculations of interest will
be made on the basis of a 360-day year assumed to consist of twelve 30-day
months.
"Interest Carry Forward Amount" means, with respect to any class of
Offered Certificates or the Class M-6 Certificates and any Distribution Date,
the sum of (a) the excess, if any, of the Accrued Certificate Interest and any
Interest Carry Forward Amount for the prior Distribution Date over the amount in
respect of interest actually distributed on such class on such prior
Distribution Date and (b) (1) with respect to the Class 1AV-1, Class 2AV, Class
AF-1 and Class M Certificates, interest on such excess at the applicable
Pass-Through Rate on the basis of the actual number of days elapsed since the
prior Distribution Date and (2) with respect to the Class AF Certificates (other
than the Class AF-1 Certificates), 30 days' interest on such excess at the
applicable Pass-Through Rate on the basis of a 360-day year consisting of twelve
30-day months.
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"Interest Percentage" means, with respect to any Distribution Date and
any class of Certificates, the ratio (expressed as a decimal carried to six
places) of the Accrued Certificate Interest for such Class to the sum of the
Accrued Certificate Interest for all classes, in each case with respect to such
Distribution Date and without taking into account any shortfalls caused by the
Relief Act for such Distribution Date.
The Interest Rate Cap Agreements
On the Closing Date, the Trustee on behalf of the Trust will enter into
four interest rate cap agreements (the "Group 1 Interest Rate Cap Agreement,"
the "Group 2 Interest Rate Cap Agreement," the Class AF-1 Interest Rate Cap
Agreement," and the "Class M Interest Rate Cap Agreement," and each such
agreement, an "Interest Rate Cap Agreement") with The Royal Bank of Scotland
plc, as cap provider (in such capacity, the "Cap Provider"). Each Interest Rate
Cap Agreement relates to the class of Certificates or Loan Group specified in
the name of such Interest Rate Cap Agreement; provided that the Class M-6
Certificates are not covered by nor will receive any payments from any Interest
Rate Cap Agreement.
Pursuant to each Interest Rate Cap Agreement, the Cap Provider will
agree to make payments to the Trust on each Interest Rate Cap Agreement Payment
Date on which the Index Rate exceeds the related strike rate described in Annex
II hereto for such Interest Rate Cap Agreement and distribution date. For
purposes of calculating cap payments, such Index Rate will be deemed to not
exceed the Ceiling Rate set forth in Annex II hereto, if applicable. Any amounts
received by the Trustee under an Interest Rate Cap Agreement will be deposited
to an account established by the Trustee (the "Interest Rate Cap Account"). The
"Interest Rate Cap Agreement Payment Date" with respect to each Interest Rate
Cap Agreement is the second Business Day immediately preceding the 25th day of
each month beginning in December 2003, to and including the termination date for
such Interest Rate Cap Agreement (each such termination date, a "Cap Agreement
Termination Date"), subject to the "Following Business Day Convention" (within
the meaning of the 2000 ISDA Definitions). A "Business Day" under the Interest
Rate Cap Agreement is a day on which commercial banks and foreign exchange
markets settle payment and are generally open for business in New York. The "Cap
Agreement Termination Date" for each Interest Rate Cap Agreement is Interest
Rate Cap Agreement Payment Date for such Interest Rate Cap Agreement that occurs
in the calendar month indicated in the following table.
------------------------------------------ -----------------------------
Interest Rate Cap Agreement Month of Cap Agreement
Termination Date
------------------------------------------ -----------------------------
------------------------------------------ -----------------------------
Group 1 Interest Rate Cap Agreement December 2005
------------------------------------------ -----------------------------
------------------------------------------ -----------------------------
Group 2 Interest Rate Cap Agreement June 2006
------------------------------------------ -----------------------------
------------------------------------------ -----------------------------
Class AF-1 Interest Rate Cap Agreement August 2005
------------------------------------------ -----------------------------
------------------------------------------ -----------------------------
Class M Interest Rate Cap Agreement October 2006
------------------------------------------ -----------------------------
Under each Interest Rate Cap Agreement, the Cap Provider will agree to
make payments to the Trust on each Interest Rate Cap Agreement Payment Date
equal to the product of (i) a fraction, the numerator of which is the number of
days elapsed since the immediately preceding Interest Rate Cap Agreement Payment
Date to but excluding the current Interest Rate Cap Agreement Payment Date and
the denominator of which is 360, (ii) a notional amount (as set forth in Annex
II to this Prospectus Supplement for each Interest Rate Cap Agreement and
Interest Rate Cap Agreement Payment Date) and (iii) the excess, if any, of (x)
the lesser of (1) the Index Rate and (2) a Ceiling Rate (as set forth in Annex
II to this Prospectus Supplement for such Interest Rate Cap Agreement Payment
Date) over (y) a strike rate (as set forth in Annex II to this Prospectus
Supplement for such Interest Rate Cap Agreement Payment Date) (the "Interest
Rate Cap Agreement Payment Amount"). Generally, the "Index Rate" is the rate for
one-month deposits in U.S. Dollars which appear on the Telerate Page 3750 or, if
such rate does not appear on the Telerate Page 3750, the rate determined based
on the rates at which one-month deposits in U.S. Dollars are offered by the
reference banks to prime banks in the London interbank market. Amounts on
deposit in the Interest Rate Cap Account in respect of an Interest Rate Cap
Agreement will be available on any Distribution Date to pay any Net Rate
Carryover Amounts first to the related class of Certificates and second to be
deposited into the Basis Risk Reserve Fund and distributed to the other classes
of Offered Certificates in the same manner as clauses (ii) and (iii) described
herein under "--Basis Risk Reserve Fund" on such Distribution Date, and in all
cases prior to any withdrawals from the Basis Risk Reserve Fund as described
herein under "--Basis Risk Reserve Fund" on such Distribution Date.
Notwithstanding the foregoing, the Class M-6 Certificates will not be entitled
to any distributions pursuant to this paragraph.
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Any amounts received in respect of any Interest Rate Cap Agreement on
any Interest Rate Cap Agreement Payment Date that are not needed to pay Net Rate
Carryover Amounts as described above on the related Distribution Date will be
deposited in the Basis Risk Reserve Fund and will be available to pay Net Rate
Carryover Amounts on future Distribution Dates.
Unless terminated earlier, each Interest Rate Cap Agreement will
terminate after the related Cap Agreement Termination Date. Any amounts
remaining in the Interest Rate Cap Account upon the termination of the last
outstanding Interest Rate Cap Agreement will be released as provided in the
Pooling and Servicing Agreement. Both the Trust and the Cap Provider will have
the right to terminate any Interest Rate Cap Agreement for certain reasons set
forth in the documentation associated with such Interest Rate Cap Agreement,
including, without limitation, an ISDA Master Agreement and a Confirmation
thereunder.
Cap Provider
The Royal Bank of Scotland Group plc ("RBS Group") and its subsidiaries
are a diversified financial services group engaged in a wide range of banking,
financial and finance related activities in the United Kingdom and
internationally. The Group's operations are principally centered in the UK.
The Royal Bank of Scotland plc ("RBS"), the Cap Provider, an affiliate
of Greenwich Capital Markets, Inc., an underwriter, is RBS Group's principal
operating subsidiary. As of January 31, 2003, and with the approval of the UK
Financial Services Authority, the entire issued ordinary share capital of
National Westminster Bank Plc ("NatWest") was transferred by RBS Group to RBS.
Both RBS and NatWest are major UK clearing banks engaging principally in
providing a comprehensive range of banking, insurance and other financial
services and each controls, directs and promotes the operations of various
subsidiary companies.
RBS is a major UK clearing bank, the predecessors of which date back to
1727. RBS was created by the merger on September 30, 1985 of the former The
Royal Bank of Scotland plc, the largest of the Scottish clearing banks, and
Williams & Glyn's Bank plc, a wholly-owned English clearing bank subsidiary of
RBS Group.
NatWest was incorporated in England in 1968 and was formed from the
merger of National Provincial Bank Limited and Westminster Bank Limited, which
had themselves been formed through a series of mergers involving banks with
origins dating back as far as the seventeenth century.
As at June 30, 2003 RBS Group had total assets of (pound)449 billion
and total deposits of (pound)288 billion. Shareholders' funds at 30 June 2003
were (pound)28,614 million. These figures have been extracted from the unaudited
consolidated interim results for the six months ended 30 June 2003.
The short-term unsecured and unguaranteed debt obligations of RBS are
currently rated "A-1+" by S&P, "P-1" by Moody's and "F-1+" by Fitch. The
long-term, unsecured, unsubordinated and unguaranteed debt obligations of RBS
are currently rated "AA" by S&P, "Aa1" by Moody's and "AA+" by Fitch.
In its capacity as Cap Provider, RBS will be acting though its branch
at 135 Bishopsgate, London, EC2M 3UR.
THE CERTIFICATES ARE NOT OBLIGATIONS OF RBS OR RBS GROUP AND ARE NOT GUARANTEED
BY EITHER OF THESE ENTITIES. THE CERTIFICATES ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY AND ARE SUBJECT
TO CERTAIN INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
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Except for the information provided in the preceding paragraphs, RBS
and RBS Group, other than with respect to Greenwich Capital Markets, Inc., have
not been involved in the preparation of and do not accept responsibility for,
this offering document.
Principal Distributions
With respect to each Distribution Date (a) before the Stepdown Date or
(b) with respect to which a Trigger Event is in effect, the Trustee will
distribute the Group 1 Principal Distribution Amount, the Group 2 Principal
Distribution Amount and the Group 3 Principal Distribution Amount for such
Distribution Date, in the following amounts and order of priority, in each case
to the extent of the Group 1 Principal Distribution Amount, the Group 2
Principal Distribution Amount or the Group 3 Principal Distribution Amount, as
applicable, remaining for such Distribution Date:
(i) the Group 1 Principal Distribution Amount will be distributed:
(A) first, to the Class 1AV-1 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero; and
(B) second, concurrently to the Class 2AV (allocated among the
classes of Class 2AV Certificates in the priority described below) and
Class AF Certificates (allocated among the classes of Class AF
Certificates in the priority described below), until the Certificate
Principal Balances thereof have been reduced to zero, in each case to
the extent not paid pursuant to clauses (ii)(A) and (iii)(A) below,
allocated pro rata based on the Certificate Principal Balances thereof;
(ii) the Group 2 Principal Distribution Amount will be distributed:
(A) first, to the Class 2AV Certificates (allocated among the
classes of Class 2AV Certificates in the priority described below),
until the Certificate Principal Balance thereof has been reduced to
zero; and
(B) second, concurrently to the Class 1AV-1 and Class AF
Certificates (allocated among the classes of Class AF Certificates in
the priority described below), until the Certificate Principal Balances
thereof have been reduced to zero, in each case to the extent not paid
pursuant to clauses (i)(A) above and clause (iii)(A) below, allocated
pro rata based on the Certificate Principal Balances thereof;
(iii) the Group 3 Principal Distribution Amount will be distributed:
(A) first, to the Class AF Certificates (allocated among the
classes of Class AF Certificates in the priority described below),
until the Certificate Principal Balance thereof has been reduced to
zero; and
(B) second, concurrently, to the Class 1AV-1 and Class 2AV
(allocated among the classes of Class 2AV Certificates in the priority
described below) Certificates, until the Certificate Principal Balances
thereof have been reduced to zero, in each case to the extent not paid
pursuant to clauses (i)(A) and (ii)(A) above, allocated pro rata based
on the Certificate Principal Balances thereof;
(iv) any Group 1 Principal Distribution Amount, Group 2 Principal
Distribution Amount and Group 3 Principal Distribution Amount remaining
undistributed following the distributions pursuant to clauses (i), (ii) and
(iii) above will be distributed:
(A) first, to the Class M-1 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(B) second, to the Class M-2 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
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(C) third, to the Class M-3 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(D) fourth, to the Class M-4 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero;
(E) fifth, to the Class M-5 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero; and
(F) sixth, to the Class M-6 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero.
(v) the amount, if any, of the Group 1 Principal Distribution Amount,
the Group 2 Principal Distribution Amount and the Group 3 Principal Distribution
Amount remaining after application with respect to the priorities set forth
above in clauses (i), (ii), (iii) and (iv) will constitute part of the "Monthly
Excess Cashflow Amount" for such Distribution Date and will be applied as
described below under "--Application of Monthly Excess Cashflow Amounts."
With respect to each Distribution Date (a) on or after the Stepdown
Date and (b) as long as a Trigger Event is not in effect, the Trustee will
distribute the Group 1 Principal Distribution Amount, the Group 2 Principal
Distribution Amount and the Group 3 Principal Distribution Amount for such
Distribution Date, in the following amounts and order of priority, in each case
to the extent of the Group 1 Principal Distribution Amount, the Group 2
Principal Distribution Amount or the Group 3 Principal Distribution Amount, as
applicable, remaining for such Distribution Date:
(i) the Group 1 Principal Distribution Amount will be distributed:
(A) first, to the Class 1AV-1 Certificates, the Class 1AV-1
Principal Distribution Amount, until the Certificate Principal Balance
of such Class has been reduced to zero; and
(B) second, concurrently to the Class 2AV (allocated among the
classes of Class 2AV Certificates in the priority described below) and
Class AF Certificates (allocated among the classes of Class AF
Certificates in the priority described below), any remaining Class 2AV
Principal Distribution Amount and Class AF Principal Distribution
Amount, respectively, in each case to the extent not paid pursuant to
clauses (ii)(A) and (iii)(A) below, until the Certificate Principal
Balance of each such Class has been reduced to zero, allocated pro rata
based on entitlement pursuant to this clause (i)(B);
(ii) the Group 2 Principal Distribution Amount will be distributed:
(A) first, to the Class 2AV Certificates (allocated among the
classes of Class 2AV Certificates in the priority described below), the
Class 2AV Principal Distribution Amount, until the Certificate
Principal Balance of such Class has been reduced to zero; and
(B) second, concurrently to the Class 1AV-1 and Class AF
Certificates (allocated among the classes of Class AF Certificates in
the priority described below), any remaining Class 1AV-1 Principal
Distribution Amount and Class AF Principal Distribution Amount,
respectively, in each case to the extent not paid pursuant to clause
(i)(A) above and (iii)(A) below, until the Certificate Principal
Balance of each such Class has been reduced to zero, allocated pro rata
based on entitlement pursuant to this clause (ii)(B);
(iii) the Group 3 Principal Distribution Amount will be distributed:
(A) first, to the Class AF Certificates (allocated among the
classes of Class AF Certificates in the priority described below), the
Class AF Principal Distribution Amount, until the Certificate Principal
Balance of such Class has been reduced to zero; and
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(B) second, concurrently to the Class 1AV-1 and Class 2AV
Certificates (allocated among the classes of Class 2AV Certificates in
the priority described below), any remaining Class 1AV-1 Principal
Distribution Amount and Class 2AV Principal Distribution Amount,
respectively, in each case to the extent not paid pursuant to clauses
(i)(A) and (ii)(A) above, until the Certificate Principal Balance of
each such Class has been reduced to zero, allocated pro rata based on
entitlement pursuant to this clause (iii)(B);
(iv) any Group 1 Principal Distribution Amount, Group 2 Principal
Distribution Amount and Group 3 Principal Distribution Amount remaining
undistributed following the distributions pursuant to clauses (i), (ii) and
(iii) above will be distributed:
(A) first, to the Class M-1 Certificates, the Class M-1
Principal Distribution Amount, until the Certificate Principal Balance
of such Class has been reduced to zero;
(B) second, to the Class M-2 Certificates, the Class M-2
Principal Distribution Amount, until the Certificate Principal Balance
of such Class has been reduced to zero;
(C) third, to the Class M-3 Certificates, the Class M-3
Principal Distribution Amount, until the Certificate Principal Balance
of such Class has been reduced to zero;
(D) fourth, to the Class M-4 Certificates, the Class M-4
Principal Distribution Amount, until the Certificate Principal Balance
of such Class has been reduced to zero;
(E) fifth, to the Class M-5 Certificates, the Class M-5
Principal Distribution Amount, until the Certificate Principal Balance
of such Class has been reduced to zero; and
(F) sixth, to the Class M-6 Certificates, the Class M-6
Principal Distribution Amount, until the Certificate Principal Balance
of such Class has been reduced to zero;
(v) the amount, if any, of the Group 1 Principal Distribution Amount,
the Group 2 Principal Distribution Amount and the Group 3 Principal Distribution
Amount remaining after application with respect to the priorities set forth
above in clauses (i), (ii), (iii) and (iv) will constitute part of the "Monthly
Excess Cashflow Amount" for such Distribution Date and will be applied as
described below under "--Application of Monthly Excess Cashflow Amounts."
With respect to the Class 2AV Certificates, all principal distributions
will be distributed first, to the Class 2AV-1 Certificates, until the
Certificate Principal Balance of such Class has been reduced to zero and second,
to the Class 2AV-2 Certificates, until the Certificate Principal Balance of such
Class has been reduced to zero.
With respect to the Class AF Certificates, all principal distributions
will be distributed first, to the Class AF-6 Certificates, in an amount equal to
the Class AF-6 Principal Distribution Amount and second, sequentially, to the
Class AF-1, Class AF-2, Class AF-3, Class AF-4, Class AF-5 and Class AF-6
Certificates, until the Certificate Principal Balance of such Class has been
reduced to zero.
Notwithstanding anything else contained herein to the contrary, on each
Distribution Date on and after the Senior Credit Support Depletion Date, the
Group 2 Principal Distribution Amount and Group 3 Principal Distribution Amount
will be distributed concurrently to the classes of related Certificates, pro
rata, based on the Class Certificate Balances thereof immediately before that
Distribution Date.
For purposes of the foregoing, the following terms will have the
respective meanings set forth below.
The "Certificate Principal Balance" with respect to any class of
Certificates and any Distribution Date, will equal the principal balance of such
class on the date of the initial issuance of the Certificates as reduced, but
not below zero, by:
o all amounts distributed on previous Distribution Dates on such class on
account of principal; and
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o with respect to any class of Subordinate Certificates, any Applied
Realized Loss Amount for previous Distribution Dates allocated to such
class.
"Class AF Principal Allocation Percentage" means, with respect to any
Distribution Date, the percentage equivalent of a fraction, the numerator of
which is (x) the Group 3 Principal Remittance Amount for such Distribution Date,
and the denominator of which is (y) the Principal Remittance Amount for such
Distribution Date.
"Class AF Principal Distribution Amount" means as of any Distribution
Date on or after the Stepdown Date and as long as a Trigger Event is not in
effect, the excess of (x) the Certificate Principal Balance of the Class AF
Certificates immediately prior to such Distribution Date over (y) the lesser of
(A) the product of (i) approximately 62.30% and (ii) the Group 3 Balance as of
the last day of the related Collection Period and (B) the excess of the Group 3
Balance as of the last day of the related Collection Period over the product of
(i) 0.50% and (ii) the Group 3 Balance on the Cut-off Date.
"Class AF-6 Principal Distribution Amount" means with respect to any
Distribution Date, the product of (x) the percentage equivalent of a fraction,
the numerator of which is (A) the Certificate Principal Balance of the Class
AF-6 Certificates immediately prior to such Distribution Date, and the
denominator of which is (B) the Certificate Principal Balance of the Class AF
Certificates immediately prior to such Distribution Date, (y) the principal
allocable to the Class AF Certificates for such Distribution Date, and (z) the
applicable percentage for the Distribution Date set forth in the following
table.
------------------------------------------ -----------------------
Distribution Date Occurring In Percentage
------------------------------------------ -----------------------
December 2003 through November 2006 0%
------------------------------------------ -----------------------
December 2006 through November 2008 45%
------------------------------------------ -----------------------
December 2008 through November 2009 80%
------------------------------------------ -----------------------
December 2009 through November 2010 100%
------------------------------------------ -----------------------
December 2010 and thereafter 300%
------------------------------------------ -----------------------
"Class 1AV-1 Principal Allocation Percentage" means, with respect to
any Distribution Date, the percentage equivalent of a fraction, the numerator of
which is (x) the Group 1 Principal Remittance Amount for such Distribution Date,
and the denominator of which is (y) the Principal Remittance Amount for such
Distribution Date.
"Class 1AV-1 Principal Distribution Amount" means as of any
Distribution Date on or after the Stepdown Date and as long as a Trigger Event
is not in effect, the excess of (x) the Certificate Principal Balance of the
Class 1AV-1 Certificates immediately prior to such Distribution Date over (y)
the lesser of (A) the product of (i) approximately 62.30% and (ii) the Group 1
Balance as of the last day of the related Collection Period and (B) the excess
of the Group 1 Balance as of the last day of the related Collection Period over
the product of (i) 0.50% and (ii) the Group 1 Balance on the Cut-off Date.
"Class 2AV Principal Allocation Percentage" means, with respect to any
Distribution Date, the percentage equivalent of a fraction, the numerator of
which is (x) the Group 2 Principal Remittance Amount for such Distribution Date,
and the denominator of which is (y) the Principal Remittance Amount for such
Distribution Date.
"Class 2AV Principal Distribution Amount" means as of any Distribution
Date on or after the Stepdown Date and as long as a Trigger Event is not in
effect, the excess of (x) the Certificate Principal Balance of the Class 2AV
Certificates immediately prior to such Distribution Date over (y) the lesser of
(A) the product of (i) approximately 62.30% and (ii) the Group 2 Balance as of
the last day of the related Collection Period and (B) the excess of the Group 2
Balance as of the last day of the related Collection Period over the product of
(i) 0.50% and (ii) the Group 2 Balance on the Cut-off Date.
S-89
"Class M-1 Principal Distribution Amount" means as of any Distribution
Date on or after the Stepdown Date and as long as a Trigger Event is not in
effect, the excess of (x) the sum of (i) the Certificate Principal Balance of
the Senior Certificates (after taking into account the payment of the Senior
Principal Distribution Amount on such Distribution Date) and (ii) the
Certificate Principal Balance of the Class M-1 Certificates immediately prior to
such Distribution Date over (y) the lesser of (A) the product of (i)
approximately 74.30% and (ii) the Pool Balance as of the last day of the related
Collection Period and (B) the excess of the Pool Balance as of the last day of
the related Collection Period over the product of (i) 0.50% and (ii) the Pool
Balance on the Cut-off Date.
"Class M-2 Principal Distribution Amount" means as of any Distribution
Date on or after the Stepdown Date and as long as a Trigger Event is not in
effect, the excess of (x) the sum of (i) the Certificate Principal Balance of
the Senior Certificates (after taking into account the payment of the Senior
Principal Distribution Amount on such Distribution Date), (ii) the Certificate
Principal Balance of the Class M-1 Certificates (after taking into account the
payment of the Class M-1 Principal Distribution Amount on such Distribution
Date) and (iii) the Certificate Principal Balances of the M-2 Certificates
immediately prior to such Distribution Date over (y) the lesser of (A) the
product of (i) approximately 84.30% and (ii) the Pool Balance as of the last day
of the related Collection Period and (B) the excess of the Pool Balance as of
the last day of the related Collection Period over the product of (i) 0.50% and
(ii) the Pool Balance on the Cut-off Date.
"Class M-3 Principal Distribution Amount" means as of any Distribution
Date on or after the Stepdown Date and as long as a Trigger Event is not in
effect, the excess of (x) the sum of (i) the Certificate Principal Balance of
the Senior Certificates (after taking into account the payment of the Senior
Principal Distribution Amount on such Distribution Date), (ii) the Certificate
Principal Balance of the Class M-1 Certificates (after taking into account the
payment of the Class M-1 Principal Distribution Amount on such Distribution
Date), (iii) the Certificate Principal Balance of the Class M-2 Certificates
(after taking into account the payment of the Class M-2 Principal Distribution
Amount on such Distribution Date) and (iv) the Certificate Principal Balances of
the M-3 Certificates immediately prior to such Distribution Date over (y) the
lesser of (A) the product of (i) approximately 86.20% and (ii) the Pool Balance
as of the last day of the related Collection Period and (B) the excess of the
Pool Balance as of the last day of the related Collection Period over the
product of (i) 0.50% and (ii) the Pool Balance on the Cut-off Date.
"Class M-4 Principal Distribution Amount" means as of any Distribution
Date on or after the Stepdown Date and as long as a Trigger Event is not in
effect, the excess of (x) the sum of (i) the Certificate Principal Balance of
the Senior Certificates (after taking into account the payment of the Senior
Principal Distribution Amount on such Distribution Date), (ii) the Certificate
Principal Balance of the Class M-1 Certificates (after taking into account the
payment of the Class M-1 Principal Distribution Amount on such Distribution
Date), (iii) the Certificate Principal Balance of the Class M-2 Certificates
(after taking into account the payment of the Class M-2 Principal Distribution
Amount on such Distribution Date), (iv) the Certificate Principal Balance of the
Class M-3 Certificates (after taking into account the payment of the Class M-3
Principal Distribution Amount on such Distribution Date) and (v) the Certificate
Principal Balances of the M-4 Certificates immediately prior to such
Distribution Date over (y) the lesser of (A) the product of (i) approximately
88.70% and (ii) the Pool Balance as of the last day of the related Collection
Period and (B) the excess of the Pool Balance as of the last day of the related
Collection Period over the product of (i) 0.50% and (ii) the Pool Balance on the
Cut-off Date.
"Class M-5 Principal Distribution Amount" means as of any Distribution
Date on or after the Stepdown Date and as long as a Trigger Event is not in
effect, the excess of (x) the sum of (i) the Certificate Principal Balance of
the Senior Certificates (after taking into account the payment of the Senior
Principal Distribution Amount on such Distribution Date), (ii) the Certificate
Principal Balance of the Class M-1 Certificates (after taking into account the
payment of the Class M-1 Principal Distribution Amount on such Distribution
Date), (iii) the Certificate Principal Balance of the Class M-2 Certificates
(after taking into account the payment of the Class M-2 Principal Distribution
Amount on such Distribution Date), (iv) the Certificate Principal Balance of the
Class M-3 Certificates (after taking into account the payment of the Class M-3
Principal Distribution Amount on such Distribution Date), (v) the Certificate
Principal Balance of the Class M-4 Certificates (after taking into account the
payment of the Class M-4 Principal Distribution Amount on such Distribution
Date) and (vi) the Certificate Principal Balances of the M-5 Certificates
immediately prior to such Distribution Date over (y) the lesser of (A) the
product of (i) approximately 90.80% and (ii) the Pool Balance as of the last day
of the related Collection Period and (B) the excess of the Pool Balance as of
the last day of the related Collection Period over the product of (i) 0.50% and
(ii) the Pool Balance on the Cut-off Date.
S-90
"Class M-6 Principal Distribution Amount" means as of any Distribution
Date on or after the Stepdown Date and as long as a Trigger Event is not in
effect, the excess of (x) the sum of (i) the Certificate Principal Balance of
the Senior Certificates (after taking into account the payment of the Senior
Principal Distribution Amount on such Distribution Date), (ii) the Certificate
Principal Balance of the Class M-1 Certificates (after taking into account the
payment of the Class M-1 Principal Distribution Amount on such Distribution
Date), (iii) the Certificate Principal Balance of the Class M-2 Certificates
(after taking into account the payment of the Class M-2 Principal Distribution
Amount on such Distribution Date), (iv) the Certificate Principal Balance of the
Class M-3 Certificates (after taking into account the payment of the Class M-3
Principal Distribution Amount on such Distribution Date), (v) the Certificate
Principal Balance of the Class M-4 Certificates (after taking into account the
payment of the Class M-4 Principal Distribution Amount on such Distribution
Date), (vi) the Certificate Principal Balance of the Class M-5 Certificates
(after taking into account the payment of the Class M-5 Principal Distribution
Amount on such Distribution Date) and (vii) the Certificate Principal Balances
of the M-6 Certificates immediately prior to such Distribution Date over (y) the
lesser of (A) the product of (i) approximately 94.80% and (ii) the Pool Balance
as of the last day of the related Collection Period and (B) the excess of the
Pool Balance as of the last day of the related Collection Period over the
product of (i) 0.50% and (ii) the Pool Balance on the Cut-off Date.
"Extra Principal Distribution Amount" means, as of any Distribution
Date, the lesser of (x) the Monthly Excess Cashflow Amount for such Distribution
Date and (y) the Overcollateralization Deficiency for such Distribution Date.
"Group 1 Principal Distribution Amount" means, with respect to any
Distribution Date, the sum of (i) (x) the Group 1 Principal Remittance Amount
for such Distribution Date minus (y) the amount of any Overcollateralization
Release Amount for such Distribution Date multiplied by the Class 1AV-1
Principal Allocation Percentage for such Distribution Date, and (ii) the Extra
Principal Distribution Amount for such Distribution Date multiplied by the Class
1AV-1 Principal Allocation Percentage for such Distribution Date.
"Group 1 Principal Remittance Amount" means, with respect to any
Distribution Date, the amount equal to the sum (less, with respect to the Group
1 Mortgage Loans, certain amounts available for reimbursement of Advances and
Servicing Advances as described above under "The Pooling and Servicing
Agreement--Advances" and certain other reimbursable expenses pursuant to the
Pooling and Servicing Agreement) of the following amounts (without duplication)
with respect to the Group 1 Mortgage Loans and the immediately preceding
Collection Period: (i) each payment of principal on a Group 1 Mortgage Loan due
during such Collection Period and received by the Servicer on or prior to the
related Determination Date, including any Advances with respect thereto, (ii)
all full and partial principal prepayments received by the Servicer on the Group
1 Mortgage Loans during the related Prepayment Period, (iii) the liquidation
proceeds (net of certain expenses) allocable to principal actually collected by
the Servicer on the Group 1 Mortgage Loans during the related Prepayment Period,
(iv) the portion of the Purchase Price allocable to principal of all repurchased
Defective Mortgage Loans that are Group 1 Mortgage Loans with respect to such
Prepayment Period, (v) any Substitution Adjustments received with respect to
Group 1 Mortgage Loans on or prior to the previous Determination Date and not
yet distributed, and (vi) on the Distribution Date on which the Trust is to be
terminated in accordance with the Pooling and Servicing Agreement, that portion
of the Termination Price in respect of principal on the Group 1 Mortgage Loans.
"Group 2 Principal Distribution Amount" means, with respect to any
Distribution Date, the sum of (i) (x) the Group 2 Principal Remittance Amount
for such Distribution Date minus (y) the amount of any Overcollateralization
Release Amount for such Distribution Date multiplied by the Class 2AV Principal
Allocation Percentage for such Distribution Date, and (ii) the Extra Principal
Distribution Amount for such Distribution Date multiplied by the Class 2AV
Principal Allocation Percentage for such Distribution Date.
"Group 2 Principal Remittance Amount" means, with respect to any
Distribution Date, the amount equal to the sum (less, with respect to the Group
2 Mortgage Loans, certain amounts available for reimbursement of Advances and
Servicing Advances as described above under "The Pooling and Servicing
Agreement--Advances" and certain other reimbursable expenses pursuant to the
Pooling and Servicing Agreement) of the following amounts (without duplication)
with respect to the Group 2 Mortgage Loans and the immediately preceding
Collection Period: (i) each payment of principal on a Group 2 Mortgage Loan due
during such Collection Period and received by the Servicer on or prior to the
related Determination Date, including any Advances with respect thereto, (ii)
all full and partial principal prepayments received by the Servicer on the Group
2 Mortgage Loans during the related Prepayment Period, (iii) the liquidation
proceeds (net of certain expenses) allocable to principal actually collected by
the Servicer on the Group 2 Mortgage Loans during the related Prepayment Period,
(iv) the portion of the Purchase Price allocable to principal of all repurchased
Defective Mortgage Loans that are Group 2 Mortgage Loans with respect to such
Prepayment Period, (v) any Substitution Adjustments received with respect to
Group 2 Mortgage Loans on or prior to the previous Determination Date and not
yet distributed, and (vi) on the Distribution Date on which the Trust is to be
terminated in accordance with the Pooling and Servicing Agreement, that portion
of the Termination Price in respect of principal on the Group 2 Mortgage Loans.
S-91
"Group 3 Principal Distribution Amount" means, with respect to any
Distribution Date, the sum of (i) (x) the Group 3 Principal Remittance Amount
for such Distribution Date minus (y) the amount of any Overcollateralization
Release Amount for such Distribution Date multiplied by the Class AF Principal
Allocation Percentage for such Distribution Date, and (ii) the Extra Principal
Distribution Amount for such Distribution Date multiplied by the Class AF
Principal Allocation Percentage for such Distribution Date.
"Group 3 Principal Remittance Amount" means, with respect to any
Distribution Date, the amount equal to the sum (less, with respect to the Group
3 Mortgage Loans, certain amounts available for reimbursement of Advances and
Servicing Advances as described above under "The Pooling and Servicing
Agreement--Advances" and certain other reimbursable expenses pursuant to the
Pooling and Servicing Agreement) of the following amounts (without duplication)
with respect to the Group 3 Mortgage Loans and the immediately preceding
Collection Period: (i) each payment of principal on a Group 3 Mortgage Loan due
during such Collection Period and received by the Servicer on or prior to the
related Determination Date, including any Advances with respect thereto, (ii)
all full and partial principal prepayments received by the Servicer on the Group
3 Mortgage Loans during the related Prepayment Period, (iii) the liquidation
proceeds (net of certain expenses) allocable to principal actually collected by
the Servicer on the Group 3 Mortgage Loans during the related Prepayment Period,
(iv) the portion of the Purchase Price allocable to principal of all repurchased
Defective Mortgage Loans that are Group 3 Mortgage Loans with respect to such
Prepayment Period, (v) any Substitution Adjustments received with respect to
Group 3 Mortgage Loans on or prior to the previous Determination Date and not
yet distributed, and (vi) on the Distribution Date on which the Trust is to be
terminated in accordance with the Pooling and Servicing Agreement, that portion
of the Termination Price in respect of principal on the Group 3 Mortgage Loans.
"Overcollateralization Amount" means, as of any Distribution Date the
excess, if any, of (x) the Pool Balance as of the last day of the immediately
preceding Collection Period over (y) the aggregate Certificate Principal Balance
of all classes of Offered Certificates and the Class M-6 Certificates (after
taking into account all distributions of principal on such Distribution Date).
"Overcollateralization Deficiency" means, as of any Distribution Date,
the excess, if any, of (x) the Targeted Overcollateralization Amount for such
Distribution Date over (y) the Overcollateralization Amount for such
Distribution Date, calculated for this purpose after taking into account the
reduction on such Distribution Date of the Certificate Principal Balances of all
classes of Certificates resulting from the distribution of the Principal
Distribution Amount (but not the Extra Principal Distribution Amount) on such
Distribution Date, but prior to taking into account any Applied Realized Loss
Amounts on such Distribution Date.
"Overcollateralization Release Amount" means, with respect to any
Distribution Date on or after the Stepdown Date on which a Trigger Event is not
in effect, the lesser of (x) the Principal Remittance Amount for such
Distribution Date and (y) the excess, if any, of (i) the Overcollateralization
Amount for such Distribution Date, assuming that 100% of the Principal
Remittance Amount is applied as a principal payment on the Offered Certificates
and the Class M-6 Certificates on such Distribution Date, over (ii) the Targeted
Overcollateralization Amount for such Distribution Date.
"Principal Distribution Amount" means as of any Distribution Date, the
sum of (i) the Principal Remittance Amount (minus the Overcollateralization
Release Amount, if any) and (ii) the Extra Principal Distribution Amount, if
any.
"Principal Remittance Amount" means, with respect to any Distribution
Date, the sum of the Group 1 Principal Remittance Amount, the Group 2 Principal
Remittance Amount and the Group 3 Principal Remittance Amount.
S-92
"Senior Credit Support Depletion Date" means the Distribution Date on
which the aggregate Certificate Principal Balance of the Class M-1, Class M-2,
Class M-3, Class M-4, Class M-5 and Class M-6 Certificates has been reduced to
zero.
"Senior Enhancement Percentage" for any Distribution Date is the
percentage obtained by dividing (x) the sum of (i) the aggregate Certificate
Principal Balance of the Subordinate Certificates and (ii) the
Overcollateralization Amount, in each case before taking into account the
distribution of the Principal Distribution Amount on such Distribution Date by
(y) the Pool Balance as of the last day of the related Collection Period.
"Senior Principal Distribution Amount" means, with respect to any
Distribution Date, the sum of the Class 1AV-1 Principal Distribution Amount, the
Class 2AV Principal Distribution Amount and the Class AF Principal Distribution
Amount for such Distribution Date.
"Senior Specified Enhancement Percentage" on any date of determination
thereof means approximately 37.70%.
"60+ Day Delinquent Loan" means on any date of determination each
Mortgage Loan with respect to which any portion of a Monthly Payment is, as of
the last day of the related Collection Period, two months or more past due, each
Mortgage Loan in foreclosure, all REO Property and each Mortgage Loan for which
the mortgagor has filed for bankruptcy after the Closing Date.
"Stepdown Date" means the earlier to occur of (x) the later to occur of
(A) the Distribution Date in December 2006 and (B) the first Distribution Date
on which the Senior Enhancement Percentage is greater than or equal to the
Senior Specified Enhancement Percentage, and (y) the Distribution Date on which
the aggregate Certificate Principal Balance of the Senior Certificates is
reduced to zero.
"Targeted Overcollateralization Amount" means as of any Distribution
Date, (x) prior to the Stepdown Date, 2.60% of the initial Pool Balance and (y)
on and after the Stepdown Date, (A) so long as a Trigger Event is not in effect
as of such Distribution Date, the greater of (i) 0.50% of the initial Pool
Balance and (ii) 5.20% of the Pool Balance as of the last day of the related
Collection Period, or (B) if a Trigger Event is in effect as of such
Distribution Date, the Targeted Overcollateralization Amount as of the
immediately preceding Distribution Date.
A "Trigger Event" has occurred on a Distribution Date if any of the
following conditions exist as of the last day of the preceding Collection
Period: (i) the six-month rolling average of 60+ Day Delinquent Loans equals or
exceeds 43.00% of the Senior Enhancement Percentage or (ii) the aggregate amount
of Realized Losses incurred since the Cut-off Date through the last day of the
related Collection Period divided by the initial Pool Balance exceeds the
applicable percentages set forth below with respect to such Distribution Date:
Distribution Date Occurring In Percentage
December 2006 through November 2007 2.75%
December 2007 through November 2008 4.50%
December 2008 through November 2009 6.00%
December 2009 and thereafter 6.60%
Allocation of Losses
A "Realized Loss" is:
o as to any Liquidated Mortgage Loan, the unpaid Principal Balance
thereof plus accrued and unpaid interest thereon at the Mortgage
Interest Rate through the last day of the month of liquidation, less
the net proceeds from the liquidation of, and any insurance proceeds
from, such Mortgage Loan and the related Mortgaged Property.
o as to any Mortgage Loan, a Deficient Valuation.
S-93
o as to any Mortgage Loan, a reduction in the Principal Balance thereof
resulting from a Servicer Modification.
A "Liquidated Mortgage Loan" is any defaulted Mortgage Loan as to which
the Servicer has determined that all amounts which it expects to recover from or
on account of such Mortgage Loan have been recovered.
A Realized Loss may result from the personal bankruptcy of a mortgagor
if the bankruptcy court establishes the value of the Mortgaged Property at an
amount less than the then outstanding Principal Balance of the Mortgage Loan
secured by such Mortgaged Property and reduces the secured debt to such value.
In such case, the Trust, as the holder of such Mortgage Loan, would become an
unsecured creditor to the extent of the difference between the outstanding
Principal Balance of such mortgage loan and such reduced secured debt (such
difference, a "Deficient Valuation").
If a Mortgage Loan is in default, or if default is reasonably
foreseeable, the Servicer may permit a modification of such Mortgage Loan to
reduce its Principal Balance and/or extend its term to a term not longer than
the latest maturity date of any other Mortgage Loan (any such modification, a
"Servicer Modification"). Any such principal reduction will constitute a
Realized Loss at the time of such reduction. An extension of the term will not
result in a Realized Loss unless coupled with a principal reduction.
Realized Losses will, in effect, be absorbed first by the Class X
Certificates (through the application of the Monthly Excess Cashflow Amount to
fund such deficiency, as well as through a reduction in the
Overcollateralization Amount).
If, after giving effect to the distribution of the Principal
Distribution Amount on any Distribution Date the aggregate Certificate Principal
Balance of the Offered Certificates and the Class M-6 Certificates exceeds the
Pool Balance as of the end of the related Collection Period, such excess will be
allocated against the Class M-6, Class M-5, Class M-4, Class M-3, Class M-2 and
Class M-1 Certificates, in that order, until the respective Certificate
Principal Balances thereof are reduced to zero. Any allocation of such excess in
reduction of a Certificate Principal Balance is referred to as an "Applied
Realized Loss Amount." No such excess will be allocated against the Senior
Certificates. Any such reduction of a Certificate Principal Balance will not be
reversed or reinstated. However, on future Distribution Dates,
Certificateholders of the related class may receive amounts in respect of prior
reductions in the related Certificate Principal Balances as described below.
Such subsequent payments will be applied in the reverse of the order set forth
above.
Application of Monthly Excess Cashflow Amounts
The weighted average Net Mortgage Interest Rate for the Mortgage Loans
is generally expected to be higher than the weighted average of the Pass-Through
Rates on the Certificates, thus generating certain excess interest collections
which, in the absence of losses, will not be necessary to fund interest
distributions on the Certificates. This excess interest for a Collection Period
is the "Monthly Excess Interest Amount."
The "Net Mortgage Interest Rate" for each Mortgage Loan (other than
Simple Interest Mortgage Loans) is the applicable Mortgage Interest Rate less
the sum of (i) the Servicing Fee Rate and (ii) the rate at which the Trustee Fee
accrues. The "Mortgage Interest Rate" for each Simple Interest Mortgage Loan for
purposes of calculating the Subordinate Cap and the Group Cap with respect to
the Class 1AV-1, Class 2AV, Class AF-1 and Class M Certificates is (i) the
product of (A) that portion of the payment on such Mortgage Loan during the
related Interest Accrual Period that reflects accrued interest on such Mortgage
Loan times (B) 360, divided by (ii) the product of (A) the number of days in
such Interest Accrual Period and (B) the principal balance in respect of such
Mortgage Loan as of the beginning of the related Interest Accrual Period. The
"Mortgage Interest Rate" for each Simple Interest Mortgage Loan for purposes of
calculating the Group Cap with respect to the Class AF Certificates (other than
the Class AF-1 Certificates) is (i)(A) that portion of the payment on such
Mortgage Loan during the related Interest Accrual Period that reflects accrued
interest on such Mortgage Loan times (B) 12, divided by (ii) the principal
balance in respect of such Mortgage Loan as of the beginning of the related
Interest Accrual Period.
S-94
The required level of overcollateralization for any Distribution Date
is the Targeted Overcollateralization Amount. On the Closing Date, the
Overcollateralization Amount is approximately $11,303,886. The Targeted
Overcollateralization Amount is initially approximately $11,299,909.
If Realized Losses not covered by an application of the Monthly Excess
Cashflow Amount or absorbed by the Overcollateralization Amount occur, such
Realized Losses will result in an Overcollateralization Deficiency (since it
will reduce the Pool Balance without giving rise to a corresponding reduction of
the aggregate Certificate Principal Balance of the Certificates). The cashflow
priorities of the Trust Fund require that, in this situation, an Extra Principal
Distribution Amount be paid (subject to the availability of any Monthly Excess
Cashflow Amount in subsequent months) for the purpose of re-establishing the
Overcollateralization Amount at the then-required Targeted Overcollateralization
Amount.
On and after the Stepdown Date and assuming that a Trigger Event is not
in effect, the Targeted Overcollateralization Amount may be permitted to
decrease or "step-down." If the Targeted Overcollateralization Amount is
permitted to "step-down" on a Distribution Date, the Pooling and Servicing
Agreement permits a portion of the Principal Remittance Amount for such
Distribution Date not to be passed through as a distribution of principal on the
Offered Certificates and Class M-6 Certificates on such Distribution Date. This
has the effect of decelerating the amortization of the Certificates relative to
the Pool Balance, thereby reducing the actual level of the Overcollateralization
Amount to the new, lower Targeted Overcollateralization Amount. This portion of
the Principal Remittance Amount not distributed as principal on the Certificates
therefore releases Overcollateralization Release Amounts from the Trust Fund.
On any Distribution Date, the sum of the Monthly Excess Interest
Amount, the Overcollateralization Release Amount and any portion of the
Principal Distribution Amount (without duplication) remaining after principal
distributions on the Offered Certificates and the Class M-6 Certificates is the
"Monthly Excess Cashflow Amount," which is required to be applied in the
following order of priority on such Distribution Date:
(i) to the class or classes of Certificates then entitled to
receive distributions in respect of principal, in an amount equal to
the Extra Principal Distribution Amount for such Distribution Date,
payable to such holders as part of the related Principal Distribution
Amount as described under "--Principal Distributions" above;
(ii) to the Class M-1 Certificates, any remaining Accrued
Certificate Interest for such Distribution Date;
(iii) to the Class M-1 Certificates, the Interest Carry
Forward Amount for such Class and Distribution Date, if any;
(iv) to the Class M-1 Certificates, the Unpaid Realized Loss
Amount for such Class and Distribution Date;
(v) to the Class M-2 Certificates, any remaining Accrued
Certificate Interest for such Distribution Date;
(vi) to the Class M-2 Certificates, the Interest Carry Forward
Amount for such Class and Distribution Date, if any;
(vii) to the Class M-2 Certificates, the Unpaid Realized Loss
Amount for such Class and Distribution Date;
(viii) to the Class M-3 Certificates, any remaining Accrued
Certificate Interest for such Distribution Date;
(ix) to the Class M-3 Certificates, the Interest Carry Forward
Amount for such Class and Distribution Date, if any;
S-95
(x) to the Class M-3 Certificates, the Unpaid Realized Loss
Amount for such Class and Distribution Date;
(xi) to the Class M-4 Certificates, any remaining Accrued
Certificate Interest for such Distribution Date;
(xii) to the Class M-4 Certificates, the Interest Carry
Forward Amount for such Class and Distribution Date, if any;
(xiii) to the Class M-4 Certificates, the Unpaid Realized Loss
Amount for such Class and Distribution Date;
(xiv) to the Class M-5 Certificates, any remaining Accrued
Certificate Interest for such Distribution Date;
(xv) to the Class M-5 Certificates, the Interest Carry Forward
Amount for such Class and Distribution Date, if any;
(xvi) to the Class M-5 Certificates, the Unpaid Realized Loss
Amount for such Class and Distribution Date;
(xvii) to the Class M-6 Certificates, any remaining Accrued
Certificate Interest for such Distribution Date;
(xviii) to the Class M-6 Certificates, the Interest Carry
Forward Amount for such Class and Distribution Date, if any;
(xix) to the Class M-6 Certificates, the Unpaid Realized Loss
Amount for such Class and Distribution Date;
(xx) to fund the Basis Risk Reserve Fund Deposit; and
(xxi) to fund distributions to the Holders of the Class N,
Class X and Residual Certificates and in certain circumstances to make
payments to the Cap Provider, in each case in the amounts specified in
the Pooling and Servicing Agreement.
Any payment of an Unpaid Realized Loss Amount to a class of
Certificates will not result in a further reduction to the Certificate Principal
Balance of that class.
"Unpaid Realized Loss Amount" means, with respect to each class of
Subordinate Certificates and any Distribution Date, the excess of (x) the
cumulative amount of Applied Realized Loss Amounts with respect to such class
for all Distribution Dates over (y) the cumulative amount of payments in respect
of Unpaid Realized Loss Amounts to such class for all prior Distribution Dates.
Pass-Through Rates
Interest for each Distribution Date will accrue on the Class 1AV-1,
Class 2AV, Class AF-1 and Class M Certificates during the related Interest
Accrual Period at a per annum rate equal to the lesser of (i) LIBOR plus the
applicable certificate margin set forth below (each such rate, a "Pass-Through
Rate") and (ii) the applicable Rate Cap for such Distribution Date.
S-96
On and Prior to the Optional After the Optional
Certificate Margin Termination Date Termination Date
------------------ ---------------------------- ------------------
Class 1AV-1 Margin 0.370% 0.740%
Class 2AV-1 Margin 0.230% 0.460%
Class 2AV-2 Margin 0.530% 1.060%
Class AF-1 Margin 0.170% 0.340%
Class M-1 Margin 0.700% 1.050%
Class M-2 Margin 1.500% 2.250%
Class M-3 Margin 1.700% 2.550%
Class M-4 Margin 2.050% 3.075%
Class M-5 Margin 2.650% 3.975%
Class M-6 Margin 2.650% 3.975%
Interest for each Distribution Date will accrue on the Class AF
Certificates (other than the Class AF-1 Certificates) during the related
Interest Accrual Period at a per annum rate equal to the lesser of (i) the rate
set forth in the table below (such rate, a "Pass-Through Rate") and (ii) the
applicable Rate Cap for such Distribution Date. Interest for each Distribution
Date.
Rate On and Prior to the Rate After the Optional
Class Optional Termination Date Termination Date
- --------------- ------------------------- -----------------------
Class AF-2 2.925% 2.925%
Class AF-3 3.490% 3.490%
Class AF-4 4.607% 4.607%
Class AF-5 5.474% 5.974%
Class AF-6 4.570% 5.070%
The "Rate Cap" with respect to the Class 1AV-1, Class 2AV and Class AF
Certificates and any Distribution Date is the lesser of (i) the Group Cap for
Loan Group 1, Loan Group 2 and Loan Group 3, respectively, for such Distribution
Date and (ii) the Maximum Cap for Loan Group 1, Loan Group 2 and Loan Group 3,
respectively, for such Distribution Date. The Rate Cap with respect to each
Class of Subordinate Certificates and any Distribution Date is the lesser of (i)
the Subordinate Cap for such Distribution Date and (ii) the Maximum Cap with
respect to the Subordinate Certificates for such Distribution Date.
The "Group Cap" for any Loan Group and Distribution Date will be a per
annum rate equal to the weighted average Net Mortgage Interest Rate for the
Mortgage Loans in such Loan Group (weighted on the basis of the principal
balances of the related Mortgage Loans as of the first day of the related
Collection Period); such result to be adjusted as necessary to an effective rate
reflecting the accrual of interest on an actual/360 basis with respect to the
Class 1AV-1, Class 2AV, Class AF-1 and Class M Certificates and on a 30/360
basis with respect to the Class AF Certificates (other than the Class AF-1
Certificates).
S-97
The "Subordinate Cap" for any Distribution Date will equal the weighted
average of the Group Caps (each adjusted as necessary to an effective rate
reflecting the accrual of interest on an actual/360 basis) for Loan Group 1,
Loan Group 2 and Loan Group 3 and such Distribution Date (weighted on the basis
of the excess of the Group Balance of each such Loan Group as of the first day
of the related Collection Period over the Certificate Principal Balance of the
Senior Certificates related to such Loan Group on such Distribution Date (prior
to all distributions to be made on such Distribution Date)).
The "Maximum Cap" for any Loan Group, the Senior Certificates and any
Distribution Date will be a per annum rate equal to the weighted average
Adjusted Net Maximum Mortgage Interest Rate for the Mortgage Loans in such Loan
Group (weighted on the basis of the principal balances of the related Mortgage
Loans as of the first day of the related Collection Period); such result to be
adjusted as necessary to an effective rate reflecting the accrual of interest on
an actual/360 basis with respect to the Class 1AV-1, Class 2AV and Class AF-1
Certificates and on a 30/360 basis with respect to the Class AF Certificates
(other than the Class AF-1 Certificates). The "Maximum Cap" for the Subordinate
Certificates and any Distribution Date will equal the weighted average of the
Maximum Caps (each adjusted as necessary to an effective rate reflecting the
accrual of interest on an actual/360 basis) for Loan Group 1, Loan Group 2 and
Loan Group 3 and such Distribution Date (weighted on the basis of the excess of
the Group Balance of each such Loan Group as of the first day of the related
Collection Period over the Certificate Principal Balance of the Senior
Certificates related to such Loan Group on such Distribution Date (prior to all
distributions to be made on such Distribution Date)).
The "Adjusted Net Maximum Mortgage Interest Rate" for each Mortgage
Loan is the applicable Maximum Mortgage Interest Rate (or the applicable
Mortgage Interest Rate if such Mortgage Loan is a Fixed-Rate Mortgage Loan) less
the sum of (i) the Servicing Fee Rate and (ii) the rate at which the Trustee Fee
accrues.
If on any Distribution Date, the Accrued Certificate Interest for any
of the Class 1AV-1, Class 2AV, Class AF or Class M Certificates is based on the
Rate Cap for such Certificate, the excess of (i) the amount of interest such
Certificate would have been entitled to receive on such Distribution Date based
on its Pass-Through Rate, over (ii) the amount of interest such Certificate
actually received on such Distribution Date based on such Rate Cap, together
with the unpaid portion of any such excess from prior Distribution Dates (and
interest accrued thereon at the then applicable Pass-Through Rate on such
Certificate, adjusted as necessary to reflect the accrual of interest on an
actual/360 basis with respect to the Class 1AV-1, Class 2AV, Class AF-1 and
Class M Certificates and on a 30/360 basis with respect to the Class AF
Certificates (other than the Class AF-1 Certificates) will be the "Net Rate
Carryover Amount." Any Net Rate Carryover Amount will be paid on the same or
future Distribution Dates first from amounts, if any, received in respect of the
Interest Rate Cap Agreements and second from amounts on deposit in the Basis
Risk Reserve Fund.
Calculation of LIBOR
LIBOR for the first Distribution Date will be determined on the second
business day preceding the Closing Date and for each subsequent Distribution
Date will be determined on the second business day prior to the immediately
preceding Distribution Date (each such date, a "LIBOR Determination Date"). With
respect to each Distribution Date, "LIBOR" will equal the interbank offered rate
for one-month United States dollar deposits in the London market as quoted on
Telerate Page 3750 as of 11:00 A.M., London time, on the related LIBOR
Determination Date. "Telerate Page 3750" means the display designated as page
3750 on the Bridge Telerate (or such other page as may replace page 3750 on that
service for the purpose of displaying London interbank offered rates of major
banks). If such rate does not appear on such page (or such other page as may
replace that page on that service, or if such service is no longer offered, such
other service for displaying LIBOR or comparable rates as may be selected by the
Trustee after consultation with the Servicer), the rate will be the Reference
Bank Rate. The "Reference Bank Rate" will be determined on the basis of the
rates at which deposits in U.S. Dollars are offered by the reference banks
(which shall be three major banks that are engaged in transactions in the London
interbank market, selected by the Trustee after consultation with the Servicer)
as of 11:00 A.M., London time, on the related LIBOR Determination Date to prime
banks in the London interbank market for a period of one month in amounts
approximately equal to the aggregate Certificate Principal Balance of the
Certificates. The Trustee will request the principal London office of each of
the reference banks to provide a quotation of its rate. If at least two such
quotations are provided, the rate will be the arithmetic mean of the quotations.
If on such date fewer than two quotations are provided as requested, the rate
will be the arithmetic mean of the rates quoted by one or more major banks in
New York City, selected by the Trustee after consultation with the Servicer, as
of 11:00 A.M., New York City time, on such date for loans in U.S. Dollars to
leading European banks for a period of one month in amounts approximately equal
to the aggregate Certificate Principal Balance of the Certificates. If no such
quotations can be obtained, the rate will be LIBOR for the prior Distribution
Date.
S-98
The establishment of LIBOR on each LIBOR Determination Date by the
Trustee and the Trustee's calculation of the rate of interest applicable to the
Certificates for the related Interest Accrual Period shall (in the absence of
manifest error) be final and binding.
Basis Risk Reserve Fund
The Pooling and Servicing Agreement will establish an account (the
"Basis Risk Reserve Fund"), which will be held in trust by the Trustee on behalf
of the Certificateholders. On the Closing Date, the Seller will deposit $5,000
in the Basis Risk Reserve Fund. The Basis Risk Reserve Fund will not be an asset
of any REMIC.
As described above under "--Application of Monthly Excess Cashflow
Amounts," on each Distribution Date, the Trustee will deposit in the Basis Risk
Reserve Fund an amount (the "Basis Risk Reserve Fund Deposit") equal to the
lesser of:
(1) the sum of:
(a) the sum of any Net Rate Carryover Amounts for
such Distribution Date that remain unpaid following the
distribution of amounts in the Interest Rate Cap Account on
such Distribution Date to pay such amounts, and
(b) any other amounts required to be deposited
therein pursuant to the Pooling and Servicing Agreement;
and
(2) any Monthly Excess Cashflow Amount remaining on such
Distribution Date following the distributions pursuant to clauses (i)
through (xix) under "--Application of Monthly Excess Cashflow Amounts"
above.
Following such deposit on each Distribution Date, amounts in the Basis
Risk Reserve Fund will be available to pay any Net Rate Carryover Amounts in the
following order of priority: (i) amounts attributable to Monthly Excess Cashflow
Amounts deposited in the Basis Risk Reserve Fund in respect of Loan Group 1,
Loan Group 2 and Loan Group 3 will be used to pay any unpaid Net Rate Carryover
Amount to the Class 1AV-1, Class 2AV and Class AF Certificates, respectively;
(ii) any remaining amounts in the Basis Risk Reserve Fund will be distributed to
the extent of any related unpaid Net Rate Carryover Amounts concurrently to the
Class 1AV-1, Class 2AV and Class AF Certificates, pro rata (based on each such
Class' unpaid Net Rate Carryover Amount), and (iii) any remaining amounts in the
Basis Risk Reserve Fund will be distributed to the extent of any related unpaid
Net Rate Carryover Amounts sequentially to the Class M-1, Class M-2, Class M-3,
Class M-4, Class M-5 and Class M-6 Certificates, provided, however, that the
Class M-6 Certificates will not receive any payments from any Interest Rate Cap
Agreement.
S-99
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
The yields to maturity and weighted average lives of the Offered
Certificates will depend upon, among other things, the related price at which
such Offered Certificates are purchased, the amount and timing of principal
payments on the related Mortgage Loans, the allocation of Available Funds to
various classes of Offered Certificates, the amount and timing of mortgagor
delinquencies and defaults on the related Mortgage Loans, the rate of
liquidations and Realized Losses and the allocation of Realized Losses to
various classes of Offered Certificates.
The rate of payment of principal, the aggregate amount of distributions
and the yield to maturity of the Offered Certificates will be affected by the
rate of defaults on the related Mortgage Loans resulting in Realized Losses, by
the severity of these losses and by the timing thereof. If a purchaser of an
Offered Certificate calculates its anticipated yield based on an assumed rate of
default and amount of Realized Losses that is lower than the default rate and
amount of losses actually incurred, its actual yield to maturity will be lower
than that so calculated. The timing of Realized Losses will also affect an
investor's actual yield to maturity, even if the average rate of defaults and
severity of losses are consistent with an investor's expectations. In general,
the earlier a loss occurs, the greater is the effect on an investor's yield to
maturity. There can be no assurance as to the delinquency, foreclosure or loss
experience with respect to the Mortgage Loans. Some of the Mortgage Loans may
have a greater than normal risk of future defaults and delinquencies, as
compared to newly originated, high quality one- to four-family residential
mortgage loans of comparable size and geographic concentration because such
Mortgage Loans have in the past defaulted, and in addition, the Bankruptcy Plan
Mortgage Loans have been involved in subsequent proceedings under the federal
Bankruptcy Code, either as liquidations under Chapter 7 or reorganizations with
approved bankruptcy plans under Chapter 11 or Chapter 13. See "The Mortgage
Pool--General" in this Prospectus Supplement.
The rate of principal payments, the aggregate amount of distributions
and the yields to maturity of the Offered Certificates will be related to the
rate and timing of payments of principal on the related Mortgage Loans. The rate
of principal payments on the Mortgage Loans will in turn be affected by the
amortization schedules of the Mortgage Loans and by the rate of principal
prepayments (including for this purpose prepayments resulting from refinancing,
liquidations of the Mortgage Loans due to defaults, casualties or condemnations
and repurchases by the Seller or Servicer). Because certain of the Mortgage
Loans contain prepayment penalties, the rate of principal payments may be less
than the rate of principal payments for mortgage loans which did not have
prepayment penalties. The Mortgage Loans are subject to the "due-on-sale"
provisions included therein. See "The Mortgage Pool" in this Prospectus
Supplement.
Unscheduled payments of principal (whether resulting from prepayments,
repurchases, liquidations, casualties or condemnations) will result in
distributions on the related Offered Certificates of principal amounts which
would otherwise be distributed over the remaining terms of the Mortgage Loans.
Since the rate of payment of principal on the Mortgage Loans will depend on
future events and a variety of other factors, no assurance can be given as to
such rate or the rate of principal prepayments. The extent to which the yield to
maturity of a class of Offered Certificates may vary from the anticipated yield
will depend upon the degree to which such class of Offered Certificates is
purchased at a discount or premium, and the degree to which the timing of
payments thereon is sensitive to prepayments, liquidations and purchases of the
Mortgage Loans. Further, an investor should consider the risk that, in the case
of any Offered Certificate purchased at a discount, a slower than anticipated
rate of principal payments (including prepayments) on the Mortgage Loans could
result in an actual yield to such investor that is lower than the anticipated
yield and, in the case of any Offered Certificate purchased at a premium, a
faster than anticipated rate of principal payments on the Mortgage Loans could
result in an actual yield to such investor that is lower than the anticipated
yield.
When a mortgagor prepays a mortgage loan in full between its due dates,
the mortgagor pays interest on the amount prepaid only to the date of prepayment
instead of for the entire month. Also, when a prepayment in part is made on a
mortgage loan together with the scheduled payment for a month on or after the
related due date, the principal balance of the mortgage loan is reduced by the
amount of the prepayment in part as of that due date, but the principal from
that mortgage loan is not paid to the holders of certificates until the
distribution date in the next month. As a result, one month of interest
shortfall accrues on the amount of such principal prepayment in part.
To reduce the adverse effect on certificateholders from the deficiency
in interest payable as a result of a prepayment in full on a mortgage loan
between its due dates, the servicer will pay Compensating Interest to the
limited extent and in the manner described above under "The Pooling and
Servicing Agreement--Servicing and Other Compensation and Payment of Expenses."
S-100
To the extent that the amount allocated to pay Compensating Interest is
insufficient to cover the deficiency in interest payable as a result of the
timing of a principal prepayment in full, or to the extent that there is an
interest deficiency from a prepayment in part on a mortgage loan, such remaining
deficiency will be covered by excess interest collections on the mortgage loans
to the extent available.
The rate of principal payments (including prepayments) on pools of
mortgage loans may vary significantly over time and may be influenced by a
variety of economic, geographic, social and other factors, including changes in
mortgagors' housing needs, job transfers, unemployment, mortgagors' net equity
in the mortgaged properties and servicing decisions. In general, if prevailing
interest rates were to fall significantly below the Mortgage Interest Rates on
the Mortgage Loans, such Mortgage Loans could be subject to higher prepayment
rates than if prevailing interest rates were to remain at or above the Mortgage
Interest Rates on such Mortgage Loans. Conversely, if prevailing interest rates
were to rise significantly, the rate of prepayments on such Mortgage Loans would
generally be expected to decrease. As is the case with the Fixed-Rate Mortgage
Loans, the Adjustable-Rate Mortgage Loans may be subject to a greater rate of
principal prepayments in a low interest rate environment. For example, if
prevailing interest rates were to fall, mortgagors with adjustable-rate mortgage
loans may be inclined to refinance their adjustable-rate mortgage loans with a
fixed-rate loan to "lock in" a lower interest rate. The existence of the
applicable Periodic Rate Cap and Maximum Rate also may affect the likelihood of
prepayments resulting from refinancings. No assurances can be given as to the
rate of prepayments on the Mortgage Loans in stable or changing interest rate
environments. In addition, the delinquency and loss experience of the
Adjustable-Rate Mortgage Loans may differ from that on the Fixed-Rate Mortgage
Loans because the amount of the Monthly Payments on the Adjustable-Rate Mortgage
Loans are subject to adjustment on each Adjustment Date. In addition, a majority
of the Adjustable-Rate Mortgage Loans will not have their initial Adjustment
Date for two to five years after the origination thereof (each, a "Delayed First
Adjustment Mortgage Loan"). The prepayment experience of the Delayed First
Adjustment Mortgage Loans may differ from that of the other Adjustable-Rate
Mortgage Loans. The Delayed First Adjustment Mortgage Loans may be subject to
greater rates of prepayments as they approach their initial Adjustment Dates
even if market interest rates are only slightly higher or lower than the
Mortgage Interest Rates on the Delayed First Adjustment Mortgage Loans as
borrowers seek to avoid changes in their Monthly Payments.
The weighted average life and yield to maturity of each class of
Certificates will also be influenced by the amount of Monthly Excess Cashflow
Amounts generated by the Mortgage Loans and applied in reduction of the
Certificate Principal Balances of such Certificates. The level of Monthly Excess
Cashflow Amounts available on any Distribution Date to be applied in reduction
of the Certificate Principal Balance of the Certificates will be influenced by,
among other factors, (i) the overcollateralization level of the Mortgage Loans
at such time (i.e., the extent to which interest on the Mortgage Loans is
accruing on a higher Principal Balance than the aggregate Certificate Principal
Balance of the Certificates); (ii) the delinquency and default experience of the
Mortgage Loans; and (iii) the level of the various indices for the
Adjustable-Rate Mortgage Loans. To the extent that greater amounts of Monthly
Excess Cashflow Amounts are distributed in reduction of the Certificate
Principal Balance of a class of Certificates, the weighted average life thereof
can be expected to shorten. No assurance can be given as to the amount of
Monthly Excess Cashflow Amounts distributed at any time or in the aggregate.
The Subordinate Certificates are not expected to receive any principal
distributions until the Distribution Date in December 2006 at the earliest
(unless the aggregate Certificate Principal Balance of the Senior Certificates
are reduced to zero prior thereto). As a result, the weighted average lives of
the Subordinate Certificates will be longer than would have been the case if
principal distributions were to be made on a pro rata basis. The longer weighted
average lives may increase the risk that an Applied Realized Loss Amount will be
allocated to one or more classes of the Subordinate Certificates.
Additional Information
The Depositor has filed certain yield tables and other computational
materials with respect to the Offered Certificates with the Commission in a
report on Form 8-K and may file certain additional yield tables and other
computational materials with respect to one or more classes of Offered
Certificates with the Commission in a report on Form 8-K. Such tables and
materials were prepared by one or more of the Underwriters at the request of
certain prospective investors, based on assumptions provided by, and satisfying
the special requirements of, such prospective investors. Such tables and
assumptions may be based on assumptions that differ from the Structuring
Assumptions. Accordingly, such tables and other materials may not be relevant to
or appropriate for investors other than those specifically requesting them.
S-101
Weighted Average Lives
The timing of changes in the rate of principal prepayments on the
Mortgage Loans may significantly affect an investor's actual yield to maturity,
even if the average rate of principal prepayments is consistent with such
investor's expectation. In general, the earlier a principal prepayment on the
Mortgage Loans occurs, the greater the effect of such principal prepayment on an
investor's yield to maturity. The effect on an investor's yield of principal
prepayments occurring at a rate higher (or lower) than the rate anticipated by
the investor during the period immediately following the issuance of the Offered
Certificates may not be offset by a subsequent like decrease (or increase) in
the rate of principal prepayments.
The projected weighted average life of any class of Offered
Certificates is the average amount of time that will elapse from the Closing
Date, until each dollar of principal is scheduled to be repaid to the investors
in such class of Offered Certificates. Because it is expected that there will be
prepayments and defaults on the Mortgage Loans, the actual weighted average
lives of the classes of Offered Certificates are expected to vary substantially
from the weighted average remaining terms to stated maturity of the Mortgage
Loans as set forth in this Prospectus Supplement under "The Mortgage Pool."
Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or assumption. A prepayment rate of 100% of the prepayment
assumption used in this Prospectus Supplement (the "Prepayment Assumption")
assumes (i) in the case of the Fixed-Rate Mortgage Loans, a prepayment rate of
23% of the Home Equity Prepayment curve ("HEP"). A prepayment rate of 23% HEP
assumes a constant prepayment rate ("CPR") of 2.3% per annum in the first month
of the life of such mortgage loans and an additional approximately 2.3% per
annum (precisely 20.7%/9 per annum) in each month thereafter until the 10th
month, and in the 10th month and in each month thereafter assumes 23% CPR per
annum during the life of such mortgage loans; and (ii) in the case of the
Adjustable-Rate Mortgage Loans, a prepayment rate of 28% CPR per annum. No
representation is made that the Mortgage Loans will prepay at 23% HEP, 28% CPR
or at any other rate.
The Prepayment Assumption does not purport to be a historical
description of prepayment experience or a prediction of the anticipated rate of
prepayment of any pool of mortgage loans, including the Mortgage Loans.
The tables on pages S-113 through S-126 were prepared on the basis of
the assumptions in the following paragraph and the tables set forth below. There
may be certain differences between the loan characteristics included in such
assumptions and the characteristics of the actual Mortgage Loans. Any such
discrepancy may have an effect upon the percentages of original Certificate
Principal Balances outstanding and weighted average lives of the Offered
Certificates set forth in the tables on pages S-113 through S-126. In addition,
since the actual Mortgage Loans in the Trust Fund will have characteristics that
differ from those assumed in preparing the tables set forth below, the
distributions of principal of the Offered Certificates may be made earlier or
later than indicated in the tables.
S-102
The percentages and weighted average lives in the tables on pages S-113
through S-126 were determined using the following assumptions collectively (the
"Structuring Assumptions"): (i) the Mortgage Loans have the characteristics set
forth in the table below, (ii) the closing date for the Offered Certificates
occurs on December 4, 2003 and the Offered Certificates were sold to investors
on such date, (iii) distributions on the Certificates are made on the 25th day
of each month regardless of the day on which the Distribution Date actually
occurs, commencing in December 2003, in accordance with the allocation of
Available Funds set forth above under "Description of the Certificates," (iv)
the Mortgage Loans prepay in accordance with the Prepayment Assumptions
indicated, (v) prepayments include thirty days' interest thereon, (vi) the
Seller is not required to substitute or repurchase any or all of the Mortgage
Loans pursuant to the Pooling and Servicing Agreement and no optional
termination is exercised, except with respect to the entries identified by the
row heading "Weighted Average Life to Call" in the tables below, (vii) the
Overcollateralization Target Amount is set initially as specified herein and
thereafter decreases as described in the definition thereof, (viii) scheduled
payments for all Mortgage Loans are received on the Due Date commencing in
December 2003, the principal portion of such payments is computed prior to
giving effect to prepayments received in such month and there are no losses or
delinquencies with respect to such Mortgage Loans, (ix) all Mortgage Loans
prepay at the same rate and all such payments are treated as prepayments in full
of individual Mortgage Loans, with no shortfalls in collection of interest, (x)
such prepayments are received on the last day of each month commencing in
November 2003, (xi) the aggregate of the annualized rates at which the Servicing
Fee and the Trustee Fee are calculated is 0.51%, (xii) One-Month LIBOR is at all
times equal to 1.12%, (xiii) the Pass-Through Rates for the Offered Certificates
are as set forth or described above under "Description of the
Certificates--Pass-Through Rates," (xiv) the Mortgage Interest Rate for each
Adjustable-Rate Mortgage Loan is adjusted on its next Adjustment Date (and on
subsequent Adjustment Dates, if necessary) to equal the sum of (a) the assumed
level of the Index and (b) the respective Gross Margin (such sum being subject
to the applicable Periodic Rate Caps, Minimum Mortgage Interest Rates and
Maximum Mortgage Interest Rates), (xv) with respect to the Adjustable-Rate
Mortgage Loans without Minimum Mortgage Interest Rates, the Minimum Mortgage
Interest Rates were assumed to be the applicable Gross Margin, (xvi) with
respect to the Adjustable-Rate Mortgage Loans, the 1 Year CMT Index is equal to
1.330%; 6 Month LIBOR is equal to 1.219%; and 1 Year LIBOR is equal to 1.46375%.
Nothing contained in the foregoing assumptions should be construed as a
representation that the Mortgage Loans will not experience delinquencies or
losses, and (xvii) the Certificate Principal Balance of the Class R and Class XR
Certificates are 0.
Based on the foregoing assumptions and assumed mortgage loan
characteristics, the tables indicate the projected weighted average lives of
each class of Offered Certificates and set forth the percentages of the original
Certificate Principal Balance of each such class that would be outstanding after
each of the dates shown at the indicated percentages of the Prepayment
Assumption.
S-103
Assumed Mortgage Loan Characteristics
Stated Original
Mortgage Original Remaining Amortized
Principal Interest Term Term Term
Loan Number Description Balance ($) Rate (%) (months) (months) (months)
- ----------- ----------- ----------- -------- -------- -------- --------
Group 1 Fixed-Rate Mortgage Loans
1 Fixed Rate Balloon 541,167.54 10.25065 180 95 360
2 Fixed Rate Balloon 48,123.85 10.49315 180 171 360
3 Fixed Rate OTM 000-120 308,769.85 9.04322 97 72 97
4 Fixed Rate OTM 121-180 1,334,807.22 8.45254 178 138 178
5 Fixed Rate OTM 121-180 572,003.55 7.23016 180 177 180
6 Fixed Rate OTM 181-240 1,134,628.20 7.98753 236 215 236
7 Fixed Rate OTM 181-240 188,176.94 10.67832 240 234 240
8 Fixed Rate OTM 181-240 211,714.93 8.40914 240 236 240
9 Fixed Rate OTM 241-360 11,341,857.22 7.71957 358 340 358
10 Fixed Rate OTM 241-360 871,861.21 7.75709 360 357 360
11 Fixed Rate OTM 241-360 710,835.37 7.20453 360 357 360
12 Fixed Rate OTM 241-360 118,991.53 6.10000 360 358 360
13 Fixed Rate OTM 241-360 256,761.19 8.00000 360 357 360
14 Fixed Rate OTM 241-360 274,515.76 6.65000 360 358 360
15 Fixed Rate OTM 241-360 14,328,111.41 6.90698 360 357 360
16 Fixed Rate OTM 241-360 443,434.34 8.26416 360 352 360
17 Fixed Rate OTM 241-360 120,445.67 8.25000 360 358 360
18 Fixed Rate OTM 361-480 269,223.54 8.95144 363 307 363
Next Initial Initial
Gross Lifetime Adjustment Adjustment Adjustment Rate
Margin Lifetime Floor Date Frequency Frequency Cap
Loan Number (%) Cap (%) (%) (months) (months) (months) (%)
- ----------- --- ------- --- -------- -------- -------- ---
1 N/A N/A N/A N/A N/A N/A N/A
2 N/A N/A N/A N/A N/A N/A N/A
3 N/A N/A N/A N/A N/A N/A N/A
4 N/A N/A N/A N/A N/A N/A N/A
5 N/A N/A N/A N/A N/A N/A N/A
6 N/A N/A N/A N/A N/A N/A N/A
7 N/A N/A N/A N/A N/A N/A N/A
8 N/A N/A N/A N/A N/A N/A N/A
9 N/A N/A N/A N/A N/A N/A N/A
10 N/A N/A N/A N/A N/A N/A N/A
11 N/A N/A N/A N/A N/A N/A N/A
12 N/A N/A N/A N/A N/A N/A N/A
13 N/A N/A N/A N/A N/A N/A N/A
14 N/A N/A N/A N/A N/A N/A N/A
15 N/A N/A N/A N/A N/A N/A N/A
16 N/A N/A N/A N/A N/A N/A N/A
17 N/A N/A N/A N/A N/A N/A N/A
18 N/A N/A N/A N/A N/A N/A N/A
IO Prepayment
Remaining Prepayment Rmaining
Periodic Term Term Term
Description Rate Cap (%) (months) (months) (months)
----------- ------------ -------- -------- --------
1 Fixed Rate Balloon N/A N/A 0 0
2 Fixed Rate Balloon N/A N/A 36 27
3 Fixed Rate OTM 000-120 N/A N/A 0 0
4 Fixed Rate OTM 121-180 N/A N/A 0 0
5 Fixed Rate OTM 121-180 N/A N/A 36 33
6 Fixed Rate OTM 181-240 N/A N/A 0 0
7 Fixed Rate OTM 181-240 N/A N/A 24 18
8 Fixed Rate OTM 181-240 N/A N/A 36 32
9 Fixed Rate OTM 241-360 N/A N/A 0 0
10 Fixed Rate OTM 241-360 N/A N/A 12 9
11 Fixed Rate OTM 241-360 N/A N/A 24 21
12 Fixed Rate OTM 241-360 N/A N/A 24 22
13 Fixed Rate OTM 241-360 N/A N/A 24 21
14 Fixed Rate OTM 241-360 N/A N/A 35 33
15 Fixed Rate OTM 241-360 N/A N/A 36 33
16 Fixed Rate OTM 241-360 N/A N/A 36 28
17 Fixed Rate OTM 241-360 N/A N/A 36 34
18 Fixed Rate OTM 361-480 N/A N/A 0 0
S-104
Stated Original
Mortgage Original Remaining Amortized
Principal Interest Term Term Term
Loan Number Description Balance ($) Rate (%) (months) (months) (months)
- ----------- ----------- ----------- -------- -------- -------- --------
Group 1 Adjustable-Rate Mortgage Loans
1 1 Month Libor 602,784.66 4.82000 300 296 300
2 1 Month Libor 1,741,239.82 4.70577 300 297 300
3 1 Year Libor 190,019.69 4.75000 360 358 360
4 1 Year Libor 254,000.00 5.00000 360 353 360
5 1 Year Treasury 5/25 239,881.60 6.12500 360 358 360
6 6 Month Libor 273,233.31 9.67568 360 290 360
7 6 Month Libor 2/28 21,448,995.40 7.71919 360 354 360
8 6 Month Libor 2/28 9,946,620.99 7.20570 360 355 360
9 6 Month Libor 2/28 105,912.94 6.99000 360 358 360
10 6 Month Libor 2/28 80,037,003.36 7.53110 360 355 360
11 6 Month Libor 2/28 52,129.52 7.87000 360 351 360
12 6 Month Libor 2/28 1,012,539.72 9.69237 360 347 360
13 6 Month Libor 2/28 125,414.72 9.54000 360 357 360
14 6 Month Libor 2/28 3,053,433.48 8.82918 360 349 360
15 6 Month Libor 2/28 98,191.95 7.79000 360 357 360
16 6 Month Libor 2/28 135,087.36 9.15000 360 348 360
17 6 Month Libor 2/28 517,411.16 9.84078 360 347 360
18 6 Month Libor 2/28 199,583.32 11.20000 360 348 360
19 6 Month Libor 2/28 53,468.34 10.37500 360 338 360
20 6 Month Libor 2/28 262,300.64 6.26939 360 358 360
21 6 Month Libor 3/27 590,338.26 9.02811 360 345 360
22 6 Month Libor 3/27 865,877.63 6.94229 360 355 360
23 6 Month Libor 3/27 612,377.95 9.30182 360 343 360
24 6 Month Libor 3/27 8,769,339.09 7.85837 360 353 360
25 6 Month Libor 3/27 299,153.78 8.27839 360 346 360
26 6 Month Libor 5/25 695,306.16 5.56153 360 355 360
27 6 Month Libor 5/25 303,494.81 6.87500 360 358 360
28 6 Month Libor 5/25 107,830.99 7.25000 360 358 360
Next Initial
Gross Lifetime Adjustment Adjustment Adjustment Initial
Margin Lifetime Floor Date Frequency Frequency Rate
Loan Number (%) Cap(%) (%) (months) (months) (months) Cap(%)
- ----------- --------- -------- ------- -------- -------- -------- --------
1 3.50000 12.00000 4.82000 1 1 1.00000 3.04067
2 3.53029 12.00000 4.70577 1 1 1.00000 3.00367
3 2.75000 10.75000 0.00000 58 60 12.00000 2.00000
4 2.25000 11.00000 0.00000 53 60 12.00000 2.00000
5 3.25000 11.12500 0.00000 58 60 12.00000 5.00000
6 5.73200 16.17568 9.67568 5 8 6.00000 1.29280
7 5.69359 14.55381 7.71874 19 24 6.00000 1.65421
8 5.69337 14.14933 7.12426 19 24 6.00000 1.56167
9 5.00000 12.99000 6.99000 22 24 6.00000 3.00000
10 5.73614 14.40315 7.53506 19 24 6.00000 1.77569
11 7.50000 13.87000 0.00000 14 24 6.00000 3.00000
12 5.83165 15.73665 9.75317 11 24 6.00000 1.08855
13 6.25000 16.54000 9.54000 21 24 6.00000 1.50000
14 6.74658 15.03440 8.89965 14 24 6.00000 2.10996
15 5.25000 14.79000 7.79000 21 24 6.00000 1.50000
16 6.95000 15.15000 9.15000 12 24 6.00000 1.00000
17 6.13073 15.90721 9.93547 11 24 6.00000 1.13286
18 6.25000 17.20000 11.20000 12 24 6.00000 1.00000
19 9.50000 16.37500 10.37500 2 24 6.00000 3.00000
20 6.23916 12.26939 6.26939 21 24 6.00000 3.00000
21 7.86166 15.24339 9.02811 21 36 6.00000 2.81176
22 5.39227 12.94229 6.94229 28 36 6.00000 2.48712
23 6.71868 14.55010 10.43347 19 36 6.00000 3.00000
24 6.55694 14.61459 8.07686 28 36 6.00000 2.26600
25 5.19800 14.27839 8.27839 22 36 6.00000 3.00000
26 2.99174 10.56153 0.00000 55 60 6.00000 5.00000
27 5.00000 12.87500 6.87500 58 60 6.00000 3.00000
28 5.00000 13.25000 7.25000 58 60 6.00000 3.00000
S-105
IO Prepayment
Periodic Remaining Prepayment Remaining
Rate Cap Term Term Term
Loan Number Description (%) (Months) (months) (months)
----------- ----------- --- -------- -------- --------
1 1 Month Libor 3.00000 116 0 0
2 1 Month Libor 3.00000 117 0 0
3 1 Year Libor 2.00000 0 0 0
4 1 Year Libor 2.00000 53 0 0
5 1 Year Treasury 5/25 2.00000 0 0 0
6 6 Month Libor 1.29280 0 0 0
7 6 Month Libor 2/28 1.41054 0 0 0
8 6 Month Libor 2/28 1.47182 0 12 7
9 6 Month Libor 2/28 1.00000 22 12 10
10 6 Month Libor 2/28 1.43791 0 24 19
11 6 Month Libor 2/28 1.00000 0 24 15
12 6 Month Libor 2/28 1.00000 0 24 11
13 6 Month Libor 2/28 1.50000 0 24 21
14 6 Month Libor 2/28 1.22418 0 36 25
15 6 Month Libor 2/28 1.50000 0 36 33
16 6 Month Libor 2/28 1.00000 0 36 24
17 6 Month Libor 2/28 1.00000 0 36 23
18 6 Month Libor 2/28 1.00000 0 36 24
19 6 Month Libor 2/28 1.00000 0 36 14
20 6 Month Libor 2/28 1.00000 0 36 34
21 6 Month Libor 3/27 1.10764 0 0 0
22 6 Month Libor 3/27 1.00000 0 12 7
23 6 Month Libor 3/27 1.00000 0 24 7
24 6 Month Libor 3/27 1.33118 0 36 29
25 6 Month Libor 3/27 1.00000 0 36 22
26 6 Month Libor 5/25 1.00000 0 0 0
27 6 Month Libor 5/25 1.00000 58 12 10
28 6 Month Libor 5/25 1.00000 0 36 34
S-106
Stated Original
Mortgage Original Remaining Amortized
Principal Interest Term Term Term
Loan Number Description Balance ($) Rate (%) (months) (months) (months)
- ----------- ----------- ----------- -------- -------- -------- --------
Group 2 Fixed-Rate Mortgage Loans
1 Fixed Rate Balloon 585,225.75 9.68447 170 127 360
2 Fixed Rate Balloon 697,230.27 8.18198 180 178 360
3 Fixed Rate Balloon 70,573.88 10.87500 180 178 360
4 Fixed Rate Balloon 43,045.61 10.50000 180 178 360
5 Fixed Rate Balloon 18,165.73 11.75000 180 177 360
6 Fixed Rate OTM 000-120 245,820.42 7.31064 95 66 95
7 Fixed Rate OTM 121-180 1,182,451.84 7.23921 176 147 176
8 Fixed Rate OTM 121-180 168,886.45 6.60000 180 178 180
9 Fixed Rate OTM 121-180 1,107,807.50 6.81194 180 176 180
10 Fixed Rate OTM 121-180 78,601.01 6.99000 180 179 180
11 Fixed Rate OTM 181-240 950,675.57 9.31397 235 193 235
12 Fixed Rate OTM 181-240 239,641.81 11.01576 240 234 240
13 Fixed Rate OTM 181-240 675,955.41 8.46196 240 236 240
14 Fixed Rate OTM 241-360 14,275,337.21 7.53986 359 339 359
15 Fixed Rate OTM 241-360 1,909,297.00 7.85210 360 357 360
16 Fixed Rate OTM 241-360 1,106,017.14 7.55451 360 358 360
17 Fixed Rate OTM 241-360 227,892.12 8.00000 358 357 358
18 Fixed Rate OTM 241-360 14,721,447.51 6.90227 360 357 360
19 Fixed Rate OTM 241-360 72,618.40 7.25000 360 357 360
20 Fixed Rate OTM 241-360 489,504.69 6.47653 360 358 360
21 Fixed Rate OTM 361-480 216,753.06 6.85348 361 291 361
Next Initial Initial
Gross Lifetime Adjustment Adjustment Adjustment Rate
Margin Lifetime Floor Date Frequency Frequency Cap
Loan Number (%) Cap (%) (%) (months) (months) (months) (%)
- ----------- --- ------- --- -------- -------- -------- ---
1 N/A N/A N/A N/A N/A N/A N/A
2 N/A N/A N/A N/A N/A N/A N/A
3 N/A N/A N/A N/A N/A N/A N/A
4 N/A N/A N/A N/A N/A N/A N/A
5 N/A N/A N/A N/A N/A N/A N/A
6 N/A N/A N/A N/A N/A N/A N/A
7 N/A N/A N/A N/A N/A N/A N/A
8 N/A N/A N/A N/A N/A N/A N/A
9 N/A N/A N/A N/A N/A N/A N/A
10 N/A N/A N/A N/A N/A N/A N/A
11 N/A N/A N/A N/A N/A N/A N/A
12 N/A N/A N/A N/A N/A N/A N/A
13 N/A N/A N/A N/A N/A N/A N/A
14 N/A N/A N/A N/A N/A N/A N/A
15 N/A N/A N/A N/A N/A N/A N/A
16 N/A N/A N/A N/A N/A N/A N/A
17 N/A N/A N/A N/A N/A N/A N/A
18 N/A N/A N/A N/A N/A N/A N/A
19 N/A N/A N/A N/A N/A N/A N/A
20 N/A N/A N/A N/A N/A N/A N/A
21 N/A N/A N/A N/A N/A N/A N/A
S-107
IO Prepayment
Remaining Prepayment Remaining
Periodic Term Term Term
Loan Number Description Rate Cap(%) (months) (months) (months)
- ----------- ----------- ----------- -------- -------- --------
1 Fixed Rate Balloon N/A N/A 0 0
2 Fixed Rate Balloon N/A N/A 12 10
3 Fixed Rate Balloon N/A N/A 24 22
4 Fixed Rate Balloon N/A N/A 36 34
5 Fixed Rate Balloon N/A N/A 36 33
6 Fixed Rate OTM 000-120 N/A N/A 0 0
7 Fixed Rate OTM 121-180 N/A N/A 0 0
8 Fixed Rate OTM 121-180 N/A N/A 30 28
9 Fixed Rate OTM 121-180 N/A N/A 36 32
10 Fixed Rate OTM 121-180 N/A N/A 36 35
11 Fixed Rate OTM 181-240 N/A N/A 0 0
12 Fixed Rate OTM 181-240 N/A N/A 24 18
13 Fixed Rate OTM 181-240 N/A N/A 36 32
14 Fixed Rate OTM 241-360 N/A N/A 0 0
15 Fixed Rate OTM 241-360 N/A N/A 12 9
16 Fixed Rate OTM 241-360 N/A N/A 24 22
17 Fixed Rate OTM 241-360 N/A N/A 24 23
18 Fixed Rate OTM 241-360 N/A N/A 36 33
19 Fixed Rate OTM 241-360 N/A N/A 36 33
20 Fixed Rate OTM 241-360 N/A N/A 36 34
21 Fixed Rate OTM 361-480 N/A N/A 0 0
S-108
Stated Original
Mortgage Original Remaining Amortized
Principal Interest Term Term Term
Loan Number Description Balance ($) Rate (%) (months) (months) (months)
- ----------- ----------- ----------- -------- -------- -------- --------
Group 2 Adjustable-Rate Mortgage Loans
1 1 Month Libor 400,000.00 5.32000 300 296 300
2 1 Month Libor 2,905,311.80 4.84024 300 297 300
3 1 Year Treasury 214,369.02 5.25000 360 340 360
4 6 Month Libor 659,014.37 10.15219 360 284 360
5 6 Month Libor 673,046.86 8.50000 360 344 360
6 6 Month Libor 2/28 14,691,240.71 7.22086 360 354 360
7 6 Month Libor 2/28 621,788.20 7.50000 360 358 360
8 6 Month Libor 2/28 6,798,636.20 7.17800 360 355 360
9 6 Month Libor 2/28 48,574,342.70 7.08610 360 356 360
10 6 Month Libor 2/28 383,530.28 6.90506 360 349 360
11 6 Month Libor 2/28 349,327.63 6.20000 360 358 360
12 6 Month Libor 2/28 1,132,993.30 8.19053 360 351 360
13 6 Month Libor 2/28 1,170,113.73 10.76986 360 346 360
14 6 Month Libor 2/28 794,832.06 7.64506 360 354 360
15 6 Month Libor 2/28 608,454.08 7.77126 360 357 360
16 6 Month Libor 3/27 143,738.93 6.50000 360 358 360
17 6 Month Libor 3/27 360,000.00 5.50000 360 357 360
18 6 Month Libor 3/27 364,178.08 6.05000 360 358 360
19 6 Month Libor 3/27 2,785,283.70 7.77863 360 353 360
20 6 Month Libor 3/27 55,007.21 10.25000 360 347 360
21 6 Month Libor 5/25 371,275.49 5.00000 360 354 360
Next Initial Initial
Gross Lifetime Adjustment Adjustment Adjustment Rate
Margin Lifetime Floor Date Frequency Frequency Cap
Loan Number (%) Cap (%) (%) (months) (months) (months) (%)
- ----------- --- ------- --- -------- -------- -------- ---
1 4.00000 12.00000 5.32000 2 1 1.00000 3.05500
2 3.70024 12.00000 4.84024 2 1 1.00000 3.00503
3 2.75000 10.25000 0.25000 5 13 12.00000 1.00000
4 6.37725 16.27368 10.15219 6 6 6.00000 1.00000
5 5.75000 14.50000 8.50000 2 6 6.00000 1.00000
6 5.45681 13.97179 7.22528 19 24 6.00000 1.70156
7 5.00000 13.50000 7.50000 22 24 6.00000 3.00000
8 5.71024 14.12725 7.17800 19 24 6.00000 1.57612
9 5.73359 14.00409 7.08169 20 24 6.00000 1.80186
10 5.22907 12.90506 6.90506 13 24 6.00000 1.00000
11 5.75000 12.20000 6.20000 21 24 6.00000 3.00000
12 6.55641 14.64343 8.24152 16 24 6.00000 1.55207
13 6.28518 16.76986 10.76986 10 24 6.00000 1.00000
14 6.46502 14.64506 7.64506 18 24 6.00000 1.50000
15 5.50000 14.77126 7.77126 21 24 6.00000 1.50000
16 6.15000 12.50000 6.50000 33 36 6.00000 3.00000
17 5.50000 11.50000 0.00000 33 36 6.00000 3.00000
18 5.70000 12.05000 6.05000 33 36 6.00000 3.00000
19 6.85392 14.36470 7.89445 29 36 6.00000 2.04559
20 5.99000 16.25000 10.25000 23 36 6.00000 3.00000
21 2.75000 10.00000 0.00000 54 60 6.00000 5.00000
S-109
IO Prepayment
Remaining Prepaymen Remaining
Periodic Term Term Term
Loan Number Description Rate Cap (%) (months) (months) (months)
- ----------- ----------- ------------ -------- -------- --------
1 1 Month Libor 3.00000 116 0 0
2 1 Month Libor 3.00000 117 0 0
3 1 Year Treasury 1.00000 0 0 0
4 6 Month Libor 1.00000 0 0 0
5 6 Month Libor 1.00000 0 36 20
6 6 Month Libor 2/28 1.36904 0 0 0
7 6 Month Libor 2/28 1.00000 22 0 0
8 6 Month Libor 2/28 1.47463 0 12 7
9 6 Month Libor 2/28 1.44660 0 24 20
10 6 Month Libor 2/28 1.00000 0 24 13
11 6 Month Libor 2/28 1.00000 0 30 28
12 6 Month Libor 2/28 1.19437 0 36 27
13 6 Month Libor 2/28 1.00000 0 36 22
14 6 Month Libor 2/28 1.50000 0 60 54
15 6 Month Libor 2/28 1.50000 0 60 57
16 6 Month Libor 3/27 1.00000 0 0 0
17 6 Month Libor 3/27 1.00000 33 0 0
18 6 Month Libor 3/27 1.00000 0 24 22
19 6 Month Libor 3/27 1.41063 0 36 29
20 6 Month Libor 3/27 1.00000 0 36 23
21 6 Month Libor 5/25 1.00000 0 0 0
S-110
Stated Original
Mortgage Original Remaining Amortized
Principal Interest Term Term Term
Loan Number Description Balance($) Rate (%) (months) (months) (months)
- ----------- ----------- ----------- -------- -------- -------- --------
Group 3 Mortgage Loans
1 Fixed Rate Balloon 2,028,844.86 9.81583 183 114 369
2 Fixed Rate Balloon 299,596.08 8.00000 180 178 360
3 Fixed Rate Balloon 614,907.60 8.53336 180 177 360
4 Fixed Rate Balloon 1,215,920.49 8.77952 180 176 360
5 Fixed Rate Balloon 61,932.01 9.00000 180 178 360
6 Fixed Rate Balloon 852,359.86 7.93054 180 171 360
7 Fixed Rate OTM 000-120 530,583.47 6.87605 112 94 112
8 Fixed Rate OTM 000-120 71,468.92 8.50000 120 70 120
9 Fixed Rate OTM 121-180 6,226,633.81 7.34922 178 154 178
10 Fixed Rate OTM 121-180 135,193.81 7.75000 180 178 180
11 Fixed Rate OTM 121-180 270,268.48 7.83552 180 177 180
12 Fixed Rate OTM 121-180 118,059.82 7.37500 180 178 180
13 Fixed Rate OTM 121-180 3,221,438.41 7.00032 180 176 180
14 Fixed Rate OTM 121-180 635,786.12 6.75088 180 177 180
15 Fixed Rate OTM 181-240 2,907,167.34 9.97269 232 187 232
16 Fixed Rate OTM 181-240 176,961.77 9.82631 240 234 240
17 Fixed Rate OTM 181-240 1,441,174.77 11.17342 240 234 240
18 Fixed Rate OTM 181-240 2,080,387.49 7.86369 240 235 240
19 Fixed Rate OTM 181-240 41,078.73 8.99000 240 213 240
20 Fixed Rate OTM 241-360 49,583,314.56 7.28514 358 344 358
21 Fixed Rate OTM 241-360 95,295.39 9.00000 360 358 360
22 Fixed Rate OTM 241-360 10,690,174.45 7.25588 358 355 358
23 Fixed Rate OTM 241-360 2,481,838.22 7.70070 359 356 359
24 Fixed Rate OTM 241-360 244,496.81 5.85000 360 358 360
25 Fixed Rate OTM 241-360 191,658.60 6.60000 360 358 360
26 Fixed Rate OTM 241-360 225,527.31 5.75400 360 358 360
27 Fixed Rate OTM 241-360 51,268,365.00 6.78035 360 357 360
28 Fixed Rate OTM 241-360 733,331.51 7.80408 360 355 360
29 Fixed Rate OTM 241-360 192,412.46 8.00000 353 350 353
30 Fixed Rate OTM 241-360 6,406,910.70 7.48769 360 356 360
31 Fixed Rate OTM 241-360 248,712.85 8.38805 360 357 360
32 Fixed Rate OTM 361-480 512,251.62 7.00369 394 323 394
Next Initial Initial
Gross Lifetime Adjustment Adjustment Adjustment Rate
Margin Lifetime Floor Date Frequency Frequency Cap
Loan Number (%) Cap (%) (%) (months) (months) (months) (%)
- ----------- --- ------- --- -------- -------- -------- ---
1 N/A N/A N/A N/A N/A N/A N/A
2 N/A N/A N/A N/A N/A N/A N/A
3 N/A N/A N/A N/A N/A N/A N/A
4 N/A N/A N/A N/A N/A N/A N/A
5 N/A N/A N/A N/A N/A N/A N/A
6 N/A N/A N/A N/A N/A N/A N/A
7 N/A N/A N/A N/A N/A N/A N/A
8 N/A N/A N/A N/A N/A N/A N/A
9 N/A N/A N/A N/A N/A N/A N/A
10 N/A N/A N/A N/A N/A N/A N/A
11 N/A N/A N/A N/A N/A N/A N/A
12 N/A N/A N/A N/A N/A N/A N/A
13 N/A N/A N/A N/A N/A N/A N/A
14 N/A N/A N/A N/A N/A N/A N/A
15 N/A N/A N/A N/A N/A N/A N/A
16 N/A N/A N/A N/A N/A N/A N/A
17 N/A N/A N/A N/A N/A N/A N/A
18 N/A N/A N/A N/A N/A N/A N/A
19 N/A N/A N/A N/A N/A N/A N/A
20 N/A N/A N/A N/A N/A N/A N/A
21 N/A N/A N/A N/A N/A N/A N/A
22 N/A N/A N/A N/A N/A N/A N/A
23 N/A N/A N/A N/A N/A N/A N/A
24 N/A N/A N/A N/A N/A N/A N/A
25 N/A N/A N/A N/A N/A N/A N/A
26 N/A N/A N/A N/A N/A N/A N/A
27 N/A N/A N/A N/A N/A N/A N/A
28 N/A N/A N/A N/A N/A N/A N/A
29 N/A N/A N/A N/A N/A N/A N/A
30 N/A N/A N/A N/A N/A N/A N/A
31 N/A N/A N/A N/A N/A N/A N/A
32 N/A N/A N/A N/A N/A N/A N/A
S-111
IO Prepayment
Remaining Prepaymen Remaining
Periodic Term Term Term
Loan Number Description Rate Cap(%) (months) (months) (months)
- ----------- ----------- ----------- -------- -------- --------
1 Fixed Rate Balloon N/A N/A 0 0
2 Fixed Rate Balloon N/A N/A 12 10
3 Fixed Rate Balloon N/A N/A 24 21
4 Fixed Rate Balloon N/A N/A 36 32
5 Fixed Rate Balloon N/A N/A 36 34
6 Fixed Rate Balloon N/A N/A 60 51
7 Fixed Rate OTM 000-120 N/A N/A 0 0
8 Fixed Rate OTM 000-120 N/A N/A 0 0
9 Fixed Rate OTM 121-180 N/A N/A 0 0
10 Fixed Rate OTM 121-180 N/A N/A 12 10
11 Fixed Rate OTM 121-180 N/A N/A 24 21
12 Fixed Rate OTM 121-180 N/A N/A 24 22
13 Fixed Rate OTM 121-180 N/A N/A 36 32
14 Fixed Rate OTM 121-180 N/A N/A 60 57
15 Fixed Rate OTM 181-240 N/A N/A 0 0
16 Fixed Rate OTM 181-240 N/A N/A 12 6
17 Fixed Rate OTM 181-240 N/A N/A 24 18
18 Fixed Rate OTM 181-240 N/A N/A 36 31
19 Fixed Rate OTM 181-240 N/A N/A 60 33
20 Fixed Rate OTM 241-360 N/A N/A 0 0
21 Fixed Rate OTM 241-360 N/A N/A 3 1
22 Fixed Rate OTM 241-360 N/A N/A 12 9
23 Fixed Rate OTM 241-360 N/A N/A 24 21
24 Fixed Rate OTM 241-360 N/A N/A 26 24
25 Fixed Rate OTM 241-360 N/A N/A 30 28
26 Fixed Rate OTM 241-360 N/A N/A 35 33
27 Fixed Rate OTM 241-360 N/A N/A 36 33
28 Fixed Rate OTM 241-360 N/A N/A 36 31
29 Fixed Rate OTM 241-360 N/A N/A 36 32
30 Fixed Rate OTM 241-360 N/A N/A 60 56
31 Fixed Rate OTM 241-360 N/A N/A 60 57
32 Fixed Rate OTM 361-480 N/A N/A 0 0
S-112
Percentage of Original Principal Balance Outstanding1 at the
Specified Percentages of the Prepayment Assumption
Class 1AV-1
---------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
--------------- -------------- ---------- ------------- -------------
Initial Percentage 100% 100% 100% 100% 100%
November 25, 2004 ................... 99 83 66 50 34
November 25, 2005 ................... 97 67 41 20 3
November 25, 2006 ................... 96 54 23 2 0
November 25, 2007 ................... 94 43 21 2 0
November 25, 2008 ................... 93 35 15 2 0
November 25, 2009 ................... 91 30 11 2 0
November 25, 2010 ................... 89 25 8 2 0
November 25, 2011 ................... 86 21 6 1 0
November 25, 2012 ................... 84 18 4 0 0
November 25, 2013 ................... 82 15 3 0 0
November 25, 2014 ................... 79 13 2 0 0
November 25, 2015 ................... 76 11 1 0 0
November 25, 2016 ................... 73 9 1 0 0
November 25, 2017 ................... 70 8 1 0 0
November 25, 2018 ................... 66 6 0 0 0
November 25, 2019 ................... 63 5 0 0 0
November 25, 2020 ................... 59 4 0 0 0
November 25, 2021 ................... 54 4 0 0 0
November 25, 2022 ................... 50 3 0 0 0
November 25, 2023 ................... 45 2 0 0 0
November 25, 2024 ................... 39 2 0 0 0
November 25, 2025 ................... 36 1 0 0 0
November 25, 2026 ................... 32 1 0 0 0
November 25, 2027 ................... 28 1 0 0 0
November 25, 2028 ................... 24 0 0 0 0
November 25, 2029 ................... 19 0 0 0 0
November 25, 2030 ................... 14 0 0 0 0
November 25, 2031 ................... 9 0 0 0 0
November 25, 2032 ................... 3 0 0 0 0
November 25, 2033 ................... 0 0 0 0 0
Weighted Avg. Life to
Maturity (in years) (2) 18.00 5.14 2.54 1.31 0.81
Weighted Avg. Life to Call
(in years) (2) 17.93 4.82 2.36 1.23 0.81
- --------------
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the
assumed net reduction in the Certificate Principal Balance of such
class of Certificates.
S-113
Percentage of Original Principal Balance Outstanding1 at the
Specified Percentages of the Prepayment Assumption
Class 2AV-1
---------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
--------------- -------------- ---------- ------------- -------------
Initial Percentage 100% 100% 100% 100% 100%
November 25, 2004 ................... 98 72 47 21 0
November 25, 2005 ................... 95 48 6 0 0
November 25, 2006 ................... 93 26 0 0 0
November 25, 2007 ................... 90 8 0 0 0
November 25, 2008 ................... 87 0 0 0 0
November 25, 2009 ................... 84 0 0 0 0
November 25, 2010 ................... 80 0 0 0 0
November 25, 2011 ................... 77 0 0 0 0
November 25, 2012 ................... 73 0 0 0 0
November 25, 2013 ................... 69 0 0 0 0
November 25, 2014 ................... 63 0 0 0 0
November 25, 2015 ................... 58 0 0 0 0
November 25, 2016 ................... 53 0 0 0 0
November 25, 2017 ................... 47 0 0 0 0
November 25, 2018 ................... 40 0 0 0 0
November 25, 2019 ................... 34 0 0 0 0
November 25, 2020 ................... 27 0 0 0 0
November 25, 2021 ................... 20 0 0 0 0
November 25, 2022 ................... 13 0 0 0 0
November 25, 2023 ................... 5 0 0 0 0
November 25, 2024 ................... 0 0 0 0 0
November 25, 2025 ................... 0 0 0 0 0
November 25, 2026 ................... 0 0 0 0 0
November 25, 2027 ................... 0 0 0 0 0
November 25, 2028 ................... 0 0 0 0 0
November 25, 2029 ................... 0 0 0 0 0
November 25, 2030 ................... 0 0 0 0 0
November 25, 2031 ................... 0 0 0 0 0
November 25, 2032 ................... 0 0 0 0 0
November 25, 2033 ................... 0 0 0 0 0
Weighted Avg. Life to
Maturity (in years) (2) 12.57 2.02 1.00 0.63 0.44
Weighted Avg. Life to Call
(in years) (2) 12.57 2.02 1.00 0.63 0.44
- --------------
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the
assumed net reduction in the Certificate Principal Balance of such
class of Certificates.
S-114
Percentage of Original Principal Balance Outstanding1 at the
Specified Percentages of the Prepayment Assumption
Class 2AV-2
---------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
--------------- -------------- ---------- ------------- -------------
Initial Percentage 100% 100% 100% 100% 100%
November 25, 2004 ................... 100 100 100 100 92
November 25, 2005 ................... 100 100 100 56 12
November 25, 2006 ................... 100 100 64 9 0
November 25, 2007 ................... 100 100 56 9 0
November 25, 2008 ................... 100 92 41 9 0
November 25, 2009 ................... 100 78 30 9 0
November 25, 2010 ................... 100 67 22 6 0
November 25, 2011 ................... 100 57 16 3 0
November 25, 2012 ................... 100 48 11 2 0
November 25, 2013 ................... 100 41 8 0 0
November 25, 2014 ................... 100 34 6 0 0
November 25, 2015 ................... 100 29 4 0 0
November 25, 2016 ................... 100 24 3 0 0
November 25, 2017 ................... 100 20 2 0 0
November 25, 2018 ................... 100 17 1 0 0
November 25, 2019 ................... 100 14 0 0 0
November 25, 2020 ................... 100 12 0 0 0
November 25, 2021 ................... 100 9 0 0 0
November 25, 2022 ................... 100 8 0 0 0
November 25, 2023 ................... 100 6 0 0 0
November 25, 2024 ................... 96 5 0 0 0
November 25, 2025 ................... 87 4 0 0 0
November 25, 2026 ................... 78 3 0 0 0
November 25, 2027 ................... 67 2 0 0 0
November 25, 2028 ................... 56 1 0 0 0
November 25, 2029 ................... 45 0 0 0 0
November 25, 2030 ................... 33 0 0 0 0
November 25, 2031 ................... 20 0 0 0 0
November 25, 2032 ................... 8 0 0 0 0
November 25, 2033 ................... 0 0 0 0 0
Weighted Avg. Life to
Maturity (in years) (2) 25.42 10.24 5.18 2.62 1.50
Weighted Avg. Life to Call
(in years) (2) 25.25 9.42 4.67 2.34 1.50
- --------------
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the
assumed net reduction in the Certificate Principal Balance of such
class of Certificates.
S-115
Percentage of Original Principal Balance Outstanding1 at the
Specified Percentages of the Prepayment Assumption
Class AF-1
---------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
--------------- -------------- ---------- ------------- -------------
Initial Percentage 100% 100% 100% 100% 100%
November 25, 2004 ................... 96 66 35 4 0
November 25, 2005 ................... 91 32 0 0 0
November 25, 2006 ................... 87 3 0 0 0
November 25, 2007 ................... 82 0 0 0 0
November 25, 2008 ................... 76 0 0 0 0
November 25, 2009 ................... 71 0 0 0 0
November 25, 2010 ................... 65 0 0 0 0
November 25, 2011 ................... 60 0 0 0 0
November 25, 2012 ................... 54 0 0 0 0
November 25, 2013 ................... 45 0 0 0 0
November 25, 2014 ................... 39 0 0 0 0
November 25, 2015 ................... 31 0 0 0 0
November 25, 2016 ................... 23 0 0 0 0
November 25, 2017 ................... 16 0 0 0 0
November 25, 2018 ................... 3 0 0 0 0
November 25, 2019 ................... 0 0 0 0 0
November 25, 2020 ................... 0 0 0 0 0
November 25, 2021 ................... 0 0 0 0 0
November 25, 2022 ................... 0 0 0 0 0
November 25, 2023 ................... 0 0 0 0 0
November 25, 2024 ................... 0 0 0 0 0
November 25, 2025 ................... 0 0 0 0 0
November 25, 2026 ................... 0 0 0 0 0
November 25, 2027 ................... 0 0 0 0 0
November 25, 2028 ................... 0 0 0 0 0
November 25, 2029 ................... 0 0 0 0 0
November 25, 2030 ................... 0 0 0 0 0
November 25, 2031 ................... 0 0 0 0 0
November 25, 2032 ................... 0 0 0 0 0
November 25, 2033 ................... 0 0 0 0 0
Weighted Avg. Life to
Maturity (in years) (2) 8.90 1.51 0.80 0.55 0.41
Weighted Avg. Life to Call
(in years) (2) 8.90 1.51 0.80 0.55 0.41
- --------------
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the
assumed net reduction in the Certificate Principal Balance of such
class of Certificates.
S-116
Percentage of Original Principal Balance Outstanding1 at the
Specified Percentages of the Prepayment Assumption
Class AF-2
---------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
--------------- -------------- ---------- ------------- -------------
Initial Percentage 100% 100% 100% 100% 100%
November 25, 2004 ................... 100 100 100 100 32
November 25, 2005 ................... 100 100 48 0 0
November 25, 2006 ................... 100 100 0 0 0
November 25, 2007 ................... 100 45 0 0 0
November 25, 2008 ................... 100 0 0 0 0
November 25, 2009 ................... 100 0 0 0 0
November 25, 2010 ................... 100 0 0 0 0
November 25, 2011 ................... 100 0 0 0 0
November 25, 2012 ................... 100 0 0 0 0
November 25, 2013 ................... 100 0 0 0 0
November 25, 2014 ................... 100 0 0 0 0
November 25, 2015 ................... 100 0 0 0 0
November 25, 2016 ................... 100 0 0 0 0
November 25, 2017 ................... 100 0 0 0 0
November 25, 2018 ................... 100 0 0 0 0
November 25, 2019 ................... 89 0 0 0 0
November 25, 2020 ................... 68 0 0 0 0
November 25, 2021 ................... 45 0 0 0 0
November 25, 2022 ................... 21 0 0 0 0
November 25, 2023 ................... 0 0 0 0 0
November 25, 2024 ................... 0 0 0 0 0
November 25, 2025 ................... 0 0 0 0 0
November 25, 2026 ................... 0 0 0 0 0
November 25, 2027 ................... 0 0 0 0 0
November 25, 2028 ................... 0 0 0 0 0
November 25, 2029 ................... 0 0 0 0 0
November 25, 2030 ................... 0 0 0 0 0
November 25, 2031 ................... 0 0 0 0 0
November 25, 2032 ................... 0 0 0 0 0
November 25, 2033 ................... 0 0 0 0 0
Weighted Avg. Life to
Maturity (in years) (2) 17.75 3.93 2.00 1.31 0.96
Weighted Avg. Life to
Call (in years) (2) 17.75 3.93 2.00 1.31 0.96
- --------------
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the
assumed net reduction in the Certificate Principal Balance of such
class of Certificates.
S-117
Percentage of Original Principal Balance Outstanding1 at the
Specified Percentages of the Prepayment Assumption
Class AF-3
---------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
--------------- -------------- ---------- ------------- -------------
Initial Percentage 100% 100% 100% 100% 100%
November 25, 2004 ................... 100 100 100 100 100
November 25, 2005 ................... 100 100 100 23 0
November 25, 2006 ................... 100 100 33 0 0
November 25, 2007 ................... 100 100 0 0 0
November 25, 2008 ................... 100 88 0 0 0
November 25, 2009 ................... 100 57 0 0 0
November 25, 2010 ................... 100 31 0 0 0
November 25, 2011 ................... 100 16 0 0 0
November 25, 2012 ................... 100 0 0 0 0
November 25, 2013 ................... 100 0 0 0 0
November 25, 2014 ................... 100 0 0 0 0
November 25, 2015 ................... 100 0 0 0 0
November 25, 2016 ................... 100 0 0 0 0
November 25, 2017 ................... 100 0 0 0 0
November 25, 2018 ................... 100 0 0 0 0
November 25, 2019 ................... 100 0 0 0 0
November 25, 2020 ................... 100 0 0 0 0
November 25, 2021 ................... 100 0 0 0 0
November 25, 2022 ................... 100 0 0 0 0
November 25, 2023 ................... 95 0 0 0 0
November 25, 2024 ................... 85 0 0 0 0
November 25, 2025 ................... 67 0 0 0 0
November 25, 2026 ................... 46 0 0 0 0
November 25, 2027 ................... 23 0 0 0 0
November 25, 2028 ................... 0 0 0 0 0
November 25, 2029 ................... 0 0 0 0 0
November 25, 2030 ................... 0 0 0 0 0
November 25, 2031 ................... 0 0 0 0 0
November 25, 2032 ................... 0 0 0 0 0
November 25, 2033 ................... 0 0 0 0 0
Weighted Avg. Life to
Maturity (in years) (2) 22.66 6.47 3.00 1.86 1.33
Weighted Avg. Life to
Call (in years) (2) 22.66 6.47 3.00 1.86 1.33
- --------------
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the
assumed net reduction in the Certificate Principal Balance of such
class of Certificates.
S-118
Percentage of Original Principal Balance Outstanding1 at the
Specified Percentages of the Prepayment Assumption
Class AF-4
---------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
--------------- -------------- ---------- ------------- -------------
Initial Percentage 100% 100% 100% 100% 100%
November 25, 2004 ................... 100 100 100 100 100
November 25, 2005 ................... 100 100 100 100 0
November 25, 2006 ................... 100 100 100 0 0
November 25, 2007 ................... 100 100 95 0 0
November 25, 2008 ................... 100 100 45 0 0
November 25, 2009 ................... 100 100 12 0 0
November 25, 2010 ................... 100 100 0 0 0
November 25, 2011 ................... 100 100 0 0 0
November 25, 2012 ................... 100 100 0 0 0
November 25, 2013 ................... 100 76 0 0 0
November 25, 2014 ................... 100 56 0 0 0
November 25, 2015 ................... 100 38 0 0 0
November 25, 2016 ................... 100 21 0 0 0
November 25, 2017 ................... 100 6 0 0 0
November 25, 2018 ................... 100 0 0 0 0
November 25, 2019 ................... 100 0 0 0 0
November 25, 2020 ................... 100 0 0 0 0
November 25, 2021 ................... 100 0 0 0 0
November 25, 2022 ................... 100 0 0 0 0
November 25, 2023 ................... 100 0 0 0 0
November 25, 2024 ................... 100 0 0 0 0
November 25, 2025 ................... 100 0 0 0 0
November 25, 2026 ................... 100 0 0 0 0
November 25, 2027 ................... 100 0 0 0 0
November 25, 2028 ................... 97 0 0 0 0
November 25, 2029 ................... 60 0 0 0 0
November 25, 2030 ................... 21 0 0 0 0
November 25, 2031 ................... 0 0 0 0 0
November 25, 2032 ................... 0 0 0 0 0
November 25, 2033 ................... 0 0 0 0 0
Weighted Avg. Life to
Maturity (in years) (2) 26.27 11.46 5.00 2.43 1.73
Weighted Avg. Life to
Call (in years) (2) 26.27 11.46 5.00 2.43 1.73
- --------------
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the
assumed net reduction in the Certificate Principal Balance of such
class of Certificates.
S-119
Percentage of Original Principal Balance Outstanding1 at the
Specified Percentages of the Prepayment Assumption
Class AF-5
---------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
--------------- -------------- ---------- ------------- -------------
Initial Percentage 100% 100% 100% 100% 100%
November 25, 2004 ................... 100 100 100 100 100
November 25, 2005 ................... 100 100 100 100 77
November 25, 2006 ................... 100 100 100 44 0
November 25, 2007 ................... 100 100 100 44 0
November 25, 2008 ................... 100 100 100 24 0
November 25, 2009 ................... 100 100 100 11 0
November 25, 2010 ................... 100 100 86 7 0
November 25, 2011 ................... 100 100 79 7 0
November 25, 2012 ................... 100 100 65 7 0
November 25, 2013 ................... 100 100 50 7 0
November 25, 2014 ................... 100 100 38 4 0
November 25, 2015 ................... 100 100 29 0 0
November 25, 2016 ................... 100 100 21 0 0
November 25, 2017 ................... 100 100 16 0 0
November 25, 2018 ................... 100 89 11 0 0
November 25, 2019 ................... 100 76 6 0 0
November 25, 2020 ................... 100 64 3 0 0
November 25, 2021 ................... 100 53 0 0 0
November 25, 2022 ................... 100 44 0 0 0
November 25, 2023 ................... 100 36 0 0 0
November 25, 2024 ................... 100 30 0 0 0
November 25, 2025 ................... 100 24 0 0 0
November 25, 2026 ................... 100 19 0 0 0
November 25, 2027 ................... 100 14 0 0 0
November 25, 2028 ................... 100 10 0 0 0
November 25, 2029 ................... 100 5 0 0 0
November 25, 2030 ................... 100 0 0 0 0
November 25, 2031 ................... 73 0 0 0 0
November 25, 2032 ................... 25 0 0 0 0
November 25, 2033 ................... 0 0 0 0 0
Weighted Avg. Life to
Maturity (in years) (2) 28.50 19.17 10.60 4.28 2.11
Weighted Avg. Life to
Call (in years) (2) 27.92 14.48 7.44 3.69 2.11
- --------------
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the
assumed net reduction in the Certificate Principal Balance of such
class of Certificates.
S-120
Percentage of Original Principal Balance Outstanding1 at the
Specified Percentages of the Prepayment Assumption
Class AF-6
---------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
--------------- -------------- ---------- ------------- -------------
Initial Percentage 100% 100% 100% 100% 100%
November 25, 2004 ................... 100 100 100 100 100
November 25, 2005 ................... 100 100 100 100 100
November 25, 2006 ................... 100 100 100 100 0
November 25, 2007 ................... 99 91 91 100 0
November 25, 2008 ................... 98 83 80 90 0
November 25, 2009 ................... 96 74 64 63 0
November 25, 2010 ................... 93 64 48 40 0
November 25, 2011 ................... 84 40 20 23 0
November 25, 2012 ................... 75 26 8 12 0
November 25, 2013 ................... 62 15 3 4 0
November 25, 2014 ................... 54 9 1 0 0
November 25, 2015 ................... 46 6 0 0 0
November 25, 2016 ................... 38 3 0 0 0
November 25, 2017 ................... 32 2 0 0 0
November 25, 2018 ................... 23 1 0 0 0
November 25, 2019 ................... 19 1 0 0 0
November 25, 2020 ................... 15 0 0 0 0
November 25, 2021 ................... 12 0 0 0 0
November 25, 2022 ................... 8 0 0 0 0
November 25, 2023 ................... 6 0 0 0 0
November 25, 2024 ................... 5 0 0 0 0
November 25, 2025 ................... 4 0 0 0 0
November 25, 2026 ................... 3 0 0 0 0
November 25, 2027 ................... 2 0 0 0 0
November 25, 2028 ................... 1 0 0 0 0
November 25, 2029 ................... 1 0 0 0 0
November 25, 2030 ................... 0 0 0 0 0
November 25, 2031 ................... 0 0 0 0 0
November 25, 2032 ................... 0 0 0 0 0
November 25, 2033 ................... 0 0 0 0 0
Weighted Avg. Life to
Maturity (in years) (2) 12.24 7.65 6.66 6.82 2.33
Weighted Avg. Life to
Call (in years) (2) 12.24 7.62 6.33 4.80 2.33
- --------------
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the
assumed net reduction in the Certificate Principal Balance of such
class of Certificates.
S-121
Percentage of Original Principal Balance Outstanding1 at the
Specified Percentages of the Prepayment Assumption
Class M-1
---------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
--------------- -------------- ---------- ------------- -------------
Initial Percentage 100% 100% 100% 100% 100%
November 25, 2004 ................... 100 100 100 100 100
November 25, 2005 ................... 100 100 100 100 100
November 25, 2006 ................... 100 100 100 100 93
November 25, 2007 ................... 100 100 60 100 75
November 25, 2008 ................... 100 95 44 44 38
November 25, 2009 ................... 100 81 32 16 17
November 25, 2010 ................... 100 70 24 7 5
November 25, 2011 ................... 100 59 17 4 0
November 25, 2012 ................... 100 51 13 1 0
November 25, 2013 ................... 100 43 9 0 0
November 25, 2014 ................... 100 36 7 0 0
November 25, 2015 ................... 100 31 5 0 0
November 25, 2016 ................... 100 26 3 0 0
November 25, 2017 ................... 100 22 1 0 0
November 25, 2018 ................... 100 18 0 0 0
November 25, 2019 ................... 100 15 0 0 0
November 25, 2020 ................... 100 12 0 0 0
November 25, 2021 ................... 100 10 0 0 0
November 25, 2022 ................... 100 8 0 0 0
November 25, 2023 ................... 100 7 0 0 0
November 25, 2024 ................... 97 6 0 0 0
November 25, 2025 ................... 86 4 0 0 0
November 25, 2026 ................... 77 2 0 0 0
November 25, 2027 ................... 67 1 0 0 0
November 25, 2028 ................... 56 0 0 0 0
November 25, 2029 ................... 45 0 0 0 0
November 25, 2030 ................... 33 0 0 0 0
November 25, 2031 ................... 20 0 0 0 0
November 25, 2032 ................... 7 0 0 0 0
November 25, 2033 ................... 0 0 0 0 0
Weighted Avg. Life to
Maturity (in years) (2) 25.39 10.49 5.65 5.16 4.80
Weighted Avg. Life to
Call (in years) (2) 25.23 9.64 5.11 4.59 3.24
- --------------
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the
assumed net reduction in the Certificate Principal Balance of such
class of Certificates.
S-122
Percentage of Original Principal Balance Outstanding1 at the
Specified Percentages of the Prepayment Assumption
Class M-2
---------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
--------------- -------------- ---------- ------------- -------------
Initial Percent............... 100% 100% 100% 100% 100%
November 25, 2004 ............... 100 100 100 100 100
November 25, 2005 ............... 100 100 100 100 100
November 25, 2006 ............... 100 100 100 100 95
November 25, 2007 ............... 100 100 60 30 12
November 25, 2008 ............... 100 95 44 18 6
November 25, 2009 ............... 100 81 32 11 0
November 25, 2010 ............... 100 70 24 7 0
November 25, 2011 ............... 100 59 17 1 0
November 25, 2012 ............... 100 51 13 0 0
November 25, 2013 ............... 100 43 9 0 0
November 25, 2014 ............... 100 36 7 0 0
November 25, 2015 ............... 100 31 3 0 0
November 25, 2016 ............... 100 26 0 0 0
November 25, 2017 ............... 100 22 0 0 0
November 25, 2018 ............... 100 18 0 0 0
November 25, 2019 ............... 100 15 0 0 0
November 25, 2020 ............... 100 12 0 0 0
November 25, 2021 ............... 100 10 0 0 0
November 25, 2022 ............... 100 8 0 0 0
November 25, 2023 ............... 100 7 0 0 0
November 25, 2024 ............... 95 4 0 0 0
November 25, 2025 ............... 86 1 0 0 0
November 25, 2026 ............... 77 0 0 0 0
November 25, 2027 ............... 67 0 0 0 0
November 25, 2028 ............... 56 0 0 0 0
November 25, 2029 ............... 45 0 0 0 0
November 25, 2030 ............... 33 0 0 0 0
November 25, 2031 ............... 20 0 0 0 0
November 25, 2032 ............... 7 0 0 0 0
November 25, 2033 ............... 0 0 0 0 0
Weighted Avg. Life to 25.38 10.42 5.52 4.33 3.52
Maturity (in years) (2)
Weighted Avg. Life to 25.23 9.64 5.05 4.02 3.24
Call (in years) (2)
- ------------------
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the
assumed net reduction in the Certificate Principal Balance of such
class of Certificates.
S-123
Percentage of Original Principal Balance Outstanding1 at the
Specified Percentages of the Prepayment Assumption
Class M-3
-----------------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
--------------- -------------- ----------------- --------------- -------------
Initial Percent............... 100% 100% 100% 100% 100%
November 25, 2004 ............... 100 100 100 100 100
November 25, 2005 ............... 100 100 100 100 100
November 25, 2006 ............... 100 100 100 100 24
November 25, 2007 ............... 100 100 60 29 12
November 25, 2008 ............... 100 95 44 18 0
November 25, 2009 ............... 100 81 32 11 0
November 25, 2010 ............... 100 70 24 3 0
November 25, 2011 ............... 100 59 17 0 0
November 25, 2012 ............... 100 51 13 0 0
November 25, 2013 ............... 100 43 9 0 0
November 25, 2014 ............... 100 36 3 0 0
November 25, 2015 ............... 100 31 0 0 0
November 25, 2016 ............... 100 26 0 0 0
November 25, 2017 ............... 100 22 0 0 0
November 25, 2018 ............... 100 18 0 0 0
November 25, 2019 ............... 100 15 0 0 0
November 25, 2020 ............... 100 12 0 0 0
November 25, 2021 ............... 100 10 0 0 0
November 25, 2022 ............... 100 8 0 0 0
November 25, 2023 ............... 100 4 0 0 0
November 25, 2024 ............... 95 0 0 0 0
November 25, 2025 ............... 86 0 0 0 0
November 25, 2026 ............... 77 0 0 0 0
November 25, 2027 ............... 67 0 0 0 0
November 25, 2028 ............... 56 0 0 0 0
November 25, 2029 ............... 45 0 0 0 0
November 25, 2030 ............... 33 0 0 0 0
November 25, 2031 ............... 20 0 0 0 0
November 25, 2032 ............... 7 0 0 0 0
November 25, 2033 ............... 0 0 0 0 0
Weighted Avg. Life to 25.37 10.33 5.45 4.11 3.21
Maturity (in years) (2)
Weighted Avg. Life to 25.22 9.64 5.03 3.84 3.02
Call (in years) (2)
- --------------
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the
assumed net reduction in the Certificate Principal Balance of such
class of Certificates.
S-124
Percentage of Original Principal Balance Outstanding1 at the
Specified Percentages of the Prepayment Assumption
Class M-4
------------------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
-------------- ------------------ ---------------- ------------- -------------
Initial Percent............... 100% 100% 100% 100% 100%
November 25, 2004 ............... 100 100 100 100 100
November 25, 2005 ............... 100 100 100 100 100
November 25, 2006 ............... 100 100 100 100 24
November 25, 2007 ............... 100 100 60 29 12
November 25, 2008 ............... 100 95 44 18 0
November 25, 2009 ............... 100 81 32 11 0
November 25, 2010 ............... 100 70 24 0 0
November 25, 2011 ............... 100 59 17 0 0
November 25, 2012 ............... 100 51 13 0 0
November 25, 2013 ............... 100 43 9 0 0
November 25, 2014 ............... 100 36 0 0 0
November 25, 2015 ............... 100 31 0 0 0
November 25, 2016 ............... 100 26 0 0 0
November 25, 2017 ............... 100 22 0 0 0
November 25, 2018 ............... 100 18 0 0 0
November 25, 2019 ............... 100 15 0 0 0
November 25, 2020 ............... 100 12 0 0 0
November 25, 2021 ............... 100 10 0 0 0
November 25, 2022 ............... 100 7 0 0 0
November 25, 2023 ............... 100 0 0 0 0
November 25, 2024 ............... 95 0 0 0 0
November 25, 2025 ............... 86 0 0 0 0
November 25, 2026 ............... 77 0 0 0 0
November 25, 2027 ............... 67 0 0 0 0
November 25, 2028 ............... 56 0 0 0 0
November 25, 2029 ............... 45 0 0 0 0
November 25, 2030 ............... 33 0 0 0 0
November 25, 2031 ............... 20 0 0 0 0
November 25, 2032 ............... 0 0 0 0 0
November 25, 2033 ............... 0 0 0 0 0
Weighted Avg. Life to 25.36 10.28 5.41 4.03 3.12
Maturity (in years) (2)
Weighted Avg. Life to 25.22 9.64 5.03 3.78 2.95
Call (in years) (2)
- --------------
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the
assumed net reduction in the Certificate Principal Balance of such
class of Certificates.
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Percentage of Original Principal Balance Outstanding1 at the
Specified Percentages of the Prepayment Assumption
Class M-5
------------------------------------------------------------------------------
Distribution Date 0% 50% 100% 150% 200%
-------------- ------------------ ---------------- ------------- -------------
Initial Percent............... 100% 100% 100% 100% 100%
November 25, 2004 ............... 100 100 100 100 100
November 25, 2005 ............... 100 100 100 100 100
November 25, 2006 ............... 100 100 100 100 24
November 25, 2007 ............... 100 100 60 29 12
November 25, 2008 ............... 100 95 44 18 0
November 25, 2009 ............... 100 81 32 11 0
November 25, 2010 ............... 100 70 24 0 0
November 25, 2011 ............... 100 59 17 0 0
November 25, 2012 ............... 100 51 13 0 0
November 25, 2013 ............... 100 43 2 0 0
November 25, 2014 ............... 100 36 0 0 0
November 25, 2015 ............... 100 31 0 0 0
November 25, 2016 ............... 100 26 0 0 0
November 25, 2017 ............... 100 22 0 0 0
November 25, 2018 ............... 100 18 0 0 0
November 25, 2019 ............... 100 15 0 0 0
November 25, 2020 ............... 100 12 0 0 0
November 25, 2021 ............... 100 8 0 0 0
November 25, 2022 ............... 100 0 0 0 0
November 25, 2023 ............... 100 0 0 0 0
November 25, 2024 ............... 95 0 0 0 0
November 25, 2025 ............... 86 0 0 0 0
November 25, 2026 ............... 77 0 0 0 0
November 25, 2027 ............... 67 0 0 0 0
November 25, 2028 ............... 56 0 0 0 0
November 25, 2029 ............... 45 0 0 0 0
November 25, 2030 ............... 33 0 0 0 0
November 25, 2031 ............... 20 0 0 0 0
November 25, 2032 ............... 0 0 0 0 0
November 25, 2033 ............... 0 0 0 0 0
Weighted Avg. Life to 25.34 10.19 5.35 3.95 3.03
Maturity (in years) (2)
Weighted Avg. Life to 25.22 9.64 5.02 3.74 2.88
Call (in years) (2)
- --------------
(1) Rounded to the nearest whole percentage.
(2) The weighted average life of any class of Certificates is determined by
(i) multiplying the assumed net reduction, if any, in the Certificate
Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the
results, and (iii) dividing the sum by the aggregate amount of the
assumed net reduction in the Certificate Principal Balance of such
class of Certificates.
S-126
Final Scheduled Distribution Dates
The Final Scheduled Distribution Date of each class of Offered
Certificates is set forth under "Summary of Prospectus Supplement" in this
Prospectus Supplement. The Final Scheduled Distribution Date for such
Certificates is the distribution date one month after the last due date of the
latest maturing Mortgage Loan. Since the rate of distributions in reduction of
the Certificate Principal Balance of each class of Offered Certificates will
depend on the rate of payment (including prepayments) of the Mortgage Loans, the
Certificate Principal Balance of any such class could be reduced to zero
significantly earlier or later than the Final Scheduled Distribution Date. The
rate of payments on the Mortgage Loans will depend on their particular
characteristics, as well as on prevailing interest rates from time to time and
other economic factors, and no assurance can be given as to the actual payment
experience of the Mortgage Loans.
USE OF PROCEEDS
The Depositor will apply the net proceeds of the sale of the Offered
Certificates to the purchase price of the Mortgage Loans transferred to the
Trust Fund. See "Method of Distribution" in this Prospectus Supplement.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain United States federal income tax
consequences of the purchase, ownership and disposition of the Offered
Certificates by a United States person is based upon laws, regulations, rulings
and decisions now in effect, all of which are subject to change (including
changes in effective dates) or possible differing interpretations. It deals only
with Certificates held as capital assets and does not purport to deal with
persons in special tax situations, such as financial institutions, insurance
companies, regulated investment companies, dealers in securities or currencies,
persons holding Certificates as a hedge against currency risks or as a position
in a "straddle" for tax purposes, or persons whose functional currency is not
the U.S. dollar. It also does not deal with holders other than original
purchasers (except where otherwise specifically noted). Persons considering the
purchase of the Certificates should consult their own tax advisors concerning
the application of United States federal income tax laws to their particular
situations as well as any consequences of the purchase, ownership and
disposition of the Certificates arising under the laws of any other taxing
jurisdiction.
General
The Pooling and Servicing Agreement provides that the Trust Fund will
comprise multiple REMICs organized in a tiered REMIC structure consisting of one
or more lower tier REMICs (each, a "Lower Tier REMIC") and an upper tier REMIC
(the "Master REMIC"). Each Lower Tier REMIC will issue uncertificated regular
interests and those interests will be held entirely by a REMIC above it in the
tiered structure. Each of the Lower Tier REMICs and the Master REMIC will
designate a single class of interests as the residual interest in that REMIC.
Elections will be made to treat each Lower Tier REMIC and the Master REMIC as a
REMIC for federal income tax purposes. Each class of Offered Certificates will
represent beneficial ownership of the corresponding class of regular interests
issued by the Master REMIC.
Upon the issuance of the Offered Certificates, Sidley Austin Brown &
Wood LLP will deliver its opinion to the effect that, assuming compliance with
the Pooling and Servicing Agreement, for federal income tax purposes, each Lower
Tier REMIC and the Master REMIC will qualify as a REMIC within the meaning of
Section 860D of the Internal Revenue Code of 1986, as amended (the "Code").
Taxation of the Certificateholders
For federal income tax purposes, the Basis Risk Reserve Fund will be
treated as an "outside reserve fund" that is beneficially owned by the Class N
and Class X Certificateholders. The rights of the holders of the Offered
Certificates to receive payments from the Basis Risk Reserve Fund for federal
income tax purposes are contractual rights that are separate from their regular
interests within the meaning of Treasury regulations Section 1.860G-2(i). The
following discussion assumes that the right of the holders of the Offered
Certificates to receive payments from the Basis Risk Reserve Fund will be
treated as an interest rate cap agreement rather than as an interest in a
partnership for federal income tax purposes. Prospective investors in the
Offered Certificates should consult their tax advisors regarding their
appropriate tax treatment.
S-127
A holder of an Offered Certificate will be treated for federal income
tax purposes as owning a regular interest in the Master REMIC. The Offered
Certificates will also represent beneficial ownership of an interest in a
limited recourse interest rate cap contract (the "Cap Contract"). A holder of an
Offered Certificate must allocate its purchase price for such certificate
between two components - the REMIC regular interest component and the Cap
Contract component. For information reporting purposes, the trustee will assume
that, with respect to any Offered Certificates, the Cap Contract component will
have an insubstantial value relative to the value of the regular interest
component. The IRS could, however, argue that the Cap Contract component has a
greater than de minimis value, and if that argument were to be sustained, the
regular interest component could be viewed as having been issued with original
issue discount ("OID") (which could cause the total amount of discount to exceed
a statutorily defined de minimis amount).
Taxation of Regular Interests
For federal income tax reporting purposes, the Offered Certificates may
be treated as having been issued with OID. The prepayment assumption that will
be used in determining the rate of accrual of original issue discount, premium
and market discount, if any, for federal income tax purposes will be based on
the assumption that subsequent to the date of any determination the Mortgage
Loans will prepay at 23% HEP with respect to the Fixed-Rate Mortgage Loans and
28% CPR with respect to the Adjustable-Rate Mortgage Loans. No representation is
made that the Mortgage Loans will prepay at such rate or at any other rate. See
"Material Federal Income Tax Consequences--REMIC Certificates--C. Regular
Certificates--Original Issue Discount and Premium" in the Prospectus.
Purchasers of the Offered Certificates should be aware that Treasury
regulations addressing the treatment of debt instruments issued with OID (the
"OID Regulations") do not adequately address certain issues relevant to, or are
not applicable to, securities such as the Offered Certificates. Because of the
uncertainty concerning the application of Section 1272(a)(6) of the Code to such
Certificates, and because the rules of the OID Regulations are limited in their
application in ways that could preclude their application to such Certificates
even in the absence of Section 1272(a)(6) of the Code, the Internal Revenue
Service could assert that the Offered Certificates should be treated as issued
with original issue discount or should be governed by the rules applicable to
debt instruments having contingent payments or by some other manner not yet set
forth in regulations. Prospective purchasers of the Offered Certificates are
advised to consult their tax advisors concerning the tax treatment of such
Certificates.
If the method for computing original issue discount described in the
prospectus results in a negative amount for any period with respect to a
certificateholder, the amount of original issue discount allocable to such
period would be zero and such certificateholder will be permitted to offset such
negative amount only against future original issue discount (if any)
attributable to such certificates.
In certain circumstances, the OID Regulations permit the holder of a
debt instrument to recognize original issue discount under a method that differs
from that used by the issuer. Accordingly, it is possible that the holder of an
Offered Certificate may be able to select a method for recognizing original
issue discount that differs from that used by the entity identified as the "tax
matters person" in the pooling and servicing agreement in preparing reports to
the certificateholders and the IRS.
Certain classes of the Offered Certificates may be treated for federal
income tax purposes as having been issued at a premium. Whether any holder of
such a class of Offered Certificates will be treated as holding a certificate
with amortizable bond premium will depend on the portion of the purchase price
allocated to the regular interest component of such certificate and the
distributions remaining to be made on such components at the time of its
acquisition by such certificateholder. Holders of such classes of certificates
should consult their tax advisors regarding the possibility of making an
election to amortize such premium.
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Taxation of the Cap Contract Component
As indicated above, a portion of the purchase price paid by a
certificateholder to acquire an Offered Certificate will be attributable to the
Cap Contract component of such certificate. To the extent rights to receive
payments are determined to have a value on the Closing Date that is greater than
zero, a portion of such purchase price will be allocable to such rights, and
such portion will be treated as a cap premium (the "Cap Premium") paid by the
holders of such Certificates. For reporting purposes, the Trust Fund will take
the position that the value of the Cap Contact is insubstantial relative to the
value of the regular interest component. The IRS could, however, argue that the
Cap Contract has a higher (or lower) value, and if that argument were to be
sustained, the REMIC regular interests could be viewed as having been issued
with either an additional amount of OID or with less premium (or less OID or
with more premium).
The Cap Premium must be amortized over the life of any such
certificate, taking into account the declining balance of the related regular
interest component. Treasury regulations concerning notional principal contracts
provide alternative methods for amortizing the purchase price of any interest
rate cap contract. Under one method--the level yield constant interest
method--the price paid for an interest rate cap is amortized over the life of
the cap as though it were the principal amount of a loan bearing interest at a
reasonable rate. Certificateholders are urged to consult their tax advisors
concerning the methods that can be employed to amortize the portion of the
purchase price paid for the Cap Contract component of an Offered Certificate.
Any payments made to a holder of an Offered Certificate from the Basis
Risk Reserve Fund will be treated as periodic payments on an interest rate cap
contract. To the extent the sum of such periodic payments for any year exceed
that year's amortized cost of the Cap Contract component, such excess is
ordinary income. If for any year the amount of that year's amortized cost
exceeds the sum of the periodic payments, such excess is allowable as an
ordinary deduction.
Sale or Disposition
Upon the sale, exchange, or other disposition of an Offered
Certificate, the certificateholder must allocate the amount realized between the
two components of such Certificate based on the relative fair market values of
those components at the time of sale. Assuming that an Offered Certificate is
held as a "capital asset" within the meaning of Section 1221 of the Code, gain
or loss on the disposition of the regular interest component should, subject to
the limitation described below, be capital gain or loss. In addition, with
respect to an Offered Certificate, gain or loss on the disposition of an
interest in the Cap Contract component should be capital gain or loss. Gain
attributable to the regular interest component of an Offered Certificate will be
treated as ordinary income, however, to the extent such gain does not exceed the
excess, if any, of (i) the amount that would have been includible in the
certificateholder's gross income with respect to the regular interest component
had income thereon accrued at a rate equal to 110% of the applicable federal
rate as defined in Section 1274(d) of the Code determined as of the date of
purchase of such certificate over (ii) the amount actually included in such
certificateholder's income.
Classification of the Offered Certificates
For the purpose of this paragraph, any reference to Offered
Certificates will be exclusive of the Offered Certificates' rights under the Cap
Contract. The Offered Certificates will be treated as assets described in
Section 7701(a)(19)(C) of the Code and "real estate assets" under Section
856(c)(4)(A) of the Code generally in the same proportion that the assets of the
trust would be so treated. In addition, interest on the Offered Certificates
will be treated as "interest on obligations secured by mortgages on real
property" under Section 856(c)(3)(B) of the Code generally to the extent that
such Offered Certificates are treated as "real estate assets" under Section
856(c)(4)(A) of the Code. See "Material Federal Income Tax Consequences--REMIC
Certificates--A. General" in the Prospectus. If more than 95% of the regular
interests and income qualify for these treatments, the regular interests
generally will qualify for such treatments in their entirety. However, no
portion of a Cap Contract or income allocable to a Cap Contract will qualify for
such treatment. As a result, the Offered Certificates are not suitable
investments for inclusion in another REMIC.
S-129
REMIC Taxes and Reporting
It is not anticipated that the Trust Fund will engage in any
transactions that would subject it to the prohibited transactions tax as defined
in Section 860F(a)(2) of the Code, the contributions tax as defined in Section
860G(d) of the Code or the tax on net income from foreclosure property as
defined in Section 860G(c) of the Code. However, in the event that any such tax
is imposed on the Trust Fund, such tax will be borne (i) by the Trustee, if the
Trustee has breached its obligations with respect to REMIC compliance under the
Agreement, (ii) the Servicer, if the Servicer has breached its obligations with
respect to REMIC compliance under the Agreement, and (iii) otherwise by the
Trust Fund, with a resulting reduction in amounts otherwise distributable to
Holders of the Offered Certificates. See "Description of the
Securities--General" and "Material Federal Income Tax Consequences--REMIC
Certificates--E. Prohibited Transactions and Other Taxes" in the Prospectus.
The responsibility for filing annual federal information returns and
other reports will be borne by the Trustee. See "Material Federal Income Tax
Consequences--REMIC Certificates--G. Administrative Matters" in the Prospectus.
For further information regarding the federal income tax consequences
of investing in the Offered Certificates, see "Federal Income Tax
Consequences--REMICs" in the Prospectus.
STATE TAXES
The Depositor makes no representations regarding the tax consequences
of purchase, ownership or disposition of the Offered Certificates under the tax
laws of any state. Investors considering an investment in the Offered
Certificates should consult their own tax advisors regarding such tax
consequences.
All investors should consult their own tax advisors regarding the
federal, state, local or foreign income tax consequences of the purchase,
ownership and disposition of the Offered Certificates.
ERISA CONSIDERATIONS
Section 406 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), prohibits "parties in interest" with respect to an employee
benefit plan subject to ERISA and/or a plan or other arrangement subject to the
excise tax provisions set forth under Section 4975 of the Code (each of the
foregoing, an "ERISA Plan") from engaging in certain transactions involving such
ERISA Plan and its assets unless a statutory, regulatory or administrative
exemption applies to the transaction. Section 4975 of the Code imposes certain
excise taxes on prohibited transactions involving plans described under that
Section; ERISA authorizes the imposition of civil penalties for prohibited
transactions involving plans not covered under Section 4975 of the Code. Any
ERISA Plan fiduciary which proposes to cause an ERISA Plan to acquire any of the
Senior Certificates should consult with its counsel with respect to the
potential consequences under ERISA and the Code of the ERISA Plan's acquisition
and ownership of such Certificates. See "ERISA Considerations" in the
Prospectus.
Certain employee benefit plans, including governmental plans and
certain church plans (collectively with ERISA Plans, "Plans"), are not subject
to ERISA's requirements. However, such plans may be subject to the provisions of
other applicable federal, state or local law ("Similar Law") materially similar
to the foregoing provisions of ERISA and the Code. Any such plan which is
qualified and exempt from taxation under Sections 401(a) and 501(a) of the Code
may nonetheless be subject to the prohibited transaction rules set forth in
Section 503 of the Code.
Except as noted above, investments by Plans are subject to ERISA's
general fiduciary requirements, including the requirement of investment prudence
and diversification and the requirement that a Plan's investments be made in
accordance with the documents governing the Plan. A fiduciary which decides to
invest the assets of a Plan in the Senior Certificates should consider, among
other factors, the extreme sensitivity of the investments to the rate of
principal payments (including prepayments) on the Mortgage Loans.
S-130
The U.S. Department of Labor has extended to one or more of the
Underwriters an administrative exemption (collectively, the "Exemptions" and
each, an "Exemption") from certain of the prohibited transaction rules of ERISA
and the related excise tax provisions of Section 4975 of the Code with respect
to the initial purchase, the holding and the subsequent resale by Plans of
certificates in pass-through trusts that consist of certain receivables, loans
and other obligations that meet the conditions and requirements of the
Exemptions. The Exemptions can apply to certificates in a pass-through trust
holding mortgage loans, and the Exemptions may apply to the Senior Certificates.
Among the conditions that must be satisfied for the Exemptions to apply
are the following:
(1) the acquisition of the certificates by a Plan is on terms
(including the price for the certificates) that are at least as favorable to the
Plan as they would be in an arm's length transaction with an unrelated party;
(2) the certificates acquired by the Plan have received a rating
at the time of such acquisition that is one of the four highest generic rating
categories from S&P, Moody's or Fitch (collectively, the "Exemption Rating
Agencies"), provided the trust does not contain loans with loan-to-value ratios
in excess of 100%;
(3) the trustee must not be an affiliate of any other member of
the Restricted Group (as defined below) other than an underwriter;
(4) the sum of all payments made to and retained by the
underwriters in connection with the distribution of the certificates represents
not more than reasonable compensation for underwriting the certificates; the sum
of all payments made to and retained by the seller pursuant to the assignment of
the loans to the trust represents not more than the fair market value of such
loans; the sum of all payments made to and retained by each servicer represents
not more than reasonable compensation for such person's services under the
agreement pursuant to which the loans are pooled and reimbursements of such
person's reasonable expenses in connection therewith; and
(5) the Plan investing in the certificates is an "accredited
investor" as defined in Rule 501(a)(1) of Regulation D of the Securities and
Exchange Commission under the Securities Act of 1933.
The trust must also meet the following requirements:
(i) the corpus of the trust must consist solely of assets of the
type that have been included in other investment pools;
(ii) certificates in such other investment pools must have been
rated in one of the four highest generic rating categories by an Exemption
Rating Agency for at least one year prior to the Plan's acquisition of
certificates; and
(iii) certificates evidencing interests in such other investment
pools must have been purchased by investors other than Plans for at least one
year prior to any Plan's acquisition of the certificates.
Moreover, the Exemptions provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when
the Plan fiduciary causes a Plan to acquire certificates in a trust holding
receivables as to which the fiduciary (or its affiliate) is an obligor provided
that, among other requirements, (i) in the case of an acquisition in connection
with the initial issuance of certificates, at least fifty percent (50%) of each
class of certificates in which Plans have invested and at least fifty percent
(50%) of the interests in the trust are acquired by persons independent of the
Restricted Group; (ii) such fiduciary (or its affiliate) is an obligor with
respect to five percent (5%) or less of the fair market value of the obligations
contained in the trust; (iii) a Plan's investment in certificates of any class
does not exceed twenty-five percent (25%) of all of the certificates of that
class outstanding at the time of the acquisition; and (iv) immediately after the
acquisition, no more than twenty-five percent (25%) of the assets of any Plan
with respect to which such person is a fiduciary are invested in certificates
representing an interest in one or more trusts containing assets sold or
serviced by the same entity. The Exemptions do not apply to Plans sponsored by
any Underwriter, the Trustee, any servicer, any obligor with respect to Mortgage
Loans included in the Trust constituting more than five percent of the aggregate
unamortized principal balance of the assets in the Trust, any provider of credit
support to the trust, or any affiliate of such parties (the "Restricted Group").
S-131
Notwithstanding the discussion above, special rules apply regarding the
Exemptions in the case of certificates backed by pools containing secured loans
which must be residential or home equity loans, with loan-to-value ratios in
excess of 100%:
(a) The rights and interests evidenced by such certificates
acquired by Plans cannot be subordinated to the rights and interests evidenced
by other certificates of the same trust;
(b) Such certificates acquired by Plans must have received a
rating from an Exemption Rating Agency at the time of such acquisition that is
in one of the two highest generic rating categories; and
(c) Any obligation included in the pool must be secured by
collateral whose fair market value on the date of issuance of the securities is
at least equal to 80% of the sum of (I) the outstanding principal balance due
under the obligation which is included in the pool and (II) the outstanding
principal balance of any other obligation of higher priority secured by the same
collateral.
Because the Mortgage Pool contains Mortgage Loans with loan-to-value
ratios in excess of 100%, the special rules discussed above will apply to the
acquisition of Certificates by Plans. Consequently, the Exemptions will apply to
the acquisition and holding by Plans of the Senior Certificates if all
conditions of the Exemptions are met.
Because the characteristics of the Class M-1, Class M-2, Class M-3,
Class M-4 and Class M-5 Certificates may not meet the requirements of the
Exemptions or any other available exemption, the purchase and holding of the
Class M-1, Class M-2, Class M-3, Class M-4 and Class M-5 Certificates by a Plan
may result in prohibited transactions or the imposition of excise taxes or civil
penalties. Consequently, transfers of the Class M-1, Class M-2, Class M-3, Class
M-4 and Class M-5 Certificates will not be registered by the Trustee unless the
Trustee receives: (i) a representation from the transferee of such Certificate,
acceptable to and in form and substance satisfactory to the Trustee, to the
effect that such transferee is not a Plan, or a person acting on behalf of a
Plan or using the assets of a Plan to effect such transfer; (ii) a
representation that the purchaser is an insurance company which is purchasing
such Certificates with funds contained in an "insurance company general account"
(as such term is defined in Section V(e) of Prohibited Transaction Class
Exemption 95-60 ("PTCE 95-60")) and that the purchase and holding of such
Certificates are covered under Sections I and III of PTCE 95-60; or (iii) an
opinion of counsel satisfactory to the Trustee that the purchase or holding of
such Certificate by a Plan, any person acting on behalf of a Plan or using such
Plan's assets, will not result in any prohibited transaction under ERISA, the
Code or Similar Law and will not subject the Depositor, the Servicer or the
Trustee to any obligation in addition to those undertaken in the Pooling and
Servicing Agreement. Such representation as described above will be deemed to
have been made to the Trustee by a Beneficial Owner's acceptance of a Class M-1,
Class M-2, Class M-3, Class M-4 and Class M-5 Certificate in book-entry form. In
the event that such representation is violated, or any attempt to transfer to a
Plan or person acting on behalf of a Plan or using a Plan's assets is attempted
without the opinion of counsel described above, such attempted transfer or
acquisition shall be void and of no effect.
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA, the Code and Similar Law, the applicability of
the Exemptions or other exemptions under ERISA, and the potential consequences
in their specific circumstances, prior to making an investment in the Offered
Certificates. Moreover, each Plan fiduciary should determine whether under the
general fiduciary standards of investment prudence and diversification, an
investment in any class of Offered Certificates is appropriate for the Plan,
taking into account the overall investment policy of the Plan and the
composition of the Plan's investment portfolio.
S-132
LEGAL INVESTMENT
The Offered Certificates will not constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended ("SMMEA"), because the Mortgage Pool includes second and third
lien Mortgage Loans and Owner-financed Mortgage Loans that were originated by
individuals and not by financial institutions or mortgagees approved by the
Secretary of Housing and Urban Development.
There may be restrictions on the ability of certain investors,
including depository institutions, either to purchase the Offered Certificates
or to purchase Offered Certificates representing more than a specified
percentage of the investor's assets. Investors should consult their own legal
advisors in determining whether and to what extent the Offered Certificates
constitute legal investments for such investors. See "Legal Investment
Considerations" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the Underwriting
Agreement, between the Depositor and Greenwich Capital Markets, Inc., an
affiliate of the Depositor, Residential Funding Securities Corporation and
Blaylock & Partners, L.P. (the "Underwriters"), the Underwriter have agreed to
purchase, and the Depositor has agreed to sell to the Underwriters, the initial
Certificate Principal Balance (or Notional Amount) of the classes Offered
Certificates set forth below.
Greenwich Capital Residential Funding Blaylock & Partners,
Class Markets, Inc. Securities Corporation L.P.
Class 1AV-1.............. $69,733,000 $23,245,000 $41,461,000
Class 2AV-1.............. $52,693,000 $8,507,000 $0
Class 2AV-2.............. $33,346,000 $5,383,000 $0
Class AF-1............... $42,619,500 $6,880,500 $0
Class AF-2............... $16,617,000 $2,683,000 $0
Class AF-3............... $14,981,000 $2,419,000 $0
Class AF-4............... $11,132,000 $1,798,000 $0
Class AF-5............... $8,772,000 $1,417,000 $0
Class AF-6............... $7,749,000 $1,251,000 $0
Class M-1................ $22,451,000 $3,625,000 $0
Class M-2................ $18,709,000 $3,021,000 $0
Class M-3................ $3,554,000 $574,000 $0
Class M-4................ $4,677,000 $755,000 $0
Class M-5................ $3,928,000 $635,000 $0
Total.................... $310,961,500 $62,193,500 $41,461,000
Distribution of the Offered Certificates will be made by the
Underwriters from time to time in negotiated transactions or otherwise at
varying prices to be determined at the time of sale. The Underwriters may effect
such transactions by selling Offered Certificates to or through dealers and such
dealers may receive from the Underwriters, for which it acts as agent,
compensation in the form of underwriting discounts, concessions or commissions.
The Underwriters and any dealers that participate with the Underwriters in the
distribution of such Offered Certificates may be deemed to be underwriters, and
any discounts, commissions or concessions received by them, and any profits on
resale of the Offered Certificates purchased by them, may be deemed to be
underwriting discounts and commissions under the 1933 Act.
The Depositor has been advised by the Underwriters that they intend to
make a market in the Offered Certificates but have no obligation to do so. There
can be no assurance that a secondary market for the Offered Certificates will
develop or, if it does develop, that it will continue.
S-133
The Depositor has agreed to indemnify the Underwriters against, or make
contributions to the Underwriters with respect to, certain liabilities,
including liabilities under the Act.
LEGAL MATTERS
Certain matters relating to the validity of the Offered Certificates
and certain tax matters will be passed upon for the Depositor and Underwriters
by Sidley Austin Brown & Wood LLP, New York, New York.
RATINGS
It is a condition to the issuance of the Offered Certificates that the
Certificates receive the following ratings from S&P, Moody's and Fitch:
Class S&P Moody's Fitch
----- --- ------- -----
1AV-1 AAA Aaa AAA
2AV-1 AAA Aaa AAA
2AV-2 AAA Aaa AAA
AF-1 AAA Aaa AAA
AF-2 AAA Aaa AAA
AF-3 AAA Aaa AAA
AF-4 AAA Aaa AAA
AF-5 AAA Aaa AAA
AF-6 AAA Aaa AAA
M-1 AA Aa2 AA
M-2 A A2 A
M-3 A- A3 A-
M-4 BBB+ Baa1 BBB+
M-5 BBB Baa2 BBB
A securities rating addresses the likelihood of the receipt by a
certificateholder of distributions on the Mortgage Loans. The rating takes into
consideration the characteristics of the Mortgage Loans and the structural,
legal and tax aspects associated with the certificates. The ratings on the
Offered Certificates do not, however, constitute statements regarding the
likelihood of the payment of any Net Rate Carryover Amount, the frequency of
prepayments on the Mortgage Loans, or the possibility that a holder of an
Offered Certificate might realize a lower than anticipated yield.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating. In the event that the ratings
initially assigned to any of the Offered Certificates by the Rating Agencies are
subsequently lowered for any reason, no person or entity is obligated to provide
any additional support or credit enhancement with respect to such Offered
Certificates.
S-134
INDEX OF DEFINED TERMS
60+ Day Delinquent Loan..........................S-93
Accrued Certificate Interest.....................S-83
Actuarial Mortgage Loans.........................S-65
Adjustable-Rate Mortgage Loans...................S-24
Adjustment Date..................................S-25
Advance..........................................S-73
Alternative Documentation........................S-67
Applied Realized Loss Amount.....................S-94
Assignment Program...............................S-64
Available Funds..................................S-81
Balloon Loan.........................S-27, S-41, S-54
Balloon Payment......................S-27, S-41, S-54
Bankruptcy Code..................................S-25
Bankruptcy Plan Mortgage Loan....................S-25
Basis Risk Reserve Fund..........................S-99
Basis Risk Reserve Fund Deposit..................S-99
Beneficial Owner.................................S-77
Book-Entry Certificates..........................S-77
Business Day...............................S-72, S-84
Cap Agreement Termination Date...................S-84
Cap Contract....................................S-128
Cap Premium.....................................S-129
Cap Provider.....................................S-84
Certificate Owners...............................S-77
Certificate Principal Balance....................S-88
Certificateholder................................S-78
Certificates.....................................S-77
Class 1AV-1 Principal Allocation Percentage......S-89
Class 1AV-1 Principal Distribution Amount........S-89
Class 2AV Principal Allocation Percentage........S-89
Class 2AV Principal Distribution Amount..........S-89
Class AF Principal Allocation Percentage.........S-89
Class AF Principal Distribution Amount...........S-89
Class AF-1 Interest Rate Cap Agreement...........S-84
Class AF-6 Principal Distribution Amount.........S-89
Class M Certificates.............................S-77
Class M Interest Rate Cap Agreement..............S-84
Class M-1 Principal Distribution Amount..........S-89
Class M-2 Principal Distribution Amount..........S-90
Class M-3 Principal Distribution Amount..........S-90
Class M-4 Principal Distribution Amount..........S-90
Class M-5 Principal Distribution Amount..........S-90
Class M-6 Principal Distribution Amount..........S-90
Clearstream.......................................S-3
Clearstream Participants.........................S-79
Closing Date.....................................S-71
Code............................................S-127
Collection Account...............................S-72
Collection Period................................S-81
Commission.......................................S-66
Compensating Interest............................S-74
Cooperative......................................S-79
Custodian........................................S-71
Cut-off Date.....................................S-24
Cut-off Date Principal Balance...................S-24
Defective Mortgage Loans.........................S-72
Deficient Valuation..............................S-94
Delayed First Adjustment Mortgage Loan..........S-101
Delinquent.......................................S-25
Determination Date...............................S-74
Distribution Account.............................S-72
Distribution Date................................S-77
DTC...............................................S-3
Due Date.........................................S-26
EFSG.............................................S-66
Eligible Account.................................S-73
Eligible Substitute Mortgage Loan................S-71
ERISA...........................................S-130
ERISA Plan......................................S-130
Euroclear.........................................S-3
Euroclear Operator...............................S-79
Euroclear Participants...........................S-79
European Depositaries............................S-77
Exemption.......................................S-131
Exemption Rating Agencies.......................S-131
Exemptions......................................S-131
Extra Principal Distribution Amount..............S-91
FHA..............................................S-64
FHA Mortgage Loans...............................S-64
Financial Intermediary...........................S-78
Fitch............................................S-10
Fixed-Rate Mortgage Loans........................S-24
Forbearance Plan Mortgage Loan...................S-25
Full Documentation...............................S-67
Global Securities.................................I-1
Gross Margin.....................................S-25
Group 1 Adjustable-Rate Mortgage Loans...........S-27
Group 1 Balance..................................S-83
Group 1 Interest Rate Cap Agreement..............S-84
Group 1 Interest Remittance Amount...............S-83
Group 1 Mortgage Loans...........................S-25
Group 1 Principal Distribution Amount............S-91
Group 1 Principal Remittance Amount..............S-91
Group 2 Adjustable-Rate Mortgage Loans...........S-41
Group 2 Balance..................................S-83
Group 2 Interest Rate Cap Agreement..............S-84
Group 2 Interest Remittance Amount...............S-83
Group 2 Mortgage Loans...........................S-25
Group 2 Principal Distribution Amount............S-91
Group 2 Principal Remittance Amount..............S-91
Group 3 Balance..................................S-83
Group 3 Interest Remittance Amount...............S-83
Group 3 Mortgage Loans...........................S-25
Group 3 Principal Distribution Amount............S-92
Group 3 Principal Remittance Amount..............S-92
Group Balance....................................S-83
Group Cap........................................S-97
S-135
HUD..............................................S-64
Index............................................S-25
Index Rate.......................................S-84
Indirect Participants............................S-77
Initial Rate Cap.................................S-25
Interest Accrual Period..........................S-83
Interest Carry Forward Amount....................S-83
Interest Percentage..............................S-84
Interest Rate Cap Account........................S-84
Interest Rate Cap Agreement......................S-84
Interest Rate Cap Agreement Payment Amount.......S-84
Interest Rate Cap Agreement Payment Date.........S-84
LIBOR............................................S-98
LIBOR Determination Date.........................S-98
Limited Documentation............................S-67
Liquidated Mortgage Loan.........................S-94
Loan Group.......................................S-25
Loan Group 1.....................................S-25
Loan Group 2.....................................S-25
Loan Group 3.....................................S-25
Lower Tier REMIC................................S-127
Master REMIC....................................S-127
Maximum Mortgage Interest Rate...................S-25
MGIC.............................................S-66
Minimum Mortgage Interest Rate...................S-26
Modified Scheduled Payments......................S-25
Monthly Excess Cashflow Amount...................S-95
Monthly Excess Interest Amount.............S-83, S-94
Monthly Payment..................................S-25
Moody's..........................................S-10
Mortgage.........................................S-26
Mortgage Interest Rate...........................S-27
Mortgage Loan Purchase Agreement.................S-24
Mortgage Loan Schedule...........................S-71
Mortgage Loans...................................S-24
Mortgage Pool....................................S-24
Mortgaged Property...............................S-26
National Housing Act.............................S-64
Net Mortgage Interest Rate.......................S-94
Net Rate Carryover Amount........................S-98
No Documentation.................................S-67
Offered Certificates.............................S-77
OID.............................................S-128
OID Regulations.................................S-128
Optional Termination Date........................S-75
Original Combined Loan-to-Value Ratio............S-33
Overcollateralization Amount.....................S-92
Overcollateralization Deficiency.................S-92
Overcollateralization Release Amount.............S-92
Owner-financed Mortgage Loans....................S-68
Participants.....................................S-77
Pass-Through Rate..........................S-96, S-97
Performing Mortgage Loan.........................S-25
Periodic Rate Cap................................S-25
Plans...........................................S-130
Pool Balance.....................................S-24
Pooling and Servicing Agreement..................S-70
Prepayment Assumption...........................S-102
Prepayment Interest Shortfall....................S-74
Prepayment Period................................S-81
Principal Balance................................S-24
Principal Distribution Amount....................S-92
Principal Remittance Amount......................S-92
Prospectus........................................S-3
Prospectus Supplement.............................S-3
PTCE 95-60......................................S-132
Purchase Price...................................S-71
Radian...........................................S-66
Rate Cap.........................................S-97
Realized Loss....................................S-93
Record Date......................................S-77
Reference Bank Rate..............................S-98
Regular Scheduled Payments.......................S-25
Related Documents................................S-71
Relevant Depositary..............................S-77
Relief Act.......................................S-73
REMIC............................................S-10
Residual Certificates............................S-77
Restricted Group................................S-132
Rules............................................S-78
S&P..............................................S-10
Seller...........................................S-24
Senior Certificates..............................S-77
Senior Credit Support Depletion Date.............S-93
Senior Enhancement Percentage....................S-93
Senior Lien......................................S-27
Senior Principal Distribution Amount.............S-93
Senior Specified Enhancement Percentage..........S-93
Servicer.........................................S-68
Servicer Modification............................S-94
Servicing Advance................................S-74
Servicing Fee....................................S-74
Servicing Fee Rate...............................S-74
Servicing Rights Pledgee.........................S-74
Similar Law.....................................S-130
Simple Interest Mortgage Loans...................S-65
Six Month LIBOR..................................S-63
SMMEA...........................................S-132
Stated Documentation.............................S-67
Stepdown Date....................................S-93
Streamlined Documentation........................S-67
Structuring Assumptions.........................S-102
Subordinate Cap..................................S-98
Subordinate Certificates.........................S-77
Substitution Adjustment..........................S-71
Targeted Overcollateralization Amount............S-93
Telerate Page 3750...............................S-98
Termination Price................................S-75
Terms and Conditions.............................S-79
Trigger Event....................................S-93
Trust.............................................S-3
S-136
Trust Fund.......................................S-24
Trustee..........................................S-75
Trustee Fee......................................S-75
U.S. Person.......................................I-3
Underwriters....................................S-133
United States Housing Act........................S-64
Unpaid Realized Loss Amount......................S-96
S-137
ANNEX I
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the Offered Certificates will
be offered globally (the "Global Securities") and will be available only in
book-entry form. Investors in the Global Securities may hold such Global
Securities through any of DTC, Clearstream or Euroclear. The Global Securities
will be tradable as home market instruments in both the European and U.S.
domestic markets. Initial settlement and all secondary trades will settle in
same-day funds.
Secondary market trading between investors holding Global Securities
through Clearstream and Euroclear will be conducted in the ordinary way in
accordance with their normal rules and operating procedures and in accordance
with conventional eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors holding Global Securities
through DTC will be conducted according to the rules and procedures applicable
to U.S. corporate debt obligations.
Secondary cross-market trading between Clearstream or Euroclear and DTC
Participants holding Certificates will be effected on a delivery-against-payment
basis through the respective Depositaries of Clearstream and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S. holders (as described below) of Global Securities will be
subject to U.S. withholding taxes unless such holders meet certain requirements
and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
All Global Securities will be held in book-entry form by DTC in the
name of Cede & Co. as nominee of DTC. Investors' interests in the Global
Securities will be represented through financial institutions acting on their
behalf as direct and indirect Participants in DTC. As a result, Clearstream and
Euroclear will hold positions on behalf of their participants through their
respective Depositaries, which in turn will hold such positions in accounts as
DTC Participants.
Investors electing to hold their Global Securities through DTC will
follow the settlement practices applicable to conventional eurobonds, except
that there will be no temporary global security and no "lock-up" or restricted
period. 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 Clearstream
or Euroclear accounts will follow the settlement procedures applicable to
conventional eurobonds, except that there will be no temporary global security
and no `lock-up' or restricted period. Global Securities will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary Market Trading
Since the purchaser determines the place of delivery, it is important
to establish at the time of the trade where both the purchaser's and seller's
accounts are located to ensure that settlement can be made on the desired value
date.
Trading between DTC Participants. Secondary market trading between DTC
Participants will be settled using the procedures applicable to prior mortgage
loan asset backed certificates issues in same-day funds.
Trading between Clearstream and/or Euroclear Participants. Secondary
market trading between Clearstream Participants or Euroclear Participants will
be settled using the procedures applicable to conventional eurobonds in same-day
funds.
I-1
Trading between DTC seller and Clearstream or Euroclear purchaser. When
Global Securities are to be transferred from the account of a DTC Participant to
the account of a Clearstream Participant or a Euroclear Participant, the
purchaser will send instructions to Clearstream or Euroclear through a
Clearstream Participant or Euroclear Participant at least one business day prior
to settlement. Clearstream or Euroclear will instruct the respective Depositary,
as the case may be, to receive the Global Securities against payment. Payment
will include interest accrued on the Global Securities from and including the
last coupon payment date to and excluding the settlement date, on the basis of
either a 360-day year comprised of 30-day months or the actual number of days in
such accrual period and a year assumed to consist of 360 days, as applicable.
For transactions settling on the 31st of the month, payment will include
interest accrued to and excluding the first day of the following month. Payment
will then be made by the respective Depositary of the DTC Participant's account
against delivery of the Global Securities. After settlement has been completed,
the Global Securities will be system and by the clearing system, in accordance
with its usual procedures, to the Clearstream Participant's or Euroclear
Participant's account. The securities credit will appear the next day (European
time) and the cash debt will be back-valued to, and the interest on the Global
Securities will accrue from, the value date (which would be the preceding day
when settlement occurred in New York). If settlement is not completed on the
intended value date (i.e., the trade fails), the Clearstream or Euroclear cash
debt will be valued instead as of the actual settlement date.
Clearstream Participants and Euroclear Participants will need to make
available to the respective clearing systems the funds necessary to process
same-day funds settlement. The most direct means of doing so is to preposition
funds for settlement, either from cash on hand or existing lines of credit, as
they would for any settlement occurring within Clearstream or Euroclear. Under
this approach, they may take on credit exposure to Clearstream or Euroclear
until the Global Securities are credited to their accounts one day later.
As an alternative, if Clearstream or Euroclear has extended a line of
credit to them, Clearstream Participants or Euroclear Participants can elect not
to preposition funds and allow that credit line to be drawn upon the finance
settlement. Under this procedure, Clearstream Participants or Euroclear
Participants purchasing Global Securities would incur overdraft charges for one
day, assuming they cleared the overdraft when the Global Securities were
credited to their accounts. However, interest on the Global Securities would
accrue from the value date. Therefore, in many cases the investment income on
the Global Securities earned during that one-day period may substantially reduce
or offset the amount of such overdraft charges, although this result will depend
on each Clearstream Participant's or Euroclear Participant's particular cost of
funds.
Since the settlement is taking place during New York business hours,
DTC Participants can employ their usual procedures for sending Global Securities
to the respective European Depositary for the benefit of Clearstream
Participants or Euroclear Participants. The sale proceeds will be available to
the DTC seller on the settlement date. Thus, to the DTC Participants a
cross-market transaction will settle no differently than a trade between two DTC
Participants.
Trading between Clearstream or Euroclear Seller and DTC Purchaser. Due
to time zone differences in their favor, Clearstream Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Global Securities are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Clearstream or Euroclear through a Clearstream Participant or
Euroclear Participant at least one business day prior to settlement. In these
cases Clearstream or Euroclear will instruct the respective Depositary, as
appropriate, to deliver the Global Securities to the DTC Participant's account
against payment. Payment will include interest accrued on the Global Securities
from and including the last coupon payment to and excluding the settlement date
on the basis of either a 360-day year comprised of 30-day months or the actual
number of days in such accrual period and a year assumed to consist of 360 days,
as applicable. For transactions settling on the 31st of the month, payment will
include interest accrued to and excluding the first day of the following month.
The payment will then be reflected in the account of the Clearstream Participant
or Euroclear Participant the following day, and receipt of the cash proceeds in
the Clearstream Participant's or Euroclear Participant's account would be
back-valued to the value date (which would be the preceding day, when settlement
occurred in New York). Should the Clearstream Participant or Euroclear
Participant have a line of credit with its respective clearing system and elect
to be in debt in anticipation of receipt of the sale proceeds in its account,
the back-valuation will extinguish any overdraft incurred over that one-day
period. If settlement is not completed on the intended value date (i.e., the
trade fails), receipt of the cash proceeds in the Clearstream Participant's or
Euroclear Participant's account would instead be valued as of the actual
settlement date.
I-2
Finally, day traders that use Clearstream or Euroclear and that
purchase Global Securities from DTC Participants for delivery to Clearstream
Participants or Euroclear Participants should note that these trades would
automatically fail on the sale side unless affirmative action were taken. At
least three techniques should be readily available to eliminate this potential
problem:
(a) borrowing through Clearstream or Euroclear for one day
(until the purchase side of the day trade is reflected in their
Clearstream or Euroclear accounts) in accordance with the clearing
system's customary procedures;
(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
Clearstream or Euroclear account in order to settle the sale side of
the trade; or
(c) staggering the value dates for the buy and sell sides of
the trade so that the value date for the purchase from the DTC
Participant is at least one day prior to the value date for the sale to
the Clearstream Participant or Euroclear Participant.
Certain U.S. Federal Income Tax Documentation Requirements
A Beneficial Owner of Global Securities holding securities through
Clearstream or Euroclear (or through DTC if the holder has an address outside
the U.S.) will be subject to the 30% U.S. withholding tax that generally applies
to payments of interest (including original issue discount) on registered debt
issued by U.S. Persons, unless (i) each clearing system, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business in the chain of intermediaries between such Beneficial Owner and the
U.S. entity required to withhold tax complies with applicable certification
requirements and (ii) such Beneficial Owner takes one of the following steps to
obtain an exemption or reduced tax rate:
Exemption for non-U.S. Persons (Form W-8BEN). Beneficial owners of
Global Securities that are non-U.S. Persons can obtain a complete exemption from
the withholding tax by filing a signed Form W-8BEN (Certificate of Foreign
Status of Beneficial Owner for United States Tax Withholding). If the
information shown on Form W-8BEN changes, a new Form W-8BEN must be filed within
30 days of such change.
Exemption for non-U.S. Persons with effectively connected income (Form
W-8ECI). A non-U.S. Person, including a non-U.S. corporation or bank with a U.S.
branch, for which the interest income is effectively connected with its conduct
of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form W-8ECI (Certificate of Foreign Person's Claim for
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 W-8BEN). Non-U.S. Persons that are Certificate Owners residing
in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate (depending on the treaty terms) by filing Form
W-8BEN.
Exemption for U.S. Persons (Form W-9). U.S. Persons can obtain a
complete exemption from the withholding tax by filing Form W-9 (Payer's Request
for Taxpayer Identification Number and Certification).
U.S. Federal Income Tax Reporting Procedure. The Certificate Owner of a
Global Security or, in the case of a Form W-8ECI filer, his agent, files 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-8BEN and Form W-8ECI are effective until the third
succeeding calendar year from the date the form is signed.
I-3
The term "U.S. Person" means (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity treated as a corporation
or partnership for United States federal income tax purposes organized in or
under the laws of the United States or any state thereof or the District of
Columbia (unless, in the case of a partnership, Treasury regulations provide
otherwise) or (iii) an estate the income of which is includible in gross income
for United States tax purposes, regardless of its source, or (iv) a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have authority
to control all substantial decisions of the trust. Notwithstanding the preceding
sentence, to the extent provided in Treasury regulations, certain trusts in
existence on August 20, 1996, and treated as United States persons prior to such
date, that elect to continue to be treated as United States persons will also be
a U.S. Person. This summary does not deal with all aspects of U.S. Federal
income tax withholding that may be relevant to foreign holders of 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.
I-4
ANNEX II
Group 1 Interest Group 1 Interest Group 1 Interest
Rate Cap Rate Cap Rate Cap
Agreement Agreement Strike Agreement Ceiling
Distribution Date Notional Amount($) Rate (%) Rate (%)
----------------- ------------------ -------- --------
12/25/03 $134,439,000 9.5251% 8.63000%
01/25/04 130,254,074 6.4928 8.63000
02/25/04 126,483,515 6.5338 8.63000
03/25/04 122,765,327 7.0018 8.63000
04/25/04 119,058,978 6.5494 8.63000
05/25/04 115,441,325 6.7692 8.63000
06/25/04 111,855,153 6.5505 8.63000
07/25/04 108,334,945 6.7686 8.63000
08/25/04 104,886,538 6.5504 8.63000
09/25/04 101,540,564 6.5502 8.63000
10/25/04 98,278,910 6.7683 8.63000
11/25/04 95,085,003 6.5615 8.63000
12/25/04 91,984,798 6.7820 8.63000
01/25/05 88,949,083 6.5630 8.63000
02/25/05 86,001,608 6.6009 8.63000
03/25/05 83,127,271 7.3079 8.63000
04/25/05 80,290,171 6.6005 8.63000
05/25/05 77,555,887 6.8314 8.63000
06/25/05 74,878,617 6.6127 8.63000
07/25/05 72,276,955 7.9788 8.63000
08/25/05 69,726,731 7.7419 8.63000
09/25/05 67,240,446 7.7562 8.63000
10/25/05 64,818,727 8.0203 8.63000
11/25/05 62,458,090 7.7708 8.63000
12/25/05 60,174,082 8.0302 8.63000
II-1
Group 2 Interest Group 2 Interest Group 2 Interest
Rate Cap Rate Cap Rate Cap
Agreement Agreement Strike Agreement Ceiling
Distribution Date Notional Amount($) Rate (%) Rate (%)
----------------- ------------------ -------- --------
12/25/03 $99,929,000 9.2429% 8.6536%
01/25/04 97,004,742 6.1462 8.6501
02/25/04 94,350,787 6.2255 8.6464
03/25/04 91,713,636 6.7578 8.6425
04/25/04 89,064,467 6.3224 8.6384
05/25/04 86,458,754 6.5424 8.6341
06/25/04 83,855,835 6.3201 8.6295
07/25/04 81,284,673 6.5383 8.6247
08/25/04 78,759,320 6.3155 8.6196
09/25/04 76,307,019 6.3103 8.6143
10/25/04 73,915,165 6.5373 8.6088
11/25/04 71,571,731 6.3081 8.6030
12/25/04 69,295,647 6.5308 8.5970
01/25/05 67,065,676 6.3038 8.5907
02/25/05 64,899,324 6.3024 8.5841
03/25/05 62,785,220 7.0154 8.5772
04/25/05 60,697,310 6.3106 8.5700
05/25/05 58,684,095 6.5294 8.5624
06/25/05 56,711,671 6.3107 8.5544
07/25/05 54,793,962 6.8228 8.5460
08/25/05 52,904,975 7.2415 8.5372
09/25/05 51,069,389 7.2453 8.5280
10/25/05 49,280,461 7.5106 8.5182
11/25/05 47,535,581 7.2420 8.5079
12/25/05 45,846,319 7.5014 8.4971
01/25/06 44,198,908 7.4621 8.4856
02/25/06 42,596,960 7.9753 8.4734
03/25/06 41,041,005 8.8898 8.4700
04/25/06 39,510,320 7.9940 8.4700
05/25/06 38,040,411 8.3206 8.4700
06/25/06 36,604,109 8.0457 8.4700
II-2
Class AF-1 Class AF-1
Interest Rate Cap Interest Rate Cap
Agreement Agreement Strike
Distribution Date Notional Amount($) Rate %)
----------------- ------------------ -------
12/25/03 $49,500,000 9.49980%
01/25/04 47,278,771 6.37881
02/25/04 45,117,719 6.37730
03/25/04 42,825,129 6.82743
04/25/04 40,376,235 6.37486
05/25/04 37,827,819 6.59219
06/25/04 35,150,023 6.37358
07/25/04 32,395,012 6.59162
08/25/04 29,682,243 6.37343
09/25/04 27,038,431 6.37335
10/25/04 24,449,878 6.59138
11/25/04 21,903,926 6.37319
12/25/04 19,421,681 6.59122
01/25/05 16,980,379 6.37303
02/25/05 14,599,641 6.37295
03/25/05 12,267,438 7.07388
04/25/05 9,955,385 6.37277
05/25/05 7,717,392 6.59078
06/25/05 5,516,431 6.37260
07/25/05 3,368,301 6.59059
08/25/05 1,241,061 6.37241
II-3
Class M Interest Class M Interest Class M Interest
Rate Cap Rate Cap Rate Cap
Agreement Agreement Strike Agreement Ceiling
Distribution Date Notional Amount($) Rate (%) Rate (%)
----------------- ------------------ -------- --------
12/25/03 $61,929,000 8.48384% 7.6905%
01/25/04 61,929,000 5.33953 7.6905
02/25/04 61,929,000 5.37800 7.6905
03/25/04 61,929,000 5.86849 7.6905
04/25/04 61,929,000 5.41249 7.6905
05/25/04 61,929,000 5.63717 7.6905
06/25/04 61,929,000 5.41412 7.6905
07/25/04 61,929,000 5.63809 7.6905
08/25/04 61,929,000 5.41541 7.6905
09/25/04 61,929,000 5.41527 7.6905
10/25/04 61,929,000 5.64190 7.6905
11/25/04 61,929,000 5.42198 7.6905
12/25/04 61,929,000 5.64843 7.6905
01/25/05 61,929,000 5.42467 7.6905
02/25/05 61,929,000 5.44040 7.6905
03/25/05 61,929,000 6.16344 7.6905
04/25/05 61,929,000 5.44639 7.6905
05/25/05 61,929,000 5.67611 7.6905
06/25/05 61,929,000 5.45528 7.6905
07/25/05 61,929,000 6.19302 7.6905
08/25/05 61,929,000 6.14530 7.6905
09/25/05 61,929,000 6.15427 7.6905
10/25/05 61,929,000 6.41427 7.6905
11/25/05 61,929,000 6.16836 7.6905
12/25/05 61,929,000 6.42119 7.6905
01/25/06 61,929,000 6.57765 7.6905
02/25/06 61,929,000 6.73278 7.6905
03/25/06 61,929,000 7.59824 7.6905
04/25/06 61,929,000 6.78862 7.6905
05/25/06 61,929,000 7.07353 7.6905
06/25/06 61,929,000 6.80570 7.6905
07/25/06 61,929,000 7.49169 7.6905
08/25/06 61,929,000 7.36057 7.6905
09/25/06 61,929,000 7.36861 7.6905
10/25/06 61,929,000 7.69014 7.6905
II-4
Prospectus
Mortgage-Backed/Asset-Backed Securities
(Issuable in Series)
Greenwich Capital Acceptance, Inc. or Financial Asset Securities Corp.
Depositor
The Securities
Each issue of securities will have its own series designation and will evidence
either the ownership of assets in the related trust or debt obligations secured
by trust assets.
o Each series of securities will consist of one or more classes.
o Each class of securities will represent the entitlement to a specified
portion of interest payments and a specified portion of principal
payments on the trust assets.
o A series may include classes of securities that are senior in right of
payment to other classes. Classes of securities may be entitled to
receive principal, interest or both prior to other classes or before or
after specified events.
o No market will exist for the securities of any series before they are
issued. In addition, even after the securities of a series have been
issued and sold, there can be no assurance that a resale market for
them will develop.
The Trust and Its Assets
As specified in the related prospectus supplement, the assets of a trust will
include one or more of the following:
o mortgage loans secured generally by senior liens on one- to four-family
residential properties,
o closed-end and/or revolving home equity loans generally secured by
junior liens on one- to four-family residential properties,
o mortgage loans secured by senior liens on multifamily residential
properties,
o conditional sales contracts, installment sales agreements or loan
agreements secured by manufactured housing,
o home improvement installment sales contracts and loan agreements that
are either unsecured or secured generally by junior liens on one- to
four-family residential properties or by purchase money security
interests in the related home improvements,
o mortgage pass-through securities issued or guaranteed by Ginnie Mae,
Fannie Mae or Freddie Mac, or
o private label mortgage-backed or asset-backed securities.
Offers of the Securities
Offers of the securities may be made through one or more different methods. All
securities will be distributed by, or sold through underwriters managed by,
Greenwich Capital Markets, Inc.
- -------------------------------------------------------------------------------
Consider carefully the risk factors beginning on page 6 of this prospectus.
The securities represent obligations of the trust only and do not represent an
interest in or obligation of the applicable depositor, seller, master servicer
or any of their affiliates.
This prospectus may be used to offer and sell the securities only if accompanied
by a prospectus supplement.
- -------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved these securities or determined that this prospectus is
accurate or complete. Any representation to the contrary is a criminal offense.
December 1, 2003
Table of Contents
Page
----
Important Notice About Information in This Prospectus and Each Accompanying Prospectus Supplement.................5
Risk Factors......................................................................................................6
The Trust Fund...................................................................................................15
The Mortgage Loans--General.............................................................................16
Single Family Loans.....................................................................................20
Home Equity Loans.......................................................................................20
Multifamily Loans.......................................................................................21
Manufactured Housing Contracts..........................................................................21
Home Improvement Contracts..............................................................................22
Agency Securities.......................................................................................22
Private Label Securities................................................................................27
Incorporation of Certain Information by Reference.......................................................30
Use of Proceeds..................................................................................................30
The Depositors...................................................................................................30
Loan Program.....................................................................................................31
Underwriting Standards..................................................................................31
Qualifications of Sellers...............................................................................32
Representations by Sellers; Repurchases or Substitutions................................................32
Description of the Securities....................................................................................34
General.................................................................................................35
Distributions on Securities.............................................................................37
Advances................................................................................................40
Reports to Securityholders..............................................................................41
Credit Enhancement...............................................................................................42
General.................................................................................................42
Subordination...........................................................................................43
Pool Insurance Policies.................................................................................44
FHA Insurance; VA Guarantees............................................................................46
Special Hazard Insurance Policies.......................................................................48
Bankruptcy Bonds........................................................................................49
FHA Insurance on Multifamily Loans......................................................................50
Reserve Accounts........................................................................................50
Cross Support...........................................................................................51
Other Insurance, Surety Bonds, Guaranties, Letters of Credit and Similar Instruments or
Agreements.......................................................................................51
Financial Instruments...................................................................................51
Yield and Prepayment Considerations..............................................................................52
-2-
Operative Agreements.............................................................................................55
Assignment of Trust Fund Assets.........................................................................55
Payments on Loans; Deposits to Security Account.........................................................57
Pre-Funding Account.....................................................................................59
Sub-Servicing of Loans..................................................................................59
Collection Procedures...................................................................................61
Hazard Insurance........................................................................................63
Realization upon Defaulted Mortgage Loans...............................................................64
Servicing and Other Compensation and Payment of Expenses................................................66
Evidence as to Compliance...............................................................................67
Certain Matters Regarding the Master Servicer and the Depositors........................................67
Events of Default; Rights upon Event of Default.........................................................69
Amendment...............................................................................................71
Termination; Optional Termination; Calls................................................................72
The Trustee.............................................................................................73
Material Legal Aspects of the Loans..............................................................................73
General.................................................................................................73
Foreclosure.............................................................................................76
Repossession of Manufactured Homes......................................................................78
Rights of Redemption....................................................................................80
Equitable Limitations on Remedies.......................................................................80
Anti-Deficiency Legislation and Other Limitations on Lenders............................................80
Homeownership Act and Similar State Laws................................................................81
Due-on-Sale Clauses.....................................................................................83
Prepayment Charges; Late Fees...........................................................................84
Applicability of Usury Laws.............................................................................84
Soldiers' and Sailors' Civil Relief Act.................................................................85
Environmental Risks.....................................................................................85
The Home Improvement Contracts..........................................................................87
Installment Contracts...................................................................................88
Junior Mortgages; Rights of Senior Mortgagees...........................................................88
The Title I Program.....................................................................................90
Material Federal Income Tax Consequences.........................................................................93
General.................................................................................................94
Taxation of Debt Securities.............................................................................94
Non-REMIC Certificates.................................................................................100
REMIC Certificates.....................................................................................110
State Tax Considerations........................................................................................132
ERISA Considerations............................................................................................133
Insurance Company General Accounts.....................................................................134
Prohibited Transaction Class Exemption ("PTCE") 83-1...................................................134
Underwriter Exemption..................................................................................135
Legal Investment Considerations.................................................................................138
Method of Distribution..........................................................................................140
-3-
Legal Matters...................................................................................................141
Financial Information...........................................................................................141
Available Information...........................................................................................141
Ratings.........................................................................................................141
Glossary of Terms...............................................................................................143
-4-
Important Notice About Information in This Prospectus
and Each Accompanying Prospectus Supplement
Information about each series of securities is contained in two separate
documents:
o this prospectus, which provides general information, some of
which may not apply to a particular series; and
o the accompanying prospectus supplement for a particular
series, which describes the specific terms of the securities
of that series.
Although the accompanying prospectus supplement for a particular series of
securities cannot contradict the information contained in this prospectus,
insofar as the prospectus supplement contains specific information about the
series that differs from the more general information contained in this
prospectus, you should rely on the information in the prospectus supplement.
You should rely only on the information contained in this prospectus and the
accompanying prospectus supplement. We have not authorized anyone to provide you
with information that is different from that contained in this prospectus and
the accompanying prospectus supplement.
We include cross-references in this prospectus and each accompanying prospectus
supplement to captions in these materials where you can find further related
discussions. There is a Glossary of Terms beginning on page 160 where you will
find definitions of certain capitalized terms used in this prospectus. The
preceding Table of Contents and the Table of Contents included in each
accompanying prospectus supplement provide the pages on which these captions are
located.
--------------------
If you require additional information, the mailing address of the depositor's
principal executive offices is either Greenwich Capital Acceptance, Inc. or
Financial Acceptance Securities Corp., at 600 Steamboat Road, Greenwich,
Connecticut 06830 and the telephone number is (203) 625-2700. For other means of
acquiring additional information about us or a series of securities, see "The
Trust Fund--Incorporation of Certain Information by Reference" on page 30 of
this prospectus.
--------------------
-5-
Risk Factors
You should carefully consider the following information, together with
the information set forth under "Risk Factors" in the related prospectus
supplement, since it identifies the principal risk factors associated with an
investment in the securities.
Principal prepayments on the
loans may adversely affect the average life
of, and rate of return
on, your securities........................ You may be unable to reinvest the principal payments on your securities at a
rate of return at least equal to the rate on your securities. The timing of
principal payments on the securities of a series will be affected by a
number of factors, including the following:
o the extent of prepayments on the loans in the trust or, if the trust
is comprised of underlying securities, on the loans backing the
underlying securities;
o how payments of principal are allocated among the classes of
securities of the series as specified in the related prospectus
supplement;
o if any party has an option to terminate the related trust early or
to call your securities, the effect of the exercise of the option;
o the rate and timing of defaults and losses on the assets in the
related trust; and
o repurchases of assets in the related trust as a result of material
breaches of representations and warranties made by the depositor or
master servicer.
The rate of prepayment of the loans included in, or underlying the assets
held in, each trust may affect the average life of the securities.
Only the assets of the related
trust are available to pay your
securities................................. Unless the applicable prospectus supplement provides otherwise, the
securities of each series will be payable solely from the assets of the
related trust, including any applicable credit enhancement, and will not
have a claim against the assets of any other trust. If the assets of the
related trust are not sufficient, you may suffer a loss on your securities.
Moreover, at the times specified in the related prospectus supplement,
assets of the trust may be released to the applicable depositor, master
servicer, any servicer, credit enhancement provider or other specified
person, if all payments then due on the securities have been made and
adequate provision for future payments on the remaining securities has been
made. Once released, these assets will no longer be available to make
payments on your securities.
There will be no recourse against the depositor, the master servicer, any
servicer or any of their affiliates if a required distribution on the
securities is not made. The securities will not represent an interest in, or
an obligation of, the depositor, the master servicer, any servicer or any of
their affiliates.
The depositor's obligations are limited to its representations and warranties
concerning the trust assets. Because the depositor has no significant assets,
if it is required to repurchase trust assets due to the breach of a
representation or warranty, the depositor's source of funds for the
repurchase would be limited to:
-6-
o moneys obtained from enforcing any similar obligation of the seller
or originator of the asset, or
o funds from a reserve account or other credit enhancement established
to pay for asset repurchases.
Credit enhancement may not be
adequate to prevent losses on
your securities............................ Credit enhancement is intended to reduce the effect of delinquent
payments or loan losses on those classes of securities that have the
benefit of the credit enhancement. Nevertheless, the amount of any
credit enhancement is subject to the limits described in the related
prospectus supplement. Moreover, the amount of credit enhancement
may decline or be depleted under certain circumstances before the
securities are paid in full. As a result, securityholders may
suffer losses. In addition, credit enhancement may not cover all
potential sources of risk of loss, such as fraud or negligence by a
loan originator or other parties.
The interest accrual period may
reduce the effective yield
on your securities......................... Interest payable on the securities on any distribution date will
include all interest accrued during the related interest accrual
period. The interest accrual period for the securities of each
series will be specified in the applicable prospectus supplement.
If the interest accrual period ends two or more days before the
related distribution date, your effective yield will be less than it
would be if the interest accrual period ended the day before the
distribution date. As a result, your effective yield at par would
be less than the indicated coupon rate.
-7-
Economic, legal and other
factors could reduce the amount
and delay the timing of recoveries
on defaulted loans......................... The following factors, among others, could adversely affect property values
in such a way that the outstanding balance of the related loans would equal
or exceed those values:
o an overall decline in the residential real estate markets where the
properties are located,
o failure of borrowers to maintain their properties adequately, and
o natural disasters that are not necessarily covered by hazard
insurance, such as earthquakes and floods.
If property values decline, actual rates of delinquencies, foreclosures and
losses on the loans could be higher than those currently experienced by the
mortgage lending industry in general.
Even if you assume that the mortgaged properties provide adequate security
for the loans, substantial delays could occur before defaulted loans are
liquidated and the proceeds forwarded to investors. Property foreclosure
actions are regulated by state statutes and rules and are subject to many of
the delays and expenses that characterize other types of lawsuits if defenses
or counterclaims are made. As a result, foreclosure actions can sometimes
take several years to complete. Moreover, some states prohibit a mortgage
lender from obtaining a judgment against the borrower for amounts not covered
by property proceeds if the property is sold outside of a judicial
proceeding. As a result, if a borrower defaults, these restrictions may
impede the servicer's ability to dispose of the borrower's property and
obtain sufficient proceeds to repay the loan in full. In addition, the
servicer is entitled to deduct from liquidation proceeds all the expenses it
reasonably incurs in trying to recover on the defaulted loan, including legal
fees and costs, real estate taxes, and property preservation and maintenance
expenses.
State laws generally regulate interest rates and other loan charges, require
certain disclosures, and often require licensing of loan originators and
servicers. In addition, most states have other laws and public policies for
the protection of consumers that prohibit unfair and deceptive practices in
the origination, servicing and collection of loans. Depending on the
provisions of the particular law or policy and the specific facts and
circumstances involved, violations may limit the ability of the servicer to
collect interest or principal on the loans. Also, the borrower may be
entitled to a refund of amounts previously paid and the servicer may be
subject to damage claims and administrative sanctions.
-8-
Loans secured by junior liens are subject to
additional risks........................... If a loan is in a junior lien position, a decline in property values could
extinguish the value of the junior lien loan before having any effect on the
related senior lien loan or loans.
In general, the expenses of liquidating defaulted loans do not vary directly
with the unpaid amount. So, assuming that a servicer would take the same
steps to recover a defaulted loan with a small unpaid balance as it would a
loan with a large unpaid balance, the net amount realized after paying
liquidation expenses would be a smaller percentage of the balance of the
small loan than of the large loan. Since the mortgages securing home equity
loans typically will be in a junior lien position, the proceeds from any
liquidation will be applied first to the claims of the related senior
mortgageholders, including foreclosure costs. In addition, a junior mortgage
lender may only foreclose subject to any related senior mortgage. As a
result, the junior mortgage lender generally must either pay each related
senior mortgage lender in full at or before the foreclosure sale or agree to
make the regular payments on each senior mortgage. Since the trust will not
have any source of funds to satisfy any senior mortgages or to continue
making payments on them, the trust's ability as a practical matter to
foreclose on any junior lien will be limited.
Loans to lower credit quality
borrowers are more likely
to experience late payments
and defaults and increase your
risk of loss............................... Trust assets may have been made to lower credit quality borrowers who fall
into one of two categories:
o customers with moderate income, limited assets and other income
characteristics that cause difficulty in borrowing from banks and
other traditional lenders; or
o customers with a history of irregular employment, previous bankruptcy
filings, repossession of property, charged-off loans or garnishment
of wages.
The average interest rate charged on loans made to these types of borrowers
is generally higher than that charged by lenders that typically impose more
stringent credit requirements. There is a greater likelihood of late payments
on loans made to these types of borrowers than on loans to borrowers with a
higher credit quality. In particular, payments from borrowers with a lower
credit quality are more likely to be sensitive to changes in the economic
climate in the areas in which they reside.
-9-
As much as 20% (by principal balance) of the trust assets for any particular
series of securities may be contractually delinquent as of the related
cut-off date.
Failure to perfect security
interests in manufactured
homes may result in losses on
your securities............................ Each manufactured housing conditional sales contract or installment loan
agreement that is included in a trust fund will be secured by a security
interest in the related manufactured home. The steps necessary to perfect the
security interest in a manufactured home will vary from state-to-state. If,
as a result of clerical error or otherwise, the master servicer fails to take
the appropriate steps to perfect the security interest in a manufactured home
that secures a conditional sales contract or installment loan agreement
included in the trust, the trustee may not have a first priority security
interest in that manufactured home. Moreover, the master servicer will not
amend the certificate of title to a manufactured home to name the trustee as
lienholder, note the trustee's interest on the certificate of title or
deliver the certificate of title to the trustee. As a result, in some states
the assignment of the security interest in the manufactured home to the
trustee may not be perfected or may not be effective against creditors of the
master servicer or a bankruptcy trustee in the event of a bankruptcy of the
master servicer.
In addition, courts in many states have held that manufactured homes may, in
certain circumstances, become subject to real estate title and recording
laws. As a result, the security interest in each manufactured home could be
rendered subordinate to the interests of other parties claiming an interest
in that manufactured home under applicable state real estate law.
The failure to properly perfect a valid, first priority security interest in
a manufactured home that secures a conditional sales contract or installment
loan agreement included in the trust could lead to losses that, to the extent
not covered by any credit enhancement, could adversely affect the yield to
maturity of the related securities.
Multifamily loans generally
are riskier than single family
loans...................................... Loans that are secured by first liens on rental apartment buildings or
projects containing five or more residential units, together with loans that
are secured by first liens on mixed-use properties, shall not in the
aggregate constitute 10% or more of any pool by principal balance.
Multifamily loans are generally considered riskier than single-family loans
for the following reasons:
-10-
o Multifamily loans typically are much larger in amount, which
increases the risk represented by the default of a single borrower.
o Repayment of a multifamily loan usually depends upon successful
management of the related mortgaged property.
o Changing economic conditions in particular markets can affect the
supply and demand of rental units and the rents that those markets
will bear.
o Government regulations, including rental control laws, may adversely
affect future income from mortgaged properties that are subject to
those regulations.
In addition, because individual multifamily loans often are relatively large
in amount, principal prepayments resulting from defaults, casualties,
condemnations or breaches of representations and warranties may adversely
affect your yield.
Loans with balloon payments
may increase your risk of loss............. Certain loans may not be fully amortizing and may require a substantial
principal payment (a "balloon" payment) at their stated maturity. Loans of
this type involve greater risk than fully amortizing loans since the borrower
must generally be able to refinance the loan or sell the related property
prior to the loan's maturity date. The borrower's ability to do so will
depend on such factors as the level of available mortgage rates at the time
of sale or refinancing, the relative strength of the local housing market,
the borrower's equity in the property, the borrower's general financial
condition and tax laws.
If amounts in any pre-funding
account are not used to
purchase trust assets, you will
receive a prepayment on the
related securities......................... The related prospectus supplement may provide that the depositor transfer a
specified amount into a pre-funding account on the date the securities are
issued. In this case, the transferred funds may be used only to acquire
additional assets for the trust during a set period after the issuance. Any
amounts remaining in the account at the end of the period will be distributed
as a prepayment of principal to the holders of the related securities. The
resulting prepayment could adversely affect the yield on those securities.
-11-
Violations of applicable federal
laws may reduce or delay
mortgage loan collections.................. The loans may also be subject to federal laws relating to the origination and
underwriting. These laws
o require certain disclosures to the borrowers regarding the terms of
the loans;
o prohibit discrimination on the basis of age, race, color, sex,
religion, marital status, national origin, receipt of public
assistance or the exercise of any right under the consumer credit
protection act, in the extension of credit;
o regulate the use and reporting of information related to the
borrower's credit experience; and
o require additional application disclosures, limit changes that may be
made to the loan documents without the borrower's consent and
restrict a lender's ability to declare a default or to suspend or
reduce a borrower's credit limit to certain enumerated events.
Loans may also be subject to federal laws that impose additional disclosure
requirements on creditors for non-purchase money loans with high interest
rates or high up-front fees and charges. These laws can impose specific
statutory liabilities upon creditors that fail to comply and may affect the
enforceability of the related loans. In addition, any assignee of the
creditor (including the trust) would generally be subject to all claims and
defenses that the borrower could assert against the creditor, including the
right to rescind the loan.
Loans relating to home improvement contracts may be subject to federal laws
that protect the borrower from defective or incomplete work by a contractor.
These laws permit the borrower to withhold payment if the work does not meet
the quality and durability standards agreed to between the borrower and the
contractor. These laws have the effect of subjecting any assignee of the
seller (including the trust) to all claims and defenses which the borrower in
a sale transaction could assert against the seller of defective goods.
If certain provisions of these federal laws are violated, the master servicer
may be unable to collect all or part of the principal or interest on the
loans. The trust also could be subject to damages and administrative
enforcement.
-12-
Proceeds of liquidated loans
generally are paid first to
providers of trust services................ There is no assurance that the value of the trust assets for any series of
securities at any time will equal or exceed the principal amount of the
outstanding securities of that series.
If trust assets have to be sold because of an event of default or
otherwise, providers of services to the trust (including the trustee, the
master servicer and the credit enhancer, if any) generally will be entitled
to receive the proceeds of the sale to the extent of their unpaid fees and
other amounts due them before any proceeds are paid to investors. As a
result, the proceeds of such a sale may be insufficient to pay the full
amount of interest and principal of the related securities.
Mortgaged properties may be
subject to environmental risks
that could result in losses................ Federal, state and local laws and regulations impose a wide range of
requirements on activities that may affect the environment, health and
safety. In certain circumstances, these laws and regulations impose
obligations on owners or operators of residential properties such as those
that secure the loans included in a trust. Failure to comply with these laws
and regulations can result in fines and penalties that could be assessed
against the trust as owner of the related property.
In some states, a lien on the property due to contamination has priority over
the lien of an existing mortgage. Further, a mortgage lender may be held
liable as an "owner" or "operator" for costs associated with the release of
petroleum from an underground storage tank under certain circumstances. If
the trust is considered the owner or operator of a property, it will suffer
losses as a result of any liability imposed for environmental hazards on the
property.
You may have difficulty
selling your securities or
obtaining your desired price............... No market will exist for the securities before they are issued. In addition,
there can be no assurance that a secondary market will develop following the
issuance and sale of the securities. Even if a secondary market does develop,
you may not be able to sell your securities when you wish to or at the price
you want.
Ratings of the securities do not
address all investment risks and
must be viewed with caution................ Any class of securities issued under this prospectus and the accompanying
prospectus supplement will be rated in one of the four highest generic rating
categories of a nationally recognized rating agency. A rating is based on the
adequacy of the value of the trust assets and any credit enhancement for that
class and reflects the rating agency's assessment of how likely it is that
holders of the class of securities will receive the payments to which they
are entitled. A rating does not constitute an assessment of how likely it is
that principal prepayments on the loans will be made, the degree to which the
rate of prepayments might differ from that originally anticipated or the
likelihood of early, optional termination of the securities. You must not
view a rating as a recommendation to purchase, hold or sell securities
because it does not address the market price or suitability of the securities
for any particular investor.
-13-
There is no assurance that any rating will remain in effect for any given
period of time or that the rating agency will not lower or withdraw it
entirely in the future. The rating agency could lower or withdraw its rating
due to:
o any decrease in the adequacy of the value of the trust assets or any
related credit enhancement,
o an adverse change in the financial or other condition of a credit
enhancement provider, or
o a change in the rating of the credit enhancement provider's long-term
debt.
Book-entry registration may limit
your ability to sell securities
and delay your receipt of
payments................................... Limit on Liquidity of Securities. Securities issued in book-entry form may
have only limited liquidity in the resale market, since investors may be
unwilling to purchase securities for which they cannot obtain physical
instruments.
Limit on Ability to Transfer or Pledge. Transactions in book-entry securities
can be effected only through The Depository Trust Company, its participating
organizations, its indirect participants and certain banks. As a result, your
ability to transfer or pledge securities issued in book-entry form may be
limited.
Delays in Distributions. You may experience some delay in the receipt of
distributions on book-entry securities since the distributions will be
forwarded by the trustee to DTC for DTC to credit the accounts of its
participants. In turn, these participants will thereafter credit the
distributions to your account either directly or indirectly through indirect
participants.
-14-
There is a Glossary of Terms beginning on page 160 of this prospectus
where you will find definitions of the capitalized terms used in this
prospectus.
The Trust Fund
The trust fund for each series of certificates will be held by the
trustee named in the related prospectus supplement for the benefit of the
related securityholders. Each trust fund will consist of one or more pools of
the following asset types:
o Single Family Loans,
o Home Equity Loans,
o Multifamily Loans,
o Manufactured Housing Contracts,
o Home Improvement Contracts,
o Agency Securities or
o Private Label Securities,
in each case as specified in the related prospectus supplement, as well as
payments relating to the assets and other accounts, obligations or agreements,
as specified in the related prospectus supplement.
Whenever the terms "pool," "certificates" and "notes" are used in this
prospectus, these terms are intended to apply, unless the context indicates
otherwise, to a discrete asset pool and the certificates representing undivided
interests in, or the notes secured by the assets of, a particular trust fund
consisting primarily of the loans in that pool. Similarly, the term
"pass-through rate" refers to the pass-through rate borne by the certificates of
a particular series, the term "interest rate" refers to the coupon borne by
notes of a particular series and the term "trust fund" refers to the related
trust fund.
Unless the context indicates otherwise, the term "loan" includes Single
Family Loans, Home Equity Loans, Multifamily Loans, Manufactured Housing
Contracts and Home Improvement Contracts. Unless the context indicates
otherwise, the term "underlying loan" refers to the Single Family Loans, Home
Equity Loans, Multifamily Loans, Manufactured Housing Contracts or Home
Improvement Contracts backing or securing Agency Securities or Private Label
Securities.
The securities will be entitled to payment from the assets of the
related trust fund or other assets pledged for the benefit of the
securityholders as specified in the related prospectus supplement. The
securities will not be entitled to payments from the assets of any other trust
fund established by the depositor.
The loans, Agency Securities and Private Label Securities will be
acquired by the applicable depositor, either directly or through affiliates,
from sellers and conveyed by that depositor to the trustee named in the related
prospectus supplement for the benefit of the holders of the securities of the
related series. Sellers may have originated or purchased the assets. Loans
acquired by the applicable depositor will have been originated principally in
accordance with the general underwriting criteria specified in this prospectus
under the heading "Loan Program--Underwriting Standards" and as more
specifically provided in a related prospectus supplement.
-15-
Because the securities issued by a trust will be secured by assets
transferred to that trust by one of the depositors you should construe all
references in this prospectus to the "depositor" as referring to the applicable
depositor that transfers assets to your trust under the applicable operative
documents.
The master servicer named in the related prospectus supplement will
service the trust fund assets, either directly or through sub-servicers, under a
servicing agreement for the related series of securities. If the securities are
certificates, the servicing agreement will be in the form of a pooling and
servicing agreement among the depositor, the master servicer and the trustee. If
the securities are notes, the servicing agreement generally will be between the
trustee and the master servicer.
The following sections contain a brief description of the assets
expected to be included in the trust funds. If specific information respecting
the assets is not known at the time the related series of securities initially
is offered, more general information of the nature described below will be
provided in the related prospectus supplement, and specific information will be
set forth in a report on Form 8-K to be filed with the SEC within 15 days after
the initial issuance of the securities. A copy of the operative agreements with
respect to the related series of securities will be attached to the Form 8-K and
will be available for inspection at the corporate trust office of the trustee
specified in the related prospectus supplement. A schedule of the assets
relating to the series will be attached to the related servicing agreement
delivered to the trustee upon issuance of the securities.
The Mortgage Loans--General
The loans in each trust fund are secured by the related mortgaged
properties. Except in the case of Multifamily Loans, the related mortgaged
properties generally consist of detached or semi-detached one- to four-family
dwellings, town houses, rowhouses, individual units in condominiums, individual
units in planned unit developments and certain other dwelling units. In
addition, if the related prospectus supplement so provides, the mortgaged
properties may include mixed-use properties. Mixed-use properties consist of
structures principally containing residential units but also including other
space used for retail, professional and other commercial uses. Loans that are
secured by multifamily and mixed-use properties shall not in the aggregate
constitute 10% or more of any pool by principal balance.
The mortgaged properties may include vacation and second homes,
investment properties and leasehold interests as specified in the related
prospectus supplement. The mortgaged properties may be located in any one of the
fifty states, the District of Columbia, Guam, Puerto Rico or any other territory
of the United States. If a loan has a loan-to-value ratio or principal balance
in excess of a particular benchmark, it may be covered in whole or in part by a
primary mortgage insurance policy. If the loans in a pool are covered by this
type of policy, the related prospectus supplement will describe the existence,
extent and duration of the coverage.
Unless otherwise specified in the related prospectus supplement, all of
the loans in a pool will have monthly payments due on the first day of each
month. The payment terms of the mortgage loans to be included in a trust fund
will be described in the related prospectus supplement and may include one or
more of the following features or other features described in the related
prospectus supplement:
o Interest may be payable at
- a fixed rate,
- a rate that adjusts from time to time in relation to
an index that will be specified in the related
prospectus supplement,
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- a rate that is fixed for a period of time or under
certain circumstances and is followed by an
adjustable rate,
- a rate that otherwise varies from time to time, or
- a rate that is convertible from an adjustable rate to
a fixed rate.
Changes to an adjustable rate may be subject to periodic limitations,
maximum rates, minimum rates or a combination of these limitations.
Accrued interest may be deferred and added to the principal of a loan
for the periods and under the circumstances specified in the related
prospectus supplement. A mortgage loan may provide for the payment of
interest at a rate lower than the specified interest rate borne by the
loan for a period of time or for the life of the loan, and the amount
of any difference may be contributed from funds supplied by the seller
of the related mortgaged property or another source.
o Principal may be
- payable on a level debt service basis to fully
amortize the loan over its term,
- calculated on the basis of an assumed amortization
schedule that is significantly longer than the
original term to maturity or on an interest rate that
is different from the loan rate, or
- nonamortizing during all or a portion of the original
term.
Payment of all or a substantial portion of the principal may be due on
maturity in the form of a "balloon" payment. Principal may include
interest that has been deferred and added to the principal balance of
the loan.
o Monthly payments of principal and interest may
- be fixed for the life of the loan,
- increase over a specified period of time, or
- change from period to period.
Loans may include limits on periodic increases or decreases in the
amount of monthly payments and may include maximum or minimum amounts
of monthly payments.
o Prepayments of principal may be subject to a prepayment fee,
which may be fixed for the life of the loan or may decline
over time, and may be prohibited for the life of the loan or
during any lockout periods. Some loans may permit prepayments
after expiration of the applicable lockout period and may
require the payment of a prepayment fee in connection with any
subsequent prepayment. Other loans may permit prepayments
without payment of a fee unless the prepayment occurs during
specified time periods. The loans may include "due-on-sale"
clauses which permit the lender to demand payment of the
entire loan in connection with the sale or certain transfers
of the related mortgaged property. Other loans may be
assumable by persons meeting the then applicable underwriting
standards of the related seller.
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Each prospectus supplement will contain information, as of the date of
the prospectus supplement and to the extent then specifically known to the
depositor, with respect to the loans contained in the related pool, including
o the aggregate outstanding principal balance and the average
outstanding principal balance of the loans as of the
applicable cut-off date,
o the type of mortgaged property securing each loan,
o the original terms to maturity of the loans,
o the largest principal balance and the smallest principal
balance of the loans,
o the earliest origination date and latest maturity date of the
loans,
o the aggregate principal balance of loans having loan-to-value
ratios at origination exceeding 80%,
o the loan rates or fixed percentage rates (APRs) or range of
loan rates or APRs borne by the loans, and
o the geographical location of the related mortgaged properties
on a state-by-state basis.
If specific information respecting the loans is not known to the depositor at
the time the related securities are initially offered, more general information
of the nature described in the immediately preceding sentence will be provided
in the related prospectus supplement, and specific information will be set forth
in the Form 8-K to be filed with the SEC within 15 days after issuance.
The loan-to-value ratio of a loan at any given time is the ratio,
expressed as a percentage, of the then outstanding principal balance of the loan
to the collateral value of the related mortgaged property. Unless otherwise
specified in the related prospectus supplement, the collateral value of a
mortgaged property, other than with respect to loans used to refinance an
existing loan, is the lesser of (a) the appraised value determined in an
appraisal obtained by the originator at origination of the loan and (b) the
sales price for the property. In the case of refinance loans, the collateral
value of the related mortgaged property is the appraised value of the property
determined in an appraisal obtained at the time of refinancing. Unless otherwise
specified in the related prospectus supplement, for purposes of calculating the
loan-to-value ratio of a Manufactured Housing Contract relating to a new
manufactured home, the collateral value is no greater than the sum of
o a fixed percentage of the list price of the unit actually
billed by the manufacturer to the dealer, net of freight to
the dealer site but including any accessories identified in
the invoice (i.e., the "manufacturer invoice price"),
o the actual cost of any accessories depending on the size of
the unit, and
o the cost of state and local taxes, filing fees and up to three
years' prepaid hazard insurance premiums.
Unless otherwise specified in the related prospectus supplement, the collateral
value of a used manufactured home is the least of the sales price, appraised
value, and National Automobile Dealers' Association book value plus prepaid
taxes and hazard insurance premiums. The appraised value of a manufactured home
is based upon the age and condition of the manufactured housing unit and the
quality and condition of the mobile home park in which it is situated, if
applicable.
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The loan-to-value ratio of a Home Improvement Contract will be computed
in the manner described in the related prospectus supplement.
No assurance can be given that values of the mortgaged properties have
remained or will remain at their levels on the dates of origination of the
related loans. If the residential real estate market should experience an
overall decline in property values such that the outstanding principal balances
of the loans in a particular pool, and any secondary financing on the mortgaged
properties, become equal to or greater than the value of the mortgaged
properties, the actual rates of delinquencies, foreclosures and losses could be
higher than those now generally experienced in the mortgage lending industry. In
addition, adverse economic conditions and other factors 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 loans and, accordingly, the
actual rates of delinquencies, foreclosures and losses with respect to any pool.
In the case of Multifamily Loans, these other factors could include
o excessive building resulting in an oversupply of rental
housing stock,
o a decrease in employment reducing the demand for rental units
in an area,
o federal, state or local regulations and controls affecting
rents, prices of goods and energy,
o environmental restrictions,
o increasing labor and material costs, and
o the relative attractiveness to tenants of the mortgaged
properties.
To the extent that losses are not covered by subordination provisions or
alternative arrangements, losses will be borne, at least in part, by the
securityholders of the securities of the related series.
Unless otherwise specified in the related prospectus supplement, the
only obligations of the depositor with respect to a series of certificates will
be to obtain certain representations and warranties from the related seller and
to assign to the trustee for that series of certificates the depositor's rights
with respect to those representations and warranties. See "Operative
Agreements--Assignment of Trust Fund Assets" in this prospectus.
The obligations of the master servicer with respect to the mortgage
loans will consist principally of:
o its contractual servicing obligations under the related
servicing agreement, including its obligation to enforce the
obligations of the sub-servicers or sellers, or both, as more
fully described in this prospectus under the headings
"Mortgage Loan Program--Representations by Sellers;
Repurchases" and "Operative Agreements--Sub-Servicing by
Sellers" and "--Assignment of Trust Fund Assets"; and
o its obligation to make certain cash advances in the event of
delinquencies in payments with respect to the mortgage loans
in the amounts described in this prospectus under the heading
"Description of the Certificates--Advances".
-19-
The obligations of the master servicer to make advances may be subject to
limitations, to the extent provided in this prospectus and in the related
prospectus supplement.
Single Family Loans
Unless otherwise specified in the related prospectus supplement, Single
Family Loans will consist of loans or participations or other beneficial
interests in loans secured by mortgages or deeds of trust that create first
liens on one- to four-family residential properties. If specified in the related
prospectus supplement, Single Family Loans may include cooperative loans secured
by security interests in shares issued by private, non-profit, cooperative
housing corporations and in the related proprietary leases or occupancy
agreements granting exclusive rights to occupy specific dwelling units in the
cooperatives' buildings. If specified in the related prospectus supplement, the
assets of the related trust fund may include mortgage participation certificates
evidencing interests in Single Family Loans. Single Family Loans may be
conventional loans (loans that are not insured or guaranteed by any governmental
agency), loans insured by the Federal Housing Administration (FHA) or partially
guaranteed by the Veterans Administration (VA), as specified in the related
prospectus supplement. Unless otherwise specified in the related prospectus
supplement, Single Family Loans will have individual principal balances at
origination of not less than $25,000 and not more than $1,000,000, and original
terms to stated maturity of from ten to 40 years.
If specified in the related prospectus supplement, the mortgaged
properties securing Single Family Loans may include five- to eight-family
residential properties and small mixed-use properties. In the case of leasehold
interests, the term of the leasehold will exceed the scheduled maturity of the
related mortgage loan by at least five years, unless otherwise specified in the
related prospectus supplement.
Home Equity Loans
Unless otherwise specified in the related prospectus supplement, Home
Equity Loans will consist of closed-end and/or revolving home equity loans
generally secured by junior liens on one- to four-family residential properties.
As more fully described in the related prospectus supplement, interest
on each revolving credit line loan, excluding introductory rates offered from
time to time during promotional periods, is computed and payable monthly on the
average daily outstanding principal balance of the loan. Principal amounts on a
revolving credit line loan may be drawn down (up to the maximum amount specified
in the related prospectus supplement) or repaid from time to time, but may be
subject to a minimum periodic payment. Except to the extent provided in the
related prospectus supplement, the trust fund will not include any amounts
borrowed under a revolving credit line loan after the cut-off date. The full
amount of a closed-end loan is advanced at the inception of the loan and
generally is repayable in equal (or substantially equal) installments in an
amount necessary to fully amortize such loan at its stated maturity. Except to
the extent provided in the related prospectus supplement, the original terms to
stated maturity of closed-end loans will not exceed 360 months. Under certain
circumstances, under either a revolving credit line loan or a closed-end loan, a
borrower may choose an interest only payment option, in which event the borrower
is obligated to pay only the amount of interest which accrued on the loan during
the billing cycle. An interest only payment option may be available for a
specified period before the borrower must begin paying at least the minimum
monthly payment of a specified percentage of the average outstanding balance of
the loan.
-20-
Multifamily Loans
Multifamily Loans will consist of loans or participations or other
beneficial interests in loans secured by mortgages that create first liens on
rental apartment buildings or projects containing five or more residential
units. If specified in the related prospectus supplement, the mortgage assets of
a trust fund may include mortgage participation certificates evidencing
interests in Multifamily Loans. Multifamily Loans may be conventional loans or
FHA-insured loans, as specified in the related prospectus supplement. Unless
otherwise specified in the related prospectus supplement, all Multifamily Loans
will have original terms to stated maturity of not more than 40 years.
Multifamily Loans shall not constitute 10% or more of any pool by
principal balance.
Mortgaged properties securing Multifamily Loans may include high-rise,
mid-rise and garden apartments. Multifamily Loans may be secured by apartment
buildings owned by cooperatives. A cooperative owns all the apartment units in
its building and all common areas and is owned by tenant-stockholders who,
through ownership of stock, shares or membership certificates in the
corporation, receive proprietary leases or occupancy agreements which confer
exclusive rights to occupy specific apartments or units. Generally, a
tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for the cooperative's mortgage loan, real property taxes,
maintenance expenses and other capital or ordinary expenses. Those payments are
in addition to any payments of principal and interest the tenant-stockholder
must make on any loans to the tenant-stockholder secured by his shares in the
cooperative. The cooperative will be directly responsible for building
management and, in most cases, payment of real estate taxes and hazard and
liability insurance. A cooperative's ability to meet debt service obligations on
a Multifamily Loan, as well as all other operating expenses, will be dependent
in large part on the receipt of maintenance payments from the
tenant-stockholders, as well as any rental income from units or commercial areas
the cooperative might control. Unanticipated expenditures may in some cases have
to be paid by special assessments on the tenant-stockholders.
Manufactured Housing Contracts
Manufactured Housing Contracts will consist of manufactured housing
conditional sales contracts and installment sales or loan agreements, each
secured by a manufactured home. Manufactured Housing Contracts may be
conventional, insured by the FHA or partially guaranteed by the VA, as specified
in the related prospectus supplement. Unless otherwise specified in the related
prospectus supplement, each Manufactured Housing Contract will be fully
amortizing and will bear interest at a fixed percentage rate or APR. Unless
otherwise specified in the related prospectus supplement, Manufactured Housing
Contracts will all have individual principal balances at origination of not less
than $10,000 and not more than $1,000,000 and original terms to stated maturity
of from five to 30 years.
When we use the term "manufactured home" in this prospectus, we mean,
as stated in 42 U.S.C. ss. 5402(6), "a structure, transportable in one or more
sections which, in the traveling mode, is eight body feet or more in width or
forty body feet or more in length or, when erected on site, is three hundred
twenty or more square feet, and which is built on a permanent chassis and
designed to be used as a dwelling with or without a permanent foundation when
connected to the required utilities, and includes the plumbing, heating, air
conditioning, and electrical systems contained therein; except that such term
shall include any structure which meets all the requirements of this paragraph
except the size requirements and with respect to which the manufacturer
voluntarily files a certification required by the Secretary of Housing and Urban
Development and complies with the standards established under this chapter."
-21-
Each prospectus supplement will specify for the Manufactured Housing
Contracts contained in the related trust fund, among other things, the dates of
origination of the Manufactured Housing Contracts, the APRs on the Manufactured
Housing Contracts, the loan-to-value ratios of the Manufactured Housing
Contracts, the minimum and maximum outstanding principal balances as of the
cut-off date and the average outstanding principal balance, the outstanding
principal balances of the Manufactured Housing Contracts included in the related
trust fund, and the original maturities of the Manufactured Housing Contracts
and the last maturity date of any Manufactured Housing Contract.
Home Improvement Contracts
Home Improvement Contracts are originated by home improvement
contractors, thrifts or commercial mortgage bankers in the ordinary course of
business. As specified in the related prospectus supplement, the Home
Improvement Contracts will either be unsecured or secured by mortgages or deeds
of trust generally creating a junior lien on the related mortgaged properties,
or secured by purchase money security interests in the financed home
improvements. Unless otherwise specified in the related prospectus supplement,
the Home Improvement Contracts will be fully amortizing and may have fixed
interest rates or adjustable interest rates and may provide for other payment
characteristics as described in the related prospectus supplement.
Unless otherwise specified in the related prospectus supplement, the
home improvements securing the Home Improvement Contracts will include, but are
not limited to, replacement windows, house siding, new roofs, swimming pools,
satellite dishes, kitchen and bathroom remodeling goods and solar heating
panels.
Agency Securities
Government National Mortgage Association or Ginnie Mae. The Government
National Mortgage Association (Ginnie Mae) is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. Section 306(g) of Title II of the National Housing Act of 1934, as
amended, authorizes Ginnie Mae to guarantee the timely payment of the principal
of and interest on certificates which represent an interest in a pool of FHA
loans, which are mortgage loans insured by the FHA under the National Housing
Act or under Title V of the Housing Act of 1949, or VA loans, which are mortgage
loans partially guaranteed by the VA under the Servicemen's Readjustment Act of
1944, as amended, or Chapter 37 of Title 38 of the United States Code.
Section 306(g) of the National Housing Act provides that "the full
faith and credit of the United States is pledged to the payment of all amounts
which may be required to be paid under any guaranty under this subsection." In
order to meet its obligations under any such guarantee, Ginnie Mae may, under
Section 306(d) of the National Housing Act, borrow from the United States
Treasury in an unlimited amount which is at any time sufficient to enable Ginnie
Mae to perform its obligations under its guarantee.
Ginnie Mae Certificates. Each Ginnie Mae Certificate held in a trust
fund will be a "fully modified pass-through" mortgage-backed certificate issued
and serviced by a Ginnie Mae issuer that is a mortgage banking company or other
financial concern approved by Ginnie Mae or approved by Fannie Mae as a
seller-servicer of FHA loans and/or VA loans. The Ginnie Mae Certificates may be
either Ginnie Mae I Certificates issued under the Ginnie Mae I program or Ginnie
Mae II Certificates issued under the Ginnie Mae II program. The mortgage loans
underlying the Ginnie Mae Certificates will consist of FHA loans and/or VA
loans. Each such mortgage loan is secured by a one- to four-family or
multifamily residential property. Ginnie Mae will approve the issuance of each
Ginnie Mae Certificate in accordance with a guaranty agreement between Ginnie
Mae and the Ginnie Mae issuer. Pursuant to its guaranty agreement, a Ginnie Mae
issuer will be required to advance its own funds in order to make timely
payments of all amounts due on each Ginnie Mae Certificate, even if the payments
received by the Ginnie Mae issuer on the underlying FHA loans or VA loans are
less than the amounts due on the related Ginnie Mae Certificate.
-22-
The full and timely payment of principal of and interest on each Ginnie
Mae Certificate will be guaranteed by Ginnie Mae, which obligation is backed by
the full faith and credit of the United States. Each Ginnie Mae Certificate will
have an original maturity of not more than 30 years, but may have original
maturities of substantially less than 30 years. Each Ginnie Mae Certificate will
be based on and backed by a pool of FHA loans or VA loans secured by one- to
four-family residential properties and will provide for the payment by or on
behalf of the Ginnie Mae issuer to the registered holder of the Ginnie Mae
Certificate scheduled monthly payments of principal and interest equal to the
registered holder's proportionate interest in the aggregate amount of the
monthly principal and interest payment on each FHA Loan or VA Loan underlying
the Ginnie Mae Certificate, less the applicable servicing and guarantee fee
which together equal the difference between the interest on the FHA Loan or VA
Loan and the pass-through rate on the Ginnie Mae Certificate. In addition, each
payment will include proportionate pass-through payments of any prepayments of
principal on the FHA loans or VA loans underlying the Ginnie Mae Certificate and
liquidation proceeds in the event of a foreclosure or other disposition of any
such FHA loans or VA loans.
If a Ginnie Mae issuer is unable to make the payments on a Ginnie Mae
Certificate as they become due, it must promptly notify Ginnie Mae and request
Ginnie Mae to make the payments. Upon notification and request, Ginnie Mae will
make payments directly to the registered holder of the Ginnie Mae Certificate.
In the event no payment is made by a Ginnie Mae issuer and the Ginnie Mae issuer
fails to notify and request Ginnie Mae to make the payment, the holder of the
Ginnie Mae Certificate will have recourse only against Ginnie Mae to obtain
payment. The trustee or its nominee, as registered holder of the Ginnie Mae
Certificates held in a trust fund, will have the right to proceed directly
against Ginnie Mae under the terms of the guaranty agreements relating to those
Ginnie Mae Certificates for any amounts that are not paid when due.
All mortgage loans underlying a particular Ginnie Mae I Certificate
must have the same interest rate (except for pools of mortgage loans secured by
manufactured homes) over the term of the loan. The interest rate on a Ginnie Mae
I Certificate will equal the interest rate on the mortgage loans included in the
pool of mortgage loans underlying the Ginnie Mae I Certificate, less one-half
percentage point per annum of the unpaid principal balance of the mortgage
loans.
Mortgage loans underlying a particular Ginnie Mae II Certificate may
have per annum interest rates that vary from one another by up to one percentage
point. The interest rate on each Ginnie Mae II Certificate will be between
one-half percentage point and one and one-half percentage points lower than the
highest interest rate on the mortgage loans included in the pool of mortgage
loans underlying the Ginnie Mae II Certificate (except for pools of mortgage
loans secured by manufactured homes).
Regular monthly installment payments on each Ginnie Mae Certificate
held in a trust fund will be comprised of interest due as specified on the
Ginnie Mae Certificate plus the scheduled principal payments on the FHA loans or
VA loans underlying the Ginnie Mae Certificate due on the first day of the month
in which the scheduled monthly installments on the Ginnie Mae Certificate are
due. Regular monthly installments on each Ginnie Mae Certificate are required to
be paid to the trustee as registered holder by the 15th day of each month in the
case of a Ginnie Mae I Certificate, and are required to be mailed to the trustee
by the 20th day of each month in the case of a Ginnie Mae II Certificate. Any
principal prepayments on any FHA loans or VA loans underlying a Ginnie Mae
Certificate held in a trust fund or any other early recovery of principal on
such loan will be passed through to the trustee as the registered holder of the
Ginnie Mae Certificate.
-23-
Ginnie Mae Certificates may be backed by graduated payment mortgage
loans or by "buydown" mortgage loans for which funds will have been provided
(and deposited into escrow accounts) for application to the payment of a portion
of the borrowers' monthly payments during the early years of such mortgage
loans. Payments due the registered holders of Ginnie Mae Certificates backed by
pools containing "buydown" mortgage loans will be computed in the same manner as
payments derived from other Ginnie Mae Certificates and will include amounts to
be collected from both the borrower and the related escrow account. The
graduated payment mortgage loans will provide for graduated interest payments
that, during the early years of such mortgage loans, will be less than the
amount of stated interest on such mortgage loans. The interest not so paid will
be added to the principal of the graduated payment mortgage loans and, together
with interest thereon, will be paid in subsequent years. The obligations of
Ginnie Mae and of a Ginnie Mae Issuer will be the same irrespective of whether
the Ginnie Mae Certificates are backed by graduated payment mortgage loans or
"buydown" mortgage loans. No statistics comparable to the FHA's prepayment
experience on level payment, non-"buydown" mortgage loans are available in
respect of graduated payment or "buydown" mortgages. Ginnie Mae Certificates
related to a series of certificates may be held in book-entry form.
If specified in a prospectus supplement, Ginnie Mae Certificates may be
backed by multifamily mortgage loans having the characteristics specified in the
prospectus supplement.
Federal Home Loan Mortgage Corporation or Freddie Mac. The Federal Home
Loan Mortgage Corporation (Freddie Mac) is a shareholder-owned, government
sponsored enterprise created pursuant to Title III of the Emergency Home Finance
Act of 1970, as amended. Freddie Mac was established primarily for the purpose
of increasing the availability of mortgage credit for the financing of urgently
needed housing. It seeks to provide an enhanced degree of liquidity for
residential mortgage investments primarily by assisting in the development of
secondary markets for conventional mortgages. The principal activity of Freddie
Mac currently consists of the purchase of first lien conventional mortgage
loans, or participation interests in the mortgage loans, and the sale of the
mortgage loans or participations so purchased in the form of mortgage
securities, primarily Freddie Mac Certificates. Freddie Mac is confined to
purchasing, so far as practicable, mortgage loans that it deems to be of such
quality, type and class as to meet generally the purchase standards imposed by
private institutional mortgage investors.
Freddie Mac Certificates. Each Freddie Mac Certificate represents an
undivided interest in a pool of mortgage loans that may consist of first lien
conventional loans, FHA loans or VA loans. Freddie Mac Certificates are sold
under the terms of a mortgage participation certificate agreement. A Freddie Mac
Certificate may be issued under either Freddie Mac's Cash Program or its
Guarantor Program.
Mortgage loans underlying the Freddie Mac Certificates held by a trust
fund will consist of mortgage loans with original terms to maturity of from ten
to 40 years. Each such mortgage loan must meet the applicable standards set
forth in the legislation that established Freddie Mac. The pool of loans backing
a Freddie Mac Certificate may include whole loans, participation interests in
whole loans and undivided interests in whole loans and/or participations
comprising another Freddie Mac pool. Under the Guarantor Program, however, the
pool of loans backing a Freddie Mac Certificate may include only whole loans or
participation interests in whole loans.
-24-
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest on the underlying mortgage loans to
the extent of the applicable certificate rate on the registered holder's pro
rata share of the unpaid principal balance outstanding on the underlying
mortgage loans represented by that Freddie Mac Certificate, whether or not
received. Freddie Mac also guarantees to each registered holder of a Freddie Mac
Certificate that the holder will collect all principal on the underlying
mortgage loans, without any offset or deduction, to the extent of such holder's
pro rata share thereof, but does not, except if and to the extent specified in
the related prospectus supplement for a series of certificates, guarantee the
timely payment of scheduled principal. Under Freddie Mac's Gold PC Program,
Freddie Mac guarantees the timely payment of principal based on the difference
between the pool factor, published in the month preceding the month of
distribution, and the pool factor published in such month of distribution.
Pursuant to its guarantees, Freddie Mac indemnifies holders of Freddie Mac
Certificates against any diminution in principal by reason of charges for
property repairs, maintenance and foreclosure. Freddie Mac may remit the amount
due on account of its guaranty of collection of principal at any time after
default on an underlying mortgage loan, but not later than (i) 30 days following
foreclosure sale, (ii) 30 days following payment of the claim by any mortgage
insurer or (iii) 30 days following the expiration of any right of redemption,
whichever occurs later, but in any event no later than one year after demand has
been made upon the mortgagor for accelerated payment of principal. In taking
actions regarding the collection of principal after default on the mortgage
loans underlying Freddie Mac Certificates, including the timing of demand for
acceleration, Freddie Mac reserves the right to exercise its judgment with
respect to the mortgage loans in the same manner as for mortgage loans which it
has purchased but not sold. The length of time necessary for Freddie Mac to
determine that a mortgage loan should be accelerated varies with the particular
circumstances of each mortgagor, and Freddie Mac has not adopted standards which
require that the demand be made within any specified period.
Freddie Mac Certificates are not guaranteed by the United States or by
any Federal Home Loan Bank and do not constitute debts or obligations of the
United States or any Federal Home Loan Bank. The obligations of Freddie Mac
under its guarantee are obligations solely of Freddie Mac and are not backed by,
or entitled to, the full faith and credit of the United States. If Freddie Mac
were unable to satisfy such obligations, distributions to holders of Freddie Mac
Certificates would consist solely of payments and other recoveries on the
underlying mortgage loans and, accordingly, monthly distributions to holders of
Freddie Mac Certificates would be affected by delinquent payments and defaults
on such mortgage loans.
Registered holders of Freddie Mac Certificates are entitled to receive
their monthly pro rata share of all principal payments on the underlying
mortgage loans received by Freddie Mac, including any scheduled principal
payments, full and partial repayments of principal and principal received by
Freddie Mac by virtue of condemnation, insurance, liquidation or foreclosure,
and repurchases of the mortgage loans by Freddie Mac or the seller thereof.
Freddie Mac is required to remit each registered Freddie Mac Certificateholder's
pro rata share of principal payments on the underlying mortgage loans, interest
at the Freddie Mac pass-through rate and any other sums such as prepayment fees,
within 60 days of the date on which those payments are deemed to have been
received by Freddie Mac.
Under Freddie Mac's Cash Program, there is no limitation on the amount
by which interest rates on the mortgage loans underlying a Freddie Mac
Certificate may exceed the pass-through rate on the Freddie Mac Certificate.
Under this program, Freddie Mac purchases groups of whole mortgage loans from
sellers at specified percentages of their unpaid principal balances, adjusted
for accrued or prepaid interest, which, when applied to the interest rate of the
mortgage loans and participations purchased, results in the yield (expressed as
a percentage) required by Freddie Mac. The required yield, which includes a
minimum servicing fee retained by the servicer, is calculated using the
outstanding principal balance. The range of interest rates on the mortgage loans
and participations in a particular Freddie Mac pool under the Cash Program will
vary since mortgage loans and participations are purchased and assigned to a
Freddie Mac pool based upon their yield to Freddie Mac rather than on the
interest rate on the underlying mortgage loans. Under Freddie Mac's Guarantor
Program, the pass-through rate on a Freddie Mac Certificate is established based
upon the lowest interest rate on the underlying mortgage loans, minus a minimum
servicing fee and the amount of Freddie Mac's management and guaranty income as
agreed upon between the related seller and Freddie Mac.
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Freddie Mac Certificates duly presented for registration of ownership
on or before the last business day of a month are registered effective as of the
first day of the month. The first remittance to a registered holder of a Freddie
Mac Certificate will be distributed so as to be received normally by the 15th
day of the second month following the month in which the purchaser becomes a
registered holder of the Freddie Mac Certificates. Thereafter, such remittance
will be distributed monthly to the registered holder so as to be received
normally by the 15th day of each month. The Federal Reserve Bank of New York
maintains book-entry accounts with respect to Freddie Mac Certificates sold by
Freddie Mac, and makes payments of principal and interest each month to the
registered Freddie Mac Certificateholders in accordance with the holders'
instructions.
Federal National Mortgage Association or Fannie Mae. The Federal
National Mortgage Association (Fannie Mae) is a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act, as amended. Fannie Mae was originally
established in 1938 as a United States government agency to provide supplemental
liquidity to the mortgage market and was transformed into a stockholder-owned
and privately-managed corporation by legislation enacted in 1968.
Fannie Mae provides funds to the mortgage market primarily by
purchasing mortgage loans from lenders, thereby replenishing their funds for
additional lending. Fannie Mae acquires funds to purchase mortgage loans from
many capital market investors that may not ordinarily invest in mortgages,
thereby expanding the total amount of funds available for housing. Operating
nationwide, Fannie Mae helps to redistribute mortgage funds from capital-surplus
to capital-short areas.
Fannie Mae Certificates. Fannie Mae Certificates are Guaranteed
Mortgage Pass-Through Certificates representing fractional undivided interests
in a pool of mortgage loans formed by Fannie Mae. Each mortgage loan must meet
the applicable standards of the Fannie Mae purchase program. Mortgage loans
comprising a pool are either provided by Fannie Mae from its own portfolio or
purchased pursuant to the criteria of the Fannie Mae purchase program.
Mortgage loans underlying Fannie Mae Certificates held by a trust fund
will consist of conventional mortgage loans, FHA loans or VA loans. Original
maturities of substantially all of the conventional, level payment mortgage
loans underlying a Fannie Mae Certificate are expected to be from eight to 15
years or from 20 to 40 years. The original maturities of substantially all of
the fixed rate level payment FHA loans or VA loans are expected to be 30 years.
Mortgage loans underlying a Fannie Mae Certificate may have annual
interest rates that vary by as much as two percentage points from one another.
The rate of interest payable on a Fannie Mae Certificate is equal to the lowest
interest rate of any mortgage loan in the related pool, less a specified minimum
annual percentage representing servicing compensation and Fannie Mae's guaranty
fee. Under a regular servicing option pursuant to which the mortgagee or each
other servicer assumes the entire risk of foreclosure losses, the annual
interest rates on the mortgage loans underlying a Fannie Mae Certificate will be
between 25 basis points and 250 basis points greater than is its annual
pass-through rate. Under a special servicing option pursuant to which Fannie Mae
assumes the entire risk for foreclosure losses, the annual interest rates on the
mortgage loans underlying a Fannie Mae Certificate will generally be between 30
basis points and 255 basis points greater than the annual Fannie Mae Certificate
pass-through rate. If specified in the related prospectus supplement, Fannie Mae
Certificates may be backed by adjustable rate mortgages.
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Fannie Mae guarantees to each registered holder of a Fannie Mae
Certificate that it will distribute amounts representing the holder's
proportionate share of scheduled principal and interest payments at the
applicable pass-through rate provided for by the Fannie Mae Certificate on the
underlying mortgage loans, whether or not received, and the holder's
proportionate share of the full principal amount of any foreclosed or other
finally liquidated mortgage loan, whether or not such principal amount is
actually recovered. The obligations of Fannie Mae under its guarantees are
obligations solely of Fannie Mae and are not backed by, or entitled to, the full
faith and credit of the United States. Although the Secretary of the Treasury of
the United States has discretionary authority to lend Fannie Mae up to $2.25
billion outstanding at any time, neither the United States nor any of its
agencies or instrumentalities is obligated to finance Fannie Mae's operations or
to assist Fannie Mae in any other manner. If Fannie Mae were unable to satisfy
its obligations, distributions to holders of Fannie Mae Certificates would
consist solely of payments and other recoveries on the underlying mortgage loans
and, accordingly, monthly distributions to holders of Fannie Mae Certificates
would be affected by delinquent payments and defaults on such mortgage loans.
Fannie Mae Certificates evidencing interests in pools of mortgage loans
formed on or after May l, 1985 (other than Fannie Mae Certificates backed by
pools containing graduated payment mortgage loans or mortgage loans secured by
multifamily projects) are available in book-entry form only. Distributions of
principal and interest on each Fannie Mae Certificate will be made by Fannie Mae
on the 25th day of each month to the persons in whose name the Fannie Mae
Certificate is entered in the books of the Federal Reserve Banks (or registered
on the Fannie Mae Certificate register in the case of fully registered Fannie
Mae Certificates) as of the close of business on the last day of the preceding
month. With respect to Fannie Mae Certificates issued in book-entry form,
distributions will be made by wire and, with respect to fully registered Fannie
Mae Certificates, distributions will be made by check.
Stripped Mortgage-Backed Securities. Agency Securities may consist of
one or more stripped mortgage-backed securities as described in this prospectus
and in the related prospectus supplement. Each Agency Security of this type will
represent an undivided interest in all or part of the principal distributions
- --- but not the interest distributions, or the interest distributions -- but not
the principal distributions, or in some specified portion of the principal and
interest distributions on certain Freddie Mac, Fannie Mae or Ginnie Mae
Certificates. The underlying securities will be held under a trust agreement by
Freddie Mac, Fannie Mae or Ginnie Mae, each as trustee, or by another trustee
named in the related prospectus supplement. Freddie Mac, Fannie Mae or Ginnie
Mae will guaranty each stripped Agency Security to the same extent as such
entity guarantees the underlying securities backing the stripped Agency
Security, unless otherwise specified in the related prospectus supplement.
Other Agency Securities. If specified in the related prospectus
supplement, a trust fund may include other mortgage pass-through certificates
issued or guaranteed by Freddie Mac, Fannie Mae or Ginnie Mae. The
characteristics of any such mortgage pass-through certificates will be described
in the related prospectus supplement. If specified in the related prospectus
supplement, a combination of different types of Agency Securities may be held in
a trust fund.
Private Label Securities
General. Private Label Securities or PLS (i.e., private mortgage-backed
or asset-backed securities) may consist of
o pass-through certificates or participation certificates
evidencing an undivided interest in a pool of Single Family
Loans, Home Equity Loans, Multifamily Loans, Manufactured
Housing Contracts or Home Improvement Contracts,
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o collateralized mortgage obligations secured by Single Family
Loans, Home Equity Loans, Multifamily Loans, Manufactured
Housing Contracts or Home Improvement Contracts, or
o other Private Label Securities.
Private Label Securities may include stripped mortgage-backed securities
representing an undivided interest in all or a part of the principal
distributions - but not the interest distributions, or the interest
distributions - but not the principal distributions, or in some specified
portion of the principal and interest distributions on certain mortgage loans.
The Private Label Securities will have been issued pursuant to a pooling and
servicing agreement, an indenture or similar agreement. Unless otherwise
specified in the related prospectus supplement, the seller/servicer of the
underlying loans will have entered into a PLS Agreement with a trustee under
that agreement. The PLS trustee or its agent, or a custodian, will possess the
mortgage loans underlying the Private Label Securities. The loans underlying the
Private Label Securities will be serviced by a PLS servicer directly or by one
or more subservicers which may be subject to the supervision of the PLS
servicer. Unless otherwise specified in the related prospectus supplement, the
PLS servicer will be a Fannie Mae- or Freddie Mac-approved servicer and, if FHA
loans underlie the Private Label Securities, approved by HUD as an FHA
mortgagee.
The PLS issuer will be a financial institution or other entity engaged
generally in the business of mortgage lending, a public agency or
instrumentality of a state, local or federal government, or a limited purpose
corporation organized for the purpose of, among other things, establishing
trusts and acquiring and selling housing loans to trusts and selling beneficial
interests in trusts. If specified in the related prospectus supplement, the PLS
issuer may be an affiliate of the depositor. The obligations of the PLS issuer
will generally be limited to certain representations and warranties with respect
to the assets it conveys to the related trust. Unless otherwise specified in the
related prospectus supplement, the PLS issuer will not have guaranteed any of
the assets conveyed to the related trust or any of the Private Label Securities
issued under the PLS agreement. Additionally, although the loans underlying the
Private Label Securities may be guaranteed by an agency or instrumentality of
the United States, the Private Label Securities themselves will not be so
guaranteed, unless the related prospectus supplement specifies otherwise.
Distributions of principal and interest will be made on the Private
Label Securities on the dates specified in the related prospectus supplement.
The Private Label Securities may be entitled to receive nominal or no principal
distributions or nominal or no interest distributions. Principal and interest
distributions will be made on the Private Label Securities by the PLS trustee or
the PLS servicer. The PLS issuer or the PLS servicer may have the right to
repurchase assets underlying the Private Label Securities after a particular
date or under other circumstances specified in the related prospectus
supplement.
Underlying Loans. The loans underlying the PMBS may consist of fixed
rate, level payment, fully amortizing loans or graduated payment mortgage loans,
buydown loans, adjustable rate mortgage loans, or loans having balloon or other
special payment features. The loans may be secured by one- to four-family
residential property, small mixed-use property, five- to eight-family
residential property, multifamily property, manufactured homes or by an
assignment of the proprietary lease or occupancy agreement relating to a
specific dwelling within a cooperative and the related shares issued by the
cooperative. Except as otherwise specified in the related prospectus supplement,
the loans will have the following characteristics:
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o no loan will have had a loan-to-value ratio at origination in
excess of 95%;
o each Single Family Loan secured by a mortgaged property having
a loan-to-value ratio in excess of 80% at origination will be
covered by a primary mortgage insurance policy;
o each loan will have had an original term to stated maturity of
not less than five years and not more than 40 years;
o no loan that was more than 89 days delinquent as to the
payment of principal or interest will have been eligible for
inclusion in the assets under the related PLS agreement;
o each loan (other than a cooperative loan) will be required to
be covered by a standard hazard insurance policy (which may be
a blanket policy); and
o each loan (other than a cooperative loan or a Manufactured
Housing Contract) will be covered by a title insurance policy.
Credit Support Relating to Private Label Securities. Credit support in
the form of reserve funds, subordination of other private label securities
issued under the PLS agreement, letters of credit, surety bonds, insurance
policies or other types of credit support may be provided with respect to the
loans underlying the Private Label Securities or with respect to the Private
Label Securities themselves.
Additional Information. If the trust fund for a series of securities
includes Private Label Securities, the related prospectus supplement will
specify
o the aggregate approximate principal amount and type of Private
Label Securities to be included in the trust fund,
o the maximum original term-to-stated maturity of the PLS,
o the weighted average term-to-stated maturity of the PLS,
o the pass-through or certificate rate of the PLS,
o the weighted average pass-through or interest rate of the PLS,
o the PLS issuer, the PLS servicer (if other than the PLS
issuer) and the PLS trustee,
o certain characteristics of any credit support such as reserve
funds, insurance policies, surety bonds, letters of credit or
guaranties relating to the loans underlying the Private Label
Securities themselves,
o the terms on which the loans underlying the PLS may, or are
required to, be purchased prior to their stated maturity or
the stated maturity of the PLS and
o the terms on which mortgage loans may be substituted for those
originally underlying the PLS.
In addition, the related prospectus supplement will provide information
about the loans which comprise the underlying assets of the Private Label
Securities, including
o the payment features of the mortgage loans,
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o the approximate aggregate principal balance, if known, of
underlying loans insured or guaranteed by a governmental
entity,
o the servicing fee or range of servicing fees with respect to
the loans, and
o the minimum and maximum stated maturities of the underlying
loans at origination.
Incorporation of Certain Information by Reference
We incorporate in this prospectus by reference all documents and
reports filed by the applicable depositor, Greenwich Capital Acceptance, Inc.
(GCA) or Financial Acceptance Securities Corp. (FASCO), with respect to a trust
fund pursuant to Section 13(a), 14 or 15(d) of the Securities Exchange Act of
1934, as amended, prior to the termination of the offering of certificates
evidencing interests in that trust fund. Upon request by any person to whom this
prospectus is delivered in connection with the offering of one or more classes
of certificates, the applicable depositor will provide without charge a copy of
any such documents and/or reports incorporated herein by reference, in each case
to the extent that the documents or reports relate to those classes of
certificates, other than the exhibits to the documents (unless the exhibits are
specifically incorporated by reference in such documents). Requests to the
depositors should be directed in writing to: Paul D. Stevelman, Greenwich
Capital Acceptance, Inc. or Financial Acceptance Securities Corp. as applicable,
600 Steamboat Road, Greenwich, Connecticut 06830, telephone number (203)
625-2700. Each depositor has determined that its financial statements are not
material to the offering of any of the securities.
Investors may read and copy the documents and/or reports incorporated
herein by reference at the Public Reference Room of the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, DC 20549. Investors may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains a website at http:\\www.sec.gov
containing reports, proxy and information statements and other information
regarding issuers, including each trust fund, that file electronically with the
SEC.
Use of Proceeds
The net proceeds to be received from the sale of the securities will be
applied by the applicable depositor to the purchase of trust fund assets or will
be used by the depositor for general corporate purposes. The depositors expect
to sell securities in series from time to time, but the timing and amount of
offerings of securities will depend on a number of factors, including the volume
of assets acquired by the depositors, prevailing interest rates, availability of
funds and general market conditions.
The Depositors
Greenwich Capital Acceptance, Inc. is a Delaware corporation organized
on April 23, 1987, and Financial Asset Securities Corp. is a Delaware
corporation organized on August 2, 1995, in each case for the limited purpose of
acquiring, owning and transferring mortgage assets and selling interests in
those assets or bonds secured by those assets. Each of the depositors is an
indirect, limited purpose finance subsidiary of Royal Bank of Scotland Plc and
an affiliate of Greenwich Capital Markets, Inc. Greenwich Capital Markets, Inc.
is a registered broker-dealer engaged in the U.S. government securities market
and related capital markets business. Each of the depositors maintains its
principal office at 600 Steamboat Road, Greenwich, Connecticut 06830 and the
telephone number is (203) 625-2700.
Neither the depositors nor any of their affiliates will ensure or
guarantee distributions on the securities of any series.
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Loan Program
The depositor will have purchased the loans, either directly or through
affiliates, from sellers. Unless otherwise specified in the related prospectus
supplement, the loans acquired by the depositor will have been originated in
accordance with the underwriting criteria specified under the heading
"--Underwriting Standards" below.
Underwriting Standards
Unless otherwise specified in the related prospectus supplement, each
seller will represent and warrant that all the loans that it originated and/or
sold to the depositor or one of the depositor's affiliates will have been
underwritten in accordance with standards consistent with those utilized by
institutional lenders generally during the period of origination for similar
types of loans. As to any loan insured by the FHA or partially guaranteed by the
VA, the related seller will represent that it has complied with the underwriting
policies of the FHA or the VA, as the case may be.
Underwriting standards are applied by or on behalf of a lender to
evaluate a prospective borrower's credit standing and repayment ability, and the
value and adequacy of the mortgaged property as collateral. In general, a
prospective borrower applying for a loan is required to fill out a detailed
application designed to provide to the underwriting officer pertinent credit
information, including the principal balance and payment history of any senior
lien loan on the related mortgaged property. As part of the description of the
borrower's financial condition, the borrower generally is required to provide a
current list of assets and liabilities and a statement of income and expenses,
as well as an authorization to apply for a credit report which summarizes the
borrower's credit history with local merchants and lenders and any record of
bankruptcy. Generally, an employment verification is obtained from an
independent source, which is typically the borrower's employer. The verification
reports the borrower's length of employment with its employer, current salary,
and expectations of continued employment. If a prospective borrower is
self-employed, the borrower may be required to submit copies of signed tax
returns. The borrower may also be required to authorize verification of deposits
at financial institutions where the borrower has demand or savings accounts.
Underwriting standards which pertain to the creditworthiness of borrowers
seeking Multifamily Loans will be described in the related prospectus
supplement.
In determining the adequacy of the mortgaged property as collateral, an
appraisal is made of each property considered for financing. The appraiser is
required to inspect the property and verify that it is in good repair and that
construction, if new, has been completed. The appraisal generally is based on
the market value of comparable homes, the estimated rental income (if considered
applicable by the appraiser) and the cost of replacing the subject home. In
connection with a Manufactured Housing Contract, the appraisal is based on
recent sales of comparable manufactured homes and, when deemed applicable, a
replacement cost analysis based on the cost of a comparable manufactured home.
In connection with a Multifamily Loan, the appraisal must specify whether an
income analysis, a market analysis or a cost analysis was used. An appraisal
employing the income approach to value analyzes a multifamily project's
cashflow, expenses, capitalization and other operational information in
determining the property's value. The market approach to value focuses its
analysis on the prices paid for the purchase of similar properties in the
multifamily project's area, with adjustments made for variations between these
other properties and the multifamily project being appraised. The cost approach
calls for the appraiser to make an estimate of land value and then determine the
current cost of reproducing the building less any accrued depreciation. In any
case, the value of the property being financed, as indicated by the appraisal,
must be such that it currently supports, and is anticipated to support in the
future, the outstanding loan balance.
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Once all applicable employment, credit and property information is
received, a determination generally is made as to whether the prospective
borrower has sufficient monthly income available
o to meet the borrower's monthly obligations on the proposed
loan, generally determined on the basis of the monthly
payments due in the year of origination, and other expenses
related to the mortgaged property such as property taxes and
hazard insurance, and
o to meet monthly housing expenses and other financial
obligations and monthly living expenses.
The underwriting standards applied by sellers, particularly with respect to the
level of loan documentation and the borrower's income and credit history, may be
varied in appropriate cases where factors such as low loan-to-value ratios or
other favorable credit exist.
In the case of a loan secured by a leasehold interest in real property,
the title to which is held by a third-party lessor, the related seller will
represent and warrant, among other things, that the remaining term of the lease
and any sublease is at least five years longer than the remaining term of the
related mortgage note.
Some types of loans which may be included in the pools may involve
additional uncertainties not present in traditional types of loans. For example,
loans may provide for escalating or variable payments by the borrower. These
types of loans are generally underwritten on the basis of a judgment that
borrowers will have the ability to make the monthly payments required initially.
In some instances, however, their incomes may not be sufficient to permit
continued loan payments as payments increase. These types of loans may also be
underwritten primarily upon the basis of loan-to-value ratios or other favorable
credit factors.
Qualifications of Sellers
Unless otherwise specified in the related prospectus supplement, each
seller will be required to satisfy the qualifications set forth in the following
sentence. Each seller must
o be an institution experienced in originating and servicing
loans of the type contained in the related pool in accordance
with accepted practices and prudent guidelines,
o maintain satisfactory facilities to originate and service the
loans,
o be a seller/servicer approved by either Fannie Mae or Freddie
Mac, and
o be a mortgagee approved by the FHA or an institution the
deposit accounts in which are insured by the Federal Deposit
Insurance Corporation (FDIC).
Representations by Sellers; Repurchases or Substitutions
Each seller will have made representations and warranties in respect of
the loans sold by that seller and evidenced by a series of securities. These
representations and warranties, unless otherwise provided in the related
prospectus supplement, generally include the following:
o Except in the case of a cooperative loan, each Single Family
Loan, Home Equity Loan or Multifamily Loan has a title
insurance policy, required hazard insurance policy and any
required primary mortgage insurance policy, each of which was
in effect at the origination of the loan and remained in
effect on the date that the loan was purchased from the seller
by or on behalf of the depositor. If the related mortgaged
property is located in an area where title insurance policies
are generally not available, an attorney's certificate of
title may be substituted.
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o The seller had good title to each loan and no loan was subject
to offsets, defenses, counterclaims or rights of rescission
except to the extent that any specified buydown agreement may
forgive certain indebtedness of a borrower.
o Each loan constituted a valid lien on, or a perfected security
interest with respect to, the related mortgaged property,
subject only to permissible title insurance exceptions, if
applicable, and certain other exceptions described in the
related servicing agreement.
o The mortgaged property was free from damage and was in
acceptable condition.
o There were no delinquent tax or assessment liens against the
mortgaged property.
o No required payment on a loan was delinquent more than 30
days.
o Each loan was made in compliance with, and is enforceable
under, all applicable local, state and federal laws and
regulations, in all material respects.
If specified in the related prospectus supplement, the representations
and warranties of a seller in respect of a loan will be made not as of the
related cut-off date but as of the date on which the seller sold the loan to the
depositor or one of its affiliates. Under these circumstances, a substantial
period of time may have elapsed between that date and the date of initial
issuance of the series of securities evidencing an interest in, or secured by,
the loan. Since the representations and warranties of a seller do not address
events that may occur following the sale of the loan by that seller, the
repurchase obligation described in the following paragraph will not arise if the
relevant event that would otherwise have given rise to the obligation occurs
after the date when the seller sold the loan to the depositor or one of its
affiliates. However, the depositor will not include any loan in a trust fund if
anything has come to the depositor's attention that would cause it to believe
that the representations and warranties of the related seller regarding that
loan will not be accurate and complete in all material respects as of the date
when the related series of securities is issued. If the master servicer is also
a seller of loans for a particular series, these representations will be in
addition to the representations and warranties made by the master servicer in
its capacity as master servicer.
Unless otherwise specified in the related prospectus supplement, the
seller will make certain representations and warranties in connection with
Manufactured Housing Contracts included in the trust with respect to the
enforceability of coverage under any related insurance policy or hazard
insurance policy. The seller, if required by the rating agencies rating the
related issue of securities, will obtain a surety bond, guaranty, letter of
credit or other acceptable instrument to support its repurchase or substitution
obligation specified in the immediately following paragraph.
The master servicer, or the trustee if the master servicer is the
seller, will promptly notify the relevant seller of any breach of any
representation or warranty made by that seller in respect of a loan which
materially and adversely affects the interests of the securityholders in the
loan. Unless otherwise specified in the related prospectus supplement, if the
seller cannot cure the breach within 90 days after notice from the master
servicer or the trustee, as the case may be, then the seller will be obligated
either
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o to repurchase that loan from the trust fund at a purchase
price equal to 100% of the loan's unpaid principal balance as
of the date of the repurchase plus accrued interest thereon to
the first day of the month following the month of repurchase
at the related loan rate, less any advances made by the seller
or amount payable as related servicing compensation if the
seller is the master servicer, or
o substitute for that loan a replacement loan that satisfies the
requirements set forth in the related prospectus supplement.
This repurchase or substitution obligation will constitute the sole remedy
available to the securityholders or the trustee for a breach of representation
or warranty by the seller.
Except in those cases in which the master servicer is the seller, the
master servicer will be required under the applicable servicing agreement to
enforce this obligation for the benefit of the trustee and the related
securityholders, following the practices it would employ in its good faith
business judgment were it the owner of the loan.
If a REMIC election is to be made with respect to a trust fund, unless
otherwise provided in the related prospectus supplement, the master servicer or
a holder of the related residual certificate will be obligated to pay any
prohibited transaction tax which may arise in connection with a repurchase or
substitution. Unless otherwise specified in the related prospectus supplement,
the master servicer will be entitled to reimbursement for any such payment from
the assets of the related trust fund or from any holder of the related residual
certificate. See "Description of the Securities--General" in this prospectus.
Neither the depositor nor the master servicer - unless the master
servicer is the seller - will be obligated to purchase a loan if the seller
defaults on its obligation to do so. No assurance can be given that sellers will
carry out their respective repurchase or substitution obligations with respect
to the loans. However, to the extent that a breach of a representation and
warranty of a seller may also constitute a breach of a representation made by
the master servicer, the master servicer may have a repurchase or substitution
obligation as described under the heading "Operative Agreements--Assignment of
Trust Fund Assets" in this prospectus.
Description of the Securities
Either Greenwich Capital Acceptance, Inc. or Financial Asset Securities
Corp., as depositor, will establish a trust fund for each series of securities.
A particular series of securities will consist of mortgage-backed or
asset-backed certificates or notes or both certificates and notes.
Each series of certificates will be issued pursuant to a pooling and
servicing agreement or a trust agreement, dated as of the related cut-off date,
among the depositor, the trustee and, if the trust includes loans, the related
master servicer. The provisions of each pooling and servicing agreement or trust
agreement will vary depending upon the nature of the related certificates and
the related trust fund. Forms of pooling and servicing and trust agreements are
exhibits to the Registration Statement of which this prospectus forms a part.
Each series of notes will be issued under an indenture between the
related trust fund and the trustee named in the prospectus supplement for that
series. If the trust fund includes loans, the trust fund and the servicer of the
loans will also enter into a servicing agreement. Forms of indenture and
servicing agreement have been filed as an exhibit to the registration statement
of which this prospectus forms a part.
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The following summaries describe the material provisions which may
appear in each pooling and servicing agreement or trust agreement, in the case
of a series of certificates, and in each indenture and servicing agreement, in
the case of a series of notes. The prospectus supplement for each series of
securities will describe any provision of the operative agreements relating to
that series which materially differs from the description contained in this
prospectus. The summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
related agreements and prospectus supplement. The applicable depositor will
provide a copy of the operative agreements (without exhibits) relating to any
series without charge, upon written request of a holder of record of a
certificate or note of the series, addressed to Greenwich Capital Acceptance,
Inc. or Financial Asset Securities Corp., as applicable, 600 Steamboat Road,
Greenwich, Connecticut 06830, Attention: Asset Backed Finance Group.
General
Unless otherwise specified in the related prospectus supplement, the
securities of each series will
o be issued in fully registered form only, in the authorized
denominations specified in the prospectus supplement,
o evidence specified beneficial ownership interests in the trust
fund assets, in the case of a series of certificates, or be
secured by the pledge of the trust fund assets, in the case of
a series of notes, and
o not be entitled to payments in respect of the assets included
in any other trust fund established by the depositor.
The securities will not represent obligations of the depositor or any of its
affiliates. The loans will not be insured or guaranteed by any governmental
entity or other person, unless otherwise specified in the related prospectus
supplement.
To the extent provided in the related operative agreements, each trust
fund will consist of the following:
o the assets as from time to time are subject to the related
agreement, exclusive of any amounts specified in the related
prospectus supplement as "retained interest";
o those assets as from time to time are required to be deposited
in the related security account as defined under the heading
"Operative Agreements--Payments on Loans; Deposits to Security
Account" in this prospectus;
o property which secured a loan and which is acquired on behalf
of the securityholders by foreclosure or deed in lieu of
foreclosure; and
o primary mortgage insurance policies, FHA insurance and VA
guarantees, if any, and any other insurance policies or other
forms of credit enhancement required to be maintained pursuant
to the related agreement.
If specified in the related prospectus supplement, a trust fund may also include
one or more of the following:
o reinvestment income on payments received on the trust fund
assets,
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o a reserve fund,
o a pool insurance policy,
o a special hazard insurance policy,
o a bankruptcy bond,
o one or more letters of credit,
o a surety bond,
o guaranties, or
o similar instruments or other agreements.
Each series of securities will be issued in one or more classes. Each
class of securities of a series will evidence beneficial ownership of a
specified portion or percentage - which may be 0% - of future interest payments
and a specified portion or percentage - which may be 0% - of future principal
payments on the assets in the related trust fund. A series of securities may
include one or more classes that are senior in right to payment to one or more
other classes of securities of the series. A series or classes of securities may
be covered by insurance policies, surety bonds or other forms of credit
enhancement, in each case as described in this prospectus and in the related
prospectus supplement. Distributions on one or more classes of a series of
securities may be made prior to being made on one or more other classes, after
the occurrence of specified events, in accordance with a schedule or formula, on
the basis of collections from designated portions of the trust fund assets or on
a different basis, in each case as specified in the related prospectus
supplement. The timing and amounts of distributions may vary among classes or
over time as specified in the related prospectus supplement.
Unless otherwise specified in the related prospectus supplement,
distributions of principal and interest, or, where applicable, of principal only
or interest only, on the related securities will be made by the trustee on each
distribution date. Distributions will be made monthly, quarterly, semi-annually,
or at such other intervals and on the dates as are specified in the related
prospectus supplement, in proportion to the percentages specified in the
prospectus supplement. Distributions will be made to the persons in whose names
the securities are registered at the close of business on the applicable record
date specified in the related prospectus supplement. Distributions will be made
in the manner specified in the related prospectus supplement to the persons
entitled to them at the address appearing in the register maintained for the
securityholders. In the case of the final distribution in retirement of the
securities, payment will be made only upon presentation and surrender of the
securities at the office or agency of the trustee or other person specified in
the notice to securityholders of the final distribution.
The securities will be freely transferable and exchangeable at the
corporate trust office of the trustee named in the related prospectus
supplement. No service charge will be made for any registration of exchange or
transfer of securities of any series but the trustee may require payment of a
sum sufficient to cover any related tax or other governmental charge.
Under current law, the purchase and holding of certain classes of
certificates by or on behalf of, or with the assets of, an employee benefit plan
or other retirement plan or arrangement subject to the provisions of ERISA or
the Internal Revenue Code may result in "prohibited transactions" within the
meaning of ERISA or Section 4975 of the Code. See "ERISA Considerations" in this
prospectus.
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As to each series of securities, an election may be made to treat the
related trust fund, or designated portion of the trust fund, as a "real estate
mortgage investment conduit" (REMIC) as defined in the Internal Revenue Code.
The related prospectus supplement will specify whether a REMIC election is to be
made. Alternatively, the operative agreement for a series may provide that a
REMIC election may be made at the discretion of the depositor or the master
servicer and may only be made if certain conditions are satisfied. As to any
series of securities for which a REMIC election will be made, the terms and
provisions applicable to the making of the REMIC election, as well as any
material federal income tax consequences to securityholders not otherwise
described in this prospectus, will be set forth in the related prospectus
supplement. If a REMIC election is made with respect to a series, one of the
classes will be designated as evidencing the sole class of "residual interests"
in the related REMIC, as defined in the Code. All other classes of securities in
that series will constitute "regular interests" in the related REMIC, as defined
in the Code. As to each series with respect to which a REMIC election is to be
made, the master servicer or a holder of the related residual certificate will
be obligated to take all actions required in order to comply with applicable
laws and regulations and will be obligated to pay any prohibited transaction
taxes. Unless otherwise specified in the related prospectus supplement, the
master servicer will be entitled to reimbursement for any such payment from the
assets of the trust fund or from any holder of the related residual certificate.
Distributions on Securities
General. In general, the method of determining the amount of
distributions on a particular series of securities will depend on the type of
credit support, if any, that is used with respect to that series. See "Credit
Enhancement" in this prospectus. Set forth below are descriptions of various
methods that may be used to determine the amount of distributions on the
securities of a particular series. The prospectus supplement for each series of
securities will describe the method to be used in determining the amount of
distributions on the securities of that series.
The trustee will make distributions allocable to principal and interest
on the securities out of, and only to the extent of, funds in the related
security account, including any funds transferred from any reserve account. As
between securities of different classes and as between distributions of
principal (and, if applicable, between distributions of principal prepayments
and scheduled payments of principal) and interest, distributions made on any
distribution date will be applied as specified in the related prospectus
supplement. Unless otherwise specified in the related prospectus supplement,
distributions to any class of securities will be made pro rata to all
securityholders of that class.
Available Funds. All distributions on the securities of each series on
each distribution date will be made from Available Funds in accordance with the
terms described in the related prospectus supplement and specified in the
related operative agreement. Unless otherwise provided in the related prospectus
supplement, the term "Available Funds" for each distribution date will equal the
sum of the following amounts:
(i) the aggregate of all previously undistributed payments on
account of principal, including principal prepayments, if any,
and prepayment penalties, if so provided in the related
prospectus supplement, and interest on the mortgage loans in
the related trust fund (including Liquidation Proceeds and
Insurance Proceeds and amounts drawn under letters of credit
or other credit enhancement instruments as permitted
thereunder and as specified in the related operative
agreement) received by the master servicer after the cut-off
date and on or prior to the related determination date
specified in the prospectus supplement except:
o all payments which were due on or before the cut-off
date;
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o all Liquidation Proceeds and all Insurance Proceeds,
all principal prepayments and all other proceeds of
any loan purchased by the depositor, the master
servicer, any sub-servicer or any seller pursuant to
the related operative agreement that were received
after the prepayment period specified in the
prospectus supplement and all related payments of
interest representing interest for any period after
the related collection period;
o all scheduled payments of principal and interest due
on a date or dates subsequent to the first day of the
month of distribution;
o amounts received on particular loans as late payments
of principal or interest or other amounts required to
be paid by borrowers, but only to the extent of any
unreimbursed advance in respect of those loans made
by the master servicer, the related sub-servicers,
support servicers or the trustee;
o amounts representing reimbursement, to the extent
permitted by the related operative agreement and as
described under the heading "--Advances" immediately
below, for advances made by the master servicer,
sub-servicers, support servicers or the trustee that
were deposited into the security account, and amounts
representing reimbursement for certain other losses
and expenses incurred by the master servicer or the
depositor and described below; and
o that portion of each collection of interest on a
particular loan in the trust fund which represents
servicing compensation payable to the master servicer
or retained interest which is to be retained from
such collection or is permitted to be retained from
related Insurance Proceeds, Liquidation Proceeds or
proceeds of loans purchased pursuant to the related
operative agreement;
(ii) the amount of any advance made by the master servicer,
sub-servicer, support servicer or the trustee as described
under "--Advances" immediately below and deposited by it in
the security account;
(iii) if applicable, amounts withdrawn from a reserve account;
(iv) any applicable, amounts provided under a letter of credit,
insurance policy, surety bond or other third-party credit
enhancement; and
(v) if applicable, the amount of any prepayment interest
shortfall.
Distributions of Interest. Unless otherwise specified in the related
prospectus supplement, interest will accrue on the aggregate principal balance
of each class of securities or the aggregate notional principal balance of each
class of securities entitled to distributions of interest only at the
pass-through rate (or interest rate) and for the periods specified in the
prospectus supplement. Except in the case of a class of accrual securities that
provides for interest that accrues but is not currently payable, the
pass-through rate may be a fixed rate or an adjustable rate that adjusts as
specified in the prospectus supplement. Interest accrued during each specified
period on each class of securities entitled to interest will be distributable on
the distribution dates specified in the related prospectus supplement, to the
extent that funds are available, until the aggregate principal balance of the
securities of that class has been distributed in full or, in the case of a class
of securities entitled only to distributions allocable to interest, until the
aggregate notional principal balance of that class is reduced to zero or for the
period of time designated in the related prospectus supplement. The original
principal balance of each security will equal the aggregate distributions
allocable to principal to which that security is entitled. Unless otherwise
specified in the related prospectus supplement, distributions allocable to
interest on each security that is not entitled to distributions allocable to
principal will be calculated based on the notional principal balance of that
security. The notional principal balance of a security will not evidence an
interest in or entitlement to distributions allocable to principal but will be
used solely for convenience in expressing the calculation of interest and for
certain other purposes.
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With respect to any class of accrual securities, if specified in the
related prospectus supplement, any interest that has accrued but is not paid on
any distribution date will be added to the aggregate principal balance of that
class on that distribution date. Unless otherwise specified in the related
prospectus supplement, distributions of interest on each class of accrual
securities will commence only after the occurrence of the events specified in
the prospectus supplement. Unless otherwise specified in the related prospectus
supplement, the beneficial ownership interest of a class of accrual securities
in the trust fund will increase on each distribution date, as reflected in the
aggregate principal balance of that class, by the amount of interest that
accrued on that class during the preceding interest accrual period but was not
required to be distributed to the class on the distribution date. Each class of
accrual securities will thereafter accrue interest on the outstanding aggregate
principal balance of that class as so increased.
Distributions of Principal. Unless otherwise specified in the related
prospectus supplement, the aggregate principal balance of any class of
securities entitled to distributions of principal will equal
o the original aggregate principal balance of that class as
specified in the related prospectus supplement
reduced by
o all distributions reported to securityholders of that class as
allocable to principal
increased by
o in the case of a class of accrual securities, all interest
accrued but not then distributable on that class and
subject to
o in the case of adjustable rate certificates, the effect of any
negative amortization.
The related prospectus supplement will specify the method by which the amount of
principal to be distributed on the securities on each distribution date will be
calculated and the manner in which the amount will be allocated among the
classes of securities entitled to distributions of principal.
If so provided in the related prospectus supplement, one or more
classes of senior securities will be entitled to receive all or a
disproportionate percentage of the payments of principal which are received from
borrowers in advance of their scheduled due dates and are not accompanied by
amounts representing scheduled interest due after the month of such payments in
the percentages and under the circumstances or for the periods specified in the
prospectus supplement. Any allocation of principal prepayments to a class or
classes of senior securities will have the effect of accelerating the
amortization of the senior securities while increasing the interests evidenced
by the subordinated securities in the related trust fund. Increasing the
interests of the subordinated securities relative to that of the senior
securities is intended to preserve the availability of the subordination
provided by the subordinated securities. See "Credit Enhancement--Subordination"
in this prospectus.
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Unscheduled Distributions. If specified in the related prospectus
supplement, the securities will be subject to receipt of distributions before
the next scheduled distribution date under the circumstances and in the manner
described in this paragraph and the following paragraph and in the prospectus
supplement. The trustee will be required to make such unscheduled distributions
on the day and in the amount specified in the related prospectus supplement if,
due to substantial payments of principal -- including principal prepayments --
on the trust fund assets, the trustee or the master servicer determines that the
funds available or anticipated to be available from the security account and, if
applicable, from any reserve account may be insufficient to make required
distributions on the securities on that distribution date. Unless otherwise
specified in the related prospectus supplement, the amount of any unscheduled
distribution that is allocable to principal will not exceed the amount that
would otherwise have been required to be distributed as principal on the
securities on the next distribution date. Unless otherwise specified in the
related prospectus supplement, all unscheduled distributions will include
interest at the applicable pass-through rate, if any, on the amount of the
unscheduled distribution allocable to principal for the period and to the date
specified in the prospectus supplement.
Unless otherwise specified in the related prospectus supplement, all
distributions allocable to principal in any unscheduled distribution will be
made in the same priority and manner as distributions of principal on the
securities would have been made on the next distribution date, and with respect
to securities of the same class, unscheduled distributions of principal will be
made on a pro rata basis. Notice of any unscheduled distribution will be given
by the trustee prior to the date of distribution.
Advances
Unless otherwise provided in the related prospectus supplement, the
master servicer will be required to make advances, from its own funds, from
funds advanced by sub-servicers or support servicers or from funds held in the
security account for future distributions to the securityholders. On each
distribution date, the amount of any advances will be equal to the aggregate of
payments of principal and interest that were delinquent on the related
determination date and were not advanced by any sub-servicer, subject to the
master servicer's determination that these advances will be recoverable from
late payments by borrowers, Liquidation Proceeds, Insurance Proceeds or
otherwise. In the case of cooperative loans, the master servicer also will be
required to advance any unpaid maintenance fees and other charges under the
related proprietary leases as specified in the related prospectus supplement.
In making advances, the master servicer will endeavor to maintain a
regular flow of scheduled interest and principal payments to the securityholders
rather than to guarantee or insure against losses. If advances are made by the
master servicer from cash being held for future distribution to securityholders,
the master servicer will replace those funds on or before any future
distribution date to the extent that funds in the applicable security account on
a distribution date would be less than the amount required to be available for
distributions to securityholders on that date. Any funds advanced by the master
servicer will be reimbursable to the master servicer out of recoveries on the
specific loans with respect to which the advances were made (e.g., late payments
made by the related borrower, any related Insurance Proceeds, Liquidation
Proceeds or proceeds of any loan purchased by a sub-servicer or a seller under
the circumstances described in this prospectus). Advances by the master servicer
and any advances by a sub-servicer or a support servicer also will be
reimbursable to the master servicer or sub-servicer or support servicer, as
applicable, from cash otherwise distributable to securityholders, including the
holders of senior securities, to the extent that the master servicer determines
that any advances previously made are not ultimately recoverable as described in
this paragraph. The master servicer also will be obligated to make advances, to
the extent recoverable out of Insurance Proceeds, Liquidation Proceeds or
otherwise, in respect of certain taxes and insurance premiums not paid by
borrowers on a timely basis. Funds so advanced are reimbursable to the master
servicer to the extent permitted by the related operative agreement. If
specified in the related prospectus supplement, the obligations of the master
servicer to make advances may be supported by a cash advance reserve fund, a
surety bond or other arrangement, in each case as described in the related
prospectus supplement.
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The master servicer or sub-servicer may enter into a support agreement
with a support servicer pursuant to which the support servicer agrees to provide
funds on behalf of the master servicer or sub-servicer in connection with the
obligation of the master servicer or sub-servicer, as the case may be, to make
advances. The support agreement will be delivered to the trustee and the trustee
will be authorized to accept a substitute support agreement in exchange for an
original support agreement, provided that the substitution of the support
agreement will not adversely affect the rating or ratings assigned to the
securities by each rating agency named in the related prospectus supplement.
Unless otherwise provided in the prospectus supplement, in the event
the master servicer, a sub-servicer or a support servicer fails to make an
advance, the trustee will be obligated to make the advance in its capacity as
successor servicer. If the trustee makes an advance, it will be entitled to be
reimbursed for that advance to the same extent and degree as the master
servicer, a sub-servicer or a support servicer is entitled to be reimbursed for
advances. See "--Distributions on Securities" above.
Reports to Securityholders
Prior to or concurrently with each distribution on a distribution date
and except as otherwise set forth in the related prospectus supplement, the
master servicer or the trustee will furnish to each securityholder of record of
the related series a statement setting forth, to the extent applicable to that
series of securities, among other things:
o the amount of the distribution that is allocable to principal,
separately identifying the aggregate amount of any principal
prepayments and, if specified in the prospectus supplement,
any prepayment penalties included in the distribution;
o the amount of the distribution allocable to interest;
o the amount of any advances;
o the aggregate amount (a) otherwise allocable to the
subordinated securityholders on that distribution date and (b)
withdrawn from the reserve fund, if any, that is included in
the amounts distributed to the senior securityholders;
o the outstanding aggregate principal balance or notional
principal balance of each class after giving effect to the
distribution of principal on that distribution date;
o the percentage of principal payments on the loans (excluding
prepayments), if any, which each class will be entitled to
receive on the following distribution date;
o the percentage of principal prepayments on the mortgage loans,
if any, which each class will be entitled to receive on the
following distribution date;
o the amount of the servicing compensation retained or withdrawn
from the security account by the master servicer and the
amount of additional servicing compensation received by the
master servicer attributable to penalties, fees, excess
Liquidation Proceeds and other similar charges and items;
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o the number and aggregate principal balance of mortgage loans
delinquent, but not in foreclosure, (i) from 30 to 59 days,
(ii) from 60 to 89 days and (iii) 90 days or more, as of the
close of business on the last day of the calendar month
preceding that distribution date;
o the number and aggregate principal balance of mortgage loans
delinquent and in foreclosure (i) from 30 to 59 days, (ii)
from 60 to 89 days and (iii) 90 days or more, as of the close
of business on the last day of the calendar month preceding
that distribution date;
o the book value of any real estate acquired through foreclosure
or grant of a deed in lieu of foreclosure and, if the real
estate secured a Multifamily Loan, any additional information
specified in the prospectus supplement;
o if a class is entitled only to a specified portion of interest
payments on the loans in the related pool, the pass-through
rate, if adjusted from the date of the last statement, of the
loans expected to be applicable to the next distribution to
that class;
o if applicable, the amount remaining in any reserve account at
the close of business on that distribution date;
o the pass-through rate as of the day prior to the immediately
preceding distribution date; and
o the amounts remaining under any letters of credit, pool
policies or other forms of credit enhancement applicable to
the certificates.
Where applicable, any amount set forth in the above list may be
expressed as a dollar amount per single security of the relevant class having
the percentage interest specified in the prospectus supplement. The report to
securityholders for any series of securities may include additional or other
information of a similar nature to that specified in the above list.
In addition, within a reasonable period of time after the end of each
calendar year, the master servicer or the trustee will mail, to each
securityholder of record at any time during such calendar year, a report setting
forth:
o the aggregate of the amounts for that calendar year reported
pursuant to the first two bullet points in the immediately
preceding list or, in the event that the recipient was a
securityholder of record only during a portion of the calendar
year, for the applicable portion of the year; and
o other customary information as may be deemed necessary or
desirable for securityholders to have in order to prepare
their tax returns.
Credit Enhancement
General
Credit enhancement may be provided with respect to one or more classes
of a series of securities or with respect to the assets in the related trust
fund. Credit enhancement may take the form of one or more of the following:
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o a limited financial guaranty policy issued by an entity named
in the related prospectus supplement,
o the subordination of one or more classes of the securities of
that series,
o the establishment of one or more reserve accounts,
o the use of a cross-support feature,
o a pool insurance policy, bankruptcy bond, special hazard
insurance policy, surety bond, letter of credit, guaranteed
investment contract, or
o any other method of credit enhancement described in the
related prospectus supplement.
Unless otherwise specified in the related prospectus supplement, any credit
enhancement will not provide protection against all risks of loss and will not
guarantee repayment of the entire principal balance of the securities and
interest. If losses occur which exceed the amount covered by the credit
enhancement or which are not covered by the credit enhancement, securityholders
will bear their allocable share of deficiencies.
Subordination
If specified in the related prospectus supplement, protection afforded
to holders of one or more classes of the senior securities of a series by means
of the subordination feature will be accomplished by the holders of one or more
other classes of that series having a preferential right to distributions in
respect of scheduled principal, principal prepayments, interest or any
combination thereof that otherwise would have been payable to the holders of one
or more other subordinated classes of securities of that series under the
circumstances and to the extent specified in the prospectus supplement. If
specified in the related prospectus supplement, protection may also be afforded
to the holders of the senior securities of a series by:
o reducing the ownership interest of the holders of the related
subordinated securities,
o a combination of the subordination feature and reducing the
ownership interest of the subordinated securityholders, or
o as otherwise described in the related prospectus supplement.
If specified in the related prospectus supplement, delays in receipt of
scheduled payments on the loans and losses on defaulted loans will be borne
first by the various classes of subordinated securities and thereafter by the
various classes of senior securities, in each case under the circumstances and
subject to the limitations specified in that prospectus supplement.
The related prospectus supplement may also limit the following:
o the aggregate distributions in respect of delinquent payments
on the loans over the lives of the securities or at any time,
o the aggregate losses in respect of defaulted loans which must
be borne by the subordinated securities by virtue of their
subordination, and
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o the amount of the distributions otherwise distributable to the
subordinated securityholders that will be distributable to
senior securityholders on any distribution date.
If aggregate distributions in respect of delinquent payments on the loans or
aggregate losses in respect of the loans were to exceed the amount specified in
the related prospectus supplement, holders of the senior securities would
experience losses on their securities.
In addition to or in lieu of the foregoing, if specified in the related
prospectus supplement, all or any portion of distributions otherwise payable to
holders of the subordinated securities on any distribution date may instead be
deposited into one or more reserve accounts established with the trustee. The
related prospectus supplement may specify that deposits in any reserve account
may be made
o on each distribution date,
o for specified periods, or
o until the balance in the reserve account has reached a
specified amount and, following payments from the reserve
account to holders of the senior securities or otherwise,
thereafter to the extent necessary to restore the balance in
the reserve account to the specified level.
If specified in the related prospectus supplement, amounts on deposit in the
reserve account may be released to the holders of the class or classes of
securities specified in the prospectus supplement at the times and under the
circumstances specified in the prospectus supplement.
If specified in the related prospectus supplement, various classes of
senior securities and subordinated securities may themselves be subordinate in
their right to receive certain distributions to other classes of senior and
subordinated securities, respectively, through a cross-support mechanism or
otherwise.
As among classes of senior securities and as among classes of
subordinated securities, distributions may be allocated among these classes as
follows:
o in the order of their scheduled final distribution dates,
o in accordance with a schedule or formula,
o in relation to the occurrence of events or otherwise,
in each case as specified in the related prospectus supplement. As among classes
of subordinated securities, the related prospectus supplement will specify the
allocation of payments to holders of the related senior securities on account of
delinquencies or losses and the allocation payments to any reserve account.
Pool Insurance Policies
The related prospectus supplement may specify that a separate pool
insurance policy will be obtained for the pool. This policy will be issued by
the pool insurer named in the prospectus supplement. Subject to the limits
described in this section, each pool insurance policy will cover loss by reason
of default in payment on loans in the related pool in an amount equal to a
percentage, which is specified in the related prospectus supplement, of the
aggregate principal balances of the loans on the cut-off date which are not
covered as to their entire outstanding principal balances by primary mortgage
insurance policies. As more fully described in the following paragraph, the
master servicer will present claims to the pool insurer on behalf of itself, the
trustee and the securityholders. However, the pool insurance policies are not
blanket policies against loss, since claims under the policies may only be made
respecting particular defaulted loans and only upon satisfaction of the
conditions precedent described in the following paragraph. Unless otherwise
specified in the related prospectus supplement, no pool insurance policy will
cover losses due to a failure to pay or denial of a claim under a primary
mortgage insurance policy.
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Unless otherwise specified in the related prospectus supplement, the
pool insurance policy will provide that no claims may be validly presented
unless the following conditions are satisfied:
o any required primary mortgage insurance policy is in effect
for the defaulted loan and a claim under that policy has been
submitted and settled;
o hazard insurance on the related mortgaged property has been
kept in force and real estate taxes and other protection and
preservation expenses have been paid;
o if there has been physical loss or damage to the mortgaged
property, the property has been restored to its physical
condition, reasonable wear and tear excepted, at the time of
issuance of the policy; and
o the insured has acquired good and merchantable title to the
mortgaged property free and clear of liens except certain
permitted encumbrances.
Upon satisfaction of these conditions, the pool insurer will have the option
either
o to purchase the property securing the defaulted loan at a
price equal to the loan's principal balance plus accrued and
unpaid interest at the loan rate to the date of purchase plus
certain expenses incurred by the master servicer on behalf of
the trustee and securityholders, or
o to pay the amount by which the sum of the principal balance of
the defaulted loan plus accrued and unpaid interest at the
loan rate to the date of payment of the claim and the
aforementioned expenses exceeds the proceeds received from an
approved sale of the mortgaged property,
in either case net of amounts paid or assumed to have been paid under the
related primary mortgage insurance policy.
If any property securing a defaulted loan is damaged and proceeds, if
any, from the related hazard insurance policy or any applicable special hazard
insurance policy are insufficient to restore the damaged property to a condition
sufficient to permit recovery under the pool insurance policy, the master
servicer will not be required to expend its own funds to restore the damaged
property unless it determines that
o the restoration will increase the proceeds to securityholders
on liquidation of the related loan after reimbursement to the
master servicer of its expenses, and
o the master servicer will be able to recover its expenses from
proceeds of the sale of the property or proceeds of the
related pool insurance policy or any related primary mortgage
insurance policy.
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Unless otherwise specified in the related prospectus supplement, no
pool insurance policy will insure against losses sustained by reason of a
default arising, among other things, from
o fraud or negligence in the origination or servicing of a loan,
including misrepresentation by the borrower, the originator or
persons involved in the origination of the loan, or
o failure to construct a mortgaged property in accordance with
plans and specifications.
Many primary mortgage insurance policies also do not insure against these types
of losses. Nevertheless, a failure of coverage attributable to one of the
foregoing events might result in a breach of the related seller's
representations and, in that event, might give rise to an obligation on the part
of the seller to purchase the defaulted loan if the breach cannot be cured. No
pool insurance policy will cover a claim in respect of a defaulted loan that
occurs when the loan's servicer, at the time of default or thereafter, was not
approved by the insurer. Many primary mortgage insurance policies also do not
cover claims in this case.
Unless otherwise specified in the related prospectus supplement, the
original amount of coverage under the pool insurance policy will be reduced over
the life of the related securities by the aggregate dollar amount of claims
paid, less the aggregate of the net amounts realized by the pool insurer upon
disposition of all foreclosed properties. The amount of claims paid will include
certain expenses incurred by the master servicer as well as accrued interest on
delinquent loans to the date of payment of the claim, unless otherwise specified
in the related prospectus supplement. Accordingly, if aggregate net claims paid
under any pool insurance policy reach the original policy limit, coverage under
that pool insurance policy will be exhausted and any further losses will be
borne by the securityholders.
The terms of any pool insurance policy relating to a pool of
Manufactured Housing Contracts or Home Improvement Contracts will be described
in the related prospectus supplement.
FHA Insurance; VA Guarantees
Single Family Loans designated in the related prospectus supplement as
insured by the FHA will be insured by the FHA as authorized under the United
States Housing Act of 1937, as amended. These mortgage loans will be insured
under various FHA programs including the standard FHA 203(b) program to finance
the acquisition of one- to four-family housing units and the FHA 245 graduated
payment mortgage program. These programs generally limit the principal amount
and interest rates of the mortgage loans insured. Single Family Loans insured by
the FHA generally require a minimum down payment of approximately 5% of the
original principal amount of the loan. No FHA-insured Single Family Loan
relating to a series may have an interest rate or original principal amount
exceeding the applicable FHA limits at the time the loan was originated.
The insurance premiums for Single Family Loans insured by the FHA are
collected by lenders approved by the Department of Housing and Urban Development
(HUD), or by the master servicer or any sub-servicer, and are paid to the FHA.
The regulations governing FHA single-family mortgage insurance programs provide
that insurance benefits are payable either upon foreclosure (or other
acquisition of possession) and conveyance of the mortgaged property to HUD or
upon assignment of the defaulted mortgage loan to HUD. With respect to a
defaulted FHA-insured Single Family Loan, the master servicer or any
sub-servicer is limited in its ability to initiate foreclosure proceedings. When
it is determined by the master servicer or sub-servicer or HUD that the default
was caused by circumstances beyond the mortgagor's control, the master servicer
or such sub-servicer is expected to make an effort to avoid foreclosure by
entering, if feasible, into one of a number of available forms of forbearance
plans with the mortgagor. These plans may involve the reduction or suspension of
regular mortgage payments for a specified period, with such payments to be made
up on or before the maturity date of the mortgage, or the recasting of payments
due under the mortgage up to or beyond the maturity date. In addition, when this
type of default is accompanied by certain other criteria, HUD may provide relief
by making payments to the master servicer or sub-servicer in partial or full
satisfaction of amounts due under the mortgage loan or by accepting assignment
of the loan from the master servicer or sub-servicer. Any payments made by HUD
are to be repaid by the mortgagor to HUD. With certain exceptions, at least
three full monthly installments must be due and unpaid under the mortgage loan,
and HUD must have rejected any request for relief from the mortgagor, before the
master servicer or sub-servicer may initiate foreclosure proceedings.
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In most cases, HUD has the option to pay insurance claims in cash or in
debentures issued by HUD. Currently, claims are being paid in cash. Claims have
not been paid in debentures since 1965. HUD debentures issued in satisfaction of
FHA insurance claims bear interest at the applicable HUD debentures' interest
rate. The master servicer or sub-servicer of each FHA-insured Single Family Loan
will be obligated to purchase any HUD debenture issued in satisfaction of a
mortgage loan upon default for an amount equal to the debenture's principal
amount.
The amount of insurance benefits paid by the FHA generally is equal to
the entire unpaid principal amount of the defaulted mortgage loan adjusted to
reimburse the master servicer or sub-servicer for certain costs and expenses and
to deduct certain amounts received or retained by the master servicer or
sub-servicer after default. When entitlement to insurance benefits results from
foreclosure (or other acquisition of possession) and conveyance of the mortgaged
property to HUD, the master servicer or sub-servicer is compensated for no more
than two-thirds of its foreclosure costs, and is compensated for interest
accrued and unpaid prior to the conveyance date generally only to the extent
allowed pursuant to the related forbearance plan approved by HUD. When
entitlement to insurance benefits results from assignment of the mortgage loan
to HUD, the insurance payment includes full compensation for interest accrued
and unpaid to the assignment date. The insurance payment itself, upon
foreclosure of an FHA-insured Single Family Loan, bears interest from the date
which is 30 days after the mortgagor's first uncorrected failure to perform any
obligation to make any payment due under the mortgage loan and, upon assignment,
from the date of assignment to the date of payment of the claim, in each case at
the same interest rate as the applicable HUD debenture interest rate.
Single Family Loans designated in the related prospectus supplement as
guaranteed by the VA will be partially guaranteed by the VA under the
Serviceman's Readjustment Act of 1944, as amended, which permits a veteran, the
spouse of a veteran in certain cases, to obtain a mortgage loan guaranteed by
the VA covering financing of the purchase of a one- to four-family dwelling unit
at interest rates permitted by the VA. The program has no mortgage loan limits,
requires no down payment from the purchaser and permits the guarantee of
mortgage loans of up to 30 years' duration. However, no Single Family Loan
guaranteed by the VA will have an original principal amount greater than five
times the partial VA guarantee for that mortgage loan.
The maximum guarantee that may be issued by the VA under a
VA-guaranteed mortgage loan depends upon the original principal amount of the
mortgage loan, as further described in 38 U.S.C. Section 1803(a), as amended. As
of November 1, 1998 the maximum guarantee that may be issued by the VA under a
VA-guaranteed mortgage loan of more than $144,000 is the lesser of 25% of the
original principal amount of the mortgage loan and $50,570. The liability on the
guarantee is reduced or increased, pro rata, with any reduction or increase in
the amount of indebtedness, but in no event will the amount payable under the
guaranty exceed the amount of the original guaranty. The VA may, at its option
and without regard to the guaranty, make full payment to a mortgage holder of
unsatisfied indebtedness on a mortgage loan upon the loan's assignment to the
VA.
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With respect to a defaulted VA-guaranteed Single Family Loan, the
master servicer or sub-servicer is, absent exceptional circumstances, authorized
to announce its intention to foreclose only when the default has continued for
three months. Generally, a claim under the guaranty is submitted after
liquidation of the mortgaged property.
The amount payable under the guaranty will be the percentage of the
VA-guaranteed Single Family Loan originally guaranteed applied to indebtedness
outstanding as of the applicable date of computation specified in VA
regulations. Payments under the guaranty will be equal to the unpaid principal
amount of the loan, interest accrued on the unpaid balance of the loan to the
appropriate date of computation and limited expenses of the mortgagee, but in
each case only to the extent that these amounts have not been recovered through
liquidation of the mortgaged property. The amount payable under the guaranty may
in no event exceed the amount of the original guaranty.
Special Hazard Insurance Policies
If specified in the related prospectus supplement, a separate special
hazard insurance policy will be obtained for the pool and will be issued by the
special hazard insurer named in the prospectus supplement. Subject to the
limitations described in the immediately following sentence, each special hazard
insurance policy will protect holders of the related securities from
o loss by reason of damage to mortgaged properties caused by
certain hazards -- including earthquakes and, to a limited
extent, tidal waves and related water damage or as otherwise
specified in the prospectus supplement -- not insured against
under the standard form of hazard insurance policy for the
respective states in which the mortgaged properties are
located or under a flood insurance policy if the mortgaged
property is located in a federally designated flood area, and
o loss caused by reason of the application of the coinsurance
clause contained in hazard insurance policies.
See "Operative Agreements--Hazard Insurance" in this prospectus. No special
hazard insurance policy will cover losses occasioned by fraud or conversion by
the trustee or master servicer, war, insurrection, civil war, certain
governmental action, errors in design, faulty workmanship or materials (except
under certain circumstances), nuclear or chemical reaction, flood (if the
mortgaged property is located in a federally designated flood area), nuclear or
chemical contamination and certain other risks. The amount of coverage under any
special hazard insurance policy will be specified in the related prospectus
supplement. Each special hazard insurance policy will provide that no claim may
be paid unless hazard insurance and, if applicable, flood insurance on the
related mortgaged property have been kept in force and other protection and
preservation expenses have been paid.
Subject to the limitations set forth in the immediately preceding
paragraph, and unless otherwise specified in the related prospectus supplement,
each special hazard insurance policy will provide coverage where there has been
damage to property securing a foreclosed mortgage loan, and title to the
mortgaged property has been acquired by the insured, to the extent that the
damage is not covered by the hazard insurance policy or flood insurance policy,
if any, maintained by the borrower or the master servicer. In this circumstance,
the special hazard insurer will pay the lesser of
o the cost to repair or replace the mortgaged property, and
o upon transfer of the property to the special hazard insurer,
the unpaid principal balance of the loan at the time the
property is acquired by foreclosure or deed in lieu of
foreclosure, plus accrued interest to the date of claim
settlement, together with certain expenses incurred by the
master servicer with respect to the property.
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If the unpaid principal balance of a loan plus accrued interest and certain
servicing expenses are paid by the special hazard insurer, the amount of further
coverage under the related special hazard insurance policy will be reduced by
that amount less any net proceeds from the sale of the property. Any amount paid
as the cost to repair the damaged property will also reduce coverage by such
amount. So long as a pool insurance policy remains in effect, the payment by the
special hazard insurer to cover the unpaid principal balance of a loan plus
accrued interest and certain servicing expenses or to cover the cost to repair a
mortgaged property will not affect the total insurance proceeds paid to
securityholders, but will affect the relative amounts of coverage remaining
under the special hazard insurance policy and the pool insurance policy.
Since each special hazard insurance policy will be designed to permit
full recovery under the mortgage pool insurance policy in circumstances in which
recoveries would otherwise be unavailable because mortgaged properties have been
damaged by a cause not insured against by a standard hazard policy and thus
would not be restored, each operative agreement will provide that, unless
otherwise specified in the related prospectus supplement, the master servicer
will be under no obligation to maintain the special hazard insurance policy once
the related pool insurance policy has been terminated or been exhausted due to
payment of claims.
To the extent specified in the related prospectus supplement, the
master servicer may deposit in a special trust account, cash, an irrevocable
letter of credit or any other instrument acceptable to each rating agency named
in the prospectus supplement, in order to provide protection in lieu of or in
addition to that provided by a special hazard insurance policy. The amount of
any special hazard insurance policy or of the deposit to the special trust
account relating to securities may be reduced so long as the reduction will not
result in a downgrading of the rating of the securities by any rating agency
named in the prospectus supplement.
The terms of any special hazard insurance policy relating to a pool of
Manufactured Housing Contracts or Home Improvement Contracts will be described
in the related prospectus supplement.
Bankruptcy Bonds
If specified in the related prospectus supplement, a bankruptcy bond
for proceedings under the federal Bankruptcy Code will be issued by an insurer
named in the prospectus supplement. Each bankruptcy bond will cover certain
losses resulting from a reduction by a bankruptcy court of scheduled payments of
principal and interest on a loan or a reduction by the court of the principal
amount of a loan. The bankruptcy bond will also cover unpaid interest on the
amount of such a principal reduction from the date of the filing of a bankruptcy
petition. The required amount of coverage under any bankruptcy bond will be set
forth in the related prospectus supplement. Coverage under a bankruptcy bond may
be cancelled or reduced by the master servicer if the cancellation or reduction
would not adversely affect the then current rating of the securities by any
rating agency named in the prospectus supplement. See "Material Legal Aspects of
the Mortgage Loans--Anti-Deficiency Legislation and Other Limitations on
Lenders" in this prospectus.
To the extent specified in the related prospectus supplement, the
master servicer may deposit in a special trust account, cash, an irrevocable
letter of credit or any other instrument acceptable to each rating agency named
in the prospectus supplement, to provide protection in lieu of or in addition to
that provided by a bankruptcy bond. The amount of any bankruptcy bond or of the
deposit to the special trust account relating to the securities may be reduced
so long as the reduction would not result in a downgrading of the rating of the
securities by any rating agency named in the prospectus supplement.
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The terms of any bankruptcy bond relating to a pool of Manufactured
Housing Contracts or Home Improvement Contracts will be described in the related
prospectus supplement.
FHA Insurance on Multifamily Loans
There are two primary FHA insurance programs that are available for
Multifamily Loans. Sections 221(d)(3) and (d)(4) of the National Housing Act
allow HUD to insure mortgage loans that are secured by newly constructed and
substantially rehabilitated multifamily rental projects. Section 244 of the
Housing Act provides for co-insurance of mortgage loans made under Sections
221(d)(3) and (d)(4) by HUD/FHA and a HUD-approved co-insurer. Generally the
term of a mortgage loan may be up to 40 years and the ratio of loan amount to
property replacement cost can be up to 90%.
Section 223(f) of the National Housing Act allows HUD to insure
mortgage loans made for the purchase or refinancing of existing apartment
projects which are at least three years old. Section 244 also provides for
co-insurance of mortgage loans made under Section 223(f). Under Section 223(f),
the loan proceeds cannot be used for substantial rehabilitation work but repairs
may be made for, generally up to the greater of 15% of the value of the project
or a dollar amount per apartment unit established from time to time by HUD. In
general the loan term may not exceed 35 years and a loan-to-value ratio of no
more than 85% is required for the purchase of a project and a loan-to-value
ratio of no more than 70% for the refinancing of a project.
FHA insurance is generally payable in cash or, at the option of the
mortgagee, in debentures. The insurance does not cover 100% of the mortgage loan
but is subject to certain deductions and certain losses of interest from the
date of the default.
Reserve Accounts
If specified in the related prospectus supplement, credit support with
respect to a series of securities may be provided by the establishment and
maintenance of one or more reserve accounts for that series, in trust, with the
related trustee. The prospectus supplement will specify whether or not reserve
accounts will be included in the related trust fund.
The reserve account for a series of securities will be funded in one of
the following ways:
o by a deposit of cash, U.S. Treasury securities, instruments
evidencing ownership of principal or interest payments on U.S.
Treasury securities, letters of credit, demand notes,
securities of deposit or a combination of these, in the
aggregate amount specified in the related prospectus
supplement;
o by deposit from time to time of amounts specified in the
related prospectus supplement to which the subordinated
securityholders, if any, would otherwise be entitled; or
o in such other manner as the prospectus supplement may specify.
Any amounts on deposit in the reserve account and the proceeds of any
other instrument upon maturity will be held in cash or will be invested in
permitted investments. Unless otherwise specified in the related prospectus
supplement, "permitted investments" will include obligations of the United
States and certain of its agencies, certificates of deposit, certain commercial
paper, time deposits and bankers acceptances sold by eligible commercial banks
and certain repurchase agreements of United States government securities with
eligible commercial banks. If a letter of credit is deposited with the trustee,
the letter of credit will be irrevocable. Unless otherwise specified in the
related prospectus supplement, any instrument deposited in a reserve account
will name the trustee, in its capacity as trustee for the securityholders, as
beneficiary and will be issued by an entity acceptable to each rating agency
named in the prospectus supplement. Additional information with respect to
instruments deposited in the reserve account will be set forth in the related
prospectus supplement.
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Any amounts deposited, and payments on instruments deposited, in a
reserve account will be available for withdrawal from the reserve account for
distribution to securityholders, for the purposes, in the manner and at the
times specified in the related prospectus supplement.
Cross Support
If specified in the related prospectus supplement, the beneficial
ownership of separate groups of assets included in a trust fund may be evidenced
by separate classes of securities. In this case, credit support may be provided
by a cross support feature which requires that distributions be made with
respect to securities evidencing a beneficial ownership interest in, or secured
by, other asset groups within the same trust fund. The related prospectus
supplement for a series which includes a cross support feature will describe the
manner and conditions for applying the cross support feature.
If specified in the related prospectus supplement, the coverage
provided by one or more forms of credit support may apply concurrently to two or
more related trust funds. If applicable, the related prospectus supplement will
identify the trust funds to which the credit support relates and the manner of
determining the amount of the coverage provided and the application of the
coverage to the identified trust funds.
Other Insurance, Surety Bonds, Guaranties, Letters of Credit and Similar
Instruments or Agreements
If specified in the related prospectus supplement, a trust fund may
also include insurance, guaranties, surety bonds, letters of credit or similar
arrangements for the following purposes:
o to maintain timely payments or provide additional protection
against losses on the assets included in the trust fund,
o to pay administrative expenses, or
o to establish a minimum reinvestment rate on the payments made
in respect of the assets included in the trust fund or
principal payment rate on the assets.
These arrangements may include agreements under which securityholders are
entitled to receive amounts deposited in various accounts held by the trustee
upon the terms specified in the prospectus supplement.
Financial Instruments
If specified in the related prospectus supplement, the trust fund may
include one or more swap arrangements or other financial instruments that are
intended to meet the following goals:
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o to convert the payments on some or all of the assets from
fixed to floating payments, or from floating to fixed, or from
floating based on a particular index to floating based on
another index;
o to provide payments in the event that any index rises above or
falls below specified levels; or
o to provide protection against interest rate changes, certain
types of losses, including reduced market value, or other
payment shortfalls to one or more classes of the related
series.
If a trust fund includes financial instruments of this type, the
instruments may be structured to be exempt from the registration requirements of
the Securities Act of 1933, as amended.
The related prospectus supplement will include, or incorporate by
reference, material financial and other information about the provider of the
financial instruments.
Yield and Prepayment Considerations
The yields to maturity and weighted average lives of the certificates
will be affected primarily by the amount and timing of principal payments
received on or in respect of the assets included in the related trust fund. The
original terms to maturity of the loans in a given pool will vary depending upon
the types of loans included. Each prospectus supplement will contain information
with respect to the types and maturities of the loans in the related pool.
Unless otherwise specified in the related prospectus supplement, loans may be
prepaid, without penalty, in full or in part at any time. Multifamily Loans may
prohibit prepayment for a specified period after origination, may prohibit
partial prepayments entirely, and may require the payment of a prepayment
penalty upon prepayment in full or in part. The prepayment experience of the
loans in a pool will affect the life of the related series of securities.
The rate of prepayments on the loans cannot be predicted. A number of
factors, including homeowner mobility, economic conditions, the presence and
enforceability of due-on-sale clauses, mortgage market interest rates and the
availability of mortgage funds may affect the prepayment experience of loans.
Some of these factors, as well as other factors including limitations on
prepayment and the relative tax benefits associated with the ownership of
income-producing real property, may affect the prepayment experience of
Multifamily Loans.
Home Equity Loans and Home Improvement Contracts have been originated
in significant volume only during the past few years and neither depositor is
aware of any publicly available studies or statistics on the rate of prepayment
of these types of loans. Generally, Home Equity Loans and Home Improvement
Contracts are not viewed by borrowers as permanent financing. Accordingly, these
loans may experience a higher rate of prepayment than traditional first mortgage
loans. On the other hand, because Home Equity Loans that are revolving credit
line loans generally are not fully amortizing, the absence of voluntary borrower
prepayments could cause rates of principal payments to be lower than, or similar
to, those of traditional fully-amortizing first mortgages. The prepayment
experience of the related trust fund may also be affected by the frequency and
amount of any future draws on any revolving credit line loans. Other factors
that might be expected to affect the prepayment rate of a pool of Home Equity
Loans or Home Improvement Contracts include the amounts of, and interest rates
on, the underlying senior mortgage loans, and the use of first mortgage loans as
long-term financing for home purchase and junior mortgage loans as shorter-term
financing for a variety of purposes, including home improvement, education
expenses and purchases of consumer durables such as automobiles. Accordingly,
these types of loans may experience a higher rate of prepayment than traditional
fixed-rate mortgage loans. In addition, any future limitations on the right of
borrowers to deduct interest payments on Home Equity Loans for federal income
tax purposes may further increase the rate of prepayments of these loans.
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Collections on Home Equity Loans that are revolving credit line loans
may vary because, among other things, borrowers may
o make payments during any month as low as the minimum monthly
payment for that month or, during the interest-only period for
revolving credit line loans and, in more limited
circumstances, closed-end loans, as to which an interest-only
payment option has been selected, the interest and the fees
and charges for that month; or
o make payments as high as the entire outstanding principal
balance plus accrued interest and related fees and charges.
It is possible that borrowers may fail to make the required periodic payments.
In addition, collection on these loans may vary due to seasonal purchasing and
the payment habits of borrowers.
Unless otherwise provided in the related prospectus supplement, all
conventional loans other than Multifamily Loans will contain due-on-sale
provisions permitting the mortgagee or holder of the contract to accelerate the
maturity of the related loan upon the sale or certain other transfers of the
related mortgaged property by the borrower. As described in the related
prospectus supplement, conventional Multifamily Loans may contain due-on-sale
provisions, due-on-encumbrance provisions or both. Loans insured by the FHA, and
loans partially guaranteed by the VA, are assumable with the consent of the FHA
and the VA, respectively. Thus, the rate of prepayments of these loans may be
lower than that of conventional mortgage loans bearing comparable interest
rates. Unless otherwise provided in the related prospectus supplement, the
master servicer generally will enforce any due-on-sale or due-on-encumbrance
clause, to the extent it has knowledge of the conveyance or further encumbrance
or the proposed conveyance or proposed further encumbrance of the mortgaged
property and reasonably believes that it is entitled to do so under applicable
law. However, the master servicer will not take any enforcement action that
would impair or threaten to impair any recovery under any related insurance
policy. See "Operative Agreements--Collection Procedures" and "Material Legal
Aspects of the Mortgage Loans" in this prospectus for a description of certain
provisions of each operative agreement and certain legal matters that may affect
the prepayment experience of the loans.
The rate of prepayments of conventional mortgage loans has fluctuated
significantly in recent years. In general, prepayment rates may be influenced by
a variety of economic, geographic, social and other factors, including changes
in housing needs, job transfers, unemployment and servicing decisions. In
general, however, if prevailing rates fall significantly below the loan rate
borne by a loan, that loan is likely to be subject to a higher prepayment rate
than would be the case if prevailing interest rates remain at or above its rate.
Conversely, if prevailing interest rates rise appreciably above the loan rate
borne by a loan, that loan is likely to experience a lower prepayment rate than
would be the case if prevailing rates remain at or below its loan rate. However,
there can be no assurance that these generalities will hold true in particular
cases. The rate of prepayment of Multifamily Loans may also be affected by other
factors including loan terms including the existence of lockout periods,
due-on-sale and due-on-encumbrance clauses and prepayment changes, relative
economic conditions in the area where the mortgaged properties are located, the
quality of management of the mortgaged properties and possible changes in tax
laws.
When a loan is prepaid in full, the borrower is charged interest on the
principal amount of the loan only for the number of days in the month actually
elapsed up to the date of the prepayment rather than for a full month. Unless
otherwise specified in the related prospectus supplement, the effect of a
prepayment in full will be to reduce the amount of interest passed through in
the following month to securityholders, because interest on the principal
balance of the prepaid loan will be paid only to the date of prepayment. Partial
prepayments in a given month may be applied to the outstanding principal
balances of the prepaid loans either on the first day of the month of receipt or
of the month following receipt. In the latter case, partial prepayments will not
reduce the amount of interest passed through in that month. Unless otherwise
specified in the related prospectus supplement, neither prepayments in full nor
partial prepayments will be passed through until the month following receipt.
Prepayment charges collected with respect to Multifamily Loans will be
distributed to securityholders, or to other persons entitled to them, as
described in the related prospectus supplement.
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If so specified in the related prospectus supplement, the master
servicer will be required to remit to the trustee, with respect to each loan in
the related trust as to which a principal prepayment in full or a principal
payment which is in excess of the scheduled monthly payment and is not intended
to cure a delinquency was received during any due period, an amount, from and to
the extent of amounts otherwise payable to the master servicer as servicing
compensation, equal to the excess, if any, of
o 30 days' interest on the principal balance of the related loan
at the loan rate net of the annual rate at which the master
servicer's servicing fee accrues, over
o the amount of interest actually received on that loan during
the due period, net of the master servicer's servicing fee.
If the rate at which interest is passed through to the holders of
securities of a series is calculated on a loan by loan basis, disproportionate
principal prepayments with respect to loans bearing different loan rates will
affect the yield on the securities. In general, the effective yield to
securityholders will be slightly lower than the yield otherwise produced by the
applicable security pass-through rate and purchase price because, while interest
generally will accrue on each loan from the first day of the month, the
distribution of interest generally will not be made earlier than the month
following the month of accrual.
Under certain circumstances, the master servicer, the holders of the
residual interests in a REMIC or any other person named in the related
prospectus supplement may have the option to purchase the assets of a trust fund
to effect early retirement of the related series of securities. See "Operative
Agreements--Termination; Optional Termination; Optional Calls" in this
prospectus.
Factors other than those identified in this prospectus and in the
related prospectus supplement could significantly affect principal prepayments
at any time and over the lives of the securities. The relative contribution of
the various factors affecting prepayment may also vary from time to time. There
can be no assurance as to the rate of payment of principal of trust fund assets
at any time or over the lives of the securities.
The prospectus supplement relating to a series of securities will
discuss in greater detail the effect of the rate and timing of principal
payments including prepayments, delinquencies and losses on the yield, weighted
average lives and maturities of the securities.
In the event that a receiver, bankruptcy trustee, debtor in possession
or similar entity (each, an "insolvency trustee") is appointed with respect to a
seller due to its insolvency or a seller becomes a debtor under the federal
Bankruptcy Code or any similar insolvency law, the insolvency trustee may
attempt to characterize the transfer of the related mortgage loans from the
seller to the depositor as a pledge to secure a financing rather than as a sale.
In the event that this attempt were successful, the insolvency trustee might
elect, among other remedies, to accelerate payment of the related securities and
liquidate the related loans, with each securityholder being entitled to receive
its allocable share of the principal balance of the loans, together with its
allocable share of interest on the loans at the applicable pass-through rate, or
weighted average "strip rate" as defined in the related prospectus supplement,
as the case may be, to the date of payment. In this event, the related
securityholders might incur reinvestment losses with respect to principal
received and investment losses attendant to the liquidation of the loans and the
resulting early retirement of the related security. In addition, certain delays
in distributions might be experienced by the securityholders in connection with
any such insolvency proceedings.
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Operative Agreements
Set forth below is a summary of the material provisions of each
operative agreement that are not described elsewhere in this prospectus. This
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of each operative agreement applicable
to a particular series of certificates. Where particular provisions or terms
used in the operative agreements are referred to, those provisions or terms are
as specified in the agreements. Except as otherwise specified, the operative
agreements described in this prospectus contemplate a trust fund that is
comprised of loans. Although an agreement governing a trust fund that consists
of Agency Securities or Private Label Securities may contain provisions that are
similar to those described below, they will be described more fully in the
related prospectus supplement.
Assignment of Trust Fund Assets
Assignment of the Trust Fund Loans. When the securities of a series are
issued, the depositor named in the prospective supplement will cause the loans
comprising the related trust fund to be assigned to the trustee, together with
all principal and interest received by or on behalf of the depositor with
respect to those loans after the cut-off date, other than principal and interest
due on or before the cut-off date and other than any retained interest specified
in the related prospectus supplement. Concurrently with this assignment, the
trustee will deliver the securities to the depositor in exchange for the loans.
Each loan will be identified in a schedule appearing as an exhibit to the
related agreement. The schedule will include information as to the outstanding
principal balance of each loan after application of payments due on the cut-off
date, as well as information regarding the loan rate or APR, the current
scheduled monthly payment of principal and interest, the maturity of the loan,
its loan-to-value ratio or combined loan-to-value ratio at origination and
certain other information.
If so specified in the related prospectus supplement, and in accordance
with the rules of membership of Merscorp, Inc. and/or Mortgage Electronic
Registration Systems, Inc., or MERS, assignments of the mortgages for the
mortgage loans in the related trust will be registered electronically through
Mortgage Electronic Registration Systems, Inc., or MERS(R) System. With respect
to mortgage loans registered through the MERS(R) System, MERS shall serve as
mortgagee of record solely as a nominee in an administrative capacity on behalf
of the trustee and shall not have any interest in any of those mortgage loans.
In addition, the depositor will deliver to the trustee or a custodian
the following items in connection with each loan in the related trust fund:
o the original mortgage note or contract, endorsed without
recourse in blank or to the order of the trustee;
o in the case of Single Family Loans, Home Equity Loans or
Multifamily Loans, the mortgage, deed of trust or similar
instrument (each, a "mortgage") with evidence of recording
indicated on the mortgage; however, in the case of any
mortgage not returned from the public recording office, the
depositor will deliver or cause to be delivered a copy of the
mortgage together with a certificate stating that the original
mortgage was delivered to the recording office;
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o in the case of a contract, other than an unsecured contract,
the security interest in the mortgaged property securing the
contract;
o an assignment of the mortgage or contract to the trustee,
which assignment will be in recordable form in the case of a
mortgage assignment or evidence that the mortgage is held for
the trustee through the MERS(R) System; and
o any other security documents as may be specified in the
related prospectus supplement, including those relating to any
senior lienholder interests in the related mortgaged property.
Unless otherwise specified in the related prospectus supplement, the
depositor will promptly cause the assignments of any Single Family Loan, Home
Equity Loan and Multifamily Loan (except for mortgages held under the MERS(R)
System) to be recorded in the appropriate public office for real property
records, except in states in which, in the opinion of counsel acceptable to the
trustee, recording is not required to protect the trustee's interest in the
loans against the claim of any subsequent transferee or any successor to, or
creditor of, the depositor or the originator of the loans. Unless otherwise
specified in the related prospectus supplement, the depositor will promptly make
or cause to be made an appropriate filing of a UCC-1 financing statement in the
appropriate states to give notice of the trustee's ownership of the contracts.
With respect to any loans which are cooperative loans, the depositor
will deliver the following items to the trustee:
o the related original cooperative note endorsed, without
recourse, in blank or to the order of the trustee,
o the original security agreement,
o the proprietary lease or occupancy agreement,
o the recognition agreement,
o an executed financing agreement and the relevant stock
certificate,
o related blank stock powers, and
o any other document specified in the related prospectus
supplement.
The depositor will cause to be filed in the appropriate office an assignment and
a financing statement evidencing the trustee's security interest in each
cooperative loan.
The trustee or custodian will review the mortgage loan documents, upon
receipt, within the time period specified in the related prospectus supplement.
The trustee will hold the documents in trust for the benefit of the
securityholders. Unless otherwise specified in the related prospectus
supplement, if any of these documents are found to be missing or defective in
any material respect, the trustee or custodian will notify the master services
and the depositor, and the master services will notify the related seller. If
the seller cannot cure the omission or defect within a specified member of days
after receipt of notice, the seller will be obligated either to purchase the
loan from the trustee or to substitute a qualified substitute loan for the
defective loan. There can be no assurance that a seller will fulfill this
obligation. Although the master services may be obligated to enforce the
seller's obligation to the extent described in this prospectus under "Mortgage
Loan Program--Representations by Sellers; Repurchases", neither the master
services nor the depositor will be obligated to purchase the mortgage loan if
the seller defaults on its obligation, unless the breach also constitutes a
breach of the representations or warranties of the master services or the
depositor, as the case may be. Unless otherwise specified in the related
prospectus supplement, the seller's obligation to cure, purchase or substitute
constitutes the sole remedy available to the securityholders or the trustee for
the omission of, or a material defect in, a constituent loan document.
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The trustee will be authorized to appoint a custodian pursuant to a
custodial agreement to maintain possession of and, if applicable, to review the
documents relating to the loans as agent of the trustee.
The master servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the agreement. Upon a breach of any representation of the
master servicer which materially and adversely affects the interests of the
securityholders in a loan, the master servicer will be obligated either to cure
the breach in all material respects or to purchase the loan. Unless otherwise
specified in the related prospectus supplement, this obligation to cure,
purchase or substitute constitutes the sole remedy available to the
securityholders or the trustee for a breach of representation by the master
servicer.
Notwithstanding the provisions of the foregoing two paragraphs, with
respect to a trust fund for which a REMIC election is to be made, unless the
related prospectus supplement otherwise provides, no purchase or substitution of
a loan will be made if the purchase or substitution would result in a prohibited
transaction tax under the Internal Revenue Code.
Assignment of Agency Securities. The applicable depositor will cause
any Agency Securities included in a trust fund to be registered in the name of
the trustee or its nominee, and the trustee concurrently will execute,
countersign and deliver the securities. Each Agency Security will be identified
in a schedule appearing as an exhibit to the related pooling and servicing
agreement, which will specify as to each Agency Security its original principal
amount, outstanding principal balance as of the cut-off date, annual
pass-through rate, if any, and the maturity date.
Assignment of Private Label Securities. The applicable depositor will
cause any Private Label Securities included in a trust fund to be registered in
the name of the trustee. The trustee or custodian will have possession of any
Private Label Securities that are in certificated form. Unless otherwise
specified in the related prospectus supplement, the trustee will not be in
possession, or be assignee of record, of any assets underlying the Private Label
Securities. See "The Trust Fund--Private Label Securities." The Private Label
Securities will be identified in a schedule appearing as an exhibit to the
related agreement, which will specify the original principal amount, the
outstanding principal balance as of the cut-off date, the annual pass-through
rate or interest rate, the maturity date and other pertinent information for the
Private Label Securities conveyed to the trustee.
Payments on Loans; Deposits to Security Account
Each sub-servicer servicing a loan pursuant to a sub-servicing
agreement will establish and maintain a subservicing account which meets the
requirements and is otherwise acceptable to the master servicer. A sub-servicing
account must be established with a Federal Home Loan Bank or with a depository
institution (including the sub-servicer if it is a depository institution), the
accounts in which are insured by the Federal Deposit Insurance Corporation
(FDIC). If a sub-servicing account is maintained at an institution that is a
Federal Home Loan Bank or an FDIC-insured institution and, in either case, the
amount on deposit in the sub-servicing account exceeds the FDIC insurance
coverage amount, then such excess amount must be remitted to the master servicer
within one business day after receipt. In addition, the sub-servicer must
maintain a separate account for escrow and impound funds relating to the loans.
Each sub-servicer is required to deposit into its sub-servicing account on a
daily basis all amounts that it receives in respect of the loans described
immediately below under "--Sub-Servicing by Sellers", less its servicing or
other compensation. On or before the date specified in the sub-servicing
agreement, the sub-servicer will remit to the master servicer or the trustee all
funds held in the sub-servicing account with respect to the loans that are
required to be remitted. The sub-servicer is also required to advance, on the
scheduled remittance date, an amount corresponding to any monthly installment of
principal and interest, less its servicing or other compensation, on any loan
the payment of which was not received from the borrower. Unless otherwise
specified in the related prospectus supplement, this obligation of each
sub-servicer to advance continues up to and including the first of the month
following the date on which the related mortgaged property is sold at a
foreclosure sale or is acquired on behalf of the securityholders by deed in lieu
of foreclosure, or until the related loan is liquidated.
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The master servicer will establish and maintain with respect to the
related trust fund a security account which is a separate account or accounts
for the collection of payments on the assets in the trust fund. Unless otherwise
specified in the related prospectus supplement, each security account shall meet
one of the requirements listed below.
o It must be maintained with a depository institution the debt
obligations of which (or in the case of a depository
institution that is the principal subsidiary of a holding
company, the obligations of which) are rated in one of the two
highest rating categories by each rating agency rating(s)
named in the prospectus supplement.
o It must be an account the deposits in which are fully insured
by the FDIC.
o It must be an account or accounts the deposits in which are
insured by the FDIC to its established limits and the
uninsured deposits in which are otherwise secured such that,
as evidenced by an opinion of counsel, the securityholders
have a claim with respect to the funds in the security account
or a perfected first priority security interest against any
collateral securing those funds that is superior to the claims
of any other depositors or general creditors of the depository
institution with which the security account is maintained.
o It must be an account otherwise acceptable to each rating
agency named in the prospectus supplement.
The collateral eligible to secure amounts in the security account is limited to
United States government securities and other high-quality permitted
investments. A security account may be maintained as an interest-bearing account
or the funds held in the account may be invested pending each succeeding
distribution date in permitted investments. Unless otherwise specified in the
related prospectus supplement, the master servicer or its designee will be
entitled to receive any interest or other income earned on funds in the security
account as additional compensation and will be obligated to deposit in the
security account the amount of any loss immediately as realized. The security
account may be maintained with the master servicer or with a depository
institution that is an affiliate of the master servicer, provided that the
master servicer or its affiliate, as applicable, meets the standards set forth
above.
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On a daily basis, the master servicer will deposit in the certificate
account for each trust fund, to the extent applicable and unless otherwise
specified in the related prospectus supplement and provided in the pooling and
servicing agreement, the following payments and collections received, or
advances made, by the master servicer or on its behalf subsequent to the cut-off
date, other than payments due on or before the cut-off date and exclusive of any
amounts representing a retained interest:
o all payments on account of principal, including principal
prepayments and, if specified in the related prospectus
supplement, prepayment penalties, on the loans;
o all payments on account of interest on the loans, net of
applicable servicing compensation;
o Insurance Proceeds;
o Liquidation Proceeds;
o any net proceeds received on a monthly basis with respect to
any properties acquired on behalf of the securityholders by
foreclosure or deed in lieu of foreclosure;
o all proceeds of any loan or mortgaged property purchased by
the master servicer, the depositor, any sub-servicer or any
seller as described in this prospectus under "Loan
Program--Representations by Sellers; Repurchases or
Substitutions" or "--Assignment of Trust Fund Assets" above
and all proceeds of any loan repurchased as described in this
prospectus under "--Termination; Optional Termination" below;
o all payments required to be deposited in the security account
with respect to any deductible clause in any blanket insurance
policy described in this prospectus under "--Hazard Insurance"
below;
o any amount required to be deposited by the master servicer in
connection with losses realized on investments of funds held
in the security account made for the benefit of the master
servicer; and
o all other amounts required to be deposited in the security
account pursuant to the related agreement.
Pre-Funding Account
If so provided in the related prospectus supplement, the master
servicer will establish and maintain a pre-funding account in the name of the
trustee on behalf of the related securityholders into which the applicable
depositor will deposit the pre-funded amount on the related closing date. The
trustee will use the pre-funded amount to purchase subsequent loans from the
depositor from time to time during the funding period which generally runs from
the closing date to the date specified in the related prospectus supplement. At
the end of the funding period, any amounts remaining in the pre-funding account
will be distributed to the related securityholders in the manner and priority
specified in the related prospectus supplement as a prepayment of principal of
the related securities.
Sub-Servicing of Loans
Each seller of a loan or any other servicing entity may act as the
sub-servicer for that loan pursuant to a sub-servicing agreement which will not
contain any terms inconsistent with the related operative agreement. While each
sub-servicing agreement will be a contract solely between the master servicer
and the related sub-servicer, the operative agreement pursuant to which a series
of securities is issued will provide that, the trustee or any successor master
servicer must recognize the sub-servicer's rights and obligations under the
sub-servicing agreement, if for any reason the master servicer for that series
is no longer the master servicer of the related loans.
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With the approval of the master servicer, a sub-servicer may delegate
its servicing obligations to third-party servicers, but the sub-servicer will
remain obligated under its sub-servicing agreement. Each sub-servicer will be
required to perform the customary functions of a servicer of mortgage loans.
These functions generally include
o collecting payments from borrowers and remitting collections
to the master servicer;
o maintaining hazard insurance policies as described in this
prospectus and in any related prospectus supplement, and
filing and settling claims under those policies, subject in
certain cases to the master servicer's right to approve
settlements in advance;
o maintaining borrower escrow or impoundment accounts for
payment of taxes, insurance and other items required to be
paid by the borrower under the related loan;
o processing assumptions or substitutions, although, unless
otherwise specified in the related prospectus supplement, the
master servicer is generally required to enforce due-on-sate
clauses to the extent their enforcement is permitted by law
and would not adversely affect insurance coverage;
o attempting to cure delinquencies;
o supervising foreclosures;
o inspecting and managing mortgaged properties under certain
circumstances;
o maintaining accounting records relating to the loans; and
o to the extent specified in the related prospectus supplement,
maintaining additional insurance policies or credit support
instruments and filing and settling claims under them.
A sub-servicer will also be obligated to make advances in respect of delinquent
installments of principal and interest on loans, as described more fully in this
prospectus under "--Payments on Loans; Deposits to Security Account" above, and
in respect of certain taxes and insurance premiums not paid on a timely basis by
borrowers.
As compensation for its servicing duties, each sub-servicer will be
entitled to a monthly servicing fee, to the extent the scheduled payment on the
related loan has been collected, in the amount set forth in the related
prospectus supplement. Each sub-servicer is also entitled to collect and retain,
as part of its servicing compensation, any prepayment or late charges provided
in the note or related instruments. Each sub-servicer will be reimbursed by the
master servicer for certain expenditures which it makes, generally to the same
extent the master servicer would be reimbursed under the agreement. The master
servicer may purchase the servicing of loans if the sub-servicer elects to
release the servicing of the loans to the master servicer. See "--Servicing and
Other Compensation and Payment of Expenses" below.
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Each sub-servicer may be required to agree to indemnify the master
servicer for any liability or obligation sustained by the master servicer in
connection with any act or failure to act by the sub-servicer in its servicing
capacity. Each sub-servicer will be required to maintain a fidelity bond and an
errors and omissions policy with respect to its officers, employees and other
persons acting on its behalf or on behalf of the master servicer.
Each sub-servicer will be required to service each loan pursuant to the
terms of its sub-servicing agreement for the entire term of the loan, unless the
sub-servicing agreement is earlier terminated by the master servicer or unless
servicing is released to the master servicer. The master servicer may terminate
a sub-servicing agreement without cause, upon written notice to the sub-servicer
in the manner specified in that sub-servicing agreement.
The master servicer may agree with a sub-servicer to amend a
sub-servicing agreement or, upon termination of the sub-servicing agreement, the
master servicer may act as servicer of the related loans or enter into new
sub-servicing agreements with other sub-servicers. If the master servicer acts
as servicer, it will not assume liability for the representations and warranties
of the sub-servicer which it replaces. Each sub-servicer must be a seller or
meet the standards for becoming a seller or have such servicing experience as to
be otherwise satisfactory to the master servicer and the depositor. The master
servicer will make reasonable efforts to have the new sub-servicer assume
liability for the representations and warranties of the terminated sub-servicer,
but no assurance can be given that an assumption of liability will occur. In the
event of an assumption of liability, the master servicer may in the exercise of
its business judgment, release the terminated sub-servicer from liability in
respect of such representations and warranties. Any amendments to a
sub-servicing agreement or new sub-servicing agreements may contain provisions
different from those which are in effect in the original sub-servicing
agreement. However, each sub-servicing agreement will provide that any amendment
or new agreement may not be inconsistent with or violate the original
sub-servicing agreement.
Collection Procedures
The master servicer, directly or through one or more sub-servicers,
will make reasonable efforts to collect all payments called for under the loans
and will, consistent with each agreement and any mortgage pool insurance policy,
primary mortgage insurance policy, FHA insurance, VA guaranty and bankruptcy
bond or alternative arrangements, follow such collection procedures as are
customary with respect to loans that are comparable to the loans included in the
related trust fund. Consistent with the preceding sentence, the master servicer
may, in its discretion,
o waive any assumption fee, late payment or other charge in
connection with a loan; and
o to the extent not inconsistent with the coverage of the loan
by a pool insurance policy, primary mortgage insurance policy,
FHA insurance, VA guaranty or bankruptcy bond or alternative
arrangements, arrange with the borrower a schedule for the
liquidation of delinquencies running for no more than 125 days
after the applicable due date for each payment.
Both the sub-servicer and the master servicer remain obligated to make advances
during any period when an arrangement of this type is in effect.
In certain instances in which a mortgage loan is in default (or if
default is reasonably foreseeable), the master servicer may, acting in
accordance with procedures specified in the applicable pooling and servicing
agreement, permit certain modifications of the mortgage loan rather than
proceeding with foreclosure. Modifications of this type may have the effect of
reducing the mortgage rate, forgiving the payment of principal or interest or
extending the final maturity date of the mortgage loan. Any such modified
mortgage loan may remain in the related trust fund, and the reduction in
collections resulting from the modification may result in reduced distributions
of interest (or other amounts) on, or may extend the final maturity of, one or
more classes of the related securities. If no satisfactory arrangement can be
made for the collection of such delinquent payments, the master servicer will
continue to follow procedures specified in the applicable pooling and servicing
agreement. These procedures could result, among other possible outcomes, in the
sale of the delinquent mortgage loan by the master servicer on behalf of the
related trust fund.
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Unless otherwise specified in the related prospectus supplement, in any
case in which property securing a loan has been, or is about to be, conveyed by
the borrower, the master servicer will, to the extent it has knowledge of the
conveyance or proposed conveyance, exercise its rights to accelerate the
maturity of the loan under any applicable due-on-sale clause, but only if the
exercise of its rights is permitted by applicable law and will not impair or
threaten to impair any recovery under any primary mortgage insurance policy. If
these conditions are not met or if the master servicer reasonably believes it is
unable under applicable law to enforce the due-on-sale clause, or if the loan is
insured by the FHA or partially guaranteed by the VA, the master servicer will
enter into an assumption and modification agreement with the person to whom such
property has been or is about to be conveyed. Pursuant to the assumption
agreement, the transferee of the property becomes liable for repayment of the
loan and, to the extent permitted by applicable law, the original borrower also
remains liable on the loan. Any fee collected by or on behalf of the master
servicer for entering into an assumption agreement will be retained by or on
behalf of the master servicer as additional servicing compensation. In the case
of Multifamily Loans and unless otherwise specified in the related prospectus
supplement, the master servicer will agree to exercise any right it may have to
accelerate the maturity of a Multifamily Loan to the extent it has knowledge of
any further encumbrance of the related mortgaged property effected in violation
of any applicable due-on-encumbrance clause. See "Material Legal Aspects of the
Mortgage Loans--Due-on-Sale Clauses" in this prospectus. In connection with any
assumption, the terms of the original loan may not be changed.
With respect to cooperative loans, any prospective purchaser of a
cooperative unit will generally have to obtain the approval of the board of
directors of the relevant cooperative before purchasing the shares and acquiring
rights under the related proprietary lease or occupancy agreement. See "Material
Legal Aspects of the Loans" in this prospectus. This approval is usually based
on the purchaser's income and net worth and numerous other factors. Although the
cooperative's approval is unlikely to be unreasonably withheld or delayed, the
need to acquire approval could limit the number of potential purchasers for
those shares and otherwise limit the trust fund's ability to sell and realize
the value of those shares.
In general, a "tenant-stockholder," as defined in section 216(b)(2) of
the Internal Revenue Code, of a corporation that qualifies as a "cooperative
housing corporation" within the meaning of section 216(b)(1) of the Code is
allowed a deduction for amounts paid or accrued within his taxable year to the
corporation representing his proportionate share of certain interest expenses
and real estate taxes allowable as a deduction under section 216(a) of the Code
to the cooperative corporation under sections 163 and 164 of the Code. In order
for a corporation to qualify under Section 216(b)(1) of the Code for the taxable
year in which these items are allowable as a deduction to the corporation,
section 216(b)(1) requires, among other things, that at least 80% of the gross
income of the cooperative corporation be derived from its tenant-stockholders.
By virtue of this requirement, the status of a corporation for purposes of
section 216(b)(1) of the Code must be determined on a year-to-year basis.
Consequently, there can be no assurance that cooperatives relating to particular
cooperative loans will qualify under this section for any given year. In the
event that a cooperative fail to qualify for one or more years, the value of the
collateral securing the related cooperative loan could be significantly impaired
because no deduction would be allowable to tenant-stockholders under section
216(a) of the Code with respect to those years. In view of the significance of
the tax benefits accorded tenant-stockholders of a corporation that qualifies
under section 216(b)(1) of the Code, the likelihood that such a failure would be
permitted to continue over a period of years appears remote.
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Hazard Insurance
The master servicer will require each borrower to maintain a hazard
insurance policy providing for no less than the coverage of the standard form of
fire insurance policy with extended coverage customary for the type of mortgaged
property in the state where the property is located. This coverage will be in an
amount not less than the replacement value of the improvements or manufactured
home securing the loan or the principal balance owing on the loan, whichever is
less. All amounts collected by the master servicer under any hazard policy will
be deposited in the related security account, except for amounts to be applied
to the restoration or repair of the mortgaged property or released to the
borrower in accordance with the master servicer's normal servicing procedures.
In the event that the master servicer maintains a blanket policy insuring
against hazard losses on all the loans comprising part of a trust fund, it will
conclusively be deemed to have satisfied its obligation to maintain hazard
insurance. A blanket policy may contain a deductible clause, in which case the
master servicer will be required to deposit into the related security account
from its own funds the amounts which would have been deposited in the security
account but for the deductible clause. Any additional insurance coverage for
mortgaged properties with respect to a pool of Multifamily Loans will be
specified in the related prospectus supplement.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements or manufactured
home securing a loan by fire, lightning, explosion, smoke, windstorm and hail,
riot, strike and civil commotion, subject to the conditions and exclusions
particularized in each policy. Although the policies relating to the loans may
have been underwritten by different insurers under different state laws in
accordance with different applicable forms and therefore may not contain
identical terms and conditions, the basic policy terms are dictated by
respective state laws. In addition, most policies typically do not cover any
physical damage resulting from the following: war, revolution, governmental
actions, floods and other water-related causes, earth movement (including
earthquakes, landslides and mud flows), nuclear reactions, wet or dry rot,
vermin, rodents, insects or domestic animals, theft and, in certain cases,
vandalism. The foregoing list is merely indicative of certain kinds of uninsured
risks and is not intended to be all-inclusive. If the mortgaged property
securing a loan is located in a federally designated special flood area at the
time of origination, the master servicer will require the borrower to obtain and
maintain flood insurance.
The hazard insurance policies covering mortgaged properties typically
contain a clause which have the effect of requiring the insured at all times to
carry insurance of a specified percentage - generally 80% to 90% - of the full
replacement value of the mortgaged property in order to recover the full amount
of any partial loss. If the insured's coverage falls below this specified
percentage, then the insurer's liability in the event of partial loss will not
exceed the larger of
o the actual cash value (generally defined as replacement cost
at the time and place of loss, less physical depreciation) of
the improvements damaged or destroyed, generally defined to
equal replacement cost at the time and place of the loss less
physical depreciation; and
o such proportion of the loss as the amount of insurance carried
bears to the specified percentage of the full replacement cost
of the improvements.
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Since the amount of hazard insurance that the master servicer may cause to be
maintained on the improvements securing the loans will decline as the principal
balances owing on the loans decrease, and since improved real estate generally
has appreciated in value over time in the past, the effect of this requirement
may be that, in the event of a partial loss, hazard insurance proceeds will be
insufficient to restore the damaged property fully. If specified in the related
prospectus supplement, a special hazard insurance policy will be obtained to
insure against certain of the uninsured risks described. See "Credit
Enhancement--Special Hazard Insurance Policies" in this prospectus.
The master servicer will not require that a standard hazard or flood
insurance policy be maintained on the cooperative dwelling relating to any
cooperative loan. Generally, the cooperative itself is responsible for
maintenance of hazard insurance for the property owned by the cooperative and
the tenant-stockholders of that cooperative do not maintain individual hazard
insurance policies. To the extent, however, that a cooperative and the related
borrower on a cooperative loan do not maintain such insurance or do not maintain
adequate coverage or any insurance proceeds are not applied to the restoration
of damaged property, any damage to the borrower's cooperative dwelling or the
cooperative's building could significantly reduce the value of the collateral
securing the cooperative loan to the extent not covered by other credit support.
Realization upon Defaulted Mortgage Loans
Primary Mortgage Insurance Policies. To the extent specified in the
related prospectus supplement, the master servicer will maintain, or cause each
sub-servicer to maintain, in full force and effect, a primary mortgage insurance
policy with regard to each loan for which coverage is required. The master
servicer will not cancel or refuse to renew any primary mortgage insurance
policy in effect at the time of the initial issuance of a series of securities
that is required to be kept in force under the applicable agreement unless the
primary mortgage insurance policy that replaces the cancelled or nonrenewed
policy is maintained with an insurer whose claims-paying ability is sufficient
to maintain the current rating of the classes of securities of that series by
each rating agency named in the related prospectus supplement.
Although the terms and conditions of primary mortgage insurance vary,
the amount of a claim for benefits under a primary mortgage insurance policy
covering a loan will consist of the insured percentage of the unpaid principal
amount of the covered loan, accrued and unpaid interest thereon and
reimbursement of certain expenses, less the following amounts:
o all rents or other payments collected or received by the
insured other than the proceeds of hazard insurance that are
derived from or in any way related to the mortgaged property,
o hazard insurance proceeds in excess of the amount required to
restore the mortgaged property and which have not been applied
to the payment of the loan,
o amounts expended but not approved by the issuer of the related
primary mortgage insurance policy,
o claim payments previously made by the primary insurer, and
o unpaid premiums.
Primary mortgage insurance policies generally reimburse losses
sustained by reason of defaults in payments by borrowers. Primary mortgage
insurance policies do not insure against, and exclude from coverage, a loss
sustained by reason of a default arising from or involving the following
matters, among others:
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o fraud or negligence in origination or servicing of the loan,
including misrepresentation by the originator, borrower or
other persons involved in the origination of the loan,
o failure to construct the related mortgaged property in
accordance with specified plans,
o physical damage to the mortgaged property and
o lack of approval by the primary mortgage insurance policy
insurer of the master servicer or sub-servicer to act as
servicer of the loan.
Recoveries Under a Primary Mortgage Insurance Policy. As conditions
precedent to the filing or payment of a claim under a primary mortgage insurance
policy covering a loan, the insured will be required
o to advance or discharge all hazard insurance policy premiums;
o to advance
- real estate property taxes,
- all expenses required to maintain the related
mortgaged property in at least as good a condition as
existed at the effective date of the policy, ordinary
wear and tear excepted,
- mortgaged property sales expenses,
- any outstanding liens on the mortgaged property (as
defined in the policy) and
- foreclosure costs, including court costs and
reasonable attorneys' fees,
in each case as necessary and approved in advance by the
primary mortgage insurance policy insurer;
o in the event of any physical loss or damage to the mortgaged
property, to have the mortgaged property restored and repaired
to at least as good a condition as existed at the effective
date of the policy, ordinary wear and tear excepted; and
o to tender to the primary mortgage insurance policy carrier
good and merchantable title to and possession of the mortgaged
property.
In those cases in which a loan is serviced by a sub-servicer, the
sub-servicer, on behalf of itself, the trustee and securityholders, will present
claims to the primary mortgage insurance policy carrier, and all collections
under the policy will be deposited in the sub-servicing account. In all other
cases, the master servicer, on behalf of itself, the trustee and the
securityholders, will present claims to the carrier of each primary mortgage
insurance policy and will take such reasonable steps as are necessary to receive
payment or to permit recovery under the policy with respect to defaulted loans.
As set forth above, all collections by or on behalf of the master servicer under
any primary mortgage insurance policy and, when the mortgaged property has not
been restored, the hazard insurance policy are to be deposited in the security
account, subject to withdrawal as previously described.
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If the mortgaged property securing a defaulted loan is damaged and any
proceeds from the related hazard insurance policy are insufficient to restore
the damaged property to a condition sufficient to permit recovery under any
related primary mortgage insurance policy, the master servicer is not required
to expend its own funds to restore the damaged property unless it determines
that
o the restoration will increase the proceeds to securityholders
upon liquidation of the loan after reimbursement of the master
servicer for its expenses, and
o the master servicer will be able to recover its expenses from
related Insurance Proceeds or Liquidation Proceeds.
If recovery on a defaulted loan is not available under the primary
mortgage insurance policy for the reasons set forth in the preceding paragraph,
or if the defaulted loan is not covered by a primary mortgage insurance policy,
the master servicer will be obligated to follow such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
loan. If the proceeds of any liquidation of the related mortgaged property are
less than the principal balance of the loan plus accrued interest that is
payable to securityholders, the trust fund will realize a loss in the amount of
that difference plus the amount of expenses that it incurred in connection with
the liquidation and that are reimbursable under the agreement. In the unlikely
event that proceedings result in a total recovery which, after reimbursement to
the master servicer of its expenses, is in excess of the principal balance of
the defaulted loan plus accrued interest that is payable to securityholders, the
master servicer will be entitled to withdraw or retain from the security account
amounts representing its normal servicing compensation with respect to that loan
and, unless otherwise specified in the related prospectus supplement, amounts
representing the balance of the excess amount, exclusive of any amount required
by law to be forwarded to the related borrower, as additional servicing
compensation.
If the master servicer or its designee recovers Insurance Proceeds
which, when added to any related Liquidation Proceeds and after deduction of
certain expenses reimbursable to the master servicer, exceed the principal
balance of the related loan plus accrued interest that is payable to
securityholders, the master servicer will be entitled to withdraw or retain from
the security account amounts representing its normal servicing compensation with
respect to that loan. In the event that the master servicer has expended its own
funds to restore the damaged mortgaged property and those funds have not been
reimbursed under the related hazard insurance policy, the master servicer will
be entitled to withdraw from the security account, out of related Liquidation
Proceeds or Insurance Proceeds, an amount equal to the expenses that it
incurred, in which event the trust fund may realize a loss up to the amount of
those expenses. Since Insurance Proceeds cannot exceed deficiency claims and
certain expenses incurred by the master servicer, no payment or recovery will
result in a recovery to the trust fund that exceeds the principal balance of the
defaulted loan together with accrued interest. See "Credit Enhancement" in this
prospectus supplement.
Servicing and Other Compensation and Payment of Expenses
The master servicer's primary servicing compensation with respect to a
series of securities will come from the payment to it each month, out of each
interest payment on a loan, of an amount equal to the annual percentage
specified in the related prospectus supplement of the outstanding principal
balance of that loan. Since the master servicer's primary compensation is a
percentage of the outstanding principal balance of each mortgage loan, this
amount will decrease as the mortgage loans amortize. In addition to this primary
servicing compensation, the master servicer or the sub-servicers will be
entitled to retain all assumption fees and late payment charges to the extent
collected from borrowers and, if so provided in the related prospectus
supplement, any prepayment charges and any interest or other income which may be
earned on funds held in the security account or any sub-servicing account.
Unless otherwise specified in the related prospectus supplement, any
sub-servicer will receive a portion of the master servicer's primary
compensation as its sub-servicing compensation.
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Unless otherwise specified in the related prospectus supplement, the
master servicer will pay from its servicing compensation, in addition to amounts
payable to any sub-servicer, certain expenses incurred in connection with its
servicing of the loans, including, without limitation
o payment of any premium for any insurance policy, guaranty,
surety or other form of credit enhancement as specified in the
related prospectus supplement;
o payment of the fees and disbursements of the trustee and
independent accountants;
o payment of expenses incurred in connection with distributions
and reports to securityholders; and
o payment of any other expenses described in the related
prospectus supplement.
Evidence as to Compliance
Each operative agreement will provide that a firm of independent public
accountants will furnish a statement to the trustee, on or before a specified
date in each year, to the effect that, on the basis of the examination by the
firm conducted substantially in compliance with the Uniform Single Audit Program
for Mortgage Bankers or the Audit Program for Mortgages Serviced for Freddie
Mac, the servicing by or on behalf of the master servicer of loans, the Agency
Securities or the Private Label Securities, under agreements substantially
similar to one another (including the governing agreement), was conducted in
compliance with those agreements except for any significant exceptions or errors
in records that, in the opinion of the firm, the Uniform Single Audit Program
for Mortgage Bankers or the Audit Program for Mortgages Serviced by Freddie Mac
requires it to report. In rendering this statement the accounting firm may rely,
as to matters relating to the direct servicing of mortgage loans, Agency
Securities or Private Label Securities by sub-servicers, upon comparable
statements of firms of independent public accountants rendered within one year
with respect to the sub-servicers for examinations conducted substantially in
compliance with the Uniform Single Audit Program for Mortgage Bankers or the
Audit Program for Mortgages Serviced for Freddie Mac.
Each operative agreement will also provide for delivery to the related
trustee, on or before a specified date in each year, of an annual statement
signed by two officers of the master servicer to the effect that the master
servicer has fulfilled its obligations under the agreement throughout the
preceding year.
Copies of the annual accountants' statement and the statement of
officers of the master servicer may be obtained by securityholders of the
related series without charge upon written request to the master servicer at the
address set forth in the related prospectus supplement.
Certain Matters Regarding the Master Servicer and the Depositors
The master servicer under each operative agreement will be named in the
related prospectus supplement. The entity serving as master servicer may have
normal business relationships with the depositor or the depositor's affiliates.
Each operative agreement will provide that the master servicer may not
resign from its obligations and duties under the agreement except (i) upon a
determination that it is no longer permissible to perform them under applicable
law or (ii) if so provided in the related operative agreement, a determination
by the master servicer that it will no longer engage in the business of
servicing mortgage loans. In no event will the master servicer's resignation
become effective until the trustee or a successor servicer has assumed the
master servicer's obligations and duties under the agreement.
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Each operative agreement will further provide that none of the master
servicer, the depositor or any director, officer, employee or agent of the
master servicer or of the depositor will be under any liability to the related
trust fund or the securityholders for any action taken, or for refraining from
the taking of any action, in good faith pursuant to the agreement, or for errors
in judgment. However, none of the master servicer, the depositor or any
director, officer, employee or agent of the master servicer or of the depositor
will be protected against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or negligence in the performance of
duties under the agreement or by reason of reckless disregard of obligations and
duties under the agreement. Each operative agreement will further provide that
the master servicer, the depositor and any director, officer, employee or agent
of the master servicer or of the depositor will be entitled to indemnification
by the related trust fund and will be held harmless against any loss, liability
or expense incurred in connection with (i) any legal action relating to the
agreement or the securities or (ii) a breach of a representation or warranty
regarding the loan or loans, other than
o any loss, liability or expense related to any specific loan in
the trust fund or the loans in general except for any loss,
liability or expense otherwise reimbursable under the
agreement, and
o any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence in the performance of
duties under the agreement or by reason of reckless disregard
of obligations and duties under the agreement.
In addition to the foregoing, if so provided in the agreement, the
master servicer, the depositor and any director, officer, employee or agent of
the master servicer or of the depositor may be entitled to indemnification by
the related trust fund and may be held harmless against any loss, liability or
expense in connection with any actions taken under the agreement.
In addition, each operative agreement will provide that neither the
master services nor the depositor will be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its
responsibilities under the agreement and which, in its opinion, may involve it
in any expense or liability. However, the master services or the depositor may,
in its discretion, undertake any action which it may deem necessary or desirable
with respect to the agreement and the rights and duties of the parties and the
interests of the securityholders. In that event, the legal expenses and costs of
the action and any resulting liability will be expenses, costs and liabilities
of the trust fund, and the master services or the depositor, as the case may be,
will be entitled to reimbursement from funds otherwise distributable to
securityholders.
Any entity into which the master services may be merged or
consolidated, or any entity resulting from any merger or consolidation to which
the master services is a party, or any entity succeeding to the business of the
master services, will be the successor of the master services under each
agreement, provided that the successor entity is qualified to sell loans to, and
service loans on behalf of, Fannie Mae or Freddie Mac and that the merger,
consolidation or succession does not adversely affect the then current rating of
the securities rated by each rating agency named in the related prospectus
supplement.
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Events of Default; Rights upon Event of Default
Pooling and Servicing Agreement; Servicing Agreement. Unless otherwise
specified in the related prospectus supplement, the following will be deemed
"events of default" under each agreement:
o any failure by the master services to distribute to security
holders of any class any required payment - other than an
advance - which failure continues unremedied for five business
days after the giving of written notice to the master services
by the trustee or the depositor, or to the master services,
the depositor and the trustee by the holders of securities of
that class evidencing not less than 25% of the aggregate
percentage interests evidenced by that class;
o any failure by the master services to make an advance as
required under the agreement, unless cured as specified in the
agreement;
o any failure by the master services duly to observe or perform
in any material respect any of its other covenants or
agreements in the agreement, which failure continues
unremedied for a specified number of days after the giving of
written notice of the failure to the master services by the
trustee or the depositor, or to the master services, the
depositor and the trustee by the holders of securities of any
class evidencing not less than 25% of the aggregate percentage
interests constituting that class; and
o events of insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings and certain
actions by or on behalf of the master services indicating its
insolvency, reorganization or inability to pay its
obligations.
If specified in the related prospectus supplement, the agreement will
permit the trustee to sell the assets of the trust fund in the event that
payments are insufficient to make the payments required under the agreement. The
assets of the trust fund will be sold only under the circumstances and in the
manner specified in the related prospectus supplement.
So long as an event of default under the related agreement remains
unremedied, the depositor or the trustee may, and, at the direction of holders
of securities of any class evidencing not less than 51 % of the aggregate
percentage interests constituting that class and under such other circumstances
as may be specified in the agreement, the trustee shall, terminate all of the
rights and obligations of the master servicer relating to the trust fund and in
and to the related loans. Thereupon the trustee will succeed to all of the
responsibilities, duties and liabilities of the master servicer under the
agreement, including, if specified in the related prospectus supplement, the
obligation to make advances, and the trustee will be entitled to similar
compensation arrangements. In the event that the trustee is unwilling or unable
to act in this way, it may appoint, or petition a court of competent
jurisdiction to appoint, a loan servicing institution with a net worth of at
least $10,000,000 to act as successor to the master servicer under the
agreement. Pending the appointment, the trustee is obligated to act in this
capacity. The trustee and any successor master servicer may agree upon the
servicing compensation to be paid, which in no event may be greater than the
compensation payable to the master servicer under the agreement.
No securityholder, solely by virtue of its status as a securityholder,
will have any right under any agreement to institute any proceeding with respect
to that agreement, unless
o the holder has previously given to the trustee written notice
of default;
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o the holders of securities of any class evidencing not less
than 25% of the aggregate percentage interests constituting
that class have made written request upon the trustee to
institute the proceeding in its own name as trustee and have
offered a reasonable indemnity to the trustee; and
o the trustee for 60 days has neglected or refused to institute
any such proceeding.
Indenture. Unless otherwise specified in the related prospectus
supplement, the following will be deemed "events of default" under the indenture
for each series of notes:
o failure to pay for five days or more any principal or interest
on any note of that series;
o failure by the depositor or the trust to perform any other
covenant in the indenture, which failure continues unremedied
for 30 days after notice is given in accordance with the
procedures described in the related prospectus supplement;
o the material breach of any representation or warranty made by
the depositor or the trust in the indenture or in any document
delivered under the indenture, which breach continues uncured
for 30 days after notice is given in accordance with the
procedures described in the related prospectus supplement;
o events of bankruptcy insolvency, receivership or liquidation
of the depositor in the trust; or
o any other event of default specified in the indenture.
If an event of default with respect to the notes of a series (other
than principal only notes) occurs and is continuing, either the trustee or the
holders of a majority of the then aggregate outstanding amount of the notes of
that series may declare the principal amount of all the notes of that series to
be due and payable immediately. In the case of principal only notes, the portion
of the principal amount necessary to make such a declaration will be specified
in the related prospective supplement. This declaration may, under certain
circumstances, be rescinded and annulled by the holders of more than 50% of the
percentage ownership interest of the notes of that series.
If, following an event of default with respect to any series of notes,
the notes of that series have been declared to be due and payable, the trustee
may, in its discretion, notwithstanding the acceleration, elect to maintain
possession of the collateral securing the notes of that series and to continue
to apply distributions on the collateral as if there had been no declaration of
acceleration so long as the collateral continues to provide sufficient funds for
the payment of principal and interest on the notes as they would have become due
if there had not been a declaration. In addition, the trustee may not sell or
otherwise liquidate the collateral securing the notes of a series following an
event of default, unless one of the following conditions precedent has occurred:
o the holders of 100% of the percentage ownership interest in
the related notes consent to the sale or liquidation;
o the proceeds of the sale or liquidation are sufficient to pay
the full amount of principal and accrued interest, due and
unpaid, on the related notes at the date of the sale or
liquidation; or
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o the trustee determines that the collateral would not be
sufficient on an ongoing basis to make all payments on the
related notes as they would have become due if the notes had
not been declared due and payable, and the trustee obtains the
consent of the holders of 66% of the percentage ownership
interest of each class of the related notes.
Unless otherwise specified in the related prospectus supplement, in the
event the principal of the notes of a series is declared due and payable as
described above, the holders of any of those notes issued at a discount from par
may be entitled to receive no more than an amount equal to the unpaid principal
amount of those notes less the amount of the unamortized discount.
Subject to the provisions of the indenture relating to the duties of
the trustee, in case an event of default shall occur and be continuing with
respect to a series of notes, the trustee shall be under no obligation to
exercise any of the rights or powers under the indenture at the request or
direction of any of the holder of the related notes, unless the holders offer to
the trustee satisfactory security or indemnity against the trustee's costs,
expenses and liabilities which might be incurred in complying with their request
or direction. Subject to the indemnification provisions and certain limitations
contained in the indenture, the holders of a majority of the then aggregate
outstanding amount of the related notes of the series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee or exercising any trust or power conferred on the
trustee with respect to the related notes, and holders of a majority of the then
aggregate outstanding amount of the related notes may, in certain cases, waive
any default other than a default in the payment of principal or interest or a
default in respect of a covenant or provision of the indenture that cannot be
modified without the waiver or consent of all the holders of the affected notes.
Amendment
Unless otherwise specified in the related prospectus supplement, each
operative agreement may be amended by the depositor, the master servicer and the
trustee, without the consent of any of the securityholders, for the following
purposes:
o to cure any ambiguity,
o to correct or supplement any provision in the agreement which
may be defective or inconsistent with any other provision, or
o to make any other revisions with respect to matters or
questions arising under the agreement which are not
inconsistent with its other provisions.
In no event, however, shall any amendment adversely affect in any material
respect the interests of any securityholder as evidenced by either (i) an
opinion of counsel or (ii) confirmation by the rating agencies that such
amendment will not result in the downgrading of the securities. No amendment
shall be deemed to adversely affect in any material respect the interests of any
securityholder who shall have consented thereto, and no opinion of counsel or
written notice from the rating agencies shall be required to address the effect
of any such amendment on any such consenting securityholder. In addition, an
agreement may be amended without the consent of any of the securityholders to
change the manner in which the security account is maintained, so long as the
amendment does not adversely affect the then current ratings of the securities
rated by each rating agency named in the prospectus supplement. In addition, if
a REMIC election is made with respect to a trust fund, the related agreement may
be amended to modify, eliminate or add to any of its provisions to such extent
as may be necessary to maintain the qualification of the trust fund as a REMIC,
but the trustee shall have first received an opinion of counsel to the effect
that the action is necessary or helpful to maintain the REMIC qualification.
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Unless otherwise specified in the related prospectus supplement, each
operative agreement may also be amended by the depositor, the master servicer
and the trustee with consent of holders of securities evidencing not less than
66% of the aggregate percentage ownership interests of each affected class for
the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, the agreement or of modifying in any
manner the rights of the holders of the related securities. In no event,
however, shall any amendment
o reduce in any manner the amount of, or delay the timing of,
payments received on loans which are required to be
distributed on any security without the consent of the holder
of that security, or
o reduce the percentage of the securities of any class the
holders of which are required to consent to any amendment
without the consent of the holders of all securities of that
class then outstanding.
If a REMIC election is made with respect to a trust fund, the trustee will not
be entitled to consent to an amendment to the agreement without having first
received an opinion of counsel to the effect that the amendment will not cause
the trust fund to fail to qualify as a REMIC.
Termination; Optional Termination; Calls
Pooling and Servicing Agreement; Trust Agreement. Unless otherwise
specified in the related prospectus supplement, the obligations created by the
pooling and servicing agreement and trust agreement for the related series of
securities will terminate upon the payment to the securityholders of all amounts
held in the security account or held by the master servicer, and required to be
paid to the securityholders under the agreement, following the later to occur of
the following:
o the final payment or other liquidation of the last of the
assets of the trust fund subject to the agreement or the
disposition of all property acquired upon foreclosure of any
assets remaining in the trust fund, and
o the purchase from the trust fund by the master servicer, or
such other party as may be specified in the related prospectus
supplement, of all of the remaining trust fund assets and all
property acquired in respect of those assets.
See "Material Federal Income Tax Consequences" in this prospectus.
Unless otherwise specified in the related prospectus supplement, any
purchase of trust fund assets and property acquired in respect of trust fund
assets will be made at the option of the related master servicer or, if
applicable, another designated party, at a price, and in accordance with the
procedures, specified in the related prospectus supplement. The exercise of this
right will effect early retirement of the securities of that series. However,
this right can be exercised only at the times and upon the conditions specified
in the related prospectus supplement. If a REMIC election has been made with
respect to the trust fund, any repurchase pursuant to the second bullet point in
the immediately preceding paragraph will be made only in connection with a
"qualified liquidation" of the REMIC within the meaning of section 860F(a)(4) of
the Internal Revenue Code.
Indenture. The indenture will be discharged with respect to a series of
notes (except with respect to certain continuing rights specified in the
indenture) upon the delivery to the trustee for cancellation of all the notes of
that series or, with certain limitations, upon deposit with the trustee of funds
sufficient for the payment in full of all of the notes of that series.
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If specified for the notes of any series, the indenture will provide
that the related trust fund will be discharged from any and all obligations in
respect of the notes of that series (except for certain obligations relating to
temporary notes and exchange of notes, registering the transfer or exchange
notes, replacing stolen, lost or mutilated notes, maintaining paying agencies
and holding monies for payment in trust) upon the deposit with the trustee, in
trust, of money and/or direct obligations of or obligations guaranteed by the
United States which, through the payment of interest and principal in accordance
with their terms, will provide money in an amount sufficient to pay the
principal and each installment of interest on the related notes on the last
scheduled distribution date for the notes and any installment of interest on the
notes in accordance with the terms of the indenture and the notes of that
series. In the event of any such defeasance and discharge of a series of notes,
holders of the related notes would be able to look only to such money and/or
direct obligations for payment of principal and interest, if any, on their notes
until maturity.
Calls. One or more classes of securities may be subject to a mandatory
or optional call at the times and subject to the conditions specified in the
related prospectus supplement. In the case of a mandatory call or in the event
an optional call is exercised with respect to one or more classes of securities,
holders of each affected class of securities will receive the outstanding
principal balance of their securities together with accrued and unpaid interest
at the applicable pass-through rate, subject to the terms specified in the
related prospectus supplement.
The Trustee
The trustee under each agreement will be named in the related
prospectus supplement. The commercial bank or trust company serving as trustee
may have normal banking relationships with the depositor, the master servicer
and any of their respective affiliates.
Material Legal Aspects of the Loans
The following discussion contains general summaries of material legal
matters relating to the loans. Because the legal matters are determined
primarily by applicable state law and because state laws may differ
substantially, the summaries do not purport to be complete, to reflect the laws
of any particular state or to encompass the laws of all states in which security
for the loans may be situated. The summaries are qualified in their entirety by
reference to the applicable laws of the states in which loans may be originated.
General
Single Family Loans, Multifamily Loans and Home Equity Loans. The loans
maybe secured by deeds of trust, mortgages, security deeds or deeds to secure
debt, depending upon the prevailing practice in the state in which the property
subject to the loan is located. A mortgage creates a lien upon the real property
encumbered by the mortgage. The mortgage lien generally is not prior to the lien
for real estate taxes and assessments. Priority between mortgages depends on
their terms and generally on the order of recording with a state or county
office. There are two parties to a mortgage: the mortgagor, who is the borrower
and owner of the mortgaged property, and the mortgagee, who is the lender. Under
the mortgage instrument, the mortgagor delivers to the mortgagee a note or bond
and the mortgage. Although a deed of trust is similar to a mortgage, a deed of
trust formally has three parties: the borrower-property owner called the trustor
(similar to a mortgagor), a lender (similar to a mortgagee) called the
beneficiary, and a third-party grantee called the trustee. Under a deed of
trust, the borrower grants the property, irrevocably until the debt is paid, in
trust, generally with a power of sale, to the trustee to secure payment of the
obligation. A security deed and a deed to secure debt are special types of deeds
which indicate on their face that they are granted to secure an underlying debt.
By executing a security deed or deed to secure debt, the grantor conveys to the
grantee title to, as opposed to merely creating a lien upon, the subject
property until such time as the underlying debt is repaid. The trustee's
authority under a deed of trust, the mortgagee's authority under a mortgage and
the grantee's authority under a security deed or deed to secure debt are
governed by law and, with respect to some deeds of trust, the directions of the
beneficiary.
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Cooperative Loans. Certain of the loans may be cooperative loans. The
cooperative owns all the real property that comprises the related project,
including the land, separate dwelling units and all common areas. The
cooperative is directly responsible for project management and, in most cases,
payment of real estate taxes and hazard and liability insurance. If, as is
generally the case, there is a blanket mortgage on the cooperative and/or
underlying land, the cooperative, as project mortgagor, is also responsible for
meeting these mortgage obligations. A blanket mortgage is ordinarily incurred by
the cooperative in connection with the construction or purchase of the
cooperative's apartment building. The interest of the occupant under proprietary
leases or occupancy agreements to which the cooperative is a party are generally
subordinate to the interest of the holder of the blanket mortgage in that
building. If the cooperative is unable to meet the payment obligations arising
under its blanket mortgage, the mortgagee holding the blanket mortgage could
foreclose on that mortgage and terminate all subordinate proprietary leases and
occupancy agreements. In addition, the blanket mortgage on a cooperative may
provide financing in the form of a mortgage that does not fully amortize with a
significant portion of principal being due in one lump sum at final maturity.
The inability of the cooperative to refinance this mortgage and its consequent
inability to make such final payment could lead to foreclosure by the mortgagee
providing the financing. A foreclosure in either event by the holder of the
blanket mortgage could eliminate or significantly diminish the value of any
collateral held by the lender who financed the purchase by an individual
tenant-stockholder of cooperative shares or, in the case of a trust fund
including cooperative loans, the collateral securing the cooperative loans.
A cooperative is owned by tenant-stockholders who, through ownership of
stock, shares or membership certificates in the corporation, receive proprietary
leases or occupancy agreements which confer exclusive rights to occupy specific
units. Generally, a tenant-stockholder of a cooperative must make a monthly
payment to the cooperative representing such tenant-stockholder's pro rata share
of the cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and the accompanying rights are financed through a
cooperative share loan evidenced by a promissory note and secured by a security
interest in the occupancy agreement or proprietary lease and in the related
cooperative shares. The lender takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement and a financing
statement covering the proprietary lease or occupancy agreement and the
cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or against the
tenant-stockholder as an individual as provided in the security agreement
covering the assignment of the proprietary lease or occupancy agreement and the
pledge of cooperative shares.
Manufactured Housing Contracts. Each Manufactured Housing Contract
evidences both
o the obligation of the borrower to repay the loan it
represents, and
o the grant of a security interest in a manufactured home to
secure repayment of the loan.
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The Manufactured Housing Contracts generally are "chattel paper" as
defined in the Uniform Commercial Code in effect in the states in which the
manufactured homes initially were registered. Pursuant to the UCC, the rules
governing the sale of chattel paper are similar to those governing the
perfection of a security interest in chattel paper. Under the related pooling
and servicing agreement, the depositor will transfer physical possession of the
Manufactured Housing Contracts to the trustee or its custodian. In addition the
depositor will file UCC-1 financing statements in the appropriate states to give
notice of the trustee's ownership of the Manufactured Housing Contracts. Under
the laws of most states, manufactured housing constitutes personal property and
is subject to the motor vehicle registration laws of the state or other
jurisdiction in which the unit is located. In a few states, where certificates
of title are not required for manufactured homes, security interests are
perfected by the filing of a financing statement under Article 9 of the UCC
which has been adopted by all states. The certificate of title laws adopted by
the majority of states provide that ownership of motor vehicles and manufactured
housing shall be evidenced by a certificate of title generally issued by the
motor vehicles department of the state. In states which have enacted certificate
of title laws, a security interest in a unit of manufactured housing, so long as
it is not attached to land in so permanent a fashion as to become a fixture, is
generally perfected by the recording of the interest on the certificate of title
to the unit in the appropriate motor vehicle registration office or by delivery
of the required documents and payment of a fee to that office, depending on
state law.
Unless otherwise specified in the related prospectus supplement, the
master servicer will be required to effect such notation or delivery of the
required documents and fees and to obtain possession of the certificate of
title, as appropriate under the laws of the state in which any manufactured home
is registered. If the master servicer fails to effect such notation or delivery,
due to clerical errors or otherwise, or files the security interest under the
wrong law (for example, under a motor vehicle title statute rather than under
the UCC, in a few states), the trustee may not have a first priority security
interest in the manufactured home securing the affected Manufactured Housing
Contract. As manufactured homes have become larger and have often been attached
to their sites without any apparent intention to move them, courts in many
states have held that manufactured homes may, under certain circumstances,
become subject to real estate title and recording laws. As a result, a security
interest in a manufactured home could be rendered subordinate to the interests
of other parties claiming an interest in the home under applicable state real
estate law. In order to perfect a security interest in a manufactured home under
real estate laws, the holder of the security interest must file either a
"fixture filing" under the provisions of the UCC or a real estate mortgage under
the real estate laws of the state where the manufactured home is located. These
filings must be made in the real estate records office of the county where the
manufactured home is located. Generally, Manufactured Housing Contracts will
contain provisions prohibiting the borrower from permanently attaching the
manufactured home to its site. So long as the borrower does not violate this
agreement, a security interest in the manufactured home will be governed by the
certificate of title laws or the UCC, and the notation of the security interest
on the certificate of title or the filing of a UCC financing statement will be
effective to maintain the priority of the security interest in the manufactured
home. If, however, a manufactured home is permanently attached to its site,
other parties could obtain an interest in the manufactured home which is prior
to the security interest originally retained by the seller and transferred to
the depositor.
The depositor will assign to the trustee, on behalf of the
securityholders, a security interest in the manufactured homes. Unless otherwise
specified in the related prospectus supplement, none of the depositor, the
master servicer or the trustee will amend the certificates of title to identify
the trustee, on behalf of the securityholders, as the new secured party and,
accordingly, the depositor or the seller will continue to be named as the
secured party on the certificates of title relating to the manufactured homes.
In most states, the assignment is an effective conveyance of the security
interest without amendment of any lien noted on the related certificate of title
and the new secured party succeeds to the depositor's rights as the secured
party. However, in some states there exists a risk that, in the absence of an
amendment to the certificate of title, assignment of the security interest might
not be held effective against creditors of the depositor or seller.
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In the absence of fraud, forgery or permanent affixation of the
manufactured home to its site by the home owner, or administrative error by
state recording officials, the notation of the lien of the trustee on the
certificate of title or delivery of the required documents and fees will be
sufficient to protect the trustee against the rights of subsequent purchasers of
the manufactured home or subsequent lenders who take a security interest in the
manufactured home. In the case of any manufactured home as to which the security
interest assigned to the depositor and the trustee is not perfected, the
security interest would be subordinate to, among others, subsequent purchasers
for value of the manufactured home and holders of perfected security interests
in the home. There also exists a risk that, in not identifying the trustee, on
behalf of the securityholders, as the new secured party on the certificate of
title, the security interest of the trustee could be released through fraud or
negligence.
If the owner of a manufactured home moves it to a state other than the
state in which it initially is registered, the perfected security interest in
the manufactured home under the laws of most states would continue for four
months after relocation and thereafter until the owner re-registers the
manufactured home in the new state. If the owner were to relocate a manufactured
home to another state and re-register the manufactured home in the new state,
and if steps are not taken to re-perfect the trustee's security interest in the
new state, the security interest in the manufactured home would cease to be
perfected. A majority of states generally require surrender of a certificate of
title to re-register a manufactured home. Accordingly, the trustee must
surrender possession if it holds the certificate of title to the manufactured
home or, in the case of manufactured homes registered in states which provide
for notation of lien, the master servicer would receive notice of surrender if
the security interest in the manufactured home is noted on the certificate of
title. Accordingly, the trustee would have the opportunity to re-perfect its
security interest in the manufactured home in the new state. In states which do
not require a certificate of title for registration of a manufactured home,
re-registration could defeat perfection. Similarly, when a borrower under a
Manufactured Housing Contract sells a manufactured home, the lender must
surrender possession of the certificate of title or it will receive notice as a
result of its lien noted thereon and accordingly will have an opportunity to
require satisfaction of the related Manufactured Housing Contract before the
lien is released. The master servicer will be obligated, at its own expense, to
take all steps necessary to maintain perfection of security interests in the
manufactured homes.
Under the laws of most states, liens for repairs performed on a
manufactured home take priority even over a perfected security interest. The
depositor will obtain the representation of the seller that it has no knowledge
of any repair liens with respect to any manufactured home securing a
Manufactured Housing Contract. However, repair liens could arise at any time
during the term of a Manufactured Housing Contract. No notice will be given to
the trustee or securityholders in the event a repair lien arises.
Foreclosure
Single Family Loans, Multi-Family Loans and Home Equity Loans.
Foreclosure of a deed of trust is generally accomplished by a non-judicial sale
under a specific provision in the deed of trust which authorizes the trustee to
sell the mortgaged property at public auction upon any default by the borrower
under the terms of the note or deed of trust. In some states, such as
California, the trustee must record a notice of default and send a copy to the
borrower-trustor, to any person who has recorded a request for a copy of any
notice of default and notice of sale, to any successor in interest to the
borrower-trustor, to the beneficiary of any junior deed of trust and to certain
other persons. Before such non-judicial sale takes place, typically a notice of
sale must be posted in a public place and published during a specific period of
time in one or more newspapers, posted on the property and sent to parties
having an interest of record in the property.
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Foreclosure of a mortgage is generally accomplished by judicial action.
The action is initiated by the service of legal pleadings upon all parties
having an interest in the mortgaged property. Delays in completion of the
foreclosure may occasionally result from difficulties in locating necessary
parties. Judicial foreclosure proceedings are often not contested by any of the
parties. When the mortgagee's right to foreclosure is contested, the legal
proceedings necessary to resolve the issue can be time consuming. After the
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other court officer to conduct
the sale of the property. In general, the borrower, or any other person having a
junior encumbrance on the real estate, may, during a statutorily prescribed
reinstatement period, cure a monetary default by paying the entire amount in
arrears plus other designated costs and expenses incurred in enforcing the
obligation. Generally, state law controls the amount of foreclosure expenses and
costs, including attorneys' fees, which may be recovered by a lender. After the
reinstatement period has expired without the default having been cured, the
borrower or junior lienholder no longer has the right to reinstate the loan and
must pay the loan in full to prevent the scheduled foreclosure sale. If the deed
of trust is not reinstated, a notice of sale must be posted in a public place
and, in most states, published for a specific period of time in one or more
newspapers. In addition, some state laws require that a copy of the notice of
sale be posted on the property and sent to all parties having an interest in the
real property.
Although foreclosure sales are typically public sales, frequently no
third-party purchaser bids in excess of the lender's lien because of the
difficulty of determining the exact status of title to the property, the
possible deterioration of the property during the foreclosure proceedings and a
requirement that the purchaser pay for the property in cash or by cashier's
check. Thus the foreclosing lender often purchases the property from the trustee
or referee for an amount equal to the principal amount outstanding under the
loan plus accrued and unpaid interest and the expenses of foreclosure.
Thereafter, the lender will assume the burden of ownership, including obtaining
hazard insurance and making such repairs at its own expense as are necessary to
render the property suitable for sale. The lender will commonly obtain the
services of a real estate broker and pay the broker's commission in connection
with the sale of the property. Depending upon market conditions, the ultimate
proceeds of the sale of the property may not equal the lender's investment in
the property.
When the beneficiary under a junior mortgage or deed of trust cures the
default on the related senior mortgage or reinstates or redeems the senior
mortgage by paying it in full, the amount paid by the beneficiary to cure,
reinstate or redeem the senior mortgage becomes part of the indebtedness secured
by the junior mortgage or deed of trust. See "--Junior Mortgages, Rights of
Senior Mortgages" below.
Cooperative Loans. Cooperative shares owned by a tenant-stockholder and
pledged to a lender are, in almost all cases, subject to restrictions on
transfer as set forth in the cooperative's articles of incorporation and
by-laws, as well as in the proprietary lease or occupancy agreement, and may be
cancelled by the cooperative if the tenant-stockholder fails to pay rent or
other obligations or charges owed, including mechanics' liens against the
cooperative apartment building incurred by such tenant-stockholder. The
proprietary lease or occupancy agreement generally permits the cooperative to
terminate such lease or agreement in the event an obligor fails to make payments
or defaults in the performance of covenants required thereunder. Typically, the
lender and the cooperative enter into a recognition agreement which establishes
the rights and obligations of both parties in the event of a default by the
tenant-stockholder on its obligations under the proprietary lease or occupancy
agreement. A default by the tenant-stockholder under the proprietary lease or
occupancy agreement will usually constitute a default under the security
agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate such lease or
agreement until the lender has been provided with an opportunity to cure the
default. The recognition agreement typically provides, that if the proprietary
lease or occupancy agreement is terminated, the cooperative will recognize the
lender's lien against proceeds from the sale of the cooperative apartment,
subject, however, to the cooperative's right to sums due under the proprietary
lease or occupancy agreement. The total amount owed to the cooperative by the
tenant-stockholder, which the lender generally cannot restrict and does not
monitor, could reduce the value of the collateral below the outstanding
principal balance of the cooperative loan and accrued and unpaid interest.
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Recognition agreements also provide that, in the event of a foreclosure
on a cooperative loan, the lender must obtain the approval or consent of the
cooperative as required by the proprietary lease before transferring the
cooperative shares or assigning the proprietary lease. Generally, lenders are
not limited in any rights they may have to dispossess tenant-stockholders.
In some states, foreclosure on the cooperative shares is accomplished
by a sale in accordance with the provisions of Article 9 of the UCC and the
security agreement relating to those shares. Article 9 of the UCC requires that
a sale be conducted in a "commercially reasonable" manner. Whether a foreclosure
sale has been conducted in a "commercially reasonable" manner will depend on the
facts in each case. In determining commercial reasonableness, a court will look
to the notice given the debtor and the method, manner, time, place and terms of
the foreclosure.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the cooperative to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account for the surplus to subordinate lenders or the
tenant-stockholder as provided in the UCC. Conversely, if a portion of the
indebtedness remains unpaid, the tenant-stockholder is generally responsible for
the deficiency. See "--Anti-Deficiency Legislation and Other Limitations on
Lenders" below.
In the case of foreclosure on a building which was converted from a
rental building to a building owned by a cooperative under a non-eviction plan,
some states require that a purchaser at a foreclosure sale take the property
subject to rent control and rent stabilization laws which apply to certain
tenants who elected to remain in the building but who did not purchase shares in
the cooperative when the building was so converted.
Repossession of Manufactured Homes
Repossession of manufactured housing is governed by state law. A number
of states have enacted legislation that requires that the debtor be given an
opportunity to cure a monetary default (typically 30 days to bring the account
current) before repossession can commence. So long as a manufactured home has
not become attached to real estate in such way that it may be treated as a part
of the real estate under applicable state law, repossession in the event of a
default by the obligor will generally be governed by the UCC. Article 9 of the
UCC provides the statutory framework for the repossession of manufactured
housing. While the UCC as adopted by the various states may vary in certain
particulars, the general repossession procedure is discussed below.
Because manufactured homes generally depreciate in value, it is
unlikely that repossession and resale of a manufactured home will result in the
full recovery of the outstanding principal and unpaid interest on the related
defaulted Manufactured Housing Contract.
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Except in those states where the debtor must receive notice of the
right to cure a default, repossession can commence immediately upon default
without prior notice. Repossession may be effected either through self-help
(peaceable retaking without court order), voluntary repossession or through
judicial process (repossession pursuant to court-issued writ of replevin). The
self-help and/or voluntary repossession methods, which are more commonly
employed, are accomplished simply by retaking possession of the manufactured
home. In cases in which the debtor objects or raises a defense to repossession,
a court order must be obtained from the appropriate state court, and the
manufactured home must then be repossessed in accordance with that order.
Whether the method employed is self-help, voluntary repossession or judicial
repossession, the repossession can be accomplished either by an actual physical
removal of the manufactured home to a secure location for refurbishment and
resale or by removing the occupants and their belongings from the manufactured
home and maintaining possession of the manufactured home on the location where
the occupants were residing. Various factors may affect whether the manufactured
home is physically removed or left on location, such as the nature and term of
the lease of the site on which it is located and the condition of the unit. In
many cases, leaving the manufactured home on location is preferable, in the
event that the home is already set up, because the expenses of retaking and
redelivery will be saved. However, in those cases where the home is left on
location, expenses for site rentals will usually be incurred.
Once repossession has been achieved, preparation for the subsequent
disposition of the manufactured home can commence. The disposition may be by
public or private sale provided the method, manner, time, place and other terms
of the sale are commercially reasonable.
Sale proceeds are to be applied first to reasonable repossession
expenses (expenses incurred in retaking, storage, preparing for sale to include
refurbishing costs and selling) and then to satisfaction of the indebtedness.
While some states impose prohibitions or limitations on deficiency judgments if
the net proceeds from resale do not cover the full amount of the indebtedness,
the remainder may be sought from the debtor in the form of a deficiency judgment
in those states that do not prohibit or limit such judgments. The deficiency
judgment is a personal judgment against the debtor for the shortfall.
Occasionally, after resale of a manufactured home and payment of all expenses
and indebtedness, there is a surplus of funds. In that case, the UCC requires
the party suing for the deficiency judgment to remit the surplus to the
subordinate creditors or the debtor, as provided in the UCC. Because the
defaulting owner of a manufactured home generally has very little capital or
income available following repossession, a deficiency judgment may not be sought
in many cases or, if obtained, will be settled at a significant discount in
light of the defaulting owner's strained financial condition.
Any contract secured by a manufactured home located in Louisiana will
be governed by Louisiana Revised Statutes in addition to Article 9 of the UCC.
Louisiana law provides similar mechanisms for perfection and enforcement of a
security interest in manufactured housing used as collateral for an installment
sale contract or installment loan agreement.
Under Louisiana law, a manufactured home that has been permanently
affixed to real estate will nevertheless remain subject to the motor vehicle
registration laws unless the obligor and any holder of a security interest in
the property execute and file in the real estate records for the parish in which
the property is located a document converting the unit into real property. A
manufactured home that is converted into real property but is then removed from
its site can be converted back to personal property governed by the motor
vehicle registration laws if the obligor executes and files various documents in
the appropriate real estate records and all mortgagees under real estate
mortgages on the property and the land to which it was affixed file releases
with the motor vehicle commission.
So long as a manufactured home remains subject to the Louisiana motor
vehicle laws, liens are recorded on the certificate of title by the motor
vehicle commissioner and repossession can be accomplished only after the
obligor's abandonment or with the obligor's consent given after or in
contemplation of default, or pursuant to judicial process and seizure by the
sheriff.
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Rights of Redemption
Single Family Loans, Multifamily Loans and Home Equity Loans. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage, the
borrower and foreclosed junior lienors are given a statutory period in which to
redeem the mortgaged property from the foreclosure sale. In some states,
redemption may occur only upon payment of the entire principal balance of the
loan plus accrued interest and expenses of foreclosure. In other states,
redemption may be authorized if the former borrower pays only a portion of the
sums due. The effect of a statutory right of redemption would defeat the title
of any purchaser from the lender subsequent to foreclosure or sale under a deed
of trust. Consequently, the practical effect of the redemption right is to force
the lender to retain the property and pay the expenses of ownership until the
redemption period has run.
Manufactured Housing Contracts. While state laws do not usually require
notice to be given debtors prior to repossession, many states do require
delivery of a notice of default and of the debtor's right to cure defaults
before repossession. The law in most states also requires that the debtor be
given notice of sale prior to the resale of a manufactured home so that the
owner may redeem at or before resale. In addition, the sale generally must
comply with the requirements of the UCC.
Equitable Limitations on Remedies
In connection with lenders' attempts to realize upon their security,
courts have invoked general equitable principles. The equitable principles are
generally designed to relieve the borrower from the legal effect of defaults
under the loan documents. Examples of judicial remedies that have been fashioned
include judicial requirements that the lender undertake affirmative and
expensive actions to determine the causes of the borrower's default and the
likelihood that the borrower will be able to reinstate the loan. In some cases,
courts have substituted their judgment for the lender's judgment and have
required that lenders reinstate loans or recast payment schedules in order to
accommodate borrowers who are suffering from temporary financial disability. In
other cases, courts have limited the right of a lender to realize upon its
security if the default under the security agreement is not monetary, such as
the borrower's failure to maintain the property adequately or the borrower's
execution of secondary financing affecting the property. Finally, some courts
have been faced with the issue of whether or not federal or state constitutional
provisions reflecting due process concerns for adequate notice require that
borrowers under security agreements receive notices in addition to the
statutorily prescribed minimums. For the most part, these cases have upheld the
notice provisions as being reasonable or have found that, in some cases
involving the sale by a trustee under a deed of trust or by a mortgagee under a
mortgage having a power of sale, there is insufficient state action to afford
constitutional protections to the borrower.
Anti-Deficiency Legislation and Other Limitations on Lenders
Generally, Article 9 of the UCC governs foreclosure on cooperative
shares and the related proprietary lease or occupancy agreement. Certain states,
including California, have adopted statutory prohibitions restricting the right
of the beneficiary or mortgagee to obtain a deficiency judgment against
borrowers financing the purchase of their residence or following sale under a
deed of trust or certain other foreclosure proceedings. A deficiency judgment is
a personal judgment against the borrower equal in most cases to the difference
between the amount due to the lender and the fair market value of the real
property sold at the foreclosure sale. As a result of these prohibitions, it is
anticipated that in many instances the master servicer will not seek deficiency
judgments against defaulting borrowers. Under the laws applicable in most
states, a creditor is entitled to obtain a deficiency judgment for any
deficiency following possession and resale of a manufactured home. However, some
states impose prohibitions or limitations on deficiency judgments in these
cases.
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In addition to anti-deficiency and related legislation, numerous other
federal and state statutory provisions, including the Bankruptcy Code, the
federal Soldiers' and Sailors' Civil Relief Act of 1940 and state laws affording
relief to debtors, may interfere with or affect the ability of the secured
mortgage lender to realize upon its security. For example, in a proceeding under
the Bankruptcy Code, a lender may not foreclose on the mortgaged property
without the permission of the bankruptcy court. If the mortgaged property is not
the debtor's principal residence and the bankruptcy court determines that the
value of the mortgaged property is less than the principal balance of the
mortgage loan, the rehabilitation plan proposed by the debtor may
o reduce the secured indebtedness to the value of the mortgaged
property as of the date of the commencement of the bankruptcy
thereby rendering the lender a general unsecured creditor for
the difference,
o reduce the monthly payments due under the mortgage loan,
o change the rate of interest of the mortgage loan, and
o alter the mortgage loan repayment schedule.
The effect of proceedings under the Bankruptcy Code, including but not limited
to any automatic stay, could result in delays in receiving payments on the
mortgage loans underlying a series of certificates and possible reductions in
the aggregate amount of payments.
The federal tax laws provide priority to certain tax liens over the
lien of a mortgage or secured party. In addition, substantive requirements are
imposed upon mortgage lenders in connection with the origination and the
servicing of mortgage loans by numerous federal and some state consumer
protection laws. These laws include the federal Truth-in-Lending Act, or TILA,
as implemented by Regulation Z, Real Estate Settlement Procedures Act, as
implemented by Regulation Z, Real Estate Settlement Procedures Act, as
implemented by Regulation X, Equal Credit Opportunity Act, as implemented by
Regulation B, Fair Credit Billing Act, Fair Credit Reporting Act and related
statutes. These federal laws impose specific statutory liabilities upon lenders
who originate mortgage loans and who fail to comply with the provisions of the
law. In some cases, this liability may affect assignees of the mortgage loans.
In particular, an originator's failure to comply with certain requirements of
the federal TILA, as implemented by Regulation Z, could subject both originators
and assignees of such obligations to monetary penalties and could result in
borrowers' rescinding the mortgage loans either against the originators or
assignees.
Homeownership Act and Similar State Laws
Some of the mortgage loans, known as High Cost Loans, may be subject to
the Home Ownership and Equity Protection Act of 1994, or Homeownership Act,
which amended TILA to provide new requirements applicable to loans that exceed
certain interest rate and/or points and fees thresholds. Purchasers or assignees
of any High Cost Loan, including any trust, could be liable under federal law
for all claims and be subject to all defenses that the borrower could assert
against the originator of the High Cost Loan. Remedies available to the borrower
include monetary penalties, as well as rescission rights if the appropriate
disclosures were not given as required. The maximum damages that may be
recovered under theses provisions from an assignee, including the trust, is the
remaining amount of indebtedness plus the total amount paid by the borrower in
connection with the mortgage loan.
In addition to the Homeownership Act, a number of legislative proposals
have been introduced at both the federal and state levels that are designed to
discourage predatory lending practices. Some states have enacted, and other
state or local governments may enact, laws that impose requirements and
restrictions greater than those in the Homeownership Act. These laws prohibit
inclusion of some provisions in mortgage loans that have interests rate or
origination costs in excess of prescribed levels, and require that borrowers be
given certain disclosures prior to the consummation of the mortgage loans.
Purchasers or assignees of a mortgage loan, including the related trust, could
be exposed to all claims and defenses that the borrower could assert against the
originator of the mortgage loan for a violation of state law. Claims and
defenses available to the borrower could included monetary penalties, recession
and defenses to foreclosure action or an action to collect.
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Some of the mortgage loans in a mortgage pool may be "home loans" and
also may be "covered home loans" under the Georgia Fair Lending Act, or Georgia
Act. The Georgia Act applies to any mortgage loan which is secured by a property
located in the State of Georgia that is the borrower's principal residence, and
which has a principal amount not in excess of the conforming loan balance limit
established by Fannie Mae. These loans are referred to under the Georgia Act as
"home loans." Certain home loans, which are referred to as "covered home loans"
have met certain fee and finance-charge criteria. Certain covered home loans,
which are referred to as "Georgia high-cost home loans," have met higher limits
regarding fees and finance charges. The Georgia Act prohibits certain activities
and charges in connection with home loans. Additional prohibitions apply to
cover home loans and further prohibitions apply to Georgia high-cost home loans.
Purchasers or assignees of a Georgia high-cost home loan, including the
related trust, could be exposed to all claims and defenses that the borrower
could assert against the originator of the home loan. Purchasers or assignees of
a covered home loan, including the related trust, could be subject to defenses
to prevent a foreclosure or action to collect or counterclaims of a borrower if
the loan is in violation of the Georgia Act. Remedies available to a borrower
include actual, statutory and punitive damages, costs and attorneys' fees,
rescission rights and other unspecified equitable remedies. No maximum penalty
has been set with respect to violations of the Georgia Act, and courts have been
given discretion under the statute to fashion equitable remedies as they deem
appropriate.
There are some uncertainties in making a determination as to whether a
particular Georgia loan is a covered home loan or a Georgia high-cost home loan,
and in determining whether a loan complies with all of the provisions of the
Georgia Act.
The Georgia Act was amended on March 7, 2003. Mortgage loans originated
on or after that date are subject to a less stringent version of the Georgia
Act.
Lawsuits have been brought in various states making claims against
assignees of High Cost Loans for violations of federal and state law allegedly
committed by the originator. Named defendants in these cases include numerous
participants within the secondary mortgage market, including some secuntization
trusts.
The so-called Holder-in-Due-Course Rule of the Federal Trade Commission
has the effect of subjecting a seller and certain related creditors and their
assignees in a consumer credit transaction, and any assignee of the creditor, to
all claims and defenses which the debtor in the transaction could assert against
the seller of the goods. Liability under this FTC Rule is limited to the amounts
paid by a debtor on a Manufactured Housing Contract, and the holder of the
Manufactured Housing Contract may also be unable to collect amounts still due
under the Manufactured Housing Contract.
Most of the Manufactured Housing Contracts in a pool will be subject to
the requirements of this FTC Rule. Accordingly, the trustee, as holder of the
Manufactured Housing Contracts, will be subject to any claims or defenses that
the purchaser of the related manufactured home may assert against the seller of
the manufactured home, or that the purchaser of the home improvements may assert
against the contractor, subject to a maximum liability equal to the amounts paid
by the obligor on the Manufactured Housing Contract. If an obligor is successful
in asserting any such claim or defense, and if the seller had or should have had
knowledge of such claim or defense, the master servicer will have the right to
require the seller to repurchase the Manufactured Housing Contract because of a
breach of its representation and warranty that no claims or defenses exist which
would affect the borrower's obligation to make the required payments under the
Manufactured Housing Contract.
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A number of lawsuits are pending in the United States alleging personal
injury from exposure to the chemical formaldehyde, which is present in many
building materials including such manufactured housing components as plywood
flooring and wall paneling. Some of these lawsuits are pending against
manufacturers of manufactured housing, suppliers of component parts and others
in the distribution process. Plaintiffs have won judgments in some of these
lawsuits.
Under the FTC Rule discussed above, the holder of a Manufactured
Housing Contract secured by a manufactured home with respect to which a
formaldehyde claim has been asserted successfully may be liable to the borrower
for the amount paid by the borrower on that Manufactured Housing Contract and
may be unable to collect amounts still due under that Manufactured Housing
Contract. Because the successful assertion of this type of claim would
constitute the breach of a representation or warranty of the seller, the related
securityholders would suffer a loss only to the extent that
o the seller fails to perform its obligation to repurchase that
Manufactured Housing Contract, and
o the seller, the applicable depositor or the trustee is
unsuccessful in asserting a claim of contribution or
subrogation on behalf of the securityholders against the
manufacturer or other who are directly liable to the plaintiff
for damages.
Typical product liability insurance policies held by manufacturers and component
suppliers of manufactured homes may not cover liabilities from the presence of
formaldehyde in manufactured housing. As a result, recoveries from manufacturers
and component suppliers may be limited to their corporate assets without the
benefit of insurance.
Due-on-Sale Clauses
Unless otherwise provided in the related prospectus supplement, each
conventional loan will contain a due-on-sale clause which will generally provide
that, if the mortgagor or obligor sells, transfers or conveys the mortgaged
property, the loan may be accelerated by the mortgagee or secured party. Unless
otherwise provided in the related prospectus supplement, the master servicer
will, to the extent it has knowledge of the sale, transfer or conveyance,
exercise its rights to accelerate the maturity of the related loans through
enforcement of the due-on-sale clauses, subject to applicable state law. Section
341(b) of the Garn-St. Germain Depository Institutions Act of 1982 (Garn-St.
Germain) permits a lender, subject to certain conditions, to "enter into or
enforce a contract containing a due-on-sale clause with respect to a real
property loan," notwithstanding any contrary state law. Garn-St. Germain gave
states that previously had enacted "due-on-sale" restrictions a three-year
window to reenact the previous restrictions or enact new restrictions. Only six
states acted within this window period: Arizona, Florida, Michigan, Minnesota,
New Mexico and Utah. Consequently, due-on-sale provisions in documents governed
by the laws of those state are not preempted by federal law. With respect to
loans secured by an owner-occupied residence including a manufactured home, the
Garn-St Germain Act sets forth nine specific instances in which a mortgagee
covered by the act may not exercise its rights under a due-on-sale clause,
notwithstanding the fact that a transfer of the property may have occurred. The
inability to enforce a due-on-sale clause may result in transfer of the
mortgaged property to an uncreditworthy person, which could increase the
likelihood of default, or may result in a mortgage bearing an interest rate
below the current market rate being assumed by a new home buyer, which may
affect the average life of the loans and the number of loans which may extend to
maturity.
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In addition, under the federal Bankruptcy Code, due-on-sale clauses may
not be enforceable in bankruptcy proceedings and under certain circumstances may
be eliminated in a resulting loan modification.
Prepayment Charges; Late Fees
Under certain state laws, prepayment charges with respect to
prepayments on loans secured by liens encumbering owner-occupied residential
properties may not be imposed after a certain period of time following the
origination of a loan. Since many of the mortgaged properties will be
owner-occupied, it is anticipated that prepayment charges may not be imposed
with respect to many of the loans. The absence of this type of a restraint on
prepayment, particularly with respect to fixed rate loans having higher loan
rates or APRs, may increase the likelihood of refinancing or other early
retirement of the loans. Legal restrictions, if any, on prepayment of
Multifamily Loans will be described in the related prospectus supplement.
Loans may also contain provisions obligating the borrower to pay a late
fee if payments are not timely made. In some states there may be specific
limitations on the late charges that a lender may collect from the borrower for
delinquent payments. Unless otherwise specified in the related prospectus
supplement, late fees will be retained by the applicable servicer as additional
servicing compensation.
Some state laws restrict the imposition of prepayment charges and late
fees even when the loans expressly provide for the collection of those charges.
Although the Alternative Mortgage Transaction Parity Act 1982, or the Parity
Act, permits the collection of prepayment charges and late fees in connection
with some types of eligible loans preempting any contrary state law
prohibitions, some states may not recognize the preemptive authority of the
Parity Act or have formally opted out of the Parity Act. As a result, it is
possible that prepayment charges may not be collected even on loans that provide
for the payment of those charges unless otherwise specified in the accompanying
prospectus supplement. The master servicer or any entity identified in the
accompanying prospectus supplement will be entitled to all prepayment charges
and late payment charges received on the loans and these amounts will not be
available for payment on the securities. The Office of Thrift Supervision or
OTS, the agency that administers the Parity Act for unregulated housing
creditors, has withdrawn its favorable Parity Act regulations and chief counsel
opinions that authorized lenders to charge prepayment charges and late fees in
certain circumstances notwithstanding contrary state law, effective July l,
2003. However, the OTS's ruling does not have retroactive effect on loans
originated before July 1, 2003.
Applicability of Usury Laws
Title V of the Depository Institutions Deregulation and Monetary
Control Act of 1980 provides that state usury limitations shall not apply to
certain types of residential first mortgage loans originated by certain lenders
after March 31, 1980. The Office of Thrift Supervision, as successor to the
Federal Home Loan Bank Board, is authorized to issue rules and regulations and
to publish interpretations governing implementation of Title V. The statute
authorized any state to reimpose limitations on interest rates and finance
charges by adopting before April 1, 1983 a law or constitutional provision which
expressly rejects application of the federal law. Fifteen states adopted such a
law prior to the April 1, 1983 deadline. In addition, even where Title V was not
rejected, any state is authorized to adopt a provision limiting discount points
or other charges on loans covered by Title V. No Manufactured Housing Contract
secured by a manufactured home located in any state in which application of
Title V was expressly rejected or a provision limiting discount points or other
charges has been adopted will be included in any trust fund if the Manufactured
Housing Contract imposes finance charges or provides for discount points or
charges in excess of permitted levels.
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Title V also provides that state usury limitations will not apply to
any loan which is secured by a first lien on certain kinds of manufactured
housing provided that certain conditions are satisfied. These conditions relate
to the terms of any prepayment, balloon payment, late charges and deferral fees
and the requirement of a 30-day notice period prior to instituting any action
leading to repossession of or foreclosure with respect to the related unit.
Soldiers' and Sailors' Civil Relief Act
Generally, under the terms of the Soldiers' and Sailors' Civil Relief
Act of 1940, as amended, borrowers who enter military service after the
origination of their mortgage loan may not be charged interest above an annual
rate of 6% during the period of active duty status, unless a court orders
otherwise upon application of the lender. The Relief Act also applies to
borrowers who are members of the National Guard or are on reserve status at the
time their mortgage is originated and are later called to active duty. It is
possible that the interest rate limitation could have an effect, for an
indeterminate period of time, on the ability of the master servicer to collect
full amounts of interest on affected mortgage loans. Unless otherwise provided
in the related prospectus supplement, any shortfall in interest collections
resulting from the application of the Relief Act could result in losses to the
related securityholders. In addition, the Relief Act imposes limitations which
would impair the ability of the master servicer to foreclose on an affected
mortgage loan during the borrower's period of active duty status. Thus, in the
event that a mortgage loan goes into default, the application of the Relief Act
could cause delays and losses occasioned by the lender's inability to realize
upon the mortgaged property in a timely fashion.
Environmental Risks
Real property pledged as security to a lender may be subject to
unforeseen environmental risks. Under the laws of certain states, contamination
of a property may give rise to a lien on the property to assure the payment of
the costs of clean-up. In several states such a lien has priority over the lien
of an existing mortgage against such property. In addition, under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA), the United States Environmental Protection Agency (EPA) may impose a
lien on property where the EPA has incurred clean-up costs. However, a CERCLA
lien is subordinate to pre-existing, perfected security interests.
Under the laws of some states and under CERCLA, there is a possibility
that a lender may be held liable as an "owner" or "operator" for costs of
addressing releases or threatened releases of hazardous substances at a
property, regardless of whether or not the environmental damage or threat was
caused by a current or prior owner or operator. CERCLA imposes liability for
such costs on any and all "responsible parties," including owners or operators.
However, CERCLA excludes from the definition of "owner or operator" a secured
creditor who holds indicia of ownership primarily to protect its security
interest but does not "participate in the management" of the property. Thus, if
a lender's activities begin to encroach on the actual management of a
contaminated facility or property, the lender may incur liability as an "owner
or operator" under CERCLA. Similarly, if a lender forecloses and takes title to
a contaminated facility or property, the lender may incur CERCLA liability in
various circumstances, including, but not limited to, when it holds the facility
or property as an investment, including leasing the facility or property to a
third party, or fails to market the property in a timely fashion.
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Whether actions taken by a lender would constitute participation in the
management of a property so that the lender would lose the protection of the
secured creditor exclusion referred to in the preceding paragraph, has been a
matter of judicial interpretation of the statutory language, and court decisions
have historically been inconsistent. In 1990, the United States Court of Appeals
for the Eleventh Circuit suggested, in United States v. Fleet Factors Corp.,
that the mere capacity of the lender to influence a borrower's decisions
regarding disposal of hazardous substances was sufficient participation in the
management of the borrower's business to deny the protection of the secured
creditor exclusion to the lender, regardless of whether the lender actually
exercised such influence. Other judicial decisions did not interpret the secured
creditor exclusion as narrowly as did the Eleventh Circuit.
This ambiguity appears to have been resolved by the enactment of the
Asset Conservation, Lender Liability and Deposit Insurance Protection Act of
1996. The Asset Conservation Act provides that in order to be deemed to have
participated in the management of a secured property, a lender must actually
participate in the operational affairs of the property or of the borrower. The
Asset Conservation Act also provides that participation in the management of the
property does not include "merely having the capacity to influence, or
unexercised right to control" operations. Rather, a lender will lose the
protection of the secured creditor exclusion only if it exercises
decision-making control over the borrower's environmental compliance and
hazardous substance handling and disposal practices, or assumes day-to-day
management of all operational functions of the secured property.
If a lender is or becomes liable, it can bring an action for
contribution against any other "responsible parties," including a previous owner
or operator, who created the environmental hazard, but those persons or entities
may be bankrupt or otherwise judgment-proof. The costs associated with
environmental cleanup may be substantial. It is conceivable that the costs
arising from the circumstances set forth above would result in a loss to the
related securityholders.
CERCLA does not apply to petroleum products, and the secured creditor
exclusion does not govern liability for cleanup costs under federal laws other
than CERCLA, in particular Subtitle I of the federal Resource Conservation and
Recovery Act, which regulates underground petroleum storage tanks other than
heating oil tanks. The EPA has adopted a lender liability rule for underground
storage tanks under Subtitle I of the Resource Conservation Act. Under this
rule, a holder of a security interest in an underground storage tank or real
property containing an underground storage tank is not considered an operator of
the underground storage tank as long as petroleum is not added to, stored in or
dispensed from the tank. Moreover, under the Asset Conservation Act, the
protections accorded to lenders under CERCLA are also accorded to holders of
security interests in underground petroleum storage tanks. It should be noted,
however, that liability for cleanup of petroleum contamination may be governed
by state law, which may not provide for any specific protection for secured
creditors.
The Asset Conservation Act specifically addresses the potential
liability under CERCLA of lenders that hold mortgages or similar conventional
security interests in real property, as the trust fund generally does in
connection with the loans. However, the Asset Conservation Act does not clearly
address the potential liability of lenders who retain legal title to a property
and enter into an agreement with the purchaser for the payment of the purchase
price and interest over the term of the contract as is the case with the
installment contracts.
If a lender (including a lender under an installment contract) is or
becomes liable under CERCLA, it may be authorized to bring a statutory action
for contribution against any other "responsible parties", including a previous
owner or operator. However, these persons or entities may be bankrupt or
otherwise judgment proof, and the costs associated with environmental cleanup
and related actions may be substantial. Moreover, some state laws imposing
liability for addressing hazardous substances do not contain exemptions from
liability for lenders. Whether the costs of addressing a release or threatened
release at a property pledged as collateral for one of the loans (or at a
property subject to an installment contract), would be imposed on the trust
fund, and thus occasion a loss to the securityholders, depends on the specific
factual and legal circumstances at issue.
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Except as otherwise specified in the applicable prospectus supplement,
at the time the mortgage loans were originated, no environmental assessment or a
very limited environment assessment of the mortgage properties was conducted.
The pooling and servicing agreement will provide that the master
servicer, acting on behalf of the trust fund, may not acquire title to a
multifamily residential property or mixed-use property underlying a loan or take
over its operation unless the master servicer has previously determined, based
upon a report prepared by a person who regularly conducts environmental audits,
that the mortgaged property is in compliance with applicable environmental laws
and regulations or that the acquisition would not be more detrimental than
beneficial to the value of the mortgaged property and the interests of the
related securityholders.
The Home Improvement Contracts
General. The Home Improvement Contracts, other than those that are
unsecured or secured by mortgages on real estate, generally are "chattel paper"
or constitute "purchase money security interests" each as defined in the UCC.
Under the UCC, the sale of chattel paper is treated in a manner similar to
perfection of a security interest in chattel paper. Under the related agreement,
the depositor will transfer physical possession of these contracts to the
trustee or a designated custodian or may retain possession of them as custodian
for the trustee. In addition, the depositor will file a UCC-1 financing
statement in the appropriate states to give notice of the trustee's ownership of
the contracts. Unless otherwise specified in the related prospectus supplement,
the contracts will not be stamped or otherwise marked to reflect their
assignment from the depositor to the trustee. Therefore, if through negligence,
fraud or otherwise, a subsequent purchaser were able to take physical possession
of the contracts without notice of such assignment, the trustee's interest in
the contracts could be defeated.
Security Interests in Home Improvements. The Home Improvement Contracts
that are secured by the related home improvements grant to the originator a
purchase money security interest in the home improvements to secure all or part
of the purchase price of the home improvements and related services. A financing
statement generally is not required to be filed to perfect a purchase money
security interest in consumer goods and the purchase money security interests
are assignable. In general, a purchase money security interest grants to the
holder a security interest that has priority over a conflicting security
interest in the same collateral and the proceeds of the collateral. However, to
the extent that the collateral subject to a purchase money security interest
becomes a fixture, in order for the related purchase money security interest to
take priority over a conflicting interest in the fixture, the holder's interest
in the home improvement must generally be perfected by a timely fixture filing.
In general, a security interest does not exist under the UCC in ordinary
building material incorporated into an improvement on land. Home Improvement
Contracts that finance lumber, bricks, other types of ordinary building material
or other goods that are deemed to lose such characterization upon incorporation
of such materials into the related property, will not be secured by a purchase
money security interest in the home improvement being financed.
Enforcement of Security Interest in Home Improvements. So long as the
home improvement has not become subject to the real estate law, a creditor can
repossess a home improvement securing a contract by voluntary surrender, by
"self-help" repossession that is "peaceful" (i.e., without breach of the peace)
or, in the absence of voluntary surrender and the ability to repossess without
breach of the peace, by judicial process. The holder of a contract must give the
debtor a number of days' notice, which varies from 10 to 30 days depending on
the state, prior to commencement of any repossession. The UCC and consumer
protection laws in most states place restrictions on repossession sales,
including requiring prior notice to the debtor and commercial reasonableness in
effecting such a sale. The law in most states also requires that the debtor be
given notice of any sale prior to resale of the unit that the debtor may redeem
at or before the resale.
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Under the laws applicable in most states, a creditor is entitled to
obtain a deficiency judgment from a debtor for any deficiency on repossession
and resale of the property securing the debtor's loan. However, some states
impose prohibitions or limitations on deficiency judgments, and in many cases
the defaulting borrower would have no assets with which to pay a judgment.
Certain other statutory provisions, including federal and state
bankruptcy and insolvency laws and general equitable principles, may limit or
delay the ability of a lender to repossess and resell collateral or enforce a
deficiency judgment.
Installment Contracts
Under an installment contract the seller retains legal title to the
property and enters into an agreement with the purchaser/borrower for the
payment of the purchase price, plus interest, over the term of the contract.
Only after full performance by the borrower of the contract is the lender
obligated to convey title to the property to the purchaser. As with mortgage or
deed of trust financing, during the effective period of the installment
contract, the borrower is generally responsible for maintaining the property in
good condition and for paying real estate taxes, assessments and hazard
insurance premiums associated with the property.
The method of enforcing the rights of the lender under an installment
contract varies on a state-by-state basis depending upon the extent to which
state courts are willing, or able pursuant to state statute, to enforce the
contract strictly according to the terms. The terms of installment contracts
generally provide that upon a default by the borrower, the borrower loses his or
her right to occupy the property, the entire indebtedness is accelerated, and
the buyer's equitable interest in the property is forfeited. The lender in such
a situation does not have to foreclose in order to obtain title to the property,
although in some cases a quiet title action is in order if the borrower has
filed the installment contract in local land records and an ejectment action may
be necessary to recover possession. In a few states, particularly in cases of
borrower default during the early years of an installment contract, the courts
will permit ejectment of the buyer and a forfeiture of his or her interest in
the property. However, most state legislatures have enacted provisions by
analogy to mortgage law protecting borrowers under installment contracts from
the harsh consequences of forfeiture. Under such statutes, a judicial or
nonjudicial foreclosure may be required, the lender may be required to give
notice of default and the borrower may be granted some grace period during which
the installment contract may be reinstated upon full payment of the default
amount and the borrower may have a post-foreclosure statutory redemption right.
In other states, courts in equity may permit a borrower with significant
investment in the property under an installment contract for the sale of real
estate to share in the proceeds of sale of the property after the indebtedness
is repaid or may otherwise refuse to enforce the forfeiture clause.
Nevertheless, generally speaking, the lender's procedures for obtaining
possession and clear title under an installment contract in a given state are
simpler and less time-consuming and costly than are the procedures for
foreclosing and obtaining clear title to a property subject to one or more
liens.
Junior Mortgages; Rights of Senior Mortgagees
To the extent that the loans comprising the trust fund for a series are
secured by mortgages which are junior to other mortgages held by other lenders
or institutional investors, the rights of the trust fund (and therefore the
securityholders), as mortgagee under any such junior mortgage, are subordinate
to those of any mortgagee under any senior mortgage. The senior mortgagee has
the right to receive hazard insurance and condemnation proceeds and to cause the
property securing the loan to be sold upon default of the mortgagor, thereby
extinguishing the junior mortgagee's lien unless the junior mortgagee asserts
its subordinate interest in the property in foreclosure litigation and,
possibly, satisfies the defaulted senior mortgage. A junior mortgagee may
satisfy a defaulted senior loan in full and, in some states, may cure such
default and bring the senior loan current, in either event adding the amounts
expended to the balance due on the junior loan. In most states, absent a
provision in the mortgage or deed of trust, no notice of default is required to
be given to a junior mortgagee.
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The standard form of the mortgage used by most institutional lenders
confers on the mortgagee the right both to receive all proceeds collected under
any hazard insurance policy and all awards made in connection with condemnation
proceedings, and to apply such proceeds and awards to any indebtedness secured
by the mortgage, in such order as the mortgagee may determine. Thus, in the
event improvements on the property are damaged or destroyed by fire or other
casualty, or in the event the property is taken by condemnation, the mortgagee
or beneficiary under underlying senior mortgages will have the prior right to
collect any insurance proceeds payable under a hazard insurance policy and any
award of damages in connection with the condemnation and to apply the same to
the indebtedness secured by the senior mortgages. Proceeds in excess of the
amount of senior mortgage indebtedness, in most cases, may be applied to the
indebtedness of a junior mortgage.
Another provision sometimes found in the form of the mortgage or deed
of trust used by institutional lenders obligates the mortgagor to pay before
delinquency all taxes and assessments on the property and, when due, all
encumbrances, charges and liens on the property which appear prior to the
mortgage or deed of trust, to provide and maintain fire insurance on the
property, to maintain and repair the property and not to commit or permit any
waste, and to appear in and defend any action or proceeding purporting to affect
the property or the rights of the mortgagee under the mortgage. Upon a failure
of the mortgagor to perform any of these obligations, the mortgagee is given the
right under certain mortgages to perform the obligation itself, at its election,
with the mortgagor agreeing to reimburse the mortgagee for any sums expended by
the mortgagee on behalf of the mortgagor. All sums so expended by the mortgagee
become part of the indebtedness secured by the mortgage.
The form of credit line trust deed or mortgage generally used by most
institutional lenders which make revolving credit line loans typically contains
a "future advance" clause, which provides, in essence, that additional amounts
advanced to or on behalf of the borrower by the beneficiary or lender are to be
secured by the deed of trust or mortgage. Any amounts so advanced after the
cut-off date with respect to any mortgage will not be included in the trust
fund. The priority of the lien securing any advance made under the clause may
depend in most states on whether the deed of trust or mortgage is called and
recorded as a credit line deed of trust or mortgage. If the beneficiary or
lender advances additional amounts, the advance is entitled to receive the same
priority as amounts initially advanced under the trust deed or mortgage,
notwithstanding the fact that there may be junior trust deeds or mortgages and
other liens which intervene between the date of recording of the trust deed or
mortgage and the date of the future advance, and notwithstanding that the
beneficiary or lender had actual knowledge of such intervening junior trust
deeds or mortgages and other liens at the time of the advance. In most states,
the trust deed or mortgage lien securing mortgage loans of the type which
includes home equity credit lines applies retroactively to the date of the
original recording of the trust deed or mortgage, provided that the total amount
of advances under the home equity credit line does not exceed the maximum
specified principal amount of the recorded trust deed or mortgage, except as to
advances made after receipt by the lender of a written notice of lien from a
judgment lien creditor of the trustor.
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The Title I Program
General. Certain of the loans contained in a trust fund may be loans
insured under the FHA Title I Insurance program created pursuant to Sections 1
and 2(a) of the National Housing Act of 1934. Under the Title I Program, the FHA
is authorized and empowered to insure qualified lending institutions against
losses on eligible loans. The Title I Program operates as a coinsurance program
in which the FHA insures up to 90% of certain losses incurred on an individual
insured loan, including the unpaid principal balance of the loan, but only to
the extent of the insurance coverage available in the lender's FHA insurance
coverage reserve account. The owner of the loan bears the uninsured loss on each
loan.
Title I loan means a loan made to finance actions or items that
substantially protect or improve the basic livability or utility of a one- to
four-family residential property.
There are two basic methods of lending or originating such loans which
include a "direct loan" or a "dealer loan". With respect to a direct loan, the
borrower makes application directly to a lender without any assistance from a
dealer, which application may be filled out by the borrower or by a person
acting at the direction of the borrower who does not have a financial interest
in the loan transaction, and the lender may disburse the loan proceeds solely to
the borrower or jointly to the borrower and other parties to the transaction.
With respect to a dealer loan, the dealer, who has a direct or indirect
financial interest in the loan transaction, assists the borrower in preparing
the loan application or otherwise assists the borrower in obtaining the loan
from the lender. The lender may disburse proceeds solely to the dealer or the
borrower or jointly to the borrower and the dealer or other parties to the
transaction. With respect to a dealer Title I loan, a dealer may include a
seller, a contractor or supplier of goods or services.
Loans insured under the Title I Program are required to have fixed
interest rates and generally provide for equal installment payments due weekly,
biweekly, semi-monthly or monthly, except that a loan may be payable quarterly
or semi-annually where a borrower has an irregular flow of income. The first or
last payments (or both) may vary in amount but may not exceed 150% of the
regular installment payment, and the first payment may be due no later than two
months from the date of the loan. The note must contain a provision permitting
full or partial prepayment of the loan. The interest rate must be negotiated and
agreed to by the borrower and the lender and must be fixed for the term of the
loan and recited in the note. Interest on an insured loan must accrue from the
date of the loan and be calculated according to the actuarial method. The lender
must assure that the note and all other documents evidencing the loan are in
compliance with applicable federal, state and local laws.
Each insured lender is required to use prudent lending standards in
underwriting individual loans and to satisfy the applicable loan underwriting
requirements under the Title I Program prior to its approval of the loan and
disbursement of loan proceeds. Generally, the lender must exercise prudence and
diligence to determine whether the borrower and any co-maker is solvent and an
acceptable credit risk, with a reasonable ability to make payments on the loan
obligation. The lender's credit application and review must determine whether
the borrower's income will be adequate to meet the periodic payments required by
the loan, as well as the borrower's other housing and recurring expenses, which
determination must be made in accordance with the expense-to-income ratios
published by the Secretary of HUD unless the lender determines and documents in
the loan file the existence of compensating factors concerning the borrower's
creditworthiness which support approval of the loan.
Under the Title I Program, the FHA does not review or approve for
qualification for insurance the individual loans insured thereunder at the time
of approval by the lending institution (as is typically the case with other
federal loan programs). If, after a loan has been made and reported for
insurance under the Title I Program, the lender discovers any material
misstatement of fact or that the loan proceeds have been misused by the
borrower, dealer or any other party, it shall promptly report this to the FHA.
In such case, provided that the validity of any lien on the property has not
been impaired, the insurance of the loan under the Title I Program will not be
affected unless such material misstatements of fact or misuse of loan proceeds
was caused by (or was knowingly sanctioned by) the lender or its employees.
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Requirements for Title I Loans. The maximum principal amount for Title
I loans must not exceed the actual cost of the project plus any applicable fees
and charges allowed under the Title I Program; provided that such maximum amount
does not exceed $25,000 (or the current applicable amount) for a single family
property improvement loan. Generally, the term of a Title I loan may not be less
than six months nor greater than 20 years and 32 days. A borrower may obtain
multiple Title I loans with respect to multiple properties, and a borrower may
obtain more than one Title I loan with respect to a single property, in each
case as long as the total outstanding balance of all Title I loans in the same
property does not exceed the maximum loan amount for the type of Title I loan
thereon having the highest permissible loan amount.
Borrower eligibility for a Title I loan requires that the borrower have
at least a one-half interest in either fee simple title to the real property, a
lease thereof for a term expiring at least six months after the final maturity
of the Title I loan or a recorded land installment contract for the purchase of
the real property. In the case of a Title I loan with a total principal balance
in excess of $15,000, if the property is not occupied by the owner, the borrower
must have equity in the property being improved at least equal to the principal
amount of the loan, as demonstrated by a current appraisal. Any Title I loan in
excess of $7,500 must be secured by a recorded lien on the improved property
which is evidenced by a mortgage or deed of trust executed by the borrower and
all other owners in fee simple.
The proceeds from a Title I loan may be used only to finance property
improvements which substantially protect or improve the basic livability or
utility of the property as disclosed in the loan application. The Secretary of
HUD has published a list of items and activities which cannot be financed with
proceeds from any Title I loan and from time to time the Secretary of HUD may
amend such list of items and activities. With respect to any dealer Title I
loan, before the lender may disburse funds, the lender must have in its
possession a completion certificate on a HUD approved form, signed by the
borrower and the dealer. With respect to any direct Title I loan, the lender is
required to obtain, promptly upon completion of the improvements but not later
than 6 months after disbursement of the loan proceeds with one 6 month extension
if necessary, a completion certificate, signed by the borrower. The lender is
required to conduct an on-site inspection on any Title I loan where the
principal obligation is $7,500 or more, and on any direct Title I loan where the
borrower fails to submit a completion certificate.
FHA Insurance Coverage. Under the Title I Program, the FHA establishes
an insurance coverage reserve account for each lender which has been granted a
Title I contract of insurance. The amount of insurance coverage in this account
is a maximum of 10% of the amount disbursed, advanced or expended by the lender
in originating or purchasing eligible loans registered with the FHA for Title I
insurance, with certain adjustments. The balance in the insurance coverage
reserve account is the maximum amount of insurance claims the FHA is required to
pay to the Title I lender. Loans to be insured under the Title I Program will be
registered for insurance by the FHA and the insurance coverage attributable to
such loans will be included in the insurance coverage reserve account for the
originating or purchasing lender following the receipt and acknowledgment by the
FHA of a loan report on the prescribed form pursuant to the Title I regulations.
For each eligible loan reported and acknowledged for insurance, the FHA charges
a premium. For loans having a maturity of 25 months or less, the FHA bills the
lender for the entire premium in an amount equal to the product of 0.50% of the
original loan amount and the loan term. For home improvement loans with a
maturity greater than 25 months, each year that a loan is outstanding the FHA
bills the lender for a premium in an amount equal to 0.50% of the original loan
amount. If a loan is prepaid during the year, the FHA will not refund or abate
the premium paid for that year.
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Under the Title I Program the FHA will reduce the insurance coverage
available in the lender's FHA insurance coverage reserve account with respect to
loans insured under the lender's contract of insurance by (i) the amount of the
FHA insurance claims approved for payment relating to such insured loans and
(ii) the amount of insurance coverage attributable to insured loans sold by the
lender, and such insurance coverage may be reduced for any FHA insurance claims
rejected by the FHA. The balance of the lender's FHA insurance coverage reserve
account will be further adjusted as required under Title I or by the FHA, and
the insurance coverage therein may be earmarked with respect to each or any
eligible loans insured thereunder, if a determination is made by the Secretary
of HUD that it is in its interest to do so. Originations and acquisitions of new
eligible loans will continue to increase a lender's insurance coverage reserve
account balance by 10% of the amount disbursed, advanced or expended in
originating or acquiring such eligible loans registered with the FHA for
insurance under the Title I Program. The Secretary of HUD may transfer insurance
coverage between insurance coverage reserve accounts with earmarking with
respect to a particular insured loan or group of insured loans when a
determination is made that it is in the Secretary's interest to do so.
The lender may transfer (except as collateral in a bona fide
transaction) insured loans and loans reported for insurance only to another
qualified lender under a valid Title I contract of insurance. Unless an insured
loan is transferred with recourse or with a guaranty or repurchase agreement,
the FHA, upon receipt of written notification of the transfer of such loan in
accordance with the Title I regulations, will transfer from the transferor's
insurance coverage reserve account to the transferee's insurance coverage
reserve account an amount, if available, equal to 10% of the actual purchase
price or the net unpaid principal balance of such loan (whichever is less).
However, under the Title I Program not more than $5,000 in insurance coverage
shall be transferred to or from a lender's insurance coverage reserve account
during any October 1 to September 30 period without the prior approval of the
Secretary of HUD. Amounts which may be recovered by the Secretary of HUD after
payment of an insurance claim are not added to the amount of insurance coverage
in the related lender's insurance coverage reserve account.
Claims Procedures Under Title I. Under the Title I Program the lender
may accelerate an insured loan following a default on such loan only after the
lender or its agent has contacted the borrower in a face-to-face meeting or by
telephone to discuss the reasons for the default and to seek its cure. If the
borrower does not cure the default or agree to a modification agreement or
repayment plan, the lender will notify the borrower in writing that, unless
within 30 days the default is cured or the borrower enters into a modification
agreement or repayment plan, the loan will be accelerated and that, if the
default persists, the lender will report the default to an appropriate credit
agency. The lender may rescind the acceleration of maturity after full payment
is due and reinstate the loan only if the borrower brings the loan current,
executes a modification agreement or agrees to an acceptable repayment plan.
Following acceleration of maturity upon a secured Title I loan, the
lender may either (a) proceed against the property under any security
instrument, or (b) make a claim under the lender's contract of insurance. If the
lender chooses to proceed against the property under a security instrument (or
if it accepts a voluntary conveyance or surrender of the property), the lender
may file an insurance claim only with the prior approval of the Secretary of
HUD.
When a lender files an insurance claim with the FHA under the Title I
Program, the FHA reviews the claim, the complete loan file and documentation of
the lender's efforts to obtain recourse against any dealer who has agreed
thereto, certification of compliance with applicable state and local laws in
carrying out any foreclosure or repossession, and evidence that the lender has
properly filed proofs of claims, where the borrower is bankrupt or deceased.
Generally, a claim for reimbursement for loss on any Title I loan must be filed
with the FHA no later than 9 months after the date of default of the loan.
Concurrently with filing the insurance claim, the lender shall assign to the
United States of America the lender's entire interest in the loan note (or a
judgment in lien of the note), in any security held and in any claim filed in
any legal proceedings. If, at the time the note is assigned to the United
States, the Secretary has reason to believe that the note is not valid or
enforceable against the borrower, the FHA may deny the claim and reassign the
note to the lender. If either such defect is discovered after the FHA has paid a
claim, the FHA may require the lender to repurchase the paid claim and to accept
a reassignment of the loan note. If the lender subsequently obtains a valid and
enforceable judgment against the borrower, the lender may resubmit a new
insurance claim with an assignment of the judgment. Although the FHA may contest
any insurance claim and make a demand for repurchase of the loan at any time up
to two years from the date the claim was certified for payment and may do so
thereafter in the event of fraud or misrepresentation on the part of the lender,
the FHA has expressed an intention to limit the period of time within which it
will take such action to one year from the date the claim was certified for
payment.
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Under the Title I Program the amount of an FHA insurance claim payment,
when made, is equal to the claimable amount, up to the amount of insurance
coverage in the lender's insurance coverage reserve account. The "claimable
amount" means an amount equal to 90% of the sum of
o the unpaid loan obligation (net unpaid principal and the
uncollected interest earned to the date of default) with
adjustments thereto if the lender has proceeded against
property securing the loan;
o the interest on the unpaid amount of the loan obligation from
the date of default to the date of the claim's initial
submission for payment plus 15 calendar days (but not to
exceed 9 months from the date of default), calculated at the
rate of 7% per year;
o the uncollected court costs;
o the attorney's fees not to exceed $500; and
o the expenses for recording the assignment of the security to
the United States.
The Secretary of HUD may deny a claim for insurance in whole or in part
for any violations of the regulations governing the Title I Program; however,
the Secretary of HUD may waive such violations if it determines that enforcement
of the regulations would impose an injustice upon a lender which has
substantially complied with the regulations in good faith.
Material Federal Income Tax Consequences
The following summary of the material federal income tax consequences
of the purchase, ownership and disposition of certificates is based on the
opinion of tax counsel to the depositor, either Sidley Austin Brown & Wood LLP
or Thacher Proffitt & Wood LLP, as specified in the related prospectus
supplement. This summary is based on the provisions of the Internal Revenue Code
of 1986, as amended, and the regulations, including the REMIC Regulations,
rulings and decisions promulgated thereunder and, where applicable, proposed
regulations, all of which are subject to change either prospectively or
retroactively. This summary does not address the material federal income tax
consequences of an investment in securities applicable to certain financial
institutions, banks, insurance companies, tax exempt organizations, dealers in
options, currency or securities, traders in securities that elect to mark to
market, or persons who hold positions other than securities such that the
securities are treated as part of a hedging transaction, straddle, conversion or
other integrated transaction which are subject to special rules. Because of the
complexity of the tax issues involved, we strongly suggest that prospective
investors consult their tax advisors regarding the federal, state, local and any
other tax consequences to them of the purchase, ownership and disposition of
securities.
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General
The federal income tax consequences to securityholders will vary
depending on whether an election is made to treat the trust fund relating to a
particular series of securities as a REMIC under the Code. The prospectus
supplement for each series of securities will specify whether a REMIC election
will be made. In the discussion that follows, all references to a "section" or
"sections" shall be understood to refer, unless otherwise specifically
indicated, to a section or sections of the Code.
If a REMIC election is not made, in the opinion of tax counsel:
o the trust fund will not be classified as an association
taxable as a corporation;
o the trust fund will be classified as a grantor trust under
subpart E, part I of subchapter J of the Code;
o as a grantor trust, the trust fund as such will not be subject
to federal income tax; and
o owners of certificates will be treated for federal income tax
purposes as owners of a portion of the trust fund's assets as
described below.
With respect to each trust fund that elects REMIC status, in the
opinion of tax counsel, assuming compliance with all provisions of the related
agreement, the trust fund will qualify as a REMIC and the related certificates
will be considered to be regular interests or residual interests in the REMIC.
The related prospectus supplement for each series of securities will indicate
whether the trust fund will make a REMIC election and whether a class of
securities will be treated as a regular or residual interest in the REMIC.
Each opinion is an expression of an opinion only, is not a guarantee of
results and is not binding on the Internal Revenue Service or any third party.
Taxation of Debt Securities
Status as Real Property Loans. Except to the extent otherwise provided
in the related prospectus supplement, if the securities are regular interests in
a REMIC or represent interests in a grantor trust, in the opinion of tax
counsel:
o securities held by a domestic building and loan association
will constitute "loans... secured by an interest in real
property" within the meaning of section 7701(a)(19)(C)(v) of
the Code; and
o securities held by a real estate investment trust will
constitute "real estate assets" within the meaning of section
856(c)(4)(A) of the Code and interest on securities will be
considered "interest on obligations secured by mortgages on
real property or on interests in real property" within the
meaning of section 856(c)(3)(B) of the Code.
Interest and Acquisition Discount. In the opinion of tax counsel,
securities that are REMIC regular interests are generally taxable to holders in
the same manner as evidences of indebtedness issued by the REMIC. Stated
interest on the securities that are REMIC regular interests will be taxable as
ordinary income and taken into account using the accrual method of accounting,
regardless of the holder's normal accounting method. Interest (other than
original issue discount) on securities (other than securities that are REMIC
regular interests) which are characterized as indebtedness for federal income
tax purposes will be includible in income by their holders in accordance with
their usual methods of accounting. When we refer to "debt securities" in this
section, we mean securities characterized as debt for federal income tax
purposes and securities that are REMIC regular interests.
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In the opinion of tax counsel, "compound interest securities" (i.e.,
debt securities that permit all interest to accrue for more than one year before
payments of interest are scheduled to begin) will, and certain of the other debt
securities issued at a discount may, be issued with "original issue discount" or
OID. The following discussion is based in part on the OID Regulations. A holder
should be aware, however, that the OID Regulations do not adequately address
certain issues relevant to prepayable securities, such as the debt securities.
In general, OID, if any, will equal the difference between the stated
redemption price at maturity of a debt security and its issue price. In the
opinion of tax counsel, a holder of a debt security must include OID in gross
income as ordinary interest income as it accrues under a method taking into
account an economic accrual of the discount. In general, OID must be included in
income in advance of the receipt of the cash representing that income. The
amount of OID on a debt security will be considered to be zero if it is less
than a de minimis amount determined under the Code.
The issue price of a debt security is the first price at which a
substantial amount of debt securities of that class are sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of debt securities is sold for cash on
or prior to the closing date, the issue price for that class will be treated as
the fair market value of that class on the closing date. The issue price of a
debt security also includes the amount paid by an initial debt security holder
for accrued interest that relates to a period prior to the issue date of the
debt security. The stated redemption price at maturity of a debt security
includes the original principal amount of the debt security, but generally will
not include distributions of interest if the distributions constitute "qualified
stated interest."
Under the OID Regulations, qualified stated interest generally means
interest payable at a single fixed rate or qualified variable rate (as described
below), provided that the interest payments are unconditionally payable at
intervals of one year or less during the entire term of the debt security. The
OID Regulations state that interest payments are unconditionally payable only if
a late payment or nonpayment is expected to be penalized or reasonable remedies
exist to compel payment. Debt securities may provide for default remedies in the
event of late payment or nonpayment of interest. Although the matter is not free
from doubt, the trustee intends to treat interest on such debt securities as
unconditionally payable and as constituting qualified stated interest, not OID.
However, absent clarification of the OID Regulations, where debt securities do
not provide for default remedies, the interest payments will be included in the
debt security's stated redemption price at maturity and taxed as OID. Interest
is payable at a single fixed rate only if the rate appropriately takes into
account the length of the interval between payments. Distributions of interest
on debt securities with respect to which deferred interest will accrue, will not
constitute qualified stated interest payments, in which case the stated
redemption price at maturity of such debt securities includes all distributions
of interest as well as principal thereon. Where the interval between the issue
date and the first distribution date on a debt security is longer than the
interval between subsequent distribution dates, the greater of (i) the interest
foregone and (ii) the excess of the stated principal amount over the issue price
will be included in the stated redemption price at maturity and tested under the
de minimis rule described below. Where the interval between the issue date and
the first distribution date on a debt security is shorter than the interval
between subsequent distribution dates, all of the additional interest will be
included in the stated redemption price at maturity and tested under the de
minimis rule described below. In the case of a debt security with a long first
period that has non-de minimis OID, all stated interest in excess of interest
payable at the effective interest rate for the long first period will be
included in the stated redemption price at maturity and the debt security will
generally have OID. Holders of debt securities should consult their own tax
advisors to determine the issue price and stated redemption price at maturity of
a debt security.
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Under the de minimis rule, OID on a debt security will be considered to
be zero if the OID is less than 0.25% of the stated redemption price at maturity
of the debt security multiplied by the weighted average maturity of the debt
security. For this purpose, the weighted average maturity of the debt security
is computed as the sum of the amounts determined by multiplying the number of
full years (i.e., rounding down partial years) from the issue date until each
distribution in reduction of stated redemption price at maturity is scheduled to
be made by a fraction, the numerator of which is the amount of each distribution
included in the stated redemption price at maturity of the debt security and the
denominator of which is the stated redemption price at maturity of the debt
security. Holders generally must report de minimis OID pro rata as principal
payments are received, and such income will be capital gain if the debt security
is held as a capital asset. However, accrual method holders may elect to accrue
all de minimis OID as well as market discount under a constant interest method.
Debt securities may provide for interest based on a qualified variable
rate. Under the OID Regulations, interest is generally treated as payable at a
qualified variable rate and not as contingent interest if
o the interest is unconditionally payable at least annually,
o the issue price of the debt instrument does not exceed the
total noncontingent principal payments, and
o interest is based on a "qualified floating rate," an
"objective rate," or a combination of "qualified floating
rates" that do not operate in a manner that significantly
accelerates or defers interest payments on the debt security.
In the case of compound interest securities, certain interest weighted
securities, and certain of the other debt securities, none of the payments under
the instrument will be considered qualified stated interest, and thus the
aggregate amount of all payments will be included in the stated redemption price
at maturity.
The Internal Revenue Service issued contingent payment regulations
governing the calculation of OID on instruments having contingent interest
payments. These contingent payment regulations represent the only guidance
regarding the views of the IRS with respect to contingent interest instruments
and specifically do not apply for purposes of calculating OID on debt
instruments subject to section 1272(a)(6) of the Code, such as the debt
securities. Additionally, the OID Regulations do not contain provisions
specifically interpreting section 1272(a)(6) of the Code. Until the Treasury
issues guidance to the contrary, the trustee intends to base its computation on
section 1272(a)(6) and the OID Regulations as described in this prospectus.
However, because no regulatory guidance currently exists under section
1272(a)(6) of the Code, there can be no assurance that such methodology
represents the correct manner of calculating OID.
The holder of a debt security issued with OID must include in gross
income, for all days during its taxable year on which it holds the debt
security, the sum of the "daily portions" of OID. The amount of OID includible
in income by a holder will be computed by allocating to each day during a
taxable year a pro rata portion of the original issue discount that accrued
during the relevant accrual period. In the case of a debt security that is not a
Regular Interest Security and the principal payments on which are not subject to
acceleration resulting from prepayments on the loans, the amount of OID
includible in income of a holder for an accrual period (generally the period
over which interest accrues on the debt instrument) will equal the product of
the yield to maturity of the debt security and the adjusted issue price of the
debt security, reduced by any payments of qualified stated interest. The
adjusted issue price is the sum of its issue price plus prior accruals of OID,
reduced by the total payments made with respect to the debt security in all
prior periods, other than qualified stated interest payments.
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Certain classes of the debt securities may be "pay-through securities,"
which are debt instruments that are subject to acceleration due to prepayments
on other debt obligations securing those instruments. The amount of OID to be
included in the income of a pay-through security is computed by taking into
account the prepayment rate assumed in pricing the debt instrument. The amount
of OID that will accrue during an accrual period on a pay-through security is
the excess, if any, of the
o sum of
- the present value of all payments remaining to be
made on the pay-through security as of the close of
the accrual period and
- the payments during the accrual period of amounts
included in the stated redemption price of the
pay-through security,
over
o the adjusted issue price of the pay-through security at the
beginning of the accrual period.
The present value of the remaining payments is to be determined on the
basis of three factors:
o the original yield to maturity of the pay-through security
(determined on the basis of compounding at the end of each
accrual period and properly adjusted for the length of the
accrual period),
o events that have occurred before the end of the accrual
period, and
o the assumption that the remaining payments will be made in
accordance with the original prepayment assumption.
The effect of this method is to increase the portions of OID required to be
included in income by a holder to take into account prepayments with respect to
the loans at a rate that exceeds the prepayment assumption, and to decrease (but
not below zero for any period) the portions of OID required to be included in
income by a holder of a pay-through security to take into account prepayments
with respect to the loans at a rate that is slower than the prepayment
assumption. Although OID will be reported to holders of pay-through securities
based on the prepayment assumption, no representation is made to holders that
loans will be prepaid at that rate or at any other rate.
The depositor may adjust the accrual of OID on a class of securities
that are regular REMIC interests (or other regular interests in a REMIC) in a
manner that it believes to be appropriate, to take account of realized losses on
the loans, although the OID Regulations do not provide for such adjustments. If
the IRS were to require that OID be accrued without such adjustments, the rate
of accrual of OID for a class of securities that are regular REMIC interests
could increase.
Certain classes of securities that are regular REMIC interests may
represent more than one class of REMIC regular interests. Unless otherwise
provided in the related prospectus supplement, the applicable trustee intends,
based on the OID Regulations, to calculate OID on such securities as if, solely
for the purposes of computing OID, the separate regular interests were a single
debt instrument.
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A subsequent holder of a debt security will also be required to include
OID in gross income, but the holder who purchases the debt security for an
amount that exceeds its adjusted issue price will be entitled (as will an
initial holder who pays more than a debt security's issue price) to offset such
OID by comparable economic accruals of portions of the excess.
Effects of Defaults and Delinquencies. In the opinion of tax counsel,
holders will be required to report income with respect to the related securities
under an accrual method without giving effect to delays and reductions in
distributions attributable to a default or delinquency on the loans, except
possibly to the extent that it can be established that such amounts are
uncollectible. As a result, the amount of income (including OID) reported by a
holder of a security in any period could significantly exceed the amount of cash
distributed to the holder in that period. The holder will eventually be allowed
a loss (or will be allowed to report a lesser amount of income) to the extent
that the aggregate amount of distributions on the securities is reduced as a
result of a loan default. However, the timing and character of losses or
reductions in income are uncertain and, accordingly, holders of securities
should consult their own tax advisors on this point.
Interest Weighted Securities. An "interest weighted security" is a
security that is a REMIC regular interest or a "stripped" security (as discussed
under "--Tax Status as a Grantor Trust; General" below) the payments on which
consist solely or primarily of a specified portion of the interest payments on
qualified mortgages held by the REMIC or on loans underlying pass-through
securities. It is not clear how income should be accrued with respect to
interest weighted securities. The trustee intends to take the position that all
of the income derived from an interest weighted security should be treated as
OID and that the amount and rate of accrual of such OID should be calculated by
treating the interest weighted security as a compound interest security.
However, in the case of interest weighted securities that are entitled to some
payments of principal and are REMIC regular interests, the IRS could assert that
income derived from the interest weighted security should be calculated as if
the security were a security purchased at a premium equal to the excess of the
price paid by the holder for the Security over its stated principal amount, if
any. Under this approach, a holder would be entitled to amortize such premium
only if it has in effect an election under section 171 of the Code with respect
to all taxable debt instruments held by such holder, as described below.
Alternatively, the IRS could assert that an interest weighted security should be
taxable under the rules governing bonds issued with contingent payments. This
treatment may be more likely in the case of interest weighted securities that
are stripped securities as described below. See "--Non-REMIC Certificates--B.
Multiple Classes of Senior Certificates--Stripped Bonds and Stripped Coupons"
below.
Variable Rate Debt Securities. In the opinion of tax counsel, in the
case of debt securities bearing interest at a rate that varies directly,
according to a fixed formula, with an objective index, it appears that the yield
to maturity of the debt securities and in the case of pay-through securities,
the present value of all payments remaining to be made on the debt securities,
should be calculated as if the interest index remained at its value as of the
issue date of the securities. Because the proper method of adjusting accruals of
OID on a variable rate debt security is uncertain, holders of variable rate debt
securities should consult their own tax advisers regarding the appropriate
treatment of such securities for federal income tax purposes.
Market Discount. In the opinion of tax counsel, a purchaser of a
security may be subject to the market discount rules of sections 1276 through
1278 of the Code. A holder that acquires a debt security with more than a
prescribed de minimis amount of "market discount" (generally, the excess of the
principal amount of the debt security over the purchaser's purchase price) will
be required to include accrued market discount in income as ordinary income in
each month, but limited to an amount not exceeding the principal payments on the
debt security received in that month and, if the securities are sold, the gain
realized. This market discount would accrue in a manner to be provided in
Treasury regulations but, until such regulations are issued, market discount
would in general accrue either
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o on the basis of a constant yield (in the case of a pay-through
security, taking into account a prepayment assumption) or
o in the ratio of (a) in the case of securities (or in the case
of a pass-through security, as set forth below, the loans
underlying the security) not originally issued with OID,
stated interest payable in the relevant period to total stated
interest remaining to be paid at the beginning of the period
or (b) in the case of securities (or, in the case of a
pass-through security, as described below, the loans
underlying the security) originally issued at a discount, OID
in the relevant period to total OID remaining to be paid.
Section 1277 of the Code provides that, regardless of the origination
date of the debt security (or, in the case of a pass-through security, the
loans), the excess of interest paid or accrued to purchase or carry the security
(or, in the case of a pass-through security, as described below, the underlying
loans) with market discount over interest received on the security is allowed as
a current deduction only to the extent such excess is greater than the market
discount that accrued during the taxable year in which such interest expense was
incurred. In general, the deferred portion of any interest expense will be
deductible when such market discount is included in income, including upon the
sale, disposition, or repayment of the security (or in the case of a
pass-through security, an underlying loan). A holder may elect to include market
discount in income currently as it accrues, on all market discount obligations
acquired by such holder during the taxable year such election is made and
thereafter, in which case the interest deferral rule will not apply.
Premium. In the opinion of tax counsel, a holder who purchases a debt
security (other than an interest weighted security to the extent described
above) at a cost greater than its stated redemption price at maturity, generally
will be considered to have purchased the security at a premium, which it may
elect to amortize as an offset to interest income on the security (and not as a
separate deduction item) on a constant yield method. Although no regulations
addressing the computation of premium accrual on comparable securities have been
issued, the legislative history of the 1986 Act indicates that premium is to be
accrued in the same manner as market discount. Accordingly, it appears that the
accrual of premium on a class of pay-through securities will be calculated using
the prepayment assumption used in pricing the class. If a holder makes an
election to amortize premium on a debt security, the election will apply to all
taxable debt instruments (including all REMIC regular interests and all
pass-through certificates representing ownership interests in a trust holding
debt obligations) held by the holder at the beginning of the taxable year in
which the election is made, and to all taxable debt instruments acquired
thereafter by the holder, and will be irrevocable without the consent of the
IRS. Purchasers who pay a premium for the securities should consult their tax
advisers regarding the election to amortize premium and the method to be
employed.
On December 30, 1997, the IRS issued final amortizable bond premium
regulations dealing with amortizable bond premium. The regulations specifically
do not apply to prepayable debt instruments subject to code section 1272(a)(6)
of the Code. Absent further guidance from the IRS, the trustee intends to
account for amortizable bond premium in the manner described above. Prospective
purchasers of the debt securities should consult their tax advisors regarding
the possible application of the amortizable bond premium regulations.
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Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit the holder of a debt security to elect to accrue all
interest, discount (including de minimis market discount or OID) and premium
income as interest, based on a constant yield method for Debt securities
acquired on or after April 4, 1994. If such an election were to be made with
respect to a debt security with market discount, the holder of the debt security
would be deemed to have made an election to include in income currently market
discount with respect to all other debt instruments having market discount that
such holder of the debt security acquires during the year of the election or
thereafter. Similarly, the holder of a debt security that makes this election
for a debt security that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that the holder owns or acquires. The election to
accrue interest, discount and premium on a constant yield method with respect to
a debt security is irrevocable.
Non-REMIC Certificates
A. Single Class of Senior Certificates
Characterization. The trust fund may be created with one class of
senior certificates and one class of subordinated certificates. In this case,
each senior certificateholder will be treated as the owner of a pro rata
undivided interest in the interest and principal portions of the trust fund
represented by that senior certificate and will be considered the equitable
owner of a pro rata undivided interest in each of the mortgage loans in the
related mortgage pool. Any amounts received by a senior certificateholder in
lieu of amounts due with respect to any mortgage loan because of a default or
delinquency in payment will be treated for federal income tax purposes as having
the same character as the payments they replace.
Each holder of a senior certificate will be required to report on its
federal income tax return its pro rata share of the entire income from the
mortgage loans in the trust fund represented by that senior certificate,
including interest, original issue discount, if any, prepayment fees, assumption
fees, any gain recognized upon an assumption and late payment charges received
by the master servicer in accordance with the senior certificateholder's method
of accounting. Under section 162 or 212 of the Code, each senior
certificateholder will be entitled to deduct its pro rata share of servicing
fees, prepayment fees, assumption fees, any loss recognized upon an assumption
and late payment charges retained by the master servicer, provided that these
amounts are reasonable compensation for services rendered to the trust fund. A
senior certificateholder that is an individual, estate or trust will be entitled
to deduct its share of expenses only to the extent such expenses, plus all other
section 212 expenses, exceed 2% of that senior certificateholder's adjusted
gross income. A senior certificateholder using the cash method of accounting
must take into account its pro rata share of income and deductions as and when
collected by or paid to the master servicer. A senior certificateholder using an
accrual method of accounting must take into account its pro rata share of income
and deductions as they become due or are paid to the master servicer, whichever
is earlier. If the servicing fees paid to the master servicer were deemed to
exceed reasonable servicing compensation, the amount of such excess could be
considered as a retained ownership interest by the master servicer, or any
person to whom the master servicer assigned for value all or a portion of the
servicing fees, in a portion of the interest payments on the mortgage loans. The
mortgage loans might then be subject to the "coupon stripping" rules of the Code
discussed below.
Unless otherwise specified in the related prospectus supplement, tax
counsel will deliver its opinion to the depositor with respect to each series of
certificates that:
o a senior certificate owned by a "domestic building and loan
association" within the meaning of section 7701(a)(19) of the
Code representing principal and interest payments on mortgage
loans will be considered to represent "loans... secured by an
interest in real property which is ... residential property"
within the meaning of section 7701(a)(19)(C)(v) of the Code to
the extent that the mortgage loans represented by that senior
certificate are of a type described in the section;
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o a senior certificate owned by a real estate investment trust
representing an interest in mortgage loans will be considered
to represent "real estate assets" within the meaning of
section 856(c)(4)(A) of the Code and interest income on the
mortgage loans will be considered "interest on obligations
secured by mortgages on real property" within the meaning of
section 856(c)(3)(B) of the Code to the extent that the
mortgage loans represented by that senior certificate are of a
type described in the section; and
o a senior certificate owned by a REMIC will be an
"obligation... which is principally secured by an interest in
real property" within the meaning of section 860G(a)(3)(A) of
the Code.
The Small Business Job Protection Act of 1996, as part of the repeal of
the bad debt reserve method for thrift institutions, repealed the application of
section 593(d) of the Code to any taxable year beginning after December 31,
1995.
The assets constituting certain trust funds may include "buydown"
mortgage loans. The characterization of any investment in "buydown" mortgage
loans will depend upon the precise terms of the related buydown agreement, but
to the extent that such "buydown" mortgage loans are secured in part by a bank
account or other personal property, they may not be treated in their entirety as
assets described in the foregoing sections of the Code. There are no directly
applicable precedents with respect to the federal income tax treatment or the
characterization of investments in "buydown" mortgage loans. Accordingly,
holders of senior certificates should consult their own tax advisors with
respect to characterization of investments in senior certificates representing
an interest in a trust fund that includes "buydown" mortgage loans.
Premium. The price paid for a senior certificate by a holder will be
allocated to the holder's undivided interest in each mortgage loan based on each
mortgage loan's relative fair market value, so that the holder's undivided
interest in each mortgage loan will have its own tax basis. A senior
certificateholder that acquires an interest in mortgage loans at a premium may
elect to amortize the premium under a constant interest method, provided that
the mortgage loan was originated after September 27, 1985. Premium allocable to
a mortgage loan originated on or before September 27, 1985 should be allocated
among the principal payments on the mortgage loan and allowed as an ordinary
deduction as principal payments are made. Amortizable bond premium will be
treated as an offset to interest income on a senior certificate. The basis for a
senior certificate will be reduced to the extent that amortizable premium is
applied to offset interest payments.
It is not clear whether a reasonable prepayment assumption should be
used in computing amortization of premium allowable under section 171 of the
Code. A certificateholder that makes this election for a certificate that is
acquired at a premium will be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that the certificateholder acquires during the year of the election or
thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a senior certificate acquired at a premium
should recognize a loss, if a mortgage loan prepays in full, equal to the
difference between the portion of the prepaid principal amount of the mortgage
loan that is allocable to the senior certificate and the portion of the adjusted
basis of the senior certificate that is allocable to the mortgage loan. If a
reasonable prepayment assumption is used to amortize the premium, it appears
that a loss would be available, if at all, only if prepayments have occurred at
a rate faster than the reasonable assumed prepayment rate. It is not clear
whether any other adjustments would be required to reflect differences between
an assumed prepayment rate and the actual rate of prepayments.
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On December 30, 1997, the Internal Revenue Service issued final
amortizable bond premium regulations. These regulations, which generally are
effective for bonds issued or acquired on or after March 2, 1998 (or, for
holders making an election for the taxable year that included March 2, 1998 or
any subsequent taxable year, shall apply to bonds held on or after the first day
of the taxable year of the election). The amortizable bond premium regulations
specifically do not apply to prepayable debt instruments or any pool of debt
instruments, such as the trust fund, the yield on which may be affected by
prepayments which are subject to section 1272(a)(6) of the Code. Absent further
guidance from the IRS and unless otherwise specified in the related prospectus
supplement, the trustee will account for amortizable bond premium in the manner
described above. Prospective purchasers should consult their tax advisors
regarding amortizable bond premium and the amortizable bond premium regulations.
Original Issue Discount. The IRS has stated in published rulings that,
in circumstances similar to those described herein, the special rules of the
Code (currently sections 1271 through 1273 and section 1275) relating to
original issue discount (OID) will be applicable to a senior certificateholder's
interest in those mortgage loans meeting the conditions necessary for these
sections to apply. Accordingly, the following discussion is based in part on the
Treasury's OID Regulations issued on February 2, 1994 under sections 1271
through 1273 and section 1275 of the Code. Certificateholders should be aware,
however, that the OID Regulations do not adequately address certain issues
relevant to prepayable securities, such as the certificates. Rules regarding
periodic inclusion of OID income are applicable to mortgages of corporations
originated after May 27, 1969, mortgages of noncorporate mortgagors (other than
individuals) originated after July 1, 1982, and mortgages of individuals
originated after March 2, 1984. OID could arise by the financing of points or
other charges by the originator of the mortgages in an amount greater than a
statutory de minimis exception to the extent that the points are not currently
deductible under applicable provisions of the Code or are not for services
provided by the lender. OID generally must be reported as ordinary gross income
as it accrues under a constant interest method. See "--B. Multiple Classes of
Senior Certificates--Senior Certificates Representing Interests in Loans Other
than ARM Loans--Accrual of Original Issue Discount" below.
Market Discount. A senior certificateholder that acquires an undivided
interest in mortgage loans may be subject to the market discount rules of
sections 1276 through 1278 to the extent an undivided interest in a mortgage
loan is considered to have been purchased at a "market discount". Generally, the
excess of the portion of the principal amount of a mortgage loan allocable to
the holder's undivided interest over the holder's tax basis in such interest.
Market discount with respect to a senior certificate will be considered to be
zero if the amount allocable to the senior certificate is less than 0.25% of the
senior certificate's stated redemption price at maturity multiplied by the
weighted average maturity remaining after the date of purchase. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under sections 1276 through 1278 of the Code.
The Code provides that any principal payment, whether a scheduled
payment or a prepayment, or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986 shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
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The Code also grants to the Department of the Treasury authority to
issue regulations providing for the computation of accrued market discount on
debt instruments, the principal of which is payable in more than one
installment. Although the Treasury has not yet issued regulations, rules
described in the relevant legislative history will apply. Under those rules, the
holder of a market discount bond may elect to accrue market discount either on
the basis of a constant interest rate or according to one of the following
methods. If a senior certificate is issued with OID, the amount of market
discount that accrues during any accrual period is equal to the product of
o the total remaining market discount
times
o a fraction, the numerator of which is the original issue
discount accruing during the period and the denominator of
which is the total remaining original issue discount at the
beginning of the accrual period.
For senior certificates issued without OID, the amount of market discount that
accrues during a period is equal to the product of
o the total remaining market discount
times
o a fraction, the numerator of which is the amount of stated
interest paid during the accrual period and the denominator of
which is the total amount of stated interest remaining to be
paid at the beginning of the accrual period.
For purposes of calculating market discount under any of the above methods in
the case of instruments (such as the senior certificates) which provide for
payments which may be accelerated by reason of prepayments of other obligations
securing such instruments, the same prepayment assumption applicable to
calculating the accrual of original issue discount will apply. Because the
regulations described above have not been issued, it is impossible to predict
what effect those regulations might have on the tax treatment of a senior
certificate purchased at a discount or premium in the secondary market.
A holder who acquires a senior certificate at a market discount also
may be required to defer, until the maturity date of the senior certificate or
its earlier disposition in a taxable transaction, the deduction of a portion of
the amount of interest that the holder paid or accrued during the taxable year
on indebtedness incurred or maintained to purchase or carry the senior
certificate in excess of the aggregate amount of interest (including OID)
includible in such holder's gross income for the taxable year with respect to
the senior certificate. The amount of such net interest expense deferred in a
taxable year may not exceed the amount of market discount accrued on the senior
certificate for the days during the taxable year on which the holder held the
senior certificate and, in general, would be deductible when such market
discount is includible in income. The amount of any remaining deferred deduction
is to be taken into account in the taxable year in which the senior certificate
matures or is disposed of in a taxable transaction. In the case of a disposition
in which gain or loss is not recognized in whole or in part, any remaining
deferred deduction will be allowed to the extent of gain recognized on the
disposition. This deferral rule does not apply if the senior certificateholder
elects to include such market discount in income currently as it accrues on all
market discount obligations acquired by the senior certificateholder in that
taxable year or thereafter.
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Election to Treat All Interest as Original Issue Discount. The OID
Regulations permit a certificateholder to elect to accrue all interest, discount
(including de minimis market or original issue discount) and premium in income
as interest, based on a constant yield method for certificates acquired on or
after April 4, 1994. If such an election is made with respect to a mortgage loan
with market discount, the certificateholder will be deemed to have made an
election to include in income currently market discount with respect to all
other debt instruments having market discount that such certificateholder
acquires during the year of the election or thereafter. Similarly, a
certificateholder that makes this election for a certificate that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
certificateholder owns or acquires. See "--Regular Certificates--Original Issue
Discount and Premium" below. The election to accrue interest, discount and
premium on a constant yield method with respect to a certificate is irrevocable.
Anti-abuse Rule. The IRS is permitted to apply or depart from the rules
contained in the OID Regulations as necessary or appropriate to achieve a
reasonable result where a principal purpose in structuring a mortgage asset,
mortgage loan or senior certificate, or the effect of applying the otherwise
applicable rules, is to achieve a result that is unreasonable in light of the
purposes of the applicable statutes (which generally are intended to achieve the
clear reflection of income for both issuers and holders of debt instruments).
B. Multiple Classes of Senior Certificates
Stripped Bonds and Stripped Coupons
General. Pursuant to section 1286 of the Code, the separation of
ownership of the right to receive some or all of the interest payments on an
obligation from ownership of the right to receive some or all of the principal
payments results in the creation of "stripped bonds" with respect to principal
payments and "stripped coupons" with respect to interest payments. For purposes
of sections 1271 through 1288 of the Code, section 1286 treats a stripped bond
or a stripped coupon as an obligation issued on the date that such stripped
interest is created. If a trust fund is created with two classes of senior
certificates, one class of senior certificates will represent the right to
principal and interest, or principal only, on all or a portion of the mortgage
loans ("stripped bond certificates"), while the second class of senior
certificates will represent the right to some or all of the interest on such
portion ("stripped coupon certificates").
Servicing fees in excess of reasonable servicing fees will be treated
under the stripped bond rules. If such excess servicing fee is less than 100
basis points (i.e., 1% interest on the mortgage loan principal balance) or the
certificates are initially sold with a de minimis discount (assuming no
prepayment assumption is required), any non-de minimis discount arising from a
subsequent transfer of the certificates should be treated as market discount.
The IRS appears to require that reasonable servicing fees be calculated on a
mortgage loan by mortgage loan basis, which could result in some mortgage loans
being treated as having more than 100 basis points of interest stripped off.
Although not entirely clear, a stripped bond certificate generally
should be treated as a single debt instrument issued on the day it is purchased
for purposes of calculating any original issue discount. Generally, if the
discount on a stripped bond certificate is larger than a de minimis amount (as
calculated for purposes of the original issue discount rules), a purchaser of
such a certificate will be required to accrue the discount under the original
issue discount rules of the Code. See "--Single Class of Senior
Certificates--Original Issue Discount" above. However, a purchaser of a stripped
bond certificate will be required to account for any discount on the certificate
as market discount rather than original issue discount if either
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o the amount of OID with respect to the certificate was treated
as zero under the OID de minimis rule when the certificate was
stripped, or
o no more than 100 basis points (including any amount of
servicing in excess of reasonable servicing) are stripped off
the trust fund's mortgage loans.
Pursuant to Revenue Procedure 91-49 issued on August 8, 1991, purchasers of
stripped bond certificates using an inconsistent method of accounting must
change their method of accounting and request the consent of the IRS to the
change in their accounting method on a statement attached to their first timely
tax return filed after August 8, 1991.
The precise tax treatment of stripped coupon certificates is
substantially uncertain. The Code could be read literally to require that
original issue discount computations be made on a mortgage loan by mortgagee
loan basis. However, based on recent IRS guidance, it appears that a stripped
coupon certificate should be treated as a single installment obligation subject
to the original issue discount rules of the Code. As a result, all payments on a
stripped coupon certificate would be included in the certificate's stated
redemption price at maturity for purposes of calculating income on such
certificate under the original issue discount rules of the Code.
It is unclear under what circumstances, if any, the prepayment of
mortgage loans will give rise to a loss to the holder of a stripped bond
certificate purchased at a premium or a stripped coupon certificate. If a senior
certificate is treated as a single instrument (rather than an interest in
discrete mortgage loans) and the effect of prepayments is taken into account in
computing yield with respect to the senior certificate, it appears that no loss
may be available as a result of any particular prepayment unless prepayments
occur at a rate faster than the assumed prepayment rate. However, if the senior
certificate is treated as an interest in discrete mortgage loans or if no
prepayment assumption is used, then, when a mortgage loan is prepaid, the holder
of the certificate should be able to recognize a loss equal to the portion of
the adjusted issue price of the certificate that is allocable to the mortgage
loan.
Because of the complexity of these issues, we strongly suggest that
holders of stripped bond certificates and stripped coupon certificates consult
with their own tax advisors regarding the proper treatment of these certificates
for federal income tax purposes.
Treatment of Certain Owners. Several sections of the Code provide
beneficial treatment to certain taxpayers that invest in mortgage loans of the
type that make up the trust fund. With respect to these sections, no specific
legal authority exists regarding whether the character of the senior
certificates, for federal income tax purposes, will be the same as that of the
underlying mortgage loans. While section 1286 treats a stripped obligation as a
separate obligation for purposes of the provisions of the Code addressing
original issue discount, it is not clear whether such characterization would
apply with regard to these other sections. Although the issue is not free from
doubt, in the opinion of tax counsel, based on policy considerations, each class
of senior certificates should be considered to represent "real estate assets"
within the meaning of section 856(c)(4)(A) of the Code and "loans ... secured
by, an interest in real property which is ... residential real property" within
the meaning of section 7701(a)(19)(C)(v) of the Code, and interest income
attributable to senior certificates should be considered to represent "interest
on obligations secured by mortgages on real property" within the meaning of
section 856(c)(3)(B) of the Code, provided that in each case the underlying
mortgage loans and interest on such mortgage loans qualify for such treatment.
Prospective purchasers to which such characterization of an investment in senior
certificates is material should consult their own tax advisors regarding the
characterization of the senior certificates and related income. Senior
certificates will be "obligations (including any participation or certificate of
beneficial ownership therein) which are principally secured by an interest in
real property" within the meaning of section 860G(a)(3)(A) of the Code.
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Senior Certificates Representing Interests in Loans Other Than
ARM Loans
General. The OID rules of sections 1271 through 1275 of the Code will
be applicable to a senior certificateholder's interest in those mortgage loans
as to which the conditions for the application of those sections are met. Rules
regarding periodic inclusion of original issue discount in income are applicable
to mortgages of corporations originated after May 27, 1969, mortgages of
noncorporate mortgagors (other than individuals) originated after July 1, 1982,
and mortgages of individuals originated after March 2, 1984. Under the OID
Regulations, OID could arise by the charging of points by the originator of the
mortgage in an amount greater than the statutory de minimis exception, including
a payment of points that is currently deductible by the borrower under
applicable provisions of the Code, or, under certain circumstances, by the
presence of "teaser" rates on the mortgage loans. OID on each senior certificate
must be included in the owner's ordinary income for federal income tax purposes
as it accrues, in accordance with a constant interest method that takes into
account the compounding of interest, in advance of receipt of the cash
attributable to such income. The amount of OID required to be included in an
owner's income in any taxable year with respect to a senior certificate
representing an interest in mortgage loans other than mortgage loans with
interest rates that adjust periodically (ARM loans) likely will be computed as
described under "--Accrual of Original Issue Discount" below. The following
discussion is based in part on the OID Regulations and in part on the provisions
of the Tax Reform Act of 1986, as amended. The OID Regulations generally are
effective for debt instruments issued on or after April 4, 1994, but may be
relied upon as authority with respect to debt instruments such as the senior
certificates issued after December 21, 1992. Alternatively, proposed Treasury
regulations issued December 21, 1992 may be treated as authority for debt
instruments issued after December 21, 1992 and prior to April 4, 1994, and
proposed Treasury regulations issued in 1986 and 1991 may be treated as
authority for instruments issued before December 21, 1992. In applying these
dates, the issue date of the mortgage loans should be used or, in the case of
stripped bond certificates or stripped coupon certificates, the date when these
certificates are acquired. The holder of a senior certificate should be aware,
however, that neither the proposed OID Regulations nor the OID Regulations
adequately address certain issues relevant to prepayable securities.
Under the Code, the mortgage loans underlying each senior certificate
will be treated as having been issued on the date they were originated with an
amount of OID equal to the excess of such mortgage loan's stated redemption
price at maturity over its issue price. The issue price of a mortgage loan is
generally the amount lent to the mortgagee, which may be adjusted to take into
account certain loan origination fees. The stated redemption price at maturity
of a mortgage loan is the sum of all payments to be made on such mortgage loan
other than payments that are treated as qualified stated interest payments. The
accrual of this OID, as described under "--Accrual of Original Issue Discount"
below, will, unless otherwise specified in the related prospectus supplement,
utilize the original yield to maturity of the senior certificate calculated
based on a reasonable assumed prepayment rate for the mortgage loans underlying
the senior certificates and will take into account events that occur during the
calculation period. This prepayment assumption will be determined in the manner
prescribed by regulations that have not yet been issued. The legislative history
of the Tax Reform Act provides, however, that the regulations will require that
this prepayment assumption be the prepayment assumption that is used in
determining the offering price of the certificate. No representation is made
that any certificate will prepay at the prepayment assumption or at any other
rate. The prepayment assumption contained in the Code literally only applies to
debt instruments collateralized by other debt instruments that are subject to
prepayment rather than direct ownership interests in such debt instruments, such
as the certificates represent. However, no other legal authority provides
guidance with regard to the proper method for accruing OID on obligations that
are subject to prepayment, and, until further guidance is issued, the master
servicer intends to calculate and report OID under the method described below.
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Accrual of Original Issue Discount. Generally, the owner of a senior
certificate must include in gross income the sum of the "daily portions", as
defined below, of the OID on that senior certificate for each day on which it
owns the senior certificate, including the date of purchase but excluding the
date of disposition. In the case of an original owner, the daily portions of
original issue discount with respect to each component generally will be
determined as follows under the Amendments. A calculation will be made by the
master servicer or such other entity specified in the related prospectus
supplement of the portion of original issue discount that accrues during each
successive monthly accrual period (or shorter period from the date of original
issue) that ends on the day in the calendar year corresponding to each of the
distribution dates on the senior certificate (or the day prior to each such
date). This will be done, in the case of each full month accrual period, by
adding
o the present value at the end of the accrual period (determined
by using as a discount factor the original yield to maturity
of the respective component, under the Prepayment Assumption)
of all remaining payments to be received under the Prepayment
Assumption on the respective component, and
o any payments received during such accrual period (other than a
payment of qualified stated interest), and subtracting from
that total the "adjusted issue price" of the respective
component at the beginning of such accrual period.
The "adjusted issue price" of a senior certificate at the beginning of the first
accrual period is its issue price; the "adjusted issue price" of a senior
certificate at the beginning of a subsequent accrual period is the "adjusted
issue price" at the beginning of the immediately preceding accrual period plus
the amount of OID allocable to that accrual period reduced by the amount of any
payment (other than a payment of qualified stated interest) made at the end of
or during that accrual period. The OID during the accrual period will then be
divided by the number of days in the period to determine the daily portion of
OID for each day in the period. With respect to an initial accrual period
shorter than a full monthly accrual period, the daily portions of original issue
discount must be determined according to an appropriate allocation under any
reasonable method.
OID generally must be reported as ordinary gross income as it accrues
under a constant interest method that takes into account the compounding of
interest as it accrues rather than when received. However, the amount of OID
includible in the income of a holder of an obligation is reduced when the
obligation is acquired after its initial issuance at a price greater than the
sum of the original issue price and the previously accrued OID, less prior
payments of principal. Accordingly, if mortgage loans acquired by a
certificateholder are purchased at a price equal to the then unpaid principal
amount of such mortgage loan, no original issue discount attributable to the
difference between the issue price and the original principal amount of such
mortgage loan (i.e., points) will be includible by such holder. Other OID on the
mortgage loans (e.g., that arising from a "teaser" rate) would still need to be
accrued.
Senior Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such
as the senior certificates (if the related trust fund includes ARM loans), which
represent interests in ARM loans. Additionally, the IRS has not issued guidance
under the coupon stripping rules of the Code with respect to these instruments.
In the absence of any authority, the master servicer will report OID on senior
certificates attributable to ARM loans ("stripped ARM obligations") to holders
in a manner it believes to be consistent with the rules described under the
heading "--Senior Certificates Representing Interests in Loans Other Than ARM
Loans" above and with the OID Regulations. In general, application of these
rules may require inclusion of income on a stripped ARM obligation in advance of
the receipt of cash attributable to such income. Further, the addition of
deferred interest resulting from negative amortization to the principal balance
of an ARM loan may require the inclusion of such amount in the income of the
senior certificateholder when the amount accrues. Furthermore, the addition of
deferred interest to the senior certificate's principal balance will result in
additional income (including possibly OID income) to the senior
certificateholder over the remaining life of the senior certificates.
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Because the treatment of stripped ARM obligations is uncertain,
investors are urged to consult their tax advisors regarding how income will be
includible with respect to these certificates.
C. Possible Application of Contingent Payment Regulations to Certain Non-REMIC
Certificates
Final regulations issued on June 11, 1996 with respect to OID under
section 1275 include "contingent payment regulations" covering obligations that
provide for one or more contingent payments. Rights to interest payments on a
mortgage loan might be considered to be contingent within the meaning of the
contingent payment regulations if the interest would not be paid if the borrower
exercised its right to prepay the mortgage loan. However, in the case of an
investor having a right to shares of the interest and principal payments on a
mortgage loan when the share of interest is not substantially greater than the
share of principal, the possibility of prepayment should not be considered to
characterize otherwise noncontingent interest payments as contingent payments.
The absence of interest payments following a prepayment would be the normal
consequence of the return of the investor's capital in the form of a principal
payment. On the other hand, a right to interest on such a mortgage loan is more
likely to be regarded as contingent if held by an investor that does not also
hold a right to the related principal. Such an investor would not recover its
capital through receipt of a principal payment at the time of the prepayment of
the mortgage loan.
Applying these principles to the senior certificates, because the
mortgage loans are subject to prepayment at any time, payments on a class of
senior certificates representing a right to interest on the mortgage loans could
be considered to be contingent within the meaning of the contingent payment
regulations, at least if the senior certificate was issued at a premium. The
likelihood that such payments will be considered contingent increases the
greater the amount of such premium.
In the event that payments on a senior certificate in respect of
interest on the mortgage loans are considered contingent, then the holder would
generally report income or loss as described under the heading "--Stripped Bonds
and Stripped Coupons" above; provided, however, that the yield that would be
used in calculating interest income would not be the actual yield but would
instead equal the "applicable Federal rate" (AFR), in effect at the time of
purchase of the senior certificate by the holder. The AFR generally is an
average of current yields on Treasury securities computed and published monthly
by the IRS. In addition, once the holder's adjusted basis in the senior
certificate has been reduced (by prior distributions or losses) to an amount
equal to the aggregate amount of the remaining noncontingent payments of the
mortgage loans that are allocable to the senior certificate (or to zero if the
senior certificate does not share in principal payments), then the holder would
recognize income in each subsequent month equal to the full amount of interest
on the mortgage loans that accrues in that month and is allocable to the senior
certificate. It is uncertain whether, under the contingent payment regulations,
any other adjustments would be made to take account of prepayments of the
mortgage loans.
D. Sale or Exchange of a Senior Certificate
Sale or exchange of a senior certificate prior to its maturity will
result in gain or loss equal to the difference, if any, between the amount
received and the seller's adjusted basis in the senior certificate. Such
adjusted basis generally will equal the seller's purchase price for the senior
certificate, increased by the OID included in the seller's gross income with
respect to the senior certificate, and reduced by principal payments on the
senior certificate previously received by the seller. Such gain or loss will be
capital gain or loss to a seller for which a senior certificate is a "capital
asset" within the meaning of section 1221 of the Code, and will be long-term or
short-term depending on whether the senior certificate has been owned for the
long-term capital gain holding period (currently more than one year).
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Non-corporate taxpayers are subject to reduced maximum rates on
long-term capital gains and are generally subject to tax at ordinary income
rates on short-term capital gains. The deductibility of capital losses is
subject to certain limitations. Prospective investors should consult their own
tax advisors concerning these tax law provisions.
It is possible that capital gain realized by holders of the senior
certificates could be considered gain realized upon the disposition of property
that was part of a "conversion transaction". A sale of a senior certificate will
be part of a conversion transaction if substantially all of the holder's
expected return is attributable to the time value of the holder's net
investment, and one of the following conditions is met:
o the holder entered the contract to sell the senior certificate
substantially contemporaneously with acquiring the senior
certificate;
o the senior certificate is part of a straddle;
o the senior certificate is marketed or sold as producing
capital gain; or
o other transactions to be specified in Treasury regulations
that have not yet been issued occur.
If the sale or other disposition of a senior certificate is part of a conversion
transaction, all or any portion of the gain realized upon the sale or other
disposition would be treated as ordinary income instead of capital gain.
Senior certificates will be "evidences of indebtedness" within the
meaning of section 582(c)(1) of the Code, so that gain or loss recognized from
the sale of a senior certificate by a bank or a thrift institution to which such
section applies will be ordinary income or loss.
E. Non-U.S. Persons
Generally, to the extent that a senior certificate evidences ownership
in mortgage loans that are issued on or before July 18, 1984, interest or OID
paid by the person required to withhold tax under section 1441 or 1442 to (i) an
owner that is not a U.S. Person or (ii) a senior certificateholder holding on
behalf of an owner that is not a U.S. Person, will be subject to federal income
tax, collected by withholding, at a rate of 30% or such lower rate as may be
provided for interest by an applicable tax treaty. Accrued OID recognized by the
owner on the sale or exchange of such a senior certificate also will be subject
to federal income tax at the same rate. Generally, such payments would not be
subject to withholding to the extent that a senior certificate evidences
ownership in mortgage loans issued after July 18, 1984, if
o the senior certificateholder does not actually or
constructively own 10% or more of the combined voting power of
all classes of equity in the issuer (which for purposes of
this discussion may be defined as the trust fund);
o the senior certificateholder is not a controlled foreign
corporation within the meaning of section 957 of the Code
related to the issuer; and
o the senior certificateholder complies with certain
identification requirements, including delivery of a
statement, signed by the senior certificateholder under
penalties of perjury, certifying that it is not a U.S. Person
and providing its name and address.
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F. Information Reporting and Backup Withholding
The master servicer will furnish or make available, within a reasonable
time after the end of each calendar year, to each certificateholder at any time
during the year, such information as may be deemed necessary or desirable to
assist securityholders in preparing their federal income tax returns, or to
enable holders to make the information available to owners or other financial
intermediaries of holders that hold the certificates as nominees. If a holder,
owner or other recipient of a payment on behalf of an owner fails to supply a
certified taxpayer identification number or if the Secretary of the Treasury
determines that such person has not reported all interest and dividend income
required to be shown on its federal income tax return, backup withholding may be
required with respect to any payments. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against the recipient's
federal income tax liability.
G. New Withholding Regulations
On October 6, 1997, the Treasury Department issued new regulations
which attempt to unify certification requirements and modify reliance standards
effective for payments made after December 31, 2000.
REMIC Certificates
A. General
The trust fund relating to a series of certificates may elect to be
treated as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. Although a REMIC is not generally subject to federal income
tax (see, however, "--Prohibited Transactions and Other Taxes") below, if a
trust fund with respect to which a REMIC election is made fails to comply with
one or more of the ongoing requirements of the Code for REMIC status during any
taxable year (including the implementation of restrictions on the purchase and
transfer of the residual interest in a REMIC as described under "--Residual
Certificates" below), the Code provides that a trust fund will not be treated as
a REMIC for such year and thereafter. In that event, such entity may be taxable
as a separate corporation, and the related REMIC certificates may not be
accorded the status or given the tax treatment described below. While the Code
authorizes the Treasury to issue regulations providing relief in the event of an
inadvertent termination of status as a REMIC, no such regulations have been
issued. Moreover, any relief may be accompanied by sanctions such as the
imposition of a corporate tax on all or a portion of the REMIC's income for the
period in which the requirements for such status are not satisfied. With respect
to each trust fund that elects REMIC status, in the opinion of tax counsel,
assuming compliance with all provisions of the related Agreement, the trust fund
will qualify as a REMIC and the related certificates will be considered to be
regular interests ("regular certificates") or residual interests ("residual
certificates") in the REMIC. The related prospectus supplement for each series
of certificates will indicate whether the trust fund will make a REMIC election
and whether a class of certificates will be treated as a regular or residual
interest in the REMIC.
In general, with respect to each series of certificates for which a
REMIC election is made,
o certificates held by a thrift institution taxed as a "domestic
building and loan association" will constitute assets
described in section 7701(a)(19)(C) of the Code;
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o certificates held by a real estate investment trust will
constitute "real estate assets" within the meaning of section
856(c)(4)(A) of the Code; and
o interest on certificates held by a real estate investment
trust will be considered "interest on obligations secured by
mortgages on real property" within the meaning of section
856(c)(3)(B) of the Code.
If less than 95% of the REMIC's assets are assets qualifying under any of the
foregoing sections, the certificates will be qualifying assets only to the
extent that the REMIC's assets are qualifying assets. In addition, payments on
mortgage loans held pending distribution on the REMIC certificates will be
considered to be qualifying assets under the foregoing sections.
In some instances, the mortgage loans may not be treated entirely as
assets described in the foregoing sections. See, in this regard, the discussion
of "buydown" mortgage loans contained in "--Non-REMIC Certificates--Single Class
of Senior Certificates" above. REMIC certificates held by a real estate
investment trust will not constitute "Government Securities" within the meaning
of section 856(c)(4)(A) of the Code and REMIC certificates held by a regulated
investment company will not constitute "Government Securities" within the
meaning of section 851(b)(4)(A)(ii) of the Code. REMIC certificates held by
certain financial institutions will constitute "evidences of indebtedness"
within the meaning of section 582(c)(1) of the Code.
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation) that is principally secured
by an interest in real property and that is transferred to the REMIC within a
prescribed time period in exchange for regular or residual interests in the
REMIC. The REMIC Regulations provide that manufactured housing or mobile homes
(not including recreational vehicles, campers or similar vehicles) which are
"single family residences" under section 25(e)(10) of the Code will qualify as
real property without regard to state law classifications. Under section
25(e)(10), a single family residence includes any manufactured home which has a
minimum of 400 square feet of living space and a minimum width in excess of 102
inches and which is of a kind customarily used at a fixed location.
B. Tiered REMIC Structures
For certain series of certificates, two separate elections may be made
to treat designated portions of the related trust fund as REMICs (respectively,
the "subsidiary REMIC" and the "master REMIC") for federal income tax purposes.
Upon the issuance of any such series of certificates, tax counsel will deliver
its opinion generally to the effect that, assuming compliance with all
provisions of the related pooling and servicing agreement, the master REMIC as
well as any subsidiary REMIC will each qualify as a REMIC and the REMIC
certificates issued by the master REMIC and the subsidiary REMIC, respectively,
will be considered to evidence ownership of regular certificates or residual
certificates in the related REMIC within the meaning of the REMIC provisions.
Only REMIC certificates issued by the master REMIC will be offered
under this prospectus. The subsidiary REMIC and the master REMIC will be treated
as one REMIC solely for purposes of determining
o whether the REMIC certificates will be (i) "real estate
assets" within the meaning of section 856(c)(4)(A) of the Code
or (ii) "loans secured by an interest in real property" under
section 7701(a)(19)(C) of the Code; and
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o whether the income on the certificates is interest described
in section 856(c)(3)(B) of the Code.
C. Regular Certificates
General. Except as otherwise stated in this discussion, regular
certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
Moreover, holders of regular certificates that otherwise report income under a
cash method of accounting will be required to report income with respect to
regular certificates under an accrual method.
Original Issue Discount and Premium. The regular certificates may be
issued with OID within the meaning of section 1273(a) of the Code. Generally,
the amount of OID, if any, will equal the difference between the "stated
redemption price at maturity" of a regular certificate and its "issue price".
Holders of any class of certificates issued with OID will be required to include
such OID in gross income for federal income tax purposes as it accrues, in
accordance with a constant interest method based on the compounding of interest,
in advance of receipt of the cash attributable to such income. The following
discussion is based in part on the OID Regulations and in part on the provisions
of the Tax Reform Act. Holders of regular certificates should be aware, however,
that the OID Regulations do not adequately address certain issues relevant to
prepayable securities such as the regular certificates.
Rules governing OID are set forth in sections 1271 through 1273 and
section 1275 of the Code. These rules require that the amount and rate of
accrual of OID be calculated based on a Prepayment Assumption and prescribe a
method for adjusting the amount and rate of accrual of such discount where the
actual prepayment rate differs from the Prepayment Assumption. Under the Code,
the Prepayment Assumption must be determined in the manner prescribed by
regulations which have not yet been issued. The Legislative History provides,
however, that Congress intended the regulations to require that the Prepayment
Assumption be the prepayment assumption that is used in determining the initial
offering price of the regular certificates. The prospectus supplement for each
series of regular certificates will specify the prepayment assumption to be used
for the purpose of determining the amount and rate of accrual of OID). No
representation is made that the regular certificates will prepay at the
prepayment assumption or at any other rate.
In general, each regular certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its "issue price". The issue price of
a regular certificate is the first price at which a substantial amount of
regular certificates of that class are sold to the public (excluding bond
houses, brokers, underwriters or wholesalers). If less than a substantial amount
of a particular class of regular certificates is sold for cash on or prior to
the date of their initial issuance, the issue price for that class will be
treated as the fair market value of that class on the initial issue date. The
issue price of a regular certificate also includes the amount paid by an initial
regular certificateholder for accrued interest that relates to a period prior to
the initial issue date of the regular certificate. The stated redemption price
at maturity of a regular certificate includes the original principal amount of
the regular certificate, but generally will not include distributions of
interest if such distributions constitute "qualified stated interest". Qualified
stated interest generally means interest payable at a single fixed rate or
qualified variable rate (as described below) provided that the interest payments
are unconditionally payable at intervals of one year or less during the entire
term of the regular certificate. Interest is payable at a single fixed rate only
if the rate appropriately takes into account the length of the interval between
payments. Distributions of interest on regular certificates with respect to
which deferred interest will accrue will not constitute qualified stated
interest payments, in which case the stated redemption price at maturity of the
regular certificates includes all distributions of interest as well as principal
thereon.
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Where the interval between the initial issue date and the first
distribution date on a regular certificate is longer than the interval between
subsequent distribution dates, the greater of any OID (disregarding the rate in
the first period) and any interest foregone during the first period is treated
as the amount by which the stated redemption price at maturity of the
certificate exceeds its issue price for purposes of the de minimis rule
described below. The OID Regulations suggest that all interest on a
long-first-period regular certificate that is issued with non-de minimis OID, as
determined under the foregoing rule, will be treated as OID. Where the interval
between the issue date and the first distribution date on a regular certificate
is shorter than the interval between subsequent distribution dates, interest due
on the first Distribution Date in excess of the amount that accrued during the
first period would be added to the certificates stated redemption price at
maturity. Regular securityholders should consult their own tax advisors to
determine the issue price and stated redemption price at maturity of a regular
certificate.
Under the de minimis rule, OID on a regular certificate will be
considered to be zero if the amount of OID is less than 0.25% of the stated
redemption price at maturity of the regular certificate multiplied by the
weighted average maturity of the regular certificate. For this purpose, the
weighted average maturity of the regular certificate is computed as the sum of
the amounts determined by multiplying
o the number of full years (i.e., rounding down partial years)
from the issue date until each distribution in reduction of
stated redemption price at maturity is scheduled to be made
times
o a fraction, the numerator of which is the amount of each
distribution included in the stated redemption price at
maturity of the regular certificate and the denominator of
which is the stated redemption price at maturity of the
regular certificate.
Although currently unclear, it appears that the schedule of such distributions
should be determined in accordance with the assumed rate of prepayment of the
mortgage loans and the anticipated reinvestment rate, if any, relating to the
regular certificates. This prepayment assumption with respect to a series of
regular certificates will be set forth in the related prospectus supplement.
Holders generally must report de minimis OID pro rata as principal payments are
received and such income will be capital gain if the regular certificate is held
as a capital asset. However, accrual method holders may elect to accrue all de
minimis OID as well as market discount under a constant interest method.
The prospectus supplement with respect to a trust fund may provide for
certain regular certificates to be issued as "super-premium" certificates at
prices significantly exceeding their principal amounts or based on notional
principal balances. The income tax treatment of these super-premium certificates
is not entirely certain. For information reporting purposes, the trust fund
intends to take the position that the stated redemption price at maturity of the
super-premium certificates is the sum of all payments to be made on these
certificates determined under the prepayment assumption set forth in the related
prospectus supplement, with the result that the super-premium certificates would
be treated as being issued with OID. The calculation of income in this manner
could result in negative OID (which delays future accruals of OID rather than
being immediately deductible) when prepayments on the mortgage loans exceed
those estimated under the prepayment assumption. The IRS might contend, however,
that the contingent payment regulations should apply to the super-premium
certificates.
Although the contingent payment regulations are not applicable to
instruments governed by section 1272(a)(6) of the Code, they represent the only
guidance regarding the current view of the IRS with respect to contingent
payment instruments. In the alternative, the IRS could assert that the stated
redemption price at maturity of such regular certificates should be limited to
their principal amount (subject to the discussion under "--Accrued Interest
Certificates" below), so that such regular certificates would be considered for
U.S. federal income tax purposes to be issued at a premium. If such position
were to prevail, the rules described under "--Premium" below would apply. It is
unclear when a loss may be claimed for any unrecovered basis for a super-premium
certificate. It is possible that a holder of a super-premium certificate may
only claim a loss when its remaining basis exceeds the maximum amount of future
payments, assuming no further prepayments, or when the final payment is received
with respect to the super-premium certificate.
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Under the REMIC Regulations, if the issue price of a regular
certificate (other than regular certificate based on a notional amount) does not
exceed 125% of its actual principal amount, the interest rate is not considered
disproportionately high. Accordingly, a regular certificate generally should not
be treated as a super-premium certificate and the rules described below under
"--Premium" should apply. However, it is possible that holders of regular
certificates issued at a premium, even if the premium is less than 25% of the
certificate's actual principal balance, will be required to amortize the premium
under an OID method or contingent interest method even though no election under
section 171 of the Code is made to amortize such premium.
Generally, a regular certificateholder must include in gross income the
"daily portions," as determined below, of the OID that accrues on a regular
certificate for each day the regular certificateholder holds the regular
certificate, including the purchase date but excluding the disposition date. In
the case of an original holder of a regular certificate, a calculation will be
made of the portion of the OID that accrues during each successive accrual
period that ends on the day in the calendar year corresponding to a distribution
date (or if distribution dates are on the first day or first business day of the
immediately preceding month, interest may be treated as payable on the last day
of the immediately preceding month) and begins on the day after the end of the
immediately preceding accrual period (or on the issue date in the case of the
first accrual period). This will be done, in the case of each full accrual
period, by adding
o the present value at the end of the accrual period (determined
by using as a discount factor the original yield to maturity
of the regular certificates as calculated under the Prepayment
Assumption) of all remaining payments to be received on the
regular certificate under the Prepayment Assumption, and
o any payments included in the stated redemption price at
maturity received during the accrual period,
and subtracting from that total the "adjusted issue price" of the regular
certificates at the beginning of the accrual period.
The "adjusted issue price" of a regular certificate at the beginning of
the first accrual period is its issue price; the "adjusted issue price" of a
regular certificate at the beginning of a subsequent accrual period is the
"adjusted issue price" at the beginning of the immediately preceding accrual
period plus the amount of OID allocable to that accrual period and reduced by
the accrual period. The OID accrued during an accrual period will then be
divided by the number of days in the period to determine the daily portion of
OID for each day in the accrual period. The calculation of OID under the method
described above will cause the accrual of OID to either increase or decrease
(but never below zero) in a given accrual period to reflect the fact that
prepayments are occurring faster or slower than under the Prepayment Assumption.
With respect to an initial accrual period shorter than a full accrual period,
the daily portions of OID may be determined according to an appropriate
allocation under any reasonable method.
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A subsequent purchaser of a regular certificate issued with OID who
purchases the regular certificate at a cost less than the remaining stated
redemption price at maturity will also be required to include in gross income
the sum of the daily portions of OID on that regular certificate. In computing
the daily portions of OID for such a purchaser (as well as an initial purchaser
that purchases at a price higher than the adjusted issue price but less than the
stated redemption price at maturity), however, the daily portion is reduced by
the amount that would be the daily portion for such day (computed in accordance
with the rules set forth above) multiplied by a fraction, the numerator of which
is the amount, if any, by which the price paid by such holder for that regular
certificate exceeds the following amount:
o the sum of the issue price plus the aggregate amount of OID
that would have been includible in the gross income of an
original regular certificateholder (who purchased the regular
certificate at its issue price),
less
o any prior payments included in the stated redemption price at
maturity,
and the denominator of which is the sum of the daily portions for that regular
certificate for all days beginning on the date after the purchase date and
ending on the maturity date computed under the Prepayment Assumption. A holder
who pays an acquisition premium instead may elect to accrue OID by treating the
purchase as original issue.
Variable Rate Regular Certificates. Regular certificates may provide
for interest based on a variable rate. Interest based on a variable rate will
constitute qualified stated interest and not contingent interest if, generally,
o the interest is unconditionally payable at least annually;
o the issue price of the debt instrument does not exceed the
total noncontingent principal payments; and
o interest is based on a "qualified floating rate", an
"objective rate", a combination of a single fixed rate and one
or more "qualified floating rates", one "qualified inverse
floating rate", or a combination of "qualified floating rates"
that do not operate in a manner that significantly accelerates
or defers interest payments on the regular certificate.
The amount of OID with respect to a regular certificate bearing a
variable rate of interest will accrue in the manner described under "--Original
Issue Discount and Premium" above by assuming generally that the index used for
the variable rate will remain fixed throughout the term of the certificate.
Appropriate adjustments are made for the actual variable rate.
Although unclear at present, the depositor intends to treat interest on
a regular certificate that is a weighted average of the net interest rates on
mortgage loans as qualified stated interest. In such case, the weighted average
rate used to compute the initial pass-through rate on the regular certificates
will be deemed to be the index in effect through the life of the regular
certificates. It is possible, however, that the IRS may treat some or all of the
interest on regular certificates with a weighted average rate as taxable under
the rules relating to obligations providing for contingent payments. Such
treatment may effect the timing of income accruals on regular certificates.
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Market Discount. A purchaser of a regular certificate may be subject to
the market discount provisions of sections 1276 through 1278 of the Code. Under
these provisions and the OID Regulations, "market discount" equals the excess,
if any, of
o the regular certificate's stated principal amount or, in the
case of a regular certificate with OID, the adjusted issue
price (determined for this purpose as if the purchaser had
purchased the regular certificate from an original holder)
over
o the price for the regular certificate paid by the purchaser.
A holder who purchases a regular certificate at a market discount will recognize
income upon receipt of each distribution representing stated redemption price.
In particular, under section 1276 of the Code such a holder generally will be
required to allocate each principal distribution first to accrued market
discount not previously included in income and to recognize ordinary income to
that extent. A certificateholder may elect to include market discount in income
currently as it accrues rather than including it on a deferred basis in
accordance with the foregoing. If made, such election will apply to all market
discount bonds acquired by the certificateholder on or after the first day of
the first taxable year to which the election applies. In addition, the OID
Regulations permit a certificateholder using the accrual method of accounting to
elect to accrue all interest, discount (including de minimis market or original
issue discount) and premium in income as interest, based on a constant yield
method. If such an election is made with respect to a regular certificate with
market discount, the certificateholder will be deemed to have made an election
to include in income currently market discount with respect to all other debt
instruments having market discount that the certificateholder acquires during
the year of the election or thereafter. Similarly, a certificateholder that
makes this election for a certificate that is acquired at a premium will be
deemed to have made an election to amortize bond premium with respect to all
debt instruments having amortizable bond premium that the certificateholder owns
or acquires. See "--Original Issues Discount and Premium" above. The election to
accrue interest, discount and premium on a constant yield method with respect to
a certificate is irrevocable.
Market discount with respect to a regular certificate will be
considered to be zero if the amount allocable to the regular certificate is less
than 0.25% of the regular certificate's stated redemption price at maturity
multiplied by the regular certificate's weighted average maturity remaining
after the date of purchase. If market discount on a regular certificate is
considered to be zero under this rule, the actual amount of market discount must
be allocated to the remaining principal payments on the regular certificate and
gain equal to such allocated amount will be recognized when the corresponding
principal payment is made. Treasury regulations implementing the market discount
rules have not yet been issued; therefore, investors should consult their own
tax advisors regarding the application of these rules and the advisability of
making any of the elections allowed under Code sections 1276 through 1278 of the
Code.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986, shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
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The Code also grants authority to the Treasury to issue regulations
providing for the computation of accrued market discount on debt instruments,
the principal of which is payable in more than one installment. Until such time
as regulations are issued by the Treasury, rules described in the legislative
history of the Tax Reform Act will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or according to one of the following methods. For
regular certificates issued with OID, the amount of market discount that accrues
during a period is equal to the product of
o the total remaining market discount
multiplied by
o a fraction, the numerator of which is the OID accruing during
the period and the denominator of which is the total remaining
OID at the beginning of the period.
For regular certificates issued without OID, the amount of market
discount that accrues during a period is equal to the product of
o the total remaining market discount
multiplied by
o a fraction, the numerator of which is the amount of stated
interest paid during the accrual period and the denominator of
which is the total amount of stated interest remaining to be
paid at the beginning of the period.
For purposes of calculating market discount under any of the above
methods in the case of instruments (such as the regular certificates) which
provide for payments which may be accelerated by reason of prepayments of other
obligations securing such instruments, the same prepayment assumption applicable
to calculating the accrual of OID will apply.
A holder of a regular certificate that acquires it at a market discount
also may be required to defer, until the maturity date of the regular
certificate or its earlier disposition in a taxable transaction, the deduction
of a portion of the amount of interest that the holder paid or accrued during
the taxable year on indebtedness incurred or maintained to purchase or carry the
regular certificate in excess of the aggregate amount of interest (including
OID) includible in the holder's gross income for the taxable year with respect
to the regular certificate. The amount of such net interest expense deferred in
a taxable year may not exceed the amount of market discount accrued on the
regular certificate for the days during the taxable year on which the holder
held the regular certificate and, in general, would be deductible when such
market discount is includible in income. The amount of any remaining deferred
deduction is to be taken into account in the taxable year in which the regular
certificate matures or is disposed of in a taxable transaction. In the case of a
disposition in which gain or loss is not recognized in whole or in part, any
remaining deferred deduction will be allowed to the extent of gain recognized on
the disposition. This deferral rule does not apply if the regular
certificateholder elects to include such market discount in income currently as
it accrues on all market discount obligations acquired by the regular
certificateholder in that taxable year or thereafter.
Premium. A purchaser of a regular certificate who purchases the regular
certificate at a cost (not including accrued qualified stated interest) greater
than its remaining stated redemption price at maturity will be considered to
have purchased the regular certificate at a premium and may elect to amortize
such premium under a constant yield method. A certificateholder that makes this
election for a certificate that is acquired at a premium will be deemed to have
made an election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that such certificateholder acquires during the
year of the election or thereafter. It is not clear whether the prepayment
assumption would be taken into account in determining the life of the regular
certificate for this purpose. However, the legislative history of the Tax Reform
Act states that the same rules that apply to accrual of market discount (which
rules require use of a prepayment assumption in accruing market discount with
respect to regular certificates without regard to whether the certificates have
OID) will also apply in amortizing bond premium under section 171 of the Code.
The Code provides that amortizable bond premium will be allocated among the
interest payments on the regular certificates and will be applied as an offset
against the interest payment.
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On June 27, 1996, the IRS published in the Federal Register proposed
regulations on the amortization of bond premium. The foregoing discussion is
based in part on such proposed regulations. On December 30, 1997, the IRS issued
the amortizable bond premium regulations which generally are effective for bonds
acquired on or after March 2, 1998 or, for holders making an election to
amortize bond premium as described above, the taxable year that includes March
2, 1998 or any subsequent taxable year, will apply to bonds held on or after the
first day of taxable year in which such election is made. Neither the proposed
regulations nor the final regulations, by their express terms, apply to
prepayable securities described in section 1272(a)(6) of the Code such as the
regular certificates. Holders of regular certificates should consult their tax
advisors regarding the possibility of making an election to amortize any such
bond premium.
Deferred Interest. Certain classes of regular certificates will provide
for the accrual of interest when one or more ARM Loans are adding deferred
interest to their principal balance by reason of negative amortization. Any
deferred interest that accrues with respect to a class of regular certificates
will constitute income to the holders of such certificates prior to the time
distributions of cash with respect to deferred interest are made. It is unclear,
under the OID Regulations, whether any of the interest on such certificates will
constitute qualified stated interest or whether all or a portion of the interest
payable on the certificates must be included in the stated redemption price at
maturity of the certificates and accounted for as OID (which could accelerate
such inclusion). Interest on regular certificates must in any event be accounted
for under an accrual method by the holders of these certificates. Applying the
latter analysis therefore may result only in a slight difference in the timing
of the inclusion in income of interest on the regular certificates.
Effects of Defaults and Delinquencies. Certain series of certificates
may contain one or more classes of subordinated certificates and, in the event
there are defaults or delinquencies on the mortgage loans, amounts that would
otherwise be distributed on the subordinated certificates may instead be
distributed on the senior certificates. Holders of subordinated certificates
nevertheless will be required to report income with respect to these
certificates under an accrual method without giving effect to delays and
reductions in distributions on such subordinated certificates attributable to
defaults and delinquencies on the mortgage loans, except to the extent that it
can be established that such amounts are uncollectible. As a result, the amount
of income reported by a holder of a subordinated certificate in any period could
significantly exceed the amount of cash distributed to such holder in that
period. The holder will eventually be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the subordinated certificate is reduced as a result of defaults
and delinquencies on the mortgage loans. However, the timing and character of
such losses or reductions in income are uncertain. Accordingly, holders of
subordinated certificates should consult their own tax advisors on this point.
Sale, Exchange or Redemption. If a regular certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption, or
retirement and the seller's adjusted basis in the regular certificate. The
adjusted basis generally will equal the cost of the regular certificate to the
seller, increased by any OID and market discount included in the seller's gross
income with respect to the regular certificate, and reduced (but not below zero)
by payments included in the stated redemption price at maturity previously
received by the seller and by any amortized premium. Similarly, a holder who
receives a payment which is part of the stated redemption price at maturity of a
regular certificate will recognize gain equal to the excess, if any, of the
amount of the payment over the holder's adjusted basis in the regular
certificate. The holder of a regular certificate that receives a final payment
which is less than the holder's adjusted basis in the regular certificate will
generally recognize a loss. Except as provided in the following paragraph and as
provided under "--Market Discount" above, any such gain or loss will be capital
gain or loss, provided that the regular certificate is held as a "capital asset"
(generally, property held for investment) within the meaning of section 1221 of
the Code.
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Non-corporate taxpayers are subject to reduced maximum rates on
long-term capital gains and are generally subject to tax at ordinary income
rates on short-term capital gains. The deductibility of capital losses is
subject to certain limitations. Prospective investors should consult their own
tax advisors concerning these tax law provisions.
Gain from the sale or other disposition of a regular certificate that
might otherwise be capital gain will be treated as ordinary income to the extent
that such gain does not exceed the excess, if any, of:
o the amount that would have been includible in such holder's
income with respect to the regular certificate had income
accrued thereon at a rate equal to 110% of the AFR as defined
in section 1274(d) of the Code determined as of the date of
purchase of such regular certificate,
over
o the amount actually includible in the holder's income.
Gain from the sale or other disposition of a regular certificate that
might otherwise be capital gain will be treated as ordinary income, (1) if the
regular certificate is held as part of a "conversion transaction" as defined in
section 1258(c) of the Code, up to the amount of interest that would have
accrued at the applicable federal rate under section 1274(d) of the Code in
effect at the time the taxpayer entered into the transaction minus any amount
previously treated as ordinary income with respect to any prior disposition of
property that was held as part of such transaction, or (ii) if the regular
certificate is held as part of a straddle. Potential investors should consult
their tax advisors with respect to the tax consequences of ownership and
disposition of an investment in regular certificates in their particular
circumstances.
Regular certificates will be "evidences of indebtedness" within the
meaning of section 582(c)(1) of the Code so that gain or loss recognized from
the sale of a regular certificate by a bank or a thrift institution to which
such section applies will be ordinary income or loss.
The regular certificate information reports will include a statement of
the adjusted issue price of the regular certificate at the beginning of each
accrual period. In addition, the reports will include information necessary to
compute the accrual of any market discount that may arise upon secondary trading
of regular certificates. Because exact computation of the accrual of market
discount on a constant yield method would require information relating to the
holder's purchase price which the REMIC may not have, it appears that the
information reports will only require information pertaining to the appropriate
proportionate method of accruing market discount.
Accrued Interest Certificates. Regular certificates that are "payment
lag" certificates may provide for payments of interest based on a period that
corresponds to the interval between distribution dates but that ends prior to
each distribution date. The period between the initial issue date of the payment
lag certificates and their first distribution date may or may not exceed such
interval. Purchasers of payment lag certificates for which the period between
the initial issue date and the first distribution date does not exceed such
interval could pay upon purchase of the regular certificates accrued interest in
excess of the accrued interest that would be paid if the interest paid on the
distribution date were interest accrued from distribution date to distribution
date. If a portion of the initial purchase price of a regular certificate is
allocable to interest that has accrued prior to the issue date ("pre-issuance
accrued interest"), and the regular certificate provides for a payment of stated
interest on the first payment date (and the first payment date, is within one
year of the issue date) that equals or exceeds the amount of the pre-issuance
accrued interest, then the regular certificate's issue price may be computed by
subtracting from the issue price the amount of pre-issuance accrued interest,
rather than as an amount payable on the regular certificate. However, it is
unclear under this method how the proposed OID Regulations treat interest on
payment lag certificates as described above. Therefore, in the case of a payment
lag certificate, the REMIC intends to include accrued interest in the issue
price and report interest payments made on the first distribution date as
interest only to the extent such payments represent interest for the number of
days that the certificateholder has held the payment lag certificate during the
first accrual period.
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Investors should consult their own tax advisors concerning the
treatment for federal income tax purposes of payment lag certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury
regulations, if the REMIC is considered to be a "single-class REMIC", a portion
of the REMIC's servicing, administrative and other noninterest expenses will be
allocated as a separate item to those regular securityholders that are
"pass-through interest holders". Generally, a single-class REMIC is defined as
(i) a REMIC that would be treated as a fixed investment trust under Treasury
regulations but for its qualification as a REMIC or (ii) a REMIC that is
substantially similar to an investment trust but is structured with the
principal purpose of avoiding this allocation requirement imposed by the
temporary regulations. Such a pass-through interest holder would be required to
add its allocable share, if any, of such expenses to its gross income and to
treat the same amount as an item of investment expense. An individual generally
would be allowed a deduction for such expenses only as a miscellaneous itemized
deduction subject to the limitations under section 67 of the Code. That section
allows such deductions only to the extent that in the aggregate such expenses
exceed 2% of the holder's adjusted gross income. In addition, section 68 of the
Code provides that the amount of itemized deductions otherwise allowable for an
individual whose adjusted gross income exceeds a certain amount (the "applicable
amount") will be reduced by the lesser of (i) 3% of the excess of the
individual's adjusted gross income over the applicable amount or (ii) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. As a
result of the Economic Growth and Tax Relief Reconciliaiton Act of 2001 (the
"2001 Act"), limitations imposed by section 68 of the Code on claiming itemized
deductions will be phased-out commencing in 2006. Unless amended, this provision
of the 2001 Act will no longer apply for taxable years beginning on or after
December 31, 2010. The amount of additional taxable income recognized by
residual securityholders who are subject to the limitations of either section 67
or section 68 may be substantial. The REMIC is required to report to each
pass-through interest holder and to the IRS such holder's allocable share, if
any, of the REMIC's non-interest expenses. The term "pass-through interest
holder" generally refers to individuals, entities taxed as individuals and
certain pass-through entities including regulated investment companies, but does
not include real estate investment trusts. Certificateholders that are
"pass-through interest holders" should consult their own tax advisors about the
impact of these rules on an investment in the regular certificates.
Treatment of Realized Losses. Although not entirely clear, it appears
that holders of regular certificates that are corporations should in general be
allowed to deduct as an ordinary loss any loss sustained during the taxable year
on account of any regular certificates becoming wholly or partially worthless
and that, in general, holders of certificates that are not corporations should
be allowed to deduct as a short-term capital loss any loss sustained during the
taxable year on account of any regular certificates becoming wholly worthless.
Although the matter is not entirely clear, non-corporate holders of certificates
may be allowed a bad debt deduction at such time that the principal balance of
any regular certificate is reduced to reflect realized losses resulting from any
liquidated mortgage loans. The IRS, however, could take the position that
non-corporate holders will be allowed a bad debt deduction to reflect realized
losses only after all mortgage loans remaining in the related trust fund have
been liquidated or the certificates of the related series have been otherwise
retired. Prospective investors in and holders of the certificates are urged to
consult their own tax advisors regarding the appropriate timing, amount and
character of any loss sustained with respect to such certificates, including any
loss resulting from the failure to recover previously accrued interest or
discount income. Special loss rules are applicable to banks and thrift
institutions, including rules regarding reserves for bad debts. Such taxpayers
are advised to consult their tax advisors regarding the treatment of losses on
certificates.
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Non-U.S. Persons. Generally, payments of interest (including any
payment with respect to accrued OID) on the regular certificates to a regular
certificateholder who is a non-U.S. Person not engaged in a trade or business
within the United States will not be subject to federal withholding tax if
o the regular certificateholder does not actually or
constructively own 10% or more of the combined voting power of
all classes of equity in the issuer (which for purposes of
this discussion may be defined as the trust fund or the
beneficial owners of the related residual certificates);
o the regular certificateholder is not a controlled foreign
corporation (within the meaning of section 957 of the Code)
related to the issuer; and
o the regular certificateholder complies with certain
identification requirements, including delivery of a
statement, signed by the regular certificateholder under
penalties of perjury, certifying that it is a foreign person
and providing its name and address.
If a regular certificateholder is not exempt from withholding, distributions of
interest, including distributions in respect of accrued OID, the holder may be
subject to a 30% withholding tax, subject to reduction under any applicable tax
treaty.
Further, it appears that a regular certificate would not be included in
the estate of a nonresident alien individual and would not be subject to United
States estate taxes. However, securityholders who are non-resident alien
individuals should consult their tax advisors concerning this question.
Regular securityholders who are non-U.S. Persons and persons related to
such holders should not acquire any residual certificates, and residual
securityholders and persons related to residual securityholders should not
acquire any regular certificates without consulting their tax advisors as to the
possible adverse tax consequences of doing so.
Information Reporting and Backup Withholding. The master servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each regular certificateholder at any time during such year,
such information as may be deemed necessary or desirable to assist regular
securityholders in preparing their federal income tax returns or to enable
holders to make such information available to owners or other financial
intermediaries of holders that hold regular certificates. If a holder, owner or
other recipient of a payment on behalf of an owner fails to supply a certified
taxpayer identification number or if the Secretary of the Treasury determines
that such person has not reported all interest and dividend income required to
be shown on its federal income tax return, backup withholding may be required
with respect to any payments. Any amounts deducted and withheld from a
distribution to a recipient would be allowed as a credit against such
recipient's federal income tax liability.
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New Withholding Regulations. On October 6, 1997, the Treasury
Department issued the new regulations which attempt to unify certification
requirements and modify reliance standards effective for payments made after
December 31, 2000.
D. Residual Certificates
Allocation of the Income of the REMIC to the Residual Certificates. The
REMIC will not be subject to federal income tax except with respect to income
from prohibited transactions and certain other transactions. See "--Prohibited
Transactions and Other Taxes" below. Instead, each original holder of a residual
certificate will report on its federal income tax return, as ordinary income,
its share of the taxable income of the REMIC for each day during the taxable
year on which such holder owns any residual certificates. The taxable income of
the REMIC for each day will be determined by allocating the taxable income of
the REMIC for each calendar quarter ratably to each day in the quarter. The
holder's share of the taxable income of the REMIC for each day will be based on
the portion of the outstanding residual certificates that the holder owns on
that day. The taxable income of the REMIC will be determined under an accrual
method and will be taxable to the residual securityholders without regard to the
timing or amounts of cash distributions by the REMIC. Ordinary income derived
from residual certificates will be "portfolio income" for purposes of the
taxation of taxpayers subject to the limitations on the deductibility of
"passive losses". As residual interests, the residual certificates will be
subject to tax rules, described below, that differ from those that would apply
if the residual certificates were treated for federal income tax purposes as
direct ownership interests in the certificates or as debt instruments issued by
the REMIC.
A residual certificateholder may be required to include taxable income
from the residual certificate in excess of the cash distributed. For example, a
structure where principal distributions are made serially on regular interests
(i.e., a fast-pay, slow-pay structure) may generate such a mismatching of income
and cash distributions (i.e., "phantom income"). This mismatching may be caused
by the use of certain required tax accounting methods by the REMIC, variations
in the prepayment rate of the underlying mortgage loans and certain other
factors. Depending upon the structure of a particular transaction, the
aforementioned factors may significantly reduce the after-tax yield of a
residual certificate to a residual certificateholder. Investors should consult
their own tax advisors concerning the federal income tax treatment of a residual
certificate and the impact of such tax treatment on the after-tax yield of a
residual certificate.
A subsequent residual certificateholder also will report on its federal
income tax return amounts representing a daily share of the taxable income of
the REMIC for each day that the residual certificateholder owns the residual
certificate. Those daily amounts generally would equal the amounts that would
have been reported for the same days by an original residual certificateholder,
as described above. The legislative history of the Tax Reform Act indicates that
certain adjustments may be appropriate to reduce (or increase) the income of a
subsequent holder of a residual certificate that purchased the residual
certificate at a price greater than (or less than) the adjusted basis the
residual certificate would have in the hands of an original residual
certificateholder. See "--Sale or Exchange of Residual Certificates" below. It
is not clear, however, whether such adjustments will in fact be permitted or
required and, if so, how they would be made. The REMIC Regulations do not
provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Certificates. The
taxable income of the REMIC will reflect a netting of the income from the
mortgage loans and the REMIC's other assets and the deductions allowed to the
REMIC for interest and OID on the regular certificates and, except as described
under "--Non-Interest Expenses of the REMIC" below, other expenses.
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For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the regular and residual certificates (or, if a class of certificates is not
sold initially, their fair market values). Such aggregate basis will be
allocated among the mortgage loans and other assets of the REMIC in proportion
to their respective fair market values. A mortgage loan will be deemed to have
been acquired with discount or premium to the extent that the REMIC's basis
therein is less or greater, respectively than its principal balance. Any such
discount (whether market discount or OID) will be includible in the income of
the REMIC as it accrues, in advance of receipt of the cash attributable to such
income, under a method similar to the method described above for accruing OID on
the regular certificates. The REMIC expects to elect under section 171 of the
Code to amortize any premium on the mortgage loans. Premium on any mortgage loan
to which the election applies would be amortized under a constant yield method.
It is likely that the yield of a mortgage loan would be calculated for this
purpose taking account of the prepayment assumption. However, the election would
not apply to any mortgage loan originated on or before September 27, 1985.
Instead, premium on such a mortgage loan would be allocated among the principal
payments thereon and would be deductible by the REMIC as those payments become
due.
The REMIC will be allowed a deduction for interest and OID on the
regular certificates. The amount and method of accrual of OID will be calculated
for this purpose in the same manner as described above with respect to regular
certificates except that the 0.25% per annum de minimis rule and adjustments for
subsequent holders described therein will not apply.
A residual certificateholder will not be permitted to amortize the cost
of the residual certificate as an offset to its share of the REMIC's taxable
income. However, such taxable income will not include cash received by the REMIC
that represents a recovery of the REMIC's basis in its assets, and, as described
above, the issue price of the residual certificates will be added to the issue
price of the regular certificates in determining the REMIC's initial basis in
its assets. See "--Sale or Exchange of Residual Certificates" below. For a
discussion of possible adjustments to income of a subsequent holder of a
residual certificate to reflect any difference between the actual cost of the
residual certificate to such holder and the adjusted basis the residual
certificate would have in the hands of an original residual certificateholder,
see "--Allocation of the Income of the REMIC to the Residual Certificates"
above.
Additional Taxable Income of Residual Interests. Any payment received
by a holder of a residual certificate in connection with the acquisition of the
residual certificate will be taken into account in determining the income of
such holder for federal income tax purposes. Although it appears likely that any
such payment would be includible in income immediately upon its receipt or
accrual as ordinary income, the IRS might assert that such payment should be
included in income over time according to an amortization schedule or according
to some other method. Because of the uncertainty concerning the treatment of
such payments, holders of residual certificates should consult their tax
advisors concerning the treatment of such payments for income tax purposes.
Net Losses of the REMIC. The REMIC will have a net loss for any
calendar quarter in which its deductions exceed its gross income. The net loss
would be allocated among the residual securityholders in the same manner as the
REMIC's taxable income. The net loss allocable to any residual certificate will
not be deductible by the holder to the extent that such net loss exceeds such
holder's adjusted basis in the residual certificate. Any net loss that is not
currently deductible by reason of this limitation may only be used by the
residual certificateholder to offset its share of the REMIC's taxable income in
future periods (but not otherwise). The ability of residual securityholders that
are individuals or closely held corporations to deduct net losses may be subject
to additional limitations under the Code.
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Mark-to-Market Regulations. Prospective purchasers of a residual
certificate should be aware that the IRS finalized mark-to-market regulations
which provide that a residual certificate acquired after January 3, 1995 cannot
be marked to market. The mark-to-market regulations replaced the temporary
regulations which allowed a residual certificate to be marked to market provided
that it was not a "negative value" residual interest.
Inducement Fees. Regulations have been proposed addressing the federal
income tax treatment of "inducement fees" received by transferees of
non-economic REMIC residual interests. The proposed regulations would require
inducement fees to be included in income over a period reasonably related to the
period in which the related REMIC residual interest is expected to generate
taxable income or net loss to its holder. Under two proposed safe harbor
methods, inducement fees would be permitted to be included in income
(i) in the same amounts and over the same period that the taxpayer
uses for financial reporting purposes, provided that such
period is not shorter than the period the REMIC is expected to
generate taxable income or
(ii) ratably over the remaining anticipated weighted average life
of all the regular and residual interests issued by the REMIC,
determined based on actual distributions projected as
remaining to be made on such interests under the Prepayment
Assumption.
If the holder of a residual interest sells or otherwise disposes of the residual
interest, any unrecognized portion of the inducement fee would be required to be
taken into account at the time of the sale or disposition.
If these rules are adopted without change, they will apply to taxable
years ending on or after the date that they are published as final regulations,
and consequently these rules may govern the treatment of any inducement fee
received in connection with the purchase of non-economic REMIC residual
interests. Prospective purchasers of the non-economic REMIC residual interests
should consult with their tax advisors regarding the effect of these proposed
regulations
Non-Interest Expenses of the REMIC. The REMIC's taxable income will be
determined in the same manner as if the REMIC were an individual. However, all
or a portion of the REMIC's servicing, administrative and other non-interest
expenses will be allocated as a separate item to residual securityholders that
are "pass-through interest holders". Such a holder would be required to add an
amount equal to its allocable share, if any, of such expenses to its gross
income and to treat the same amount as an item of investment expense.
Individuals are generally allowed a deduction for such an investment expense
only as a miscellaneous itemized deduction subject to the limitations under
section 67 of the Code which allows such deduction only to the extent that, in
the aggregate, all such expenses exceed 2% of an individual's adjusted gross
income. In addition, the personal exemptions and itemized deductions of
individuals with adjusted gross incomes above particular levels are subject to
certain limitations which reduce or eliminate the benefit of such items. The
REMIC is required to report to each pass-through interest holder and to the IRS
the holder's allocable share, if any, of the REMIC's non-interest expenses. The
term "pass-through interest holder" generally refers to individuals, entities
taxed as individuals and certain pass-through entities, but does not include
real estate investment trusts. Residual securityholders that are "pass-through
interest holders" should consult their own tax advisors about the impact of
these rules on an investment in the residual certificates. See "--Regular
Certificates--Non-Interest Expenses of the REMIC" above.
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Excess Inclusions. A portion of the income on a residual certificate
(referred to in the Code as an "excess inclusion") for any calendar quarter
will, with an exception discussed below for certain thrift institutions, be
subject to federal income tax in all events. Thus, for example, an excess
inclusion
o may not, except as described below, be offset by any unrelated
losses, deductions or loss carryovers of a residual
certificateholder;
o will be treated as "unrelated business taxable income" within
the meaning of section 512 of the Code if the residual
certificateholder is a pension fund or any other organization
that is subject to tax only on its unrelated business taxable
income (see "Tax-Exempt Investors" below); and
o is not eligible for any reduction in the rate of withholding
tax in the case of a residual certificateholder that is a
foreign investor.
See "--Non-U.S. Persons" below. The exception for thrift institutions is
available only to the institution holding the residual certificate and not to
any affiliate of the institution, unless the affiliate is a subsidiary all the
stock of which, and substantially all the indebtedness of which, is held by the
institution, and which is organized and operated exclusively in connection with
the organization and operation of one or more REMICs.
Except as discussed in the following paragraph, with respect to any
residual certificateholder, the excess inclusions for any calendar quarter is
the excess, if any, of
o the income of the residual certificateholder for that calendar
quarter from its residual certificate
over
o the sum of the "daily accruals" for all days during the
calendar quarter on which the residual certificateholder holds
the residual certificate.
For this purpose, the daily accruals with respect to a residual certificate are
determined by allocating to each day in the calendar quarter its ratable portion
of the product of the "adjusted issue price" of the residual certificate at the
beginning of the calendar quarter and 120% of the "Federal long-term rate" in
effect at the time the residual certificate is issued. For this purpose, the
"adjusted issue price" of a residual certificate at the beginning of any
calendar quarter equals the issue price of the residual certificate, increased
by the amount of daily accruals for all prior quarters, and decreased (but not
below zero) by the aggregate amount of payments made on the residual certificate
before the beginning of such quarter. The "Federal long-term rate" is an average
of current yields on Treasury securities with a remaining term of greater than
nine years, computed and published monthly by the IRS.
In the case of any residual certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such residual
certificates, reduced (but not below zero) by the real estate investment trust
taxable income (within the meaning of section 857(b)(2) of the Code, excluding
any net capital gain), will be allocated among the shareholders of such trust in
proportion to the dividends received by the shareholders from such trust, and
any amount so allocated will be treated as an excess inclusion with respect to a
residual certificate as if held directly by such shareholder. Regulated
investment companies, common trust funds and certain cooperatives are subject to
similar rules.
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The Small Business Job Protection Act of 1996 has eliminated the
special rule permitting section 593 institutions ("thrift institutions") to use
net operating losses and other allowable deductions to offset their excess
inclusion income from residual certificates that have "significant value" within
the meaning of the REMIC Regulations, effective for taxable years beginning
after December 31, 1995 except with respect to residual certificates
continuously held by a thrift institution since November l, 1995.
In addition, the Small Business Job Protection Act provides three rules
for determining the effect of excess inclusions on the alternative minimum
taxable income of a residual certificateholder. First, the alternative minimum
taxable income for the residual certificateholder is determined without regard
to the special rule that taxable income cannot be less than excess inclusion.
Second, the amount of any alternative minimum tax net operating loss deductions
must be computed without regard to any excess inclusions. Third, the residual
certificateholder's alternative minimum taxable income for a tax year cannot be
less than excess inclusions for the year. The effect of this last statutory
amendment is to prevent the use of nonrefundable tax credits to reduce a
taxpayer's income tax below its tentative minimum tax computed only on excess
inclusions. These rules are effective for tax years beginning after December 31,
1996, unless a residual holder elects to have such rules apply only to tax years
beginning after August 20, 1996.
Payments. Any distribution made on a residual certificate to a residual
certificateholder will be treated as a non-taxable return of capital to the
extent it does not exceed the residual certificateholder's adjusted basis in the
residual certificate. To the extent a distribution exceeds such adjusted basis,
it will be treated as gain from the sale of the residual certificate.
Pass-Through of Miscellaneous Itemized Deductions. As a general rule,
all of the fees and expenses of a REMIC will be taken into account by holders of
the residual certificates. In the case of a "single class REMIC", however, the
expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the holders of the regular certificates
and the holders of the residual certificates on a daily basis in proportion to
the relative amounts of income accruing to each certificateholder on that day.
In the case of individuals (or trusts, estates or other persons who compute
their income in the same manner as individuals) who own an interest in a regular
certificate directly or through a pass-through entity which is required to pass
miscellaneous itemized deductions through to its owners or beneficiaries (e.g.,
a partnership, an S corporation or a grantor trust), such expenses will be
deductible only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. The reduction or disallowance of this deduction coupled with the
allocation of additional income may have a significant impact on the yield of
the regular certificate to such a holder. Further, holders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holders' alternative
minimum taxable income. In general terms, a single class REMIC is one that
either (1) would qualify, under existing Treasury regulations, as a grantor
trust if it were not a REMIC (treating all interests as ownership interests,
even if they would be classified as debt for federal income tax purposes) or
(ii) is similar to such a trust and is structured with the principal purpose of
avoiding the single class REMIC rules. Unless otherwise stated in the applicable
prospectus supplement, the expenses of the REMIC will be allocated to holders of
the related residual certificates in their entirety and not to holders of the
related regular certificates.
Sale or Exchange of Residual Certificates. If a residual certificate is
sold or exchanged, the seller will generally recognize gain or loss equal to the
difference between the amount realized on the sale or exchange and its adjusted
basis in the residual certificate (except that the recognition of loss may be
limited under the "wash sale" rules described below). A holder's adjusted basis
in a residual certificate generally equals the cost of the residual certificate
to the residual certificateholder, increased by the taxable income of the REMIC
that was included in the income of the residual certificateholder with respect
to the residual certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to the residual certificateholder
with respect to the residual certificate and by the distributions received
thereon by the residual certificateholder. In general, any such gain or loss
will be capital gain or loss provided the residual certificate is held as a
capital asset. However, residual certificates will be "evidences of
indebtedness" within the meaning of section 582(c)(1) of the Code, so that gain
or loss recognized from sale of a residual certificate by a bank or thrift
institution to which such section applies would be ordinary income or loss.
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Except as provided in Treasury regulations yet to be issued, if the
seller of a residual certificate reacquires the residual certificate or acquires
any other residual certificate, any residual interest in another REMIC or
similar interest in a "taxable mortgage pool" (as defined in section 7701(i)) of
the Code during the period beginning six months before, and ending six months
after, the date of such sale, such sale will be subject to the "wash sale" rules
of section 1091 of the Code. In that event, any loss realized by the residual
certificateholder on the sale will not be deductible, but instead will increase
the residual certificateholder's adjusted basis in the newly acquired asset.
Non-corporate taxpayers are subject to reduced maximum rates on
long-term capital gains and are generally subject to tax at ordinary income
rates on short-term capital gains. The deductibility of capital losses is
subject to certain limitations. Prospective investors should consult their own
tax advisors concerning these tax law provisions.
E. Prohibited Transactions and Other Taxes
The REMIC is subject to a tax at a rate equal to 100% of the net income
derived from "prohibited transactions". In general, a prohibited transaction
means the disposition of a mortgage loan other than pursuant to certain
specified exceptions, the receipt of investment income from a source other than
a mortgage loan or certain other permitted investments or the disposition of an
asset representing a temporary investment of payments on the mortgage loans
pending payment on the residual certificates or regular certificates. In
addition, the assumption of a mortgage loan by a subsequent purchaser could
cause the REMIC to recognize gain which would also be subject to the 100% tax on
prohibited transactions.
In addition, certain contributions to a REMIC made after the initial
issue date of the certificates could result in the imposition of a tax on the
REMIC equal to 100% of the value of the contributed property.
It is not anticipated that the REMIC will engage in any prohibited
transactions or receive any contributions subject to the contributions tax.
However, in the event that the REMIC is subject to any such tax, unless
otherwise disclosed in the related prospectus supplement, such tax would be
borne first by the residual securityholders, to the extent of amounts
distributable to them, and then by the master servicer.
F. Liquidation and Termination
If the REMIC adopts a plan of complete liquidation, within the meaning
of section 860F(a)(4)(A)(i) of the Code, which may be accomplished by
designating in the REMIC's final tax return a date on which such adoption is
deemed to occur, and sells all of its assets (other than cash) within a 90-day
period beginning on such date, the REMIC will not be subject to any prohibited
transaction tax, provided that the REMIC credits or distributes in liquidation
all of the sale proceeds plus its cash (other than the amounts retained to meet
claims) to holders of regular and residual certificates within the 90-day
period.
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The REMIC will terminate shortly following the retirement of the
regular certificates. If a residual certificateholder's adjusted basis in the
residual certificate exceeds the amount of cash distributed to the residual
certificateholder in final liquidation of its interest, it would appear that the
residual certificateholder would be entitled to a loss equal to the amount of
such excess. It is unclear whether such a loss, if allowed, will be a capital
loss or an ordinary loss.
G. Administrative Matters
Solely for the purpose of the administrative provisions of the Code,
the REMIC will be treated as a partnership and the residual securityholders will
be treated as the partners. Under temporary regulations, however, if there is at
no time during the taxable year more than one residual certificateholder, a
REMIC shall not be subject to the rules of subchapter C of chapter 63 of the
Code relating to the treatment of partnership items for a taxable year.
Accordingly, the REMIC will file an annual tax return on Form 1066, U.S. Real
Estate Mortgage Investment Conduit Income Tax Return. In addition, certain other
information will be furnished quarterly to each residual certificateholder who
held the residual certificate on any day in the previous calendar quarter.
Each residual certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the
residual certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting an
administrative proceeding at the REMIC level. Any person that holds a residual
certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
H. Tax-Exempt Investors
Any residual certificateholder that is a pension fund or other entity
that is subject to federal income taxation only on its "unrelated business
taxable income" within the meaning of section 512 of the Code will be subject to
such tax on that portion of the distributions received on a residual certificate
that is considered an "excess inclusion." See "--Residual Certificates--Excess
Inclusions" above.
I. Non-U.S. Persons
Amounts paid to residual securityholders who are not U.S. Persons (see
"--Regular Certificates--Non-U.S. Persons" above) are treated as interest for
purposes of the 30% (or lower treaty rate) United States withholding tax.
Amounts distributed to residual securityholders should qualify as "portfolio
interest", subject to the conditions described in "--Regular Certificates"
above, but only to the extent that the mortgage loans were originated after July
18, 1984. Furthermore, the rate of withholding on any income on a residual
certificate that is excess inclusion income will not be subject to reduction
under any applicable tax treaties. See "--Residual Certificates--Excess
Inclusions" above. If the portfolio interest exemption is unavailable, such
amount will be subject to United States withholding tax when paid or otherwise
distributed (or when the residual certificate is disposed of) under rules
similar to those for withholding upon disposition of debt instruments that have
OID. The Code, however, grants the Treasury authority to issue regulations
requiring that those amounts be taken into account earlier than otherwise
provided where necessary to prevent avoidance of tax (e.g., where the residual
certificates do not have significant value). See "--Residual
Certificates--Excess Inclusions" above. If the amounts paid to residual
securityholders that are not U.S. Persons are effectively connected with their
conduct of a trade or business within the United States, the 30% (or lower
treaty rate) withholding tax will not apply. Instead, the amounts paid to such
non-U.S. Person will be subject to U. S. federal income taxation at regular
graduated rates. For special restrictions on the transfer of residual
certificates, see "--Tax-Related Restrictions on Transfers of Residual
Certificates" below.
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Regular securityholders and persons related to such holders should not
acquire any residual certificates, and residual securityholders and persons
related to residual securityholders should not acquire any regular certificates
without consulting their tax advisors as to the possible adverse tax
consequences of such acquisition.
J. Tax-Related Restrictions on Transfers of Residual Certificates
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by "disqualified organizations". Further, a tax is
imposed on the transfer of a residual interest in a REMIC to a disqualified
organization. The amount of the tax equals the product of
o an amount (as determined under the REMIC Regulations) equal to
the present value of the total anticipated "excess inclusions"
with respect to such interest for periods after the transfer
multiplied by
o the highest marginal federal income tax rate applicable to
corporations.
The tax is imposed on the transferor unless the transfer is through an agent
(including a broker or other middlemen) for a disqualified organization, in
which event the tax is imposed on the agent. The person otherwise liable for the
tax shall be relieved of liability for the tax if the transferee furnished to
such person an affidavit that the transferee is not a disqualified organization
and, at the time of the transfer, such person does not have actual knowledge
that the affidavit is false. A "disqualified organization" means
o the United States, any state, possession, or political
subdivision thereof, any foreign government, any international
organization, or any agency or instrumentality of any of the
foregoing (provided that such term does not include an
instrumentality if all its activities are subject to tax and,
except for Freddie Mac, a majority of its board of directors
is not selected by any such governmental agency),
o any organization (other than certain farmers' cooperatives)
generally exempt from federal income taxes unless such
organization is subject to the tax on "unrelated business
taxable income",
o a rural electric or telephone cooperative, and
o electing large partnerships.
A tax is imposed on a "pass-through entity" holding a residual interest
in a REMIC if at any time during the taxable year of the pass-through entity a
disqualified organization is the record holder of an interest in such entity.
The amount of the tax is equal to the product of
o the amount of excess inclusions for the taxable year allocable
to the interest held by the disqualified organization, and
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o the highest marginal federal income tax rate applicable to
corporations.
The pass-through entity otherwise liable for the tax, for any period during
which the disqualified organization is the record holder of an interest in such
entity, will be relieved of liability for the tax if such record holder
furnishes to such entity an affidavit that such record holder is not a
disqualified organization and, for such period, the pass-through entity does not
have actual knowledge that the affidavit is false. For this purpose, a
"pass-through entity" means
o a regulated investment company, real estate investment trust
or common trust fund,
o a partnership, trust or estate, and
o certain cooperatives.
Except as may be provided in Treasury regulations not yet issued, any person
holding an interest in a pass-through entity as a nominee for another will, with
respect to such interest, be treated as a pass-through entity. The tax on
pass-through entities is generally effective for periods after March 31, 1988,
except that in the case of regulated investment companies, real estate
investment trusts, common trust funds and publicly-traded partnerships the tax
shall apply only to taxable years of such entities beginning after December 31,
1988.
In order to comply with these rules, the pooling and servicing
agreement will provide that no record or beneficial ownership interest in a
residual certificate may be, directly or indirectly, purchased, transferred or
sold without the express written consent of the master servicer. The master
servicer will grant such consent to a proposed transfer only if it receives the
following: (i) an affidavit from the proposed transferee to the effect that it
is not a disqualified organization and is not acquiring the residual certificate
as a nominee or agent for a disqualified organization and (ii) a covenant by the
proposed transferee to the effect that the proposed transferee agrees to be
bound by and to abide by the transfer restrictions applicable to the residual
certificate.
Non-economic Residual Certificates. The REMIC Regulations disregard,
for federal income tax purposes, any transfer of a non-economic residual
certificate to a U.S. Person, unless no significant purpose of the transfer is
to enable the transferor to impede the assessment or collection of tax. A
"non-economic residual certificate" is any residual certificate (including a
residual certificate with a positive value at issuance) unless at the time of
transfer, taking into account the prepayment assumption and any required or
permitted clean up calls or required liquidation provided for in the REMIC's
organizational documents,
o the present value of the expected future distributions on the
residual certificate at least equals the product of the
present value of the anticipated excess inclusions and the
highest corporate income tax rate in effect for the year in
which the transfer occurs, and
o the transferor reasonably expects that the transferee will
receive distributions from the REMIC at or after the time at
which taxes accrue on the anticipated excess inclusions in an
amount sufficient to satisfy the accrued taxes.
A significant purpose to impede the assessment or collection of tax exists if
the transferor, at the time of the transfer, either knew or should have known
that the transferee would be unwilling or unable to pay taxes due on its share
of the taxable income of the REMIC. A transferor is presumed not to have such
knowledge if
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o the transferor conducted a reasonable investigation of the
transferee's financial condition and found that the transferee
had historically paid its debts as they come due and found no
evidence to indicate that the transferee would not continue to
pay its debts in the future; and
o the transferee acknowledges to the transferor that the
residual interest may generate tax liabilities in excess of
the cash flow and the transferee represents that it intends to
pay such taxes associated with the residual interest as they
become due.
Final Treasury regulations issued on July 18, 2002 (the "New REMIC
Regulations"), provide that transfers of non-economic residual interests must
meet two additional requirements to qualify for the safe harbor:
o the transferee must represent that it will not cause income
from the non-economic residual interest to be attributable to
a foreign permanent establishment or fixed base (within the
meaning of an applicable income tax treaty, hereafter a
"foreign branch") of the transferee or another U.S. taxpayer;
and
o the transfer must satisfy either an "asset test" or a "formula
test" provided under the REMIC Regulations.
A transfer to an "eligible corporation," generally a domestic
corporation, will satisfy the asset test if:
o at the time of the transfer, and at the close of each of the
transferee's two fiscal years preceding the transferee's
fiscal year of transfer, the transferee's gross and net assets
for financial reporting purposes exceed $100 million and $10
million, respectively, in each case, exclusive of any
obligations of certain related persons;
o the transferee agrees in writing that any subsequent transfer
of the interest will be to another eligible corporation in a
transaction that satisfies the asset test, and the transferor
does not know or have reason to know that the transferee will
not honor these restrictions on subsequent transfers, and
o a reasonable person would not conclude, based on the facts and
circumstances known to the transferor on or before the date of
the transfer (specifically including the amount of
consideration paid in connection with the transfer of the
non-economic residual interest), that the taxes associated
with the residual interest will not be paid.
In addition, the direct or indirect transfer of the residual interest to a
foreign branch of a domestic corporation is not treated as a transfer to an
eligible corporation under the asset test.
The formula test provides that the transfer of a non-economic residual
interest will not qualify under the formula test unless the present value of the
anticipated tax liabilities associated with holding the residual interest does
not exceed the present value of the sum of
o any consideration given to the transferee to acquire the
interest (the inducement payment),
o future distributions on the interest, and
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o any anticipated tax savings associated with holding the
interest as the REMIC generates losses.
For purposes of this calculation, the present value is calculated using a
discount rate equal to the lesser of the applicable federal rate and the
transferee's cost of borrowing.
If the transferee has been subject to the alternative minimum tax in
the preceding two years and will compute its taxable income in the current
taxable year using the alternative minimum tax rate, then it may use the
alternative minimum tax rate in lieu of the corporate tax rate. In addition, the
direct or indirect transfer of the residual interest to a foreign branch of a
domestic corporation is not treated as a transfer to an eligible corporation
under the formula test.
The New REMIC Regulations generally apply to transfers of non-economic
residual interests occurring on or after February 4, 2000. The requirement of a
representation that a transfer of a non-economic residual interest is not made
to a foreign branch of a domestic corporation and the requirement of using the
short term applicable federal rate for purposes of the formula test apply to
transfers occurring on or after August 19, 2002.
If a transfer of a non-economic residual certificate is disregarded,
the transferor would continue to be treated as the owner of the residual
certificate and would continue to be subject to tax on its allocable portion of
the net income of the REMIC.
Foreign Investors. The REMIC Regulations provide that the transfer of a
residual certificate that has a "tax avoidance potential" to a "foreign person"
will be disregarded for federal income tax purposes. This rule appears to apply
to a transferee who is not a U.S. Person, unless such transferee's income in
respect of the residual certificate is effectively connected with the conduct of
a United States trade or business. A residual certificate is deemed to have a
tax avoidance potential unless, at the time of transfer, the transferor
reasonably expects that the REMIC will distribute to the transferee amounts that
will equal at least 30% of each excess inclusion and that such amounts will be
distributed at or after the time the excess inclusion accrues and not later than
the end of the calendar year following the year of accrual. If the non-U.S.
Person transfers the residual certificate to a U.S. Person, the transfer will be
disregarded and the foreign transferor will continue to be treated as the owner,
if the transfer has the effect of allowing the transferor to avoid tax on
accrued excess inclusions. The provisions in the REMIC Regulations regarding
transfers to foreign persons of residual certificates that have tax avoidance
potential are effective for all transfers after June 30, 1992. The pooling and
servicing agreement will provide that no record or beneficial ownership interest
in a residual certificate may be, directly or indirectly, transferred to a
non-U.S. Person unless such person provides the trustee with a duly completed
IRS Form W-8ECI and the trustee consents to such transfer in writing.
Any attempted transfer or pledge in violation of the transfer
restrictions shall be absolutely null and void and shall vest no rights in any
purported transferee. Investors in residual certificates are advised to consult
their own tax advisors with respect to transfers of the residual certificates
and, in addition, passthrough entities are advised to consult their own tax
advisors with respect to any tax which may be imposed on a pass-through entity.
State Tax Considerations
In addition to the federal income tax consequences described in this
prospectus under "Material Federal Income Tax Considerations" above, potential
investors should consider the state and local income tax consequences of the
acquisition, ownership, and disposition of the certificates. State and local
income tax law may differ substantially from the corresponding federal law, and
this discussion does not purport to describe any aspect of the income tax laws
of any state or locality. Therefore, potential investors should consult their
own tax advisors with respect to the various tax consequences of investments in
the certificates.
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ERISA Considerations
The following describes certain considerations under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the Code,
which apply only to securities of a series that are not divided into subclasses.
If securities are divided into subclasses, the related prospectus supplement
will contain information concerning considerations relating to ERISA and the
Code that are applicable to those subclasses.
ERISA imposes requirements on certain employee benefit plans (and the
Code imposes requirements on certain other retirement plans and arrangements,
including individual retirement accounts and annuities and Keogh plans) as well
as on collective investment funds and separate accounts in which these plans,
accounts or arrangements are invested, and on persons who bear specified
relationships to these types of plans or arrangements ("Parties in Interest") or
are fiduciaries with respect to these types of plans or arrangements. In this
prospectus we refer to these types of plans and arrangements as "Plans."
Generally, ERISA applies to investments made by Plans. Among other things, ERISA
requires that the assets of a Plan be held in trust and that the trustee, or
other duly authorized fiduciary, have exclusive authority and discretion to
manage and control the assets of the Plan. ERISA also imposes certain duties on
persons who are fiduciaries of Plans, such as the duty to invest prudently, to
diversify investments unless it is prudent not to do so, and to invest in
accordance with the documents governing the Plan. Under ERISA, any person who
exercises any authority or control respecting the management or disposition of
the assets of a Plan is considered to be a fiduciary of that Plan (subject to
certain exceptions not here relevant). Certain employee benefit plans, such as
governmental plans (as defined in Section 3(32) of ERISA) and, if no election
has been made under Section 410(d) of the Code, church plans (as defined in
Section 3(33) of ERISA), are not subject to ERISA's requirements. Accordingly,
assets of such plans may be invested in securities without regard to the ERISA
considerations described above and below, subject to the provisions of
applicable federal or state law. However, any such plan which is qualified and
exempt from taxation under Sections 401(a) and 501(a) of the Code is subject to
the prohibited transaction rules set forth in Section 503 of the Code.
The DOL issued regulations concerning the definition of what
constitutes the assets of a Plan (Labor Reg. Section 2510.3-101). Under this
Plan Assets Regulation, the underlying assets and properties of corporations,
partnerships, trusts and certain other entities in which a Plan makes an
"equity" investment could be deemed, for purposes of ERISA, to be assets of the
investing Plan in certain circumstances.
The Plan Assets Regulation provides that, generally, the assets of an
entity in which a Plan invests will not be deemed to be assets of the Plan for
purposes of ERISA if the equity interest acquired by the investing Plan is a
"publicly-offered security", or if equity participation by "benefit plan
investors" is not "significant". In general, a publicly-offered security, as
defined in the Plan Assets Regulation, is a security that is widely held, freely
transferable and registered under the Securities Exchange Act of 1934. Equity
participation in an entity by benefit plan investors is not significant if,
after the most recent acquisition of an equity interest in the entity, less than
25% of the value of each class of equity interest in the entity is held by
benefit plan investors, which include benefit plans described in ERISA or under
Section 4975 of the Code, whether or not they are subject to ERISA, as well as
entities whose underlying assets include assets of a Plan by reason of a Plan's
investment in the entity.
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If no exception under the Plan Assets Regulation applies and if a Plan
(or a person investing assets of a Plan, such as an insurance company general
account) acquires an equity interest in the trust, then the assets of the trust
could be considered to be assets of the Plan. In that event, the master servicer
and other persons exercising management or discretionary control over the assets
of the issuer or providing services with respect to the issuer's assets could be
deemed to be Parties in Interest with respect to investing Plans; this would
subject the master servicer and such other persons to the fiduciary
responsibility provisions of Title I of ERISA to the extent that they exercised
discretionary control of Plan assets, and to the prohibited transaction
provisions of Section 406 of ERISA and Section 4975 of the Code with respect to
transactions involving the issuer's assets. Because the loans held by the trust
may be deemed assets of each Plan that purchases an equity interest, an
investment in an equity interest issued by the trust to a Plan might be a
prohibited transaction under ERISA and subject to an excise tax under Section
4975 of the Code, and may cause transactions undertaken in the course of
operating the trust to constitute prohibited transactions, unless a statutory,
regulatory or administrative exemption applies.
Insurance Company General Accounts
On January 5, 2000, the United States Department of Labor (DOL)
published final regulations under Section 401(c) of ERISA describing a safe
harbor for insurers that, on or before December 31, 1998, issued certain
non-guaranteed policies supported by their general accounts to Plans (Labor Reg.
Section 2550.401c-1). Under this regulation, an insurer will not be considered
an ERISA fiduciary with respect to its general account by virtue of a Plan's
investment in such a policy. In general, to meet the safe harbor, an insurer
must
o disclose certain specified information to investing Plan
fiduciaries initially and on an annual basis;
o allow Plans to terminate or discontinue a policy on 90 days'
notice to the insurer, and to elect, without penalty, either a
lump-sum payment or annual installment payments over a
ten-year period, with interest; and
o give Plans written notice of "insurer-initiated amendments" 60
days before the amendments take effect.
In addition to the imposition of general fiduciary standards of
investment prudence and diversification, ERISA and Section 4975 of the Code
prohibit a broad range of transactions involving Plan assets and Parties in
Interest, and impose additional prohibitions where Parties in Interest are
fiduciaries with respect to a Plan. Certain Parties in Interest that participate
in a prohibited transaction may be subject to excise taxes imposed pursuant to
Section 4975 of the Code, or penalties imposed pursuant to Section 502(i) of
ERISA, unless a statutory, regulatory or administrative exemption is available.
Prohibited Transaction Class Exemption ("PTCE") 83-1
Any fiduciary or other Plan asset investor that proposes to purchase
securities on behalf of a Plan or with Plan assets should consult with its
counsel on the potential applicability of ERISA and the Code to that investment
and the availability of any prohibited transaction class exemption in connection
therewith. In particular, in connection with a contemplated purchase of
securities representing a beneficial ownership interest in a pool of
single-family residential mortgages, the fiduciary should consider the
availability of PTCE 83-1 for various transactions involving mortgage pool
investment trusts. PTCE 83-1 permits, subject to certain conditions,
transactions that might otherwise be prohibited between Plans and Parties in
Interest with respect to those plans related to the origination, maintenance and
termination of mortgage pools consisting of mortgage loans secured by first or
second mortgages or deeds of trust on single-family residential property, and
the acquisition and holding of certain mortgage pool pass-through certificates
representing an interest in those mortgage pools by Plans. However, PTCE 83-1
does not provide exemptive relief with respect to securities evidencing
interests in trusts which include mortgage loans secured by third or more junior
liens, revolving credit loans, loans on unimproved land, contracts, cooperative
loans, multifamily or mixed-use mortgage loans or some types of private
securities, or which contain a swap or a pre-funding arrangement. In addition,
PTCE 83-1 does not provide exemptive relief for transactions involving
subordinated securities. The prospectus supplement may indicate whether it is
expected that PTCE 83-1 will apply to securities offered by that prospectus
supplement.
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Underwriter Exemption
On September 6, 1990 the DOL issued to Greenwich Capital Markets, Inc.
an underwriter exemption (PTE 90-59, Application No. D-8374, 55 Fed. Reg. 36724
(1990)) (the "Exemption") from certain of the prohibited transaction rules of
ERISA and the related excise tax provisions of Section 4975 of the Code with
respect to the initial purchase, holding and subsequent resale by Plans of
"securities" that are obligations of an issuer containing certain receivables,
loans and other obligations, with respect to which Greenwich Capital Markets,
Inc. is the underwriter, manager or co-manager of an underwriting syndicate. The
Exemption, which was amended and expanded by PTE 97-34, Applications Nos.
D-10245 and D-10246, 62 Fed. Reg. 39021 (1997), PTE 2000-58, Application No.
D-10829, 65 Fed. Reg. 67765 (2000) and PTE 2002-41, Application No. D-11077, 67
Fed. Reg. 54487 (2002), provides relief which is generally similar to that
provided by PCTE 83-1, but is broader in several respects.
The Exemption contains a number of requirements. It does not apply to
any investment pool unless, among other things, the investment pool satisfies
the following conditions:
o the investment pool consists only of assets of a type which
have been included in other investment pools;
o securities evidencing interests in such other investment pools
have been purchased by investors other than Plans for at least
one year prior to the Plan's acquisition of securities
pursuant to the exemption; and
o securities in such other investment pools have been rated in
one of the three (or four, if the investment pool contains
certain types of assets) highest generic rating categories by
one of the credit rating agencies noted below.
The Exemption sets forth general conditions which must be satisfied for a
transaction to be eligible for exemptive relief thereunder. Generally, the
Exemption holds that the acquisition of the securities by a Plan must be on
terms (including the price for the securities) that are at least as favorable to
the Plan as they would be in an arm's length transaction with an unrelated
party. The Exemption requires that the rights and interests evidenced by the
securities not be "subordinated" to the rights and interests evidenced by other
securities of the same trust, except when the trust holds certain types of
assets. The Exemption requires that securities acquired by a Plan have received
a rating at the time of their acquisition that is in one of the three (or four,
if the trust holds certain types of assets) highest generic rating categories of
Standard & Poor's Ratings Services, Moody's Investors Service, Inc. or Fitch
Ratings, Inc. The Exemption specifies that the pool trustee must not be an
affiliate of any other member of the "Restricted Group" (defined below), other
than the underwriter. The Exemption stipulates that any Plan investing in the
securities must be an "accredited investor" as defined in Rule 501(a)(1) of
Regulation D of the SEC under the Securities Act of 1933, as amended. Finally,
the Exemption requires that, depending on the type of issuer, the documents
establishing the issuer and governing the transaction contain certain provisions
to protect the assets of the issuer, and that the issuer receive certain legal
opinions.
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If an issuer holds obligations that have high loan-to-value ratios, the
Exemption may apply to the issuer's non-subordinated securities rated in one of
the two highest generic rating categories by at least one of the rating agencies
named in the Exemption if both of the following conditions are met:
o the obligations are residential or home equity loans, and
o the fair market value of the real property collateral securing
the loan on the closing date is at least 80% of the sum of the
outstanding principal balance of the loan held in the
investment pool and the outstanding principal balance of any
other loan of higher lien priority secured by the same real
property collateral.
Moreover, the Exemption generally provides relief from certain
self-dealing and conflict of interest prohibited transactions that may occur
when the Plan fiduciary causes a Plan to acquire securities of an issuer holding
receivables as to which the fiduciary (or its affiliate) is an obligor, provided
that, among other requirements:
o in the case of an acquisition in connection with the initial
issuance of securities, at least 50% of each class of
securities in which Plans have invested and at least 50% of
the aggregate interest in the issuer is acquired by persons
independent of the Restricted Group;
o the fiduciary (or its affiliate) is an obligor with respect to
not more than 5% of the fair market value of the obligations
contained in the issuer;
o the Plans' investment in securities of any class does not
exceed 25% of all of the securities of that class outstanding
at the time of the acquisition; and
o immediately after the acquisition, no more than 25% of the
assets of any Plan with respect to which the person is a
fiduciary is invested in securities representing an interest
in one or more issuers containing assets sold or serviced by
the same entity.
The Exemption provides only limited relief to Plans sponsored by the
"Restricted Group", which consists of the seller, the underwriter, the trustee,
the master servicer, any servicer, any counterparty of a permitted swap or
notional principal contract or any insurer with respect to the mortgage loans,
any obligor with respect to mortgage loans included in the investment pool
constituting more than 5% of the aggregate principal balance of the assets in
the investment pool, or any affiliate of those parties.
If pre-funding is anticipated, the Exemption extends exemptive relief
to securities issued in transactions using pre-funding accounts, whereby a
portion of the loans backing the securities are transferred to the trust fund
within a specified period following the closing date (the "DOL Pre-Funding
Period").
o First, the ratio of the amount allocated to the pre-funding
account to the total principal amount of the Securities being
offered ("Pre-Funding Limit") must not exceed twenty-five
percent (25%).
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o Second, all loans transferred after the closing date (the
"Additional Loans") must meet the same terms and conditions
for eligibility as the original loans used to create the trust
fund, which terms and conditions have been approved by the
Exemption rating agency.
o Third, the transfer of such Additional Loans to the trust fund
during the DOL Pre-Funding Period must not result in the
securities receiving a lower credit rating from the Exemption
rating agency upon termination of the DOL Pre-Funding Period
than the rating that was obtained at the time of the initial
issuance of the securities by the trust.
o Fourth, solely as a result of the use of the pre-funding, the
weighted average annual percentage interest rate (the "Average
Interest Rate") for all of the loans in the trust fund at the
end of the DOL Pre-Funding Period must not be more than 100
basis points lower than the Average Interest Rate for the
loans which were transferred to the trust fund on the closing
date.
o Fifth, either: (i) the characteristics of the additional loans
must be monitored by an insurer or other credit support
provider which is independent of the depositor; or (ii) an
independent accountant retained by the depositor must provide
the depositor with a letter (with copies provided to the
Exemption rating agency, the underwriter and the trustee)
stating whether or not the characteristics of the additional
loans conform to the characteristics described in the
prospectus or related prospectus supplement or agreement.
o Sixth, the DOL Pre-Funding Period must generally end no later
than three months or 90 days after the closing date.
o Seventh, amounts transferred to any Pre-Funding Account used
in connection with the pre-funding may be invested only in
investments which are permitted by the Exemption rating agency
and (i) are direct obligations of, or obligations fully
guaranteed as to timely payment of principal and interest by,
the United States or any agency or instrumentality thereof
(provided that such obligations are backed by the full faith
and credit of the United States); or (ii) have been rated (or
the obligor has been rated) in one of the three highest
generic rating categories by the Exemption rating agency.
o Eighth, certain disclosure requirements must be met.
The Exemption, as amended, extends exemptive relief to certain
mortgage-backed and asset-backed securities transactions involving trusts that
contain an interest rate swap, provided the swap satisfies certain requirements
and the other requirements of the Exemption are met. Among other requirements,
the counterparty to the swap must maintain ratings at certain levels from
Exemption rating agencies, and the documentation for the swap must provide for
certain remedies if the rating declines. The swap must be an interest rate swap
denominated in U.S. dollars, may not be leveraged, and must satisfy several
other criteria. Securities of any class affected by the swap may be sold to Plan
investors only if they are "qualified plan investors" that satisfy several
requirements relating to their ability to understand the terms of the swap and
the effects of the swap on the risks associated with an investment in the
security.
The rating of a security may change. If a class of securities no longer
satisfies the applicable rating requirement of the Exemption, securities of that
class will no longer be eligible for relief under the Exemption, and
consequently may not be purchased by or sold to a Plan (although a Plan that had
purchased the security when it had an appropriate rating would not be required
by the Exemption to dispose of it).
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The prospectus supplement for each series of securities will indicate
the classes of securities, if any, offered thereby as to which it is expected
that the exemption will apply.
In the case of certain types of securities, transfer of the securities
will not be registered unless the transferee represents that it is not, and is
not purchasing on behalf of, or with assets of, a plan, account or other
retirement arrangement or provides an opinion of counsel or a certification,
which opinion of counsel or certification will not be at the expense of the
trustee or depositor, satisfactory to the trustee and the depositor that the
purchase of the securities by or on behalf of, or with assets of, a plan,
account or other retirement arrangement is permissible under applicable law,
will not give rise to a non-exempt prohibited transaction under ERISA or the
Code and will not subject the trustee, the master servicer or the depositor to
any obligation or liability in addition to those undertaken in the operative
agreements.
Any Plan fiduciary which proposes to cause a Plan to purchase
securities should consult with their counsel concerning the impact of ERISA and
the Code, the applicability of the Exemption or any other available exemption,
and the potential consequences in their specific circumstances, prior to making
such investment. Moreover, each Plan fiduciary should determine whether under
the general fiduciary standards of investment procedure and diversification an
investment in the securities is appropriate for the Plan, taking into account
the overall investment policy of the Plan and the composition of the Plan's
investment portfolio.
Legal Investment Considerations
The prospectus supplement for each series of certificates will specify
which, if any, of those classes of certificates constitute "mortgage related
securities" for purposes of the Secondary Mortgage Market Enhancement Act of
1984, as amended (SMMEA). Classes of certificates that qualify as "mortgage
related securities" will be legal investments for persons, trusts, corporations,
partnerships, associations, business trusts and business entities (including
depository institutions, life insurance companies and pension funds) created
pursuant to or existing under the laws of the United States or of any state
(including the District of Columbia and Puerto Rico) whose authorized
investments are subject to state regulation to the same extent as, under
applicable law, obligations issued by or guaranteed as to principal and interest
by the United States or any such entities. Under SMMEA, if a state enacts
legislation prior to October 4, 1991 specifically limiting the legal investment
authority of any of these entities with respect to "mortgage related
securities," certificates will constitute legal investments for entities subject
to the legislation only to the extent provided therein. Approximately twenty-one
states adopted the legislation prior to the October 4, 1991 deadline. SMMEA
provides, however, that in no event will the enactment of any such legislation
affect the validity of any contractual commitment to purchase, hold or invest in
certificates, or require the sale or other disposition of certificates, so long
as such contractual commitment was made or such certificates were acquired prior
to the enactment of the legislation.
SMMEA also amended the legal investment authority of
federally-chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal in
certificates without limitations as to the percentage of their assets
represented thereby, federal credit unions may invest in mortgage related
securities, and national banks may purchase certificates for their own account
without regard to the limitations generally applicable to investment securities
set forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as
the applicable federal authority may prescribe. In this connection, federal
credit unions should review the National Credit Union Administration (NCUA)
Letter to Credit Unions No. 96, as modified by Letter to Credit Unions No. 108,
which includes guidelines to assist federal credit unions in making investment
decisions for mortgage related securities, and the NCUA's regulation "Investment
and Deposit Activities" (12 C.F.R. Part 703), which sets forth certain
restrictions on investment by federal credit unions in mortgage related
securities.
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All depository institutions considering an investment in the
certificates (whether or not the class of certificates under consideration for
purchase constitutes a "mortgage related security") should review the Federal
Financial Institutions Examination Council's Supervisory Policy Statement on the
Securities Activities (to the extent adopted by their respective regulators),
setting forth, in relevant part, certain securities trading and sales practices
deemed unsuitable for an institution's investment portfolio, and guidelines for
(and restrictions on) investing in mortgage derivative products, including
"mortgage related securities", which are "high-risk mortgage securities" as
defined in the Policy Statement. According to the Policy Statement, "high-risk
mortgage securities" include securities such as certificates not entitled to
distributions allocated to principal or interest, or subordinated certificates.
Under the Policy Statement, it is the responsibility of each depository
institution to determine, prior to purchase (and at stated intervals
thereafter), whether a particular mortgage derivative product is a "high-risk
mortgage security", and whether the purchase (or retention) of such a product
would be consistent with the Policy Statement.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying."
The Office of Thrift Supervision, or OTS, has issued Thrift Bulletin
73a, entitled "Investing in Complex Securities" ("TB 73a"), which applies to
savings associations regulated by the OTS, and Thrift Bulletin 13a, entitled
"Management of Interest Rate Risk, Investment Securities, and Derivatives
Activities" ("TB 13a"), which applies to thrift institutions regulated by the
OTS.
One of the primary purposes of TB 73a is to require savings
associations, prior to taking any investment position, to determine that the
investment position meets applicable regulatory and policy requirements
(including those set forth TB 13a (see below)) and internal guidelines, is
suitable for the institution, and is safe and sound. OTS recommends, with
respect to purchases of specific securities, additional analyses, including,
among others, analysis of repayment terms, legal structure, expected performance
of the issuer and any underlying assets as well as analysis of the effects of
payment priority, with respect to security which is divided into separate
tranches with unequal payments, and collateral investment parameters, with
respect to a security that is prefunded or involves a revolving period. TB 73a
reiterates the due diligence requirements of the OTS for investing in all
securities and warns that if a savings association makes an investment that does
not meet the applicable regulatory requirements, the savings association's
investment practices will be subject to criticism, and OTS may require
divestiture of such securities. OTS also recommends, with respect to an
investment in any "complex securities," that savings associations should take
into account quality and suitability, interest rate risk and classification
factors. For the purpose of each of TB 73a and TB 13a, the term "complex
security" includes among other things any collateralized mortgage obligation or
real estate mortgage investment conduit security, other than any "plain vanilla"
mortgage pass-through security (i.e., securities that are part of a single class
of securities in the related pool that are non-callable and do not have any
special features). Accordingly, all Classes of the Offered Certificates would
likely be viewed as "complex securities." With respect to quality and
suitability factors, TB 73a warns (1) that a savings association's sole reliance
on outside ratings for material purchases of complex securities is an unsafe and
unsound practice, (ii) that a savings association should only use ratings and
analyses from nationally recognized rating agencies in conjunction with, and in
validation of, its own underwriting processes, and (iii) that it should not use
ratings as a substitute for its own thorough underwriting analyses. With respect
to the interest rate risk factor, TB 73a recommends that savings associations
should follow the guidance set forth in TB 13a. With respect to collateralized
loan or bond obligations, TB 73a also requires that the savings associations
meet similar requirements with respect to the underlying collateral, and warns
that investments that are not fully rated as to both principal and interest do
not meet OTS regulatory requirements.
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One of the primary purposes of TB 13a is to require thrift
institutions, prior to taking any investment position, to (i) conduct a
pre-purchase portfolio sensitivity analysis for any "significant transaction"
involving securities or financial derivatives, and (ii) conduct a pre-purchase
price sensitivity analysis of any "complex security" or financial derivative.
The OTS recommends that a thrift institution should conduct its own in-house pre
acquisition analysis, although it may rely on an analysis conducted by an
independent third-party as long as management understands the analysis and its
key assumptions. Further, TB 13a recommends that the use of "complex securities
with high price sensitivity" be limited to transactions and strategies that
lower a thrift institution's portfolio interest rate risk. TB 13a warns that
investment in complex securities by thrift institutions that do not have
adequate risk measurement, monitoring and control systems may be viewed by OTS
examiners as an unsafe and unsound practice.
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase certificates or to
purchase certificates representing more than a specified percentage of the
investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the certificates constitute legal
investments for them.
Method of Distribution
The certificates offered by this prospectus and by the related
prospectus supplement will be offered in series. The distribution of the
certificates may be effected from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering price or at
varying prices to be determined at the time of sale or at the time of commitment
therefor. If so specified in the related prospectus supplement and subject to
the receipt of any required approvals from the Board of Governors of the Federal
Reserve System, the certificates will be distributed in a firm commitment
underwriting, subject to the terms and conditions of the underwriting agreement,
by Greenwich Capital Markets, Inc. (GCM) acting as underwriter with other
underwriters, if any, named in the prospectus supplement. In such event, the
related prospectus supplement may also specify that the underwriters will not be
obligated to pay for any certificates agreed to be purchased by purchasers
pursuant to purchase agreements acceptable to the depositor. In connection with
the sale of the certificates, underwriters may receive compensation from the
depositor or from purchasers of the certificates in the form of discounts,
concessions or commissions. The related prospectus supplement will describe any
compensation paid by the depositor.
Alternatively, the related prospectus supplement may specify that the
certificates will be distributed by GCM acting as agent or in some cases as
principal with respect to certificates that it has previously purchased or
agreed to purchase. If GCM acts as agent in the sale of certificates, GCM will
receive a selling commission with respect to each series of certificates,
depending on market conditions, expressed as a percentage of the aggregate
principal balance of the related mortgage assets as of the cut-off date. The
exact percentage for each series of certificates will be disclosed in the
related prospectus supplement. To the extent that GCM elects to purchase
certificates as principal, GCM may realize losses or profits based upon the
difference between its purchase price and the sales price. The prospectus
supplement with respect to any series offered other than through underwriters
will contain information regarding the nature of such offering and any
agreements to be entered into between the depositor and purchasers of
certificates of that series.
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The depositor will indemnify GCM and any underwriters against certain
civil liabilities, including liabilities under the Securities Act of 1933, or
will contribute to payments GCM and any underwriters may be required to make in
respect of those liabilities.
In the ordinary course of business, GCM and the depositor may engage in
various securities and financing transactions, including repurchase agreements
to provide interim financing of the depositor's mortgage loans pending the sale
of the mortgage loans or interests in the loans, including the certificates.
The depositor anticipates that the certificates will be sold primarily
to institutional investors. Purchasers of certificates, including dealers, may,
depending on the facts and circumstances of such purchases, be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, in connection
with reoffers and sales of certificates by them. Holders of certificates should
consult with their legal advisors in this regard prior to any such reoffer or
sale.
Legal Matters
The legality of the certificates of each series, including certain
material federal income tax consequences with respect to the certificates, will
be passed upon for the depositor by Sidley Austin Brown & Wood LLP, 787 Seventh
Avenue, New York, New York 10019, or by Thacher Proffitt & Wood LLP, Two World
Financial Center, New York, New York 10281, as specified in the related
prospectus supplement.
Financial Information
A new trust fund will be formed with respect to each series of
certificates and no trust fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series of
certificates. Accordingly, no financial statements with respect to any trust
fund will be included in this Prospectus or in the related prospectus
supplement.
Available Information
The depositor has filed with the SEC a Registration Statement under the
Securities Act of 1933, as amended, with respect to the certificates. This
prospectus, which forms a part of the Registration Statement, and the prospectus
supplement relating to each series of certificates contain summaries of the
material terms of the documents referred to herein and therein, but do not
contain all of the information set forth in the Registration Statement pursuant
to the Rules and Regulations of the SEC. For further information, reference is
made to the Registration Statement and the exhibits thereto. The Registration
Statement and exhibits can be inspected and copied at prescribed rates at the
public reference facilities maintained by the SEC at its Public Reference
Section, 450 Fifth Street, N. W., Washington, D.C. 20549. In addition, the SEC
maintains a website at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
the depositor, that file electronically with the SEC.
Ratings
It is a condition to the issuance of the certificates of each series
offered by this prospectus and the accompanying prospectus supplement that they
shall have been rated in one of the four highest rating categories by the
nationally recognized statistical rating agency or agencies specified in the
related prospectus supplement.
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Ratings on mortgage pass-through certificates address the likelihood of
receipt by securityholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the credit enhancer or guarantor, if any. Ratings on
mortgage pass-through certificates do not represent any assessment of the
likelihood of principal prepayments by mortgagors or of the degree by which such
prepayments might differ from those originally anticipated. As a result,
securityholders might suffer a lower than anticipated yield, and, in addition,
holders of stripped pass-through certificates in certain cases might fail to
recoup their underlying investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
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Glossary of Terms
Agency Securities: Mortgage pass-through securities issued or
guaranteed by Ginnie Mae, Fannie Mae or Freddie Mac.
Home Equity Loans: Closed end and/or revolving home equity loans
generally secured by junior liens on one- to four-family residential properties.
Home Improvement Contracts: Home improvement installment sales
contracts and loan agreements that are either unsecured or secured by senior or
junior liens on one- to four-family residential or mixed-use properties or by
purchase money security interests in the related home improvements.
Insurance Proceeds: All proceeds of the related hazard insurance
policies and any primary mortgage insurance policies to the extent the proceeds
are not applied to property restoration or released to mortgagors in accordance
with the master servicer's normal servicing procedures, net of insured expenses
including unreimbursed payments of property taxes, insurance premiums and other
items incurred by any related sub-servicer and net of reimbursed advances made
by the sub-servicer.
Liquidation Proceeds: All cash amounts (other than Insurance Proceeds)
received and retained in connection with the liquidation of defaulted mortgage
loans, by foreclosure or otherwise, net of unreimbursed liquidation and
foreclosure expenses incurred by any related sub-servicer and net of
unreimbursed advances made by the sub-servicer.
Manufactured Housing Contracts: Conditional sales contracts and
installment sales or loan agreements secured by manufactured housing.
Multifamily Loans: First lien mortgage loans, or participation
interests in the loans, secured by residential properties consisting of five or
more residential units, including cooperative apartment buildings.
Private Label Securities: Mortgage-backed or asset-backed securities
that are not Agency Securities.
REMIC Regulations: Regulations promulgated by the Department of the
Treasury on December 23, 1992 and generally effective for REMICs with start-up
dates on or after November 12, 1991.
Single Family Loans: First lien mortgage loans, or participation
interests in the loans, secured by one- to four-family residential properties.
U.S. Person: Any of the following:
o a citizen or resident of the United States;
o a corporation or a partnership (including an entity treated as
a corporation or partnership for U.S. federal income tax
purposes) organized in or under the laws of the United States,
or any State thereof or the District of Columbia (unless in
the case of a partnership Treasury regulations are adopted
that provide otherwise);
o an estate whose income from sources outside the United States
is includible in gross income for federal income tax purposes
regardless of its connection with the conduct of a trade or
business within the United States; or
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o a trust if a court within the United States is able to
exercise primary supervision of the administration of the
trust and one or more U.S. Persons have the authority to
control all substantial decisions of the trust.
In addition, certain trusts which would not qualify as U.S. Persons under the
above definition but which are eligible to and make an election to be treated as
U.S. Persons will also be treated as U.S. Persons.
Until 90 days after the date of this prospectus supplement, all dealers
effecting transactions in the Securities offered by this prospectus
supplement, whether or not participating in this distribution, may be required
to deliver this prospectus supplement and the prospectus. This is in addition
to the obligation of dealers to deliver this prospectus supplement and the
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
$414,616,000 (Approximate)
C-BASS Mortgage Loan Asset-Backed Certificates, Series 2003-CB6
[C-BASS LOGO] [RADAR VIEWER LOGO]
$134,439,000 Class 1AV-1 Floating Pass-Through Rate
$ 61,200,000 Class 2AV-1 Floating Pass-Through Rate
$ 38,729,000 Class 2AV-2 Floating Pass-Through Rate
$ 49,500,000 Class AF-1 Floating Pass-Through Rate
$ 19,300,000 Class AF-2 Fixed Pass-Through Rate
$ 17,400,000 Class AF-3 Fixed Pass-Through Rate
$ 12,930,000 Class AF-4 Fixed Pass-Through Rate
$ 10,189,000 Class AF-5 Fixed Pass-Through Rate
$ 9,000,000 Class AF-6 Fixed Pass-Through Rate
$ 26,076,000 Class M-1 Floating Pass-Through Rate
$ 21,730,000 Class M-2 Floating Pass-Through Rate
$ 4,128,000 Class M-3 Floating Pass-Through Rate
$ 5,432,000 Class M-4 Floating Pass-Through Rate
$ 4,563,000 Class M-5 Floating Pass-Through Rate
Financial Asset Securities Corp.
Depositor
Credit-Based Asset Servicing and Securitization LLC
Seller
Litton Loan Servicing LP
Servicer
RBS GREENWICH CAPITAL
GMAC RFC SECURITIES BLAYLOCK & PARTNERS, L.P.
PROSPECTUS SUPPLEMENT
You should rely only on the information contained or incorporated by reference
in this prospectus supplement and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We are not offering the certificates in any state where the offer is not
permitted.
We do not claim that the information in this prospectus supplement and the
accompanying prospectus is accurate as of any date other than the dates stated
on their respective covers.
December 1, 2003