Prospectus supplement dated October 30, 2006 (to prospectus dated October 23, 2006)
$1,252,719,000
(Approximate)
Bear Stearns ALT-A Trust 2006-7
Issuing Entity
Wells Fargo Bank, National Association
Master Servicer and Securities Administrator
Structured Asset Mortgage Investments II Inc.
Depositor
EMC Mortgage Corporation
Sponsor and Seller
Bear Stearns ALT-A Trust, Mortgage Pass-Through Certificates, Series 2006-7
________________________________________________________________________________________________________________________
You should consider carefully the risk factors beginning on page S-22 in this prospectus supplement.
________________________________________________________________________________________________________________________
The Trust
The trust will consist primarily of a pool of adjustable rate Alt-A type mortgage loans secured by first
liens on one- to four-family residential properties.
The trust will issue these classes of certificates that are offered under this prospectus supplement:
o 2 classes of group I senior certificates designated Class I-A-1 Certificates and Class
I-A-2 Certificates,
o 14 classes of group II senior certificates designated Class II-1A-1, Class II-1A-2, Class
II-1X-1, Class II-2A-1A, Class II-2A-1B, Class II-2A-2, Class II-2X-1, Class II-2X-2, Class
II-2X-3, Class II-2X-4, Class II-2X-5, Class II-3A-1, Class II-3A-2 and Class II-3X-1
Certificates,
o 4 classes of group I subordinate certificates designated Class I-M-1, Class I-M-2, Class
I-B-1 and Class I-B-2 Certificates, and
o 4 classes of group II subordinate certificates designated Class II-B-1, Class II-BX-1,
Class II-B-2 and Class II-B-3 Certificates, all as more fully described in the tables
beginning on pages S-2 through S-5 of this prospectus supplement.
Certain classes of certificates are exchangeable certificates as further described herein.
The certificates are obligations only of the trust, as the issuing entity. Neither the certificates nor
the mortgage loans are insured or guaranteed by any person, except as described herein. Distributions on
the certificates will be payable solely from the assets transferred to the trust for the benefit of
certificateholders.
Credit Enhancement
Credit enhancement for the offered certificates related to loan group I will consist of excess spread,
overcollateralization and additional classes of subordinated certificates. The offered certificates
related to loan group I and the Class I-B-3 Certificates may receive additional distributions in respect
of interest from payments under the related cap contracts, as described herein.
Credit enhancement for the offered certificates related to loan group II will consist of additional
classes of subordinated certificates.
Distributions on the certificates will be on the 25th of each month, or, if the 25th is not a business
day, on the next business day, beginning in November 2006.
Neither the Securities and Exchange Commission nor any state securities commission has approved the
certificates or determined if this prospectus supplement or the prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
The Attorney General of the state of New York has not passed on or endorsed the merits of this offering.
Any representation to the contrary is unlawful.
The price to investors will vary from time to time and will be determined at the time of sale. The
proceeds to the depositor from the offering are expected to be approximately 101.50% of the aggregate
principal amount of the offered certificates, plus accrued interest thereon, less expenses. See "Methodof Distribution" in this prospectus supplement.
The Underwriter will deliver to purchasers the offered certificates in book-entry form through The
Depository Trust Company, Clearstream Banking, société anonyme and the Euroclear System, in each case,
on or about October 31, 2006.
Bear, Stearns & Co. Inc.
Underwriter
Important notice about information presented in this prospectus supplement and the accompanying
prospectus
You should rely only on the information contained in this document. We have not authorized anyone to
provide you with different information.
We provide information to you about the offered certificates in two separate documents that
progressively provide more detail:
o the accompanying prospectus, which provides general information, some of which may not apply to
this series of certificates; and
o this prospectus supplement, which describes the specific terms of your certificates.
Annex I, Annex II, Schedule A, Schedule B and Schedule C are incorporated into and comprise a part of
this prospectus supplement as if fully set forth herein.
The description of your certificates in this prospectus supplement is intended to enhance the related
description in the prospectus and you should rely on the information in this prospectus supplement as
providing additional detail not available in the prospectus.
The Depositor's principal offices are located at 383 Madison Avenue, New York, New York10179 and its
telephone number is (212) 272-2000.
NOTWITHSTANDING ANY OTHER EXPRESS OR IMPLIED AGREEMENT TO THE CONTRARY, THE SPONSOR, THE MASTER
SERVICER, THE SECURITIES ADMINISTRATOR, THE CAP CONTRACT PROVIDER, EMC MORTGAGE CORPORATION, THE
TRUSTEE, EACH RECIPIENT OF THE RELATED PROSPECTUS SUPPLEMENT AND, BY ITS ACCEPTANCE THEREOF, EACH HOLDER
OF A CERTIFICATE, AGREES AND ACKNOWLEDGES THAT EACH PARTY HERETO HAS AGREED THAT EACH OF THEM AND THEIR
EMPLOYEES, REPRESENTATIVES AND OTHER AGENTS MAY DISCLOSE, IMMEDIATELY UPON COMMENCEMENT OF DISCUSSIONS,
TO ANY AND ALL PERSONS THE TAX TREATMENT AND TAX STRUCTURE OF THE CERTIFICATES AND THE REMICS, THE
TRANSACTIONS DESCRIBED HEREIN AND ALL MATERIALS OF ANY KIND (INCLUDING OPINIONS OR OTHER TAX ANALYSES)
THAT ARE PROVIDED TO ANY OF THEM RELATING TO SUCH TAX TREATMENT AND TAX STRUCTURE.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the
Prospectus Directive (referred to herein as a Relevant Member State), the Underwriter has represented
and agreed that with effect from and including the date on which the Prospectus Directive is implemented
in that Relevant Member State (referred to herein as a Relevant Implementation Date) it has not made and
will not make an offer of notes to the public in that Relevant Member State prior to the publication of
a prospectus in relation to the notes which has been approved by the competent authority in that
Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to
the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive,
except that it may, with effect from and including the Relevant Implementation Date, make an offer of
notes to the public in that Relevant Member State at any time:
(a) to legal entities which are authorized or regulated to operate in the financial markets or, if
not so authorized or regulated, whose corporate purpose is solely to invest in securities;
(b) to any legal entity which has two or more of (1) an average of at least 250 employees during
the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual
net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or
(c) in any other circumstances which do not require the publication by the Issuer of a prospectus
pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an "offer of notes to the public" in
relation to any notes in any Relevant Member State means the communication in any form and by any means
of sufficient information on the terms of the offer and the notes to be offered so as to enable an
investor to decide to purchase or subscribe the notes, as the same may be varied in that Member State by
any measure implementing the Prospectus Directive in that Member State and the expression referred to
herein as Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure
in each Relevant Member State.
United Kingdom
The Underwriter has represented and agreed that:
(a) it has only communicated or caused to be communicated and will only communicate or cause to be
communicated an invitation or inducement to engage in investment activity (within the meaning
of Section 21 of the FSMA) received by it in connection with the issue or sale of the notes in
circumstances in which Section 21(1) of the FSMA does not apply to the Issuing Entity; and
(b) it has complied and will comply with all applicable provisions of the FSMA with respect to
anything done by it in relation to the notes in, from or otherwise involving the United Kingdom.
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary provides a brief description of material aspects of this offering and does
not contain all of the information that you should consider in making your investment decision. To
understand all of the terms of the offered certificates, read carefully this entire prospectus supplement
and the entire accompanying prospectus. A glossary is included at the end of this prospectus supplement.
Capitalized terms used but not defined in the glossary at the end of this prospectus supplement or in the
following summary have the meanings assigned to them in the glossary at the end of the prospectus.
Issuing Entity..................... Bear Stearns ALT-A Trust 2006-7.
Title of Series.................... Bear Stearns ALT-A Trust, Mortgage Pass-Through Certificates, Series 2006-7.
Cut-off Date....................... October 1, 2006.
Closing Date....................... On or about October 31, 2006.
Depositor.......................... Structured Asset Mortgage Investments II Inc.
Sponsor............................ EMC Mortgage Corporation, an affiliate of the depositor.
Master Servicer.................... Wells Fargo Bank, National Association.
Servicers.......................... EMC Mortgage Corporation, Countrywide Home Loans Servicing LP, HomeBanc
Mortgage Corporation and various other servicers, none of which will
service more than 10% of the mortgage loans in either loan group I or loan
group II.
Originators........................ EMC Mortgage Corporation, Countrywide Home Loans, Inc., HomeBanc Mortgage
Corporation and various other originators, none of which will originate
more than 10% of the mortgage loans in either loan group I or loan group II.
Cap Contract Provider.............. Wachovia Bank, National Association.
Trustee ........................... Citibank, N.A.
Securities Administrator........... Wells Fargo Bank, National Association.
Distribution Dates................. Distributions on the offered certificates will be made on the 25th day of
each month, or, if such day is not a business day, on the next succeeding
business day, beginning in November 2006.
Non-Offered Certificates........... The classes of offered certificates, including any exchangeable
certificates, their pass-through rates and initial certificate principal
balances are set forth in the table below. The Issuing Entity will also
issue other certificates designated as the Class I-B-3, Class II-B-4, Class
II-B-5, Class II-B-6, Class XP, Class B-IO, Class R and Class R-X
Certificates, which classes are not offered pursuant to this prospectus
supplement.
Group I Offered Certificates
Pass-Through Initial Current Initial Rating
Class Rate Principal Amount (S&P/Moody's) Designation
______________________________________________________________________________________________________________________
I-A-1 Adjustable Rate $475,358,000 AAA/Aaa Group I Super Senior
I-A-2 Adjustable Rate $57,584,000 AAA/Aaa Group I Senior Support
I-M-1 Adjustable Rate $14,108,000 AA/Aa2 Group I Subordinate
I-M-2 Adjustable Rate $10,941,000 A/A2 Group I Subordinate
I-B-1 Adjustable Rate $7,486,000 BBB/Baa2 Group I Subordinate
I-B-2 Adjustable Rate $2,879,000 BBB-/Baa3 Group I Subordinate
Total Group I Offered
Certificates*: $568,356,000
*Approximate
Group I Non-Offered Certificates
Pass-Through Initial Current Initial Rating
Class Rate Principal Amount (S&P/Moody's) Designation
________________________________________________________________________________________________________________________
I-B-3 Adjustable Rate $3,455,000 BB/Ba2 Group I Subordinate
XP N/A $100 N/A Group I Subordinate
B-IO N/A $0 N/A Group I Subordinate
Total Group I Non-Offered
Certificates*: $3,455,100
*Approximate
Group II Offered Certificates
Pass-Through Initial Current Initial Rating
Class Rate Principal Amount (S&P/Moody's/Fitch) Designation
______________________________________________________________________________________________________________________________
II-1A-1 Variable Rate $141,971,000 AAA/Aaa/ AAA Group II-1 Super Senior
II-1A-2 Variable Rate $12,039,000 AAA/Aa1/AAA Group II-1 Senior Support
II-1X-1 Fixed Rate Notional AAA/Aaa/AAA Group II-1 Senior Interest Only
II-2A-1A Variable Rate $210,000,000 AAA/Aaa/AAA Group II-2 Super Senior
II-2A-1B Variable Rate $190,919,000 AAA/Aaa/AAA Group II-2 Super Senior/Exchangeable
II-2A-2 Variable Rate $33,996,000 AAA/Aa1/AAA Group II-2 Senior Support
II-2X-1 Fixed Rate Notional AAA/Aaa/AAA Group II-2 Senior Interest Only
Group II-2 Senior Interest
II-2X-2 Fixed Rate Notional AAA/Aaa/AAA Only/Exchangeable
Group II-2 Senior Interest
II-2X-3 Fixed Rate Notional AAA/Aaa/AAA Only/Exchangeable
Group II-2 Senior Interest
II-2X-4 Fixed Rate Notional AAA/Aaa//AAA Only/Exchangeable
Group II-2 Senior Interest
II-2X-5 Fixed Rate Notional AAA/Aaa/AAA Only/Exchangeable
II-3A-1 Variable Rate $50,549,000 AAA/Aaa/AAA Group II-3 Super Senior
II-3A-2 Variable Rate $4,286,000 AAA/Aa1/AAA Group II-3 Senior Support
II-3X-1 Fixed Rate Notional AAA/Aaa/AAA Group II-3 Senior Interest Only
II-B-1 Variable Rate $27,069,000 NR/NR/AA Group II Subordinate
II-BX-1 Variable Rate Notional NR/NR/AA Group II Subordinate Interest Only
II-B-2 Variable Rate $7,635,000 NR/NR/A Group II Subordinate
II-B-3 Variable Rate $5,899,000 NR/NR/BBB Group II Subordinate
Total Group II
Offered
Certificates*: $684,363,000
*Approximate
Group II Non-Offered Certificates
Pass-Through Initial Current Initial Rating
Class Rate Principal Amount (S&P/Moody's/Fitch) Designation
_______________________________________________________________________________________________________________________
II-B-4 Variable Rate $3,818,000 NR/NR/BB Group II Subordinate
II-B-5 Variable Rate $3,123,000 NR/NR/B Group II Subordinate
II-B-6 Variable Rate $2,778,539 NA Group II Subordinate
Total Group II
Non-Offered
Certificates*: $9,719,539
*Approximate
Other Information:
The trust will issue Class R Certificates and Class R-X Certificates (together, the "residual
certificates") which will not have a pass-through rate and which are not offered pursuant to this
prospectus supplement.
The pass-through rates on the certificates are described in detail on pages S-12 through S-14 in this
prospectus supplement.
Class II-1X-1 Certificates:
The Class II-1X-1 Certificates do not have a principal amount. The Class II-1X-1 Certificates have a
notional amount equal to the aggregate certificate principal balance of the Class II-1A-1 Certificates
and the Class II-1A-2 Certificates. The Class II-1X-1 Certificates have an initial notional amount of
$154,010,000.
Class II-2X-1 Certificates:
The Class II-2X-1 Certificates do not have a principal amount. The Class II-2X-1 Certificates have a
notional amount equal to the aggregate certificate principal balance of the Class II-2A-1A Certificates
and the Class II-2A-2 Certificates. The Class II-2X-1 Certificates have an initial notional amount of
$243,996,000.
Class II-2X-2 Certificates:
The Class II-2X-2 Certificates do not have a principal amount. The Class II-2X-2 Certificates have a
notional amount equal to the certificate principal balance of the Class II-2A-1B Certificates. The Class
II-2X-2 Certificates have an initial notional amount of $190,919,000.
Class II-2X-3 Certificates:
The Class II-2X-3 Certificates do not have a principal amount. The Class II-2X-3 Certificates have a
notional amount equal to the certificate principal balance of the Class II-2A-1B Certificates. The Class
II-2X-3 Certificates have an initial notional amount of $190,919,000.
Class II-2X-4 Certificates:
The Class II-2X-4 Certificates do not have a principal amount. The Class II-2X-4 Certificates have a
notional amount equal to the certificate principal balance of the Class II-2A-1B Certificates. The Class
II-2X-4 Certificates have an initial notional amount of $190,919,000.
Class II-2X-5 Certificates:
The Class II-2X-5 Certificates do not have a principal amount. The Class II-2X-5 Certificates have a
notional amount equal to the certificate principal balance of the Class II-2A-1B Certificates. The Class
II-2X-5 Certificates have an initial notional amount of $190,919,000.
Class II-3X-1 Certificates:
The Class II-3X-1 Certificates do not have a principal amount. The Class II-3X-1 Certificates have a
notional amount equal to the aggregate certificate principal balance of the Class II-3A-1 Certificates
and the Class II-3A-2 Certificates. The Class II-3X-1 Certificates have an initial notional amount of
$54,835,000.
Class II-BX-1 Certificates:
The Class II-BX-1 Certificates do not have a principal amount. The Class II-BX-1 Certificates have a
notional amount equal to the certificate principal balance of the Class II-B-1 Certificates. The Class
II-BX-1 Certificates have an initial notional amount of $27,069,000.
The Issuing Entity
The depositor will establish a trust with respect to the Bear Stearns ALT-A Trust, Mortgage Pass-Through
Certificates, Series 2006-7, pursuant to a pooling and servicing agreement dated as of October 1, 2006,
among the depositor, the master servicer, the securities administrator, the trustee and the sponsor.
See "Description of the Certificates" in this prospectus supplement.
The certificates represent in the aggregate the entire beneficial ownership interest in the trust.
Distributions of interest and/or principal on the offered certificates will be made only from payments
received in connection with the mortgage loans described below.
Sponsor and Mortgage Loan Sellers
EMC Mortgage Corporation, in its capacity as a mortgage loan seller, or the Sponsor or EMC, a Delaware
corporation and an affiliate of the depositor and the underwriter, will sell a portion of the mortgage
loans to the depositor. The remainder of the mortgage loans will be sold directly to the depositor by
Master Funding LLC, a special purpose entity that was established by EMC Mortgage Corporation, which, in
turn, acquired those mortgage loans from EMC Mortgage Corporation.
The Originators
Approximately 37.40%, 42.28%, 5.76% and 16.56% of the loan group I, sub-loan group II-1, sub-loan group
II-2 and sub-loan group II-3 mortgage loans, respectively, were originated by EMC. Approximately
50.98%, 71.33% and 35.49% of the loan group I, sub-loan group II-2 and sub-loan group II-3 mortgage
loans, respectively, were originated by Countrywide Home Loans, Inc., or Countrywide. Approximately
5.32%, 39.02%, 22.73% and 44.93% of the loan group I, sub-loan group II-1, sub-loan group II-2 and
sub-loan group II-3 mortgage loans, respectively, were originated by HomeBanc Mortgage Corporation. The
remainder of the mortgage loans were originated by various originators, none of which have originated
more than 10% of the mortgage loans in the aggregate of any loan group.
The Servicers
Approximately 38.93%, 33.63%, 4.63% and 15.95% of the loan group I, sub-loan group II-1, sub-loan group
II-2 and sub-loan group II-3 mortgage loans, respectively, will be serviced by EMC. Approximately
50.98%, 71.33% and 35.49% of the loan group I, sub-loan group II-2 and sub-loan group II-3 mortgage
loans, respectively, will be serviced by Countrywide Home Loans Servicing LP, or Countrywide Servicing.
Approximately 5.32%, 39.02%, 22.73% and 44.93% of the loan group I, sub-loan group II-1, sub-loan group
II-2 and sub-loan group II-3 mortgage loans, respectively, will be serviced by HomeBanc Mortgage
Corporation. The remainder of the mortgage loans will be serviced by various servicers, none of which
will service more than 10% of the mortgage loans in the aggregate of any loan group.
The Mortgage Loans
The trust will initially contain approximately 2,873 first lien adjustable rate mortgage loans secured
by one- to four-family residential real properties and individual condominium units.
The mortgage loans have an aggregate principal balance of approximately $1,269,924,622 as of the Cut-off
Date.
Substantially all of the mortgage loans have an initial fixed-rate period of two, three, five, seven or
ten years. After the fixed rate period, if any, the interest rate on each mortgage loan will be
adjusted monthly based on One-Month LIBOR, semi-annually based on Six-Month LIBOR or annually based on
One-Year LIBOR or One-Year Treasury, to equal the related index plus a fixed percentage set forth in or
computed in accordance with the related note, subject to rounding and to certain other limitations,
including an initial cap, a subsequent periodic cap on each adjustment date and a maximum lifetime
mortgage rate, all as more fully described under "The Mortgage Pool" in this prospectus supplement. The
related index is as described under "The Mortgage Pool—Indices on the Mortgage Loans" in this prospectus
supplement. As to each mortgage loan, the related servicer will be responsible for calculating and
implementing interest rate adjustments.
The mortgage loans have been divided into two primary loan groups, designated as group I and group II as
more fully described below and in Schedule A to this prospectus supplement. The mortgage loans in group
II have been further divided into three sub-loan groups, designated as sub-loan group II-1, sub-loan
group II-2 and sub-loan group II-3. The Class I-A-1 Certificates and the Class I-A-2 Certificates will
be entitled to receive distributions solely with respect to the loan group I mortgage loans. The Class
II-1A-1, Class II-1A-2 and Class II-1X-1 Certificates will be entitled to receive distributions solely
with respect to the sub-loan group II-1 mortgage loans, the Class II-2A-1A, Class II-2A-1B, Class
II-2A-2, Class II-2X-1, Class II-2X-2, Class II-2X-3, Class II-2X-4 and Class II-2X-5 Certificates will
be entitled to receive distributions solely with respect to the sub-loan group II-2, and the Class
II-3A-1, Class II-3A-2 and Class II-3X-1 Certificates will be entitled to receive distributions solely
with respect to the sub-loan group II-3 mortgage loans.
Approximately 89.30%, 89.74%, 94.03% and 89.90% of the loan group I, sub-loan group II-1, sub-loan
group II-2 and sub-loan group II-3 mortgage loans, respectively, will require payment of interest only
for the initial period set forth in the related mortgage note.
Approximately 33.41%, 41.75%, 9.38% and 20.34% of the loan group I, sub-loan group II-1, sub-loan group
II-2 and sub-loan group II-3 mortgage loans, respectively, are assumable in accordance with the terms of
the related mortgage note.
The Group I Mortgage Loans
The following table describes certain characteristics of all of the group I mortgage loans as of the
cut-off date:
Number of mortgage loans:...................1,164
Aggregate stated principalbalance:..........................$575,842,083
Range of stated principalbalances:................$46,373 to $3,867,532
Average stated principal
balance:............................ $494,710
Range of mortgage rates (per annum):
.............................4.625% to 10.625%
Weighted average mortgage rate (per annum):7.441%
Range of remaining terms to stated
maturity (months):...............299 to 480
Weighted average remaining term to stated
maturity (months):.......................360
Weighted average loan-to-value ratio at
origination:..........................75.47%
Weighted average gross margin (per annum):.2.280%
Non-Zero Weighted average cap at first interest
adjustment date (per annum):..........4.996%
Non-Zero Weighted average periodic cap
(per annum):..........................1.641%
Weighted average maximum lifetime mortgage
rate (per annum):....................12.632%
Weighted average months to first interest
adjustment date (months):.................57
Loan Index Type:
One Year LIBOR........................... 58.46%
Six Month LIBOR........................... 40.79%
One Month LIBOR.............................0.35%
One Year Treasury......................... 0.40%
The Sub-Loan Group II-1 Mortgage Loans
The following table describes certain characteristics of all of the mortgage loans in sub-loan group
II-1 as of the cut-off date:
Number of mortgage loans:.....................488
Aggregate stated principalbalance:..........................$166,048,632
Range of stated principal balances:
.............................$61,700 to $2,000,000
Average stated principal
balance:.............................$340,264
Range of mortgage rates (per annum):
..............................4.250% to 8.000%
Weighted average mortgage rate (per annum):6.747%
Range of remaining terms to stated maturity
(months):.........................332 to 360
Weighted average remaining term to stated
maturity (months):.......................358
Weighted average loan-to-value ratio at
origination:..........................76.97%
Weighted average gross margin (per annum):.2.303%
Non-Zero Weighted average cap at first interest
adjustment date (per annum):..........5.207%
Non-Zero Weighted average periodic cap
(per annum):..........................1.782%
Weighted average maximum lifetime mortgage
rate (per annum):....................12.344%
Weighted average months to first interest
adjustment date (months):.................58
Loan Index Type:
One Year LIBOR.............................60.49%
Six Month LIBOR............................32.46%
One Year Treasury...........................7.05%
The Sub-Loan Group II-2 Mortgage Loans
The following table describes certain characteristics of all of the mortgage loans in sub-loan group
II-2 as of the cut-off date:
Number of mortgage loans:...................1,002
Aggregate stated principalbalance:..........................$468,911,691
Range of stated principal balances:
..............................$1,841 to $2,698,500
Average stated principal balance:........$467,976
Range of mortgage rates (per annum):
................................. 5.000% to 9.000%
Weighted average mortgage rate (per annum):7.010%
Range of remaining terms to stated maturity
(months):.........................349 to 479
Weighted average remaining term to stated
maturity (months):.......................359
Weighted average loan-to-value ratio at
origination:..........................76.97%
Weighted average gross margin (per annum):.2.256%
Non-Zero Weighted average cap at first interest
adjustment date (per annum):..........5.094%
Non-Zero Weighted average periodic cap
(per annum):..........................1.961%
Weighted average maximum lifetime mortgage
rate (per annum):....................12.294%
Weighted average months to first interest
adjustment date (months):.................82
Loan Index Type:
One Year LIBOR.............................91.30%
Six Month LIBOR............................8.60%
One Year Treasury...........................0.10%
The Sub-Loan Group II-3 Mortgage Loans
The following table describes certain characteristics of all of the mortgage loans in sub-loan group
II-3 as of the cut-off date:
Number of mortgage loans:.....................219
Aggregate stated principal balance: ..$59,122,216
Range of stated principalbalances:................$40,273 to $1,400,000
Average stated principal balance:........$269,964
Range of mortgage rates (per annum):
.................................3.875% to 10.375%
Weighted average mortgage rate (per annum):6.928%
Range of remaining terms to stated maturity
(months):.........................346 to 478
Weighted average remaining term to stated
maturity (months):.......................359
Weighted average loan-to-value ratio at
origination:..........................75.42%
Weighted average gross margin (per annum):.2.269%
Non-Zero Weighted average cap at first interest
adjustment date (per annum):..........5.102%
Non-Zero Weighted average periodic cap
(per annum):..........................1.879%
Weighted average maximum lifetime mortgage
rate (per annum):....................12.485%
Weighted average months to first interest
adjustment date (months):................118
Loan Index Type:
One Year LIBOR............................86.17%
Six Month LIBOR...........................13.83%
The Group II Mortgage Loans (Aggregate)
The following table describes certain characteristics of all of the group II mortgage loans as of the
cut-off date:
Number of mortgage loans:...................1,709
Aggregate stated principal balance:..$694,082,539
Range of stated principal balances:
..............................$1,841 to $2,698,500
Average stated principal balance:........$406,134
Range of mortgage rates (per annum):
.............................3.875% to 10.375%
Weighted average mortgage rate (per annum):6.940%
Range of remaining terms to stated maturity
(months):.........................332 to 479
Weighted average remaining term to stated
maturity (months):.......................359
Weighted average loan-to-value ratio at
origination:..........................76.84%
Weighted average gross margin (per annum):.2.269%
Non-Zero Weighted average cap at first interest
adjustment date (per annum):..........5.122%
Non-Zero Weighted average periodic cap
(per annum):..........................1.911%
Weighted average maximum lifetime mortgage
rate (per annum):....................12.322%
Weighted average months to first interest
adjustment date (months):.................80
Loan Index Type:
One Year LIBOR.............................83.49%
Six Month LIBOR............................14.75%
One Year Treasury...........................1.76%
Removal and Substitution of a Mortgage Loan
The trustee will acknowledge the sale, transfer and assignment to it (or the applicable custodian on its
behalf) by the depositor and receipt of the mortgage loans, subject to further review and the exceptions
which may be noted pursuant to the procedures described in the pooling and servicing agreement. If the
trustee (or the applicable custodian on its behalf) finds that any mortgage loan appears defective on
its face, appears to have not been executed or received, or appears to be unrelated to the mortgage
loans identified in the mortgage loan schedule (determined on the basis of the mortgagor name, original
principal balance and loan number), the trustee (or the applicable custodian on its behalf) shall
promptly notify the sponsor. The sponsor must then correct or cure any such defect within 90 days from
the date of notice from the trustee (or the applicable custodian on its behalf) of the defect and if the
sponsor fails to correct or cure such defect within such period and such defect materially and adversely
affects the interests of the certificateholders in the related mortgage loan, the sponsor will, in
accordance with the terms of the pooling and servicing agreement and the mortgage loan purchase
agreement, within 90 days of the date of notice, provide the trustee with a substitute mortgage loan (if
within two years of the closing date) or repurchase the mortgage loan; provided that, if such defect
would cause the mortgage loan to be other than a "qualified mortgage" as defined in Section
860G(a)(3)(a) of the Internal Revenue Code, any such cure or substitution must occur within 90 days from
the date such breach was discovered.
Description of the CertificatesGeneral
The Class I-A-1 Certificates and the Class I-A-2 Certificates will represent interests in the group I
mortgage loans and are sometimes referred to herein as the group I senior certificates or the Class I-A
Certificates.
The Class I-M-1, Class I-M-2, Class I-B-1, Class I-B-2 and Class I-B-3 Certificates will each represent
subordinated interests in the group I mortgage loans and are sometimes referred to herein as the group I
subordinate certificates.
The Class I-A-1, Class I-A-2, Class I-M-1, Class I-M-2, Class I-B-1 and Class I-B-2 Certificates are
sometimes referred to herein as the group I offered certificates.
The Class I-B-3, Class XP and Class B-IO Certificates, which are not offered by this prospectus
supplement, and are sometimes referred to herein as the non-offered group I certificates, will each
represent subordinated interests in the group I mortgage loans.
The group I offered certificates and the non-offered group I certificates are sometimes referred to
herein as the group I certificates.
Payments of interest and principal on each class of group I certificates will be made from the group I
mortgage loans..
The Class II-1A-1, Class II-1A-2 and Class II-1X-1 Certificates will represent interests principally in
sub-loan group II-1 and the Class II-1A-1 Certificates and the Class II-1A-2 Certificates are sometimes
referred to herein as the Class II-1A Certificates. The Class II-2A-1A, Class II-2A-1B, Class II-2A-2,
Class II-2X-1, Class II-2X-2, Class II-2X-3, Class II-2X-4 and Class II-2X-5 Certificates will represent
interests principally in sub-loan group II-2 and the Class II-2A-1A, Class II-2A-1B and Class II-2A-2
Certificates are sometimes referred to herein as the Class II-2A Certificates. The Class II-3A-1, Class
II-3A-2 and Class II-3X-1 Certificates will represent interests principally in sub-loan group II-3 and
the Class II-3A-1 Certificates and the Class II-3A-2 Certificates are sometimes referred to herein as
the Class II-3A Certificates.
The Class II-1X-1, Class II-2X-1, Class II-2X-2, Class II-2X-3, Class II-2X-4, Class II-2X-5 and Class
II-3X-1 Certificates are sometimes referred to herein as the senior interest only certificates.
The Class II-B-1, Class II-BX-1, Class II-B-2 and Class II-B-3 Certificates will each represent
subordinated interests in loan group II and are sometimes referred to herein as the group II offered
subordinate certificates. The Class II-BX-1 Certificates are sometimes referred to herein as the
subordinate interest-only certificates.
The senior interest only certificates and the subordinate interest only certificates are sometimes
referred to herein as the interest only certificates.
The Class II-1A, Class II-2A and Class II-3A Certificates and the senior interest only certificates are
sometimes referred to herein as the group II senior certificates. Payments of interest and principal on
each class of group II senior certificates, as applicable, will be made first from mortgage loans in the
related sub-loan group and thereafter, in limited circumstances as further described herein, from
mortgage loans in the other sub-loan groups in loan group II.
The group II senior certificates and the group II offered subordinate certificates are sometimes
referred to herein as the group II offered certificates.
The trust will also issue Class II-B-4, Class II-B-5 and Class II-B-6 Certificates, which are not
offered by this prospectus supplement, and are sometimes referred to herein as the non-offered group II
certificates. The non-offered group II certificates will each represent subordinated interests in the
group II mortgage loans. The non-offered group II certificates have an initial principal balance of
approximately $9,719,539.
The Class II-B-1, Class II-BX-1, Class II-B-2, Class II-B-3, Class II-B-4, Class II-B-5 and Class II-B-6
Certificates are sometimes collectively referred to herein as the Class II-B Certificates.
The group II subordinate certificates, together with the group II senior certificates are sometimes
referred to herein as the group II certificates.
The group I offered certificates, together with the group II offered certificates are sometimes referred
to herein as the offered certificates.
The group I senior certificates, together with the group II senior certificates are sometimes referred
to herein as the senior certificates.
The group II offered subordinate certificates, together with the non-offered group II certificates are
sometimes referred to herein as the group II subordinate certificates. The group I subordinate
certificates, together with the group II subordinate certificates are sometimes referred to herein as
the subordinate certificates.
The non-offered group I certificates and non-offered group II certificates together with the offered
certificates, are sometimes referred to herein as the certificates.
The Class XP Certificates, which are not offered pursuant to this prospectus, will represent the right
of the holder to prepayment charges on the group I mortgage loans to the extent such prepayment charges
are not retained by the related servicer in accordance with the terms of the related servicing
agreement.
The Class R Certificates and the Class R-X Certificates, which are not offered pursuant to this
prospectus, will represent the residual interests in the real estate mortgage investment conduits
established by the trust.
The assumed final distribution date for the offered certificates is the distribution date occurring in
December 2046.
Record Date
For each class of group I offered certificates and for any distribution date, the business day preceding
the applicable distribution date so long as the group I offered certificates remain in book-entry form;
and otherwise the record date shall be the last business day of the month preceding the month in which
such distribution date occurs. For each class of group II offered certificates and for any distribution
date, the close of business on the last business day of the month preceding the month in which such
distribution date occurs.
Denominations
For each class of offered certificates, $25,000, and multiples of $1.00 in excess thereof.
Registration of Offered Certificates
The trust will issue the offered certificates, initially, in book-entry form. Persons acquiring
interests in these offered certificates will hold their beneficial interests through The Depository
Trust Company, in the United States, or Clearstream Banking, société anonyme or the Euroclear System, in
Europe. The trust will issue the residual certificates in certificated fully-registered form.
We refer you to "Description of the Certificates—Registration of the Book-Entry Certificates" in this
prospectus supplement.
Pass Through Rates
The pass-through rate for each class of offered certificates may change from distribution date to
distribution date. The pass-through rate will therefore be adjusted on a monthly basis. Investors will
be notified of a pass-through rate adjustment through the monthly distribution reports.
Group I Certificates
The pass-through rates on each class of group I certificates are as follows:
The Class I-A-1, Class I-A-2, Class I-M-1, Class I-M-2, Class I-B-1, Class I-B-2 and Class I-B-3
Certificates will bear interest at a pass-through rate equal to the least of (i) one-month LIBOR plus
the related margin, (ii) 11.50% per annum and (iii) the weighted average of the net rates of the group I
mortgage loans as adjusted to an effective rate reflecting the accrual of interest on an actual/360
basis.
One-month LIBOR for the first interest accrual period and for all subsequent accrual periods shall be
determined as described in "Description of the Certificates—Calculation of One-Month LIBOR" in this
prospectus supplement.
The related margin for the Class I-A-1, Class I-A-2, Class I-M-1, Class I-M-2, Class I-B-1, Class I-B-2
and Class I-B-3 Certificates will be 0.170%, 0.220%, 0.310%, 0.450%, 1.150%, 2.150% and 2.150% per
annum, respectively, provided that, after the first possible optional termination date for loan group I,
the related margin for the Class I-A-1, Class I-A-2, Class I-M-1, Class I-M-2, Class I-B-1, Class I-B-2
and Class I-B-3 Certificates will be 0.340%, 0.440%, 0.465%, 0.675%, 1.725%, 3.225% and 3.225% per
annum, respectively.
If on any distribution date, the pass-through rate for a class of the group I offered certificates or
the Class I-B-3 Certificates is based on the Net Rate Cap as described in this prospectus supplement,
the holders of the related certificates will receive a smaller amount of interest than such holders
would have received on such distribution date had the pass-through rate been calculated based on the
lesser of (a) one-month LIBOR plus the related margin and (b) 11.50% per annum. However, the shortfalls
described in this paragraph may be covered by excess cashflow or the cap contracts, as described in the
prospectus supplement.
Group II Certificates
The pass-through rates on each class of group II certificates are as follows:
On or prior to the distribution date in August 2011, the Class II-1A-1 Certificates and the Class
II-1A-2 Certificates will each bear interest at a variable pass-through rate equal to the weighted
average of the net rates of the sub-loan group II-1 mortgage loans minus approximately 0.745%. After
the distribution date in August 2011, the Class II-1A-1 Certificates and the Class II-1A-2 Certificates
will each bear interest at a variable pass-through rate equal to the weighted average of the net rates
of the sub-loan group II-1 mortgage loans.
On or prior to the distribution date in August 2011, the Class II-1X-1 Certificates will bear interest
at a fixed pass-through rate equal to approximately 0.745% per annum based on a notional amount equal to
the aggregate certificate principal balance of the Class II-1A-1 Certificates and the Class II-1A-2
Certificates. After the distribution date in August 2011, the Class II-1X-1 Certificates will not bear
any interest and the pass-through rate will be equal to 0.00% per annum thereon.
On or prior to the distribution date in August 2013, the Class II-2A-1A Certificates and the Class
II-2A-2 Certificates will each bear interest at a variable pass-through rate equal to the weighted
average of the net rates of the sub-loan group II-2 mortgage loans minus approximately 0.690%. After
the distribution date in August 2013, the Class II-2A-1A Certificates and the Class II-2A-2 Certificates
will each bear interest at a variable pass-through rate equal to the weighted average of the net rates
of the sub-loan group II-2 mortgage loans.
On or prior to the distribution date in August 2013, the Class II-2A-1B Certificates will bear interest
at a variable pass-through rate equal to the weighted average of the net rates of the sub-loan group
II-2 mortgage loans minus approximately 0.890%. After the distribution date in August 2013, the Class
II-2A-1B Certificates will bear interest at a variable pass-through rate equal to the weighted average
of the net rates of the sub-loan group II-2 mortgage loans.
On or prior to the distribution date in August 2013, the Class II-2X-1 Certificates will bear interest
at a fixed pass-through rate equal to approximately 0.690% per annum based on a notional amount equal to
the aggregate certificate principal balance of the Class II-2A-1A Certificates and the Class II-2A-2
Certificates. After the distribution date in August 2013, the Class II-2X-1 Certificates will not bear
any interest and the pass-through rate will be equal to 0.00% per annum thereon.
On or prior to the distribution date in August 2013, each of the Class II-2X-2, Class II-2X-3, Class
II-2X-4 and Class II-2X-5 Certificates will bear interest at a fixed pass-through rate equal to
approximately 0.490%, 0.200%, 0.100% and 0.100% per annum, respectively, based on a notional amount
equal to the certificate principal balance of the Class II-2A-1B Certificates. After the distribution
date in August 2013, each of the Class II-2X-2, Class II-2X-3, Class II-2X-4 and Class II-2X-5
Certificates will not bear any interest and the pass-through rate will be equal to 0.00% per annum
thereon.
On or prior to the distribution date in August 2016, the Class II-3A-1 Certificates and the Class
II-3A-2 Certificates will each bear interest at a variable pass-through rate equal to the weighted
average of the net rates of the sub-loan group II-3 mortgage loans minus approximately 0.540%. After
the distribution date in August 2016, the Class II-3A-1 Certificates and the Class II-3A-2 Certificates
will each bear interest at a variable pass-through rate equal to the weighted average of the net rates
of the sub-loan group II-3 mortgage loans.
On or prior to the distribution date in August 2016, the Class II-3X-1 Certificates will bear interest
at a fixed pass-through rate equal to approximately 0.540% per annum based on a notional amount equal to
the aggregate certificate principal balance of the Class II-3A-1 Certificates and the Class II-3A-2
Certificates. After the distribution date in August 2016, the Class II-3X-1 Certificates will not bear
any interest and the pass-through rate will be equal to 0.00% per annum thereon.
On or prior to the distribution date in August 2011, the Class II-B-1 Certificates will bear interest at
a variable pass-through rate equal to the weighted average of the weighted average net rate of the
mortgage loans in each sub-loan group in loan group II weighted in proportion to the excess of the
aggregate stated principal balance of each sub-loan group over the aggregate certificate principal
balance of the related senior certificates (other than the senior interest only certificates) minus
approximately 0.345%. After the distribution date in August 2011 up to and including the distribution
date in August 2013, the Class II-B-1 Certificates will bear interest at a variable pass-through rate
equal to the weighted average of the weighted average net rate of the mortgage loans in each sub-loan
group in loan group II weighted in proportion to the excess of the aggregate stated principal balance of
each sub-loan group over the aggregate certificate principal balance of the related senior certificates
(other than the senior interest only certificates) minus approximately 0.345% multiplied by a fraction,
whose numerator is the sum for each of sub-loan group II-2 and sub-loan group II-3 of the excess of the
aggregate stated principal balance of such sub-loan group over the aggregate certificate principal
balance of the related senior certificates, and whose denominator is the excess of the aggregate
principal balance of the Group II mortgage loans over the aggregate certificate principal balance of the
related senior certificates. After the distribution date in August 2013 up to and including the
distribution date in August 2016, the Class II-B-1 Certificates will bear interest at a variable
pass-through rate equal to the weighted average of the weighted average net rate of the mortgage loans
in each sub-loan group in loan group II weighted in proportion to the excess of the aggregate stated
principal balance of each sub-loan group over the aggregate certificate principal balance of the related
senior certificates (other than the senior interest only certificates) minus approximately 0.345%
multiplied by a fraction, whose numerator is the excess of the aggregate stated principal balance of
sub-loan group II-3 over the aggregate certificate principal balance of the related senior certificates,
and whose denominator is the excess of the aggregate principal balance of the Group II mortgage loans
over the aggregate certificate principal balance of the related senior certificates. After the
distribution date in August 2016, each of the Class II-B-1 Certificates will bear interest at a variable
pass-through rate equal to the weighted average of the weighted average net rate of the mortgage loans
in each sub-loan group in loan group II weighted in proportion to the excess of the aggregate stated
principal balance of each sub-loan group over the aggregate certificate principal balance of the related
senior certificates (other than the senior interest only certificates).
On or prior to the distribution date in August 2011, the Class II-BX-1 will bear interest at
approximately 0.345%. After the distribution date in August 2011 up to and including the distribution
date in August 2013, the Class II-BX-1 will bear interest at approximately 0.345% multiplied by a
fraction, whose numerator is the sum for each of sub-loan group II-2 and sub-loan group II-3 of the
excess of the aggregate certificate principal balance of such sub-loan group over the aggregate
certificate principal balance of the related senior certificates , and whose denominator is the excess
of the aggregate principal balance of the Group II mortgage loans over the aggregate certificate
principal balance of the related senior certificates. After the distribution date in August 2013 up to
and including the distribution date in August 2016, the Class II-BX-1 will bear interest at
approximately 0.345% multiplied by a fraction, whose numerator is the excess of the aggregate stated
principal balance of sub-loan group II-3 over the aggregate certificate principal balance of the related
senior certificates, and whose denominator is the excess of the aggregate principal balance of the Group
II mortgage loans over the aggregate certificate principal balance of the related senior certificates.
After the distribution date in August 2016, the Class II-BX-1 Certificates will not bear any interest.
The Class II-B-2, Class II-B-3, Class II-B-4, Class II-B-5 and Class II-B-6 Certificates will bear
interest at a variable pass-through rate equal to the weighted average of the weighted average net rate
of the mortgage loans in each sub-loan group in loan group II weighted in proportion to the excess of
the aggregate stated principal balance of each sub-loan group over the aggregate certificate principal
balance of the related senior certificates (other than the senior interest only certificates).
The residual certificates and the Class XP Certificates do not have a pass-through rate and will not
bear interest.
Exchangeable Certificates
Loan Group II will allow for and include exchangeable certificates. The holders of one or more classes
of exchangeable certificates will be entitled to exchange all or a part of those classes for
proportionate interests in one or more classes of exchanged certificates within the same Loan Group. The
possible combinations of exchangeable certificates are identified on Schedule B. See "Description of
the Certificates—Exchangeable Certificates."
Distributions on the Certificates
General. The issuing entity will make distributions with respect to each class of certificates
primarily from certain collections and other recoveries on the mortgage loans.
Interest Payments: On each distribution date holders of the offered certificates and the Class I-B-3,
Class II-B-4, Class II-B-5 and Class II-B-6 Certificates will be entitled to receive:
o the interest that has accrued on the certificate principal balance or notional amount of the
related certificates at the applicable pass-through rate during the related interest accrual
period, and
o any interest due on a prior distribution date that was not paid, less
o interest shortfalls allocated to the related certificates.
The interest accrual period for the group I offered certificates and the Class I-B-3 Certificates will
be the period from and including the preceding distribution date (or from and including the closing
date, in the case of the first distribution date) to and including the day prior to the current
distribution date.
Interest on the group I offered certificates, the Class I-B-3 Certificates will be calculated on the
basis of a 360-day year and the actual number of days elapsed during the related interest accrual period.
Each class of group I offered certificates and the Class I-B-3 Certificates may receive additional
interest distributions from payments under the related cap contracts, as described below under "The CapContracts".
The interest accrual period for the group II certificates will be the calendar month immediately
preceding the calendar month in which a distribution date occurs.
Calculations of interest on the group II certificates will be based on a 360-day year that consists of
twelve 30-day months.
The Class II-1X-1 Certificates have a notional amount equal to the aggregate certificate principal
balance of the Class II-1A-1 Certificates and the Class II-1A-2 Certificates. The Class II-1X-1
Certificates have an initial notional amount of $154,010,000.
The Class II-2X-1 Certificates have a notional amount equal to the aggregate certificate principal
balance of the Class II-2A-1A Certificates and the Class II-2A-2 Certificates. The Class II-2X-1
Certificates have an initial notional amount of $243,996,000.
The Class II-2X-2, Class II-2X-3, Class II-2X-4 and Class II-2X-5 Certificates have notional amounts
equal to the certificate principal balance of the Class II-2A-1B Certificates. The Class II-2X-2, Class
II-2X-3, Class II-2X-4 and Class II-2X-5 Certificates, each have an initial notional amount of
$190,919,000.
The Class II-3X-1 Certificates have a notional amount equal to the aggregate certificate principal
balance of the Class II-3A-1 Certificates and the Class II-3A-2 Certificates. The Class II-3X-1
Certificates have an initial notional amount of $54,835,000.
The Class II-BX-1 Certificates have a notional amount equal to the certificate principal balance of the
Class II-B-1 Certificates. The Class II-B-1 Certificates have an initial notional amount of
$27,069,000.
Payments on Group I Certificates
On each distribution date, holders of the group I offered certificates and the Class I-B-3 Certificates
will receive a distribution of interest and principal on their certificates if there is cash available
on that date subject to the priorities for payment set forth in this prospectus supplement.
Distributions to the holders of the group I offered certificates and the Class I-B-3 Certificates will
be made as follows:
First, distributions of interest to the group I offered certificates and the Class I-B-3 Certificates,
and payment of interest shortfalls from previous distribution dates in the case of the Class I-A
Certificates, will be made from interest collections derived from the group I mortgage loans in the
following order of priority:
o First, from interest collections derived from the loan group I mortgage loans, to the Class
I-A-1 Certificates and the Class I-A-2 Certificates, on a pro rata basis;
o Second, to the Class I-M-1 Certificates;
o Third, to the Class I-M-2 Certificates;
o Fourth, to the Class I-B-1 Certificates;
o Fifth, to the Class I-B-2 Certificates; and
o Sixth, to the Class I-B-3 Certificates.
Second, distributions of principal to the group I offered certificates and the Class I-B-3 Certificates
will be made primarily from principal collections, advances and excess interest derived from the group I
mortgage loans until the required level of overcollateralization is reached, in the following order of
priority:
o First, from collections on the loan group I mortgage loans, to the Class I-A-1 Certificates and
the Class I-A-2 Certificates, on a pro rata basis;
o Second, to the Class I-M-1 Certificates;
o Third, to the Class I-M-2 Certificates;
o Fourth, to the Class I-B-1 Certificates;
o Fifth, to the Class I-B-2 Certificates; and
o Sixth, to the Class I-B-3 Certificates.
Third, distributions of any remaining excess interest will be made to the group I offered certificates
and the Class I-B-3 Certificates for payment of unpaid interest shortfalls and unpaid realized losses in
the following order of priority:
o First, to the Class I-A Certificates on a pro rata basis;
o Second, to the Class I-M-1 Certificates;
o Third, to the Class I-M-2 Certificates;
o Fourth, to the Class I-B-1 Certificates;
o Fifth, to the Class I-B-2 Certificates; and
o Sixth, to the Class I-B-3 Certificates.
Distributions to the group I offered certificates and the Class I-B-3 Certificates will be made from any
remaining excess interest to cover basis risk shortfalls, to the extent not covered by the related cap
contracts, in the following order of priority:
o First, to the Class I-A Certificates on a pro rata basis;
o Second, to the Class I-M-1 Certificates;
o Third, to the Class I-M-2 Certificates;
o Fourth, to the Class I-B-1 Certificates;
o Fifth, to the Class I-B-2 Certificates; and
o Sixth, to the Class I-B-3 Certificates.
Distributions of any remaining excess cashflow will be made to certain non-offered group I certificates.
You should review the priority of payments for the offered certificates described under "Description of
the Certificates—Distributions on the Group I Certificates" in this prospectus supplement.
Payments on Group II Certificates
On each distribution date, holders of the group II certificates will receive a distribution of interest
and principal on their certificates (other than the interest only certificates in the case of principal
distributions) to the extent of available funds and subject to the priorities for payment set forth in
this prospectus supplement.
Distributions to the holders of the group II certificates will be made as follows:
First, distributions of interest to the group II senior certificates and payment of interest shortfalls
from previous distribution dates will be made from interest collections derived from group II mortgage
loans in the related sub-loan group.
Second, any remaining available funds for that sub-loan group will then be distributed to the related
group II senior certificates in payment of principal (other than the senior interest only certificates)
up to the amount of principal distributions to which the related group II senior certificates are
entitled on that distribution date.
After payment in full of principal to the group II senior certificates (other than the senior interest
only certificates) in any certificate group, payments of principal, as applicable, and interest will be
made from remaining available funds for the related sub-loan group to the group II subordinate
certificates, sequentially, in the order of their numerical class designations to the extent described
herein.
Monthly principal distributions on the Class II-1A Certificates will generally only include principal
payments on the sub-loan group II-1 mortgage loans. Monthly principal distributions on the Class II-2A
Certificates will generally only include principal payments on the sub-loan group II-2 mortgage loans.
Monthly principal distributions on the Class II-3A Certificates will generally only include principal
payments on the sub-loan group II-3 mortgage loans.
You should review the priority of payments for the offered certificates described under "Description of
the Certificates—Distributions on the Group II Certificates" in this prospectus supplement. See also
"Description of the Certificates—Principal Distributions on the Group II Senior Certificates" and
"—Principal Distributions on the Group II Subordinate Certificates" in this prospectus supplement.
Credit Enhancement
Credit enhancement provides limited protection to holders of specified certificates against shortfalls
in payments received on the mortgage loans.
Group I Offered Certificates
Excess Spread and Overcollateralization. The group I mortgage loans are expected to generate more
interest than is needed to pay interest on the group I offered certificates and the Class I-B-3
Certificates because we expect the weighted average net interest rate of the group I mortgage loans to
be higher than the weighted average pass-through rate on the group I offered certificates and the Class
I-B-3 Certificates. Interest payments received in respect of the group I mortgage loans in excess of
the amount that is needed to pay interest on the group I offered certificates and the Class I-B-3
Certificates and related trust expenses will be used to reduce the total principal balance of the group
I offered certificates and the Class I-B-3 Certificates until a required level of overcollateralization
has been achieved.
See "Description of the Certificates—Excess Spread and Overcollateralization Provisions" in this
prospectus supplement.
Subordination; Allocation of Losses. By issuing group I senior certificates and group I subordinate
certificates, the trust has increased the likelihood that the group I senior certificateholders will
receive regular payments of interest and principal.
The group I senior certificates will have payment priority over the group I subordinate certificates.
Among the classes of group I subordinate certificates, the Class I-M-1 Certificates will have payment
priority over the Class I-M-2, the Class I-B-1, the Class I-B-2 and the Class I-B-3 Certificates, the
Class I-M-2 Certificates will have payment priority over the Class I-B-1, the Class I-B-2 and the Class
I-B-3 Certificates, the Class I-B-1 Certificates will have payment priority over the Class I-B-2
Certificates and the Class I-B-3 Certificates and the Class I-B-2 Certificates will have payment
priority over the Class I-B-3 Certificates.
In general, this loss protection is accomplished by allocating any realized losses on the group I
mortgage loans in excess of available excess spread and any current overcollateralization for the group
I certificates to the group I subordinate certificates, beginning with the group I subordinate
certificates with the lowest payment priority, until the certificate principal balance of that class of
group I subordinate certificates has been reduced to zero and then allocating any loss to the next most
junior class of group I subordinate certificates, until the certificate principal balance of each class
of group I subordinate certificates has been reduced to zero. If no group I subordinate certificates
remain outstanding, the principal portion of realized losses on the group I mortgage loans will be
allocated first to the Class I-A-2 Certificates until the certificate principal balance thereof has been
reduced to zero and then to the Class I-A-1 Certificates until the certificate principal balance thereof
has been reduced to zero.
See "Description of the Certificates—Allocation of Realized Losses; Subordination" in this prospectus
supplement.
Each class of group I offered certificates and the Class I-B-3 Certificates will be entitled to certain
payments under the related cap contract. See "The Cap Contracts" in this prospectus supplement.
Group II Offered Certificates
Subordination; Allocation of Losses. The credit enhancement provided for the benefit of the holders of
the group II offered certificates consists of subordination. By issuing group II senior certificates and
group II subordinate certificates, the trust has increased the likelihood that the holders of the group
II senior certificates and the group II subordinate certificates having a higher payment priority will
receive regular payments of interest and principal.
The group II senior certificates will have a payment priority over the group II subordinate
certificates. Among the classes of group II subordinate certificates, each class of Class II-B
Certificates with a lower numerical class designation will have payment priority over each class of
Class II-B Certificates with a higher numerical class designation.
As with the group I certificates, loss protection for the group II certificates is accomplished by
allocating any realized losses on the group II mortgage loans to the group II subordinate certificates,
beginning with the group II subordinate certificates with the lowest payment priority, until the
certificate principal balance of that class of group II subordinate certificates has been reduced to
zero and then allocating any loss to the next most junior class of group II subordinate certificates,
until the certificate principal balance of each class of group II subordinate certificates has been
reduced to zero. If no group II subordinate certificates remain outstanding, the principal portion of
realized losses on the group II mortgage loans will be allocated (i) in the case of realized losses on
the sub-loan group II-1 mortgage loans, first to the Class II-1A-2 Certificates until the certificate
principal balance thereof has been reduced to zero and then to the Class II-1A-1 Certificates until the
certificate principal balance thereof has been reduced to zero, (ii) in the case of realized losses on
the sub-loan group II-2 mortgage loans, first to the Class II-2A-2 Certificates until the certificate
principal balance thereof has been reduced to zero and then to the Class II-2A-1A Certificates and the
Class II-2A-1B Certificates, pro rata, until the certificate principal balance thereof has been reduced
to zero, and (iii) in the case of realized losses on the sub-loan group II-3 mortgage loans, first to
the Class II-3A-2 Certificates until the certificate principal balance thereof has been reduced to zero
and then to the Class II-3A-1 Certificates until the certificate principal balance thereof has been
reduced to zero.
Subordination provides the holders of the group II senior certificates and the group II subordinate
certificates having a higher payment priority in such loan group with protection against losses realized
when the remaining unpaid principal balance on a mortgage loan exceeds the amount of proceeds recovered
upon the liquidation of that mortgage loan.
As of the closing date, the aggregate certificate principal balance of the Class II-B-1, Class II-B-2,
Class II-B-3, Class II-B-4, Class II-B-5 and Class II-B-6 Certificates will equal approximately 7.25% of
the aggregate certificate principal balance of all classes of the group II certificates (other than the
interest only certificates). As of the closing date, the aggregate certificate principal balance of the
Class II-B-4, Class II-B-5 and Class II-B-6 Certificates will equal approximately 1.40% of the aggregate
certificate principal balance of all classes of the group II certificates (other than the interest only
certificates).
In addition, to extend the period during which the group II subordinate certificates remain available as
credit enhancement to the group II senior certificates, the entire amount of any prepayments and certain
other unscheduled recoveries of principal with respect to the group II mortgage loans in the related
loan group will be allocated to the group II senior certificates (other than the senior interest only
certificates) in the related certificate group to the extent described in this prospectus supplement on
each distribution date during the first seven years after the closing date (with such allocation to be
subject to further reduction over an additional four year period thereafter as described in this
prospectus supplement), unless certain subordination levels are achieved and certain loss and
delinquency tests are satisfied. This structure will accelerate the amortization of the group II senior
certificates.
See "Description of the Certificates—Allocation of Losses; Subordination" in this prospectus supplement.
Payments on Exchangeable Certificates
In the event that certificates comprising an allowable combination of exchangeable certificates are
exchanged for their related exchanged certificates, those exchanged certificates will be entitled to a
proportionate share of the principal distributions on each class of exchangeable certificates in the
related allowable combination plus the pass-through rate on such exchangeable securities. In addition,
exchanged certificates will bear a proportionate share of losses and interest shortfalls allocable to
each class of exchangeable certificates in the related allowable combination. On each distribution date
when exchanged certificates are outstanding, principal distributions from the applicable exchangeable
certificates are allocated to the related exchanged certificates. The payment characteristics of the
classes of exchanged certificates will reflect the aggregate payment characteristics of the related
exchangeable certificates. Schedule B sets forth the characteristics of the exchangeable certificates
and the combinations of exchanged certificates and regular certificates offered hereunder. See
"Description of the Certificates—Exchangeable Certificates—Procedures" in this prospectus supplement and
"Description of the Securities—Exchangeable Securities" in the prospectus for a description of
exchangeable certificates and exchange procedures and fees. For a more detailed description of how
distributions will be allocated among the various classes of certificates, see "Description of the
Certificates—Priority of Distributions" and "—Distributions of Principal on the Certificates" in this
prospectus supplement.
Advances
Each servicer will make cash advances with respect to delinquent payments of scheduled interest and
principal due (if any) on the mortgage loans for which it acts as servicer, in general, to the extent
that such servicer reasonably believes that such cash advances can be repaid from future payments on the
related mortgage loans. If the related servicer fails to make any required advances, the master servicer
may be obligated to do so, as described in this prospectus supplement. These cash advances are only
intended to maintain a regular flow of scheduled interest and principal payments on the certificates and
are not intended to guarantee or insure against losses.
The Cap Contracts
Each class of group I offered certificates and the Class I-B-3 Certificates will be entitled to the
benefits provided by the related cap contract. There can be no assurance as to the extent of benefits,
if any, that may be realized by the group I certificateholders as a result of the cap contracts.
See "The Cap Contracts" in this prospectus supplement.
Servicing and Master Servicing Fee
The master servicer will be entitled to receive, as compensation for its activities under the pooling
and servicing agreement, the investment income received on amounts in the distribution account for a
certain period of days as further described in this prospectus supplement. Each of the servicers will
be entitled to receive a servicing fee, as compensation for its activities under the related Servicing
Agreement, equal to 1/12th of the servicing fee rate multiplied by the stated principal balance of each
mortgage loan serviced by it as of the due date in the month preceding the month in which such
distribution date occurs. The servicing fee rates will be 0.250% through 0.420% per annum.
Optional Termination
At its option, the sponsor or its designee may purchase from the trust all of (i) the group I mortgage
loans, together with any properties in respect thereof acquired on behalf of the trust, and thereby
effect termination and early retirement of the group I certificates after the stated principal balance
of the group I mortgage loans (and properties acquired in respect thereof), remaining in the trust has
been reduced to less than 20% of the stated principal balance of the group I mortgage loans as of the
cut-off date and (ii) the group II mortgage loans, together with any properties in respect thereof
acquired on behalf of the trust, and thereby effect termination and early retirement of the group II
certificates after the stated principal balance of the group II mortgage loans (and properties acquired
in respect thereof), remaining in the trust has been reduced to less than 10% of the stated principal
balance of the group II mortgage loans as of the cut-off date.
See "Pooling and Servicing Agreement—Termination" in this prospectus supplement.
Federal Income Tax Consequences
One or more elections will be made to treat the mortgage loans and certain related assets as one or more
real estate mortgage investment conduits for federal income tax purposes.
See "Federal Income Tax Consequences" in this prospectus supplement.
Ratings
It is a condition to the issuance of the certificates that the offered certificates receive the
following ratings from Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc., which is referred to herein as S&P, Moody's Investors Service, Inc., which is referred to herein
as Moody's, and Fitch Ratings which is referred to herein as Fitch:
Offered Certificates S&P Moody's Fitch
Class I-A-1 AAA Aaa N/A
Class I-A-2 AAA Aaa N/A
Class II-1A-1 AAA Aaa AAA
Class II-1A-2 AAA Aa1 AAA
Class II-1X-1 AAA Aaa AAA
Class II-2A-1A AAA Aaa AAA
Class II-2A-1B AAA Aaa AAA
Class II-2A-2 AAA Aa1 AAA
Class II-2X-1 AAA Aaa AAA
Class II-2X-2 AAA Aaa AAA
Class II-2X-3 AAA Aaa AAA
Class II-2X-4 AAA Aaa AAA
Class II-2X-5 AAA Aaa AAA
Class II-3A-1 AAA Aaa AAA
Class II-3A-2 AAA Aa1 AAA
Class II-3X-1 AAA Aaa AAA
Class I-M-1 AA Aa2 N/A
Class I-M-2 A A2 N/A
Class I-B-1 BBB Baa2 N/A
Class I-B-2 BBB- Baa3 N/A
Class II-B-1 N/A N/A AA
Class II-BX-1 N/A N/A AA
Class II-B-2 N/A N/A A
Class II-B-3 N/A N/A BBB
A rating is not a recommendation to buy, sell or hold securities and either rating agency can revise or
withdraw such ratings at any time. In general, ratings address credit risk and do not address the
likelihood of prepayments.
See "Yield on the Certificates" and "Ratings" in this prospectus supplement and "Yield Considerations"
in the prospectus.
Legal Investment
The offered certificates (other than the Class I-M-2, Class I-B-1, Class I-B-2, Class II-B-2 and Class
II-B-3 Certificates) will constitute "mortgage related securities" for purposes of SMMEA, so long as
they are rated in one of the two highest rating categories by a nationally recognized statistical rating
organization. The Class I-M-2, Class I-B-1, Class I-B-2, Class II-B-2 and Class II-B-3 Certificates
will not constitute "mortgage related securities" for purposes of SMMEA.
See "Legal Investment" in this prospectus supplement and "Legal Investment Matters" in the prospectus.
ERISA Considerations
The offered certificates may be purchased by persons investing assets of employee benefit plans or
individual retirement accounts, subject to important considerations. Plans should consult with their
legal advisors before investing in the offered certificates.
See "ERISA Considerations" in this prospectus supplement.
RISK FACTORS
You are encouraged to carefully consider the following risk factors in connection with the
purchase of the offered certificates:
The Offered Certificates Will Have Limited Liquidity, So You May Be Unable to Sell Your Securities or
May Be Forced to Sell Them at a Discount from Their Fair Market Value.
The underwriter intends to make a secondary market in the offered certificates, however the
underwriter will not be obligated 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 provide holders of the offered
certificates with liquidity of investment or that it will continue for the life of the offered
certificates. As a result, any resale prices that may be available for any offered certificate in any
market that may develop may be at a discount from the initial offering price or the fair market value
thereof. The offered certificates will not be listed on any securities exchange.
Credit Enhancement Is Limited; the Failure of Credit Enhancement to Cover Losses on the Trust Fund
Assets May Result in Losses Allocated to the Offered Certificates.
The subordination of (i) each class of group I subordinate certificates to the group I senior
certificates and the classes of group I subordinate certificates with a higher payment priority and (ii)
each class of group II subordinate certificates to the group II senior certificates and the classes of
group II subordinate certificates with a higher payment priority, in each case, as described in this
prospectus supplement, is intended to enhance the likelihood that holders of the applicable senior
certificates, and to a more limited extent, that holders of the applicable subordinate certificates with
a higher payment priority, will receive regular payments of interest and principal and to provide the
holders of the applicable senior certificates, and to a more limited extent, the holders of related
subordinate certificates with a higher payment priority, with protection against losses realized when
the remaining unpaid principal balance on a mortgage loan in the related loan group or loan groups
exceeds the amount of proceeds recovered upon the liquidation of that mortgage loan. In general, this
loss protection is accomplished by allocating the principal portion of any realized losses, to the
extent not covered by excess spread or overcollateralization in the case of the group I certificates,
among the certificates, beginning with the related subordinate certificates with the lowest payment
priority, until the certificate principal balance of that subordinate class has been reduced to zero.
The principal portion of realized losses are then allocated to the next most junior class of related
subordinate certificates, until the certificate principal balance of each class of related subordinate
certificates is reduced to zero. If no group I subordinate certificates remain outstanding, the
principal portion of realized losses on the group I mortgage loans will be allocated, first to the Class
I-A-2 Certificates until the certificate principal balance thereof has been reduced to zero, and then to
the Class I-A-1 Certificates until the certificate principal balance thereof has been reduced to zero.
If no group II subordinate certificates remain outstanding, the principal portion of realized losses on
the group II mortgage loans will be allocated (i) in the case of realized losses on the sub-loan group
II-1 mortgage loans, first to the Class II-1A-2 Certificates until the certificate principal balance
thereof has been reduced to zero and then to the Class II-1A-1 Certificates until the certificate
principal balance thereof has been reduced to zero, (ii) in the case of realized losses on the sub-loan
group II-2 mortgage loans, first to the Class II-2A-2 Certificates until the certificate principal
balance thereof has been reduced to zero and then to the Class II-2A-1A Certificates and the Class
II-2A-1B Certificates, pro rata, until the certificate principal balance thereof has been reduced to
zero, and (iii) in the case of realized losses on the sub-loan group II-3 mortgage loans, first to the
Class II-3A-2 Certificates until the certificate principal balance thereof has been reduced to zero and
then to the Class II-3A-1 Certificates until the certificate principal balance thereof has been reduced
to zero. Accordingly, if the aggregate certificate principal balance of the related classes of
subordinate certificates with a lower payment priority were to be reduced to zero, delinquencies and
defaults on the mortgage loans in the related loan groups would reduce the amount of funds available for
monthly distributions to the holders of the classes of the related subordinate certificates with a
higher payment priority. If the aggregate certificate principal balance of the related classes of
subordinate certificates were to be reduced to zero, delinquencies and defaults on the mortgage loans in
the related loan group would reduce the amount of funds available for monthly distributions to the
holders of the related senior certificates. In the case of realized losses on group I mortgage loans
only, realized losses will be covered first by excess interest and then by overcollateralization on the
group I certificates provided by the group I mortgage loans before any allocation of realized losses to
the group I subordinate certificates.
The ratings of the offered certificates by the rating agencies may be lowered following the
initial issuance thereof as a result of losses on the mortgage loans in the related loan group in excess
of the levels contemplated by the rating agencies at the time of their initial rating analysis. Neither
the depositor, the master servicer, any servicer, the securities administrator, the trustee nor any of
their respective affiliates will have any obligation to replace or supplement any credit enhancement, or
to take any other action to maintain the ratings of the offered certificates. See "Description of
Credit Enhancement—Reduction or Substitution of Credit Enhancement" in the prospectus.
The Rate and Timing of Principal Distributions on the Offered Certificates Will Be Affected by
Prepayment Speeds.
The rate and timing of distributions allocable to principal on the offered certificates will
depend, in general, on the rate and timing of principal payments (including prepayments and collections
upon defaults, liquidations and repurchases) on the mortgage loans in the related loan group and the
allocation thereof to pay principal on these certificates as provided in this prospectus supplement. As
is the case with mortgage pass-through certificates generally, the offered certificates are subject to
substantial inherent cash-flow uncertainties because the mortgage loans may be prepaid at any time.
However, approximately 36.80%, 13.91%, 25.63% and 19.29% of the loan group I, sub-loan group II-1,
sub-loan group II-2 and sub-loan group II-3 mortgage loans, respectively, provide for payment by the
mortgagor of a prepayment charge in connection with some prepayments, which may act as a deterrent to
prepayment of the mortgage loan during the applicable period. For a detailed description of the
characteristics of the prepayment charges on the mortgage loans, and the standards under which the
prepayment charges may be waived by the applicable servicer, see "The Mortgage Pool – Prepayment Chargeson the Mortgage Loans" in this prospectus supplement. There can be no assurance that the prepayment
charges will have any effect on the prepayment performance of the mortgage loans.
Generally, when prevailing interest rates are increasing, prepayment rates on mortgage loans
tend to decrease. A decrease in the prepayment rates on the mortgage loans will result in a reduced rate
of return of principal to investors in the offered certificates at a time when reinvestment at higher
prevailing rates would be desirable.
Conversely, when prevailing interest rates are declining, prepayment rates on mortgage loans
tend to increase. An increase in the prepayment rates on the mortgage loans will result in a greater
rate of return of principal to investors in the offered certificates, at time when reinvestment at
comparable yields may not be possible.
Unless the certificate principal balances of the group I senior certificates have been reduced
to zero, the group I subordinate certificates will not be entitled to any principal distributions until
at least the distribution date occurring in November 2009 or during any period in which delinquencies or
losses on the mortgage loans exceed certain levels. This will accelerate the amortization of the group I
senior certificates as a whole while, in the absence of losses in respect of the mortgage loans in the
related loan group, increasing the percentage interest in the principal balance of the mortgage loans
the group I subordinate certificates evidence.
On each distribution date during the first seven years after the closing date, the entire
amount of any prepayments and certain other unscheduled recoveries of principal with respect to the
group II mortgage loans in any sub-loan group will be allocated to the related group II senior
certificates (other than the senior interest only certificates), with such allocation to be subject to
further reduction over an additional four year period thereafter, as described in this prospectus
supplement, unless the amount of subordination provided to the group II senior certificates by the group
II subordinate certificates is twice the amount as of the cut-off date, and certain loss and delinquency
tests are satisfied. This will accelerate the amortization of the group II senior certificates in each
certificate group, as a whole while, in the absence of losses in respect of the group II mortgage loans
in the related sub-loan group, increasing the percentage interest in the principal balance of the
mortgage loans the subordinate certificates evidence.
For further information regarding the effect of principal prepayments on the weighted average
lives of the offered certificates, see "Yield on the Certificates" in this prospectus supplement,
including the tables entitled "Percent of Initial Principal Amount Outstanding at the Following CPR
Percentage" in this prospectus supplement.
The Yield to Maturity on the Offered Certificates Will Depend on a Variety of Factors.
The yield to maturity on the offered certificates will depend, in general, on:
o the applicable purchase price; and
o the rate and timing of principal payments (including prepayments and collections
upon defaults, liquidations and repurchases) on the related mortgage loans and the
allocation thereof to reduce the certificate principal balance of the offered
certificates, as well as other factors.
The yield to investors on the offered certificates will be adversely affected by any allocation
thereto of interest shortfalls on the related mortgage loans.
In general, if the offered certificates are purchased at a premium and principal distributions
on the related mortgage loans occur at a rate faster than anticipated at the time of purchase, the
investor's actual yield to maturity will be lower than that assumed at the time of purchase. Conversely,
if the offered certificates are purchased at a discount and principal distributions on the related
mortgage loans occur at a rate slower than that anticipated at the time of purchase, the investor's
actual yield to maturity will be lower than that originally assumed.
The proceeds to the depositor from the sale of the group I offered certificates and the group
II offered certificates were determined based on a number of assumptions, including a 30% and 25%,
respectively, constant rate of prepayment each month, or CPR, relative to the then outstanding principal
balance of the related mortgage loans. No representation is made that the mortgage loans will prepay at
this rate or at any other rate, or that the mortgage loans will prepay at the same rate. The yield
assumptions for the offered certificates will vary as determined at the time of sale. See "Yield on theCertificates" in this prospectus supplement.
The sponsor may, from time to time, implement programs designed to encourage refinancing. These
programs may include, without limitation, modifications of existing loans, general or targeted
solicitations, the offering of pre-approved applications, reduced origination fees or closing costs, or
other financial incentives. Targeted solicitations may be based on a variety of factors, including the
credit of the borrower or the location of the mortgaged property. In addition, the sponsor may encourage
assumptions of mortgage loans, including defaulted mortgage loans, under which creditworthy borrowers
assume the outstanding indebtedness of the mortgage loans which may be removed from the related mortgage
pool. As a result of these programs, with respect to the mortgage pool underlying any trust, the rate
of principal prepayments of the mortgage loans in the mortgage pool may be higher than would otherwise
be the case, and in some cases, the average credit or collateral quality of the mortgage loans remaining
in the mortgage pool may decline.
A Transfer of Servicing May Result in an Increased Risk of Delinquency and Loss on the Mortgage Loans.
The primary servicing for a majority of the mortgage loans was transferred to EMC within the
last three months. Any servicing transfer involves notifying mortgagors to remit payments to a new
servicer, transferring physical possession of loan files and records to the new servicer and entering
loan and mortgagor data on the management information systems of the new servicer. Accordingly, such
transfers could result in misdirected notices, misapplied payments, data input problems and other
problems. In addition, investors should note that when the servicing of mortgage loans is transferred,
there is generally an increase in delinquencies associated with such transfer. Such increase in
delinquencies may result in losses, which, to the extent they are not absorbed by credit enhancement,
will cause losses or shortfalls to be incurred by the holders of the offered certificates. In addition,
any higher default rate resulting from such transfer may result in an acceleration of prepayments on
those mortgage loans.
A Transfer of Master Servicing in an Event of a Master Servicer Default May Increase the Risk of
Delinquency and Loss on the Mortgage Loans.
If the master servicer defaults in its obligations under the pooling and servicing agreement,
the master servicing of the mortgage loans may be transferred to the trustee, in its capacity as
successor master servicer, or an alternate master servicer. In the event of such a transfer of master
servicing there may be an increased risk of errors in transmitting information and funds to the
successor master servicer.
The Underwriting Standards of Some of the Mortgage Loans Do Not Conform to the Standards of Fannie Mae
or Freddie Mac, And May Present a Greater Risk of Loss with Respect to those Mortgage Loans.
Some of the mortgage loans were underwritten in accordance with underwriting standards which
are primarily intended to provide for single family "non-conforming" mortgage loans. A "non-conforming"
mortgage loan means a mortgage loan that is ineligible for purchase by Fannie Mae or Freddie Mac due to
either credit characteristics of the related mortgagor or documentation standards in connection with the
underwriting of the related mortgage loan that do not meet the Fannie Mae or Freddie Mac underwriting
guidelines for "A" credit mortgagors. These credit characteristics include mortgagors whose
creditworthiness and repayment ability do not satisfy such Fannie Mae or Freddie Mac underwriting
guidelines and mortgagors who may have a record of credit write-offs, outstanding judgments, prior
bankruptcies and other credit items that do not satisfy such Fannie Mae or Freddie Mac underwriting
guidelines. These documentation standards may include mortgagors who provide limited or no documentation
in connection with the underwriting of the related mortgage loan. Accordingly, mortgage loans
underwritten under the related originator's non-conforming credit underwriting standards are likely to
experience rates of delinquency, foreclosure and loss that are higher, and may be substantially higher,
than mortgage loans originated in accordance with the Fannie Mae or Freddie Mac underwriting guidelines.
Any resulting losses, to the extent not covered by credit enhancement, may affect the yield to maturity
of the related offered certificates.
Book-Entry Securities May Delay Receipt of Payment and Reports.
If the trust fund issues certificates in book-entry form, certificateholders may experience
delays in receipt of payments and/or reports since payments and reports will initially be made to the
book-entry depository or its nominee. In addition, the issuance of certificates in book-entry form may
reduce the liquidity of certificates so issued in the secondary trading market since some investors may
be unwilling to purchase certificates for which they cannot receive physical certificates.
The Subordinate Certificates Have a Greater Risk of Loss than the Senior Certificates.
When certain classes of certificates provide credit enhancement for other classes of
certificates it is sometimes referred to as "subordination." For purposes of this prospectus supplement,
subordination with respect to the offered certificates or "subordinated classes" means:
o with respect to the Class I-A-1 Certificates: the Class I-A-2, the Class I-M-1,
the Class I-M-2, the Class I-B-1, the Class I-B-2 and the Class I-B-3 Certificates;
o with respect to the Class I-A-2 Certificates: the Class I-M-1, the Class I-M-2,
the Class I-B-1, the Class I-B-2 and the Class I-B-3 Certificates;
o with respect to the Class I-M-1 Certificates: the Class I-M-2, the Class I-B-1,
the Class I-B-2 and the Class I-B-3 Certificates;
o with respect to the Class I-M-2 Certificates: the Class I-B-1, the Class I-B-2 and
the Class I-B-3 Certificates;
o with respect to the Class I-B-1 Certificates: the Class I-B-2 Certificates and the
Class I-B-3 Certificates;
o with respect to the Class I-B-2 Certificates: the Class I-B-3 Certificates;
o with respect to the Class II-1A-1 Certificates: the Class II-1A-2, the Class
II-B-1, the Class II-B-2, the Class II-B-3, the Class II-B-4, the Class II-B-5 and
the Class II-B-6 Certificates;
o with respect to each of the Class II-2A-1A Certificates and the Class II-2A-1B
Certificates: the Class II-2A-2, the Class II-B-1, the Class II-B-2, the Class
II-B-3, the Class II-B-4, the Class II-B-5 and the Class II-B-6 Certificates;
o with respect to the Class II-3A-1 Certificates: the Class II-3A-2, the Class
II-B-1, the Class II-B-2, the Class II-B-3, the Class II-B-4, the Class II-B-5 and
the Class II-B-6 Certificates;
o with respect to each of the Class II-1A-2, the Class II-2A-2 and the Class II-3A-2
Certificates: the Class II-B-1, the Class II-B-2, the Class II-B-3, the Class
II-B-4, the Class II-B-5 and the Class II-B-6 Certificates;
o with respect to the Class II-B-1 Certificates: the Class II-B-2, the Class II-B-3,
the Class II-B-4, the Class II-B-5 and the Class II-B-6 Certificates;
o with respect to the Class II-B-2 Certificates: the Class II-B-3, the Class II-B-4,
the Class II-B-5 and the Class II-B-6 Certificates;
o with respect to the Class II-B-3 Certificates: the Class II-B-4, the Class II-B-5
and the Class II-B-6 Certificates;
o with respect to the Class II-B-4 Certificates: the Class II-B-5 and the Class
II-B-6 Certificates; and
o with respect to the Class II-B-5 Certificates: the Class II-B-6 Certificates.
Credit enhancement for the senior certificates will be provided, first, by the right of the
holders of the senior certificates to receive certain payments of interest and principal prior to the
related subordinated classes and, then by the allocation of realized losses to the related outstanding
subordinated class with the lowest payment priority and, in the case of the group I offered certificates
or the Class I-B-3 Certificates, any available excess spread and overcollateralization. Accordingly, if
the aggregate certificate principal balance of a subordinated class were to be reduced to zero,
delinquencies and defaults on the mortgage loans in the related loan group(s) would reduce the amount of
funds available for monthly distributions to holders of the remaining related outstanding subordinated
class with the lowest payment priority and, if the aggregate certificate principal balance of all the
group I subordinate certificates or all the group II subordinate certificates were to be reduced to zero
and, in the case of the group I senior certificates, excess interest and overcollateralization was
insufficient, delinquencies and defaults on the mortgage loans from the related loan groups would reduce
the amount of funds available for monthly distributions to holders of the related senior certificates.
You should fully consider the risks of investing in a subordinate certificate, including the risk that
you may not fully recover your initial investment as a result of realized losses. See "Description ofthe Certificates" in this prospectus supplement.
The weighted average lives of, and the yields to maturity on the (i) Class I-M-1, Class I-M-2,
Class I-B-1, Class I-B-2 and Class I-B-3 Certificates will be progressively more sensitive, in that
order, to the rate and timing of mortgagor defaults and the severity of ensuing losses on the group I
mortgage loans and (ii) Class II-B-1, Class II-B-2, Class II-B-3, Class II-B-4, Class II-B-5 and Class
II-B-6 Certificates will be progressively more sensitive, in that order, to the rate and timing of
mortgagor defaults and the severity of ensuing losses on the group II mortgage loans. If the actual
rate and severity of losses on the related mortgage loans is higher than those assumed by an investor in
such certificates, the actual yield to maturity of such certificates may be lower than the yield
anticipated by such holder based on such assumption. The timing of losses on the related mortgage loans
will also affect an investor's actual yield to maturity, even if the rate of defaults and severity of
losses over the life of such mortgage loans are consistent with an investor's expectations. In general,
the earlier a loss occurs, the greater the effect on an investor's yield to maturity. Realized losses
allocated to a class of certificates will result in less interest accruing on such class of subordinate
certificates than would otherwise be the case. Once a realized loss is allocated to a subordinate
certificate, no interest will be distributable with respect to such written down amount. However, the
amount of any realized losses allocated to the group I subordinate certificates may be reimbursed to
the holders of the group I subordinate certificates from excess cash flow or money remaining from the
related cap contracts according to the priorities set forth under "Description of the
Certificates—Distributions on the Group I Certificates" and "The Cap Contracts" in this prospectus
supplement.
It is not expected that the group I subordinated certificates will be entitled to any principal
distributions until at least November 2009 or during any period in which delinquencies or losses on the
mortgage loans exceed certain levels. As a result, the weighted average of the group I subordinated
certificates will be longer than would otherwise be the case if distributions of principal were
allocated among all of the related certificates at the same time. As a result of the longer weighted
average lives of the related subordinated certificates, the holders of such certificates have a greater
risk of suffering a loss on their investments. Further, because such certificates might not receive any
principal if certain delinquency or loss levels occur, it is possible for such certificates to receive
no principal distributions even if no losses have occurred on the mortgage pool.
In addition, the multiple class structure of the subordinated certificates causes the yield of
such classes to be particularly sensitive to changes in the rates of prepayment of the related mortgage
loans. Because distributions of principal will be made to the holders of such certificates according to
the priorities set forth under "Description of the Certificates—Distributions on the Group I
Certificates,""—Distributions on the Group II Certificates" and "The Cap Contracts" in this prospectus
supplement, the yield to maturity on such classes of 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. The yield to maturity on such classes of certificates will also be
extremely sensitive to losses due to defaults on the related mortgage loans and the timing thereof, to
the extent such losses are not covered by overcollateralization with respect to such loan group, excess
spread with respect to such loan group, or a class of related subordinated certificates with a lower
payment priority. Furthermore, the timing of receipt of principal and interest by the related
subordinated certificates may be adversely affected by losses even if such classes of certificates do
not ultimately bear such loss.
Excess Spread May be Inadequate to Cover Losses on the Group I Mortgage Loans and/or to Build
Overcollateralization.
The group I mortgage loans are expected to generate more interest than is needed to pay
interest on the group I offered certificates and the Class I-B-3 Certificates because we expect the
weighted average net interest rate on the group I mortgage loans to be higher than the weighted average
pass-through rate on the group I offered certificates and the Class I-B-3 Certificates. If the group I
mortgage loans generate more interest than is needed to pay interest on the group I offered certificates
and the Class I-B-3 Certificates and related trust fund expenses, such "excess spread" will be used to
make additional principal payments on the group I offered certificates and the Class I-B-3 Certificates,
which will reduce the total principal balance of the group I offered certificates or the Class I-B-3
Certificates below the aggregate principal balance of the group I mortgage loans, thereby creating
"overcollateralization." Overcollateralization is intended to provide limited protection to the holders
of the group I offered certificates and the Class I-B-3 Certificates by absorbing losses from liquidated
group I mortgage loans. However, we cannot assure you that enough excess spread will be generated on the
group I mortgage loans to establish or maintain the required level of overcollateralization. On the
closing date, the required level of overcollateralization will be met. If the protection afforded by
overcollateralization is insufficient, then an investor in group I certificates could experience a loss
on its investment.
The excess spread available on any distribution date will be affected by the actual amount of
interest received, advanced or recovered in respect of the group I mortgage loans during the preceding
month. Such amount may be influenced by changes in the weighted average of the rates on the group I
mortgage loans resulting from prepayments, defaults and liquidations of the those mortgage loans.
The overcollateralization provisions, whenever overcollateralization is at a level below the
required level, are intended to result in an accelerated rate of principal distributions to holders of
the classes of group I offered certificates or the Class I-B-3 Certificates then entitled to
distributions of principal. An earlier return of principal to the holders of the group I offered
certificates or the Class I-B-3 Certificates as a result of the overcollateralization provisions will
influence the yield on the group I offered certificates and the Class I-B-3 Certificates in a manner
similar to the manner in which principal prepayments on the group I mortgage loans will influence the
yield on the group I offered certificates and the Class I-B-3 Certificates.
The Group I Offered Certificates May Not Always Receive Interest Based on One-Month LIBOR Plus the
Related Margin.
The group I offered certificates may not always receive interest at a rate equal to One-Month
LIBOR plus the related margin. The pass-through rates on the group I offered certificates are each
subject to a net rate cap equal to the weighted average of the net mortgage rates on the group I
mortgage loans, as further described herein. If the net rate cap on a class of the group I offered
certificates is less than the lesser of (a) One-Month LIBOR plus the related margin and (b) the 11.50%
cap, the interest rate on such class of group I offered certificates will be reduced to the net rate
cap. Thus, the yield to investors in such certificates will be sensitive both to fluctuations in the
level of One-Month LIBOR and to the adverse effects of the application of the net rate cap. The
prepayment or default of mortgage loans in loan group I with relatively higher net mortgage rates,
particularly during a period of increased One-Month LIBOR rates, may result in the net rate cap being
lower than otherwise would be the case. If on any distribution date the application of the net rate cap
results in an interest payment lower than One-Month LIBOR plus the related margin on the applicable
class of certificates during the related interest accrual period, the value of such class of
certificates may be temporarily or permanently reduced.
To the extent interest on the group I offered certificates is limited to the net rate cap, the
difference between (i) the lesser of (a) One-Month LIBOR plus the related margin and (b) the 11.50% cap
and (ii) the net rate cap will create a shortfall. This shortfall will be covered to the extent of
excess cash flow available for that purpose and to the extent of available payments under the related
cap contracts. However, payments under the cap contracts are based on the lesser of the actual
certificate principal balance of the related class of certificates and an assumed principal amount of
such certificates based on certain prepayment assumptions regarding the group I mortgage loans. If the
group I mortgage loans do not prepay according to those assumptions, it may result in the cap contracts
providing insufficient funds to cover such shortfalls. In addition, each cap contract provides for
payment of the excess of One-Month LIBOR over a specified per annum rate, which also may not provide
sufficient funds to cover such shortfalls. Such shortfalls may remain unpaid on the final distribution
date, including the optional termination date.
In addition, although the group I offered certificates are entitled to payments under the
related cap contracts during periods of increased One-Month LIBOR rates, the counterparty thereunder
will only be obligated to make such payments under certain circumstances.
To the extent that payments on the group I offered certificates depend in part on payments to
be received under the cap contracts, the ability of the trust to make payments on those classes of
certificates will be subject to the credit risk of Wachovia Bank, National Association.
The cap contracts terminate in accordance with their terms on the dates set forth in the
related contract. This date was selected based on certain prepayment assumptions regarding the group I
mortgage loans and that the optional termination right becomes exercisable and is exercisable at that
time. These prepayment assumptions were used to determine the projected principal balance of the
applicable class of certificates under the contracts. If prepayments on the group I mortgage loans occur
at rates that are slower than those assumptions, or even if such group I mortgage loans prepay according
to those assumptions, if the optional termination right is not exercised, the contracts will terminate
prior to the repayment in full of the related classes of certificates. See "The Cap Contracts" in this
prospectus supplement.
The Securities Are Not Suitable Investments for All Investors.
The certificates are complex investments that are not appropriate for all investors. The
interaction of the factors described above is difficult to analyze and may change from time to time
while the certificates are outstanding. It is impossible to predict with any certainty the amount or
timing of distributions on the certificates or the likely return on an investment in any such
securities. As a result, only sophisticated investors with the resources to analyze the potential risks
and rewards of an investment in the certificates should consider such an investment.
Some of the Mortgage Loans Have an Initial Interest Only Period, Which May Result in Increased
Delinquencies and Losses.
As of the cut-off date, approximately 89.30%, 89.74%, 94.03% and 89.90% of the loan group I,
sub-loan group II-1, sub-loan group II-2 and sub-loan group II-3 mortgage loans, respectively, have an
initial interest only period. During this period, the payment made by the related mortgagor will be
less than it would be if the mortgage loan amortized. In addition, the mortgage loan balance will not be
reduced by the principal portion of scheduled payments during this period. As a result, no principal
payments will be made to the certificates from these mortgage loans during their interest only period
except in the case of a prepayment.
After the initial interest only period, the scheduled monthly payment on these mortgage loans
will increase, which may result in increased delinquencies by the related mortgagors, particularly if
interest rates have increased and the mortgagor is unable to refinance. In addition, losses may be
greater on these mortgage loans as a result of the mortgage loan not amortizing during the early years
of these mortgage loans. Although the amount of principal included in each scheduled monthly payment for
a traditional mortgage loan is relatively small during the first few years after the origination of a
mortgage loan, in the aggregate the amount can be significant. Any resulting delinquencies and losses,
to the extent not covered by credit enhancement, will be allocated to the certificates.
Mortgage loans with an initial interest only period are relatively new in the mortgage
marketplace. The performance of these mortgage loans may be significantly different than mortgage loans
that fully amortize. In particular, there may be a higher expectation by these mortgagors of refinancing
their mortgage loans with a new mortgage loan, in particular one with an initial interest only period,
which may result in higher or lower prepayment speeds than would otherwise be the case. In addition, the
failure to build equity in the property by the related mortgagor may affect the delinquency and
prepayment of these mortgage loans.
The Mortgage Loans Are Concentrated in the State of California, Which May Result in Losses with Respect
to These Mortgage Loans.
As of the cut-off date, approximately 37.99%, 26.69%, 38.76% and 18.71% of the loan group I,
sub-loan group II-1, sub-loan group II-2 and sub-loan group II-3 mortgage loans, respectively, are
secured by property in the State of California. Investors should note that some geographic regions of
the United States from time to time will experience weaker regional economic conditions and housing
markets, and, consequently, will experience higher rates of loss and delinquency than will be
experienced on mortgage loans generally. For example, a region's economic condition and housing market
may be directly, or indirectly, adversely affected by natural disasters or civil disturbances such as
earthquakes, hurricanes, floods, eruptions or riots. The economic impact of any of these types of events
may also be felt in areas beyond the region immediately affected by the disaster or disturbance. The
mortgage loans securing the offered certificates may be concentrated in these regions, and any
concentration may present risk considerations in addition to those generally present for similar
mortgage-backed securities without this concentration. Any risks associated with mortgage loan
concentration may affect the yield to maturity of the offered certificates to the extent losses caused
by these risks are not covered by the subordination provided by the non-offered subordinate certificates.
Statutory and Judicial Limitations on Foreclosure Procedures May Delay Recovery in Respect of the
Mortgaged Property and, in Some Instances, Limit the Amount that May Be Recovered by the Foreclosing
Lender, Resulting in Losses on the Mortgage Loans That Might be Allocated to the Offered Certificates.
Foreclosure procedures may vary from state to state. Two primary methods of foreclosing a
mortgage instrument are judicial foreclosure, involving court proceedings, and non-judicial foreclosure
pursuant to a power of sale granted in the mortgage instrument. A foreclosure action is subject to most
of the delays and expenses of other lawsuits if defenses are raised or counterclaims are asserted.
Delays may also result from difficulties in locating necessary defendants. Non-judicial foreclosures may
be subject to delays resulting from state laws mandating the recording of notice of default and notice
of sale and, in some states, notice to any party having an interest of record in the real property,
including junior lienholders. Some states have adopted "anti-deficiency" statutes that limit the ability
of a lender to collect the full amount owed on a loan if the property sells at foreclosure for less than
the full amount owed. In addition, United States courts have traditionally imposed general equitable
principles to limit the remedies available to lenders in foreclosure actions that are perceived by the
court as harsh or unfair. The effect of these statutes and judicial principles may be to delay and/or
reduce distributions in respect of the offered certificates. See "Legal Aspects of Mortgage
Loans—Foreclosure on Mortgages and Some Contracts" in the prospectus.
The Value of the Mortgage Loans May Be Affected By, Among Other Things, a Decline in Real Estate Values,
Which May Result in Losses on the Offered Certificates.
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 mortgage loans. If the residential real
estate market should experience an overall decline in property values so that the outstanding balances
of the mortgage loans, and any secondary financing on the mortgaged properties, in the mortgage pool
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 some areas of the United States, real estate values have risen at a
greater rate in recent years than in the past. In particular, mortgage loans with high principal
balances or high loan-to-value ratios will be affected by any decline in real estate values. Real estate
values in any area of the country may be affected by several factors, including population trends,
mortgage interest rates, and the economic well-being of that area. Any decrease in the value of the
mortgage loans may result in the allocation of losses which are not covered by credit enhancement to the
offered certificates.
The Ratings on the Offered Certificates are Not a Recommendation to Buy, Sell or Hold the Offered
Certificates and are Subject to Withdrawal at any Time, Which May Affect the Liquidity or the Market
Value of the Offered Certificates.
It is a condition to the issuance of the offered certificates that each class of offered
certificates be rated in the categories shown on pages S-2 through S-5 of this prospectus supplement. A
security rating is not a recommendation to buy, sell or hold securities and may be subject to revision
or withdrawal at any time. No person is obligated to maintain the rating on any offered certificate,
and, accordingly, there can be no assurance that the ratings assigned to any offered certificate on the
date on which the offered certificates are initially issued will not be lowered or withdrawn by a rating
agency at any time thereafter. In the event any rating is revised or withdrawn, the liquidity or the
market value of the related offered certificates may be adversely affected. See "Ratings" in this
prospectus supplement and "Rating" in the prospectus.
The Mortgage Loans May Have Limited Recourse to the Related Borrower, Which May Result in Losses with
Respect to These Mortgage Loans.
Some or all of the mortgage loans included in the trust fund will be nonrecourse loans or loans
for which recourse may be restricted or unenforceable. As to those mortgage loans, recourse in the event
of mortgagor default will be limited to the specific real property and other assets, if any, that were
pledged to secure the mortgage loan. However, even with respect to those mortgage loans that provide for
recourse against the mortgagor and its assets generally, there can be no assurance that enforcement of
the recourse provisions will be practicable, or that the other assets of the mortgagor will be
sufficient to permit a recovery in respect of a defaulted mortgage loan in excess of the liquidation
value of the related mortgaged property. Any risks associated with mortgage loans with no or limited
recourse may affect the yield to maturity of the offered certificates to the extent losses caused by
these risks which are not covered by credit enhancement are allocated to the offered certificates.
The Mortgage Loans May Have Environmental Risks, Which May Result in Increased Losses with Respect to
These Mortgage Loans.
To the extent that a servicer or the master servicer (in its capacity as successor servicer)
for a mortgage loan acquires title to any related mortgaged property which is contaminated with or
affected by hazardous wastes or hazardous substances, these mortgage loans may incur additional losses.
See "Servicing of Mortgage Loans—Realization Upon or Sale of Defaulted Mortgage Loans" and "Legal
Aspects of Mortgage Loans—Environmental Legislation" in the prospectus. To the extent these
environmental risks result in losses on the mortgage loans, the yield to maturity of the offered
certificates, to the extent not covered by credit enhancement, may be affected.
Violation of Various Federal, State and Local Laws May Result in Losses on the Mortgage Loans.
Applicable state and local laws generally regulate interest rates and other charges, require
specific disclosure, and require licensing of the originator. In addition, other state and local laws,
public policy and general principles of equity relating to the protection of consumers, unfair and
deceptive practices and debt collection practices may apply to the origination, servicing and collection
of the mortgage loans. The mortgage loans are also subject to various federal laws.
Depending on the provisions of the applicable law and the specific facts and circumstances
involved, violations of these federal or state laws, policies and principles may limit the ability of
the trust to collect all or part of the principal of or interest on the mortgage loans, may entitle the
borrower to a refund of amounts previously paid and, in addition, could subject the trust to damages and
administrative enforcement. See "Legal Aspects of Mortgage Loans" in the prospectus.
Under the anti-predatory lending laws of some states, the borrower is required to meet a net
tangible benefits test in connection with the origination of the related mortgage loan. This test may be
highly subjective and open to interpretation. As a result, a court may determine that a mortgage loan
does not meet the test even if the originator reasonably believed that the test was satisfied at the
time of origination. Any determination by a court that a mortgage loan does not meet the test will
result in a violation of the state anti-predatory lending law, in which case the sponsor will be
required to purchase that mortgage loan from the trust.
On the closing date, the sponsor will represent that each mortgage loan at the time it was made
complied in all material respects with all applicable laws and regulations, including, without
limitation, usury, equal credit opportunity, disclosure and recording laws and all predatory lending
laws; and each mortgage loan has been serviced in all material respects in accordance with all
applicable laws and regulations, including, without limitation, usury, equal credit opportunity,
disclosure and recording laws and all predatory lending laws and the terms of the related mortgage note,
the mortgage and other loan documents. In the event of a breach of this representation, the sponsor
will be obligated to cure the breach or repurchase or replace the affected mortgage loan in the manner
described in the prospectus.
The Return on the Offered Certificates Could be Reduced by Shortfalls Due to The Application of the
Servicemembers Civil Relief Act and Similar State Laws.
The Servicemembers' Civil Relief Act or the Relief Act, and similar state or local laws provide
relief to mortgagors who enter active military service and to mortgagors in reserve status who are
called to active military service after the origination of their mortgage loans. The military
operations by the United States in Iraq and Afghanistan has caused an increase in the number of citizens
in active military duty, including those citizens previously in reserve status. Under the Relief Act the
interest rate applicable to a mortgage loan for which the related mortgagor is called to active military
service will be reduced from the percentage stated in the related mortgage note to 6.00%. This interest
rate reduction and any reduction provided under similar state or local laws will result in an interest
shortfall because neither the master servicer nor the related servicer will be able to collect the
amount of interest which otherwise would be payable with respect to such mortgage loan if the Relief Act
or similar state law was not applicable thereto. This shortfall will not be paid by the mortgagor on
future due dates or advanced by the master servicer or the related servicer and, therefore, will reduce
the amount available to pay interest to the certificateholders on subsequent distribution dates. We do
not know how many mortgage loans in the mortgage pool have been or may be affected by the application of
the Relief Act or similar state law. In addition, the Relief Act imposes limitations that would impair
the ability of the master servicer or servicer to foreclose on an affected single family loan during the
mortgagor's period of active duty status, and, under some circumstances, during an additional three
month period thereafter. Thus, in the event that the Relief Act or similar legislation or regulations
applies to any mortgage loan which goes into default, there may be delays in payment and losses on the
certificates in connection therewith. Any other interest shortfalls, deferrals or forgiveness of
payments on the mortgage loans resulting from similar legislation or regulations may result in delays in
payments or losses to holders of the offered certificates.
THE MORTGAGE POOLGeneral
References to percentages of the mortgage loans unless otherwise noted are calculated based on
the aggregate unpaid principal balance of the mortgage loans as of the Cut-off Date.
All of the mortgage loans will be acquired by the Depositor on the date of issuance of the
Offered Certificates from the Sponsor, an affiliate of the Depositor and the underwriter, pursuant to
the Mortgage Loan Purchase Agreement. The Sponsor acquired the mortgage loans directly in privately
negotiated transactions. See "Mortgage Loan Origination—General" in this prospectus supplement.
We have provided below and in Schedule A to this prospectus supplement information with respect
to the conventional mortgage loans that we expect to include in the pool of mortgage loans in the trust
fund as of the Closing Date. Prior to the closing date of October 31, 2006, we may remove mortgage
loans from the mortgage pool and we may substitute other mortgage loans for the mortgage loans we
remove. The Depositor believes that the information set forth in this prospectus supplement will be
representative of the characteristics of the mortgage pool as it will be constituted at the time the
Certificates are issued, although the range of mortgage rates and maturities and other characteristics
of the mortgage loans may vary. The actual mortgage loans included in the trust fund as of the Closing
Date may vary from the mortgage loans as described in this prospectus supplement by up to plus or minus
5% as to any material characteristics described herein. If, as of the Closing Date, any material pool
characteristic differs by 5% or more from the description in this prospectus supplement, revised
disclosure will be provided either in a supplement or in a Current Report on Form 8-K.
The mortgage pool will initially consist of 2,873 first lien adjustable-rate mortgage loans
secured by one- to four-family residences and individual condominium units, having an aggregate unpaid
principal balance as of the Cut-off Date of approximately $1,269,924,622. As of the Closing Date, the
mortgage loans have original terms to maturity of not greater than 40 years.
The mortgage loans will be selected for inclusion in the mortgage pool based on rating agency
criteria, compliance with representations and warranties, and conformity to criteria relating to the
characterization of securities for tax, ERISA, SMMEA, Form S-3 eligibility and other legal purposes.
The mortgage pool has been divided into two primary loan groups, designated as Loan Group I and
Loan Group II. The mortgage loans in Loan Group I and Loan Group II are referred to herein as the group
I mortgage loans and the group II mortgage loans, respectively. Loan Group II has been further divided
into three sub-loan groups, designated as Sub-Loan Group II-1, Sub-Loan Group II-2 and Sub-Loan Group
II-3. The mortgage loans in Sub-Loan Group II-1, Sub-Loan Group II-2 and Sub-Loan Group II-3 are
designated as the Sub-Loan Group II-1, Sub-Loan Group II-2 and Sub-Loan Group II-3 mortgage loans,
respectively. The mortgage pool and the characteristics of the mortgage loans consisting of each Loan
Group and sub-group are more fully described below and in Schedule A to this prospectus supplement.
Loan Group I will consist of 1,164 first lien adjustable-rate mortgage loans secured by one- to
four-family residences and individual condominium units, having an aggregate unpaid principal balance as
of the Cut-off Date of approximately $575,842,083, after application of scheduled payments due on or
before the Cut-off Date whether or not received.
Loan Group II will consist of 1,709 first lien adjustable-rate mortgage loans secured by one-
to four-family residences and individual condominium units, having an aggregate unpaid principal balance
as of the Cut-off Date of approximately $694,082,539, after application of scheduled payments due on or
before the Cut-off Date whether or not received.
Sub-Loan Group II-1 will consist of 488 first lien adjustable-rate mortgage loans secured by
one- to four-family residences and individual condominium units, having an aggregate unpaid principal
balance as of the Cut-off Date of approximately $166,048,632, after application of scheduled payments
due on or before the Cut-off Date whether or not received.
Sub-Loan Group II-2 will consist of 1,002 first lien adjustable-rate mortgage loans secured by
one- to four-family residences and individual condominium units, having an aggregate unpaid principal
balance as of the Cut-off Date of approximately $468,911,691, after application of scheduled payments
due on or before the Cut-off Date whether or not received.
Sub-Loan Group II-3 will consist of 219 first lien adjustable-rate mortgage loans secured by
one- to four-family residences and individual condominium units, having an aggregate unpaid principal
balance as of the Cut-off Date of approximately $59,122,216, after application of scheduled payments due
on or before the Cut-off Date whether or not received.
The mortgage loans are being serviced as described below under "The Master Servicer and theServicers." The mortgage loans were originated in accordance with the guidelines described in "MortgageLoan Origination" below. The following paragraphs and the tables set forth in Schedule A set forth
additional information with respect to the mortgage pool.(1)
All of the mortgage loans are adjustable rate mortgage loans. After an initial fixed-rate
period, the interest rate borne by the mortgage loans will be adjusted based on various indices. The
mortgage loans will be adjusted monthly based on One-Month LIBOR, semi-annually based on Six-Month LIBOR
or annually based on One-Year LIBOR or One-Year Treasury, each referred to herein as an Index, computed
in accordance with the related note, plus (or minus) the related gross margin, generally subject to
rounding and to certain other limitations, including generally a maximum lifetime mortgage rate and in
certain cases a minimum lifetime mortgage rate and in certain cases a maximum upward or downward
adjustment on each interest adjustment date.
For any mortgage loan, the Loan-to-Value Ratio is the principal balance at origination divided
by the lesser of (i) the sales price and (ii) the original appraised value of the related mortgaged
property, except in the case of a refinanced mortgage loan, in which case the appraised value is used.
Approximately 99.01%, 98.82%, 100.00% and 100.00% of the loan group I, sub-loan group II-1, sub-loan
group II-2 and sub-loan group II-3 mortgage loans, respectively, with Loan-to-Value Ratios at
origination exceeding 80% are covered by Primary Insurance Policies (as defined in the prospectus). See
"Description of Primary Mortgage Insurance, Hazard Insurance; Claims Thereunder—Primary Mortgage
Insurance Policies" in the prospectus.
All of the mortgage loans that are not assumable have scheduled monthly payments due on the Due
Date. Each such mortgage loan will contain a customary "due-on-sale" clause.
_____________________
(1) The description herein and in Schedule A hereof of the mortgage loans is based upon estimates
of the composition thereof as of the Cut-off Date, as adjusted to reflect the Stated Principal Balances
as of the Cut-off Date. Prior to the issuance of the Certificates, mortgage loans may be removed as a
result of (i) principal prepayments thereof in full prior to October 31, 2006, (ii) requirements of
Moody's, S&P or Fitch or (iii) delinquencies or otherwise. In any such event, other mortgage loans may be
included in the trust. The Depositor believes that the estimated information set forth herein with
respect to the mortgage loans as presently constituted is representative of the characteristics thereof
at the time the Certificates are issued, although certain characteristics of the mortgage loans may
vary.
Billing and Payment Procedures
The majority of the mortgage loans require monthly payments to be made no later than either the
1st or 15th day of each month, with a grace period. The applicable servicer sends monthly billing
statements to borrowers that are automatically generated after payments are received. If no payment is
received by the day that the late charge is assessed, a billing statement is automatically generated.
Borrowers may elect for monthly payments to be deducted automatically from deposit accounts and may make
payments by various means, including online transfers and phone payment, although an additional fee may
be charged for these payment methods.
Prepayment Charges on the Mortgage Loans
Approximately 36.80%, 13.91%, 25.63% and 19.29% of the loan group I, sub-loan group II-1,
sub-loan group II-2 and sub-loan group II-3 mortgage loans, respectively, provide for payment by the
mortgagor of a prepayment charge in connection with some prepayments. The amount of the prepayment
charge is as provided in the related mortgage note, and the prepayment charge will generally apply if,
in any twelve-month period during the first year, first three years or other period as provided in the
related mortgage note from the date of origination of the mortgage loan, the mortgagor prepays an
aggregate amount exceeding 20% of the original principal balance of the mortgage loan or another amount
permitted by applicable law. The amount of the prepayment charge will, for the majority of the mortgage
loans, be equal to 6 months' advance interest calculated on the basis of the mortgage rate in effect at
the time of the prepayment on the amount prepaid in excess of 20% of the original principal balance of
the mortgage loan, but it may be a lesser or greater amount as provided in the related mortgage note. A
prepayment charge may not apply with respect to a sale of the related mortgaged property, and in some
circumstances, such as illegality, may be unenforceable.
The holders of the Class XP Certificates will be entitled to all the prepayment charges
received on the group I mortgage loans to the extent such prepayment charges are not retained by the
related servicer in accordance with the terms of the related servicing agreement. No prepayment charges
will be available for distribution on any other classes of Certificates. The Master Servicer shall not
waive (or permit a servicer to waive) any prepayment charge unless: (i) the enforceability thereof shall
have been limited by bankruptcy, insolvency, moratorium, receivership and other similar laws relating to
creditors' rights generally, (ii) the enforcement thereof is illegal, or any local, state or federal
agency has threatened legal action if the prepayment penalty is enforced, (iii) the mortgage debt has
been accelerated in connection with a foreclosure or other involuntary payment or (iv) such waiver is
standard and customary in servicing similar mortgage loans and relates to a default or a reasonably
foreseeable default and would, in the reasonable judgment of the Master Servicer, maximize recovery of
total proceeds taking into account the value of such prepayment charge and the related mortgage loan.
Accordingly, there can be no assurance that the prepayment charges will have any effect on the
prepayment performance of the mortgage loans.
Certain prepayment charges are classified as "hard" prepayment charges, meaning that the
mortgagor has to cover the prepayment charge regardless of the reason for prepayment, while others are
classified as "soft," meaning that the mortgagor has to cover the prepayment charge unless the mortgagor
has conveyed the related mortgaged property to a third-party. The sponsor does not have information
with respect to the percentage of each type of prepayment charge included in the pool of mortgage loans.
Special Characteristics of the Mortgage Loans
Interest Only Loans. Approximately 89.30%, 89.74%, 94.03% and 89.90% of the loan group I,
sub-loan group II-1, sub-loan group II-2 and sub-loan group II-3 mortgage loans, respectively, will
require payments of interest only for the initial period set forth in the related mortgage note.
Assumable Mortgage Loans. Approximately 33.41%, 41.75%, 9.38% and 20.34% of the loan group I,
sub-loan group II-1, sub-loan group II-2 and sub-loan group II-3 mortgage loans, respectively, are
assumable in accordance with the terms of the related mortgage note. See "Yield on the Certificates" in
this prospectus supplement and "Maturity and Prepayment Considerations" in the prospectus.
Lender-Paid PMI Loans. Approximately 0.25%, 8.04%, 4.99% and 8.45% of the loan group I,
sub-loan group II-1, sub-loan group II-2 and sub-loan group II-3 mortgage loans, respectively, are
covered by a lender-paid primary mortgage insurance policy.
Indices on the Mortgage LoansSix-Month LIBOR. Approximately 40.79%, 32.46%, 8.60% and 13.83% of the loan group I, sub-loan
group II-1, sub-loan group II-2 and sub-loan group II-3 mortgage loans, respectively, will adjust
semiannually based on Six-Month LIBOR. Six-Month LIBOR will be a per annum rate equal to the average of
interbank offered rates for six-month U.S. dollar-denominated deposits in the London market based on
quotations of major banks as published in The Wall Street Journal and are most recently available as of
the time specified in the related mortgage note.
The following does not purport to be representative of future levels of Six-Month LIBOR. No
assurance can be given as to the level of Six-Month LIBOR on any adjustment date or during the life of
any mortgage loan with an Index of Six-Month LIBOR.
Six-Month LIBOR
Date 2001 2002 2003 2004 2005 2006
January 1..................... 6.20% 2.03% 1.38% 1.22% 2.78% 4.71%
February 1.................... 5.26 2.08 1.35 1.21 2.97 4.82
March 1....................... 4.91 2.04 1.34 1.17 3.19 5.26
April 1....................... 4.71 2.36 1.23 1.16 3.39 5.14
May 1......................... 4.30 2.12 1.29 1.38 3.41 5.22
June 1........................ 3.98 2.08 1.21 1.60 3.54 5.39
July 1........................ 3.91 1.95 1.12 1.89 3.73 5.59
August 1...................... 3.69 1.87 1.21 1.99 3.95 5.51
September 1................... 3.45 1.80 1.20 1.98 4.00 5.43
October 1..................... 2.52 1.71 1.14 2.20 4.27 5.37
November 1.................... 2.15 1.60 1.23 2.32 4.47
December 1.................... 2.03 1.47 1.27 2.63 4.63
One-Year LIBOR. Approximately 58.46%, 60.49%, 91.30% and 86.17% of the loan group I, sub-loan
group II-1, sub-loan group II-2 and sub-loan group II-3 mortgage loans, respectively, will adjust
annually based on One-Year LIBOR. One-Year LIBOR will be a per annum rate equal to the average of
interbank offered rates for one-year U.S. dollar-denominated deposits in the London market based on
quotations of major banks as published in The Wall Street Journal and are most recently available as of
the time specified in the related mortgage note.
The following does not purport to be representative of future levels of One-Year LIBOR. No
assurance can be given as to the level of One-Year LIBOR on any adjustment date or during the life of
any mortgage loan with an Index of One-Year LIBOR.
One-Year LIBOR
Date 2001 2002 2003 2004 2005 2006
January 1..................... 5.17% 2.49% 1.45% 1.48% 3.10% 4.85%
February 1.................... 4.88 2.43 1.38 1.37 2.98 5.15
March 1....................... 4.67 3.00 1.28 1.34 2.55 5.38
April 1....................... 4.44 2.63 1.36 1.81 3.81 5.29
May 1......................... 4.24 2.59 1.21 2.08 3.78 5.38
June 1........................ 4.18 2.28 1.19 2.11 3.76 5.50
July 1........................ 3.82 2.09 1.16 2.38 3.90 5.69
August 1...................... 3.56 1.90 1.44 2.30 4.22 5.54
September 1................... 2.64 1.73 1.45 2.46 4.13 5.41
October 1..................... 2.27 1.64 1.24 2.49 4.68 5.30
November 1.................... 2.39 1.73 1.48 2.54 4.74
December 1.................... 2.44 1.45 1.60 2.96 4.82
One-Year U.S. Treasury. Approximately 0.40%, 7.05% and 0.10% of the loan group I, sub-loan
group II-1 and sub-loan group II-2 mortgage loans, respectively, will be based on the weekly average
yield on U.S. Treasury securities adjusted to a constant maturity of one year, or One-Year U.S.
Treasury, as reported by the Federal Reserve Board in statistical Release No. H.15(519), or the Release,
as most recently available as of the date forty-five days, thirty-five days or thirty days prior to the
adjustment date or on the adjustment date as published in the place specified in the related mortgage
note and as made available as of the date specified in the related mortgage note. In the event that the
Index specified in a mortgage note is no longer available, an index that is based on comparable
information will be selected by the Master Servicer, to the extent that it is permissible under the
terms of the related mortgage note and mortgage.
STATIC POOL INFORMATION
The depositor will provide static pool information, material to this offering, with respect to
the experience of the sponsor in securitizing asset pools of the same type and with respect to the
experience of Countrywide in securitizing asset pools of the same type at
http://www.bearstearns.com/transactions/sami_ii/balta2006-7/index.html. With respect to the Countrywide
information provided therein, investors are directed to: Issue Year Filter/As Applicable, Payment Type
Filter/ARM, NegAm Flag Filter/NO and AltDeal Flag Filter/YES.
Information provided through the internet address above will not be deemed to be a part of this
prospectus supplement or the registration statement for the securities offered hereby if it relates to
any prior securities pool formed before January 1, 2006 or vintage data related to periods before
January 1, 2006, or with respect to the mortgage pool (if applicable) for any period before January 1,2006.
THE ISSUING ENTITY
Bear Stearns ALT-A Trust 2006-7 is a common law trust formed under the laws of the State of New
York pursuant to the Agreement. The Agreement constitutes the "governing instrument" under the laws of
the State of New York. After its formation, Bear Stearns ALT-A Trust 2006-7 will not engage in any
activity other than (i) acquiring and holding the mortgage loans and the other assets of the trust and
proceeds therefrom, (ii) issuing the certificates, (iii) making payments on the certificates and (iv)
engaging in other activities that are necessary, suitable or convenient to accomplish the foregoing or
are incidental thereto or connected therewith. The foregoing restrictions are contained in the
Agreement. For a description of other provisions relating to amending the Pooling and Servicing
Agreement, please see "The Agreements— Amendment" in the prospectus.
The assets of Bear Stearns ALT-A Trust 2006-7 will consist of the mortgage loans and certain
related assets.
Bear Stearns ALT-A Trust 2006-7's fiscal year end is December 31.
THE DEPOSITOR
Structured Asset Mortgage Investments II Inc., referred to herein as the Depositor, was formed
in the state of Delaware on June 10, 2003, and is a wholly-owned subsidiary of The Bear Stearns
Companies Inc. The Depositor was organized for the sole purpose of serving as a private secondary
mortgage market conduit. The Depositor does not have, nor is it expected in the future to have, any
significant assets.
The Depositor has been serving as a private secondary mortgage market conduit for residential
mortgage loans since 2003. As of August 31, 2006, the Depositor has been involved in the issuance of
securities backed by residential mortgage loans of approximately $122,151,359,269. In conjunction with
the Sponsor's acquisition of the mortgage loans, the Depositor will execute a mortgage loan purchase
agreement through which the loans will be transferred to itself. These loans are subsequently deposited
in a common law or statutory trust, described herein, which will then issue the Certificates.
After issuance and registration of the securities contemplated in this prospectus supplement
and any supplement hereto, the Depositor will have no significant duties or responsibilities with
respect to the pool assets or the securities.
The Depositor's principal executive offices are located at 383 Madison Avenue, New York, NewYork10179. Its telephone number is (212) 272-2000.
THE SPONSOR
The sponsor, EMC Mortgage Corporation, referred to herein as EMC or the Sponsor, was
incorporated in the State of Delaware on September 26, 1990, as a wholly owned subsidiary corporation of
The Bear Stearns Companies Inc., and is an affiliate of the Depositor and the Underwriter. The Sponsor
was established as a mortgage banking company to facilitate the purchase and servicing of whole loan
portfolios containing various levels of quality from "investment quality" to varying degrees of
"non-investment quality" up to and including real estate owned assets ("REO"). The Sponsor commenced
operation in Texas on October 9, 1990.
The Sponsor maintains its principal office at 2780 Lake Vista Drive, Lewisville, Texas75067.
Its telephone number is (214) 626-3800.
Since its inception in 1990, the sponsor has purchased over $100 billion in residential whole
loans and servicing rights, which include the purchase of newly originated alternative A, jumbo (prime)
and sub-prime loans. Loans are purchased on a bulk and flow basis. The Sponsor is one of the United
States' largest purchasers of scratch and dent and sub-performing residential mortgages and REO from
various institutions, including banks, mortgage companies, thrifts and the U.S. government. Loans are
generally purchased with the ultimate strategy of securitization into an array of Bear Stearns'
securitizations based upon product type and credit parameters, including those where the loan has become
re-performing or cash-flowing.
Performing loans include first lien fixed rate and ARMs, as well as closed end fixed rate
second liens and lines of credit ("HELOCs"). Performing loans acquired by the Sponsor are subject to
varying levels of due diligence prior to purchase. Portfolios may be reviewed for credit, data
integrity, appraisal valuation, documentation, as well as compliance with certain laws. Performing
loans purchased will have been originated pursuant to the Sponsor's underwriting guidelines or the
originator's underwriting guidelines that are acceptable to the Sponsor.
Subsequent to purchase by the Sponsor, performing loans are pooled together by product type and
credit parameters and structured into RMBS, with the assistance of Bear Stearns' Financial Analytics and
Structured Transactions Group, for distribution into the primary market.
The Sponsor has been securitizing residential mortgage loans since 1999. The following table
describes size, composition and growth of the Sponsor's total portfolio of assets it has securitized as
of the dates indicated.
December 31, 2004December 31, 2005June 30, 2006
Total Portfolio of Total Portfolio of
Loan Type Number Loans Number Total Portfolio of Loans Number Loans
_________________________________________________________________________________________________________________________________________________
Alt-A ARM 44,821 $ 11,002,497,283.49 73,638 $ 19,087,119,981.75 45,516 $ 12,690,441,830.33
Alt-A Fixed 15,344 $ 4,005,790,504.28 17,294 $ 3,781,150,218.13 9,735 $ 2,365,141,449.49
HELOC - $ - 9,309 $ 509,391,438.93 4,360 $ 310,097,521.60
Prime ARM 30,311 $ 11,852,710,960.78 27,384 $ 13,280,407,388.92 4,203 $ 2,168,057,808.87
Prime Fixed 1,035 $ 509,991,605.86 3,526 $ 1,307,685,538.44 1,083 $ 484,927,212.35
Reperforming 2,802 $ 311,862,677.46 2,877 $ 271,051,465.95 1,084 $ 115,127,847.83
Seconds 14,842 $ 659,832,093.32 114,899 $ 5,609,656,263.12 68,788 $ 3,755,330,847.76
Prime Short Duration ARM 23,326 $ 7,033,626,375.35 38,819 $ 14,096,175,420.37 39,946 $ 15,102,521,877.81
SubPrime 98,426 $ 13,051,338,552.19 101,156 $ 16,546,152,274.44 34,396 $ 6,069,878,975.92
Totals 230,907 $ 48,427,650,052.74 388,902 $ 74,488,789,990.05 209,831 $ 43,061,525,370.96
With respect to some of the securitizations organized by the sponsor, a "step-down" trigger has
occurred with respect to the loss and delinquency experience of the mortgage loans included in those
securitizations, resulting in a sequential payment of principal to the related offered certificates,
from the certificates with the highest credit rating to the one with the lowest rating. In addition,
with respect to one securitization organized by the sponsor, a servicing trigger required by the related
financial guaranty insurer has occurred; however, the insurer has granted extensions enabling the normal
servicing activities to continue.
The Sponsor has received a civil investigative demand (CID), from the Federal Trade Commission
(FTC), seeking documents and data relating to the Sponsor's business and servicing practices. The CID
was issued pursuant to a December 8, 2005 resolution of the FTC authorizing non-public investigations of
various unnamed subprime lenders, loan servicers and loan brokers to determine whether there have been
violations of certain consumer protections laws. The Sponsor is cooperating with the FTC's inquiry.
THE MASTER SERVICER AND THE SERVICERSGeneral
Wells Fargo Bank, National Association, referred to in this prospectus supplement as Wells
Fargo or the Master Servicer, will act as the Master Servicer of the mortgage loans and as Securities
Administrator pursuant to the Pooling and Servicing Agreement, referred to herein as the Agreement,
dated as of the Cut-off Date, among the Depositor, the Sponsor, the Master Servicer, the Securities
Administrator and the Trustee. Wells Fargo will also act as a Custodian pursuant to the related
Custodial Agreement.
Primary servicing of the mortgage loans will be provided by the Sponsor, Countrywide Servicing
and various other servicers, none of which will service more than 10% of the mortgage loans in the
aggregate of each loan group in accordance with their respective servicing agreements which are
collectively referred to herein as the Servicing Agreements. Each of the Servicing Agreements will
require, among other things, that each Servicer accurately and fully report its borrower credit files to
credit repositories in a timely manner. Each of the Servicing Agreements will be assigned to the trust
pursuant to an assignment, assumption and recognition agreements among the related mortgage loan
originator, the related Servicer, the Sponsor and the Trustee on behalf of the certificateholders;
provided, however, that the Sponsor will retain the right to enforce the representations and warranties
made to it by each Servicer with respect to the related mortgage loans. The Servicers will be
responsible for the servicing of the mortgage loans pursuant to the related Servicing Agreement, and the
Master Servicer will be required to monitor their performance. In the event of a default by a Servicer
under the related Servicing Agreement, the Master Servicer will be required to enforce any remedies
against the related Servicer and shall either find a successor servicer or shall assume the primary
servicing obligations for the related mortgage loans itself.
The information set forth in the following paragraph with respect to the Master Servicer has
been provided by the Master Servicer.
The Master Servicer
Wells Fargo is a national banking association and a wholly-owned subsidiary of Wells Fargo &
Company. A diversified financial services company with approximately $482 billion in assets, 23 million
customers and 153,000 employees as of December 31, 2005, Wells Fargo & Company is a U.S. bank holding
company providing banking, insurance, trust, mortgage and consumer finance services throughout the
United States and internationally. Wells Fargo provides retail and commercial banking services and
corporate trust, custody, securities lending, securities transfer, cash management, investment
management and other financial and fiduciary services. The Depositor, the Sponsor and the servicers
may maintain banking and other commercial relationships with Wells Fargo and its affiliates. Wells
Fargo maintains principal corporate trust offices located at 9062 Old Annapolis Road, Columbia, Maryland21045-1951 (among other locations) and its office for certificate transfer services is located at Sixth
Street and Marquette Avenue, Minneapolis, Minnesota55479.
Wells Fargo acts as Master Servicer pursuant to the Agreement. The Master Servicer is
responsible for the aggregation of monthly servicer reports and remittances and for the oversight of the
performance of the servicers under the terms of their respective servicing agreements. In particular,
the Master Servicer independently calculates monthly loan balances based on servicer data, compares its
results to servicer loan-level reports and reconciles any discrepancies with the servicers. The Master
Servicer also reviews the servicing of defaulted loans for compliance with the terms of the Agreement.
In addition, upon the occurrence of certain Servicer events of default under the terms of any servicing
agreement, the Master Servicer may be required to enforce certain remedies on behalf of the Trust and at
the direction of the Trustee against such defaulting servicer. Wells Fargo has been engaged in the
business of master servicing since June 30, 1995. As of June 30, 2006, Wells Fargo was acting as master
servicer for approximately 1253 series of residential mortgage-backed securities with an aggregate
outstanding principal balance of approximately $651,189,990,090.
Wells Fargo serves or has served within the past two years as warehouse master servicer for
various mortgage loans owned by the Sponsor or an affiliate of the Sponsor and anticipates that one or
more of those mortgage loans may be included in the Trust. The terms of the warehouse master servicing
agreement under which those services are provided by Wells Fargo are customary for the mortgage-backed
securitization industry.
Wells Fargo serves or may have served within the past two years as loan file custodian for
various mortgage loans owned by the Sponsor or an affiliate of the Sponsor and anticipates that one or
more of those mortgage loans may be included in the Trust. The terms of any custodial agreement under
which those services are provided by Wells Fargo are customary for the mortgage-backed securitization
industry and provide for the delivery, receipt, review and safekeeping of mortgage loan files.
The Servicers
EMC, Countrywide Home Loans Servicing LP, HomeBanc Mortgage Corporation and various other
servicers, none of which will service more than 10% of the mortgage loans in the aggregate of either
Loan Group I or Loan Group II, will service the related mortgage loans in accordance with their
respective Servicing Agreements, which will be assigned to the trust on the Closing Date.
EMC Mortgage Corporation
For a further description of EMC, please see "The Sponsor" in this prospectus supplement. EMC
will service the mortgage loans in accordance with the description of the applicable servicing
procedures contained in this section of the prospectus supplement. EMC has been servicing residential
mortgage loans since 1990. From year end 2004 to year end 2005 EMC's servicing portfolio grew by 113%.
The principal business of EMC since inception has been specializing in the acquisition,
securitization, servicing and disposition of mortgage loans. EMC's servicing portfolio consists
primarily of two categories:
o "performing loans," or performing investment quality loans serviced for EMC's own
account or the account of Fannie Mae, Freddie Mac, private mortgage conduits and
various institutional investors; and
o "non-performing loans," or non-investment grade, sub-performing loans, non-performing
loans and REO properties serviced for EMC's own account and for the account of
investors in securitized performing and non-performing collateral transactions.
EMC has been servicing residential mortgage loans since 1990. As of June 30, 2006, EMC was
acting as servicer for approximately 236 series of residential mortgage-backed securities and other
mortgage loans with an outstanding principal balance of approximately $64.6 billion. From year end 2004
to June 30, 2006, the loan count of EMC's servicing portfolio grew by approximately 95.9% and the unpaid
principal balance of EMC's servicing portfolio grew by approximately 132.5%.
The following table describes size, composition and growth of EMC's total residential mortgage
loan servicing portfolio as of the dates indicated.
As of December 31, 2004 As of December 31, 2005 As of June 30, 2006
---------------- ----------- --------------------- ---------- ------------- ---------- --------------------- ----------- ---------- ----------- --------------------- ---------- -----------
No. of Loans Dollar Amount Percent by Percent by No. of Dollar Percent Percent No. of Dollar Percent Percent
No. of Dollar Loans Amount by No. by Dollar Loans Amount by No. by Dollar
Loans Amount of Loans Amount of Loans Amount
----------- --------------------- ---------- ------------- ---------- --------------------- ----------- ---------- ----------- --------------------- ---------- -----------
Alta-A Arm..... 19,498 $4,427,820,707.76 7.96% 15.94% 57,510 $13,625,934,321.62 12.69% 23.00% 45,369 $11,945,448,034 9.46% 18.50%
Alta-A Fixed... 25,539 $4,578,725,473.28 10.43% 16.48% 17,680 $3,569,563,859.33 3.90% 6.03% 26,199 $5,240,887,579 5.46% 8.11%
Prime Arm...... 8,311 $1,045,610,015.30 3.39% 3.76% 7,428 $1,010,068,678.92 1.64% 1.71% 7,050 $935,151,471 1.47% 1.45%
Prime Fixed.... 14,560 $1,573,271,574.42 5.95% 5.66% 15,975 $2,140,487,565.90 3.52% 3.61% 15,683 $2,139,403,359 3.27% 3.31%
Seconds ....... 39,486 $1,381,961,155.08 16.13% 4.98% 155,510 $7,164,515,426.20 34.31% 12.10% 179,330 $8,547,703,140 37.38% 13.24%
Subprime....... 114,436 $13,706,363,249.78 46.74% 49.34% 142,890 $20,373,550,690.52 31.53% 34.40% 139,890 $20,361,085,084 29.16% 31.53%
Other.......... 23,010 $1,063,682,459.11 9.40% 3.83% 56,216 $11,347,144,055.57 12.40% 19.16% 66,235 $15,414,138,024 13.81% 23.87%
----------- --------------------- ---------- ------------- ---------- --------------------- ----------- ---------- ----------- --------------------- ---------- -----------
Total.......... 244,840 $27,777,434,634.73 100.00% 100.00% 453,209 $59,231,264,598.06 100.00% 100.00% 479,756 $64,583,816,692 100.00% 100.00%
Countrywide Home Loans Servicing LP
The principal executive offices of Countrywide Home Loans Servicing LP ("Countrywide
Servicing") are located at 7105 Corporate Drive, Plano, Texas75024. Countrywide Servicing is a Texas
limited partnership directly owned by Countrywide GP, Inc. and Countrywide LP, Inc., each a Nevada
corporation and a direct wholly owned subsidiary of Countrywide Home Loans. Countrywide GP, Inc. owns a
0.1% interest in Countrywide Servicing and is the general partner. Countrywide LP, Inc. owns a 99.9%
interest in Countrywide Servicing and is a limited partner.
Countrywide Home Loans established Countrywide Servicing in February 2000 to service mortgage
loans originated by Countrywide Home Loans that would otherwise have been serviced by Countrywide Home
Loans. In January and February, 2001, Countrywide Home Loans transferred to Countrywide Servicing all of
its rights and obligations relating to mortgage loans serviced on behalf of Freddie Mac and Fannie Mae,
respectively. In October 2001, Countrywide Home Loans transferred to Countrywide Servicing all of its
rights and obligations relating to the bulk of its non-agency loan servicing portfolio (other than the
servicing of home equity lines of credit), including with respect to those mortgage loans (other than
home equity lines of credit) formerly serviced by Countrywide Home Loans and securitized by certain of
its affiliates. While Countrywide Home Loans expects to continue to directly service a portion of its
loan portfolio, it is expected that the servicing rights for most newly originated Countrywide Home
Loans mortgage loans will be transferred to Countrywide Servicing upon sale or securitization of the
related mortgage loans. Countrywide Servicing is engaged in the business of servicing mortgage loans and
will not originate or acquire loans, an activity that will continue to be performed by Countrywide Home
Loans. In addition to acquiring mortgage servicing rights from Countrywide Home Loans, it is expected
that Countrywide Servicing will service mortgage loans for non-Countrywide Home Loans affiliated parties
as well as subservice mortgage loans on behalf of other master servicers.
In connection with the establishment of Countrywide Servicing, certain employees of Countrywide
Home Loans became employees of Countrywide Servicing. Countrywide Servicing has engaged Countrywide Home
Loans as a subservicer to perform certain loan servicing activities on its behalf.
Countrywide Servicing is an approved mortgage loan servicer for Fannie Mae, Freddie Mac, Ginnie
Mae, HUD and VA and is licensed to service mortgage loans in each state where a license is required. Its
loan servicing activities are guaranteed by Countrywide Financial and/or Countrywide Home Loans when
required by the owner of the mortgage loans.
Countrywide Home Loans
Countrywide Home Loans is a New York corporation and a direct wholly owned subsidiary of
Countrywide Financial Corporation, a Delaware corporation ("Countrywide Financial"). The principal
executive offices of Countrywide Home Loans are located at 4500 Park Granada, Calabasas, California91302. Countrywide Home Loans is engaged primarily in the mortgage banking business, and as part of that
business, originates, purchases, sells and services mortgage loans. Countrywide Home Loans originates
mortgage loans through a retail branch system and through mortgage loan brokers and correspondents
nationwide. Mortgage loans originated by Countrywide Home Loans are principally first-lien, fixed or
adjustable rate mortgage loans secured by single-family residences.
Except as otherwise indicated, reference in the remainder of this prospectus supplement to
"Countrywide Home Loans" should be read to include Countrywide Home Loans and its consolidated
subsidiaries, including Countrywide Servicing. Countrywide Home Loans services substantially all of the
mortgage loans it originates or acquires. In addition, Countrywide Home Loans has purchased in bulk the
rights to service mortgage loans originated by other lenders. Countrywide Home Loans has in the past and
may in the future sell to mortgage bankers and other institutions a portion of its portfolio of loan
servicing rights. As of December 31, 2002, December 31, 2003, December 31, 2004, December 31, 2005 and
September 30, 2006, Countrywide Home Loans provided servicing for mortgage loans with an aggregate
principal balance of approximately $452.405 billion, $644.855 billion, $838.322 billion, $1,111.090
billion and $1,244.311 billion, respectively, substantially all of which were being serviced for
unaffiliated persons.
Mortgage Loan Production
The following table sets forth, by number and dollar amount of mortgage loans, Countrywide Home
Loans' residential mortgage loan production for the periods indicated.
Consolidated Mortgage Loan Production
Ten Months Years Ended Nine Months
Ended December 31, Ended
December 31, September, 30
2001 2002 2003 2004 2005 2006
(Dollars in millions, except average loan amount)
Conventional Conforming Loans
Number of Loans....................... 504,975 999,448 1,517,743 846,395 809,630 559,501
Volume of Loans.......................$ 76,432 $ 150,110 $ 235,868 $ 138,845 $ 167,675 $ 109,872
Percent of Total Dollar Volume..... 61.7% 59.6% 54.2% 38.2% 34.1% 32.9%
Conventional Non-conforming Loans
Number of Loans....................... 137,593 277,626 554,571 509,711 826,178 479,627
Volume of Loans.......................$ 22,209 $ 61,627 $ 136,664 $ 140,580 $ 225,217 $ 148,652
Percent of Total Dollar Volume..... 17.9% 24.5% 31.4% 38.7% 45.9% 44.5%
FHA/VA Loans
Number of Loans....................... 118,734 157,626 196,063 105,562 80,528 65,618
Volume of Loans.......................$ 14,109 $ 19,093 $ 24,402 $ 13,247 $ 10,712 $ 9,436
Percent of Total Dollar Volume..... 11.4% 7.6% 5.6% 3.6% 2.2% 2.8%
Prime Home Equity Loans
Number of Loans....................... 164,503 316,049 453,817 587,046 683,887 519,895
Volume of Loans.......................$ 5,639 $ 11,650 $ 18,103 $ 30,893 $ 42,706 $ 35,229
Percent of Total Dollar Volume..... 4.5% 4.6% 4.2% 8.5% 8.7% 10.6%
Nonprime Mortgage Loans
Number of Loans....................... 43,359 63,195 124,205 250,030 278,112 188,558
Volume of Loans.......................$ 5,580 $ 9,421 $ 19,827 $ 39,441 $ 44,637 $ 30,545
Percent of Total Dollar Volume..... 4.5% 3.7% 4.6% 11.0% 9.1% 9.2%
Total Loans
Number of Loans....................... 969,164 1,813,944 2,846,399 2,298,744 2,678,335 1,813,199
Volume of Loans.......................$ 123,969 $ 251,901 $ 434,864 $ 363,006 $ 490,947 $ 333,734
Average Loan Amount...................$ 128,000 $ 139,000 $ 153,000 $ 158,000 $ 183,000 $ 184,000
Non-Purchase Transactions(1).......... 63% 66% 72% 51% 53% 53%
Adjustable-Rate Loans(1).............. 12% 14% 21% 52% 52% 48%
_________________
(1) Percentage of total mortgage loan production (excluding commercial real estate loans) based on
dollar volume.
Loan Servicing
Countrywide Servicing has established standard policies for the servicing and collection of
mortgages. Servicing includes, but is not limited to:
(a) collecting, aggregating and remitting mortgage loan payments;
(b) accounting for principal and interest;
(c) holding escrow (impound) funds for payment of taxes and insurance;
(d) making inspections as required of the mortgaged properties;
(e) preparation of tax related information in connection with the mortgage loans;
(f) supervision of delinquent mortgage loans;
(g) loss mitigation efforts;
(h) foreclosure proceedings and, if applicable, the disposition of mortgaged properties;
and
(i) generally administering the mortgage loans, for which it receives servicing fees.
Billing statements with respect to mortgage loans are mailed monthly by Countrywide Servicing.
The statement details all debits and credits and specifies the payment due. Notice of changes in the
applicable loan rate are provided by Countrywide Servicing to the mortgagor with these statements.
Collection Procedures
When a mortgagor fails to make a payment on a mortgage loan, Countrywide Servicing attempts to
cause the deficiency to be cured by corresponding with the mortgagor. In most cases, deficiencies are
cured promptly. Pursuant to Countrywide Servicing's servicing procedures, Countrywide Servicing
generally mails to the mortgagor a notice of intent to foreclose after the loan becomes 61 days past due
(three payments due but not received) and, generally within 59 days thereafter, if the loan remains
delinquent, institutes appropriate legal action to foreclose on the mortgaged property. Foreclosure
proceedings may be terminated if the delinquency is cured. Mortgage loans to borrowers in bankruptcy
proceedings may be restructured in accordance with law and with a view to maximizing recovery of the
loans, including any deficiencies.
Once foreclosure is initiated by Countrywide Servicing, a foreclosure tracking system is used
to monitor the progress of the proceedings. The system includes state specific parameters to monitor
whether proceedings are progressing within the time frame typical for the state in which the mortgaged
property is located. During the foreclosure proceeding, Countrywide Servicing determines the amount of
the foreclosure bid and whether to liquidate the mortgage loan.
If foreclosed, the mortgaged property is sold at a public or private sale and may be purchased
by Countrywide Servicing. After foreclosure, Countrywide Servicing may liquidate the mortgaged property
and charge-off the loan balance which was not recovered through liquidation proceeds.
Servicing and charge-off policies and collection practices with respect to mortgage loans may
change over time in accordance with, among other things, Countrywide Servicing's business judgment,
changes in the servicing portfolio and applicable laws and regulations.
Static Pool Data
Certain static pool data with respect to the delinquency, cumulative loss and prepayment data
for Countrywide Home Loans is available online at:
http://www.countrywidedealsdata.com/?CWDD=01200608.
HomeBanc Mortgage Corporation
HomeBanc Corp. is a Georgia corporation that owns 100% of the outstanding stock of HomeBanc
Mortgage Corporation, or "HBMC," a residential mortgage banking company and a Delaware corporation. HBMC
and its predecessors have been in the residential mortgage loan origination business for over 20 years.
HomeBanc Corp. has elected to be taxed as a real estate investment trust, or "REIT," and is self-managed
and self-advised. HBMC is a taxable REIT subsidiary that focuses its origination activities primarily on
prime one-to-four family residential mortgage loans.
HBMC began operating independently in May 2000, following a leveraged buyout by its
Atlanta-based management team and GTCR Golder Rauner, L.L.C. and its affiliated funds, or "GTCR." HBMC
was First Tennessee Bank National Association's Atlanta, Georgia mortgage banking operation that
operated under the name of "HomeBanc Mortgage." Since 2001, HBMC's first full year of operating as an
independent company, originations have grown at a compounded annual rate of approximately 12%, from $4.1
billion in 2001 to $6.4 billion in 2005.
HomeBanc operates in select markets within the States of Georgia, Florida and North Carolina,
and HBMC also is either licensed or exempt from licensing to make loans in Alabama, Colorado,
Mississippi, South Carolina, Tennessee and Texas.
HomeBanc is an approved full service mortgage loan servicer for Fannie Mae, Freddie Mac and
Ginnie Mae (though not active at this time), HUD, VA and various other private investors. Prior to
December 2003, HBMC did not retain the servicing for any of the mortgage loans that it sold, although it
did service loans that were the subject of securitized transactions for up to 30 days after the loans
were securitized. In July 2001, HBMC implemented an interim servicing platform to support its
conforming mortgage loan securitization sales, which included licensing of comprehensive third party
mortgage loan servicing software. In 2002, HBMC commenced preparation to transition from interim
servicing to "life-of-loan" servicing, which included hiring additional experienced management and line
staff and licensing additional third party mortgage accounting software. Since December 2003, HBMC has
retained servicing for a portion of its interest-only, adjustable rate mortgage loans and a limited
number of Fannie Mae mortgage loans. Beginning in August 2006, HBMC has retained substantially all of
its Fannie Mae and Freddie Mac servicing. Although HBMC has limited life-of-loan servicing experience
as an organization, the current servicing team as of June 30, 2006 has 38 full-time associates,
including 4 managers, each of whom has at least 15 years of mortgage servicing experience. HomeBanc
Corp. and HBMC began servicing securitized mortgage loans of the type included in the securitization
transaction in 2004. As of December 31, 2004, December 31, 2005 and June 30, 2006, HBMC provided
servicing for mortgage loans with an aggregate principal balance of approximately $3.575 billion, $6.722
billion and $7.070 billion respectively, the majority of which were being serviced for securitization
transaction.
HomeBanc and HBMC's principal executive offices are located at 2002 Summit Boulevard, Suite
100, Atlanta, Georgia30319, and their telephone number at that address is (404) 303-4000.
HomeBanc files reports, proxy statements and other information with the Securities and Exchange
Commission or "SEC," which are available on the internet at the SEC's website, http://www.sec.gov. You
may read and copy any document that HomeBanc files with the SEC at the SEC's public reference room at
100 F Street, N.E., Washington, D.C. 20549. You may call the SEC at 1-800-SEC-0330 for more information
about the operation of the public reference room. You may also inspect the reports and other
information that HomeBanc files with the SEC at the New York Stock Exchange, Inc., 20 Broad Street, NewYork, New York10005.
Securitization Program
HomeBanc Corp. and HBMC have been engaged in the securitization of assets since 2004. HomeBanc
Corp. securitized approximately $1.884 billion of residential Loans in 2004 and approximately $4.367
billion of residential Loans in 2005. Through its affiliates, HomeBanc Corp. originated approximately
$3.780 billion and $4.208 billion of residential mortgage loans in 2004 and in 2005, respectively, that
were either securitized or are of the types of residential Loans generally included in such
securitization transactions.
Delinquency and Foreclosure Experience.
The following table sets forth the delinquency and foreclosure experience of first and second
lien adjustable rate residential mortgage loans originated by and serviced by HBMC on behalf of
securitization trusts and third parties for whom HBMC is servicing similar mortgage loan products, as
of the dates indicated. There can be no assurance, and no representation is made, that the delinquency
and foreclosure experience with respect to the mortgage loans included in the trust 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. In addition, because the delinquency and
foreclosure experience of the mortgage loans in the table below only reflects such experience as of the
end of the previous six calendar quarters, such data may not reflective of the delinquency and
foreclosure experience of the mortgage loans to be expected over an extended period of time.
Accordingly, the information should not be considered to reflect the credit quality of the mortgage
loans included in the trust, or as a basis for assessing the likelihood, amount or severity of losses on
the mortgage loans.
Due to its recent formation and its limited life-of-loan servicing activities since December
2003, the Servicer does not have meaningful historical servicing data.
The actual loss and delinquency experience on the mortgage moans will depend, among other
things, upon the value of the real estate securing such mortgage loans, interest rates, economic
conditions and the ability of borrowers to make required payments.
HomeBanc Mortgage Corporation
Delinquencies and Foreclosures(1)
As of June 30, 2006
Number of Principal Balance Percent by Percent by
Principal Number of
Loans Balance Loans
Current Loans......... 30,920 $6,214,262,896 97.67% 97.53%
Period of Delinquency(2)
30 to 59 days...... 560 $107,569,208 1.69% 1.77%
60 to 89 days...... 94 $17,872,902 0.28% 0.30%
90 days or more.... 68 $12,800,336 0.20% 0.21%
Foreclosures/
Bankruptcies(3).... 37 $5,887,695 0.09% 0.12%
Real Estate Owned 25 $4,425,092 0.07% 0.08%
Total Portfolio(4) 31,704 $6,362,818,129 100.00% 100.00%
As of March 31, 2006
Number of Principal Balance Percent by Percent by
Principal Number of
Loans Balance Loans
Current Loans......... 32,159 $6,402,253,235 98.40% 98.24%
Period of Delinquency(2)
30 to 59 days...... 372 $66,975,990 1.03% 1.14%
60 to 89 days...... 85 $18,696,042 0.29% 0.26%
90 days or more.... 48 $6,012,883 0.09% 0.15%
Foreclosures/
Bankruptcies(3).... 58 $10,211,176 0.16% 0.18%
Real Estate Owned 12 $2,430,344 0.04% 0.04%
Total Portfolio(4) 32,734 $6,506,579,669 100.00% 100.00%
As of December 31, 2005
Percent by Percent by
Number of Principal Number of
Loans Principal Balance Balance Loans
Current Loans......... 30,648 $5,957,375,697 97.81% 97.76%
Period of Delinquency(2)
30 to 59 days...... 511 100,497,156 1.65% 1.63%
60 to 89 days...... 79 12,615,448 0.21% 0.25%
90 days or more.... 43 6,792,421 0.11% 0.14%
Foreclosures/
Bankruptcies(3).... 61 11,908,004 0.20% 0.19%
Real Estate Owned 9 1,317,589 0.02% 0.03%
Total Portfolio 31,351 $6,090,506,316 100.00% 100.00%
As of September 30, 2005
Percent by Percent by
Number of Principal Number of
Loans Principal Balance Balance Loans
Current Loans......... 28,639 $5,457,619,976 98.40% 98.33%
Period of Delinquency(2)
30 to 59 days...... 396 71,397,430 1.29% 1.36%
60 to 89 days...... 32 6,081,614 0.11% 0.11%
90 days or more.... 19 3,058,014 0.06% 0.07%
Foreclosures/
Bankruptcies(3).... 33 6,869,444 0.12% 0.11%
Real Estate Owned 7 1,081,211 0.02% 0.02%
Total Portfolio 29,126 $5,546,107,689 100.00% 100.00%
As of June 30, 2005
Percent by Percent by
Number of Principal Number of
Loans Principal Balance Balance Loans
Current Loans......... 25,848 $4,810,763,440 98.96% 99.03%
Period of Delinquency(2)
30 to 59 days...... 196 39,065,432 0.80% 0.75%
60 to 89 days...... 15 2,353,016 0.05% 0.06%
90 days or more.... 22 3,429,617 0.07% 0.08%
Foreclosures/
Bankruptcies(3).... 17 4,916,717 0.10% 0.07%
Real Estate Owned 4 653,379 0.01% 0.02%
Total Portfolio 26,102 $4,861,181,601 100.00% 100.00%
As of March 31, 2005
Percent by Percent by
Number of Principal Number of
Loans Principal Balance Balance Loans
Current Loans......... 21,581 $3,933,935,814 99.19% 99.25%
Period of Delinquency(2)
30 to 59 days...... 134 25,473,456 0.64% 0.62%
60 to 89 days...... 15 3,963,688 0.10% 0.07%
90 days or more.... 8 1,758,379 0.04% 0.04%
Foreclosures/
Bankruptcies(3).... 5 1,016,717 0.03% 0.02%
Real Estate Owned 0 0 0.00% 0.00%
Total Portfolio 21,743 $3,966,148,054 100.00% 100.00%
As of December 31, 2004
Percent by Percent by
Number of Principal Number of
Loans Principal Balance Balance Loans
Current Loans......... 17,096 $3,160,212,874 99.06% 99.11%
Period of Delinquency(2)
30 to 59 days...... 126 22,655,728 0.71% 0.73%
60 to 89 days...... 15 2,879,582 0.09% 0.09%
90 days or more.... 11 2,238,959 0.07% 0.06%
Foreclosures/
Bankruptcies(3).... 2 2,053,400 0.06% 0.01%
Real Estate Owned - 0 0.00% 0.00%
Total Portfolio 17,250 $3,190,040,543 100.00% 100.00%
As of September 30, 2004
Number of Principal Balance Percent by Percent by
Principal Number of
Loans Balance Loans
Current Loans......... 11,835 $2,321,849,839 98.74% 98.83%
Period of Delinquency(2)
30 to 59 days...... 120 23,850,426 1.01% 1.00%
60 to 89 days...... 17 3,290,437 0.14% 0.14%
90 days or more.... 2 2,077,100 0.09% 0.02%
Foreclosures/
Bankruptcies(3).... 1 303,400 0.01% 0.01%
Real Estate Owned - 0 0.00% 0.00%
Total Portfolio 11,975 $2,351,371,202 100.00% 100.00%
__________________________
(1) These tables show mortgage loans which were delinquent or for which foreclosure proceedings had
been instituted as of the date indicated.
(2) No mortgage loan is included in this table as delinquent until it is 30 days past due.
(3) Exclusive of the number of loans and principal balance shown in the period of delinquency.
(4) Slight variations in totals are due to rounding.
MORTGAGE LOAN ORIGINATION
General
Approximately 37.40%, 42.28%, 5.76% and 16.56% of the Loan Group I, Sub- Loan Group II-1, Sub-
Loan Group II-2 and Sub- Loan Group II-3 mortgage loans, respectively, were originated by EMC.
Approximately 50.98%, 71.33% and 35.49% of the Loan Group I, Sub- Loan Group II-2 and Sub- Loan Group
II-3 mortgage loans, respectively, were originated by Countrywide Home Loans, Inc. Approximately 5.32%,
39.02%, 22.73% and 44.93% of the Loan Group I, Sub- Loan Group II-1, Sub- Loan Group II-2 and Sub- Loan
Group II-3 mortgage loans, respectively, were originated by HomeBanc Mortgage Corporation. The
remainder of the group I mortgage loans and group II mortgage loans were originated by various
originators, none of which have originated more than 10% of the mortgage loans in the aggregate of
either Loan Group I and Loan Group II.
EMC
Approximately 25.38% of the mortgage loans in the aggregate have been acquired by the Sponsor
from various sellers and were originated generally in accordance with the following underwriting
guidelines established by the Sponsor.
Bear Stearns Residential Mortgage Corporation, an affiliate of the Sponsor, the Depositor and
the Underwriter, originated approximately 2.76%, 3.14%, 0.17% and 0.60% of the Loan Group I, Sub-Loan
Group II-1, Sub-Loan Group II-2 and Sub-Loan Group II-3 mortgage loans, respectively, and approximately
1.75% of the mortgage loans in the aggregate by aggregate principal balance as of the Cut-Off Date.
Subsequently, these mortgage loans were transferred to the Sponsor.
EMC Underwriting Guidelines
The following is a description of the underwriting policies customarily employed by EMC with
respect to the residential mortgage loans that EMC originated during the period of origination of the
mortgage loans. EMC has represented to the depositor that the mortgage loans were originated generally
in accordance with such policies.
The mortgage loans originated by EMC, or EMC mortgage loans, are "conventional non-conforming
mortgage loans" (i.e., loans that are not insured by the Federal Housing Authority, or FHA, or partially
guaranteed by the Veterans Administration or which do not qualify for sale to Fannie Mae or Freddie Mac)
and are secured by first liens on one-to four-family residential properties. These loans typically
differ from those underwritten to the guidelines established by Fannie Mae and Freddie Mac primarily
with respect to the original principal balances, loan-to-value ratios, borrower income, required
documentation, interest rates, borrower occupancy of the mortgaged property, property types and/or
mortgage loans with loan-to-value ratios over 80% that do not have primary mortgage insurance. The EMC
mortgage loans have either been originated or purchased by an originator and were generally underwritten
in accordance with the standards described herein. Exceptions to the underwriting guidelines are
permitted when the seller's performance supports such action and the variance request is approved by
credit management.
Such underwriting standards are applied to evaluate the prospective borrower's credit standing
and repayment ability and the value and adequacy of the mortgaged property as collateral. These
standards are applied in accordance with the applicable federal and state laws and regulations.
Exceptions to the underwriting standards are permitted where compensating factors are present and are
managed through a formal exception process.
Generally, each mortgagor will have been required to complete an application designed to
provide to the lender pertinent credit information concerning the mortgagor. The mortgagor will have
given information with respect to its assets, liabilities, income (except as described below), credit
history, employment history and personal information, and will have furnished the lender with
authorization to obtain a credit report which summarizes the mortgagor's credit history. In the case of
investment properties and two- to four-unit dwellings, income derived from the mortgaged property may
have been considered for underwriting purposes, in addition to the income of the mortgagor from other
sources. With respect to second homes or vacation properties, no income derived from the property will
have been considered for underwriting purposes.
With respect to purchase money or rate/term refinance loans secured by single family residences
the following loan-to-value ratios and original principal balances are allowed: loan-to-value ratios at
origination of up to 97% for EMC mortgage loans with original principal balances of up to $375,000 if
the loan is secured by the borrower's primary residence, up to 95% for EMC mortgage loans secured by
one-to-four family, primary residences and single family second homes with original principal balances
of up to $650,000, up to 90% for EMC mortgage loans secured by one-to-four family, primary residences,
single family second homes with original principal balances of up to $1,000,000 and up to 70% for
mortgage loans secured by one-to-four, primary residences and single family second homes with original
principal balances of up to $2,000,000, or super jumbos. For cash out refinance loans, the maximum
loan-to-value ratio generally is 95% and the maximum "cash out" amount permitted is based in part on the
original amount of the related EMC mortgage loan.
With respect to mortgage loans secured by investment properties, loan-to-value ratios at
origination of up to 90% for mortgage loans with original principal balances up to $500,000 are
permitted. Mortgage loans secured by investment properties may have higher original principal balances
if they have lower loan-to-value ratios at origination. For cash out refinance loans, the maximum
loan-to-value ratio generally is 90% and the maximum "cash out" amount permitted is based in part on the
original amount of the related mortgage loan.
Substantially all other EMC mortgage loans included in the mortgage pool with a loan-to-value
ratio at origination exceeding 80%, have primary mortgage insurance policies insuring a portion of the
balance of the EMC Loan at least equal to the product of the original principal balance of the mortgage
loan and a fraction, the numerator of which is the excess of the original principal balance of such
mortgage loan over 75% of the lesser of the appraised value and the selling price of the related
mortgaged property and the denominator of which is the original principal balance of the related
mortgage loan, plus accrued interest thereon and related foreclosure expenses is generally required. No
such primary mortgage insurance policy will be required with respect to any such EMC Loan after the date
on which the related loan-to-value ratio decreases to 80% or less or, based upon new appraisal, the
principal balance of such mortgage loan represents 80% or less of the new appraised value. All of the
insurers that have issued primary mortgage insurance policies with respect to the EMC mortgage loans
meet Fannie Mae's or Freddie Mac's standard or are acceptable to the Rating Agencies.
In determining whether a prospective borrower has sufficient monthly income available (i) to
meet the borrower's monthly obligation on their proposed mortgage loan and (ii) to meet the monthly
housing expenses and other financial obligations on the proposed mortgage loan, each lender generally
considers, when required by the applicable documentation program, the ratio of such amounts to the
proposed borrower's acceptable stable monthly gross income. Such ratios vary depending on a number of
underwriting criteria, including loan-to-value ratios, and are determined on a loan-by-loan basis.
Each lender also examines a prospective borrower's credit report. Generally, each credit report
provides a credit score for the borrower. Credit scores generally range from 350 to 840 and are
available from three major credit bureaus: Experian (formerly TRW Information Systems and Services),
Equifax and Trans Union. If three credit scores are obtained, the originator applies the middle score of
the primary wage earner. If a primary wage earner cannot be determined because of the documentation
type, the lowest middle score of all borrowers is used. Credit scores are empirically derived from
historical credit bureau data and represent a numerical weighing of a borrower's credit characteristics
over a two-year period. A credit score is generated through the statistical analysis of a number of
credit-related characteristics or variables. Common characteristics include the number of credit lines
(trade lines), payment history, past delinquencies, severity of delinquencies, current levels of
indebtedness, types of credit and length of credit history. Attributes are the specific values of each
characteristic. A scorecard (the model) is created with weights or points assigned to each attribute. An
individual loan applicant's credit score is derived by summing together the attribute weights for that
applicant.
The mortgage loans have been underwritten under one of the following documentation programs:
full/alternative documentation, stated income documentation, no ratio documentation, and no income/no
asset documentation.
Under full/alternative documentation, the prospective borrower's employment, income and assets
are verified through written and telephonic communications.
Under a stated income/verified asset documentation program, more emphasis is placed on the
value and adequacy of the mortgaged property as collateral, credit history and other assets of the
borrower than on a verified income of the borrower. Although the income is not verified, the originators
obtain a telephonic verification of the borrower's employment without reference to income. Borrower's
assets are verified.
Under the no ratio documentation program the borrower's income is not stated and no ratios are
calculated. Although the income is not stated nor verified, lenders obtain a telephonic verification of
the borrower's employment without reference to income. Borrower's assets are verified.
Under the stated income/stated asset documentation program, the borrower's income and assets
are stated but not verified. The underwriting of such mortgage loans may be based entirely on the
adequacy of the mortgaged property as collateral and on the credit history of the borrower.
Under the no income/no asset documentation program, the borrower's income and assets are
neither stated nor verified. The underwriting of such mortgage loans may be based entirely on the
adequacy of the mortgaged property as collateral and on the credit history of the borrower.
Each mortgaged property relating to an EMC mortgage loan has been appraised by a qualified
independent appraiser who is approved by each lender. All appraisals are required to conform to the
Uniform Standards of Professional Appraisal Practice adopted by the Appraisal Standard Board of the
Appraisal Foundation. Each appraisal must meet the requirements of Fannie Mae and Freddie Mac. Fannie
Mae and Freddie Mac require, among other things, that the appraiser, or its agent on its behalf,
personally inspect the property inside and out, verify whether the property was in good condition and
verify that construction, if new, had been substantially completed. The appraisal generally will have
been based on prices obtained on recent sales of comparable properties, determined in accordance with
Fannie Mae and Freddie Mac guidelines. In certain cases an analysis based on income generated from the
property or a replacement cost analysis based on the current cost of constructing or purchasing a
similar property may be used.
Countrywide Home Loans, Inc.
Note: Loan-to-Value Ratio as used in "Underwriting Standards" below has the following meaning:
The "Loan-to-Value Ratio" of a mortgage loan at any given time is a fraction, expressed as a
percentage, the numerator of which is the principal balance of the related mortgage loan at the date of
determination and the denominator of which is
o in the case of a purchase, the lesser of the selling price of the mortgaged property or its
appraised value at the time of sale or
o in the case of a refinance, the appraised value of the mortgaged property at the time of the
refinance, except in the case of a mortgage loan underwritten pursuant to Countrywide Home
Loans' Streamlined Documentation Program as described under "—Underwriting Standards—General".
With respect to mortgage loans originated pursuant to Countrywide Home Loans' Streamlined
Documentation Program,
o if the loan-to-value ratio at the time of the origination of the mortgage loan being refinanced
was 80% or less and the loan amount of the new loan being originated is $650,000 or less, then
the "Loan-to-Value Ratio" will be the ratio of the principal amount of the new mortgage loan
being originated divided by the appraised value of the related mortgaged property at the time
of the origination of the Mortgage Loan being refinanced, as reconfirmed by Countrywide Home
Loans using an automated property valuation system; or
o if the loan-to-value ratio at the time of the origination of the mortgage loan being refinanced
was greater than 80% or the loan amount of the new loan being originated is greater than
$650,000, then the "Loan-to-Value Ratio" will be the ratio of the principal amount of the new
mortgage loan being originated divided by the appraised value of the related mortgaged property
as determined by an appraisal obtained by Countrywide Home Loans at the time of the origination
of the new mortgage loan. See "—Underwriting Standards—General" in this prospectus supplement.
No assurance can be given that the value of any mortgaged property has remained or will remain at the
level that existed on the appraisal or sales date. If residential real estate values generally or in a
particular geographic area decline, the Loan-to-Value Ratios might not be a reliable indicator of the
rates of delinquencies, foreclosures and losses that could occur with respect to the mortgage loans.
Underwriting StandardsGeneral
Countrywide Home Loans, Inc., a New York corporation ("Countrywide Home Loans"), has been
originating mortgage loans since 1969. Countrywide Home Loans' underwriting standards are applied in
accordance with applicable federal and state laws and regulations.
As part of its evaluation of potential borrowers, Countrywide Home Loans generally requires a
description of income. If required by its underwriting guidelines, Countrywide Home Loans obtains
employment verification providing current and historical income information and/or a telephonic
employment confirmation. Such employment verification may be obtained, either through analysis of the
prospective borrower's recent pay stub and/or W-2 forms for the most recent two years, relevant portions
of the most recent two years' tax returns, or from the prospective borrower's employer, wherein the
employer reports the length of employment and current salary with that organization. Self-employed
prospective borrowers generally are required to submit relevant portions of their federal tax returns
for the past two years.
In assessing a prospective borrower's creditworthiness, Countrywide Home Loans may use FICO
Credit Scores. "FICO Credit Scores" are statistical credit scores designed to assess a borrower's
creditworthiness and likelihood to default on a consumer obligation over a two-year period based on a
borrower's credit history. FICO Credit Scores were not developed to predict the likelihood of default
on mortgage loans and, accordingly, may not be indicative of the ability of a borrower to repay its
mortgage loan. FICO Credit Scores range from approximately 250 to approximately 900, with higher scores
indicating an individual with a more favorable credit history compared to an individual with a lower
score. Under Countrywide Home Loans' underwriting guidelines, borrowers possessing higher FICO Credit
Scores, which indicate a more favorable credit history and who give Countrywide Home Loans the right to
obtain the tax returns they filed for the preceding two years, may be eligible for Countrywide Home
Loans' processing program (the "Preferred Processing Program").
Periodically the data used by Countrywide Home Loans to complete the underwriting analysis may
be obtained by a third party, particularly for mortgage loans originated through a loan correspondent or
mortgage broker. In those instances, the initial determination as to whether a mortgage loan complies
with Countrywide Home Loans' underwriting guidelines may be made by an independent company hired to
perform underwriting services on behalf of Countrywide Home Loans, the loan correspondent or mortgage
broker. In addition, Countrywide Home Loans may acquire mortgage loans from approved correspondent
lenders under a program pursuant to which Countrywide Home Loans delegates to the correspondent the
obligation to underwrite the mortgage loans to Countrywide Home Loans' standards. Under these
circumstances, the underwriting of a mortgage loan may not have been reviewed by Countrywide Home Loans
before acquisition of the mortgage loan and the correspondent represents that Countrywide Home Loans'
underwriting standards have been met. After purchasing mortgage loans under those circumstances,
Countrywide Home Loans conducts a quality control review of a sample of the mortgage loans. The number
of loans reviewed in the quality control process varies based on a variety of factors, including
Countrywide Home Loans' prior experience with the correspondent lender and the results of the quality
control review process itself.
Countrywide Home Loans' underwriting standards are applied by or on behalf of Countrywide Home
Loans to evaluate the prospective borrower's credit standing and repayment ability and the value and
adequacy of the mortgaged property as collateral. Under those standards, a prospective borrower must
generally demonstrate that the ratio of the borrower's monthly housing expenses (including principal and
interest on the proposed mortgage loan and, as applicable, the related monthly portion of property
taxes, hazard insurance and mortgage insurance) to the borrower's monthly gross income and the ratio of
total monthly debt to the monthly gross income (the "debt-to-income" ratios) are within acceptable
limits. If the prospective borrower has applied for an interest only Six-Month LIBOR Loan, the interest
component of the monthly mortgage expense is calculated based upon the initial interest rate plus 2%.
If the prospective borrower has applied for a 3/1 Mortgage Loan or 3/27 Mortgage Loan and the
Loan-to-Value Ratio is less than or equal to 75%, the interest component of the monthly mortgage expense
is calculated based on the initial loan interest rate; if the Loan-to-Value Ratio exceeds 75%, the
interest component of the monthly mortgage expense calculation is based on the initial loan interest
rate plus 2%. If the prospective borrower has applied for a 5/1 Mortgage Loan, a 5/25 Mortgage Loan, a
7/1 Mortgage Loan, a 7/23 Mortgage Loan, a 10/1 Mortgage Loan or a 10/20 Mortgage Loan, the interest
component of the monthly mortgage expense is calculated based on the initial loan interest rate. If the
prospective borrower has applied for a Negative Amortization Loan, the interest component of the monthly
housing expense calculation is based upon the greater of 4.25% and the fully indexed mortgage note rate
at the time of loan application. The maximum acceptable debt-to-income ratio, which is determined on a
loan-by-loan basis varies depending on a number of underwriting criteria, including the Loan-to-Value
Ratio, loan purpose, loan amount and credit history of the borrower. In addition to meeting the
debt-to-income ratio guidelines, each prospective borrower is required to have sufficient cash resources
to pay the down payment and closing costs. Exceptions to Countrywide Home Loans' underwriting guidelines
may be made if compensating factors are demonstrated by a prospective borrower. Additionally,
Countrywide Home Loans does permit its adjustable rate mortgage loans, hybrid adjustable rate mortgage
loans and negative amortization mortgage loans to be assumed by a purchaser of the related mortgaged
property, so long as the mortgage loan is in its adjustable rate period (except for a 3/1 Mortgage Loan,
which may be assumed during the fixed rate period) and the related purchaser meets Countrywide Home
Loans' underwriting standards that are then in effect.
Countrywide Home Loans may provide secondary financing to a borrower contemporaneously with the
origination of a mortgage loan, subject to the following limitations: the Loan-to-Value Ratio of the
senior (i.e., first) lien may not exceed 80% and the combined Loan-to-Value Ratio may not exceed 100%.
Countrywide Home Loans' underwriting guidelines do not prohibit or otherwise restrict a borrower from
obtaining secondary financing from lenders other than Countrywide Home Loans, whether at origination of
the mortgage loan or thereafter.
The nature of the information that a borrower is required to disclose and whether the
information is verified depends, in part, on the documentation program used in the origination process.
In general under the Full Documentation Loan Program (the "Full Documentation Program"), each
prospective borrower is required to complete an application which includes information with respect to
the applicant's assets, liabilities, income, credit history, employment history and other personal
information. Self-employed individuals are generally required to submit their two most recent federal
income tax returns. Under the Full Documentation Program, the underwriter verifies the information
contained in the application relating to employment, income, assets and mortgages.
A prospective borrower may be eligible for a loan approval process that limits or eliminates
Countrywide Home Loans' standard disclosure or verification requirements or both. Countrywide Home
Loans offers the following documentation programs as alternatives to its Full Documentation Program: an
Alternative Documentation Loan Program (the "Alternative Documentation Program"), a Reduced
Documentation Loan Program (the "Reduced Documentation Program"), a CLUES Plus Documentation Loan
Program (the "CLUES Plus Documentation Program"), a No Income/No Asset Documentation Loan Program (the
"No Income/No Asset Documentation Program"), a Stated Income/Stated Asset Documentation Loan Program (the
"Stated Income/Stated Asset Documentation Program") and a Streamlined Documentation Loan Program (the
"Streamlined Documentation Program").
For all mortgage loans originated or acquired by Countrywide Home Loans, Countrywide Home Loans
obtains a credit report relating to the applicant from a credit reporting company. The credit report
typically contains information relating to such matters as credit history with local and national
merchants and lenders, installment debt payments and any record of defaults, bankruptcy, dispossession,
suits or judgments. All adverse information in the credit report is required to be explained by the
prospective borrower to the satisfaction of the lending officer.
Except with respect to the mortgage loans originated pursuant to its Streamlined Documentation
Program, whose values were confirmed with a Fannie Mae proprietary automated valuation model,
Countrywide Home Loans obtains appraisals from independent appraisers or appraisal services for
properties that are to secure mortgage loans. The appraisers inspect and appraise the proposed mortgaged
property and verify that the property is in acceptable condition. Following each appraisal, the
appraiser prepares a report which includes a market data analysis based on recent sales of comparable
homes in the area and, when deemed appropriate, a replacement cost analysis based on the current cost of
constructing a similar home. All appraisals are required to conform to Fannie Mae or Freddie Mac
appraisal standards then in effect.
Countrywide Home Loans requires title insurance on all of its mortgage loans secured by first
liens on real property. Countrywide Home Loans also requires that fire and extended coverage casualty
insurance be maintained on the mortgaged property in an amount at least equal to the principal balance
of the related single-family mortgage loan or the replacement cost of the mortgaged property, whichever
is less.
In addition to Countrywide Home Loans' standard underwriting guidelines (the "StandardUnderwriting Guidelines"), which are consistent in many respects with the guidelines applied to mortgage
loans purchased by Fannie Mae and Freddie Mac, Countrywide Home Loans uses underwriting guidelines
featuring expanded criteria (the "Expanded Underwriting Guidelines"). The Standard Underwriting
Guidelines and the Expanded Underwriting Guidelines are described further under the next two headings.
Standard Underwriting Guidelines
Countrywide Home Loans' Standard Underwriting Guidelines for mortgage loans with non-conforming
original principal balances generally allow Loan-to-Value Ratios at origination of up to 95% for
purchase money or rate and term refinance mortgage loans with original principal balances of up to
$400,000, up to 90% for mortgage loans with original principal balances of up to $650,000, up to 75% for
mortgage loans with original principal balances of up to $1,000,000, up to 65% for mortgage loans with
original principal balances of up to $1,500,000, and up to 60% for mortgage loans with original
principal balances of up to $2,000,000.
For cash-out refinance mortgage loans, Countrywide Home Loans' Standard Underwriting Guidelines
for mortgage loans with non-conforming original principal balances generally allow Loan-to-Value Ratios
at origination of up to 75% and original principal balances ranging up to $650,000. The maximum
"cash-out" amount permitted is $200,000 and is based in part on the original Loan-to-Value Ratio of the
related mortgage loan. As used in this prospectus supplement, a refinance mortgage loan is classified as
a cash-out refinance mortgage loan by Countrywide Home Loans if the borrower retains an amount greater
than the lesser of 2% of the entire amount of the proceeds from the refinancing of the existing loan or
$2,000.
Countrywide Home Loans' Standard Underwriting Guidelines for conforming balance mortgage loans
generally allow Loan-to-Value Ratios at origination on owner occupied properties of up to 95% on 1 unit
properties with principal balances up to $417,000 ($625,500 in Alaska and Hawaii) and 2 unit properties
with principal balances up to $533,850 ($800,775 in Alaska and Hawaii) and up to 80% on 3 unit
properties with principal balances of up to $645,300 ($967,950 in Alaska and Hawaii) and 4 unit
properties with principal balances of up to $801,950 ($1,202,925 in Alaska and Hawaii). On second
homes, Countrywide Home Loans' Standard Underwriting Guidelines for conforming balance mortgage loans
generally allow Loan-to-Value Ratios at origination of up to 95% on 1 unit properties with principal
balances up to $417,000 ($625,500 in Alaska and Hawaii). Countrywide Home Loans' Standard Underwriting
Guidelines for conforming balance mortgage loans generally allow Loan-to-Value Ratios at origination on
investment properties of up to 90% on 1 unit properties with principal balances up to $417,000 ($625,500
in Alaska and Hawaii) and 2 unit properties with principal balances up to $533,850 ($800,775 in Alaska
and Hawaii) and up to 75% on 3 unit properties with principal balances of up to $645,300 ($967,950 in
Alaska and Hawaii) and 4 unit properties with principal balances of up to $801,950 ($1,202,925 in Alaska
and Hawaii).
Under its Standard Underwriting Guidelines, Countrywide Home Loans generally permits a
debt-to-income ratio based on the borrower's monthly housing expenses of up to 33% and a debt-to-income
ratio based on the borrower's total monthly debt of up to 38%.
In connection with the Standard Underwriting Guidelines, Countrywide Home Loans originates or
acquires mortgage loans under the Full Documentation Program, the Alternative Documentation Program, the
Reduced Documentation Program, the CLUES Plus Documentation Program or the Streamlined Documentation
Program.
The Alternative Documentation Program permits a borrower to provide W-2 forms instead of tax
returns covering the most recent two years, permits bank statements in lieu of verification of deposits
and permits alternative methods of employment verification.
Under the Reduced Documentation Program, some underwriting documentation concerning income,
employment and asset verification is waived. Countrywide Home Loans obtains from a prospective borrower
either a verification of deposit or bank statements for the two-month period immediately before the date
of the mortgage loan application or verbal verification of employment. Since information relating to a
prospective borrower's income and employment is not verified, the borrower's debt-to-income ratios are
calculated based on the information provided by the borrower in the mortgage loan application. The
maximum Loan-to-Value Ratio ranges up to 95%.
The CLUES Plus Documentation Program permits the verification of employment by alternative
means, if necessary, including verbal verification of employment or reviewing paycheck stubs covering
the pay period immediately prior to the date of the mortgage loan application. To verify the borrower's
assets and the sufficiency of the borrower's funds for closing, Countrywide Home Loans obtains deposit
or bank account statements from each prospective borrower for the month immediately prior to the date of
the mortgage loan application. Under the CLUES Plus Documentation Program, the maximum Loan-to-Value
Ratio is 75% and property values may be based on appraisals comprising only interior and exterior
inspections. Cash-out refinances and investor properties are not permitted under the CLUES Plus
Documentation Program.
The Streamlined Documentation Program is available for borrowers who are refinancing an
existing mortgage loan that was originated or acquired by Countrywide Home Loans provided that, among
other things, the mortgage loan has not been more than 30 days delinquent in payment during the previous
twelve-month period. Under the Streamlined Documentation Program, appraisals are obtained only if the
loan amount of the loan being refinanced had a Loan-to-Value Ratio at the time of origination in excess
of 80% or if the loan amount of the new loan being originated is greater than $650,000. In addition,
under the Streamlined Documentation Program, a credit report is obtained but only a limited credit
review is conducted, no income or asset verification is required, and telephonic verification of
employment is permitted. The maximum Loan-to-Value Ratio under the Streamlined Documentation Program
ranges up to 95%.
Expanded Underwriting Guidelines
Mortgage loans which are underwritten pursuant to the Expanded Underwriting Guidelines may have
higher Loan-to-Value Ratios, higher loan amounts and different documentation requirements than those
associated with the Standard Underwriting Guidelines. The Expanded Underwriting Guidelines also permit
higher debt-to-income ratios than mortgage loans underwritten pursuant to the Standard Underwriting
Guidelines.
Countrywide Home Loans' Expanded Underwriting Guidelines for mortgage loans with non-conforming
original principal balances generally allow Loan-to-Value Ratios at origination of up to 95% for
purchase money or rate and term refinance mortgage loans with original principal balances of up to
$400,000, up to 90% for mortgage loans with original principal balances of up to $650,000, up to 80% for
mortgage loans with original principal balances of up to $1,000,000, up to 75% for mortgage loans with
original principal balances of up to $1,500,000 and up to 70% for mortgage loans with original principal
balances of up to $3,000,000. Under certain circumstances, however, Countrywide Home Loans' Expanded
Underwriting Guidelines allow for Loan-to-Value Ratios of up to 100% for purchase money mortgage loans
with original principal balances of up to $375,000.
For cash-out refinance mortgage loans, Countrywide Home Loans' Expanded Underwriting Guidelines
for mortgage loans with non-conforming original principal balances generally allow Loan-to-Value Ratios
at origination of up to 90% and original principal balances ranging up to $1,500,000. The maximum
"cash-out" amount permitted is $400,000 and is based in part on the original Loan-to-Value Ratio of the
related mortgage loan.
Countrywide Home Loans' Expanded Underwriting Guidelines for conforming balance mortgage loans
generally allow Loan-to-Value Ratios at origination on owner occupied properties of up to 100% on 1 unit
properties with principal balances up to $417,000 ($625,500 in Alaska and Hawaii) and 2 unit properties
with principal balances up to $533,850 ($800,775 in Alaska and Hawaii) and up to 85% on 3 unit
properties with principal balances of up to $645,300 ($967,950 in Alaska and Hawaii) and 4 unit
properties with principal balances of up to $801,950 ($1,202,925 in Alaska and Hawaii). On second
homes, Countrywide Home Loans' Expanded Underwriting Guidelines for conforming balance mortgage loans
generally allow Loan-to-Value Ratios at origination of up to 95% on 1 unit properties with principal
balances up to $417,000 ($625,500 in Alaska and Hawaii). Countrywide Home Loans' Expanded Underwriting
Guidelines for conforming balance mortgage loans generally allow Loan-to-Value Ratios at origination on
investment properties of up to 90% on 1 unit properties with principal balances up to $417,000 ($625,500
in Alaska and Hawaii) and 2 unit properties with principal balances up to $533,850 ($800,775 in Alaska
and Hawaii) and up to 85% on 3 unit properties with principal balances of up to $645,300 ($967,950 in
Alaska and Hawaii) and 4 unit properties with principal balances of up to $801,950 ($1,202,925 in Alaska
and Hawaii).
Under its Expanded Underwriting Guidelines, Countrywide Home Loans generally permits a
debt-to-income ratio based on the borrower's monthly housing expenses of up to 36% and a debt-to-income
ratio based on the borrower's total monthly debt of up to 40%; provided, however, that if the
Loan-to-Value Ratio exceeds 80%, the maximum permitted debt-to-income ratios are 33% and 38%,
respectively.
In connection with the Expanded Underwriting Guidelines, Countrywide Home Loans originates or
acquires mortgage loans under the Full Documentation Program, the Alternative Documentation Program, the
Reduced Documentation Loan Program, the No Income/No Asset Documentation Program and the Stated
Income/Stated Asset Documentation Program. Neither the No Income/No Asset Documentation Program nor the
Stated Income/Stated Asset Documentation Program is available under the Standard Underwriting Guidelines.
The same documentation and verification requirements apply to mortgage loans documented under
the Alternative Documentation Program regardless of whether the loan has been underwritten under the
Expanded Underwriting Guidelines or the Standard Underwriting Guidelines. However, under the Alternative
Documentation Program, mortgage loans that have been underwritten pursuant to the Expanded Underwriting
Guidelines may have higher loan balances and Loan-to-Value Ratios than those permitted under the
Standard Underwriting Guidelines.
Similarly, the same documentation and verification requirements apply to mortgage loans
documented under the Reduced Documentation Program regardless of whether the loan has been underwritten
under the Expanded Underwriting Guidelines or the Standard Underwriting Guidelines. However, under the
Reduced Documentation Program, higher loan balances and Loan-to-Value Ratios are permitted for mortgage
loans underwritten pursuant to the Expanded Underwriting Guidelines than those permitted under the
Standard Underwriting Guidelines. The maximum Loan-to-Value Ratio, including secondary financing, ranges
up to 90%. The borrower is not required to disclose any income information for some mortgage loans
originated under the Reduced Documentation Program, and accordingly debt-to-income ratios are not
calculated or included in the underwriting analysis. The maximum Loan-to-Value Ratio, including
secondary financing, for those mortgage loans ranges up to 85%.
Under the No Income/No Asset Documentation Program, no documentation relating to a prospective
borrower's income, employment or assets is required and therefore debt-to-income ratios are not
calculated or included in the underwriting analysis, or if the documentation or calculations are included
in a mortgage loan file, they are not taken into account for purposes of the underwriting analysis. This
program is limited to borrowers with excellent credit histories. Under the No Income/No Asset
Documentation Program, the maximum Loan-to-Value Ratio, including secondary financing, ranges up to 95%.
Mortgage loans originated under the No Income/No Asset Documentation Program are generally eligible for
sale to Fannie Mae or Freddie Mac.
Under the Stated Income/Stated Asset Documentation Program, the mortgage loan application is
reviewed to determine that the stated income is reasonable for the borrower's employment and that the
stated assets are consistent with the borrower's income. The Stated Income/Stated Asset Documentation
Program permits maximum Loan-to-Value Ratios up to 90%. Mortgage loans originated under the Stated
Income/Stated Asset Documentation Program are generally eligible for sale to Fannie Mae or Freddie Mac.
Under the Expanded Underwriting Guidelines, Countrywide Home Loans may also provide mortgage
loans to borrowers who are not U.S. citizens, including permanent and non-permanent residents. The
borrower is required to have a valid U.S. social security number or a certificate of foreign status (IRS
form W 8). The borrower's income and assets must be verified under the Full Documentation Program or the
Alternative Documentation Program. The maximum Loan-to-Value Ratio, including secondary financing, is
80%.
HomeBanc Mortgage Corporation
Origination and Acquisition of Mortgage Loans
HomeBanc Mortgage Corporate originated approximately 5.32%, 39.02%, 22.73% and 44.93% of the
loan group I, sub-loan group II-1, sub-loan group II-2 and sub-loan group II-3 mortgage loans,
respectively. For a description of HomeBanc Mortgage Corporation see "The Master Servicer And The
Servicers—The Servicers—HomeBanc Mortgage Corporation." The discussion below under "HMBC Underwriting
Guidelines" is a general summary description of underwriting guidelines generally applied by HBMC.
HBMC Underwriting Guidelines
HBMC's underwriting guidelines are intended to facilitate the funding and ultimate sale of
mortgage loans in the secondary mortgage market and funding through securitizations. The HBMC
underwriting guidelines allow HBMC to evaluate an applicant's credit standing, financial condition and
repayment ability, as well as the value and adequacy of the mortgaged property as collateral for any
loan that HBMC reviews. HBMC seeks to match the amount of disclosure required by applicants to
appropriate loan products. As part of the loan application process, the applicant is generally required
to provide information concerning his or her assets, liabilities, income and expenses, subject to
certain of the provisions below, along with an authorization permitting HBMC to obtain any necessary
third-party verifications, including a credit report summarizing the applicant's credit history.
However, in some cases loans are underwritten without the independent verification of the applicant's
stated income or employment in the related loan application.
In evaluating an applicant's ability and willingness to repay the proposed loan, HBMC also
reviews the applicant's credit history and outstanding debts, as reported on the credit report that HBMC
obtains. If an existing mortgage or other significant debt listed on the loan application is not
adequately reported on the credit report, HBMC may request a written or oral verification of the balance
and payment history of that debt from the servicer of the debt. HBMC verifies the applicant's liquid
assets for a general indication of creditworthiness and to determine whether the applicant has adequate
liquid assets to cover any required down payment, closing costs and prepaid interest, while maintaining
a minimum cash reserve equal to the sum of three to six monthly PITI payments plus, in certain cases,
the sum of three to six monthly payments of all other debt obligations included in determination of the
"debt -to-income" ratio. In addition, HBMC uses information regarding the applicant's liquid assets,
together with information regarding the applicant's debt obligations to gauge the reasonableness of the
applicant's stated income.
HBMC also evaluates the applicant's income to determine stability, probability of continuation
and adequacy to service the proposed HBMC debt payment. HBMC's guidelines for verifying income and
employment of a potential borrower are generally as follows:
o For salaried applicants, HBMC typically requires a written verification of employment from
the applicant's employer, or a copy of the applicant's two most recent federal tax returns,
or a current pay stub and verbal verification of employment from the employer;
o For non-salaried applicants, including self-employed applicants, HBMC requires copies of
the applicant's two most recent federal income tax returns, along with all supporting
schedules; and
o For self-employed applicants, HBMC also generally requires the submission of a signed
profit and loss statement.
In determining the adequacy of the property as collateral for the loan, HBMC may obtain full or
partial appraisals or it may use an automated valuation model, which is a computer generated appraisal
report created using formulas based on various factors, including sales trends, title records,
neighborhood analysis, tax assessments and other available information regarding the prospective
mortgaged property. Each full and partial appraisal is performed by an independent appraiser that HBMC
approves. The appraiser is required to inspect the property and verify that it is in good condition,
and that construction or renovation, if applicable, has been completed. The appraisal report indicates
a value for the property and provides information concerning marketability, the neighborhood, the
property site, interior and exterior improvements and the condition of the property.
In addition to the foregoing, the approval process generally requires that the potential
borrower have a total debt-service-to-income ratio, or "DTI" ratio, that typically does not exceed 45%.
HBMC may raise this limit to 50% or greater, if the potential borrower demonstrates satisfactory
disposable income and/or other mitigating factors are present. The DTI ratio is calculated as the ratio
of the borrower's total monthly debt obligations, including, if applicable, the interest-only payments
on the proposed loan, and, in the case of most non-hybrid adjustable rate, interest-only loans, at an
interest rate that is two percentage points higher than the original rate, divided by the borrower's
total monthly income. The required DTI ratio generally varies depending upon the LTV, the occupancy
type and the level of documentation provided.
Exceptions.
The underwriting standards described above are guidelines of general applicability. On a
case-by-case basis, it may be determined that an applicant warrants an exception to these guidelines.
An exception may be allowed by underwriting personnel with appropriate credit authority and only if the
application reflects compensating factors, such as: a low loan-to-value ratio; stable ownership; low
debt-to-income ratios; or excess cash reserves or similar mitigating circumstances.
"Streamline Refi" Program.
A borrower with a mortgage loan originated by HBMC on or after January 1, 2003 may be eligible
for HBMC's "streamline refi" program to change the interest rate or the term of the mortgage loan.
Provided such a borrower is current in his or her mortgage payment obligations and has not been 30 or
more days delinquent within the previous 24 months with respect to any mortgage loan, HBMC may permit a
refinancing of one or more of the borrower's mortgage loans that were originated by HBMC to a current
market interest rate with a simplified application process so long as the borrower has a credit score of
660 or greater for mortgage loans having a loan-to-value Ratio or combined loan-to-value ratio of less
than or equal to 95% or a credit score of 680 or greater for mortgage loans having a loan-to-value ratio
or combined loan-to-value ratio of greater than 95%. In addition, no judgments or other adverse public
record may appear on the credit report obtained by HBMC in connection with the loan application. With
respect to mortgage loans that were originated without requiring certain documentation, the mortgage
loan must also be seasoned for at least 12 months prior to becoming eligible for the "streamline refi"
program. The borrower may not be required to provide any verifications of current employment, income
level or extent of assets. In addition, no current appraisal or indication of market value may be
required with respect to the properties securing the mortgage loans which are refinanced under the
"streamline refi" program. A borrower may participate in this "streamline refi" program through a
refinancing of one or more of his or her existing mortgage loans by either replacing any such loan with
a new mortgage loan at a current market interest rate or, in the case of a mortgage loan that is
serviced by HBMC, by executing a modification agreement at a current market interest rate. The
"streamline refi" program is for borrowers who wish to change only the interest rate and/or the term of
their mortgage loan and is not available to borrowers who wish to cash out a portion of the equity in
their property. The related term sheet will disclose the percentage of mortgage loans that were
originated under the "streamline refi" program included in the trust. To the extent that borrowers
become eligible for the "streamline refi" program after their mortgage loans are included in the Trust,
such mortgage loans may be refinanced under such program.
DESCRIPTION OF THE CERTIFICATES
The trust will issue the Certificates pursuant to the Agreement. The Certificates consist of
the classes of Certificates reflected on pages S-2 through S-5 of this prospectus supplement, which we
refer to collectively as the Offered Certificates, and one or more classes of Class B-IO, Class R, Class
R-X, Class XP and such other non-offered certificates which are not offered publicly. The various
classes of Class I-A Certificates are also referred to as the Group I Senior Certificates; and the
various classes of Class I-M Certificates and Class I-B Certificates are referred to herein as the Class
I-M Certificates or Class I-B Certificates, respectively, or, collectively, the Group I Subordinate
Certificates. The various classes of Class II-A Certificates, which are divided into three sub-loan
groups, and the senior interest only certificates are collectively referred to as the Group II Senior
Certificates; and the various classes of the Class II-B Certificates are referred to herein as the Group
II Subordinate Certificates. The Certificates offered are collectively referred to herein as the Offered
Certificates.
Holders of the Residual Certificates will be entitled to receive any residual cash flow from
the mortgage pool, which is not expected to be significant. A holder of a Residual Certificate will not
have a right to alter the structure of the transaction. The initial owner of the Residual Certificates
is expected to be Bear, Stearns Securities Corp.
General
The Bear Stearns ALT-A Trust Mortgage Pass-Through Certificates, Series 2006-7 will consist of
the Offered Certificates and Non-offered Certificates. Only the Offered Certificates are offered by this
prospectus supplement.
The Certificates represent in the aggregate the entire beneficial ownership interest in a trust
fund consisting of the following:
o all of the Depositor's right, title and interest in and to the mortgage loans, the
related mortgage notes, mortgages and other related documents, including all interest
and principal due with respect to the mortgage loans after the Cut-off Date, but
excluding any payments of principal or interest due on or prior to the Cut-off Date,
o any mortgaged properties acquired on behalf of certificateholders by foreclosure or by
deed in lieu of foreclosure, and any revenues received thereon,
o the rights of the Trustee under all insurance policies required to be maintained
pursuant to the Agreement,
o the rights of the Depositor under the Mortgage Loan Purchase Agreement between the
Depositor and the Sponsor,
o such assets relating to the mortgage loans as from time to time may be held in the
Protected Accounts and the Distribution Account,
o the rights of the Depositor with respect to the Servicing Agreements, to the extent
assigned to the Trustee,
o the rights of the Depositor with respect to the Cap Contracts, and
o any proceeds of the foregoing.
Each class of the Certificates will have the approximate initial Certificate Principal Balance
or Notional Amount as set forth on pages S-2 through S-5 hereof and will have the Pass-Through Rate
determined as provided under "Summary of Prospectus Supplement—Description of the Certificates—Pass
Through Rates" and "Description of the Certificates—Interest Distribution" in this prospectus
supplement. The Residual Certificates also represent the right to receive additional distributions in
respect of the trust fund on any distribution date after all required payments of principal and interest
have been made on such date in respect of the other classes of Certificates, although it is not
anticipated that funds will be available for any additional distribution. The Class I-B-3, Class B-IO,
Class XP, Class II-B-4, Class II-B-5, Class II-B-6 and Residual Certificates are not being offered by
this prospectus supplement.
The Offered Certificates (other than the Residual Certificates) will be issued, maintained and
transferred on the book-entry records of DTC, Clearstream Banking, société anonyme and the Euroclear
System and each of their participants in minimum denominations of $25,000 and integral multiples of $1
in excess thereof. One certificate of each of these classes may be issued in a different principal
amount to accommodate the remainder of the initial principal amount of the certificates of such class.
The Residual Certificates will be offered in registered, certificated form, in a single certificate of
$100. The Residual Certificates (together with any Book-entry Certificates re-issued as definitive
certificates) will be transferable and exchangeable at the offices of the Securities Administrator. The
Offered Certificates will be issued as global securities. See Annex II to this prospectus supplement
and "Description of the Securities—Form of Securities" and "—Global Securities" in the prospectus.
The Book-entry Certificates will initially be represented by one or more Global Securities
registered in the name of a nominee of DTC. The Depositor has been informed by DTC that DTC's nominee
will be Cede & Co. No person acquiring an interest in any class of the Book-entry Certificates will be
entitled to receive a certificate representing such person's interest, except as set forth below under
"—Definitive Certificates". Unless and until definitive certificates are issued under the limited
circumstances described in this prospectus supplement, all references to actions by certificateholders
with respect to the Book-entry Certificates shall refer to actions taken by DTC upon instructions from
its participants and all references in this prospectus supplement to distributions, notices, reports and
statements to certificateholders with respect to the Book-entry Certificates shall refer to
distributions, notices, reports and statements to DTC or Cede & Co., as the registered holder of the
Book-entry Certificates, for distribution to Certificate Owners in accordance with DTC procedures. See
"—Registration of the Book-Entry Certificates" and "—Definitive Certificates" in this prospectus
supplement.
All distributions to holders of the Offered Certificates, other than the final distribution on
any class of Offered Certificates, will be made on each distribution date by or on behalf of the
Securities Administrator to the persons in whose names the Offered Certificates are registered at the
close of business on the related Record Date. Distributions will be made either (a) by check mailed to
the address of each certificateholder as it appears in the certificate register or (b) upon written
request to the Securities Administrator at least five business days prior to the relevant Record Date by
any holder of Offered Certificate, by wire transfer in immediately available funds to the account of the
certificateholders specified in the request. The final distribution on any class of Offered Certificates
will be made in a like manner, but only upon presentment and surrender of the related Certificate at the
corporate trust office of the Securities Administrator, for these purposes located at Sixth Street and
Marquette Avenue, Minneapolis, Minnesota55479, Attention: Corporate Trust Group, BSALTA 2006-7, or any
other location specified in the notice to certificateholders of the final distribution.
The Certificates will not be listed on any securities exchange or quoted in the automated
quotation system of any registered securities association. As a result, investors in the Certificates
may experience limited liquidity. See "Risk Factors—The Offered Certificates Will Have Limited
Liquidity, So You May Be Unable to Sell Your Securities or May Be Forced to Sell Them at a Discount from
Their Fair Market Value." in this prospectus supplement.
Registration of the Book-Entry Certificates
DTC is a limited-purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of
the Exchange Act. DTC was created to hold securities for its participants and to facilitate the
clearance and settlement of securities transactions between participants through electronic book
entries, thereby eliminating the need for physical movement of certificates.
Certificate Owners that are not participants or indirect participants but desire to purchase,
sell or otherwise transfer ownership of, or other interests in, the Book-entry Certificates may do so
only through participants and indirect participants. In addition, Certificate Owners will receive all
distributions of principal of and interest on the Book-entry Certificates from the Securities
Administrator through DTC and DTC participants. The Securities Administrator will forward payments to
DTC in same day funds and DTC will forward payments to participants in next day funds settled through
the New York Clearing House. Each participant will be responsible for disbursing the payments. Unless
and until definitive certificates are issued, it is anticipated that the only certificateholders of the
Book-entry Certificates will be Cede & Co., as nominee of DTC. Certificate Owners will not be
recognized by the Securities Administrator as certificateholders, as such term is used in the Agreement
and Certificate Owners will be permitted to exercise the rights of certificateholders only indirectly
through DTC and its participants.
Under the Rules, DTC is required to make book-entry transfers of Book-entry Certificates among
participants and to receive and transmit distributions of principal of, and interest on, the Book-entry
Certificates. Participants and indirect participants with which Certificate Owners have accounts with
respect to the Book-entry Certificates similarly are required to make book-entry transfers and receive
and transmit these payments on behalf of their respective Certificate Owners. Accordingly, although
Certificate Owners will not possess definitive certificates, the Rules provide a mechanism by which
Certificate Owners through their participants and indirect participants will receive payments and will
be able to transfer their interest.
Because DTC can only act on behalf of participants, who in turn act on behalf of indirect
participants and on behalf of certain banks, the ability of a Certificate Owner to pledge Book-entry
Certificates to persons or entities that do not participate in the DTC system, or to otherwise act with
respect to Book-entry Certificates, may be limited due to the absence of physical certificates for the
Book-entry Certificates. In addition, under a book-entry format, Certificate Owners may experience
delays in their receipt of payments since distribution will be made by the Securities Administrator to
Cede & Co., as nominee for DTC.
Under the Rules, DTC will take action permitted to be taken by a certificateholders under the
Agreement only at the direction of one or more participants to whose DTC account the Book-entry
Certificates are credited. Additionally, under the Rules, DTC will take actions with respect to
specified voting rights only at the direction of and on behalf of participants whose holdings of
Book-entry Certificates evidence these specified voting rights. DTC may take conflicting actions with
respect to voting rights, to the extent that participants whose holdings of Book-entry Certificates
evidence voting rights, authorize divergent action.
The Depositor, the Master Servicer, the Securities Administrator, the Servicers and the Trustee
will have no liability for any aspect of the records relating to or payments made on account of
beneficial ownership interests in the Book-entry Certificates held by Cede & Co., as nominee for DTC, or
for maintaining, supervising or reviewing any records relating to beneficial ownership interests or
transfers thereof.
Definitive Certificates
Definitive certificates will be issued to Certificate Owners or their nominees, respectively,
rather than to DTC or its nominee, only if (1) the Depositor advises the Securities Administrator in
writing that DTC is no longer willing or able to properly discharge its responsibilities as clearing
agency with respect to the Book-entry Certificates and the Depositor is unable to locate a qualified
successor within 30 days or (2) the Depositor notifies DTC of its intent to terminate the book-entry
system and, upon receipt of a notice of intent from DTC, the participants holding beneficial interests
in the Book-entry Certificates agree to initiate a termination. Additionally, after the occurrence of an
event of default under the Agreement, any Certificate Owner materially and adversely affected thereby
may, at its option, request and, subject to the procedures set forth in the Agreement, receive a
definitive certificate evidencing such Certificate Owner's fractional undivided interest in the related
class of Certificates.
Upon its receipt of notice of the occurrence of any event described in the immediately
preceding paragraph, the Securities Administrator is required to request that DTC notify all Certificate
Owners through its participants of the availability of definitive certificates. Upon surrender by DTC of
the definitive certificates representing the Book-entry Certificates and receipt of instructions for
re-registration, the Securities Administrator will reissue the Book-entry Certificates as definitive
certificates issued in the respective principal amounts owned by individual Certificate Owners, and
thereafter the Securities Administrator will recognize the holders of definitive certificates as
certificateholders under the Agreement. Except with respect to the exchangeable certificates, no
service charge may be made for any registration or transfer or exchange of definitive certificates, but
payment of a sum sufficient to cover any tax or other governmental charge may be required by the
Securities Administrator.
Exchangeable Certificates
All or a portion of the offered certificates (the "Exchangeable Certificates") included in Loan
Group II may be exchanged for a proportionate interest in certain other related offered certificates
(the "Exchanged Certificates"), in the combinations shown in Schedule B. All or a portion of the
Exchanged Certificates may also be exchanged for the related Exchangeable Certificates in the same
manner. The classes of Exchanged Certificates and of Exchangeable Certificates that are outstanding at
any given time, and the outstanding principal amounts and notional amounts of these classes, will depend
upon any related distributions of principal or reductions in notional amounts, as well as any exchanges
that occur. Exchanged Certificates or Exchangeable Certificates in any combination may be exchanged
only in the proportion that the original principal amounts or notional amounts of such certificates bear
to one another as shown in Schedule B. Holders of Exchangeable Certificates will be the beneficial
owners of a proportionate interest in the Exchanged Certificates in the related group of combined
certificates, referred to herein as a Combination Group, and will receive a proportionate share of the
distributions on those certificates.
Procedures
If a certificateholder wishes to exchange certificates, the certificateholder must notify the
Securities Administrator by e-mail at William.Augustin@wellsfargo.com or
Michelle.y.treadwell@wellsfargo.com and gctsspgteamb-2@wellsfargo.com no later than seven Business Days
before the proposed exchange date. The exchange date can be any Business Day from the 25th day of the
month to the second to the last Business Day of the month subject to the Securities Administrator's
approval. The notice must be on the certificateholder's letterhead, carry a medallion stamp guarantee
and set forth the following information: the CUSIP number of both certificates to be exchanged and
certificates to be received, outstanding principal amount and/or notional amount and the original
principal balance and/or notional amount of the certificates to be exchanged, the certificateholder's
DTC participant number and the proposed exchange date. After receiving the notice, the Securities
Administrator will e-mail the certificateholder with wire payment instructions relating to the exchange
fee (if any). The Securities Administrator will notify the Depositor of any such exchange for the
purpose of DTC eligibility. The Securities Administrator will notify the Depositor of the proposed
exchange, and the Depositor or an affiliate of the Depositor will apply for the CUSIP number for the
exchanged certificate. The certificateholder will utilize the Deposit and Withdrawal System at DTC to
exchange the certificates. A notice becomes irrevocable on the seventh Business Day before the proposed
exchange date. The Securities Administrator will make the first distribution on an Exchanged
Certificate or an Exchangeable Certificate received in an exchange transaction on the distribution date
in the following month to the certificateholder of record as of the close of business on the last day of
the month of the exchange.
Additional Considerations
The characteristics of the Exchangeable Certificates will reflect, in the aggregate, generally
the characteristics of the related Exchanged Certificates. Investors are encouraged to also consider a
number of factors that will limit a certificateholder's ability to exchange Exchanged Certificates for
Exchangeable Certificates and vice versa:
o At the time of the proposed exchange, a certificateholder must own certificates of the
related class or classes in the proportions necessary to make the desired exchange.
o A certificateholder that does not own the certificates may be unable to obtain the
necessary Exchanged Certificates or Exchangeable Certificates.
o The certificateholder of certificates required for a desired combination may refuse to sell
them at a reasonable price (or any price) or may be unable to sell them.
o Certain certificates may have been purchased or placed into other financial structures and
thus be unavailable.
o Principal distributions and reductions in notional amounts will decrease the amounts
available for exchange over time.
o Only the combinations listed on Schedule B are permitted.
o The record dates for Exchangeable Certificates and the Exchanged Certificates that are the
subject of the exchange must be the same.
Calculation of One-Month LIBOR
On the second LIBOR business day preceding the commencement of each Interest Accrual Period for
the Group I Offered Certificates, which date we refer to as an interest determination date, the
Securities Administrator will determine One-Month LIBOR for such Interest Accrual Period on the basis of
such rate as it appears on Telerate Screen Page 3750, as of 11:00 a.m. London time on such interest
determination date. 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 reasonably selected by the securities administrator, One-Month LIBOR for
the applicable Interest Accrual Period will be the Reference Bank Rate. If no such quotations can be
obtained and no Reference Bank Rate is available, One-Month LIBOR will be the One-Month LIBOR applicable
to the immediately preceding Interest Accrual Period.
The Reference Bank Rate with respect to any Interest Accrual Period, means the arithmetic mean,
rounded upwards, if necessary, to the nearest whole multiple of 0.03125%, of the offered rates for
United States dollar deposits for one month that are quoted by the Reference Banks, as described below,
as of 11:00 a.m., New York City time, on the related interest 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 all Classes of Group I Offered Certificates and Group II Offered
Subordinate Certificates for such Interest Accrual Period, provided that at least two such Reference
Banks provide such rate. If fewer than two offered rates appear, the Reference Bank Rate will be the
arithmetic mean, rounded upwards, if necessary, to the nearest whole multiple of 0.03125%, of the rates
quoted by one or more major banks in New York City, selected by the Securities Administrator, 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 all
Classes of Group I Offered Certificates and Group II Offered Subordinate Certificates. As used in this
section, LIBOR business day means a day on which banks are open for dealing in foreign currency and
exchange in London and New York City; and Reference Banks means leading banks selected by the Securities
Administrator and engaged in transactions in Eurodollar deposits in the international Eurocurrency
market:
1. with an established place of business in London,
2. which have been designated as such by the Securities Administrator, and
3. which are not controlling, controlled by, or under common control with, the
Depositor, the Sponsor or the Master Servicer.
The establishment of One-Month LIBOR on each interest determination date by the Securities
Administrator and the Securities Administrator's calculation of the rate of interest applicable to the
Classes of Group I Offered Certificates for the related Interest Accrual Period shall, in the absence of
manifest error, be final and binding.
Distributions on the Group I Certificates
On each distribution date, the Securities Administrator will withdraw the available funds with
respect to Loan Group I from the Distribution Account for such distribution date and apply such amounts
as follows:
First, to pay any accrued and unpaid interest on the Group I Offered Certificates and the Class
I-B-3 Certificates in the following order of priority:
1. From Interest Funds in respect of the group I mortgage loans, to the Class I-A-1
Certificates and the Class I-A-2 Certificates, the Current Interest and then any
Interest Carry-forward Amount for each such class, on a pro rata basis based on
the Current Interest and Interest Carry-forward Amount owed to each such class;
2. From remaining Interest Funds in respect of the group I mortgage loans, to the
Class I-M-1, Class I-M-2, Class I-B-1, Class I-B-2 and Class I-B-3 Certificates,
sequentially, in that order, the Current Interest for each such class;
3. Any Excess Spread to the extent necessary to meet a level of overcollateralization
equal to the Overcollateralization Target Amount will be the Extra Principal
Distribution Amount and will be included as part of the Principal Distribution
Amount and distributed in accordance with Second (A) or (B) below (as applicable);
and
4. Any Remaining Excess Spread will be applied as Excess Cashflow pursuant to clauses
Third through Twelfth below.
On any distribution date, any shortfalls resulting from the application of the Relief Act and
any Prepayment Interest Shortfalls to the extent not covered by Compensating Interest Payments will be
allocated, first, in reduction of amounts otherwise distributable to the Class B-IO Certificates and
Residual Certificates and thereafter, to the Current Interest payable to the Group I Offered
Certificates and the Class I-B-3 Certificates, on a pro rata basis, on such distribution date, based on
the respective amounts of interest accrued on such Certificates for such distribution date. The holders
of the Group I Offered Certificates and the Class I-B-3 Certificates will not be entitled to
reimbursement for any such interest shortfalls.
Second, to pay as principal on the Group I Offered Certificates and the Class I-B-3
Certificates entitled to payments of principal, in the following order of priority:
(A) For each distribution date (i) prior to the Stepdown Date or (ii) on which a Trigger
Event is in effect, from the Principal Distribution Amount for such distribution date:
1. To the Class I-A-1 Certificates and the Class I-A-2 Certificates, on a pro rata
basis in accordance with their respective Certificate Principal Balances, an
amount equal to the Principal Distribution Amount until the Certificate Principal
Balances of each such class thereof are reduced to zero;
2. To the Class I-M-1 Certificates, any remaining Principal Distribution Amount until
the Certificate Principal Balance thereof is reduced to zero;
3. To the Class I-M-2 Certificates, any remaining Principal Distribution Amount until
the Certificate Principal Balance thereof is reduced to zero;
4. To the Class I-B-1 Certificates, any remaining Principal Distribution Amount until
the Certificate Principal Balance thereof is reduced to zero;
5. To the Class I-B-2 Certificates, any remaining Principal Distribution Amount until
the Certificate Principal Balance thereof is reduced to zero; and
6. To the Class I-B-3 Certificates, any remaining Principal Distribution Amount until
the Certificate Principal Balance thereof is reduced to zero.
(B) For each distribution date on or after the Stepdown Date, so long as a Trigger Event
is not in effect, from the Principal Distribution Amount for such distribution date:
1. To the Class I-A-1 Certificates and the Class I-A-2 Certificates, on a pro rata
basis in accordance with their respective Certificate Principal Balances, an
amount equal to the Class I-A Principal Distribution Amount until the Certificate
Principal Balances of each such class thereof are reduced to zero;
2. To the Class I-M-1 Certificates, from any remaining Principal Distribution Amount,
the Class I-M-1 Principal Distribution Amount, until the Certificate Principal
Balance thereof is reduced to zero;
3. To the Class I-M-2 Certificates, from any remaining Principal Distribution Amount,
the Class I-M-2 Principal Distribution Amount, until the Certificate Principal
Balance thereof is reduced to zero;
4. To the Class I-B-1 Certificates, from any remaining Principal Distribution Amount,
the Class I-B-1 Principal Distribution Amount, until the Certificate Principal
Balance thereof is reduced to zero;
5. To the Class I-B-2 Certificates, from any remaining Principal Distribution Amount,
the Class I-B-2 Principal Distribution Amount, until the Certificate Principal
Balance thereof is reduced to zero; and
6. To the Class I-B-3 Certificates, from any remaining Principal Distribution Amount,
the Class I-B-3 Principal Distribution Amount, until the Certificate Principal
Balance thereof is reduced to zero.
Third, from any Excess Cashflow, to the Class I-A Certificates, pro rata in accordance with the
respective amounts owed to each such Class, (i) any Interest Carry-forward Amount for each such Class to
the extent not fully paid pursuant to subclauses First 1 above and (ii) any Unpaid Realized Loss Amount
for each such Class for such distribution date;
Fourth, from any remaining Excess Cashflow, to the Class I-M-1 Certificates, an amount equal to
(a) any Interest Carry-forward Amount, and then (b) any Unpaid Realized Loss Amount for such Class for
such distribution date;
Fifth, from any remaining Excess Cashflow, to the Class I-M-2 Certificates, an amount equal to
(a) any Interest Carry-forward Amount, and then (b) any Unpaid Realized Loss Amount for such Class for
such distribution date;
Sixth, from any remaining Excess Cashflow, to the Class I-B-1 Certificates, an amount equal to
(a) any Interest Carry-forward Amount, and then (b) any Unpaid Realized Loss Amount for such Class for
such distribution date;
Seventh, from any remaining Excess Cashflow, to the Class I-B-2 Certificates, an amount equal
to (a) any Interest Carry-forward Amount, and then (b) any Unpaid Realized Loss Amount for such Class
for such distribution date;
Eighth, from any remaining Excess Cashflow, to the Class I-B-3 Certificates, an amount equal to
(a) any Interest Carry-forward Amount, and then (b) any Unpaid Realized Loss Amount for such Class for
such distribution date;
Ninth, from any remaining Excess Cashflow, to the Class I-A Certificates, any Basis Risk
Shortfall Carry-forward Amount for each such Class for such distribution date, pro rata, based on the
Basis Risk Shortfall Carry-forward Amount owed to each such Class;
Tenth, from any remaining Excess Cashflow, to the Class I-M-1, Class I-M-2, Class I-B-1, Class
I-B-2 and Class I-B-3 Certificates, in that order, any Basis Risk Shortfall Carry-forward Amount, in
each case for such Class for such distribution date;
Eleventh, from any remaining Excess Cashflow, to the Class B-IO certificates an amount
specified in the Agreement; and
Twelfth, any remaining amounts to the Residual Certificates.
On each distribution date, all amounts representing prepayment charges in respect of the group
I mortgage loans received by the Trust during the related Prepayment Period will be withdrawn from the
Distribution Account and shall not be available for distribution to the holders of the Group I Offered
Certificates and the Class I-B-3 Certificates. Prepayment charges received by the Trust with respect to
the group I mortgage loans will be distributed to the Class XP Certificates as set forth in the
Agreement.
When a borrower prepays all or a portion of a mortgage loan between Due Dates, the borrower
pays interest on the amount prepaid only to the date of prepayment. Accordingly, an interest shortfall
will result equal to the difference between the amount of interest collected and the amount of interest
that would have been due absent such prepayment. We refer to this interest shortfall as a Prepayment
Interest Shortfall. Any Prepayment Interest Shortfalls resulting from a prepayment in full or in part
are required to be paid by the applicable Servicer, but only to the extent that such amount does not
exceed the aggregate of the Servicing Fees on the mortgage loans serviced by it on the applicable
distribution date. Any Prepayment Interest Shortfalls required to be funded but not funded by the
applicable Servicer are required to be paid by the Master Servicer, but only to the extent that such
amount does not exceed the aggregate Master Servicing Compensation for the related mortgage loans for
the applicable distribution date. The amount of the Master Servicing Compensation and Servicing Fees
used to offset such Prepayment Interest Shortfalls is referred to herein as Compensating Interest
Payments.
Accrued Certificate Interest may be further reduced on each distribution date by application of
the Relief Act or similar state laws. The Relief Act and similar state laws limit, in certain
circumstances, the interest rate required to be paid by a mortgagor in the military service to 6% per
annum. Neither the related Servicer nor the Master Servicer are obligated to fund interest shortfalls
resulting from the Relief Act or similar state laws.
Excess Spread and Overcollateralization Provisions
Excess Spread will be required to be applied as an Extra Principal Distribution Amount with
respect to the Group I Offered Certificates and the Class I-B-3 Certificates whenever the
Overcollateralization Amount is less than the Overcollateralization Target Amount. If on any
distribution date, after giving effect to allocations of the Principal Distribution Amounts, the
aggregate Certificate Principal Balance of the Group I Offered Certificates and the Class I-B-3
Certificates exceeds the aggregate Stated Principal Balance of the group I mortgage loans for such
distribution date, the Certificate Principal Balances of the Group I Subordinate Certificates will be
reduced, in inverse order of seniority (beginning with the Class I-B-3 Certificates), by an amount equal
to such excess. If no Group I Subordinate Certificates remain outstanding, the Certificate Principal
Balances of the Group I Senior Certificates will be reduced beginning with the Class I-A-2 Certificates
and then the Class I-A-1 Certificates, by an amount equal to such excess. Any such reduction is an
Applied Realized Loss Amount.
Pass-Through Rates for the Group I Offered Certificates
The pass-through rate per annum for the Group I Offered Certificates and the Class I-B-3
Certificates will be equal to the least of:
(i) the London interbank offered rate for one month United States dollar deposits,
which we refer to as One-Month LIBOR, calculated as described below under "—Calculation ofOne-Month LIBOR" plus the related Margin,
(ii) 11.50% per annum, and
(iii) the Net Rate Cap.
Distributions on the Group II Certificates
On each distribution date, the Available Funds with respect to each Sub-Loan Group included in
Loan Group II will be distributed as follows:
(A) On each distribution date, the Available Funds for Sub-Loan Group II-1 will be
distributed to the Class II-1A-1, Class II-1A-2 and Class II-1X-1 Certificates as follows:
first, to the Class II-1A-1, Class II-1A-2 and Class II-1X-1 Certificates, the Accrued
Certificate Interest on each such class for such distribution date, pro rata, based on the
Accrued Certificate Interest owed to each such class. Accrued Certificate Interest on the
Class II-1A-1, Class II-1A-2 and Class II-1X-1 Certificates is subject to reduction in the
event of certain Net Interest Shortfalls allocable thereto, as described under "—InterestDistributions on the Group II Certificates" below in this prospectus supplement;
second, to the Class II-1A-1, Class II-1A-2 and Class II-1X-1 Certificates, any
Accrued Certificate Interest thereon remaining undistributed from previous distribution dates,
pro rata, based on the undistributed Accrued Certificate Interest owed to each class, to the
extent of remaining Available Funds for Sub-Loan Group II-1; and
third, to the Class II-1A-1 Certificates and the Class II-1A-2 Certificates, in
reduction of their Certificate Principal Balances, pro rata, based on each respective
Certificate Principal Balance, the Senior Optimal Principal Amount with respect to the Senior
Certificates in Sub-Loan Group II-1 for such distribution date, to the extent of remaining
Available Funds for Sub-Loan Group II-1, until each such Certificate Principal Balance has been
reduced to zero.
(B) On each distribution date, the Available Funds for Sub-Loan Group II-2 will be
distributed to the Class II-2A-1A, Class II-2A-1B, Class II-2A-2, Class II-2X-1, Class II-2X-2, Class
II-2X-3, Class II-2X-4 and Class II-2X-5 Certificates as follows:
first, to the Class II-2A-1A, Class II-2A-1B, Class II-2A-2, Class II-2X-1, Class
II-2X-2, Class II-2X-3, Class II-2X-4 and Class II-2X-5 Certificates, the Accrued Certificate
Interest on each such class for such distribution date, pro rata, based on the Accrued
Certificate Interest owed to each such class. Accrued Certificate Interest on the Class
II-2A-1A, Class II-2A-1B, Class II-2A-2, Class II-2X-1, Class II-2X-2, Class II-2X-3, Class
II-2X-4 and Class II-2X-5 Certificates is subject to reduction in the event of certain Net
Interest Shortfalls allocable thereto, as described under "—Interest Distributions on the GroupII Certificates" below in this prospectus supplement;
second, to the Class II-2A-1A, Class II-2A-1B, Class II-2A-2, Class II-2X-1, Class
II-2X-2, Class II-2X-3, Class II-2X-4 and Class II-2X-5 Certificates, any Accrued Certificate
Interest thereon remaining undistributed from previous distribution dates, pro rata, based on
the undistributed Accrued Certificate Interest owed to each class, to the extent of remaining
Available Funds for Sub-Loan Group II-2; and
third, to the Class II-2A-1A, Class II-2A-1B and Class II-2A-2 Certificates, in
reduction of their Certificate Principal Balances, pro rata, based on each respective
Certificate Principal Balance, the Senior Optimal Principal Amount with respect to the Senior
Certificates in Sub-Loan Group II-2 for such distribution date, to the extent of remaining
Available Funds for Sub-Loan Group II-2, until each such Certificate Principal Balance has been
reduced to zero.
(C) On each distribution date, the Available Funds for Sub-Loan Group II-3 will be
distributed to the Class II-3A-1, Class II-3A-2 and Class II-3X-1 Certificates as follows:
first, to the Class II-3A-1, Class II-3A-2 and Class II-3X-1 Certificates, the Accrued
Certificate Interest on each such class for such distribution date, pro rata, based on the
Accrued Certificate Interest owed to each such class. Accrued Certificate Interest on the
Class II-3A-1, Class II-3A-2 and Class II-3X-1 Certificates is subject to reduction in the
event of certain Net Interest Shortfalls allocable thereto, as described under "—InterestDistributions on the Group II Certificates" below in this prospectus supplement;
second, to the Class II-3A-1, Class II-3A-2 and Class II-3X-1 Certificates, any
Accrued Certificate Interest thereon remaining undistributed from previous distribution dates,
pro rata, based on the undistributed Accrued Certificate Interest owed to each class, to the
extent of remaining Available Funds for Sub-Loan Group II-3; and
third, to the Class II-3A-1 Certificates and the Class II-3A-2 Certificates, in
reduction of their Certificate Principal Balances, pro rata, based on each respective
Certificate Principal Balance, the Senior Optimal Principal Amount with respect to the Senior
Certificates in Sub-Loan Group II-3 for such distribution date, to the extent of remaining
Available Funds for Sub-Loan Group II-3, until each such Certificate Principal Balance has been
reduced to zero.
(D) Except as provided in paragraphs (E) and (F) below, on each distribution date on or prior
to the distribution date on which the Certificate Principal Balances of the Group II Subordinate
Certificates are reduced to zero, such date being referred to herein as the Group II Cross-Over Date, an
amount equal to the sum of the remaining Available Funds for all Sub-Loan Groups in Loan Group II after
the distributions set forth in paragraphs (A) through (C) above, will be distributed sequentially in the
following order: first to the Class II-B-1 Certificates and Class II-BX-1 Certificates, pro rata, and
then sequentially to the Class II-B-2, Class II-B-3, Class II-B-4, Class II-B-5 and Class II-B-6
Certificates, in that order, in each case up to an amount equal to and in the following order: (a) the
Accrued Certificate Interest thereon for such distribution date, (b) any Accrued Certificate Interest
thereon remaining undistributed from previous distribution dates and (c) such class's Allocable Share,
as applicable, for such distribution date, in each case, to the extent of the remaining Available Funds
for all Sub-Loan Groups for Loan Group II.
(E) On each distribution date prior to the Group II Cross-Over Date but after the
reduction of the aggregate Certificate Principal Balance of the Group II Senior Certificates in any
Sub-Loan Group or Groups to zero, the remaining Certificate Group or Groups in such Loan Group II will
be entitled to receive in reduction of their Certificate Principal Balances, pro rata, based upon the
aggregate Certificate Principal Balance of the remaining Group II Senior Certificates in each Sub-Loan
Group immediately prior to such Distribution Date, in addition to any Principal Prepayments related to
such remaining Group II Senior Certificates' respective Sub-Loan Group allocated to such remaining Group
II Senior Certificates, 100% of the Principal Prepayments on any group II mortgage loan in the Sub-Loan
Group or Groups relating to the fully paid Sub-Loan Group or Groups. Such amounts allocated to Group II
Senior Certificates shall be treated as part of the Available Funds for the related Sub-Loan Group and
distributed as part of the Group II Senior Optimal Principal Amount in accordance with the priorities
set forth in clause third in each of paragraphs (A) through (C) above under the heading "Distributionson the Group II Certificates," in reduction of the Certificate Principal Balances thereof.
Notwithstanding the foregoing, if (i) the weighted average of the Group II Subordinate Percentages on
such distribution date equals or exceeds two times the initial weighted average of the Group II
Subordinate Percentages and (ii) the aggregate Stated Principal Balance of the group II mortgage loans
in all Sub-Loan Groups delinquent 60 days or more (including for this purpose any such mortgage loans in
foreclosure and mortgage loans with respect to which the related mortgaged property has been acquired by
the Trust), averaged over the last six months, as a percentage of the sum of the aggregate Certificate
Principal Balance of the Group II Subordinate Certificates does not exceed 100%, then the additional
allocation of Principal Prepayments to the Group II Senior Certificates in accordance with this
paragraph (E) will not be made and 100% of the Principal Prepayments on any group II mortgage loan in
the Sub-Loan Group relating to the fully paid Certificate Group will be allocated to the Group II
Subordinate Certificates (other than the Class II-BX-1 Certificates).
(F) If on any distribution date on which the aggregate Certificate Principal Balance of
the Group II Senior Certificates in a Certificate Group would be greater than the aggregate Stated
Principal Balance of the group II mortgage loans in its related Sub-Loan Group and any Group II
Subordinate Certificates are still outstanding, in each case, after giving effect to distributions to be
made on such distribution date, (i) 100% of amounts otherwise allocable to the Group II Subordinate
Certificates in respect of principal will be distributed to such Group II Senior Certificates in
reduction of the Certificate Principal Balances thereof, until the aggregate Certificate Principal
Balance of such Group II Senior Certificates is equal to the aggregate Stated Principal Balance of the
mortgage loans in its related Sub-Loan Group, and (ii) the Accrued Certificate Interest otherwise
allocable to the Group II Subordinate Certificates on such distribution date will be reduced and
distributed to such Group II Senior Certificates, to the extent of any amount due and unpaid on such
Group II Senior Certificates, in an amount equal to the Accrued Certificate Interest for such
distribution date on the excess of (x) the aggregate Certificate Principal Balance of such Group II
Senior Certificates over (y) the aggregate Stated Principal Balance of the group II mortgage loans in
the related Sub-Loan Group. Any such reduction in the Accrued Certificate Interest on the Group II
Subordinate Certificates will be allocated first to the Group II Subordinate Certificates in reverse
order of their respective numerical designations, commencing with the Class II-B-6 Certificates. If
there exists more than one undercollateralized Sub-Loan Group on a distribution date, amounts
distributable to such undercollateralized Certificate Groups pursuant to this paragraph will be
allocated between such undercollateralized Sub-Loan Groups, pro rata, based upon the amount by which
their respective aggregate Certificate Principal Balances exceed the aggregate Stated Principal Balance
of the group II mortgage loans in their respective Sub-Loan Groups.
(G) If, after distributions have been made pursuant to priorities first and second of
paragraphs (A) through (C) above under the heading "Distributions on the Group II Certificates" on any
distribution date, the remaining Available Funds for any Sub-Loan Group in Loan Group II is less than
the Senior Optimal Principal Amount for that Sub-Loan Group, the Senior Optimal Principal Amount for
that Sub-Loan Group shall be reduced by that amount, and the remaining Available Funds for that Sub-Loan
Group will be distributed as principal among the related classes of Senior Certificates in Loan Group
II, pro rata, based on their respective Certificate Principal Balances.
Payments made on a class of Certificates with Available Funds from another Sub-Loan Group are a
type of credit enhancement, which has the effect of providing limited cross-collateralization among the
Sub-Loan Groups.
(H) On each distribution date, any Available Funds remaining after payment of interest and
principal to the classes of Group II Certificates entitled thereto, as described above, will be
distributed to the Residual Certificates; provided, that if on any distribution date there are any
Available Funds for any Sub-Loan Group included in Loan Group II remaining after payment of interest and
principal to the Group II Certificates entitled thereto, such amounts will be distributed to the other
classes of Group II Senior Certificates, pro rata, based upon their respective Certificate Principal
Balances, until all amounts due to all classes of Group II Senior Certificates have been paid in full
based upon their respective Certificate Principal Balances and then to any Group II Subordinate
Certificates (unless otherwise described herein), before any remaining Available Funds are distributed
in accordance with this paragraph to the Residual Certificates. It is not anticipated that there will
be any significant amounts remaining for such distribution.
All amounts representing prepayment charges in respect of the group II mortgage loans will be
retained by the related servicer and will not be received by the Trust and will not be available for
distribution to the holders of the Group II Certificates.
Distributions on Exchangeable Classes
In the event that Exchanged Certificates comprising a Combination Group are exchanged for their
related Exchangeable Certificates, such Exchangeable Certificates will be entitled to a proportionate
share of the principal distributions on each class of Exchanged Certificates in such Combination Group.
Such Exchanged Certificates will also be entitled to the pass-through rate of the related Exchangeable
Certificates. In addition, Exchangeable Certificates will bear a proportionate share of losses and
interest shortfalls allocable to each class of Exchanged Certificates in such Combination Group.
Interest Distributions on the Group II Certificates
Holders of each class of Group II Senior Certificates will be entitled to receive interest
distributions in an amount equal to the Accrued Certificate Interest on that class on each distribution
date, to the extent of the Available Funds for the related Sub-Loan Group for that distribution date.
Holders of the Group II Subordinate Certificates will be entitled to receive interest
distributions in an amount equal to the Accrued Certificate Interest on that class on each distribution
date, to the extent of the Available Funds remaining for all Sub-Loan Groups included in Loan Group II
on that distribution date after distributions of interest and principal to the Group II Senior
Certificates and distributions of interest and principal to any class of Group II Subordinate
Certificates having a higher payment priority.
As described in the definition of "Accrued Certificate Interest," Accrued Certificate Interest
on each class of certificates is subject to reduction in the event of specified interest shortfalls
allocable thereto.
When a Principal Prepayment in full is made on a group II mortgage loan, the mortgagor is
charged interest only for the period from the Due Date of the preceding monthly payment up to the date
of the Principal Prepayment, instead of for a full month. When a partial Principal Prepayment is made on
a group II mortgage loan, the mortgagor is not charged interest on the amount of the prepayment for the
month in which the prepayment is made. Interest shortfalls resulting from Principal Prepayments in full
or in part are referred to herein as "Prepayment Interest Shortfalls".
Any Prepayment Interest Shortfalls resulting from prepayments in full or prepayments in part
made during the preceding calendar month that are being distributed to the holders of Group II
Certificates on that distribution date will be offset by the related Servicer, but only to the extent
that those Prepayment Interest Shortfalls do not exceed the aggregate of the Servicing Fees on the group
II mortgage loans serviced by such Servicer for the applicable distribution date. Any Prepayment
Interest Shortfalls required to be funded but not funded by the related Servicer are required to be paid
by the Master Servicer, but only to the extent that such amount does not exceed the aggregate Master
Servicer compensation for the applicable distribution date. No assurance can be given that the Master
Servicing compensation available to cover Prepayment Interest Shortfalls will be sufficient therefor.
Any Prepayment Interest Shortfalls which are not covered by the related Servicer or the Master Servicer
on any distribution date will not be reimbursed on any future distribution date. See "Pooling and
Servicing Agreement—Servicing and Other Compensation and Payment of Expenses" in this prospectus
supplement.
Accrued Certificate Interest may be further reduced on each distribution date by
application of the Relief Act or similar state laws. The Relief Act and similar state laws limit, in
certain circumstances, the interest rate required to be paid by a mortgagor in the military service to
6% per annum. Neither the related Servicer nor the Master Servicer are obligated to fund interest
shortfalls resulting from the Relief Act or similar state laws.
Prepayment Interest Shortfalls, to the extent not covered by the related Servicer or the Master
Servicer from servicing compensation, together with interest shortfalls due to the application of the
Relief Act or similar state laws, are collectively referred to herein as "Net Interest Shortfalls".
Realized Losses on the group II mortgage loans will further reduce the Accrued Certificate
Interest payable to the Group II Certificates on a distribution date; provided, however, that prior to
the date on which the aggregate Certificate Principal Balances of the Group II Subordinate Certificates
have been reduced to zero, the interest portion of Realized Losses will be allocated sequentially to the
Group II Subordinate Certificates, beginning with the class of Group II Subordinate Certificates with
the lowest payment priority, and will not reduce the Accrued Certificate Interest on the Group II Senior
Certificates. Once the aggregate Certificate Principal Balances of the Group II Subordinate Certificates
have been reduced to zero the interest portion of Realized Losses will be allocated to the Group II
Senior Certificates related to the mortgage loans on which such Realized Losses occurred.
If on any distribution date the Available Funds for any Sub-Loan Group is less than Accrued
Certificate Interest on the related Group II Senior Certificates for that distribution date, prior to
reduction for Net Interest Shortfalls and the interest portion of Realized Losses on the related
mortgage loans, the shortfall will be allocated among the holders of each class of related Senior
Certificates in proportion to the respective amounts of Accrued Certificate Interest for that
distribution date that would have been allocated thereto in the absence of such Net Interest Shortfalls
and/or Realized Losses for such distribution date. In addition, the amount of any such interest
shortfalls with respect to the mortgage loans in the related Sub-Loan Group will constitute unpaid
Accrued Certificate Interest and will be distributable to holders of the related Certificates entitled
to such amounts on subsequent distribution dates, to the extent of the Available Funds for the related
Sub-Loan Group remaining after current interest distributions as described in this prospectus
supplement. Any such amounts so carried forward will not bear interest. Any interest shortfalls will not
be offset by a reduction in the servicing compensation of the Servicers or otherwise, except to the
limited extent described in the fourth preceding paragraph with respect to Prepayment Interest
Shortfalls.
The Pass-Through Rates applicable to the calculation of the Accrued Certificate Interest for
the Group II Offered Certificates are as follows:
o On or prior to the distribution date in August 2011, the Class II-1A-1
Certificates and the Class II-1A-2 Certificates will each bear interest at a
variable pass-through rate equal to the weighted average of the net rates of the
Sub-Loan Group II-1 mortgage loans minus approximately 0.745%. After the
distribution date in August 2011, the Class II-1A-1 Certificates and the Class
II-1A-2 Certificates will each bear interest at a variable pass-through rate equal
to the weighted average of the net rates of the Sub-Loan Group II-1 mortgage loans.
o On or prior to the distribution date in August 2011, the Class II-1X-1
Certificates will bear interest at a fixed pass-through rate equal to
approximately 0.745% per annum based on a notional amount equal to the aggregate
certificate principal balance of the Class II-1A-1 Certificates and the Class
II-1A-2 Certificates. After the distribution date in August 2011, the Class
II-1X-1 Certificates will not bear any interest and the pass-through rate will be
equal to 0.00% per annum thereon.
o On or prior to the distribution date in August 2013, the Class II-2A-1A
Certificates and the Class II-2A-2 Certificates will each bear interest at a
variable pass-through rate equal to the weighted average of the net rates of the
Sub-Loan Group II-2 mortgage loans minus approximately 0.690%. After the
distribution date in August 2013, the Class II-2A-1A Certificates and the Class
II-2A-2 Certificates will each bear interest at a variable pass-through rate equal
to the weighted average of the net rates of the Sub-Loan Group II-2 mortgage loans.
o On or prior to the distribution date in August 2013, the Class II-2A-1B
Certificates will bear interest at a variable pass-through rate equal to the
weighted average of the net rates of the sub-loan group II-2 mortgage loans minus
approximately 0.890%. After the distribution date in August 2013, the Class
II-2A-1B Certificates will bear interest at a variable pass-through rate equal to
the weighted average of the net rates of the sub-loan group II-2 mortgage loans.
o On or prior to the distribution date in August 2013, the Class II-2X-1
Certificates will bear interest at a fixed pass-through rate equal to
approximately 0.690% per annum based on a notional amount equal to the aggregate
certificate principal balance of the Class II-2A-1A Certificates and the Class
II-2A-2 Certificates. After the distribution date in August 2013, the Class
II-2X-1 Certificates will not bear any interest and the pass-through rate will be
equal to 0.00% per annum thereon.
o On or prior to the distribution date in August 2013, each of the Class II-2X-2,
Class II-2X-3, Class II-2X-4 and Class II-2X-5 Certificates will bear interest at
a fixed pass-through rate equal to approximately 0.490%, 0.200%, 0.100% and 0.100%
per annum, respectively, based on a notional amount equal to the certificate
principal balance of the Class II-2A-1B Certificates. After the distribution date
in August 2013, each of the Class II-2X-2, Class II-2X-3, Class II-2X-4 and Class
II-2X-5 Certificates will not bear any interest and the pass-through rate will be
equal to 0.00% per annum thereon.
o On or prior to the distribution date in August 2016, the Class II-3A-1
Certificates and the Class II-3A-2 Certificates will each bear interest at a
variable pass-through rate equal to the weighted average of the net rates of the
Sub-Loan Group II-3 mortgage loans minus approximately 0.540%. After the
distribution date in August 2016, the Class II-3A-1 Certificates and the Class
II-3A-2 Certificates will each bear interest at a variable pass-through rate equal
to the weighted average of the net rates of the Sub-Loan Group II-3 mortgage loans.
o On or prior to the distribution date in August 2016, the Class II-3X-1
Certificates will bear interest at a fixed pass-through rate equal to
approximately 0.540% per annum based on a notional amount equal to the aggregate
certificate principal balance of the Class II-3A-1 Certificates and the Class
II-3A-2 Certificates. After the distribution date in August 2016, the Class
II-3X-1 Certificates will not bear any interest and the pass-through rate will be
equal to 0.00% per annum thereon.
o On or prior to the distribution date in August 2011, the Class II-B-1 Certificates
will bear interest at a variable pass-through rate equal to the weighted average
of the weighted average net rate of the mortgage loans in each sub-loan group in
loan group II weighted in proportion to the excess of the aggregate stated
principal balance of each sub-loan group over the aggregate certificate principal
balance of the related senior certificates (other than the senior interest only
certificates) minus approximately 0.345%. After the distribution date in August
2011 up to and including the distribution date in August 2013, the Class II-B-1
Certificates will bear interest at a variable pass-through rate equal to the
weighted average of the weighted average net rate of the mortgage loans in each
sub-loan group in loan group II weighted in proportion to the excess of the
aggregate stated principal balance of each sub-loan group over the aggregate
certificate principal balance of the related senior certificates (other than the
senior interest only certificates) minus approximately 0.345% multiplied by a
fraction, whose numerator is the sum for each of sub-loan group II-2 and sub-loan
group II-3 of the excess of the aggregate stated principal balance of such
sub-loan group over the aggregate certificate principal balance of the related
senior certificates, and whose denominator is the excess of the aggregate
principal balance of the Group II mortgage loans over the aggregate certificate
principal balance of the related senior certificates. After the distribution date
in August 2013 up to and including the distribution date in August 2016, the Class
II-B-1 Certificates will bear interest at a variable pass-through rate equal to
the weighted average of the weighted average net rate of the mortgage loans in
each sub-loan group in loan group II weighted in proportion to the excess of the
aggregate stated principal balance of each sub-loan group over the aggregate
certificate principal balance of the related senior certificates (other than the
senior interest only certificates) minus approximately 0.345% multiplied by a
fraction, whose numerator is the excess of the aggregate certificate principal
balance of sub-loan group II-3 over the aggregate certificate principal balance of
the related senior certificates, and whose denominator is the excess of the
aggregate principal balance of the Group II mortgage loans over the aggregate
certificate principal balance of the related senior certificates. After the
distribution date in August 2016, each of the Class II-B-1 Certificates will bear
interest at a variable pass-through rate equal to the weighted average of the
weighted average net rate of the mortgage loans in each sub-loan group in loan
group II weighted in proportion to the excess of the aggregate stated principal
balance of each sub-loan group over the aggregate certificate principal balance of
the related senior certificates (other than the senior interest only
certificates).
o On or prior to the distribution date in August 2011, the Class II-BX-1 will bear
interest at approximately 0.345%. After the distribution date in August 2011 up
to and including the distribution date in August 2013, the Class II-BX-1 will bear
interest at approximately 0.345% multiplied by a fraction, whose numerator is the
sum for each of sub-loan group II-2 and sub-loan group II-3 of the excess of the
aggregate certificate principal balance of such sub-loan group over the aggregate
certificate principal balance of the related senior certificates , and whose
denominator is the excess of the aggregate principal balance of the Group II
mortgage loans over the aggregate certificate principal balance of the related
senior certificates. After the distribution date in August 2013 up to and
including the distribution date in August 2016, the Class II-BX-1 will bear
interest at approximately 0.345% multiplied by a fraction, whose numerator is the
excess of the aggregate stated principal balance of sub-loan group II-3 over the
aggregate certificate principal balance of the related senior certificates, and
whose denominator is the excess of the aggregate principal balance of the Group II
mortgage loans over the aggregate certificate principal balance of the related
senior certificates. After the distribution date in August 2016, the Class
II-BX-1 Certificates will not bear any interest.
o The Class II-B-2, Class II-B-3, Class II-B-4 and Class II-B-5 Certificates will
bear interest at a variable pass-through rate equal to the weighted average of the
weighted average net rate of the mortgage loans in each sub-loan group in Loan
Group II weighted in proportion to the excess of the aggregate stated principal
balance of each sub-loan group over the aggregate stated principal balance of the
related senior certificates (other than the senior interest only certificates).
As described in this prospectus supplement, the Accrued Certificate Interest allocable to each
class of Certificates is based on the Certificate Principal Balance or Notional Amount of that class of
Certificates. All distributions of interest on the Group II Certificates will be based on a 360-day
year consisting of twelve 30-day months.
Principal Distributions on the Group II Senior Certificates
Distributions in reduction of the Certificate Principal Balance of the Class II-1A Certificates
will be made on each distribution date pursuant to priority third above of clause (A) under
"—Distributions on the Group II Certificates." In accordance with such priority third, the Available
Funds for Sub-Loan Group II-1 remaining after the distribution of interest on the Class II-1A
Certificates and Class II-1X-1 Certificates will be allocated to such Certificates in an aggregate
amount not to exceed the Senior Optimal Principal Amount for the related Sub-Loan Group for such
distribution date.
Distributions in reduction of the Certificate Principal Balance of the Class II-2A Certificates
will be made on each distribution date pursuant to priority third above of clause (B) under
"—Distributions on the Group II Certificates." In accordance with such priority third, the Available
Funds for Sub-Loan Group II-2 remaining after the distribution of interest on the Class II-2A
Certificates and the Class II-2X Certificates will be allocated to such Certificates in an aggregate
amount not to exceed the Senior Optimal Principal Amount for the related Sub-Loan Group for such
distribution date.
Distributions in reduction of the Certificate Principal Balance of the Class II-3A Certificates
will be made on each distribution date pursuant to priority third above of clause (C) under
"—Distributions on the Group II Certificates." In accordance with such priority third, the Available
Funds for Sub-Loan Group II-3 remaining after the distribution of interest on the Class II-3A
Certificates and the Class II-3X-1 Certificates will be allocated to such Certificates in an aggregate
amount not to exceed the Senior Optimal Principal Amount for the related Sub-Loan Group for such
distribution date.
In addition, if on any distribution date the aggregate Certificate Principal Balance of any
class or classes of Group II Senior Certificates would be greater than the aggregate Stated Principal
Balance of the mortgage loans in its related Sub-Loan Group, amounts otherwise allocable to the Group II
Subordinate Certificates in respect of principal will be distributed to such class or classes of Group
II Senior Certificates in reduction of the Certificate Principal Balances thereof in accordance with
paragraph (F) under "—Distributions on the Group II Certificates."
The definition of Group II Senior Optimal Principal Amount allocates the entire amount of
prepayments and certain other unscheduled recoveries of principal with respect to the mortgage loans in
the related Group II Sub-Loan Group based on the Group II Senior Prepayment Percentage, rather than the
Group II Senior Percentage, which is the allocation concept used for scheduled payments of principal.
While the Group II Senior Percentage allocates scheduled payments of principal between the Group II
Senior Certificates related to a Sub-Loan Group and the percentage interest of such Loan Group evidenced
by the related Group II Subordinate Certificates on a pro rata basis, the Senior Prepayment Percentage
allocates 100% of the unscheduled principal collections to the Group II Senior Certificates of the
related Sub-Loan Group on each distribution date for the first seven years after the Closing Date with a
reduced but still disproportionate percentage of unscheduled principal collections being allocated to
the Group II Senior Certificates of a Sub-Loan Group over an additional four year period (subject to
certain subordination levels being attained and certain loss and delinquency test being met); provided,
however, that if on any distribution date the current weighted average of the Group II Subordinate
Percentages is equal to or greater than two times the weighted average of the initial Group II
Subordinate Percentages and certain loss and delinquency tests described in the definition of Senior
Prepayment Percentage are met, the related Group II Subordinate Certificates will receive, on or prior
to the distribution date occurring in October 2009, 50% (and after the distribution date occurring in
October 2009, 100%) of the Group II Subordinate Percentage of prepayments on the group II mortgage loans
in the related Sub-Loan Group during the related Prepayment Period; provided, further, that if on any
distribution date the Group II Senior Percentage for the related Certificate Group exceeds the Group II
Senior Percentage as of the Cut-off Date, then all prepayments received on the group II mortgage loans
in the related Sub-Loan Group during the related Prepayment Period will be allocated to the Group II
Senior Certificates in such Certificate Group. The disproportionate allocation of unscheduled principal
collections will have the effect of accelerating the amortization of the related Group II Senior
Certificates while, in the absence of Realized Losses, increasing the respective percentage interest in
the principal balance of the group II mortgage loans in each Sub-Loan Group evidenced by the Group II
Subordinate Certificates. Increasing the respective percentage interest in the group II mortgage loans
of the related Group II Subordinate Certificates relative to that of the related Group II Senior
Certificates is intended to preserve the availability of the subordination provided by the Group II
Subordinate Certificates.
The initial Group II Senior Percentage for each Certificate Group with respect to the group II
mortgage loans will be approximately 92.75%. For purposes of all principal distributions described above
and for calculating the Group II Senior Optimal Principal Amount, Group II Senior Percentage and Group
II Senior Prepayment Percentage, the applicable Certificate Principal Balance for any distribution date
shall be determined before the allocation of losses on the group II mortgage loans in the mortgage pool
to be made on such distribution date as described under "—Allocation of Losses; Subordination" below.
Principal Distributions on the Group II Subordinate Certificates
All unscheduled principal collections on the mortgage loans not otherwise distributable to the
Group II Senior Certificates will be allocated on a pro rata basis among the class of Group II
Subordinate Certificates with the highest payment priority then outstanding and each other class of
Group II Subordinate Certificates (other than the Class II-BX-1 Certificates) for which certain loss
levels established for such class in the Agreement have not been exceeded. The related loss level on
any distribution date would be satisfied as to any Class II-B-1, Class II-B-2, Class II-B-3, Class
II-B-4, Class II-B-5 and Class II-B-6 Certificates, respectively, only if the sum of the current
percentage interests in the group II mortgage loans evidenced by such class and each class, if any,
subordinate thereto were at least equal to the sum of the initial percentage interests in the group II
mortgage loans evidenced by such class and each class, if any, subordinate thereto.
As described above under "—Principal Distributions on the Group II Senior Certificates," unless
the amount of subordination provided to the Group II Senior Certificates by the Group II Subordinate
Certificates is twice the amount as of the Cut-off Date, and certain loss and delinquency tests are
satisfied, on each distribution date during the first seven years after the Closing Date, the entire
amount of any prepayments and certain other unscheduled recoveries of principal with respect to the
group II mortgage loans in a Sub-Loan Group will be allocated to the Group II Senior Certificates in the
related Certificate Group, with such allocation to be subject to further reduction over an additional
four year period thereafter, as described in this prospectus supplement.
The initial Group II Subordinate Percentages for each Sub-Loan Group included in Loan Group II
will be approximately 7.25%.
For purposes of all principal distributions described above and for calculating the Group II
Subordinate Optimal Principal Amount, Group II Subordinate Percentage and Group II Subordinate Prepayment
Percentage for Loan Group II, the applicable Certificate Principal Balance for any distribution date
shall be determined before the allocation of losses on the related mortgage loans in the mortgage pool
to be made on such distribution date as described under "—Allocation of Losses; Subordination" in this
prospectus supplement.
Monthly Advances
If the scheduled payment on a mortgage loan which was due on a related Due Date is delinquent
other than as a result of application of the Relief Act or similar state law, the related Servicer will
be required to remit to the Securities Administrator on the date specified in the applicable Servicing
Agreement an amount equal to such delinquency, net of the Servicing Fee except to the extent the related
Servicer determines any such advance to be nonrecoverable from Liquidation Proceeds, Insurance Proceeds
or from future payments on the mortgage loan for which such advance was made. Subject to the foregoing,
such advances will be made by the Servicers or subservicers, if applicable, through final disposition or
liquidation of the related mortgaged property, or until such time as specified in the applicable
Servicing Agreement. Failure by the related Servicer to remit any required advance, which failure goes
unremedied for the number of days specified in the applicable Servicing Agreement, will constitute an
event of default under such Servicing Agreement. Such event of default shall then obligate the Master
Servicer as successor servicer (or the Trustee, in the case that Wells Fargo is the defaulting Servicer)
to advance such amounts to the Distribution Account to the extent provided in the Agreement. Any failure
of the Master Servicer to make such advances would constitute an Event of Default as discussed under
"The Agreements—Events of Default and Rights Upon Event of Default" in the prospectus. The Trustee, as
successor servicer or master servicer, as applicable, will be required to make an advance which Wells
Fargo, as Servicer, or the Master Servicer was required to make but failed to do so, as provided in the
Agreement.
All Monthly Advances will be reimbursable to the party making such Monthly Advance from late
collections, Insurance Proceeds and Liquidation Proceeds from the mortgage loan as to which the
unreimbursed Monthly Advance was made. In addition, any Monthly Advances previously made in respect of
any mortgage loan that are deemed by the related Servicer, subservicer or Master Servicer to be
nonrecoverable from related late collections, Insurance Proceeds or Liquidation Proceeds may be
reimbursed to such party out of any funds in the Distribution Account prior to the distributions on the
Certificates.
Allocation of Realized Losses; SubordinationGeneral
Subordination provides the holders of Certificates having a higher payment priority with
protection against Realized Losses on the related mortgage loans. In general, this loss protection is
accomplished by allocating any Realized Losses among the related Group II Subordinate Certificates,
beginning with the Subordinate Certificates with the lowest payment priority until the Certificate
Principal Balance of that class of Subordinate Certificates has been reduced to zero. In the case of
the Group I Certificates only, only those Realized Losses in excess of available Excess Spread and the
current Overcollateralization Amount will be allocated to the Group I Subordinate Certificates.
With respect to any defaulted mortgage loan that is finally liquidated through foreclosure
sale, disposition of the related mortgaged property if acquired on behalf of the certificateholders by
deed-in-lieu of foreclosure or otherwise, the amount of loss realized, if any, will equal the portion of
the unpaid principal balance remaining, if any, plus interest thereon through the last day of the month
in which such mortgage loan was finally liquidated, after application of all amounts recovered (net of
amounts reimbursable to the related Servicer or Master Servicer for Monthly Advances, Servicing Fees,
servicing advances and certain other amounts specified in the applicable Servicing Agreement) towards
interest and principal owing on the mortgage loan. The amount of such loss realized on a mortgage loan,
together with the amount of any Bankruptcy Loss (if any) in respect of a mortgage loan is referred to in
this prospectus supplement as a Realized Loss.
There are two types of Bankruptcy Losses that can occur with respect to a mortgage loan. The
first type of Bankruptcy Loss, referred to in this prospectus supplement as a Deficient Valuation,
results if a court, in connection with a personal bankruptcy of a mortgagor, establishes the value of a
mortgaged property at an amount less than the unpaid principal balance of the mortgage loan secured by
such mortgaged property. In such a case, the holder of such mortgage loan would become an unsecured
creditor to the extent of the difference between the unpaid principal balance of such mortgage loan and
such reduced unsecured debt. The second type of Bankruptcy Loss, referred to in this prospectus
supplement as a Debt Service Reduction, results from a court reducing the amount of the monthly payment
on the related mortgage loan, in connection with the personal bankruptcy of a mortgagor.
The principal portion of Debt Service Reductions will not be allocated in reduction of the
Certificate Principal Balance of any class of Certificates. As a result of the subordination of the
Subordinate Certificates in right of distribution of available funds to the related Senior Certificates,
any Debt Service Reductions relating to mortgage loans in the related Loan Group will generally be borne
by the Subordinate Certificates (to the extent then outstanding) in inverse order of priority. However,
in the case of the Group II Certificates, after the Group II Cross-Over Date, the amounts distributable
under clause (1) of the definition of Senior Optimal Principal Amount for each Sub-Loan Group included
in Loan Group II will be reduced by the amount of any Debt Service Reductions available to the group II
mortgage loans of the related Sub-Loan Group. Regardless of when they occur, Debt Service Reductions
may reduce the amount of available funds for a Sub-Loan Group that would otherwise be available for
distribution on a distribution date.
In the event that the related Servicer, the Master Servicer or any sub-servicer recovers any
amount in respect of a Liquidated Mortgage Loan with respect to which a Realized Loss has been incurred
after liquidation and disposition of such mortgage loan, any such amount, which is referred to in this
prospectus supplement as a Subsequent Recovery, will be distributed as part of available funds in
accordance with the priorities described under "Description of the Certificates–Distributions on the
Group I Certificates," and "Distributions on the Certificates on the Group II Certificates" in this
prospectus supplement. Additionally, the Certificate Principal Balance of each class of Subordinate
Certificates that has been reduced by the allocation of a Realized Loss to such Certificate will be
increased, in order of seniority, by the amount of such Subsequent Recovery, but not in excess of the
amount of any Realized Losses previously allocated to such class of Certificates and not previously
offset by Subsequent Recoveries. Holders of such Certificates will not be entitled to any payment in
respect of interest on the amount of such increases for an Interest Accrual Period preceding the
distribution date on which such increase occurs.
Any allocation of a principal portion of a Realized Loss to a Certificate will be made by
reducing the Certificate Principal Balance thereof by the amount so allocated as of the distribution
date in the month following the calendar month in which such Realized Loss was incurred.
An allocation of a Realized Loss on a pro rata basis among two or more classes of Certificates
means an allocation to each such class of Certificates on the basis of its then outstanding Certificate
Principal Balance prior to giving effect to distributions to be made on such distribution date.
Allocation of Realized Losses on the Group I Certificates
The Applied Realized Loss Amount for the group I mortgage loans, to the extent not covered by
Excess Spread and Overcollateralization Amount, shall be allocated first to the Class I-B-3, Class
I-B-2, Class I-B-1, Class I-M-2 and Class I-M-1 Certificates, in that order (so long as their respective
Certificate Principal Balances have not been reduced to zero) and thereafter Realized Losses on the
group I mortgage loans will be allocated, first to the Class I-A-2 Certificates until the Certificate
Principal Balance thereof has been reduced to zero, and then to the Class I-A-1 Certificates until the
Certificate Principal Balance thereof has been reduced to zero. Such subordination will increase the
likelihood of timely receipt by the holders of the Group I Certificates with higher relative payment
priority of the maximum amount to which they are entitled on any distribution date and will provide such
holders protection against losses resulting from defaults on group I mortgage loans to the extent
described in this prospectus supplement. The Depositor will allocate a loss to a certificate by
reducing its principal amount by the amount of the loss.
Allocation of Realized Losses on the Group II Certificates
The principal portion of Realized Losses on the group II mortgage loans will be allocated on
any distribution date as follows: first, to the Class II-B-6 Certificates; second, to the Class II-B-5
Certificates; third, to the Class II-B-4 Certificates; fourth, to the Class II-B-3 Certificates; fifth,
to the Class II-B-2 Certificates; and sixth, to the Class II-B-1 Certificates, in each case until the
Certificate Principal Balance of such class has been reduced to zero. Thereafter, the principal portion
of Realized Losses on the group II mortgage loans in each related Sub-Loan Group will be allocated on
any distribution date to the Group II Senior Certificates (other than the related Senior Interest Only
Certificates) in the related Certificate Group. The principal portion of any Realized Losses that are
allocated to the Certificates in Sub-Loan Group II-1 will be allocated first to the Class II-1A-2
Certificates until the Certificate Principal Balance thereof has been reduced to zero and then to the
Class II-1A-1 Certificates until the Certificate Principal Balance thereof has been reduced to zero.
The principal portion of any Realized Losses that are allocated to the Certificates in Sub-Loan Group
II-2 will be allocated first to the Class II-2A-2 Certificates until the Certificate Principal Balance
thereof has been reduced to zero and then to the Class II-2A-1A Certificates and the Class II-2A-1B
Certificates, pro rata, until the Certificate Principal Balance thereof has been reduced to zero. The
principal portion of any Realized Losses that are allocated to the Certificates in Sub-Loan Group II-3
will be allocated first to the Class II-3A-2 Certificates until the Certificate Principal Balance
thereof has been reduced to zero and then to the Class II-3A-1 Certificates until the Certificate
Principal Balance thereof has been reduced to zero. Once any of the Class II-1A-1 Certificates and Class
II-1A-2, in the aggregate, Class II-2A-1A, Class II-2A-1B and Class II-2A-2 Certificates, in the
aggregate, and Class II-3A-1 Certificates and Class II-3A-2 Certificates, in the aggregate, have been
reduced to zero, the principal portion of Realized Losses on the mortgage loans in the related Sub-Loan
Group (if any) will be allocated to the remaining outstanding Group II Senior Certificates of the other
Certificate Groups, pro rata, based upon their respective Certificate Principal Balances.
No reduction of the Certificate Principal Balance on a distribution date of any class of (i)
Group II Subordinate Certificates will be made on any distribution date on account of Realized Losses on
the group II mortgage loans to the extent that such allocation would result in the reduction of the
aggregate Certificate Principal Balances of all Group II Certificates (other than the Interest Only
Certificates) as of such distribution date, after giving effect to all distributions and prior
allocations of Realized Losses on the group II mortgage loans on such date, to an amount less than the
aggregate Stated Principal Balance of all of the group II mortgage loans as of the first day of the
month of such distribution date and (ii) Group II Senior Certificates of a Certificate Group shall be
made on any distribution date on account of Realized Losses in the related Sub-Loan Group to the extent
that such reduction would have the effect of reducing the Certificate Principal Balance of such
Certificate Group as of such distribution date to an amount less than the Stated Principal Balances of
the group II mortgage loans in the related Sub-Loan Group as of the related Due Date. The limitation
described in clauses (i) and (ii) is referred to herein as the Loss Allocation Limitation with respect
to Loan Group II.
Cross-Collateralization
Notwithstanding the foregoing, on any distribution date on which the Certificate Principal
Balance of the Group I Subordinate Certificates or the Group II Subordinate Certificates have been
reduced to zero and a Realized Loss that is a Special Hazard Loss is to be allocated to the related
Senior Certificates, such loss will be allocated among such Senior Certificates and the most subordinate
outstanding class of non-related Subordinate Certificates on a pro rata basis, based on the
Certificate Principal Balances thereof. In such event, the Senior Certificates in a Loan Group may be
allocated a portion of Special Hazard Losses on the mortgage loans from the other non-related loan group.
THE CAP CONTRACTS
The Trustee, on behalf of the Trust, will enter into one or more cap contracts that provide for
payments to the Securities Administrator with respect to the Class I-A-1, Class I-A-2, Class I-M-1,
Class I-M-2, Class I-B-1, Class I-B-2 and Class I-B-3 Certificates, or Cap Contracts, with Wachovia
Bank, National Association, or the Cap Counterparty, for the benefit of the holders of the Class I-A-1,
Class I-A-2, Class I-M-1, Class I-M-2, Class I-B-1, Class I-B-2 and Class I-B-3 Certificates. Each of
the Class I-A-1, Class I-A-2, Class I-M-1, Class I-M-2, Class I-B-1, Class I-B-2 and Class I-B-3
Certificates will receive the benefit of payments from the related Cap Contract, except that the Class
I-M-1, the Class I-M-2, the Class I-B-1, the Class I-B-2 and the Class I-B-3 Certificates also may
receive payments from the Cap Contracts related to the Class I-A Certificates. The Cap Contracts are
intended to provide partial protection to the Class I-A-1, Class I-A-2, Class I-M-1, Class I-M-2, Class
I-B-1, Class I-B-2 and Class I-B-3 Certificates in the event that the pass-through rate applicable to
such classes of Certificates is limited by the Net Rate Cap and to cover certain interest shortfalls.
The Cap Counterparty is Wachovia Bank, National Association, a national banking association
that has, as of the date of this prospectus supplement, long-term debt ratings from S&P, Fitch Ratings
and Moody's of "AA-", "AA-" and "Aa2", respectively, and short-term debt ratings from S&P, Fitch Ratings
and Moody's of "A-1+", "F1+" and "P-1", respectively. The ratings reflect the respective rating
agency's current assessment of the creditworthiness of Wachovia Bank, National Association and may be
subject to revision or withdrawal at any time by the rating agencies. Wachovia Bank, National
Association will provide upon request, without charge, to each person to whom this prospectus supplement
is delivered, a copy of the most recent audited annual financial statements of the Wachovia
Corporation, the parent company of the Cap Counterparty. Requests for such information should be
directed to Wachovia Corporation—Investor Relations, 301 South College Street, Charlotte, NC28288-0206.
On or prior to each distribution date through and including the distribution date set forth in
the related Cap Contract, payments under the related Cap Contract will be made to the Securities
Administrator, under an account established and maintained by the Securities Administrator, for the
benefit of the holders of the related Certificates. The Class I-M-1, the Class I-M-2, the Class I-B-1,
the Class I-B-2 and the Class I-B-3 Certificates also may receive payments under the Cap Contracts for
the Class I-A Certificates. The payment to be made by the Cap Counterparty under each Cap Contract will
be equal to the interest accrued during the Interest Accrual Period on the related notional balance at a
rate equal to the excess of (i) One-Month LIBOR, over (ii) the strike rate set forth in Annex I. The
notional balance will be equal to the lesser of (i) the Certificate Principal Balance of such class of
Certificates for the related distribution date and (ii) the related certificate notional amount set
forth in Annex I.
On each distribution date, amounts received under each Cap Contract with respect to the Group I
Certificates and with respect to such distribution date will be allocated in the following order of
priority:
first, to the holders of the related class of Certificates, the payment of any Basis
Risk Shortfall Carry-forward Amount for such distribution date, to the extent not covered by
Excess Cashflow for such distribution date;
second, from any remaining amounts, to the holders of the related class of
Certificates, the payment of any Current Interest and Interest Carry-forward Amount for such
class to the extent not covered by Interest Funds or Excess Cashflow on such distribution date;
third, from any excess amounts available from the Cap Contract relating to the Class
I-A Certificates, to the Class I-M-1, the Class I-M-2, the Class I-B-1, the Class I-B-2 and the
Class I-B-3 Certificates, in that order, to the extent not paid pursuant to clauses first or
second above; and
fourth, from any remaining amounts, for deposit into the Reserve Fund, allocated as
further described herein.
On each distribution date, amounts on deposit in the Reserve Fund for the benefit of the
related Group I Certificates will be allocated first to the Class I-A Certificates, pro rata, based on
the current Realized Losses and any Unpaid Realized Loss Amount for each such class for such
distribution date, and then to the Class I-M-1, Class I-M-2, Class I-B-1, Class I-B-2 and Class I-B-3
Certificates, in that order, to pay any current Realized Losses and any Unpaid Realized Loss Amount, in
each case, for such class and for such distribution date. Any remaining amounts on deposit in the
Reserve Fund on such Distribution Date will be distributed as described in the Agreement.
The Cap Contracts with respect to the Class I-A-1, Class I-A-2, Class I-M-1, Class I-M-2, Class
I-B-1, Class I-B-2 and Class I-B-3 Certificates terminate after the distribution date occurring in
October 2011.
The Depositor has determined that the significance percentage of payments under the Cap
Contracts, as calculated in accordance with Regulation AB under the Securities Act of 1933, is less than
10%.
YIELD ON THE CERTIFICATESGeneral
The yield to maturity and the weighted average life on each class of Offered Certificates will
be primarily affected by the rate and timing of principal payments on the mortgage loans in the related
Loan Group, including prepayments, the allocation of principal payments on the mortgage loans among the
related classes of Offered Certificates, Realized Losses and interest shortfalls on the mortgage loans
in the related Loan Group, the Pass-Through Rates on such Certificates, and the purchase price paid for
such Certificates. The yield to maturity of the each class of Exchangeable Certificates will depend on
the yield to maturity of the related classes of the related Exchanged Certificates. In addition, the
effective yield to holders of the Offered Certificates of each class will be less than the yields
otherwise produced by their respective Pass-Through Rates and purchase prices because interest will not
be distributed to the certificateholders until the 25th day, or if such day is not a business day, the
following business day, of the month following the month in which interest accrues on the related
mortgage loans, without any additional distribution of interest or earnings thereon in respect of such
delay.
Prepayment Considerations
The rate of principal payments on each class of Offered Certificates (other than the Interest
Only Certificates), the aggregate amount of distributions on each class of Offered Certificates and the
yield to maturity of each class of Offered Certificates will be related to the rate and timing of
payments of principal on the mortgage loans in the related Loan Group. 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 and timing of Principal Prepayments on the mortgage loans (including for this purpose payments
resulting from refinancings, liquidations of the mortgage loans due to defaults, casualties,
condemnations and repurchases, whether optional or required). The mortgage loans generally may be
prepaid by the mortgagors at any time; however, as described under "The Mortgage Pool – PrepaymentCharges on the Mortgage Loans" in this prospectus supplement, with respect to approximately 36.80%,
13.91%, 25.63% and 19.29% of the Loan Group I, Sub-Loan Group II-1, Sub-Loan Group II-2 and Sub-Loan
Group II-3 mortgage loans, respectively, a prepayment may subject the related mortgagor to a prepayment
charge, which may discourage prepayments during the applicable period. Prepayment charges may be
restricted under some state laws as described under "Legal Aspects of Mortgage Loans – Enforceability ofCertain Provisions" in the prospectus. Prepayment charges with respect to the group I mortgage loans
will be paid to the holders of the Class XP Certificates and will not be part of the Available Funds for
such distribution date. There can be no assurance that the prepayment charges will have any effect on
the prepayment performance of the mortgage loans.
Principal Prepayments, liquidations and repurchases of the mortgage loans in a Loan Group will
result in distributions in respect of principal to the holders of the related class or classes of
Offered Certificates then entitled to receive these principal distributions that otherwise would be
distributed over the remaining terms of the mortgage loans. See "Maturity and PrepaymentConsiderations" in the prospectus. Since the rate and timing of payments of principal on the mortgage
loans will depend on future events and a variety of factors (as described more fully in this prospectus
supplement and in the prospectus under "Yield Considerations" and "Maturity and PrepaymentConsiderations"), no assurance can be given as to the rate of Principal Prepayments. The extent to which
the yield to maturity of any class of Offered Certificates may vary from the anticipated yield will
depend upon the degree to which they are purchased at a discount or premium and the degree to which the
timing of payments on the Offered Certificates is sensitive to prepayments on the mortgage loans in the
related Loan Group. Further, an investor should consider, in the case of any Offered Certificate
purchased at a discount, the risk that a slower than anticipated rate of Principal Prepayments on the
related mortgage loans could result in an actual yield to an investor that is lower than the anticipated
yield and, in the case of any Offered Certificate purchased at a premium, the risk that a faster than
anticipated rate of Principal Prepayments on the related mortgage loans could result in an actual yield
to the investor that is lower than the anticipated yield. In general, the earlier a prepayment of
principal on the mortgage loans in the related Loan Group, the greater will be the effect on the
investor's yield to maturity. As a result, the effect on an investor's yield of principal payments
occurring at a rate higher (or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Offered Certificates would not be fully offset by a subsequent
like reduction (or increase) in the rate of principal payments.
Because the mortgage loans in a Loan Group may be prepaid at any time, it is not possible to
predict the rate at which distributions on the related Certificates will be received. Since prevailing
interest rates are subject to fluctuation, there can be no assurance that investors in the Certificates
will be able to reinvest the distributions thereon at yields equaling or exceeding the yields on the
Certificates. Yields on any such reinvestments may be lower, and may even be significantly lower, than
yields on the Certificates. Generally, when prevailing interest rates increase, prepayment rates on
mortgage loans tend to decrease, resulting in a reduced rate of return of principal to investors at a
time when reinvestment at such higher prevailing rates would be desirable. Conversely, when prevailing
interest rates decline, prepayment rates on mortgage loans tend to increase, resulting in a greater rate
of return of principal to investors at a time when reinvestment at comparable yields may not be
possible. It is highly unlikely that the mortgage loans will prepay at any constant rate until maturity
or that all of the mortgage loans will prepay at the same rate. Moreover, the timing of prepayments on
the mortgage loans in a Loan Group may significantly affect the actual yield to maturity on the related
Offered Certificates, even if the average rate of principal payments experienced over time is consistent
with an investor's expectation.
Because principal distributions are paid to some classes of Offered Certificates before other
classes, holders of classes of Offered Certificates having a later priority of payment bear a greater
risk of losses than holders of classes having earlier priorities for distribution of principal.
The rate of payments (including prepayments) on pools of mortgage loans is influenced by a
variety of economic, geographic, social and other factors. If prevailing mortgage rates fall
significantly below the mortgage rates on the mortgage loans, the rate of prepayment (and refinancing)
would be expected to increase. Conversely, if prevailing mortgage rates rise significantly above the
mortgage rates on the mortgage loans, the rate of prepayment on the mortgage loans would be expected to
decrease. Other factors affecting prepayment of mortgage loans include changes in mortgagors' housing
needs, job transfers, unemployment, mortgagors' net equity in the mortgaged properties and servicing
decisions. In addition, the existence of the applicable periodic rate cap, maximum mortgage rate and
minimum mortgage rate may effect the likelihood of prepayments resulting from refinancings. There can be
no certainty as to the rate of prepayments on the mortgage loans during any period or over the life of
the Certificates. See "Yield Considerations" and "Maturity and Prepayment Considerations" in the
prospectus.
Approximately 33.41%, 41.75%, 9.38% and 20.34% of the Loan Group I, Sub-Loan Group II-1,
Sub-Loan Group II-2 and Sub-Loan Group II-3 mortgage loans, respectively, are assumable under some
circumstances if, in the sole judgment of the Master Servicer or Servicer, the prospective purchaser of
a mortgaged property is creditworthy and the security for the mortgage loan is not impaired by the
assumption. The remainder of the mortgage loans are subject to customary due-on-sale provisions. The
Servicers shall enforce any due-on-sale clause contained in any mortgage note or mortgage, to the extent
permitted under the related Servicing Agreement, applicable law and governmental regulations. However,
if the Servicer determines that enforcement of the due-on-sale clause would impair or threaten to impair
recovery under the related primary mortgage insurance policy, if any, the Servicer shall not be required
to enforce the due-on-sale clause. The extent to which some of the mortgage loans are assumed by
purchasers of the mortgaged properties rather than prepaid by the related mortgagors in connection with
the sales of the mortgaged properties will affect the weighted average lives of the Offered Certificates
and may result in a prepayment experience on the mortgage loans that differs from that on other mortgage
loans.
In general, defaults on mortgage loans are expected to occur with greater frequency in their
early years. In addition, default rates generally are higher for mortgage loans used to refinance an
existing mortgage loan. In the event of a mortgagor's default on a mortgage loan, there can be no
assurance that recourse beyond the specific mortgaged property pledged as security for repayment will be
available.
The Sponsor may, from time to time, implement programs designed to encourage refinancing. These
programs may include, without limitation, modifications of existing loans, general or targeted
solicitations, the offering of pre-approved applications, reduced origination fees or closing costs, or
other financial incentives. Targeted solicitations may be based on a variety of factors, including the
credit of the borrower or the location of the mortgaged property. In addition, the Sponsor may encourage
assumptions of mortgage loans, including defaulted mortgage loans, under which creditworthy borrowers
assume the outstanding indebtedness of the mortgage loans which may be removed from the related mortgage
pool. As a result of these programs, with respect to the mortgage pool underlying any trust, the rate
of Principal Prepayments of the mortgage loans in the mortgage pool may be higher than would otherwise
be the case, and in some cases, the average credit or collateral quality of the mortgage loans remaining
in the mortgage pool may decline.
Allocation of Principal Payments
Group I Certificates
Subject to the circumstances described under "Description of the Certificates—Distributions on
the Group I Senior Certificates" in this prospectus supplement, on each distribution date during the
first three years after the Closing Date and thereafter, on any distribution date that a Trigger Event
is in effect, all principal payments on the group I mortgage loans will generally be allocated to the
Group I Senior Certificates.
Group II Certificates
Subject to the circumstances described under "Description of the Certificates—Principal
Distributions on the Group II Senior Certificates" in this prospectus supplement, on each distribution
date during the first seven years after the Closing Date, all principal prepayments on the mortgage
loans in Loan Group II will generally be allocated to the Group II Senior Certificates (other than any
Senior Interest Only Certificates) of the related Certificate Group. Thereafter, as further described in
this prospectus supplement, during some periods, subject to loss and delinquency criteria described in
this prospectus supplement, the Group II Senior Prepayment Percentage may continue to be
disproportionately large (relative to the Group II Senior Percentage) and the percentage of Principal
Prepayments payable to the related Subordinate Certificates may continue to be disproportionately
small. In addition to the foregoing, if on any distribution date, the subordination level established
for the Class II-B-1, Class II-B-2, Class II-B-3, Class II-B-4, Class II-B-5 and Class II-B-6
Certificates, as applicable, is exceeded and that class of Subordinate Certificates is then outstanding,
that class of Certificates will not receive distributions relating to principal prepayments on that
distribution date unless that class is the class of Subordinate Certificates in Loan Group II with the
highest payment priority.
Interest Shortfalls and Realized Losses
When a principal prepayment in full is made on a mortgage loan, the mortgagor is charged
interest only for the period from the Due Date of the preceding monthly payment up to the date of the
Principal Prepayment, instead of for a full month. When a partial Principal Prepayment is made on a
mortgage loan, the mortgagor is not charged interest on the amount of the prepayment for the month in
which the prepayment is made. In addition, the application of the Relief Act or similar state law to any
mortgage loan will adversely affect, for an indeterminate period of time, the ability of the related
Servicer to collect full amounts of interest on the mortgage loan. See "Legal Aspects of Mortgage
Loans—The Servicemembers Civil Relief Act" in the prospectus. Any interest shortfalls resulting from a
Principal Prepayment in full or a partial Principal Prepayment are required to be paid by the related
Servicer, but only to the extent that such amount does not exceed the aggregate of the Servicing Fees on
the mortgage loans serviced by that Servicer for the related Due Period. Any interest shortfalls
required to be funded but not funded by the related Servicer are required to be paid by the Master
Servicer, but only to the extent that such amount does not exceed the aggregate Master Servicing
Compensation for the applicable distribution date. None of the Servicers nor the Master Servicer are
obligated to fund interest shortfalls resulting from the application of the Relief Act or similar state
law. See "Pooling and Servicing Agreement—Servicing and Other Compensation and Payment of Expenses" in
this prospectus supplement and "Legal Aspects of Mortgage Loans—The Servicemembers Civil Relief Act" in
the prospectus. Accordingly, the effect of (1) any Principal Prepayments on the mortgage loans, to the
extent that any resulting interest shortfall due to such Principal Prepayments exceeds any Compensating
Interest Payments or (2) any shortfalls resulting from the application of the Relief Act or similar
state law, will be to reduce the aggregate amount of interest collected that is available for
distribution to holders of the related Certificates. Any resulting shortfalls will be allocated among
the Certificates as provided in this prospectus supplement.
The yields to maturity and the aggregate amount of distributions on the Offered Certificates
will be affected by the timing of mortgagor defaults resulting in Realized Losses. The timing of
Realized Losses on the mortgage loans in a Loan Group and the allocation of Realized Losses to the
Offered Certificates could significantly affect the yield to an investor in the related Offered
Certificates. In addition, Realized Losses on the mortgage loans may affect the market value of the
Offered Certificates, even if these losses are not allocated to the Offered Certificates.
If the Certificate Principal Balance of a class of Subordinate Certificates has been reduced to
zero, the yield to maturity on the class of related Subordinate Certificates then outstanding with the
lowest payment priority will be extremely sensitive to losses on the mortgage loans in the related Loan
Group and the timing of those losses because the entire amount of losses that are covered by
subordination will be allocated to that class of Subordinate Certificates. If the Certificate Principal
Balances of all classes of Subordinate Certificates related to a Loan Group have been reduced to zero,
the yield to maturity on the related classes of Senior Certificates then outstanding will be extremely
sensitive to losses on the mortgage loans in the related Loan Group and the timing of those losses
because the entire amount of losses that are covered by subordination will be allocated to those classes
of Senior Certificates.
As described under "Description of the Certificates—Allocation of Realized Losses;
Subordination" in this prospectus supplement, amounts otherwise distributable to holders of the
Subordinate Certificates may be made available to protect the holders of the related Senior Certificates
against interruptions in distributions due to mortgagor delinquencies, to the extent not covered by
Monthly Advances, and amounts otherwise distributable to holders of the Subordinate Certificates with a
lower priority may be made available to protect the holders of related Subordinate Certificates with a
higher priority against interruptions in distributions. Delinquencies on the mortgage loans in a Loan
Group may affect the yield to investors on the related Subordinate Certificates, and, even if
subsequently cured, will affect the timing of the receipt of distributions by the holders of those
Subordinate Certificates. If a Trigger Event exists due to larger than expected rate of delinquencies
or losses on the group I mortgage loans, no principal payments will be made to the Group I Subordinate
Certificates as long as such Trigger Event exists as long as any of the Group I Senior Certificates are
still outstanding. Similarly, a larger than expected rate of delinquencies or losses on the mortgage
loans in Loan Group II will affect the rate of principal payments on each class of Group II Subordinate
Certificates, if it delays the scheduled reduction of the Group II Senior Prepayment Percentage,
triggers an increase of the Group II Senior Prepayment Percentage to 100% or triggers a lockout of one
or more classes of Group II Subordinate Certificates from distributions of
portions of the Group II Subordinate Optimal Principal Amount. See "Description of the
Certificates—Principal Distributions on the Group II Senior Certificates," and "—Principal Distributionson the Group II Subordinate Certificates" in this prospectus supplement.
In some cases, Special Hazard Losses allocable to a class of Senior Certificates in a Loan
Group will instead be allocated to the Subordinate Certificates in another Loan Group. See "Description
of the Certificates—Cross-Collateralization" in this prospectus supplement. This limited
cross-collateralization is intended as credit enhancement for each Loan Group.
Excess Spread Available to the Group I Certificates
The weighted average life and yield to maturity of each class of Group I Offered Certificates
and the Class I-B-3 Certificates will also be influenced by the amount of Excess Spread generated by the
group I mortgage loans and applied in reduction of the Certificate Principal Balances of the Group I
Offered Certificates and the Class I-B-3 Certificates. The level of Excess Spread available on any
distribution date to be applied in reduction of the Certificate Principal Balances of the Group I
Offered Certificates and the Class I-B-3 Certificates and will be influenced by, among other factors,
o the overcollateralization level of the group I mortgage loans at such time, i.e.,
the extent to which interest on the group I mortgage loans is accruing on a higher
stated principal balance than the aggregate Certificate Principal Balance of the
Group I Offered Certificates and the Class I-B-3 Certificates;
o the delinquency and default experience of the group I mortgage loans;
o the level of One-Month LIBOR; and
o the provisions of the Agreement that permit principal collections to be
distributed to the Class B-IO Certificates and the Residual Certificates in each
case as provided in the Agreement when required overcollateralization levels have
been met.
To the extent that greater amounts of Excess Spread are distributed in reduction of the
Certificate Principal Balance of a class of Group I Offered Certificates and the Class I-B-3
Certificates, the weighted average life thereof can be expected to shorten. No assurance, however, can be
given as to the amount of Excess Spread to be distributed at any time or in the aggregate.
The yields to maturity of the Group I Offered Certificates and the Class I-B-3 Certificates
and, in particular the Group I Subordinate Certificates, in the order of payment priority, will be
progressively more sensitive to the rate, timing and severity of Realized Losses on the group I mortgage
loans. If an Applied Realized Loss Amount is allocated to a class of Group I Offered Certificates and
the Class I-B-3 Certificates, that class will thereafter accrue interest on a reduced Certificate
Principal Balance. Although the Applied Realized Loss Amount so allocated may be recovered on future
distribution dates to the extent Excess Cashflow is available for that purpose, there can be no
assurance that those amounts will be available or sufficient.
To the extent that the pass-through rate on the Group I Offered Certificates and the Class
I-B-3 Certificates is limited by the Net Rate Cap, the difference between (x) the interest amount payable
to such class at the applicable pass-through rate without regard to the Net Rate Cap, and (y) the
Current Interest payable to such class on an applicable distribution date will create a shortfall. Such
shortfall will be payable to the extent of Excess Cashflow, with respect to the Class I-A-1, Class
I-A-2, Class I-M-1, Class I-M-2, Class I-B-1, Class I-B-2 and Class I-B-3 Certificates, to the
extent of payments made under the Cap Contracts on the applicable distribution date. Payments under the
Cap Contracts are based on the lesser of the Certificate Principal Balance of the related class of
Certificates and the principal balance of such class based on certain prepayment assumptions. If the
group I mortgage loans do not prepay according to those assumptions, it may result in the Cap Contracts
providing insufficient funds to cover such shortfalls. In addition, each Cap Contract provides for
payment of the excess of One-Month LIBOR over a specified per annum rate, which also may not provide
sufficient funds to cover such shortfalls. The Cap Contracts related to the Group I Certificates
terminate after the distribution date occurring in October 2011.
Pass-Through Rates of the Group II Certificates
The yields to maturity on the Group II Offered Certificates will be affected by their
Pass-Through Rates. The Pass-Through Rates on the Group II Offered Certificates will be sensitive to the
adjustable mortgage rates on the related mortgage loans. As a result, these Pass-Through Rates will be
sensitive to the indices on the related mortgage loans, any periodic caps, maximum and minimum rates,
and the related gross margins.
Assumed Final Distribution Date
The assumed final distribution date for distributions on the Offered Certificates is the
distribution date occurring in December 2046. The assumed final distribution date is the distribution
date in the month following the month of the latest scheduled maturity date of any of the related
mortgage loans as of the Closing Date. Since the rate of payment (including prepayments) of principal on
the mortgage loans in the related Loan Group can be expected to exceed the scheduled rate of payments,
and could exceed the scheduled rate by a substantial amount, the disposition of the last remaining
mortgage loan may be earlier, and could be substantially earlier, than the assumed final distribution
date. Furthermore, the application of principal collections and, in the case of the Group I Offered
Certificates, excess spread, could cause the actual final distribution date for the Offered Certificates
in a Loan Group to occur significantly earlier than the assumed final distribution date. In addition,
the Sponsor or its designee may, at its option, repurchase from the trust all the (i) group I mortgage
loans on or after any distribution date on which the aggregate stated principal balances of the group I
mortgage loans are less than 20% of the Cut-off Date Stated Principal Balance of the group I mortgage
loans and (ii) group II mortgage loans on or after any distribution date on which the aggregate Stated
Principal Balance of the group II mortgage loans is less than 10% of the Cut-off Date Stated Principal
Balance of the group II mortgage loans. See "The Pooling and Servicing Agreement—Termination" herein
and "The Agreements—Termination; Retirement of Securities" in the prospectus.
Weighted Average Life
The weighted average life of a security refers to the average amount of time that will elapse
from the date of its issuance until each dollar of principal of such security will be distributed to the
investor. The weighted average life of a Certificate is determined by (a) multiplying the amount of the
reduction, if any, of the Certificate Principal Balance of such Certificate from one distribution date
to the next distribution date by the number of years from the date of issuance to the second such
distribution date, (b) adding the results and (c) dividing the sum by the aggregate amount of the
reductions in the Certificate Principal Balance of such Certificate referred to in clause (a). The
weighted average life of the Offered Certificates of each class will be influenced by the rate at which
principal on the mortgage loans is paid, which may be in the form of scheduled payments or prepayments
(including prepayments of principal by the mortgagor as well as amounts received by virtue of
condemnation, insurance or foreclosure with respect to the mortgage loans), and the timing thereof. The
actual weighted average life and term to maturity of each class of Certificates, in general, will be
shortened if the level of such prepayments of principal on the related mortgage loans increases.
Prepayments on mortgage loans are commonly measured relative to a prepayment standard or
model. The prepayment model used in this prospectus supplement with respect to the mortgage loans,
assumes a constant rate of prepayment each month, or CPR, relative to the then outstanding principal
balance of a pool of mortgage loans similar to the mortgage loans in each Loan Group. To assume a 25%
CPR or any other CPR is to assume that the stated percentage of the outstanding principal balance of the
related mortgage pool is prepaid over the course of a year. No representation is made that the mortgage
loans will prepay at these or any other rates.
The Group I Certificates and Group II Certificates were structured assuming, among other
things, a 30% CPR for the group I mortgage loans and a 25% CPR for the group II mortgage loans,
respectively. The prepayment assumption to be used for pricing purposes for the respective classes may
vary as determined at the time of sale. The actual rate of prepayment may vary considerably from the
rate used for any prepayment assumption.
The tables following the next paragraph indicate the percentages of the initial principal
amount of the indicated classes of Offered Certificates that would be outstanding after each of the
dates shown at various percentages of the CPR and the corresponding weighted average life of the
indicated class of Offered Certificates. The table is based on the following modeling assumptions:
(1) the mortgage pool consists of 1,002 mortgage loans with the characteristics
set forth in Schedule C,
(2) the mortgage loans prepay at the specified percentages of the CPR,
(3) no defaults or delinquencies occur in the payment by mortgagors of principal
and interest on the mortgage loans,
(4) scheduled payments on the mortgage loans are received, in cash, on the first
day of each month, commencing in November 2006, and are computed prior to
giving effect to prepayments received on the last day of the prior month,
(5) prepayments are allocated as described herein assuming the loss and
delinquency tests are satisfied,
(6) there are no interest shortfalls caused by (a) the application of the Relief
Act or similar state law or (b) prepayments on the mortgage loans, which in
the case of (b) have not been covered by Compensating Interest, and
prepayments represent prepayments in full of individual mortgage loans and are
received on the last day of each month, commencing in October 2006,
(7) scheduled Monthly Payments of principal and interest on the mortgage loans are
calculated on their respective principal balances (prior to giving effect to
prepayments received thereon during the preceding calendar month), mortgage
rate and remaining terms to stated maturity such that the mortgage loans will
fully amortize by their stated maturities (after taking into account any
interest only period),
(8) with respect to the Group I Certificates, the levels of One-Month LIBOR,
Six-Month LIBOR, One-Year LIBOR and One-Year Treasury remain constant at
5.33%, 5.42%, 5.46% and 5.02%, respectively,
(9) with respect to the Group II Certificates, the levels of Six-Month LIBOR,
One-Year LIBOR and One-Year Treasury remain constant at 5.43%, 5.44% and
5.10%, respectively,
(10) the Stated Principal Balance of the Class XP Certificates is $0.00,
(11) the mortgage rate on each mortgage loan will be adjusted on each interest
adjustment date (as necessary) to a rate equal to the applicable Index (as
described in (8) and (9) above), plus the applicable gross margin, subject to
maximum lifetime mortgage rates, minimum lifetime mortgage rates and periodic
caps (as applicable),
(12) scheduled Monthly Payments of principal and interest on each mortgage loan
will be adjusted in the month immediately following each interest adjustment
date (as necessary) for such mortgage loan to equal the fully amortizing
payment described in (7) above,
(13) the certificate principal balances of the Certificates are as set forth on
pages S-2 through S-5 hereof and under "Summary of Terms—Description of the
Certificates,"
(14) distributions in respect of the Offered Certificates are received in cash on
the 25th day of each month, commencing in November 2006,
(15) the Offered Certificates are purchased on October 31, 2006, and
(16) neither the Sponsor nor its designee exercises the option to repurchase the
mortgage loans in either Loan Group described under the caption "The Pooling
and Servicing Agreement—Termination" in this prospectus supplement.
For additional information regarding the mortgage loan assumptions see Schedule C to this
prospectus supplement.
MORTGAGE LOAN ASSUMPTIONS
There will be discrepancies between the characteristics of the actual mortgage loans and the
characteristics assumed in preparing the tables below. Any discrepancy may have an effect upon the
percentages of the initial principal amounts outstanding (and the weighted average lives) of the
classes of Offered Certificates set forth in the tables. In addition, to the extent that the actual
mortgage loans included in the mortgage pool have characteristics that differ from those assumed in
preparing the tables below, the classes of Offered Certificates set forth below may mature earlier or
later than indicated by the tables below. Based on the foregoing assumptions, the tables below
indicate the weighted average life of each class of Offered Certificates (other than the Interest Only
Certificates) and sets forth the percentage of the initial principal amounts of each such class that
would be outstanding after each of the distribution dates shown, at specified percentages of the CPR.
Neither the prepayment model used in this prospectus supplement nor any other prepayment model or
assumption purports 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 included in
the trust fund. Variations in the prepayment experience and the balance of the mortgage loans that
prepay may increase or decrease the percentages of the initial Certificate Principal Balances (and
weighted average lives) shown in the following tables. Variations may occur even if the average
prepayment experience of all of the mortgage loans equals any of the specified percentages of the CPR.
The timing of changes in the rate of prepayment may significantly affect the actual yield to maturity
to investors, even if the average rate of Principal Prepayments is consistent with the expectations of
investors.
Percent of Initial Certificate Principal Balance Outstanding at the
Following CPR Percentage
Class I-A Certificates Class I-M-1 Certificates
0% 10% 30% 40% 50% 0% 10% 30% 40% 50%
Distribution Date
Initial Percentage. 100 100 100 100 100 100 100 100 100 100
October 2007....... 100 89 68 57 46 100 100 100 100 100
October 2008....... 100 79 45 31 19 100 100 100 100 100
October 2009....... 100 70 29 15 5 100 100 100 100 100
October 2010....... 100 63 22 12 5 100 100 48 26 12
October 2011...... 99 55 15 7 2 100 100 33 15 6
October 2012...... 99 49 10 4 1 100 100 23 9 3
October 2013...... 98 43 7 2 * 100 94 16 6 2
October 2014...... 98 39 5 1 0 100 84 11 3 0
October 2015...... 97 35 3 * 0 100 76 8 2 0
October 2016...... 97 31 2 * 0 100 68 5 1 0
October 2017...... 94 27 1 0 0 100 59 4 0 0
October 2018...... 92 24 1 0 0 100 52 3 0 0
October 2019...... 89 21 * 0 0 100 46 2 0 0
October 2020...... 86 18 * 0 0 100 40 1 0 0
October 2021...... 83 16 0 0 0 100 35 0 0 0
October 2022...... 80 14 0 0 0 100 30 0 0 0
October 2023...... 76 12 0 0 0 100 26 0 0 0
October 2024...... 72 10 0 0 0 100 22 0 0 0
October 2025...... 68 8 0 0 0 100 19 0 0 0
October 2026...... 63 7 0 0 0 100 16 0 0 0
October 2027...... 58 6 0 0 0 100 13 0 0 0
October 2028...... 53 5 0 0 0 100 11 0 0 0
October 2029...... 47 4 0 0 0 100 9 0 0 0
October 2030...... 42 3 0 0 0 91 7 0 0 0
October 2031...... 36 2 0 0 0 78 6 0 0 0
October 2032...... 30 1 0 0 0 65 4 0 0 0
October 2033...... 23 1 0 0 0 51 3 0 0 0
October 2034...... 16 * 0 0 0 35 2 0 0 0
October 2035...... 8 0 0 0 0 18 0 0 0 0
October 2036...... 0 0 0 0 0 0 0 0 0 0
October 2037...... 0 0 0 0 0 0 0 0 0 0
October 2038...... 0 0 0 0 0 0 0 0 0 0
October 2039...... 0 0 0 0 0 0 0 0 0 0
October 2040...... 0 0 0 0 0 0 0 0 0 0
October 2041...... 0 0 0 0 0 0 0 0 0 0
October 2042...... 0 0 0 0 0 0 0 0 0 0
October 2043...... 0 0 0 0 0 0 0 0 0 0
October 2044...... 0 0 0 0 0 0 0 0 0 0
October 2045...... 0 0 0 0 0 0 0 0 0 0
October 2046...... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life
to Maturity (years)**21.58 7.83 2.58 1.78 1.26 26.92 13.76 4.95 4.07 3.95
Weighted AverageLife
to Call (years)** 21.37 6.86 2.13 1.46 1.08 26.46 11.51 3.87 3.15 2.32
______________________________
(*) Indicates a number that is greater than zero but less than 0.5%.
(**) The weighted average life of a certificate is determined by (i) multiplying the net reduction,
if any, of the Certificate Principal Balance by the number of years from the date of issuance of
the certificate to the related distribution date, (ii) adding the results, and (iii) dividing
the sum by the aggregate of the net reductions of the Certificate Principal Balance described in
(i) above.
Percent of Initial Certificate Principal Balance Outstanding at the
Following CPR Percentage
Class I-M-2 Certificates Class I-B-1 Certificates
0% 10% 30% 40% 50% 0% 10% 30% 40% 50%
Distribution Date
Initial Percentage. 100 100 100 100 100 100 100 100 100 100
October 2007....... 100 100 100 100 100 100 100 100 100 100
October 2008....... 100 100 100 100 100 100 100 100 100 100
October 2009....... 100 100 100 100 100 100 100 100 100 100
October 2010....... 100 100 48 26 12 100 100 48 26 12
October 2011...... 100 100 33 15 6 100 100 33 15 6
October 2012...... 100 100 23 9 3 100 100 23 9 3
October 2013...... 100 94 16 6 2 100 94 16 6 2
October 2014...... 100 84 11 3 0 100 84 11 3 0
October 2015...... 100 76 8 2 0 100 76 8 2 0
October 2016...... 100 68 5 1 0 100 68 5 1 0
October 2017...... 100 59 4 0 0 100 59 4 0 0
October 2018...... 100 52 3 0 0 100 52 3 0 0
October 2019...... 100 46 2 0 0 100 46 2 0 0
October 2020...... 100 40 1 0 0 100 40 1 0 0
October 2021...... 100 35 0 0 0 100 35 0 0 0
October 2022...... 100 30 0 0 0 100 30 0 0 0
October 2023...... 100 26 0 0 0 100 26 0 0 0
October 2024...... 100 22 0 0 0 100 22 0 0 0
October 2025...... 100 19 0 0 0 100 19 0 0 0
October 2026...... 100 16 0 0 0 100 16 0 0 0
October 2027...... 100 13 0 0 0 100 13 0 0 0
October 2028...... 100 11 0 0 0 100 11 0 0 0
October 2029...... 100 9 0 0 0 100 9 0 0 0
October 2030...... 91 7 0 0 0 91 7 0 0 0
October 2031...... 78 6 0 0 0 78 6 0 0 0
October 2032...... 65 4 0 0 0 65 4 0 0 0
October 2033...... 51 3 0 0 0 51 3 0 0 0
October 2034...... 35 2 0 0 0 35 2 0 0 0
October 2035...... 18 0 0 0 0 18 0 0 0 0
October 2036...... 0 0 0 0 0 0 0 0 0 0
October 2037...... 0 0 0 0 0 0 0 0 0 0
October 2038...... 0 0 0 0 0 0 0 0 0 0
October 2039...... 0 0 0 0 0 0 0 0 0 0
October 2040...... 0 0 0 0 0 0 0 0 0 0
October 2041...... 0 0 0 0 0 0 0 0 0 0
October 2042...... 0 0 0 0 0 0 0 0 0 0
October 2043...... 0 0 0 0 0 0 0 0 0 0
October 2044...... 0 0 0 0 0 0 0 0 0 0
October 2045...... 0 0 0 0 0 0 0 0 0 0
October 2046...... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life
to Maturity
(years)* 26.92 13.76 4.93 3.98 3.67 26.92 13.76 4.91 3.92 3.52
Weighted AverageLife
to Call (years)* 26.46 11.51 3.85 3.15 2.32 26.46 11.51 3.82 3.15 2.32
____________________________
(*) The weighted average life of a certificate is determined by (i) multiplying the net reduction,
if any, of the Certificate Principal Balance by the number of years from the date of issuance of
the certificate to the related distribution date, (ii) adding the results, and (iii) dividing
the sum by the aggregate of the net reductions of the Certificate Principal Balance described in
(i) above.
Percent of Initial Certificate Principal Balance Outstanding at the
Following CPR Percentage
Class I-B-2 Certificates
0% 10% 30% 40% 50%
Distribution Date
Initial Percentage. 100 100 100 100 100
October 2007....... 100 100 100 100 100
October 2008....... 100 100 100 100 100
October 2009....... 100 100 100 100 100
October 2010....... 100 100 48 26 12
October 2011...... 100 100 33 15 6
October 2012...... 100 100 23 9 3
October 2013...... 100 94 16 6 2
October 2014...... 100 84 11 3 0
October 2015...... 100 76 8 2 0
October 2016...... 100 68 5 1 0
October 2017...... 100 59 4 0 0
October 2018...... 100 52 3 0 0
October 2019...... 100 46 2 0 0
October 2020...... 100 40 1 0 0
October 2021...... 100 35 0 0 0
October 2022...... 100 30 0 0 0
October 2023...... 100 26 0 0 0
October 2024...... 100 22 0 0 0
October 2025...... 100 19 0 0 0
October 2026...... 100 16 0 0 0
October 2027...... 100 13 0 0 0
October 2028...... 100 11 0 0 0
October 2029...... 100 9 0 0 0
October 2030...... 91 7 0 0 0
October 2031...... 78 6 0 0 0
October 2032...... 65 4 0 0 0
October 2033...... 51 3 0 0 0
October 2034...... 35 2 0 0 0
October 2035...... 18 0 0 0 0
October 2036...... 0 0 0 0 0
October 2037...... 0 0 0 0 0
October 2038...... 0 0 0 0 0
October 2039...... 0 0 0 0 0
October 2040...... 0 0 0 0 0
October 2041...... 0 0 0 0 0
October 2042...... 0 0 0 0 0
October 2043...... 0 0 0 0 0
October 2044...... 0 0 0 0 0
October 2045...... 0 0 0 0 0
October 2046...... 0 0 0 0 0
Weighted Average
Life
to Maturity
(years)* 26.92 13.76 4.91 3.87 3.46
Weighted AverageLife
to Call (years)* 26.46 11.51 3.82 3.10 2.32
_____________________________
(*) The weighted average life of a certificate is determined by (i) multiplying the net reduction,
if any, of the Certificate Principal Balance by the number of years from the date of issuance of
the certificate to the related distribution date, (ii) adding the results, and (iii) dividing
the sum by the aggregate of the net reductions of the Certificate Principal Balance described in
(i) above.
Percent of Initial Certificate Principal Balance Outstanding at the
Following CPR Percentage
Class II-1A Certificates Class II-2A Certificates***
5% 15% 25% 40% 50% 5% 15% 25% 40% 50%
Distribution Date
Initial Percentage. 100 100 100 100 100 100 100 100 100 100
October 2007....... 95 84 73 57 46 95 84 73 57 46
October 2008....... 89 70 53 32 21 89 70 53 32 21
October 2009....... 84 58 38 18 9 84 58 38 18 9
October 2010....... 80 48 29 11 5 80 48 29 11 5
October 2011...... 75 40 21 6 2 75 41 21 6 2
October 2012...... 70 34 16 4 1 71 35 16 4 1
October 2013...... 66 29 12 2 1 67 29 12 2 1
October 2014...... 62 24 9 1 * 63 25 9 1 *
October 2015...... 58 20 7 1 * 59 21 7 1 *
October 2016...... 54 17 5 * * 56 18 5 * *
October 2017...... 50 14 4 * * 52 15 4 * *
October 2018...... 46 12 3 * * 48 12 3 * *
October 2019...... 43 10 2 * * 44 10 2 * *
October 2020...... 40 8 1 * * 41 8 1 * *
October 2021...... 36 7 1 * * 37 7 1 * *
October 2022...... 33 5 1 * * 34 6 1 * *
October 2023...... 30 4 1 * * 31 5 1 * *
October 2024...... 27 4 * * * 28 4 * * *
October 2025...... 25 3 * * * 25 3 * * *
October 2026...... 22 2 * * * 23 2 * * *
October 2027...... 19 2 * * * 20 2 * * *
October 2028...... 17 1 * * * 17 1 * * *
October 2029...... 14 1 * * * 15 1 * * *
October 2030...... 12 1 * * * 13 1 * * *
October 2031...... 10 1 * * * 10 1 * * *
October 2032...... 8 * * * * 8 * * * *
October 2033...... 6 * * * * 6 * * * *
October 2034...... 4 * * * * 4 * * * *
October 2035...... 2 * * * * 2 * * * *
October 2036...... 0 0 0 0 0 * * * * 0
October 2037...... 0 0 0 0 0 * * * * 0
October 2038...... 0 0 0 0 0 * * * * 0
October 2039...... 0 0 0 0 0 * * * 0 0
October 2040...... 0 0 0 0 0 * * * 0 0
October 2041...... 0 0 0 0 0 * * * 0 0
October 2042...... 0 0 0 0 0 * * * 0 0
October 2043...... 0 0 0 0 0 * * * 0 0
October 2044...... 0 0 0 0 0 * * * 0 0
October 2045...... 0 0 0 0 0 * * * 0 0
October 2046...... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life
to Maturity
(years)** 12.28 5.52 3.25 1.82 1.33 12.51 5.57 3.26 1.82 1.33
____________________________
(*) Indicates a number that is greater than zero but less than 0.5%.
(**) The weighted average life of a certificate is determined by (i) multiplying the net reduction,
if any, of the Certificate Principal Balance by the number of years from the date of issuance of
the certificate to the related distribution date, (ii) adding the results, and (iii) dividing
the sum by the aggregate of the net reductions of the Certificate Principal Balance described in
(i) above.
(***) Includes the Exchanged Certificates related to the Class II-2A-1B Certificates.
Percent of Initial Certificate Principal Balance Outstanding at the
Following CPR Percentage
Class II-3A Certificates Class II-B-1, Class II-B-2 and Class
II-B-3 Certificates
5% 15% 25% 40% 50% 5% 15% 25% 40% 50%
Distribution Date
Initial Percentage. 100 100 100 100 100 100 100 100 100 100
October 2007....... 95 84 73 57 46 100 100 100 100 100
October 2008....... 89 70 53 32 21 100 100 100 86 73
October 2009....... 84 58 38 18 9 100 100 92 67 52
October 2010....... 80 48 29 11 5 100 100 69 40 26
October 2011...... 75 41 21 6 2 100 89 51 24 13
October 2012...... 71 34 16 4 1 99 76 39 14 6
October 2013...... 67 29 12 2 1 99 64 29 9 3
October 2014...... 63 25 9 1 * 97 54 21 5 2
October 2015...... 60 21 7 1 * 94 46 16 3 1
October 2016...... 56 18 5 * * 90 38 12 2 *
October 2017...... 52 15 4 * * 85 32 9 1 *
October 2018...... 48 12 3 * * 79 27 6 1 *
October 2019...... 45 10 2 * * 73 22 5 * *
October 2020...... 41 8 1 * * 67 18 3 * *
October 2021...... 38 7 1 * * 62 15 2 * *
October 2022...... 35 6 1 * * 56 12 2 * *
October 2023...... 32 5 1 * * 51 10 1 * *
October 2024...... 29 4 * * * 46 8 1 * *
October 2025...... 26 3 * * * 42 6 1 * *
October 2026...... 23 2 * * * 37 5 * * *
October 2027...... 20 2 * * * 33 4 * * *
October 2028...... 18 1 * * * 29 3 * * *
October 2029...... 15 1 * * * 25 2 * * *
October 2030...... 13 1 * * * 21 2 * * *
October 2031...... 10 1 * * * 17 1 * * *
October 2032...... 8 * * * * 13 1 * * *
October 2033...... 6 * * * * 10 1 * * *
October 2034...... 4 * * * * 6 * * * *
October 2035...... 2 * * * 0 3 * * * *
October 2036...... * * * * 0 * * * * 0
October 2037...... * * * * 0 * * * * 0
October 2038...... * * * * 0 * * * * 0
October 2039...... * * * * 0 * * * 0 0
October 2040...... * * * 0 0 * * * 0 0
October 2041...... * * * 0 0 * * * 0 0
October 2042...... * * * 0 0 * * * 0 0
October 2043...... * * * 0 0 * * * 0 0
October 2044...... * * * 0 0 * * * 0 0
October 2045...... * * * 0 0 * * * 0 0
October 2046...... 0 0 0 0 0 0 0 0 0 0
Weighted Average
Life
to Maturity
(years)** 12.56 5.58 3.26 1.82 1.33 17.84 9.90 6.12 4.05 3.26
_________________________
(*) Indicates a number that is greater than zero but less than 0.5%.
(**) The weighted average life of a certificate is determined by (i) multiplying the net reduction,
if any, of the Certificate Principal Balance by the number of years from the date of issuance of
the certificate to the related distribution date, (ii) adding the results, and (iii) dividing
the sum by the aggregate of the net reductions of the Certificate Principal Balance described in
(i) above.
Yield Sensitivity of the Interest Only Certificates
The yield to maturity on the Class II-1X-1, Class II-2X-1, Class II-2X-2, Class II-2X-3, Class
II-2X-4, Class II-2X-5, Class II-3X-1 and Class II-BX-1 Certificates will be extremely sensitive to both
the timing of receipt of prepayments and the overall rate of principal prepayments and defaults on the
mortgage loans in Sub-Loan Group II-1, Sub-Loan Group II-2 and Sub-Loan Group II-3, respectively, which
rate may fluctuate significantly over time, because the Notional Amount of the Class II-1X-1
Certificates is equal to the aggregate Certificate Principal Balance of the Class II-1A-1 Certificates
and the Class II-1A-2 Certificates, the Notional Amount of the Class II-2X-1 Certificates is equal to
the aggregate Certificate Principal Balance of the Class II-2A-1A Certificates and the Class II-2A-2
Certificates; the Notional Amount of each of the Class II-2X-2, Class II-2X-3, Class II-2X-4 and Class
II-2X-5 Certificates is equal to the Certificate Principal Balance of the Class II-2A-1B Certificates,
the Notional Amount of the Class II-3X-1 Certificates is equal to the aggregate Certificate Principal
Balance of the Class II-3A-1 Certificates and the Class II-3A-2 Certificates, and the Notional Amount of
the Class II-BX-1 Certificates is equal to the Certificate Principal Balance of the Class II-B-1
Certificates. Investors in these Interest Only Certificates should fully consider the risk that a rapid
rate of prepayments on the mortgage loans in Sub-Loan Group II-1, Sub-Loan Group II-2 and Sub-Loan Group
II-3, as applicable, could result in the failure of such investors to fully recover their investments,
in particular because all principal prepayments on the mortgage loans in Sub-Loan Group II-1 on each
distribution date during the first seven years after the Closing Date will be allocated to the Class
II-1A Certificates, all principal prepayments on the mortgage loans in Sub-Loan Group II-2 on each
distribution date during the first seven years after the Closing Date will be allocated to the Class
II-2A Certificates and all principal prepayments on the mortgage loans in Sub-Loan Group II-3 on each
distribution date during the first seven years after the Closing Date will be allocated to the Class
II-3A Certificates (in each case subject to limited exceptions).
The following tables indicate the sensitivity of the pre-tax yield to maturity on the Interest
Only Certificates to various constant rates of prepayment on the mortgage loans by projecting the
monthly aggregate payments on the Interest Only Certificates and computing the corresponding pre-tax
yields to maturity on a corporate bond equivalent basis, based on the structuring assumptions, including
the assumptions regarding the characteristics and performance of such mortgage loans, which differ from
the actual characteristics and performance thereof, and assuming the aggregate purchase price for the
Interest Only Certificates set forth below. Any differences between such assumptions and the actual
characteristics and performance of the mortgage loans and of such Interest Only Certificates may result
in yields being different from those shown in such table. Discrepancies between assumed and actual
characteristics and performance underscore the hypothetical nature of the tables, which are provided
only to give a general sense of the sensitivity of yields in varying prepayment scenarios.
Pre-Tax Yield to Maturity of the Class II-1X-1 Certificates at the Following CPR Percentages
Assumed Purchase Price* 5% 15% 25% 40% 50%
$2,405,816.33 38.33% 24.67% 10.38% (13.18)% (30.93)%
----------------------------------------------------------------------------------------------------------
Pre-Tax Yield to Maturity of the Class II-2X-1 Certificates at the Following CPR Percentages
Assumed Purchase Price* 5% 15% 25% 40% 50%
$4,044,235.15 35.52% 21.96% 7.98% (15.26)% (32.79)%
----------------------------------------------------------------------------------------------------------
Pre-Tax Yield to Maturity of the Class II-2X-2(1) Certificates at the Following CPR Percentages
Assumed Purchase Price* 5% 15% 25% 40% 50%
$2,273,528.23 34.87% 21.35% 7.41% (15.77)% (33.26)%
----------------------------------------------------------------------------------------------------------
Pre-Tax Yield to Maturity of the Class II-2X-3(1) Certificates at the Following CPR Percentages
Assumed Purchase Price* 5% 15% 25% 40% 50%
$986,414.83 31.57% 18.22% 4.48% (18.38)% (35.63)%
----------------------------------------------------------------------------------------------------------
Pre-Tax Yield to Maturity of the Class II-2X-4(1) Certificates at the Following CPR Percentages
Assumed Purchase Price* 5% 15% 25% 40% 50%
$493,207.42 31.57% 18.22% 4.48% (18.38)% (35.63)%
----------------------------------------------------------------------------------------------------------
Pre-Tax Yield to Maturity of the Class II-2X-5(1) Certificates at the Following CPR Percentages
Assumed Purchase Price* 5% 15% 25% 40% 50%
$493,207.42 31.57% 18.22% 4.48% (18.38)% (35.63)%
----------------------------------------------------------------------------------------------------------
Pre-Tax Yield to Maturity of the Class II-3X-1 Certificates at the Following CPR Percentages
Assumed Purchase Price* 5% 15% 25% 40% 50%
$792,368.19 32.81% 19.45% 5.72% (17.17)% (34.43)%
----------------------------------------------------------------------------------------------------------
Pre-Tax Yield to Maturity of the Class II-BX-1 Certificates at the Following CPR Percentages
Assumed Purchase Price* 5% 15% 25% 40% 50%
$359,679.34 18.21% 16.64% 10.19% (0.46)% (9.03)%
----------------------------------------------------------------------------------------------------------
(*) Approximate
(1) Includes the related Exchanged Certificate.
Each pre-tax yield to maturity set forth in the preceding tables was calculated by determining
the monthly discount rate which, when applied to the assumed stream of cash flows to be paid on the
Interest Only Certificates, would cause the discounted present value of such assumed stream of cash
flows to equal the assumed purchase price listed in the table. Accrued interest is included in the
assumed purchase price in computing the yields shown. These yields do not take into account the
different interest rates at which investors may be able to reinvest funds received by them as
distributions on the Interest Only Certificates, and thus do not reflect the return on any investment in
the Interest Only Certificates when any reinvestment rates other than the discount rates set forth in
the preceding table are considered.
Notwithstanding the assumed prepayment rates reflected in the preceding tables, it is highly
unlikely that the mortgage loans will be prepaid according to one particular pattern. For this reason,
and because the timing of cash flows is critical to determining yields, the pre-tax yield to maturity on
the Interest Only Certificates are likely to differ from those shown in the table above, even if the
prepayment assumption equals the percentages of CPR indicated in the table above over any given time
period or over the entire life of the Interest Only Certificates.
There can be no assurance that the mortgage loans will prepay at any particular rate or that
the yield on the Interest Only Certificates will conform to the yields described herein. Moreover, the
various remaining terms to maturity and mortgage rates of the mortgage loans in Sub-Loan Group II-1,
Sub-Loan Group II-2 and Sub-Loan Group II-3 could produce slower or faster principal distributions than
indicated in the preceding tables at the various percentages of the CPR specified, even if the weighted
average remaining term to maturity and weighted average mortgage rate of those mortgage loans are as
assumed. Investors are urged to make their investment decisions based on their determinations as to
anticipated rates of prepayment under a variety of scenarios. Investors in the Interest Only
Certificates should fully consider the risk that a rapid rate of prepayments on the group II mortgage
loans could result in the failure of such investors to fully recover their investments.
For additional considerations relating to the yield on the Offered Certificates, see "YieldConsiderations" in the prospectus.
POOLING AND SERVICING AGREEMENTGeneral
The Certificates will be issued pursuant to the Agreement, a form of which is filed as an
exhibit to the registration statement. A current report on Form 8-K relating to the Certificates
containing a copy of the Agreement as executed will be filed by the Depositor with the Securities and
Exchange Commission within fifteen days of the initial issuance of the Certificates. The trust fund
created under the Agreement will consist of (1) all of the Depositor's right, title and interest in and
to the mortgage loans, the related mortgage notes, mortgages and other related documents, including all
interest and principal due with respect to the mortgage loans after the Cut-off Date, but excluding any
payments of principal or interest due on or prior to the Cut-off Date, (2) any mortgaged properties
acquired on behalf of certificateholders by foreclosure or by deed in lieu of foreclosure, and any
revenues received thereon, (3) the rights of the Trustee under all insurance policies required to be
maintained pursuant to the Agreement, (4) the rights of the Depositor under the Mortgage Loan Purchase
Agreement between the Depositor and the Sponsor, (5) such assets relating to the mortgage loans as from
time to time may be held in the Protected Accounts and the Distribution Account, (6) the rights with
respect to the Servicing Agreements, to the extent assigned to the Trustee, (7) the rights with respect
to the Cap Contracts and (8) any proceeds of the foregoing. Reference is made to the prospectus for
important information in addition to that set forth in this prospectus supplement regarding the trust
fund, the terms and conditions of the Agreement and the Offered Certificates. The Offered Certificates
will be transferable and exchangeable at the corporate trust offices of the Securities Administrator,
which will serve as Certificate Registrar and Paying Agent; for these purposes and for purposes of
presentment and surrender located at Sixth Street and Marquette Avenue, Minneapolis, Minnesota55479,
Attention: Corporate Trust Group, BSALTA 2006-7, and for all other purposes located at 9062 Old
Annapolis Road, Columbia, Maryland21045, Attention: Corporate Trust Group, BSALTA 2006-7. The Depositor
will provide to prospective or actual certificateholders without charge, on written request, a copy
(without exhibits) of the Agreement. Requests should be addressed to Structured Asset Mortgage
Investments II Inc., 383 Madison Avenue, New York, New York10179.
Assignment of the Mortgage Loans
At the time of issuance of the Certificates, the Depositor will cause the mortgage loans,
together with all principal and interest due on or with respect to such mortgage loans after the Cut-off
Date, to be sold to the trust. The mortgage loans in each of the Loan Groups will be identified in a
schedule appearing as an exhibit to the Agreement with each Loan Group separately identified. Such
schedule will include information as to the principal balance of each mortgage loan as of the Cut-off
Date, as well as information including, among other things, the mortgage rate, the Net Rate, the Monthly
Payment, the maturity date of each mortgage note and the Loan-to-Value Ratio.
Representations and Warranties
In the Mortgage Loan Purchase Agreement, pursuant to which the Depositor purchased (or will
purchase) the mortgage loans from the Sponsor and Master Funding LLC, the Sponsor made (or will make)
certain representations and warranties to the Depositor concerning the mortgage loans with respect to
itself and with respect to Master Funding LLC. The Trustee will be assigned all right, title and
interest in the Mortgage Loan Purchase Agreement insofar as they relate to such representations and
warranties made by the Sponsor.
The representations and warranties of the Sponsor with respect to the mortgage loans include
the following, among others:
(1) The information set forth in the mortgage loan schedule is true, complete and
correct in all material respects as of the date such representation was made;
(2) Immediately prior to the sale of the related mortgage loans pursuant to the
Mortgage Loan Purchase Agreement, the Sponsor was the sole owner of beneficial
title and holder of each mortgage and mortgage note relating to the related
mortgage loans as of the Closing Date or as of another specified date, is
conveying the same to the Depositor free and clear of any encumbrance, equity,
participation interest, lien, pledge, charge, claim or security interest and
the Sponsor has full right and authority to sell and assign each mortgage loan
pursuant to the Mortgage Loan Purchase Agreement; and
(3) As of the Closing Date there is no monetary default existing under any
mortgage or the related mortgage note and there is no material event which,
with the passage of time or with notice and the expiration of any grace or
cure period, would constitute a default, breach or event of acceleration; and
neither the Sponsor nor any of its respective affiliates has taken any action
to waive any default, breach or event of acceleration; and no foreclosure
action is threatened or has been commenced with respect to the mortgage loan.
In the case of a breach of any representation or warranty set forth above, or otherwise
included in the Mortgage Loan Purchase Agreement, which materially and adversely affects the value of
the interests of certificateholders or the Trustee in any of the mortgage loans, within 90 days from the
date of discovery or notice from the Trustee, the Depositor, the Securities Administrator or the Sponsor
of such breach, the Sponsor will either (i) cure such breach in all material respects, (ii) provide the
Trustee with a substitute mortgage loan (if within two years of the Closing Date) or (iii) purchase the
related mortgage loan at the applicable Repurchase Price. This obligation of the Sponsor to cure,
purchase or substitute shall constitute the Trustee's sole and exclusive remedy respecting a breach of
such representations and warranties.
The Custodians
Wells Fargo is acting as custodian of certain of the mortgage loan files pursuant to the
related Custodial Agreement. In that capacity, Wells Fargo is responsible to hold and safeguard the
mortgage notes and other contents of the mortgage files on behalf of the Trustee and the
certificateholders. Wells Fargo maintains each mortgage loan file in a separate file folder marked with
a unique bar code to assure loan-level file integrity and to assist in inventory management. Files are
segregated by transaction or investor. Wells Fargo has been engaged in the mortgage document custody
business for more than 25 years. Wells Fargo maintains document custody facilities in its Minneapolis,
Minnesota headquarters and in three regional offices located in Richfield, Minnesota, Irvine,
California, and Salt Lake City, Utah. As of June 30, 2006, Wells Fargo maintains mortgage custody
vaults in each of those locations with an aggregate capacity of over eleven million files.
For a general description of Wells Fargo, see the description herein under "The Master Servicer
and the Servicer—The Master Servicer."
Treasury Bank, a Division of Countrywide Bank, N.A., ("Treasury Bank") is acting as custodian
of certain of the mortgage loans pursuant to a Custodial Agreement. Treasury Bank is responsible to
hold and safeguard such mortgage notes and other contents of the mortgage files on behalf of the Trustee
and the certificateholders. Treasury Bank's principal place of business is 1199 N. Fairfax Street, Ste
500, Alexandria, VA22314. Treasury Bank's document custody facilities are located at 4100 East Los
Angeles Ave, Simi Valley, CA93063., and 4951 Savarese Circle, Tampa, FL33634. Pursuant to the
related custodial agreement, the custodian will maintain continuous custody of the mortgage notes and
the other documents included in the mortgage files related to such mortgage loans. The custodian will:
electronically segregate the mortgage files of all other documents in the custodian's, possession,
identify the mortgage as being held, and hold the mortgage files for the Trustee and the
certificateholders maintain at all times a current inventory of the mortgage files, and secure the
mortgage files in fire resistant facilities.
The Trustee
The Trustee is Citibank, N.A., a national banking association and wholly owned subsidiary of
Citigroup Inc., a Delaware corporation. Citibank, N.A. performs as trustee through the Agency and Trust
line of business, which is part of the Global Transaction Services division. Citibank, N.A. has primary
corporate trust offices located in both New York and London. Citibank, N.A. is a leading provider of
corporate trust services offering a full range of agency, fiduciary, tender and exchange, depositary and
escrow services. As of the end of the third quarter of 2006, Citibank's Agency & Trust group manages in
excess of 3.6 trillion in fixed income and equity investments on behalf of approximately 2,500
corporations worldwide. Since 1987, Citibank Agency & Trust has provided trustee services for
asset-backed securities containing pool assets consisting of airplane leases, auto loans and leases,
boat loans, commercial loans, commodities, credit cards, durable goods, equipment leases, foreign
securities, funding agreement backed note programs, truck loans, utilities, student loans and commercial
and residential mortgages. As of the end of the third quarter of 2006, Citibank, N.A. acts as trustee
and/or paying agent for approximately 300 various residential mortgage-backed transactions.
If an event of default has not occurred (or has occurred but is no longer continuing) under the
Agreement, then the Trustee will perform only such duties as are specifically set forth in the Agreement
as being the duties to be performed by the Trustee prior to the occurrence (or following the
discontinuance) of an event of default thereunder. If an event of default occurs and is continuing
under the Agreement, the Trustee is required to exercise such of the rights and powers vested in it by
the Agreement, such as (upon the occurrence and during the continuance of certain events of default)
either acting as the successor master servicer or appointing a successor master servicer, and use the
same degree of care and skill in their exercise as a prudent investor would exercise or use under the
circumstances in the conduct of such investor's own affairs. Subject to certain qualifications
specified in the Agreement, the Trustee will be liable for its own negligent action, its own negligent
failure to act and its own willful misconduct.
The Trustee's duties and responsibilities under the Agreement include, upon receipt of
resolutions, certificates and reports which are specifically required to be furnished to it pursuant to
the Agreement, examining them to determine whether they are in the form required by the Agreement,
providing to the Securities Administrator notices of the occurrence of certain events of default under
the Agreement, appointing a successor master servicer, and effecting any optional termination of the
trust.
The fee of the Trustee will be payable by the Master Servicer. The Agreement will provide that
the Trustee and any director, officer, employee or agent of the Trustee will be entitled to recover from
the Distribution Account prior to any distributions to the certificateholders all reasonable out-of
pocket expenses, disbursements and advances of the Trustee, in connection with any event of default, any
breach of the Agreement or any claim or legal action (including any pending or threatened claim or legal
action) incurred or made by the Trustee in the administration of the trust created pursuant to the
Agreement (including the reasonable compensation and disbursements of its counsel), other than any such
expense, disbursement or advance as may arise from its negligence or intentional misconduct or which is
the responsibility of the certificateholders.
The Trustee may resign at any time, in which event the Depositor will be obligated to appoint a
successor trustee. The Depositor may also remove the Trustee if the Trustee ceases to be eligible to
continue as Trustee under the Agreement and fails to resign after written request therefor by the
Depositor or if the Trustee becomes insolvent. Upon becoming aware of those circumstances, the
Depositor will be obligated to appoint a successor trustee. The Trustee may also be removed at any time
by the holders of certificates evidencing not less than 51% of the aggregate voting rights in the
related trust. Any resignation or removal of the Trustee and appointment of a successor trustee will
not become effective until acceptance of the appointment by the successor trustee as set forth in the
Agreement.
On and after the time the Master Servicer receives a notice of termination pursuant to the
Agreement, the Trustee shall automatically become the successor to the Master Servicer with respect to
the transactions set forth or provided for in the Agreement and after a transition period (not to exceed
90 days), shall be subject to all the responsibilities, duties, liabilities and limitations on
liabilities relating thereto placed on the Master Servicer by the terms and provisions of the Agreement;
provided, however, that EMC shall have the right to either (a) immediately assume the duties of the
Master Servicer or (b) select a successor Master Servicer; provided further, however, that the Trustee
shall have no obligation whatsoever with respect to any liability (other than advances deemed
recoverable and not previously made) incurred by the Master Servicer at or prior to the time of
termination. Effective on the date of such notice of termination, as compensation therefor, the Trustee
shall be entitled to all compensation, reimbursement of expenses and indemnification that the Master
Servicer would have been entitled to if it had continued to act pursuant to the Agreement except for
those amounts due the Master Servicer as reimbursement permitted under this Agreement for advances
previously made or expenses previously incurred. Notwithstanding the foregoing, the Trustee may, if it
shall be unwilling to so act, or shall, if it is prohibited by applicable law from making advances or if
it is otherwise unable to so act, appoint, or petition a court of competent jurisdiction to appoint, any
established mortgage loan servicing institution the appointment of which does not adversely affect the
then current rating of the certificates by each rating agency as the successor to the Master Servicer
pursuant to the Agreement in the assumption of all or any part of the responsibilities, duties or
liabilities of the Master Servicer pursuant to the Agreement. Any successor Master Servicer shall be an
established housing and home finance institution which is a Fannie Mae- or Freddie Mac-approved
servicer, and with respect to a successor to the Master Servicer only, having a net worth of not less
than $10,000,000; provided, that the Trustee shall obtain a letter from each Rating Agency that the
ratings, if any, on each of the Certificates will not be lowered as a result of the selection of the
successor to the Master Servicer. If the Trustee assumes the duties and responsibilities of the Master
Servicer, the Trustee shall not resign as successor master servicer until another successor master
servicer has been appointed and has accepted such appointment. Pending appointment of a successor to the
Master Servicer under the Agreement, the Trustee, unless the Trustee is prohibited by law from so
acting, shall act in such capacity as provided in the Agreement. In connection with such appointment
and assumption, the Trustee may make such arrangements for the compensation of such successor out of
payments on mortgage loans or otherwise as it and such successor shall agree; provided that such
compensation shall not be in excess of that which the Master Servicer would have been entitled to if the
Master Servicer had continued to act under the Agreement, and that such successor shall undertake and
assume the obligations of the Master Servicer to pay compensation to any third Person acting as an agent
or independent contractor in the performance of master servicing responsibilities under the Agreement.
The Trustee and such successor shall take such action, consistent with the Agreement, as shall be
necessary to effectuate any such succession.
The costs and expenses of the Trustee in connection with the termination of the Master
Servicer, appointment of a successor master servicer and, if applicable, any transfer of servicing,
including, without limitation, all costs and expenses associated with the complete transfer of all
servicing data and the completion, correction or manipulation of such servicing data as may be required
by the Trustee to correct any errors or insufficiencies in the servicing data or otherwise enable the
Trustee or successor master servicer to service the mortgage loans properly and effectively, to the
extent not paid by the terminated master servicer, will be payable to the Trustee by the Master Servicer
pursuant to the Agreement. Any successor to the Master Servicer as successor servicer under any
subservicing agreement shall give notice to the applicable mortgagors of such change of servicer and
will, during the term of its service as successor servicer, maintain in force the policy or policies
that the Master Servicer is required to maintain pursuant to the Agreement.
If the Trustee will succeed to any duties of the Master Servicer respecting the mortgage loans
as provided herein, it will do so in a separate capacity and not in its capacity as Trustee and,
accordingly, the provisions of the Agreement concerning the Trustee's duties will be inapplicable to the
Trustee in its duties as the successor to the Master Servicer in the servicing of the mortgage loans
(although such provisions will continue to apply to the Trustee in its capacity as Trustee); the
provisions of the Agreement relating to the Master Servicer, however, will apply to the Trustee in its
capacity as successor master servicer.
Upon any termination or appointment of a successor to the Master Servicer, the Trustee will
give prompt written notice thereof to the Securities Administrator and to the Rating Agencies.
In addition to having express duties under the Agreement, the Trustee, as a fiduciary, also has
certain duties unique to fiduciaries under applicable law. In general, the Trustee will be subject to
certain federal laws and, because the Agreement is governed by New York law, certain New York state
laws. As a national bank acting in a fiduciary capacity, the trustee will, in the administration of its
duties under the Agreement, be subject to certain regulations promulgated by the Office of the
Comptroller of the Currency, specifically those set forth in Chapter 12, Part 9 of the Code of Federal
Regulations. New York common law has required fiduciaries of common law trusts formed in New York to
perform their duties in accordance with the "prudent person" standard, which, in this transaction, would
require the Trustee to exercise such diligence and care in the administration of the trust as a person
of ordinary prudence would employ in managing his own property. However, under New York common law, the
application of this standard of care can be restricted contractually to apply only after the occurrence
of a default. The Agreement provides that the Trustee is subject to the prudent person standard only
for so long as an event of default has occurred and remains uncured.
The Securities Administrator
Under the terms of the Agreement, Wells Fargo is also responsible for securities
administration, which includes pool performance calculations, distributions to the certificateholders,
distribution calculations, and the preparation of monthly distribution reports. As Securities
Administrator, Wells Fargo is responsible for the preparation and filing of all REMIC tax returns on
behalf of the Trust and the preparation of monthly reports on Form 10-D, current reports on Form 8-K and
annual reports on Form 10-K that are required to be filed with the Securities and Exchange Commission on
behalf of the issuing Trust. Wells Fargo has been engaged in the business of securities administration
since June 30, 1995. As of June 30, 2006, Wells Fargo was acting as securities administrator with
respect to more than $894,773,136,436 of outstanding residential mortgage-backed securities.
For a general description of Wells Fargo, see the description herein under "The Master Servicer
and the Servicer—The Master Servicer."
The Securities Administrator shall serve as Certificate Registrar and Paying Agent. The
Securities Administrator's office for notices under the Agreement is located at 9062 Old Annapolis Road,
Columbia, Maryland21045, and for certificate transfer services is located at Sixth Street and Marquette
Avenue, Minneapolis, MN55479.
The Agreement will provide that the Securities Administrator and any director, officer,
employee or agent of the Securities Administrator will be entitled to recover from the Distribution
Account all reasonable out-of pocket expenses, disbursements and advances of the Securities
Administrator, in connection with any event of default, any breach of the Agreement or any claim or
legal action (including any pending or threatened claim or legal action) incurred or made by the
Securities Administrator in the administration of the trust created pursuant to the Agreement (including
the reasonable compensation and disbursements of its counsel), other than any such expense, disbursement
or advance as may arise from its negligence or intentional misconduct or which is the responsibility of
the certificateholders.
The Master Servicer and ServicersMaster Servicer
The Master Servicer will be responsible for master servicing the mortgage loans. Master
servicing responsibilities include:
o receiving certain funds from servicers,
o reconciling servicing activity with respect to the mortgage loans,
o oversight of all servicing activity by the servicers, and
o providing certain notices and other responsibilities as detailed in the Agreement.
The master servicer may, from time to time, outsource certain of its master servicing
functions, although any such outsourcing will not relieve the master servicer of any of its
responsibilities or liabilities under the Agreement.
For a general description of the master servicer and its activities, see "The Master Servicer
and the Servicers—The Master Servicer" in this prospectus supplement. For a general description of
material terms relating to the Master Servicer's removal or replacement, see "The Agreements—Certain
Matters Regarding the Master Servicer and the Depositor" in the prospectus.
Servicer Responsibilities
Servicers are generally responsible for the following duties:
o communicating with borrowers;
o sending monthly remittance statements to borrowers;
o collecting payments from borrowers;
o recommending a loss mitigation strategy for borrowers who have defaulted on their
loans (i.e. repayment plan, modification, foreclosure, etc.);
o accurate and timely accounting, reporting and remittance of the principal and
interest portions of monthly installment payments to the master servicer, together
with any other sums paid by borrowers that are required to be remitted;
o accurate and timely accounting and administration of escrow and impound accounts,
if applicable;
o accurate and timely reporting of negative amortization amounts, if any;
o paying escrows for borrowers, if applicable;
o calculating and reporting payoffs and liquidations;
o maintaining an individual file for each loan; and
o maintaining primary mortgage insurance commitments or certificates if required,
and filing any primary mortgage insurance claims.
Servicing and Other Compensation and Payment of Expenses
The Master Servicer will be entitled to compensation for its activities under the Agreement
which shall be equal to the investment income on funds in the Distribution Account for the period
specified in the Agreement. The Depositor may also be entitled to investment income on the funds in the
Distribution Account for the period specified in the Agreement. The Master Servicer and the Depositor
will be liable for losses on such funds as set forth in the Agreement. The amounts due to the Master
Servicer as specified in this paragraph are hereafter referred to as the Master Servicer Compensation.
Each of the Servicers will be entitled to receive a Servicing Fee as compensation for its activities
under the related Servicing Agreement equal to 1/12 of the Servicing Fee Rate multiplied by the Stated
Principal Balance of each mortgage loan serviced by such Servicer as of the Due Date in the month
preceding the month in which such distribution date occurs. However, Prepayment Interest Shortfalls on
the mortgage loans resulting from prepayments in full or in part will be offset by the related Servicer
up to an amount equal to its aggregate Servicing Fee due in such month or, upon a Servicer's default in
the payment thereof, by the Master Servicer on the distribution date in the following calendar month to
the extent of Compensating Interest Payments as described herein.
In addition to the primary compensation described above, the applicable Servicer may be
entitled to retain assumption fees, tax service fees, late payment charges and, with respect to the
group II mortgage loans only, any prepayment charges and penalties, in each case the extent collected
from the related mortgagor and as provided in the related Servicing Agreement.
The applicable Servicer will pay all related expenses incurred in connection with its servicing
responsibilities (subject to limited reimbursement as described in the related Servicing Agreement).
Table of Fees
The following table indicates the fees expected to be paid from the cash flows from the
mortgage loans and other assets of the trust fund, while the offered certificates are outstanding.
All fees are expressed as a percentage, at an annualized rate, applied to the outstanding
aggregate principal balance of the mortgage loans.
Item Fee Paid From
______________________________________________________________________________________________________________
Servicing/Subservicing Fee(1) 0.250% through 0.420% Mortgage Loan Interest
per annum Collections
(1) The servicing/subservicing fee is paid on a first priority basis from collections allocable to
interest on the mortgage loans, prior to distributions to certificateholders.
Collection and Other Servicing Procedures
The applicable Servicers will use their reasonable efforts to ensure that all payments required
under the terms and provisions of the mortgage loans are collected, and shall follow collection
procedures comparable to the collection procedures that the Servicer employs when servicing mortgage
loans for its own account, to the extent such procedures shall be consistent with the terms of the
Servicing Agreements. The Master Servicer shall not consent to any modification that will result in the
imposition of taxes on any REMIC or otherwise adversely affect the REMIC status of the trust. Any
modified loan may remain in the Trust, and the reduction in collections resulting from a modification
may result in reduced distributions of interest or principal on, or may extend the final maturity of,
one or more classes of the related securities.
If a mortgaged property has been or is about to be conveyed by the mortgagor and the Servicers
have knowledge thereof, the Servicers will accelerate the maturity of the mortgage loan, to the extent
permitted by the terms of the related mortgage note, the terms of any primary mortgage insurance policy
and applicable law. If a Servicer reasonably believes that the due-on-sale clause cannot be enforced
under applicable law, such Servicer may enter into (i) an assumption agreement with the person to whom
such property has been or is about to be conveyed, pursuant to which such person becomes liable under
the mortgage note and the mortgagor, to the extent permitted by applicable law, remains liable thereon
or (ii) a substitution of liability agreement pursuant to which the original mortgagor is released from
liability and the purchaser of the mortgaged property is substituted as the mortgagor and becomes liable
under the mortgage note, in accordance with the terms of the Servicing Agreement. The related Servicer
will retain any fee collected for entering into an assumption agreement as additional servicing
compensation to the extent provided in the related Servicing Agreement. In regard to circumstances in
which the Servicers may be unable to enforce due-on-sale clauses, see "Legal Aspects of Mortgage
Loans—Enforceability of Certain Provisions" in the prospectus. In connection with any such assumption,
the mortgage rate borne by the related mortgage note may not be changed.
Each Servicer will establish and maintain, in addition to the Protected Account described under
"—The Protected Accounts" in this prospectus supplement, one or more accounts which comply with the
requirements of the Servicing Agreements. The Servicers will deposit and retain therein all collections
from the mortgagors for the payment of taxes, assessments, insurance premiums, or comparable items as
agent of the mortgagors as provided in the Servicing Agreements. Each of these accounts and the
investment of deposits therein shall comply with the requirements of the Servicing Agreements and shall
meet the requirements of the Rating Agencies. Withdrawals of amounts from the Protected Accounts may be
made to effect timely payment of taxes, assessments, insurance premiums, or comparable items, to
reimburse the Servicer for any advances made with respect to such items, for application to restoration
or repair of the mortgaged property, to refund to any mortgagors any sums as may be determined to be
overages, to pay to the related Servicer, or to the mortgagor to the extent required by law, interest
paid on the funds on deposit in such accounts to clear and terminate, such accounts at or at any time
after the termination of the Servicing Agreements, and to make such other withdrawals as provided in the
Servicing Agreements.
The Servicers will maintain errors and omissions insurance and fidelity bonds in certain
specified amounts.
Modifications
In instances in which a mortgage loan is in default or if default is reasonably foreseeable, a
Servicer may permit servicing modifications of the mortgage loan rather than proceeding with
foreclosure. However, the Servicer's ability to perform servicing modifications will be subject to some
limitations as described in the related Servicing Agreement, including but not limited to, a Servicer
may not (i) permit any modification that would change the related Mortgage Interest Rate, (ii) forgive
the payment of principal or interest, (iii) reduce or increase the outstanding principal balance (except
for actual payments of principal) or change the final maturity date of such Mortgage Loan.
Evidence as to Compliance
The Agreement will provide that on or before a specified date in March of each year, beginning
with the first year after the year in which the Cut-off Date occurs, the Securities Administrator, the
Master Servicer, the Servicers and each party participating in the servicing function will provide to
the Master Servicer, the Depositor and the Securities Administrator a report on an assessment of
compliance with the minimum servicing criteria established in Item 1122(a) of Regulation AB (the "AB
Servicing Criteria"). The AB Servicing Criteria include specific criteria relating to the following
areas: general servicing considerations, cash collection and administration, investor remittances and
reporting, and pool-asset administration. Such report will indicate that the AB Servicing Criteria were
used to test compliance on a platform level basis and will set out any material instances of
noncompliance.
The Agreement will also provide that the Securities Administrator, the Master Servicer, the
Servicers and each party participating in the servicing function will deliver to the Master Servicer,
the Depositor and the Securities Administrator along with its report on assessment of compliance, an
attestation report from a firm of independent public accountants on the assessment of compliance with
the AB Servicing Criteria.
The Agreement will also provide for delivery to the Master Servicer, Depositor and the
Securities Administrator, on or before a specified date in March of each year, of a separate annual
statement of compliance from each servicer to the effect that, to the best knowledge of the signing
officer, such person has fulfilled in all material respects its obligations under the Agreement or
related servicing agreement throughout the preceding year or, if there has been a material failure in
the fulfillment of any such obligation, the statement will specify such failure and the nature and
status thereof. This statement may be provided as a single form making the required statements as to
more than one Agreement or related servicing agreement.
Copies of the annual reports of assessment of compliance, attestation reports, and statements
of compliance may be obtained by certificateholders without charge, if not available on the Securities
Administrator's website, upon written request to the Master Servicer at the address of the Master
Servicer set forth above under "The Master Servicer and the Servicers—The Master Servicer." These items
will be filed with the Issuing Entity's annual report on Form 10-K, to the extent required under
Regulation AB.
Realization Upon Defaulted Mortgage Loans
Each Servicer will take such action as it deems to be in the best interest of the trust with
respect to defaulted mortgage loans and foreclose upon or otherwise comparably convert the ownership of
properties securing defaulted mortgage loans as to which no satisfactory collection arrangements can be
made. To the extent set forth in the related Servicing Agreement, each Servicer will service the
property acquired by the trust through foreclosure or deed-in-lieu of foreclosure in accordance with
procedures that such Servicer employs and exercises in servicing and administering mortgage loans for
its own account and which are in accordance with accepted mortgage servicing practices of prudent
lending institutions.
Since Insurance Proceeds cannot exceed deficiency claims and certain expenses incurred by a
Servicer, no insurance payments will result in a recovery to certificateholders which exceeds the
principal balance of the defaulted mortgage loan together with accrued interest thereon at its Net Rate.
Transfer of Master Servicing
The Master Servicer may sell and assign its rights and delegate its duties and obligations in
its entirety as master servicer under the Agreement; provided, however, that: (i) the purchaser or
transferee accepting such assignment and delegation (a) shall be a person which shall be qualified to
service mortgage loans for Fannie Mae or Freddie Mac, notwithstanding that the Master Servicer need not
be so qualified; (b) shall have a net worth of not less than $10,000,000 (unless otherwise approved by
each rating agency pursuant to clause (ii) below); (c) shall be reasonably satisfactory to the Trustee
(as evidenced in writing signed by the Trustee); and (d) shall execute and deliver to the Trustee an
agreement, in form and substance reasonably satisfactory to the Trustee, which contains an assumption by
such person of the due and punctual performance and observance of each covenant and condition to be
performed or observed by it as master servicer under the Agreement; (ii) each Rating Agency shall be
given prior written notice of the identity of the proposed successor to the Master Servicer and each
Rating Agency's rating of the Certificates in effect immediately prior to such assignment, sale and
delegation will not be downgraded, qualified or withdrawn as a result of such assignment, sale and
delegation, as evidenced by a letter to such effect delivered to the Master Servicer and the Trustee;
(iii) the Master Servicer assigning and selling the master servicing shall deliver to the Trustee an
officer's certificate and an opinion of counsel addressed to the Trustee, each stating that all
conditions precedent to such action under the Agreement have been completed and such action is permitted
by and complies with the terms of the Agreement and (iv) in the event the Master Servicer is terminated
without cause by EMC, EMC shall pay the terminated Master Servicer a termination fee equal to 0.25% of
the aggregate Stated Principal Balance of the Mortgage Loans at the time the master servicing of the
Mortgage Loans is transferred to the successor master servicer. No such assignment or delegation shall
affect any liability of the Master Servicer arising prior to the effective date thereof.
Optional Purchase of Defaulted Loans
With respect to any Mortgage Loan which as of the first day of a Fiscal Quarter is delinquent
in payment by 90 days or more or is an REO Property, the Sponsor shall have the right to purchase such
Mortgage Loan from the Trust at a price equal to the Repurchase Price; provided, however (i) that such
Mortgage Loan is still 90 days or more delinquent or is an REO Property as of the date of such purchase
and (ii) this purchase option, if not theretofore exercised, shall terminate on the date prior to the
last day of the related Fiscal Quarter. This purchase option, if not exercised, shall not be thereafter
reinstated unless the delinquency is cured and the Mortgage Loan thereafter again becomes 90 days or
more delinquent or becomes an REO Property, in which case the option shall again become exercisable as
of the first day of the related Fiscal Quarter.
The Protected Accounts
Each Servicer will establish and maintain one or more accounts, referred to herein as the
Protected Accounts, into which it will deposit on a daily basis all collections of principal and
interest on any mortgage loans, including but not limited to Principal Prepayments, Insurance Proceeds,
Liquidation Proceeds (less amounts reimbursable to the Servicer out of Liquidation Proceeds in
accordance with the applicable Servicing Agreement), the Repurchase Price for any mortgage loans
repurchased, and advances made from such Servicer's own funds (less the Servicing Fee). All Protected
Accounts and amounts at any time credited thereto shall comply with the requirements of the applicable
Servicing Agreement and shall meet the requirements of the Rating Agencies with respect thereto.
On the date specified in the applicable Servicing Agreement, the related Servicer will withdraw
or cause to be withdrawn from the applicable Protected Accounts and any other permitted accounts and
will remit to the Securities Administrator for deposit in the Distribution Account the available funds
of each Loan Group for such distribution date.
The Distribution Account
The Securities Administrator shall establish and maintain in the name of the Trustee, for the
benefit of the certificateholders, an account, referred to herein as the Distribution Account, into
which the Servicers will remit amounts collected on the mortgage loans and any required advances and the
Master Servicer will remit advances (to the extent required to make advances) from the Master Servicer's
own funds (less the Master Servicer's expenses, as provided in the Agreement). The Distribution Account
and amounts at any time credited thereto shall comply with the requirements of the Agreement and shall
meet the requirements of the Rating Agencies. The Securities Administrator will deposit in the
Distribution Account, as received, the following amounts:
(i) Any amounts withdrawn from a Protected Account or other permitted account;
(ii) Any Monthly Advance and Compensating Interest Payments;
(iii) Any Insurance Proceeds or Net Liquidation Proceeds received by the Master
Servicer which were not deposited in a Protected Account or other permitted
account;
(iv) The Repurchase Price with respect to any mortgage loans repurchased and all
proceeds of any mortgage loans or property acquired in connection with the
optional termination of the Trust;
(v) Any amounts required to be deposited with respect to losses on permitted
investments; and
(vi) Any other amounts received by the Master Servicer and required to be deposited
in the Distribution Account pursuant to the Agreement.
The amount at any time credited to the Distribution Account shall be in general (i) fully
insured by the FDIC to the maximum coverage provided thereby or (ii) invested in the name of the
Trustee, in such permitted investments selected by the Depositor or deposited in demand deposits with
such depository institutions as selected by the Depositor, provided that time deposits of such
depository institutions would be a permitted investment (as specified in the Agreement).
On each distribution date, the Securities Administrator shall pay the certificateholders in
accordance with the provisions set forth under "Description of the Certificates—Distributions on the
Group I Certificates," and "—Distributions on the Group II Certificates" in this prospectus supplement.
The Reserve Fund
The Securities Administrator shall establish and maintain in the name of the Trustee, for the
benefit of the holders of the Group I Offered, Class I-B-3 and Class B-IO Certificates, an account,
referred to as the Reserve Fund, into which on each distribution date, amounts received under each Cap
Contract will be deposited in accordance with the provisions as set forth under "The Cap Contracts" in
this prospectus supplement. The amount at any time on deposit in the Reserve Fund held in trust for the
benefit of the Group I Offered, Class I-B-3 and Class B-IO Certificates shall, at the written direction
of the Class B-IO certificateholder, be held either (i) uninvested in a trust or deposit account of the
Securities Administrator with no liability for interest or other compensation thereon or (ii) invested
in permitted investments that mature no later than the Business Day prior to the next succeeding
Distribution Date. Any losses on such permitted investments shall not in any case be a liability of the
Securities Administrator but an amount equal to such losses shall be given by the Class B-IO
certificateholders to the Securities Administrator out of such certificateholders' own funds immediately
as realized, for deposit by the Securities Administrator into the Reserve Fund.
On each distribution date, amounts held in the Reserve Fund for the benefit of the related
Group I Certificates will be allocated first, to the Class I-A Certificates and then to the Class I-M-1,
Class I-M-2, Class I-B-1, Class I-B-2 and Class I-B-3 Certificates, in that order, in each case to the
extent of amounts available for distribution in the Reserve Fund and in accordance with the provisions
set forth with respect thereto under "The Cap Contracts" in this prospectus supplement.
Voting Rights
Voting rights of the trust in general will be allocated among the classes of Certificates
(other than the Residual Certificates) based upon their respective Certificate Principal Balances;
provided that voting rights equal to 1.00% of the total amount will be allocated to the Residual
Certificates.
Reports to Certificateholders
On each distribution date, the Securities Administrator will make available a report setting
forth certain information with respect to the composition of the payment being made, the Certificate
Principal Balance of an individual Certificate following such payment and certain other information
relating to the Certificates and the mortgage loans (and, at its option, any additional files containing
the same information in an alternative format), to be provided to each holder of Certificates and the
Rating Agencies via the Securities Administrator's internet website located at www.ctslink.com. Parties
that are unable to use the above distribution option are entitled to have a paper copy mailed to them
via first class mail by calling the Securities Administrator's customer service desk at (301) 815-6600
and indicating such. The Securities Administrator will have the right to change the way such reports are
distributed in order to make such distribution more convenient and/or more accessible to the above
parties, and the Securities Administrator will provide timely and adequate notification to all above
parties regarding any such changes.
Termination
The obligations of the Trustee, the Master Servicer and the Securities Administrator created by
the Agreement will terminate upon (i) the later of the making of the final payment or other liquidation,
or any advance with respect thereto, of the last mortgage loan subject thereto or the disposition of all
property acquired upon foreclosure or acceptance of a deed in lieu of foreclosure of any such mortgage
loans, (ii) the payment to certificateholders of all amounts required to be paid to them pursuant to the
Agreement or (iii) the repurchase by or at the direction of the Sponsor or its designee of all of the
mortgage loans and all related REO Property in the trust, as further discussed below.
On any distribution date on which the aggregate Stated Principal Balance of (i) the group I
mortgage loans is less than 20% of the aggregate Stated Principal Balance of the group I mortgage loans
as of the Cut-Off Date or (ii) the group II mortgage loans is less than 10% of the aggregate Stated
Principal Balance of the group II mortgage loans as of the Cut-Off Date, the Sponsor or its designee may
repurchase from the trust all group I mortgage loans or group II mortgage loans, as the case may be,
remaining outstanding and any REO Property related to group I mortgage loans or group II mortgage loans,
as the case may be, remaining in the trust at a purchase price equal to the sum of (a) the unpaid
principal balance of the related mortgage loans (other than mortgage loans related to REO Property), net
of the principal portion of any unreimbursed Monthly Advances relating to the related mortgage loans
made by the purchaser, plus accrued but unpaid interest thereon at the applicable mortgage rate to, but
not including, the first day of the month of repurchase, (b) the appraised value of any related REO
Property, less the good faith estimate of the Master Servicer of liquidation expenses to be incurred in
connection with its disposal thereof (but not more than the unpaid principal balance of the related
mortgage loan, together with accrued but unpaid interest on that balance at the applicable mortgage
rate, but not including the first day of the month of repurchase), (c) unreimbursed out-of-pocket costs
of the Master Servicer, including unreimbursed servicing advances and the principal portion of any
unreimbursed Monthly Advances, made on the related mortgage loans prior to the exercise of such
repurchase and (d) any unreimbursed costs and expenses of the Trustee, each Custodian and the Securities
Administrator payable in accordance with the terms of the Agreement. The Sponsor or such designee, if
not the Master Servicer or an affiliate, shall be deemed to represent that one of the following will be
true and correct: (i) the exercise of such option shall not result in a non-exempt prohibited
transaction under ERISA or Section 4975 of the Code or (ii) the Sponsor or such designee is (A) not a
party in interest with respect to any Plan (as defined below) and (B) is not a "benefit plan investor"
(other than a plan sponsored or maintained by the Sponsor or such designee, provided that no assets of
such plan are invested or deemed to be invested in the Certificates). If the holder of this option is
unable to exercise such option by reason of the preceding sentence, then the Master Servicer may
exercise such option. Any such repurchase will result in the retirement of, in the case of the group I
mortgage loans, all of the Group I Certificates and in the case of the group II mortgage loans, all of
the Group II Certificates. The trust may also be terminated and the Certificates retired on any
distribution date upon the Depositor's determination, based upon an opinion of counsel, that the status
of the trust fund as a REMIC has been lost or that a substantial risk exists that such status will be
lost for the then current taxable year. In no event will the trust created by the Agreement continue
beyond the expiration of 21 years from the death of the survivor of the persons named in the Agreement.
See "The Agreements—Termination; Retirement of Securities" in the prospectus.
FEDERAL INCOME TAX CONSEQUENCESGeneral
Upon the issuance of the Offered Certificates, Orrick, Herrington & Sutcliffe LLP, counsel to
the Depositor, will deliver its opinion generally to the effect that, assuming compliance with all
provisions of the Agreement, for federal income tax purposes, each REMIC election made by the Trust will
qualify as a REMIC under the Internal Revenue Code of 1986 referred to herein as the Code. The Offered
Certificates will represent ownership of regular interests in a REMIC and are herein referred to as the
REMIC Regular Certificates. The Group I Offered Certificates will also represent ownership of an
interest in the related cap contracts. The Group I Offered Certificates will also represent certain
rights to the payment of Basis Risk Shortfall Carry-forward Amounts. See "Characterization of the GroupI Offered Certificates". The interests evidenced by the Residual Certificates will be designated as the
residual interests in the REMICs. All holders of REMIC Regular Certificates are advised to see "FederalIncome Tax Consequences" in the prospectus for a discussion of the anticipated federal income tax
consequences of the purchase, ownership and disposition of the REMIC Regular Certificates.
The portions of the REMIC Regular Certificates that represent ownership of regular interests in
a REMIC generally will be taxable as debt obligations under the Code, and interest paid or accrued on
those portions of the REMIC Regular Certificates, including any original issue discount with respect to
any REMIC Regular Certificates issued with original issue discount, will be taxable to
certificateholders in accordance with the accrual method of accounting, regardless of their usual method
of accounting. It is anticipated that, for federal income tax purposes, some of the REMIC Regular
Certificates may be issued with original issue discount. See "Federal Income Tax
Consequences—REMICS—Taxation of Owners of REMIC Regular Certificates—Original Issue Discount" in the
prospectus. The Internal Revenue Service referred to herein as the IRS, has issued OID regulations under
Sections 1271 to 1275 of the Code generally addressing the treatment of debt instruments issued with
original issue discount referred to herein as the OID Regulations. All purchasers of REMIC Regular
Certificates are urged to consult their tax advisors for advice regarding the effect, in any, of the
original issue discount provisions and regulations on the purchase of the REMIC Regular Certificates.
The prepayment assumption that will be used in determining the rate of accrual of original issue
discount with respect to the Group I Certificates is 30% CPR and with respect to the Group II
Certificates is 25% CPR. The prepayment assumption represents a rate of payment of unscheduled
principal on a pool of mortgage loans, expressed as an annualized percentage of the outstanding
principal balance of such mortgage loans at the beginning of each period. See "Yield on the
Certificates—Weighted Average Lives" herein for a description of the prepayment assumption model used
herein. However, no representation is made as to the rate at which prepayments actually will occur.
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 a REMIC Regular Certificate may be able to select a method for
recognizing original issue discount that differs from that used by the Securities Administrator in
preparing reports to the certificateholders and the IRS.
Certain classes of the REMIC Regular Certificates may be treated for federal income tax
purposes as having been issued at a premium. Whether any holder of such a class of Certificates will be
treated as holding a certificate with amortizable bond premium will depend on such certificateholder's
purchase price and the distributions remaining to be made on such Certificate 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. See "Federal Income
Tax Consequences—REMICS—Taxation of Owners of REMIC Regular Certificates—Original Issue Discount" and
"—Premium" in the prospectus.
We make no representation on whether the Offered Certificates (or what, if any, portion
thereof) will constitute "real estate assets" or whether the interest (or any portion) thereon will be
considered "interest on obligations secured by mortgages on real property", in each case for real estate
investment trusts. In addition, we make no representation on whether the Offered Certificates (or what,
if any, portion thereof) will constitute a "regular interest in a REMIC" under section 7701(a)(19)(C)
for purposes of domestic building and loan associations.
For further information regarding the federal income tax consequences of investing in the
Offered Certificates, see "Federal Income Tax Consequences—REMICS" in the prospectus.
Characterization of the Group I Offered Certificates
All holders of the Group I Offered Certificates will be entitled (subject to specific
priorities and to the extent of related Basis Risk Shortfall Carry-forward Amounts, Unpaid Realized Loss
Amounts, Current Interest and Interest Carry-forward Amounts) to receive as payments of Basis Risk
Shortfall Carry-forward Amounts, certain of the amounts deposited into the Reserve Fund from the excess
cash flow and the Cap Contracts. Accordingly, holders of the Group I Offered Certificates will be
treated for federal income tax purposes as owning a regular interest in a REMIC and a beneficial
ownership interest in the right to receive payments from the Reserve Fund, which is not included in any
REMIC. The treatment of amounts received by the certificateholder with respect to such
certificateholder's right to receive Basis Risk Shortfall Carry-forward Amounts as a result of the
application of the Net Rate Cap or excess amounts from the Cap Contracts will depend upon the portion of
such certificateholder's purchase price allocable thereto. Under the REMIC regulations, each holder of a
Group I Offered Certificate must allocate its purchase price for its Certificate between its undivided
interest in the related REMIC regular interest and its interest in the right to receive payments from
the Reserve Fund in respect of any Basis Risk Shortfall Carry-forward Amounts or excess amounts from the
Cap Contracts in accordance with the relative fair market values of each property right. Holders of the
Group I Offered Certificates may also have to allocate basis to the Reserve Fund on account of the right
to receive Unpaid Realized Loss Amounts, Current Interest and Interest Carry-forward Amounts, although
the Securities Administrator intends to treat such payments as advances (in which event it is likely
that no basis should be allocated to such rights). Such allocations will be used for, among other
things, purposes of computing any original issue discount, market discount or premium, as well as for
determining gain or loss on disposition. No representation is or will be made as to the relative fair
market values thereof. Generally, payments made to Certificates with respect to any Basis Risk
Shortfall Carry-forward Amounts or excess amounts from the Cap Contracts will be included in income
based on, and the purchase price allocated to the Reserve Fund may be amortized in accordance with, the
regulations relating to notional principal contracts. In the case of non-corporate holders of the Group
I Offered Certificates the amortization of the purchase price may be subject to limitations as an
itemized deduction, and may not be useable at all, if the taxpayer is subject to the alternative minimum
tax. However, regulations have been proposed that modify the taxation of notional principal contracts
that contain contingent nonperiodic payments. As the application of such regulations (i.e., whether they
apply, and if so, how they apply) are, at this time, unclear, holders of the Group I Offered
Certificates should consult with their own tax advisors with respect to the proper treatment of their
interest in the Reserve Fund.
In the event that the right to receive payments under one of the Cap Contracts is characterized
as a "notional principal contract" for federal income tax purposes, upon the sale of a related Group I
Offered Certificate, the amount of the sale allocated to the selling certificateholder's right to
receive payments under the Cap Contract would be considered a "termination payment" under the notional
principal contract regulations allocable to the related certificate. A selling certificateholder would
have gain or loss from such a termination of the right to receive distributions in respect of the
payments under the Cap Contract equal to (i) any termination payment it received or is deemed to have
received minus (ii) the unamortized portion of any amount paid, or deemed paid, by the certificateholder
upon entering into or acquiring its interest in the right to receive payments under the Cap Contract.
Gain or loss realized upon the termination of the right to receive payments under a Cap
Contract will generally be treated as capital gain or loss. Moreover, in the case of a bank or thrift
institution, Internal Revenue Code Section 582(c) would likely not apply to treat such gain or loss as
ordinary.
Exchangeable Certificates
For a discussion of special tax considerations applicable to the Exchangeable Securities see
"Federal Income Tax Consequences—Taxation of Classes of Exchangeable Securities" in the Prospectus.
Penalty Protection
If penalties were asserted against purchasers of the Certificates offered hereunder in respect
of their treatment of the Certificates for tax purposes, the summary of tax considerations contained,
and the opinions stated, herein and in the prospectus may not meet the conditions necessary for
purchasers' reliance on that summary and those opinions to exculpate them from the asserted penalties.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in the underwriting agreement, the Offered
Certificates, are being purchased from the Depositor by the Underwriter upon issuance. The Underwriter
is an affiliate of the Depositor and the Sponsor. The Offered Certificates will be offered by the
Underwriter (only as and if issued and delivered to and accepted by the Underwriter) from time to time
in negotiated transactions or otherwise at varying prices to be determined at the time of sale. Proceeds
to the Depositor are expected to be approximately 101.50% of the aggregate principal balance of the
Offered Certificates, as of the Cut-off Date, plus accrued interest thereon, but before deducting
expenses payable by the Depositor in connection with the Offered Certificates which are estimated to be
approximately $1,252,719.
The Depositor will indemnify the Underwriter against certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended, or will contribute to payments the Underwriter
may be required to make in respect thereof.
The Underwriter may effect these transactions by selling the underwritten certificates to or
through dealers, and those dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the underwriter for whom they act as agent. In connection with the sale
of the underwritten certificates, the Underwriter may be deemed to have received compensation from the
Depositor in the form of underwriting compensation. The Underwriter and any dealers that participate
with the underwriters in the distribution of the related underwritten certificates may be deemed to be
underwriters and any profit on the resale of the underwritten certificates positioned by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
SECONDARY MARKET
There is currently no secondary market for the Certificates and no assurances are made that
such a market will develop. The Underwriter intends to establish a market in the Offered Certificates,
but is not obligated to do so. Any such market, even if established, may or may not continue.
The primary source of information available to investors concerning the Offered Certificates
will be the monthly statements discussed in the prospectus under "Description of the Securities—Reports
to Securityholders" in this prospectus supplement, which will include information as to the Certificate
Principal Balance of the Offered Certificates and the status of the applicable form of credit
enhancement. There can be no assurance that any additional information regarding the Offered
Certificates will be available through any other source. In addition, the Depositor is not aware of any
source through which price information about the Offered Certificates will be generally available on an
ongoing basis. The limited nature of information regarding the Offered Certificates may adversely affect
the liquidity of the Offered Certificates, even if a secondary market for the Offered Certificates
becomes available.
LEGAL OPINIONS
Legal matters relating to the Offered Certificates will be passed upon for the Depositor and
the Underwriter by Orrick, Herrington & Sutcliffe LLP, New York, New York.
LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Depositor, the Trustee, the
Securities Administrator, the Issuing Entity, any 20% concentration originator or any Custodian, or with
respect to which the property of any of the foregoing transaction parties is subject, that are material
to the certificateholders. No legal proceedings against any of the foregoing transaction parties is
known to be contemplated by governmental authorities, that are material to the certificateholders. We
refer you to "The Sponsor" and "Servicing of the Mortgage Loans—The Servicer" for a description of the
legal proceedings against the Sponsor and the Servicer.
AFFILIATIONS, RELATIONSHIPS AND RELATED TRANSACTIONS
The Sponsor, the Issuing Entity, the underwriter, Master Funding LLC and the Depositor are
affiliated parties. The Master Servicer, the Securities Administrator and Wells Fargo Bank, National
Association, as a Custodian, are the same entity. There are no affiliations between the Sponsor, the
Depositor, the underwriter, Master Funding LLC or the Issuing Entity and any of the Trustee, the
Securities Administrator, the Master Servicer, any 10% concentration originator (other than EMC), any
10% concentration servicer (other than EMC), the Cap Counterparty or any Custodian. There are no
affiliations among the Master Servicer, the Trustee, any 10% concentration originator or any 10%
concentration servicer. There are currently no business relationships, agreements, arrangements,
transactions or understandings between (a) the Sponsor, the Depositor, the underwriter, Master Funding
LLC or the Issuing Entity and (b) any of the parties referred to in the preceding sentence, or any of
their respective affiliates, that were entered into outside the normal course of business or that
contain terms other than would be obtained in an arm's length transaction with an unrelated third party
and that are material to the investor's understanding of the Certificates, or that, except as otherwise
disclosed herein, relate to the Certificates or the pooled assets. Except as otherwise disclosed
herein, no such business relationship, agreement, arrangement, transaction or understanding has existed
during the past two years.
RATINGS
It is a condition to the issuance of each class of Offered Certificates that it receives at
least the ratings set forth below from S&P, Moody's and Fitch.
Offered Certificates S&P Moody's Fitch
Class I-A-1 AAA Aaa N/A
Class I-A-2 AAA Aaa N/A
Class II-1A-1 AAA Aaa AAA
Class II-1A-2 AAA Aa1 AAA
Class II-1X-1 AAA Aaa AAA
Class II-2A-1A AAA Aaa AAA
Class II-2A-1B AAA Aaa AAA
Class II-2A-2 AAA Aa1 AAA
Class II-2X-1 AAA Aaa AAA
Class II-2X-2 AAA Aaa AAA
Class II-2X-3 AAA Aaa AAA
Class II-2X-4 AAA Aaa AAA
Class II-2X-5 AAA Aaa AAA
Class II-3A-1 AAA Aaa AAA
Class II-3A-2 AAA Aa1 AAA
Class II-3X-1 AAA Aaa AAA
Class I-M-1 AA Aa2 N/A
Class I-M-2 A A2 N/A
Class I-B-1 BBB Baa2 N/A
Class I-B-2 BBB- Baa3 N/A
Class II-B-1 N/A N/A AA
Class II-BX-1 N/A N/A AA
Class II-B-2 N/A N/A A
Class II-B-3 N/A N/A BBB
The ratings assigned by S&P, Moody's and Fitch to mortgage pass-through certificates address
the likelihood of the receipt of all distributions on the mortgage loans by the related
certificateholders under the agreements pursuant to which such certificates were issued. S&P's, Moody's
and Fitch's ratings take into consideration the credit quality of the related mortgage pool, structural
and legal aspects associated with such certificates, and the extent to which the payment stream in the
mortgage pool is adequate to make payments required under such certificates. S&P's, Moody's and Fitch's
ratings on such certificates do not, however, constitute a statement regarding frequency of prepayments
on the mortgages.
The ratings of the Rating Agencies do not address the possibility that, as a result of
principal prepayments or recoveries certificateholders might suffer a lower than anticipated yield.
The ratings assigned to the Offered Certificates should be evaluated independently from similar
ratings on other types of securities. A rating is not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by the Rating Agencies.
The Depositor has not requested a rating of the Offered Certificates by any rating agency other
than the Rating Agencies. However, there can be no assurance as to whether any other rating agency will
rate the Offered Certificates or, in such event, what rating would be assigned to the Offered
Certificates by such other rating agency. The ratings assigned by such other rating agency to the
Offered Certificates may be lower than the ratings assigned by the Rating Agencies.
The fees paid by the Depositor to the Rating Agencies at closing include a fee for ongoing
surveillance by the Rating Agencies for so long as any Certificates are outstanding. However, the
Rating Agencies are under no obligation to the Depositor to continue to monitor or provide a rating on
the Certificates.
LEGAL INVESTMENT
The Offered Certificates (other than the Class I-M-2, Class I-B-1, Class I-B-2, Class II-B-2
and Class II-B-3 Certificates) will constitute "mortgage related securities" for purposes of the
Secondary Mortgage Market Enhancement Act of 1984 referred to herein as SMMEA so long as they are rated
in one of the two highest rating categories by a nationally recognized statistical rating organization
and, as such, will be legal investments for certain entities to the extent provided in SMMEA, subject to
state laws overriding SMMEA. Certain states have enacted legislation overriding the legal investment
provisions of SMMEA. It is not anticipated that the Class I-M-2, Class I-B-1, Class I-B-2, Class II-B-2
and Class II-B-3 Certificates will be rated in one of the two highest rating categories and therefore
will not constitute "mortgage related securities" for purposes of SMMEA. The Class I-M-2, Class I-B-1,
Class I-B-2, Class II-B-2 and Class II-B-3 Certificates are referred to herein as the Non-SMMEA
Certificates. The appropriate characterization of the Non-SMMEA Certificates under various legal
investment restrictions, and thus the ability of investors subject to these restrictions to purchase
Non-SMMEA Certificates, may be subject to significant interpretative uncertainties.
The Office of Thrift Supervision referred to herein as the OTS has issued Thrift Bulletins 73a,
entitled "Investing in Complex Securities" referred to herein as TB 73a, which is effective as of
December 18, 2001 and applies to savings associations regulated by the OTS, and 13a, entitled
"Management of Interest Rate Risk, Investment Securities, and Derivatives Activities" referred to herein
as TB 13a, which is effective as of December 1, 1998, and 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. The OTS recommends, with respect to purchases of specific
securities, additional analysis, including, among others, analysis of repayment terms, legal structure,
expected performance of the Issuing Entity and any underlying assets as well as analysis of the effects
of payment priority, with respect to a 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 OTS's due diligence requirements 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 the OTS may require divestiture of such securities. The 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 purposes of each of TB 73a and TB
13a, "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 (that is, 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 (i) 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 the interest rate risk factor, TB
73a recommends that savings associations should follow the guidance set forth in TB 13a.
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 while a
thrift institution should conduct its own in-house pre-acquisition analysis, 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.
All investors whose investment activities are subject to legal investment laws and regulations
or to review by certain regulatory authorities may be subject to restrictions on investment in the
Certificates. Any such institution is encouraged to consult its own legal advisors in determining
whether and to what extent there may be restrictions on its ability to invest in the Certificates. See
"Legal Investment Matters" in the prospectus.
ERISA CONSIDERATIONS
Fiduciaries of employee benefit plans subject to Title I of the Employee Retirement Income
Security Act of 1974, as amended (referred to herein as ERISA), should consider the ERISA fiduciary
investment standards before authorizing an investment by any such plan in the Certificates. In addition,
fiduciaries of employee benefit plans subject to Title I of ERISA, as well as certain plans or other
retirement arrangements that are not subject to Title I of ERISA but are subject to Section 4975 of the
Code (such as individual retirement accounts and Keogh plans covering only a sole proprietor or
partners), or any entity whose underlying assets include plan assets by reason of a plan or account
investing in such entity, including an insurance company general account (collectively referred to
herein as Plan(s)), are encouraged to consult with their legal counsel to determine whether an
investment in the Certificates will cause the assets of the Trust (referred to herein as Trust Assets)
to be considered plan assets pursuant to the plan asset regulations set forth at 29 C.F.R. § 2510.3-101
(referred to herein as the Plan Asset Regulations), thereby subjecting the Plan to the prohibited
transaction rules with respect to the Trust Assets and the Trustee, the Master Servicer or the Servicers
to the fiduciary investments standards of ERISA, or cause the excise tax provisions of Section 4975 of
the Code to apply to the Trust Assets, unless an exemption granted by the United States Department of
Labor (referred to herein as the DOL) applies to the purchase, sale, transfer or holding of the
Certificates.
The DOL has issued Prohibited Transaction Exemption 90-30 (as most recently amended by
Prohibited Transaction Exemption 2002-41) (referred to herein as the Underwriter's Exemption) to the
Underwriter which may apply to the Offered Certificates. However, the Underwriter's Exemption contains
a number of conditions which must be met for the exemption to apply, including the requirements that (i)
the investing Plan must be an "accredited investor" as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act and (ii) the Offered Certificates be rated
at least "BBB-" (or its equivalent) by Fitch Inc., or Fitch, S&P or Moody's, at the time of the Plan's
purchase, provided that no Mortgage Loan has an LTV in excess of 100% on the Closing Date. See "ERISAConsiderations" in the prospectus. The DOL amended the Underwriter's Exemption in Prohibited Transaction
Exemption 2002-41 (67 Fed. Reg. 54487, September 22, 2002) to allow the trustee to be affiliated with
the underwriter in spite of the restriction in PTE 2000-58 to the contrary.
The Underwriter's Exemption is expected to apply to the Offered Subordinate Certificates if the
conditions described above are satisfied. Therefore, each beneficial owner of a Offered Subordinate
Certificate or any interest therein shall be deemed to have represented, by virtue of its acquisition or
holding of that Certificate or interest therein, that either (i) that Certificate was rated at least
"BBB-" at the time of purchase, (ii) such beneficial owner is not a benefit plan investor, or (iii) (1)
it is an insurance company, (2) the source of funds used to acquire or hold the certificate or interest
therein is an "insurance company general account," as such term is defined in DOL Prohibited Transaction
Class Exemption ("PTCE") 95-60, and (3) the conditions in Sections I and III of PTCE 95-60 have been
satisfied.
If any Subordinate Certificate or any interest therein is acquired or held in violation of the
conditions described in the preceding paragraph, the next preceding permitted beneficial owner will be
treated as the beneficial owner of that Subordinate Certificate, retroactive to the date of transfer to
the purported beneficial owner. Any purported beneficial owner whose acquisition or holding of that
Certificate or interest therein was effected in violation of the conditions described in the preceding
paragraph shall indemnify and hold harmless the Depositor, the Trustee, the Securities Administrator,
the Master Servicer, a Servicer, any subservicer, and the trust from and against any and all
liabilities, claims, costs or expenses incurred by those parties as a result of that acquisition or
holding.
Before purchasing an Offered Certificate, a fiduciary of a Plan should itself confirm that the
Certificate constitutes "securities" for purposes of the Underwriter's Exemption and that the specific
and general conditions of the Underwriter's Exemption and the other requirements set forth in the
Underwriter's Exemption would be satisfied. The Residual Certificates do not satisfy the requirements of
the Underwriter's Exemption and may not be purchased by or on behalf of, or with plan assets of, any
Plan. Any Plan fiduciary that proposes to cause a Plan to purchase a Certificate is encouraged to
consult with its counsel with respect to the potential applicability to such investment of the fiduciary
responsibility and prohibited transaction provisions of ERISA and Section 4975 of the Code to the
proposed investment. For further information regarding the ERISA considerations of investing in the
Certificates, see "ERISA Considerations" in the prospectus.
A governmental plan, as defined in Section 3(32) of ERISA, is not subject to Title I of ERISA
or Section 4975 of the Code. However, such governmental plan may be subject to Federal, state and local
law, which is, to a material extent, similar to the fiduciary provisions of ERISA or Section 4975. A
fiduciary of a governmental plan should make its own determination as to the propriety of such
investment under applicable fiduciary or other investment standards.
The sale of any Certificates to a Plan is in no respect a representation by the Underwriter
that such an investment meets all relevant legal requirements with respect to investments by Plans
generally or any particular Plan or that such an investment is appropriate for Plans generally or any
particular Plan.
AVAILABLE INFORMATION
The Depositor is subject to the informational requirements of the Exchange Act and in
accordance therewith files reports and other information with the Commission. Reports and other
information filed by the Depositor can be inspected and copied at the Public Reference Room maintained
by the Commission at 100 F Street NE, Washington, DC 20549, and its Regional Offices located as follows:
Chicago Regional Office, 500 West Madison, 14th Floor, Chicago, Illinois60661; New York Regional
Office, 233 Broadway, New York, New York10279. Copies of the material can also be obtained from the
Public Reference Section of the Commission, 100 F Street NE, Washington, DC 20549, at prescribed rates
and electronically through the Commission's Electronic Data Gathering, Analysis and Retrieval system at
the Commission's Website (http://www.sec.gov). Information about the operation of the Public Reference
Room may be obtained by calling the Securities and Exchange Commission at (800) SEC-0330. Exchange Act
reports as to any series filed with the Commission will be filed under the Issuing Entity's name. The
Depositor does not intend to send any financial reports to certificate holders.
The Issuing Entity's annual reports on Form 10-K (including reports of assessment of compliance
with the AB Servicing Criteria, attestation reports, and statements of compliance, discussed in
"Description of the Certificates,""Reports to Certificateholders" and "Servicing of the Mortgage
Loans—Evidence as to Compliance", required to be filed under Regulation AB), periodic distribution
reports on Form 10-D, certain current reports on Form 8-K and amendments to those reports, together with
such other reports to certificate holders or information about the certificate as shall have been
prepared and filed with the Commission by the Securities Administrator will be posted on the Securities
Administrator's internet web site as soon as reasonably practicable after it has been electronically
filed with, or furnished to, the Commission. The address of the website is: www.ctslink.com.
REPORTS TO CERTIFICATEHOLDERS
So long as the Issuing Entity is required to file reports under the Exchange Act, those reports
will be made available as described above under "Available Information".
If the Issuing Entity is no longer required to file reports under the Exchange Act, periodic
distribution reports will be posted on the Securities Administrator's website referenced above under
"Available Information" as soon as practicable. Annual reports of assessment of compliance with the AB
Servicing Criteria, attestation reports, and statements of compliance will be provided to registered
holders of the related securities upon request free of charge, if not available on the Securities
Administrator's website. See "Servicing of the Mortgage Loans—Evidence as to Compliance" and
"Description of the Certificates—Reports to Certificateholders."INCORPORATION OF INFORMATION BY REFERENCE
There are incorporated into this prospectus supplement by reference all documents, including
but not limited to the financial statements and reports filed or caused to be filed or incorporated by
reference by the depositor with respect to a trust fund pursuant to the requirements of Sections 13(a)
or 15(d) of the Exchange Act, prior to the termination of the offering of the Offered Certificates of
the related series. All documents subsequently filed by the Depositor pursuant to Sections 13(a) or
15(d) of the Exchange Act in respect of any offering prior to the termination of the offering of the
Certificates shall also be deemed incorporated by reference into this prospectus supplement.
The Depositor will provide or cause to be provided without charge to each person to whom this
prospectus supplement is delivered in connection with the offering of one or more classes of Offered
Certificates, upon written or oral request of the person, a copy of any or all the reports incorporated
in this prospectus supplement, in each case to the extent the reports relate to one or more of such
classes of the Offered Certificates, other than the exhibits to the documents, unless the exhibits are
specifically incorporated by reference in the documents. Requests should be directed in writing to
Structured Asset Mortgage Investments II Inc., 383 Madison Avenue, New York, New York10179, Attention:
Secretary, or by telephone at (212) 272-2000. The Depositor has determined that its financial statements
will not be material to the offering of any Offered Certificates.
GLOSSARY
Below are abbreviated definitions of significant capitalized terms used in this prospectus
supplement. Capitalized terms used in this prospectus supplement but not defined in this prospectus
supplement shall have the meanings assigned to them in the accompanying prospectus. The Agreement and
Mortgage Loan Purchase Agreement may each contain more complete definitions of the terms used in this
prospectus supplement and reference should be made to those agreements for a more complete understanding
of these terms.
Accrued Certificate Interest — With respect to the Group II Certificates of any class on any
distribution date, is equal to the amount of interest accrued during the Interest Accrual Period at the
applicable Pass-Through Rate on the Certificate Principal Balance or Notional Amount, as applicable, of
such Certificate immediately prior to such distribution date, less (1) in the case of a Group II Senior
Certificate, such Certificate's share of (a) Prepayment Interest Shortfalls on the related Group II
Mortgage Loans, to the extent not covered by Compensating Interest Payments paid by a Servicer or the
Master Servicer, (b) interest shortfalls on the related Group II Mortgage Loans resulting from the
application of the Relief Act or similar state law and (c) after the Group II Cross-Over Date, the
interest portion of any Realized Losses on the related Group II Mortgage Loans, and (2) in the case of a
Group II Subordinate Certificate, such Certificate's share of (a) Prepayment Interest Shortfalls on the
related Group II Mortgage Loans, to the extent not covered by Compensating Interest Payments paid by a
Servicer or the Master Servicer, (b) interest shortfalls on the related Group II Mortgage Loans
resulting from the application of the Relief Act or similar state law and (c) the interest portion of
any Realized Losses on the related Group II Mortgage Loans. The Group II Senior Percentage of
Prepayment Interest Shortfalls and interest shortfalls resulting from the application of the Relief Act
will be allocated among the Group II Senior Certificates in the related Certificate Group in proportion
to the amount of Accrued Certificate Interest that would have been allocated thereto in the absence of
such shortfalls. The Group II Subordinate Percentage of Prepayment Interest Shortfalls and interest
shortfalls resulting from the application of the Relief Act will be allocated among the Group II
Subordinate Certificates in proportion to the amount of Accrued Certificate Interest that would have
been allocated thereto in the absence of such shortfalls. Accrued Certificate Interest is calculated on
the basis of a 360-day year consisting of twelve 30-day months. No Accrued Certificate Interest will be
payable with respect to any class of Group II Certificates after the distribution date on which the
outstanding Certificate Principal Balance of such Certificate has been reduced to zero.
Agreement — The Pooling and Servicing Agreement, dated as of October 1, 2006, among the Depositor, the
Sponsor, Wells Fargo Bank, National Association, as master servicer and securities administrator, and
the Trustee.
Allocable Share — With respect to any class of Group II Subordinate Certificates (other than the Class
II-BX-1 Certificates) on any distribution date will generally equal such class's pro rata share (based
on the Certificate Principal Balance of each class entitled thereto) of the Group II Subordinate Optimal
Principal Amount; provided, however, that no class of Group II Subordinate Certificates (other than the
class of Group II Subordinate Certificates with the lowest numerical designation) shall be entitled on
any distribution date to receive distributions pursuant to clauses (2), (3) and (5) of the definition of
Group II Subordinate Optimal Principal Amount unless the Class Prepayment Distribution Trigger for the
related class is satisfied for such distribution date. Notwithstanding the foregoing, if on any
distribution date the Certificate Principal Balance of any class of Group II Subordinate Certificates
for which the Class Prepayment Distribution Trigger was satisfied on such distribution date is reduced
to zero, any amounts distributable to such class pursuant to clauses (2), (3) and (5) of the definition
of Group II Subordinate Optimal Principal Amount to the extent of such class's remaining Allocable
Share, shall be distributed to the remaining classes of Group II Subordinate Certificates in reduction
of their respective Certificate Principal Balances, sequentially, in the order of their numerical
Class designations.
Applied Realized Loss Amount — With respect to any class of Group I Offered Certificates and Class I-B-3
Certificates and as to any distribution date, the sum of the Realized Losses with respect to the group I
mortgage loans, which have been applied in reduction of the Certificate Principal Balance of such class,
in an amount equal to the amount, if any, by which, (i) the aggregate Certificate Principal Balance of
all of the Group I Certificates (after all distributions of principal on such distribution date) exceeds
(ii) the aggregate Stated Principal Balance of the group I mortgage loans for such distribution date.
Available Funds —With respect to the group II mortgage loans, for any distribution date and each
Sub-Loan Group included in Loan Group II, an amount which generally includes, (1) all previously
undistributed payments on account of principal (including the principal portion of Monthly Payments,
Principal Prepayments and the principal amount of Net Liquidation Proceeds) and all previously
undistributed payments on account of interest received after the Cut-Off Date and on or prior to the
related Determination Date, in each case, from the group II mortgage loans in the related Sub-Loan
Group, (2) any Monthly Advances and Compensating Interest Payments made by the Master Servicer or a
Servicer for such distribution date in respect of the group II mortgage loans in the related Sub-Loan
Group, (3) any amounts reimbursed by the Master Servicer in connection with losses on certain eligible
investments for the group II mortgage loans and (4) any amount allocated from the Available Funds of
another Sub-Loan Group in accordance with paragraph (C) under "Description of the
Certificates—Distributions on the Group II Certificates", net of (x) fees payable to, and amounts
reimbursable to, the Master Servicer, the Servicers, the Securities Administrator, the Trustee and any
Custodian allocable to Group II or any Group II Sub-Loan Group as provided in the Agreement and (y)
investment earnings on amounts on deposit in the Distribution Account.
Bankruptcy Loss — Any loss resulting from a bankruptcy court, in connection with a personal bankruptcy
of a mortgagor, (1) establishing the value of a mortgaged property at an amount less than the
Outstanding Principal Balance of the mortgage loan secured by such mortgaged property or (2) reducing
the amount of the Monthly Payment on the related mortgage loan.
Basis Risk Shortfall — If on the distribution date the Pass-Through Rate for the Class I-A, Class I-M
and Class I-B Certificates is based upon the Net Rate Cap, the excess, if any, of:
1. The amount of Current Interest that such class would have been entitled to receive on
such distribution date had the applicable pass-though rate been calculated at a per
annum rate equal to the lesser of (i) One-Month LIBOR plus the related Margin and (ii)
11.50%, over
2. The amount of Current Interest on such class calculated using a pass-though rate equal
to the Net Rate Cap for such distribution date.
Basis Risk Shortfall Carry-forward Amount — As of any distribution date for the Class I-A, Class I-M and
Class I-B Certificates, the sum of the Basis Risk Shortfall for such distribution date and the Basis
Risk Shortfall for all previous distribution dates not previously paid, together with interest thereon
at a rate equal to the lesser of (i) One-Month LIBOR plus the related Margin and (ii) 11.50% per annum,
for such distribution date.
Book-entry Certificates — The Senior Certificates and the Offered Subordinate Certificates issued,
maintained and transferred at the DTC.
Business Day — Generally any day other than a Saturday, a Sunday or a day on which the New York Stock
Exchange or Federal Reserve is closed or on which banking institutions in New York City or in any
jurisdiction in which the Trustee, the Securities Administrator, the Master Servicer, the related
Custodian or any Servicer is located are obligated by law or executive order to be closed.
Cap Contracts — The interest rate cap contracts that the Trustee, on behalf of the Trust, entered into
with respect to the Class I-A, Class I-M-1, Class I-M-2, Class I-B-1, Class I-B-2 and Class I-B-3
Certificates with the Cap Counterparty for the benefit of the holders of the Class I-A, Class I-M-1,
Class I-M-2, Class I-B-1, Class I-B-2 and Class I-B-3 Certificates.
Cap Counterparty — Wachovia Bank, National Association
Certificate Group — With respect to Loan Group I, the Class I-A-1 Certificates and the Class I-A-2
Certificates, with respect to Sub-Loan Group II-1, the Class II-1A-1, Class II-1A-2 and Class II-1X-1
Certificates, with respect to Sub-Loan Group II-2, the Class II-2A-1A, Class II-2A-1B, Class II-2A-2,
Class II-2X-1, Class II-2X-2, Class II-2X-3, Class II-2X-4 and Class II-2X-5 Certificates and with
respect to Sub-Loan Group II-3, the Class II-3A-1, Class II-3A-2 and Class II-3X-1 Certificates.
Certificate Owner — Any person who is the beneficial owner of a Book-entry Certificate.
Certificate Principal Balance — With respect to any Offered Certificate and the Class I-B-3, Class
II-B-4, Class II-B-5 and Class II-B-6 Certificates, other than any Interest Only Certificates, as of any
distribution date will equal such Certificate's initial principal amount on the Closing Date plus, in
the case of a Subordinate Certificate, any Subsequent Recoveries added to the Certificate Principal
Balance of such Certificate, as described under "Description of the Certificates—Allocation of Realized
Losses; Subordination" in this prospectus supplement, and as reduced by (1) all amounts allocable to
principal previously distributed with respect to such Certificate, (2) solely in the case of a Group II
Certificate, the principal portion of all Realized Losses (other than Realized Losses resulting from
Debt Service Reductions) previously allocated to such Certificate (taking into account the applicable
Loss Allocation Limitation), (3) solely in the case of a Group I Certificate, any Applied Realized Loss
Amounts allocated to such class on previous distribution dates and (4) solely in the case of a Group II
Subordinate Certificate, such Certificate's pro rata share, if any, of the related Subordinate
Certificate Writedown Amount for previous distribution dates.
Certificates — The Group I Certificates and the Group II Certificates.
Class I-A Principal Distribution Amount – With respect to any applicable distribution date, an amount
equal to the excess, if any, of:
1 the aggregate Certificate Principal Balance of the Class I-A Certificates immediately
prior to such distribution date over
2. the excess of
(a) the aggregate Stated Principal Balance of the group I mortgage loans for such
distribution date, over
(b) the aggregate Stated Principal Balance of the group I mortgage loans for such
distribution date multiplied by the sum of (x) approximately 13.50% and (y)
the Current Specified Overcollateralization Percentage for such distribution
date.
Class I-B-1 Principal Distribution Amount — With respect to any applicable distribution date, an amount
equal to the excess, if any of:
1. the Certificate Principal Balance of the Class I-B-1 Certificates immediately prior to
such distribution date over
2. the excess of
(a) the aggregate Stated Principal Balance of the group I mortgage loans for such
distribution date, over
(b) the sum of
(1) the Certificate Principal Balance of the Class I-A Certificates
(after taking into account the payment of the Class I-A Principal
Distribution Amount on such distribution date),
(2) the Certificate Principal Balance of the Class I-M-1 certificates
(after taking into account the payment of the Class I-M-1 Principal
Distribution Amount on such distribution date),
(3) the Certificate Principal Balance of the Class I-M-2 certificates
(after taking into account the payment of the Class I-M-2 Principal
Distribution Amount on such distribution date),
(4) and the aggregate Stated Principal Balance of the group I mortgage
loans for such distribution date multiplied by the sum of (x)
approximately 2.20% and (y) the Current Specified
Overcollateralization Percentage for such distribution date.
Class I-B-2 Principal Distribution Amount — With respect to any applicable distribution date, an amount
equal to the excess, if any of:
1. the Certificate Principal Balance of the Class I-B-2 certificates immediately prior to
such distribution date over
2. the excess of
(a) the aggregate Stated Principal Balance of the group I mortgage loans for such
distribution date, over
(b) the sum of
(1) the Certificate Principal Balance of the Class I-A Certificates
(after taking into account the payment of the Class I-A Principal
Distribution Amount on such distribution date),
(2) the Certificate Principal Balance of the Class I-M-1 certificates
(after taking into account the payment of the Class I-M-1 Principal
Distribution Amount on such distribution date),
(3) the Certificate Principal Balance of the Class I-M-2 certificates
(after taking into account the payment of the Class I-M-2 Principal
Distribution Amount on such distribution date),
(4) the Certificate Principal Balance of the Class I-B-1 certificates
(after taking into account the payment of the Class I-B-1 Principal
Distribution Amount on such distribution date),
(5) and the aggregate Stated Principal Balance of the group I mortgage
loans for such distribution date multiplied by the sum of (x)
approximately 1.20% and (y) the Current Specified
Overcollateralization Percentage for such distribution date.
Class I-B-3 Principal Distribution Amount — With respect to any applicable distribution date, an amount
equal to the excess, if any of:
1. the Certificate Principal Balance of the Class I-B-3 certificates immediately prior to
such distribution date over
2. the excess of
(a) the aggregate Stated Principal Balance of the group I mortgage loans for such
distribution date, over
(b) the sum of
(1) the Certificate Principal Balance of the Class I-A Certificates
(after taking into account the payment of the Class I-A Principal
Distribution Amount on such distribution date),
(2) the Certificate Principal Balance of the Class I-M-1 certificates
(after taking into account the payment of the Class I-M-1 Principal
Distribution Amount on such distribution date),
(3) the Certificate Principal Balance of the Class I-M-2 certificates
(after taking into account the payment of the Class I-M-2 Principal
Distribution Amount on such distribution date),
(4) the Certificate Principal Balance of the Class I-B-1 certificates
(after taking into account the payment of the Class I-B-1 Principal
Distribution Amount on such distribution date),
(5) the Certificate Principal Balance of the Class I-B-2 certificates
(after taking into account the payment of the Class I-B-2 Principal
Distribution Amount on such distribution date), and
(6) the aggregate Stated Principal Balance of the group I mortgage loans
for such distribution date multiplied by the Current Specified
Overcollateralization Percentage for such distribution date.
Class I-M-1 Principal Distribution Amount — With respect to any applicable distribution date, an amount
equal to the excess, if any of:
1. the Certificate Principal Balance of the Class I-M-1 certificates immediately prior to
such distribution date over
2. the excess of
(a) the aggregate Stated Principal Balance of the group I mortgage loans for such
distribution date, over
(b) the sum of
(1) the Certificate Principal Balance of the Class I-A Certificates
(after taking into account the payment of the Class I-A Principal
Distribution Amount on such distribution date), and
(2) the aggregate Stated Principal Balance of the group I mortgage loans
for such distribution date multiplied by the sum of (x) approximately
8.60% and (y) the Current Specified Overcollateralization Percentage
for such distribution date.
Class I-M-2 Principal Distribution Amount — With respect to any applicable distribution date, an amount
equal to the excess, if any of:
1. the Certificate Principal Balance of the Class I-M-2 certificates immediately prior to
such distribution date over
2. the excess of
(a) the aggregate Stated Principal Balance of the group I mortgage loans for such
distribution date, over
(b) the sum of
(1) the Certificate Principal Balance of the Class I-A Certificates
(after taking into account the payment of the Class I-A Principal
Distribution Amount on such distribution date),
(2) the Certificate Principal Balance of the Class I-M-1 certificates
(after taking into account the payment of the Class I-M-1 Principal
Distribution Amount on such distribution date), and
(3) the aggregate Stated Principal Balance of the group I mortgage loans
for such distribution date multiplied by the sum of (x) approximately
4.80% and (y) the Current Specified Overcollateralization Percentage
for such distribution date.
Class II-2X Certificates — Each of the Class II-2X-1, Class II-2X-2, Class II-2X-3, Class II-2X-4 and
Class II-2X-5 Certificates.
Class Prepayment Distribution Trigger — A test, which shall be satisfied for a class of Group II
Subordinate Certificates (other than the Class II-BX-1 Certificates) for a distribution date if the
fraction (expressed as a percentage), the numerator of which is the aggregate Certificate Principal
Balance of such class and each class of Group II Subordinate Certificates subordinate thereto, if any,
and the denominator of which is the Stated Principal Balances of all of the group II mortgage loans as
of the related Due Date, equals or exceeds such percentage calculated as of the Closing Date.
Closing Date — October 31, 2006.
Combination Group — Any group of Exchangeable Certificates set forth in Schedule B attached hereto.
Compensating Interest Payments — Any payments made by the Master Servicer or a Servicer from its own
funds to cover Prepayment Interest Shortfalls.
Countrywide — Countrywide Home Loans, Inc.
Countrywide Servicing — Countrywide Home Loans Servicing LP.
CPR — A constant rate of prepayment on the mortgage loans.
Current Interest — With respect to each class of Group I Offered Certificates and the Class I-B-3
Certificates and each distribution date, the interest accrued at the applicable pass-through rate for
the applicable Interest Accrual Period on the Certificate Principal Balance or Notional Amount of such
class plus any amount previously distributed with respect to interest for such class that is recovered
as a voidable preference by a trustee in bankruptcy, reduced by any Prepayment Interest Shortfall to the
extent not covered by Compensating Interest Payments, and any shortfalls resulting from the application
of the Relief Act, in each case to the extent allocated to such class of Certificates as described under
clause First in "Description of the Certificates—Distributions on the Group I Certificates" in this
prospectus supplement.
Current Specified Enhancement Percentage — For any distribution date, a percentage obtained by dividing
(x) the sum of (i) the aggregate Certificate Principal Balance of the Group I Subordinate Certificates
and (ii) the Overcollateralization Amount, in each case prior to the distribution of the Principal
Distribution Amount on such distribution date, by (y) the aggregate Stated Principal Balance of the
group I mortgage loans as of the end of the related Due Period.
Current Specified Overcollateralization Percentage — For any distribution date, a percentage equivalent
of a fraction, the numerator of which is the Overcollateralization Target Amount for such distribution
date and the denominator of which is the aggregate Stated Principal Balance of the group I mortgage
loans for such distribution date.
Custodial Agreement — As applicable, (i) the custodial agreement, dated as of the Closing Date, among
the Trustee, Structured Asset Mortgage Investments II Inc., as company, Wells Fargo Bank, National
Association, as Master Servicer and Securities Administrator, and Wells Fargo Bank, National
Association, as Custodian or (ii) the custodial agreement dated as of the Closing Date, among the
Trustee, Structured Asset Mortgage Investments II Inc., as company, Wells Fargo, National Association,
as Master Servicer and Securities Administrator, and Treasury Bank, A Division of Countrywide Bank,
N.A., as Custodian.
Custodian — Either Wells Fargo Bank, National Association, or Treasury Bank, a Division of Countrywide
Bank, N.A., as applicable.
Cut-Off Date — October 1, 2006.
Debt Service Reduction — A Bankruptcy Loss that results from a court reducing the amount of the monthly
payment on the related mortgage loan, in connection with the personal bankruptcy of a mortgagor.
Deficient Valuation — A Bankruptcy Loss that results if a court, in connection with a personal
bankruptcy of a mortgagor, establishes the value of a mortgaged property at an amount less than the
unpaid principal balance of the mortgage loan secured by such mortgaged property.
Determination Date — With respect to any distribution date and the mortgage loans is the date specified
in the applicable Servicing Agreement.
Due Date — With respect to each mortgage loan, the date in each month on which its Monthly Payment is
due if such due date is the first day of a month and otherwise is deemed to be the first day of the
following month or such other date specified in the applicable Servicing Agreement.
Due Period — With respect to any distribution date, the period commencing on the second day of the month
preceding the calendar month in which such distribution date occurs and ending at the close of business
on the first day of the month in which such distribution date occurs.
EMC — EMC Mortgage Corporation.
Excess Cashflow — With respect to any distribution date, the sum of (i) the Remaining Excess Spread for
such distribution date and (ii) the Overcollateralization Release Amount for such distribution date.
Excess Spread — With respect to any distribution date, the excess, if any, of the Interest Funds for
such distribution date over the sum of the Current Interest on the Group I Offered Certificates and
Class I-B-3 and Interest Carry-forward Amounts on the Group I Senior Certificates on such distribution
date.
Exchangeable Certificates — Any of the Class II-2A-1B, Class II-2X-2, Class II-2X-3, Class II-2X-4 and
Class II-2X-5 Certificates.
Exchanged Certificates — Any Exchangeable Certificates which have been exchanged pursuant to the terms
of the Pooling and Servicing Agreement.
Extra Principal Distribution Amount — With respect to any distribution date, the lesser of (a) the
excess, if any, of the Overcollateralization Target Amount for such distribution date over the
Overcollateralization Amount for such distribution date and (b) the Excess Spread for such distribution
date.
Fitch — Fitch Ratings, and any successor in interest.
Group I Certificates — The Group I Offered Certificates, the Class I-B-3 Certificates, the Class XP
Certificates and the Class B-IO Certificates.
Group I Offered Certificates — The Class I-A-1, Class I-A-2, Class I-M-1, Class I-M-2, Class I-B-1 and
Class I-B-2 Certificates.
Group I Senior Certificates — The Class I-A-1 Certificates and Class I-A-2 Certificates.
Group I Subordinate Certificates — The Class I-M-1, Class I-M-2, Class I-B-1, Class I-B-2 and Class
I-B-3 Certificates.
Group II Certificates — The Group II Senior Certificates and the Group II Subordinate Certificates.
Group II Cross-Over Date — The distribution date on which the Certificate Principal Balance of the Group
II Subordinate Certificates are reduced to zero.
Group II Offered Certificates — The Group II Senior Certificates and the Group II Offered Subordinate
Certificates.
Group II Offered Subordinate Certificates — The Class II-B-1, Class II-BX-1, Class II-B-2 and Class
II-B-3 Certificates.
Group II Senior Certificates — The Class II-1A-1, Class II-1A-2, Class II-1X-1, Class II-2A-1A, Class
II-2A-1B, Class II-2A-2, Class II-2X-1, Class II-2X-2, Class II-2X-3, Class II-2X-4, Class II-2X-5,
Class II-3A-1, Class II-3A-2 and Class II-3X-1 Certificates.
Group II Senior Optimal Principal Amount — With respect to each Certificate Group related to a Sub-Loan
Group and each distribution date will be an amount equal to the sum of the following (but in no event
greater than the aggregate Certificate Principal Balance of the related Certificate Group in such
Sub-Loan Group immediately prior to such distribution date):
(1) the Group II Senior Percentage of the principal portion of all Monthly Payments due on
the mortgage loans in the related Sub-Loan Group on the related Due Date, as specified
in the amortization schedule at the time applicable thereto (after adjustment for
previous principal prepayments but before any adjustment to such amortization schedule
by reason of any bankruptcy or similar proceeding or any moratorium or similar waiver
or grace period if the distribution date occurs prior to the Group II Cross-Over Date);
(2) the Group II Senior Prepayment Percentage of the Stated Principal Balance of each
mortgage loan in the related Sub-Loan Group which was the subject of a prepayment in
full received by the Servicers during the applicable Prepayment Period;
(3) the Group II Senior Prepayment Percentage of the amount of all partial prepayments
allocated to principal received during the applicable Prepayment Period in respect of
mortgage loans in the related Sub-Loan Group;
(4) the lesser of (a) the Group II Senior Prepayment Percentage of the sum of (i) all Net
Liquidation Proceeds allocable to principal received in respect of each mortgage loan
in the related Sub-Loan Group that became a Liquidated Mortgage Loan during the
related Prepayment Period (other than mortgage loans described in the immediately
following clause (ii)) and all Subsequent Recoveries received in respect of each
Liquidated Mortgage Loan in the related Sub-Loan Group during the related Due Period
and (ii) the Stated Principal Balance of each such mortgage loan in the related
Sub-Loan Group purchased by an insurer from the Trustee during the related Prepayment
Period pursuant to the related primary mortgage insurance policy, if any, or
otherwise; and (b) the Group II Senior Percentage of the sum of (i) the Stated
Principal Balance of each mortgage loan in the related Sub-Loan Group which became a
Liquidated Mortgage Loan during the related Prepayment Period (other than the mortgage
loans described in the immediately following clause (ii)) and all Subsequent
Recoveries received in respect of each Liquidated Mortgage Loan in the related
Sub-Loan Group during the related Due Period and (ii) the Stated Principal Balance of
each such mortgage loan in the related Sub-Loan Group that was purchased by an insurer
from the Trustee during the related Prepayment Period pursuant to the related primary
mortgage insurance policy, if any or otherwise;
(5) any amount allocated to the Available Funds of the related Sub-Loan Group in
accordance with paragraph (E) under "Description of the Certificates—Distributions on
the Group II Certificates;" herein; and
(6) the Group II Senior Prepayment Percentage of the sum of (a) the Stated Principal
Balance of each mortgage loan in the related Sub-Loan Group which was repurchased by
the Sponsor in connection with such distribution date and (b) the excess, if any, of
the Stated Principal Balance of a mortgage loan in the related Sub-Loan Group that has
been replaced by the Sponsor with a substitute mortgage loan pursuant to the Mortgage
Loan Purchase Agreement in connection with such distribution date over the Stated
Principal Balance of such substitute mortgage loan.
Group II Senior Percentage —With respect to each Certificate Group related to a Sub-Loan Group and any
distribution date, the lesser of (a) 100% and (b) the percentage obtained by dividing the Certificate
Principal Balance of the Group II Senior Certificates (other than the Senior Interest Only Certificates)
in the related Certificate Group immediately preceding such distribution date by the aggregate Stated
Principal Balance of the group II mortgage loans in the related Sub-Loan Group as of the beginning of
the related Due Period.
Group II Senior Prepayment Percentage — With regards to a Certificate Group related to a Sub-Loan Group
and any distribution date occurring during the periods set forth below will be as follows:
Period (dates inclusive) Group II Senior Prepayment Percentage
November 2006 – October 2013 100%
November 2013 – October 2014 Group II Senior Percentage for the Group II Senior
Certificates plus 70% of the Group II Subordinate
Percentage for the related Sub-Loan Group.
November 2014 – October 2015 Group II Senior Percentage for the Group II Senior
Certificates plus 60% of the Group II Subordinate
Percentage or the related Sub-Loan Group.
November 2015 – October 2016 Group II Senior Percentage for the Group II Senior
Certificates plus 40% of the Group II Subordinate
Percentage or the related Sub-Loan Group.
November 2016 – October 2017 Group II Senior Percentage for the Group II Senior
Certificates plus 20% of the Group II Subordinate
Percentage or the related Sub-Loan Group.
November 2017 and thereafter Group II Senior Percentage for the Group II Senior
Certificates.
No scheduled reduction to the Group II Senior Prepayment Percentage for the related Certificate
Group shall be made as of any distribution date unless, as of the last day of the month preceding such
distribution date (1) the aggregate Stated Principal Balance of the group II mortgage loans in all
related Sub-Loan Groups delinquent 60 days or more (including for this purpose any such mortgage loans
in foreclosure and such mortgage loans with respect to which the related mortgaged property has been
acquired by the trust) averaged over the last six months, as a percentage of the aggregate Certificate
Principal Balance of the Group II Subordinate Certificates does not exceed 50% and (2) cumulative
Realized Losses on the group II mortgage loans in all related Sub-Loan Groups do not exceed (a) 30% of
the aggregate Certificate Principal Balance of the Original Group II Subordinate Principal Balance if
such distribution date occurs between and including November 2013 and October 2014, (b) 35% of the
Original Group II Subordinate Principal Balance if such distribution date occurs between and including
November 2014 and October 2015, (c) 40% of the Original Group II Subordinate Principal Balance if such
distribution date occurs between and including November 2015 and October 2016, (d) 45% of the Original
Group II Subordinate Principal Balance if such distribution date occurs between and including November
2016 and October 2017, and (e) 50% of the Original Group II Subordinate Principal Balance if such
distribution date occurs during or after November 2017.
In addition, if on any distribution date the weighted average of the Group II Subordinate
Percentages for such distribution date is equal to or greater than two times the weighted average of the
initial Group II Subordinate Percentages, and (a) the aggregate Stated Principal Balance of the group II
mortgage loans in all Sub-Loan Groups delinquent 60 days or more (including for this purpose any such
mortgage loans in foreclosure and such mortgage loans with respect to which the related mortgaged
property has been acquired by the trust), averaged over the last six months, as a percentage of the
aggregate Certificate Principal Balance of the Group II Subordinate Certificates does not exceed 50% and
(b)(i) on or prior to the distribution date occurring in October 2009, cumulative Realized Losses on the
group II mortgage loans in all Sub-Loan Groups as of the end of the related Prepayment Period do not
exceed 20% of the Original Group II Subordinate Principal Balance and (ii) after the distribution date
occurring in October 2009, cumulative Realized Losses on the group II mortgage loans in all Sub-Loan
Groups as of the end of the related Prepayment Period do not exceed 30% of the Original Group II
Subordinate Principal Balance, then, in each case, the Group II Senior Prepayment Percentage for the
Group II Senior Certificates for such distribution date will equal the Group II Senior Percentage for
the related Certificate Group; provided, however, if on such distribution date the Group II Subordinate
Percentage is equal to or greater than two times the initial Group II Subordinate Percentage on or prior
to the distribution date occurring in October 2009 and the above delinquency and loss tests are met,
then the Group II Senior Prepayment Percentage for the Group II Senior Certificates in the related
Certificate Group for such distribution date, will equal the Group II Senior Percentage for such
Certificates plus 50% of the Group II Subordinate Percentage on such distribution date.
Notwithstanding the foregoing, if on any distribution date, the percentage, the numerator of
which is the aggregate Certificate Principal Balance of the Group II Senior Certificates in any loan
group immediately preceding such distribution date, and the denominator of which is the Stated Principal
Balance of the related group II mortgage loans as of the beginning of the related Due Period, exceeds
such percentage as of the Cut-off Date, then the Senior Prepayment Percentage for such distribution date
with respect to Sub-Loan Group will equal 100%.
Group II Subordinate Certificates — The Class II-B-1, Class II-BX-1, Class II-B-2, Class II-B-3, Class
II-B-4, Class II-B-5 and Class II-B-6 Certificates.
Group II Subordinate Optimal Principal Amount — With respect to Loan Group II and each distribution date
will be an amount equal to the sum of the following (but in no event greater than the aggregate
Certificate Principal Balance of the Group II Subordinate Certificates immediately prior to such
distribution date):
(1) the Group II Subordinate Percentage of the principal portion of all Monthly Payments
due on each group II mortgage loan in the related Sub-Loan Group on the related Due
Date, as specified in the amortization schedule at the time applicable thereto (after
adjustment for previous principal prepayments but before any adjustment to such
amortization schedule by reason of any bankruptcy or similar proceeding or any
moratorium or similar waiver or grace period);
(2) the Group II Subordinate Prepayment Percentage of the Stated Principal Balance of each
group II mortgage loan in the related Sub-Loan Group which was the subject of a
prepayment in full received by the Servicers during the applicable Prepayment Period;
(3) the Group II Subordinate Prepayment Percentage of the amount all partial prepayments
of principal received in respect of the mortgage loans in the related Sub-Loan Group
during the applicable Prepayment Period;
(4) the excess, if any, of (a) the Net Liquidation Proceeds allocable to principal
received in respect of each group II mortgage loan that became a Liquidated Mortgage
Loan during the related Prepayment Period and all Subsequent Recoveries received in
respect of each Liquidated Mortgage Loan during the related Due Period over (b) the
sum of the amounts distributable to the holders of the Group II Senior Certificates in
the related Certificate Group pursuant to clause (4) of the definition of Group II
Senior Optimal Principal Amount on such distribution date;
(5) the Group II Subordinate Prepayment Percentage of the sum of (a) the Stated Principal
Balance of each group II mortgage loan in the related Sub-Loan Group which was
repurchased by the Sponsor in connection with such distribution date and (b) the
difference, if any, between the Stated Principal Balance of a group II mortgage loan
in the related Sub-Loan Group that has been replaced by the Sponsor with a substitute
mortgage loan pursuant to the mortgage loan purchase agreement in connection with such
distribution date and the Stated Principal Balance of such substitute mortgage loan;
and
(6) on the distribution date on which the aggregate Certificate Principal Balance of the
Group II Senior Certificates in the related Certificate Group have all been reduced to
zero, 100% of the Group II Senior Optimal Principal Amount.
After the aggregate Certificate Principal Balance of the Subordinate Certificates has been
reduced to zero, the Group II Subordinate Optimal Principal Amount shall be zero.
Group II Subordinate Percentage — As of any distribution date and with respect to any Sub-Loan Group
included in Loan Group II, 100% minus the Group II Senior Percentage for the related Certificate Group.
Group II Subordinate Prepayment Percentage — With respect to any Sub-Loan Group included in Loan Group
II and as of any distribution date, 100% minus the Group II Senior Prepayment Percentage.
Insurance Proceeds — Amounts paid by an insurer under any primary mortgage insurance policy, standard
hazard insurance policy, flood insurance policy or title insurance policy covering any mortgage loan or
mortgaged property other than amounts required to be paid over to the mortgagor pursuant to law or the
related mortgage note and other than amounts used to repair or restore the mortgaged property or to
reimburse certain expenses, including the related servicer's costs and expenses incurred in connection
with presenting claims under the related insurance policies.
Interest Accrual Period — For each class of Group II Certificates and for any distribution date, the
one-month period preceding the month in which such distribution date occurs. The Interest Accrual
Period for the Group I Offered Certificates and the Class I-B-3 Certificates will be the period from and
including the preceding distribution date (or from and including the Closing Date, in the case of the
first distribution date) to and including the day prior to the current distribution date.
Interest Carry-forward Amount — With respect to each class of Group I Offered Certificates and the Class
I-B-3 Certificates and the first distribution date, zero, and for each distribution date thereafter, the
sum of:
1. the excess of
(a) Current Interest for such class with respect to prior distribution dates, over
(b) the amount actually distributed to such class with respect to interest on or
after such prior distribution dates, and
2. interest on such excess (to the extent permitted by applicable law) at the applicable
pass-through rate for the related Interest Accrual Period including the Interest
Accrual Period relating to such distribution date.
Interest Funds — With respect to Loan Group I and any distribution date, the sum, without duplication, of
1. all scheduled interest collected in respect of the group I mortgage loans during the
related Due Period, less the related Servicing Fee, if any,
2. all advances relating to interest on the group I mortgage loans made by the related
Servicers or the Master Servicer,
3. all Compensating Interest Payments with respect to the group I mortgage loans,
4. Liquidation Proceeds received during the related Prepayment Period (or in the case of
Subsequent Recoveries, during the prior calendar month), to the extent such
Liquidation Proceeds relate to interest, less all non-recoverable advances relating to
interest and certain expenses, in each case with respect to the group I mortgage loans,
5. the interest portion of proceeds from the group I mortgage loans that were repurchased
during the related Due Period, and
6. the interest portion of the purchase price of the assets of the Trust allocated to
Loan Group I upon exercise by the Sponsor or its designee of its optional termination
right; minus
7. any amounts payable to or required to be reimbursed to the Sponsor, the Depositor, any
Servicer, the Master Servicer, the Custodians, the Trustee or the Securities
Administrator and allocated to Loan Group I, as provided in the Agreement.
Interest Only Certificates — The Class II-1X-1, Class II-2X-1, Class II-2X-2, Class II-2X-3, Class
II-2X-4, Class II-2X-5, Class II-3X-1 and Class II-BX-1 Certificates.
Lender Paid PMI Rate — With respect to any mortgage loan covered by a lender-paid primary mortgage
insurance policy, the premium to be paid by the applicable Servicer out of interest collections on the
related mortgage loan.
Liquidated Mortgage Loan — Any defaulted mortgage loan as to which the related Servicer has determined
that all amounts which it expects to recover from or on account of such mortgage loan have been
recovered.
Liquidation Proceeds — Amounts received by a Servicer in connection with the liquidation of a defaulted
mortgage loan whether through trustee's sale, foreclosure sale, any Insurance Proceeds, condemnation
proceeds or otherwise and Subsequent Recoveries.
Loan Group — Any of Loan Group I or Loan Group II, as applicable.
Loan Group I — The pool of mortgage loans consisting of the group I mortgage loans.
Loan Group II — The pool of mortgage loans consisting of the Sub-Loan Group II-1, Sub-Loan Group II-2
and Sub-Loan Group II-3.
Loan-to-Value Ratio — The fraction, expressed as a percentage, the numerator of which is the principal
balance at origination and the denominator of which is the lesser of the sales price at the time of
origination of the mortgage loan and the appraised value of the mortgaged property at origination.
Loss Allocation Limitation — As defined under "Description of the Certificates — Allocation of Realized
Losses; Subordination-Allocation of Realized Losses on the Group II Certificates".
Margin — With respect to any distribution date on or prior to the first possible optional termination
date for the Group I Certificates and (i) the Class I-A-1 Certificates, 0.170% per annum, (ii) the Class
I-A-2 Certificates, 0.220% per annum, (iii) the Class I-M-1 Certificates, 0.310% per annum, (iv) the
Class I-M-2 Certificates, 0.450% per annum, (v) the Class I-B-1 Certificates, 1.150% per annum, (vi) the
Class I-B-2 Certificates, 2.150% per annum, and (vii) the Class I-B-3 Certificates, 2.150% per annum;
and with respect to any distribution date after the first possible optional termination date for the
Group I Certificates and (i) the Class I-A-1 Certificates, 0.340% per annum, (ii) the Class I-A-2
Certificates, 0.440% per annum, (iii) the Class I-M-1 Certificates, 0.465% per annum, (iv) the Class
I-M-2 Certificates, 0.675% per annum, (v) the Class I-B-1 Certificates, 1.725% per annum, (vi) the Class
I-B-2 Certificates, 3.225% per annum, and (vii) the Class I-B-3 Certificates, 3.225% per annum.
Master Servicer — Wells Fargo Bank, National Association.
Master Servicer Compensation — As defined under "Pooling and Servicing Agreement—Servicing and Other
Compensation and Payment of Expenses" in this prospectus supplement.
Monthly Advance — The aggregate of all payments of principal and interest, net of the Servicing Fee,
that were due during the related Due Period on the mortgage loans and that were delinquent on the
related Due Date (other than shortfalls in interest due to the application of the Relief Act or similar
state law).
Monthly Payments — For any mortgage loan and any month, the scheduled payment or payments of principal
and interest due during such month on such mortgage loan which either is payable by a mortgagor in such
month under the related mortgage note, or in the case of any mortgaged property acquired through
foreclosure or deed in lieu of foreclosure, would otherwise have been payable under the related mortgage
note.
Moody's — Moody's Investors Service, Inc., and any successor in interest.
Mortgage Loan Purchase Agreement — The Mortgage Loan Purchase Agreement, dated as of October 31, 2006,
among the Depositor, the Sponsor and Master Funding LLC.
Mortgage Loan Schedule — The schedule attached as an exhibit to the Agreement with respect to the
Mortgage Loans, as amended from time to time to reflect the repurchase or substitution of Mortgage Loans.
Net Interest Shortfalls — Has the meaning set forth under "Description of the Certificates—Interest
Distributions on the Group II Certificates" in this prospectus supplement.
Net Liquidation Proceeds —Liquidation Proceeds net of unreimbursed advances by the related Servicer,
Monthly Advances, expenses incurred by the related Servicer in connection with the liquidation of such
mortgage loan and the related mortgaged property, and any other amounts payable to the related Servicer
under the related Servicing Agreement.
Net Rate — For any mortgage loan, the then applicable mortgage rate thereon less the sum of (1) the
Servicing Fee Rate and (2) the Lender Paid PMI Rate, if any, attributable thereto, in each case
expressed as a per annum rate.
Net Rate Cap — With respect to any distribution date and the Group I Offered Certificates and the Class
I-B-3 Certificates, the weighted average of the Net Rates on the group I mortgage loans, weighted on the
basis of the Stated Principal Balances thereof as of the beginning of the related Due Period, in each
case as adjusted to an effective rate reflecting the accrual of interest on an actual/360 basis.
Notional Amount — With respect to any distribution date and the Class II-1X-1 Certificates, the
aggregate Certificate Principal Balance of the Class II-1A-1 Certificates and the Class II-1A-2
Certificates, with respect to any distribution date and the Class II-2X-1 Certificates, the aggregate
Certificate Principal Balance of the Class II-2A-1A Certificates and the Class II-2A-2 Certificates,
with respect to any distribution date and each of the Class II-2X-2, Class II-2X-3, Class II-2X-4 and
Class II-2X-5 Certificates, the Certificate Principal Balance of the Class II-2A-1B Certificates, with
respect to any distribution date and the Class II-3X-1 Certificates, the aggregate Certificate Principal
Balance of the Class II-3A-1 Certificates and the Class II-3A-2 Certificates and with respect to any
distribution date and the Class II-BX-1 Certificates, the Certificate Principal Balance of the Class
II-B-1 Certificates (in each case before taking into account the payment of principal on such
Certificates on such distribution date).
Offered Certificates — The Group I Offered Certificates and the Group II Offered Certificates.
Offered Subordinate Certificates — The Group I Subordinate Certificates, other than the Class I-B-3
Certificates and the Group II Offered Subordinate Certificates.
Original Group II Subordinate Principal Balance — The aggregate Certificate Principal Balance of the
Group II Subordinate Certificates as of the Closing Date.
Outstanding Principal Balance — With respect to a mortgage loan, the principal balance of such mortgage
loan remaining to be paid by the mortgagor or, in the case of an REO Property, the principal balance of
the related mortgage loan remaining to be paid by the mortgagor at the time such property was acquired
by the trust.
Overcollateralization Amount — With respect to any distribution date, the excess, if any, of (a) the
aggregate Stated Principal Balance of the group I mortgage loans for such distribution date over (b) the
aggregate Certificate Principal Balance of the Class I-A, Class I-M, Class I-B and Class XP Certificates
(after taking into account the payment of principal other than any Extra Principal Distribution Amount
on such Certificates).
Overcollateralization Release Amount — With respect to any distribution date is the lesser of (x) the
sum of the amounts described in clauses (1) through (5) and (7) in the definition of Principal Funds for
such distribution date and (y) the excess, if any, of (i) the Overcollateralization Amount for such
distribution date (assuming that 100% of such Principal Funds is applied as a principal payment on such
distribution date) over (ii) the Overcollateralization Target Amount for such distribution date (with
the amount pursuant to clause (y) deemed to be $0 if the Overcollateralization Amount is less than or
equal to the Overcollateralization Target Amount on that distribution date).
Overcollateralization Target Amount — With respect to any distribution date (a) prior to the Stepdown
Date, approximately 0.70% of the aggregate Stated Principal Balance of the group I mortgage loans as of
the cut-off date, (b) on or after the Stepdown Date and if a Trigger Event is not in effect, the greater
of (i) the lesser of (1) approximately 0.70% of the aggregate Stated Principal Balance of the group I
mortgage loans as of the cut-off date and (2) approximately 1.40% of the then current aggregate Stated
Principal Balance of the group I mortgage loans as of that distribution date and (ii) approximately
$2,879,210 and (c) on or after the Stepdown Date and if a Trigger Event is in effect, the
Overcollateralization Target Amount for the immediately preceding distribution date.
Prepayment Interest Shortfalls — Has the meaning set forth under "Description of the
Certificates—Interest Distributions on the Group II Certificates" in this prospectus supplement.
Prepayment Period — With respect to the mortgage loans for which EMC is the Servicer and with respect to
a distribution date and (i) principal prepayments in full, the period from the sixteenth day of the
calendar month preceding the calendar month in which such distribution date occurs through the close of
business on the fifteenth day of the calendar month in which such distribution date occurs, and (ii)
Liquidation Proceeds, Realized Losses, Subsequent Recoveries and partial prepayments, the prior calendar
month; and in the case of the mortgage loans for which EMC is not the Servicer, such period as is
provided in the related Servicing Agreement with respect to the related mortgage loans.
Principal Distribution Amount — With respect to each distribution date and the Group I Certificates, an
amount equal to
1. the sum of the Principal Funds for Loan Group I for such distribution date, plus
2. any Extra Principal Distribution Amount for such distribution date, minus
3. any Overcollateralization Release Amount for such distribution date.
Principal Funds — With respect to Loan Group I and any distribution date, the sum, without duplication,
of
1. the scheduled principal collected on the group I mortgage loans during the related Due
Period or advanced on or before the related servicer advance date,
2. prepayments in respect of the group I mortgage loans, exclusive of any prepayment
charges, collected in the related Prepayment Period,
3. the Stated Principal Balance of each group I mortgage loan that was repurchased by the
Depositor or the related Servicer during the related Due Period,
4. the amount, if any, by which the aggregate unpaid principal balance of any replacement
mortgage loans is less than the aggregate unpaid principal balance of any deleted
mortgage loans delivered by the related Servicer in connection with a substitution of
a group I mortgage loan during the related Due Period,
5. all Liquidation Proceeds collected during the related Prepayment Period (or in the
case of Subsequent Recoveries, during the related Due Period) on the group I mortgage
loans, to the extent such Liquidation Proceeds relate to principal, less all related
non-recoverable advances relating to principal reimbursed during the related Due
Period, and
6. the principal portion of the purchase price of the assets of the Trust allocated to
Loan Group I upon the exercise by the Sponsor or its designee of its optional
termination right with respect to the group I mortgage loans, minus
7. any amounts payable to or required to be reimbursed to EMC, the Depositor, any
Servicer, the Master Servicer, the Custodians, the Trustee or the Securities
Administrator and allocated to Loan Group I, as provided in the Agreement.
Principal Prepayment — Any payment or other recovery of principal on a mortgage loan which is received
in advance of its scheduled Due Date to the extent that it is not accompanied by an amount as to
interest representing scheduled interest due on any date or dates in any month or months subsequent to
the month of prepayment, including Insurance Proceeds and Repurchase Proceeds, but excluding the
principal portion of Net Liquidation Proceeds received at the time a mortgage loan becomes a Liquidated
Mortgage Loan.
Rating Agencies — Each of Standard and Poor's, a division of The McGraw-Hill Companies, Inc., Moody's
Investors Service, Inc. and Fitch Ratings.
Realized Loss — With respect to a mortgage loan is (1) a Bankruptcy Loss or (2) as to any Liquidated
Mortgage Loan, the unpaid principal balance thereof plus accrued and unpaid interest thereon at the
mortgage rate through the last day of the month of liquidation less the Net Liquidation Proceeds with
respect to such mortgage loan and the related mortgaged property that are allocated to principal;
provided, however, that in the event the Master Servicer receives Subsequent Recoveries with respect to
any mortgage loan, the amount of the Realized Loss with respect to that mortgage loan will be reduced to
the extent such Subsequent Recoveries are applied to reduce the Certificate Principal Balance of any
class of Certificates on any distribution date.
Record Date — For each class of Group I Offered Certificates, the Class I-B-3 Certificates and each
distribution date, the Business Day preceding the applicable distribution date so long as the Group I
Offered Certificates remain in book-entry form; and otherwise the record date shall be the last Business
Day of the month preceding the month in which such distribution date occurs. For each class of Group II
Offered Certificates and each distribution date, the close of business on the last business day of the
month preceding the month in which such distribution date occurs.
Remaining Excess Spread — With respect to any distribution date, the Excess Spread less any Extra
Principal Distribution Amount for such distribution date.
REMIC Regular Certificates — All classes of Certificates other than the Residual Certificates.
REO Property — A mortgage property acquired by the trust through foreclosure or deed-in-lieu of
foreclosure.
Repurchase Price — With respect to any mortgage loan required to be repurchased, an amount equal to the
excess of (i) the sum of (a) 100% of the Outstanding Principal Balance of such mortgage loan plus
accrued but unpaid interest on the Outstanding Principal Balance at the related mortgage rate through
and including the last day of the month of repurchase and (b) any costs and damages incurred by the
Trust in connection with any violation of such mortgage loan of any predatory lending laws over (ii) any
portion of the Servicing Fee, Monthly Advances or servicing advances payable to the purchaser of such
mortgage loan.
Repurchase Proceeds — The Repurchase Price in connection with any repurchase of a mortgage loan by the
Sponsor and any cash deposit in connection with the substitution of a mortgage loan. See "Description of
the Securities—Assignment of Trust Fund Assets" in the prospectus and "Pooling and Servicing
Agreement—Representations and Warranties" in this prospectus supplement.
Residual Certificates — The Class R Certificates and the Class R-X Certificates.
Rules — The rules, regulations and procedures creating and affecting DTC and its operations.
S&P — Standard & Poor's, a division of The McGraw-Hill Companies, Inc., and any successor thereto.
Securities Administrator — Wells Fargo Bank, National Association.
Senior Certificates — The Group I Senior Certificates and the Group II Senior Certificates.
Senior Interest Only Certificates — Each of the Class II-1X-1, Class II-2X-1, Class II-2X-2, Class
II-2X-3, Class II-2X-4, Class II-2X-5 and Class II-3X-1 Certificates.
Servicers — The Sponsor, Countrywide Servicing, HomeBanc Mortgage Corporation and other servicers that
service the mortgage loans.
Servicing Agreements — The servicing agreements specified in the Agreement between the Sponsor and the
related Servicer.
Servicing Fee — With respect to each mortgage loan, a fee that accrues at the Servicing Fee Rate, as set
forth under the heading "Pooling and Servicing Agreement—Servicing and Other Compensation and Payment of
Expenses" in this prospectus supplement, on the same principal balance on which interest on the mortgage
loan accrues for the calendar month.
Servicing Fee Rate — For each mortgage loan will be (i) 0.375% per annum with respect to EMC (ii) 0.250%
per annum with respect to Countrywide Servicing (iii) and 0.420% per annum with respect to HomeBanc
Mortgage Corporation and (iv) a per annum rate ranging from 0.250% per annum to 0.420% per annum, as set
forth on the Mortgage Loan Schedule, with respect to other Servicers.
Special Hazard Loss — A Realized Loss attributable to damage or a direct physical loss suffered by a
mortgaged property (including any Realized Loss due to the presence or suspected presence of hazardous
wastes or substances on a mortgaged property) other than any such damage or loss covered by a hazard
policy or a flood insurance policy required to be maintained in respect of such mortgaged property under
the Agreement or any loss due to normal wear and tear or certain other causes.
Sponsor — EMC Mortgage Corporation.
Stated Principal Balance — With respect to any group I mortgage loan and any distribution date: the
principal balance thereof as of the Cut-off Date minus the sum of (1) the principal portion of the
scheduled monthly payments due from mortgagors with respect to such mortgage loan due during each Due
Period ending prior to such distribution date (and irrespective of any delinquency in their payment),
(2) all Principal Prepayments with respect to such mortgage loan received prior to or during the related
Prepayment Period, (3) all liquidation proceeds to the extent applied by the related Servicer as
recoveries of principal in accordance with the Agreement or the related Servicing Agreement that were
received by the related Servicer as of the close of business on the last day of the calendar month
related to such distribution date and (4) any Realized Loss thereon incurred prior to or during the
related calendar month.
With respect to any group II mortgage loan and any distribution date, (1) the unpaid principal
balance of such mortgage loan as of the close of business on the related Due Date (taking account of the
principal payment to be made on such Due Date and irrespective of any delinquency in its payment), as
specified in the amortization schedule at the time relating thereto (before any adjustment to such
amortization schedule by reason of any bankruptcy or similar proceeding occurring after the Cut-off Date
(other than a Deficient Valuation) or any moratorium or similar waiver or grace period) less (2) any
Principal Prepayments and (3) the principal portion of any Net Liquidation Proceeds received during or
prior to the immediately preceding calendar month.
The Stated Principal Balance of any Liquidated Mortgage Loan is zero.
Stepdown Date — the earlier to occur of:
1. the distribution date on which the aggregate Certificate Principal Balance of the
Group I Senior Certificates has been reduced to zero; and
2. the later to occur of:
(a) the distribution date occurring in November 2009; and
(b) the first distribution date for which the Current Specified Enhancement
Percentage for such distribution date is greater than or equal to
approximately 14.90%.
Sub-Loan Group — Any of Sub-Loan Group II-1, Sub-Loan Group II-2 or Sub-Loan Group II-3, as applicable.
Sub-Loan Group II-1 — The pool of mortgage loans designated as Sub-Loan Group II-1.
Sub-Loan Group II-2 — The pool of mortgage loans designated as Sub-Loan Group II-2.
Sub-Loan Group II-3 — The pool of mortgage loans designated as Sub-Loan Group II-3.
Subordinate Certificate Writedown Amount —With respect to the Group II Subordinate Certificates, the
amount by which (x) the sum of the Certificate Principal Balances of the Group II Certificates (after
giving effect to the distribution of principal and the allocation of Realized Losses in reduction of the
Certificate Principal Balances of the Group II Certificates on such distribution date) exceeds (y) the
Stated Principal Balances of the group II mortgage loans on the Due Date related to such distribution
date.
Subordinate Certificates — The Group I Subordinate Certificates and the Group II Subordinate
Certificates.
Subordinate Interest Only Certificates — The Class II-BX-1 Certificates.
Subsequent Recoveries — As of any distribution date, amounts received during the related Prepayment
Period by the Master Servicer or surplus amounts held by the Master Servicer to cover estimated expenses
(including, but not limited to, recoveries in respect of the representations and warranties made by the
Sponsor) specifically related to a liquidated mortgage loan or disposition of an REO property prior to
the related Prepayment Period that resulted in a Realized Loss, after liquidation or disposition of such
mortgage loan.
Trigger Event — With respect to any distribution date, an event that exists if (i) the percentage
obtained by dividing (x) the aggregate Stated Principal Balance of the group I mortgage loans that are
60 or more days delinquent (including for this purpose any such mortgage loans in bankruptcy or
foreclosure and the group I mortgage loans with respect to which the related Mortgaged Property has been
acquired by the Trust) by (y) the aggregate Stated Principal Balance of the group I mortgage loans in
the mortgage pool, in each case, as of the close of business on the last day of the preceding calendar
month, exceeds 40% of the Current Specified Enhancement Percentage or (ii) the aggregate amount of
Realized Losses on the group I mortgage loans since the Cut-Off Date as a percentage of the aggregate
Stated Principal Balance of the group I mortgage loans as of the Cut-Off Date exceeds the applicable
percentage set forth below:
Months Percentage
37 – 48 0.25%
49 – 60 0.60%
61 – 72 1.05%
73-84 1.45%
84+ 1.75%
Trust — Bear Stearns ALT-A Trust 2006-7.
Trustee — Citibank, N.A., a national banking association organized under the laws of the United States.
Unpaid Realized Loss Amount — With respect to any class of Group I Offered Certificates and the Class
I-B-3 Certificates and as to any distribution date, the excess of:
1. Applied Realized Loss Amounts with respect to such class ;over
2. the sum of all distributions in reduction of the Applied Realized Loss Amounts on all
previous distribution dates.
Any amounts distributed to a class of Group I Offered Certificates and the Class I-B-3
Certificates in respect of any Unpaid Realized Loss Amount will not be applied to reduce the Certificate
Principal Balance of such Class.
Weighted Average Net Rate — With respect to any Loan Group and distribution date, the weighted average
of the Net Rates of the mortgage loans in such Loan Group, weighted in proportion to the respective
outstanding principal balances of such mortgage loans.
Wells Fargo — Wells Fargo Bank, National Association.
ANNEX I
Distribution Date Class I-A Class I-A Class I-M-1 Class I-M-1 Class I-M-2 Class I-M-2
Notional Strike Notional Strike Rate(%) Notional Strike Rate(%)
Balance($) Rate(%) Balance($) Balance($)
November 2006 532,942,000 6.94 14,108,000 6.80 10,941,000 6.67
December 2006 519,879,510 6.95 14,108,000 6.81 10,941,000 6.68
January 2007 507,112,884 6.95 14,108,000 6.81 10,941,000 6.68
February 2007 494,635,605 6.95 14,108,000 6.81 10,941,000 6.68
March 2007 482,441,119 6.95 14,108,000 6.81 10,941,000 6.68
April 2007 470,523,021 6.95 14,108,000 6.81 10,941,000 6.68
May 2007 458,875,051 6.91 14,108,000 6.77 10,941,000 6.64
June 2007 447,491,091 6.91 14,108,000 6.77 10,941,000 6.64
July 2007 436,365,185 6.91 14,108,000 6.77 10,941,000 6.64
August 2007 425,491,494 6.91 14,108,000 6.77 10,941,000 6.64
September 2007 414,864,283 6.91 14,108,000 6.77 10,941,000 6.64
October 2007 404,477,959 6.91 14,108,000 6.77 10,941,000 6.64
November 2007 394,327,065 6.91 14,108,000 6.77 10,941,000 6.64
December 2007 384,406,269 6.91 14,108,000 6.77 10,941,000 6.64
January 2008 374,710,413 6.91 14,108,000 6.77 10,941,000 6.64
February 2008 365,234,345 6.91 14,108,000 6.77 10,941,000 6.64
March 2008 355,973,097 6.91 14,108,000 6.77 10,941,000 6.64
April 2008 346,921,793 6.91 14,108,000 6.77 10,941,000 6.64
May 2008 338,075,677 6.87 14,108,000 6.73 10,941,000 6.60
June 2008 329,430,101 6.87 14,108,000 6.73 10,941,000 6.60
July 2008 320,980,666 6.87 14,108,000 6.73 10,941,000 6.60
August 2008 312,722,782 6.87 14,108,000 6.73 10,941,000 6.60
September 2008 304,652,161 6.87 14,108,000 6.73 10,941,000 6.60
October 2008 296,764,521 6.87 14,108,000 6.73 10,941,000 6.60
November 2008 289,055,657 6.88 14,108,000 6.74 10,941,000 6.61
December 2008 281,521,536 6.88 14,108,000 6.74 10,941,000 6.61
January 2009 274,158,236 6.88 14,108,000 6.74 10,941,000 6.61
February 2009 266,961,881 6.88 14,108,000 6.74 10,941,000 6.61
March 2009 259,928,693 6.88 14,108,000 6.74 10,941,000 6.61
April 2009 253,054,971 6.88 14,108,000 6.74 10,941,000 6.61
May 2009 246,337,103 6.88 14,108,000 6.74 10,941,000 6.61
June 2009 239,771,556 6.88 14,108,000 6.74 10,941,000 6.61
July 2009 233,354,844 6.88 14,108,000 6.74 10,941,000 6.61
August 2009 227,083,535 6.89 14,108,000 6.75 10,941,000 6.62
September 2009 220,954,317 6.92 14,108,000 6.78 10,941,000 6.65
October 2009 214,961,676 7.00 14,108,000 6.86 10,941,000 6.73
November 2009 209,104,218 7.00 14,108,000 6.86 10,941,000 6.73
December, 2009 209,104,218 7.00 12,547,541 6.86 9,358,622 6.73
January 2010 204,823,067 7.00 11,793,447 6.86 9,146,023 6.73
February 2010 200,169,973 7.00 11,525,528 6.86 8,938,247 6.73
March 2010 195,622,442 7.00 11,263,687 6.86 8,735,185 6.73
April 2010 191,178,083 7.00 11,007,786 6.86 8,536,730 6.73
May 2010 186,834,557 7.00 10,757,692 6.86 8,342,777 6.73
June 2010 182,589,579 7.00 10,513,271 6.86 8,153,225 6.73
July 2010 178,440,917 7.00 10,274,397 6.86 7,967,973 6.73
August 2010 174,376,042 7.00 10,040,942 6.86 7,786,925 6.73
September 2010 170,348,319 7.02 9,812,784 6.88 7,609,985 6.75
October 2010 166,411,988 7.04 9,589,804 6.90 7,437,060 6.77
November 2010 162,564,980 7.04 9,371,883 6.90 7,268,059 6.77
December 2010 158,805,267 7.04 9,158,907 6.90 7,102,892 6.77
January 2011 155,130,869 7.04 8,950,765 6.90 6,941,474 6.77
February 2011 151,539,726 7.05 8,747,338 6.91 6,783,713 6.78
March 2011 148,030,018 7.05 8,548,524 6.91 6,629,529 6.78
April 2011 144,599,962 7.05 8,354,222 6.91 6,478,845 6.78
May 2011 141,247,750 7.05 8,164,330 6.91 6,331,580 6.78
June 2011 137,971,618 7.05 7,978,748 6.91 6,187,658 6.78
July 2011 134,769,842 7.09 7,797,378 6.95 6,047,002 6.82
August 2011 131,640,737 7.34 7,620,124 7.20 5,909,539 7.07
September 2011 128,582,500 8.84 7,446,885 8.70 5,775,189 8.57
October 2011 125,589,880 9.77 7,277,362 9.63 5,643,721 9.50
Distribution Date Class I-B-1 Class I-B-1 Class I-B-2 Class I-B-2 Class I-B-3 Class I-B-3
Notional Strike Notional Strike Rate(%) Notional Strike Rate(%)
Balance($) Rate(%) Balance($) Balance($)
November 2006 7,486,000 5.97 2,879,000 4.97 3,455,000 4.97
December 2006 7,486,000 5.98 2,879,000 4.98 3,455,000 4.98
January 2007 7,486,000 5.98 2,879,000 4.98 3,455,000 4.98
February 2007 7,486,000 5.98 2,879,000 4.98 3,455,000 4.98
March 2007 7,486,000 5.98 2,879,000 4.98 3,455,000 4.98
April 2007 7,486,000 5.98 2,879,000 4.98 3,455,000 4.98
May 2007 7,486,000 5.94 2,879,000 4.94 3,455,000 4.94
June 2007 7,486,000 5.94 2,879,000 4.94 3,455,000 4.94
July 2007 7,486,000 5.94 2,879,000 4.94 3,455,000 4.94
August 2007 7,486,000 5.94 2,879,000 4.94 3,455,000 4.94
September 2007 7,486,000 5.94 2,879,000 4.94 3,455,000 4.94
October 2007 7,486,000 5.94 2,879,000 4.94 3,455,000 4.94
November 2007 7,486,000 5.94 2,879,000 4.94 3,455,000 4.94
December 2007 7,486,000 5.94 2,879,000 4.94 3,455,000 4.94
January 2008 7,486,000 5.94 2,879,000 4.94 3,455,000 4.94
February 2008 7,486,000 5.94 2,879,000 4.94 3,455,000 4.94
March 2008 7,486,000 5.94 2,879,000 4.94 3,455,000 4.94
April 2008 7,486,000 5.94 2,879,000 4.94 3,455,000 4.94
May 2008 7,486,000 5.90 2,879,000 4.90 3,455,000 4.90
June 2008 7,486,000 5.90 2,879,000 4.90 3,455,000 4.90
July 2008 7,486,000 5.90 2,879,000 4.90 3,455,000 4.90
August 2008 7,486,000 5.90 2,879,000 4.90 3,455,000 4.90
September 2008 7,486,000 5.90 2,879,000 4.90 3,455,000 4.90
October 2008 7,486,000 5.90 2,879,000 4.90 3,455,000 4.90
November 2008 7,486,000 5.91 2,879,000 4.91 3,455,000 4.91
December 2008 7,486,000 5.91 2,879,000 4.91 3,455,000 4.91
January 2009 7,486,000 5.91 2,879,000 4.91 3,455,000 4.91
February 2009 7,486,000 5.91 2,879,000 4.91 3,455,000 4.91
March 2009 7,486,000 5.91 2,879,000 4.91 3,455,000 4.91
April 2009 7,486,000 5.91 2,879,000 4.91 3,455,000 4.91
May 2009 7,486,000 5.91 2,879,000 4.91 3,455,000 4.91
June 2009 7,486,000 5.91 2,879,000 4.91 3,455,000 4.91
July 2009 7,486,000 5.91 2,879,000 4.91 3,455,000 4.91
August 2009 7,486,000 5.92 2,879,000 4.92 3,455,000 4.92
September 2009 7,486,000 5.95 2,879,000 4.95 3,455,000 4.95
October 2009 7,486,000 6.03 2,879,000 5.03 3,455,000 5.03
November 2009 7,486,000 6.03 2,879,000 5.03 3,455,000 5.03
December, 2009 6,403,313 6.03 2,462,615 5.03 2,955,309 5.03
January 2010 6,257,850 6.03 2,406,672 5.03 2,888,174 5.03
February 2010 6,115,686 6.03 2,351,998 5.03 2,822,562 5.03
March 2010 5,976,748 6.03 2,298,565 5.03 2,758,438 5.03
April 2010 5,840,962 6.03 2,246,344 5.03 2,695,768 5.03
May 2010 5,708,256 6.03 2,195,307 5.03 2,634,521 5.03
June 2010 5,578,562 6.03 2,145,429 5.03 2,574,663 5.03
July 2010 5,451,810 6.03 2,096,682 5.03 2,516,164 5.03
August 2010 5,327,934 6.03 2,049,041 5.03 2,458,992 5.03
September 2010 5,206,869 6.05 2,002,481 5.05 2,403,117 5.05
October 2010 5,088,551 6.07 1,956,978 5.07 2,348,510 5.07
November 2010 4,972,917 6.07 1,912,507 5.07 2,295,142 5.07
December 2010 4,859,908 6.07 1,869,046 5.07 2,242,984 5.07
January 2011 4,749,463 6.07 1,826,570 5.07 2,192,011 5.07
February 2011 4,641,521 6.08 1,785,057 5.08 2,142,193 5.08
March 2011 4,536,026 6.08 1,744,485 5.08 2,093,504 5.08
April 2011 4,432,925 6.08 1,704,835 5.08 2,045,920 5.08
May 2011 4,332,165 6.08 1,666,084 5.08 1,999,416 5.08
June 2011 4,233,691 6.08 1,628,212 5.08 1,953,968 5.08
July 2011 4,137,452 6.12 1,591,200 5.12 1,909,551 5.12
August 2011 4,043,397 6.37 1,555,028 5.37 1,866,142 5.37
September 2011 3,951,473 7.87 1,519,675 6.87 1,823,716 6.87
October 2011 3,861,521 8.80 1,485,081 7.80 1,782,201 7.80
ANNEX II
GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except in certain limited circumstances, the certificates, which are referred to as the global
securities, will be available only in book-entry form. Investors in the global securities may hold
interests in these global securities through any of DTC, Clearstream or Euroclear. Initial settlement
and all secondary trades will settle in same-day funds.
Secondary market trading between investors holding interests in global securities through
Clearstream and Euroclear will be conducted in accordance with their normal rules and operating
procedures and in accordance with conventional eurobond practice. Secondary market trading between
investors holding interests in 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 investors holding interests in global securities through
Clearstream or Euroclear and investors holding interests in global securities through DTC participants
will be effected on a delivery-against-payment basis through the respective depositories of Clearstream
and Euroclear, in such capacity and other DTC participants.
Although DTC, Euroclear and Clearstream are expected to follow the procedures described below
in order to facilitate transfers of interests in the global securities among participants of DTC,
Euroclear and Clearstream, they are under no obligation to perform or continue to perform those
procedures and those procedures may be discontinued at any time. None of the Depositor, the Servicer
nor the Trustee will have any responsibility for the performance by DTC, Euroclear and Clearstream or
their respective participants or indirect participants of their respective obligations under the rules
and procedures governing their obligations.
Non-U.S. holders of global securities will be subject to U.S. withholding taxes unless those
holders meet certain requirements and deliver appropriate U.S. tax documents to the securities clearing
organizations or their participants.
Initial Settlement
The global securities will be registered 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. Clearstream and Euroclear will hold
positions on behalf of their participants through their respective depositories, which in turn will hold
such positions in accounts as DTC participants.
Investors electing to hold interests in global securities through DTC participants, rather than
through Clearstream or Euroclear accounts, will be subject to the settlement practices applicable to
similar issues of mortgage-backed certificate. Investors' securities custody accounts will be credited
with their holdings against payment in same-day funds on the settlement date.
Investors electing to hold interests in 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. Interests in 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.
Transfers between DTC Participants. Secondary market trading between DTC participants will be
settled using the DTC procedures applicable to similar issues of certificate in same-day funds.
Transfers between Clearstream and/or Euroclear Participants. Secondary market trading between
Clearstream participants or Euroclear participants and/or investors holding interests in global
securities through them will be settled using the procedures applicable to conventional eurobonds in
same-day funds.
Transfers between DTC Seller and Clearstream or Euroclear Purchaser. When interests in global
securities are to be transferred on behalf of a seller from the account of a DTC participant to the
account of a Clearstream participant or a Euroclear participant for a purchaser, 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 the Euroclear operator will instruct its
respective depository to receive an interest in the global securities against payment. Payment will
include interest accrued on the global securities from and including the last payment date to but
excluding the settlement date. Payment will then be made by the respective depository to the DTC
participant's account against delivery of an interest in the global securities. After this settlement
has been completed, the interest will be credited to the respective clearing system and by the clearing
system, in accordance with its usual procedures, to the Clearstream participant's or Euroclear
participant's account. The credit of this interest will appear on the next business day and the cash
debit 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
through DTC on the intended value date, i.e., the trade fails, the Clearstream or Euroclear cash debit
will be valued instead as of the actual settlement date.
Clearstream participants and Euroclear participants will need to make available to the
respective clearing system the funds necessary to process same-day funds settlement. The most direct
means of doing so is to pre-position funds for settlement from cash on hand, in which case the
Clearstream participants or Euroclear participants will take on credit exposure to Clearstream or the
Euroclear operator until interests in the global securities are credited to their accounts one day later.
As an alternative, if Clearstream or the Euroclear operator has extended a line of credit to
them, Clearstream participants or Euroclear participants can elect not to pre-position funds and allow
that credit line to be drawn upon. Under this procedure, Clearstream participants or Euroclear
participants receiving interests in global securities for purchasers would incur overdraft charges for
one day, to the extent they cleared the overdraft when interests in the global securities were credited
to their accounts. However, interest on the global securities would accrue from the value date.
Therefore, the investment income on the interest in the global securities earned during that one-day
period would tend to offset the amount of these overdraft charges, although this result will depend on
each Clearstream participant's or Euroclear participant's particular cost of funds.
Since the settlement through DTC will take place during New York business hours, DTC
participants are subject to DTC procedures for transferring interests in global securities to the
respective depository of Clearstream or Euroclear 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 Sponsor settling the sale through a DTC participant, a cross-market transaction will settle
no differently than a sale to a purchaser settling through a DTC participant.
Finally, intra-day traders that use Clearstream participants or Euroclear participants to
purchase interests in global securities from DTC participants or sellers settling through them for
delivery to Clearstream participants or Euroclear participants should note that these trades will
automatically fail on the sale side unless affirmative action is taken. At least three techniques
should be available to eliminate this potential condition:
o borrowing interests in global securities through Clearstream or Euroclear for one
day, until the purchase side of the intra-day trade is reflected in the relevant
Clearstream or Euroclear accounts, in accordance with the clearing system's
customary procedures;
o borrowing interests in global securities in the United States from a DTC
participant no later than one day prior to settlement, which would give sufficient
time for such interests to be reflected in the relevant Clearstream or Euroclear
accounts in order to settle the sale side of the trade; or
o staggering the value dates for the buy and sell sides of the trade so that the
value date for the purchase from the DTC participant is at least one day prior to
the value date for the sale to the Clearstream participant or Euroclear
participant.
Transfers 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 interests in global securities are to be transferred by
the respective clearing system, through the respective depository, to a DTC participant. The Sponsor
will send instructions to Clearstream or the Euroclear operator through a Clearstream participant or
Euroclear participant at least one business day prior to settlement. Clearstream or Euroclear will
instruct its respective depository, to credit an interest in 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 payment date to but excluding the settlement date. The payment will then be
reflected in the account of the Clearstream participant or Euroclear participant the following business
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
through DTC in New York. 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.
Certain U.S. Federal Income Tax Documentation Requirements
A beneficial owner who is an individual or corporation holding the global security on its own
behalf 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 typically applies to payments of interest,
including original issue discount, on registered debt issued by U.S. persons, unless:
o each clearing system, bank or other institution that holds customers' securities
in the ordinary course of its trade or business in the chain of intermediaries
between the beneficial owner or a foreign corporation or foreign trust and the
U.S. entity required to withhold tax complies with applicable certification
requirements; and
o the beneficial owner takes one of the following steps to obtain an exemption or
reduced tax rate:
o Exemption for Non-U.S. Persons—Form W-8BEN. Beneficial holders of global
securities that are Non-U.S. persons generally can obtain a complete exemption
from the withholding tax by filing a signed Form W-8BEN or Certificate of Foreign
Status of Beneficial Owner for United States Tax Withholding. Non-U.S. persons
residing in a country that has a tax treaty with the United States can obtain an
exemption or reduced tax rate, depending on the treaty terms, by filing Form
W-8BEN. If the information shown on Form W-8BEN changes, a new Form W-8BEN must
be filed within 30 days of the change.
o 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 or Certificate of Foreign Person's Claim for Exemption from
Withholding on Income Effectively Connected with the Conduct of a Trade or
Business in the United States.
o 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 or Payer's Request for Taxpayer
Identification Number and Certification.
U.S. Federal Income Tax Reporting Procedure. The holder of a global security or, in the case
of a Form W-8BEN or Form W-8ECI filer, his agent, files by submitting the appropriate form to the person
through whom it holds the security—the clearing agency, in the case of persons holding directly on the
books of the clearing agency. Form W-8BEN and Form W-8ECI generally are effective until the third
succeeding calendar year from the date the form is signed. However, the W-8BEN and W-8ECI with a
taxpayer identification number will remain effective until a change in circumstances makes any
information on the form incorrect, provided that the withholding agent reports at least annually to the
beneficial owner on Form 1042-S. The term "U.S. person" means:
o a citizen or resident of the United States;
o a corporation, partnership or other entity treated as a corporation or a
partnership for United States federal income tax purposes organized in or under
the laws of the United States or any state thereof, including for this purpose the
District of Columbia, unless, in the case of a partnership, future Treasury
regulations provide otherwise;
o an estate that is subject to U.S. federal income tax regardless of the source of
its income; or
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 United States
persons have the authority to control all substantial decisions of the trust.
If the information shown on Form W-8BEN or Form W-8ECI changes, a new Form W-8BEN or Form W-8ECI, as
applicable, must be filed within 30 days of the change. Certain trusts not described in the final
bullet of the preceding sentence in existence on August 20, 1996 that elect to be treated as a United
States Person will also be a U.S. person. The term "Non-U.S. person" means any person who is not a U.S.
person. This summary does not deal with all aspects of U.S. federal income tax withholding that may be
relevant to foreign holders of 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.
SCHEDULE A
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
The description herein of the Mortgage Loans is based upon the estimates of the composition
thereof as of the Cut-off Date, as adjusted to reflect the Stated Principal Balances as of the Cut-off
Date. Prior to the issuance of the Certificates, Mortgage Loans may be removed as a result of (i)
Principal Prepayments thereof in full prior to April 1, 2006, (ii) requirements of Moody's or S&P, (iii)
delinquencies or otherwise. In any such event, other mortgage loans may be included in the Trust. SAMI
believes that the estimated information set forth herein with respect to the Mortgage Loans as presently
constituted is representative of the characteristics thereof at the time the Certificates are issued,
although certain characteristics of the Mortgage Loans may vary.
Notwithstanding the foregoing, on or prior to the Closing Date, scheduled or unscheduled
principal payments made with respect to the Mortgage Loans may decrease the Stated Principal Balance of
the Mortgage Loans as of the Cut-off Date as set fort in this Prospectus Supplement by as much as ten
percent (10%). Accordingly, the initial principal balance of any of the Offered Certificates by the
Closing Date is subject to a decrease by as much as ten percent (10%) from amounts shown on the front
cover hereof.
Principal Balances of the Mortgage Loans at Origination in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Original Principal Balance ($) --------------------- ------------------------------------ --------------------
0 - 100,000 85 $ 6,582,397 1.14 %
100,001 - 200,000 197 28,987,690 5.03
200,001 - 300,000 93 23,022,181 4.00
300,001 - 350,000 21 6,859,435 1.19
350,001 - 400,000 20 7,422,902 1.29
400,001 - 450,000 89 38,472,786 6.68
450,001 - 500,000 136 64,719,685 11.24
500,001 - 550,000 117 61,388,819 10.66
550,001 - 600,000 83 48,009,630 8.34
600,001 - 650,000 91 57,283,054 9.95
650,001 - 700,000 28 19,075,558 3.31
700,001 - 800,000 50 37,588,862 6.53
800,001 - 900,000 33 28,060,515 4.87
900,001 - 1,000,000 50 48,657,964 8.45
1,000,001 - 1,100,000 17 17,929,289 3.11
1,100,001 - 1,200,000 9 10,350,856 1.80
1,200,001 - 1,300,000 12 15,114,073 2.62
1,300,001 - 1,400,000 8 10,791,946 1.87
1,400,001 - 1,500,000 9 13,377,800 2.32
1,500,001 or greater 16 32,146,641 5.58
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Minimum Original Principal Balance: $46,400
Maximum Original Principal Balance: $3,870,000
Average Original Principal Balance: $494,880
Scheduled Principal Balances of the Mortgage Loans as of the Cut-Off Date in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Scheduled Principal Balance ($) --------------------- ------------------------------------ --------------------
0 - 100,000 85 $ 6,582,397 1.14 %
100,001 - 200,000 198 29,159,479 5.06
200,001 - 300,000 92 22,850,392 3.97
300,001 - 350,000 22 7,193,839 1.25
350,001 - 400,000 19 7,088,498 1.23
400,001 - 450,000 90 38,922,655 6.76
450,001 - 500,000 135 64,269,816 11.16
500,001 - 550,000 117 61,388,819 10.66
550,001 - 600,000 83 48,009,630 8.34
600,001 - 650,000 91 57,283,054 9.95
650,001 - 700,000 28 19,075,558 3.31
700,001 - 800,000 50 37,588,862 6.53
800,001 - 900,000 33 28,060,515 4.87
900,001 - 1,000,000 50 48,657,964 8.45
1,000,001 - 1,100,000 17 17,929,289 3.11
1,100,001 - 1,200,000 9 10,350,856 1.80
1,200,001 - 1,300,000 12 15,114,073 2.62
1,300,001 - 1,400,000 8 10,791,946 1.87
1,400,001 - 1,500,000 9 13,377,800 2.32
1,500,001 or greater 16 32,146,641 5.58
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Minimum Scheduled Principal Balance: $46,373
Maximum Scheduled Principal Balance: $3,867,532
Average Scheduled Principal Balance: $494,710
Mortgage Rates of the Mortgage Loans as of the Cut-Off Date in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Mortgage Interest Rates($) --------------------- ------------------------------------ --------------------
4.500 - 4.749 1 $ 488,715 0.08 %
4.750 - 4.999 1 486,279 0.08
5.000 - 5.249 3 1,485,051 0.26
5.250 - 5.499 3 1,531,025 0.27
5.500 - 5.749 8 4,645,254 0.81
5.750 - 5.999 15 8,661,487 1.50
6.000 - 6.249 35 16,749,565 2.91
6.250 - 6.499 50 31,111,327 5.40
6.500 - 6.749 75 45,093,275 7.83
6.750 - 6.999 132 77,918,039 13.53
7.000 - 7.249 66 39,753,976 6.90
7.250 - 7.499 95 51,081,263 8.87
7.500 - 7.749 134 52,789,150 9.17
7.750 - 7.999 145 67,235,955 11.68
8.000 - 8.249 119 49,925,796 8.67
8.250 - 8.499 103 53,568,465 9.30
8.500 - 8.749 105 45,817,681 7.96
8.750 - 8.999 55 23,192,991 4.03
9.000 - 9.249 13 2,560,893 0.44
9.250 - 9.499 3 1,110,278 0.19
9.500 - 9.749 1 231,780 0.04
10.250 - 10.499 1 163,931 0.03
10.500 - 10.749 1 239,907 0.04
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Minimum Mortgage Rate: 4.625%
Maximum Mortgage Rate: 10.625%
Weighted Average Mortgage Rate: 7.441%
Original Loan-to-Value Ratios* in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Loan-to-Value Ratios (%) --------------------- ------------------------------------ --------------------
0.00 - 30.00 3 $ 1,203,909 0.21 %
30.01 - 40.00 3 1,084,253 0.19
40.01 - 50.00 12 9,458,608 1.64
50.01 - 55.00 14 11,648,980 2.02
55.01 - 60.00 11 10,808,238 1.88
60.01 - 65.00 49 29,971,305 5.20
65.01 - 70.00 99 54,264,884 9.42
70.01 - 75.00 171 113,310,494 19.68
75.01 - 80.00 760 330,033,009 57.31
80.01 - 85.00 2 1,134,500 0.20
85.01 - 90.00 17 7,323,598 1.27
90.01 - 95.00 8 2,129,909 0.37
95.01 - 100.00 15 3,470,396 0.60
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Weighted Average Original Loan-to-Value: 75.47%
*Loan to value ratios are calculated by taking the Original Principal Balance and dividing the lesser of the
original appraised value and sell price of the property.
Geographic Distribution* of the Mortgage Properties in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Geographic Distribution --------------------- ------------------------------------ --------------------
Alabama 11 $ 4,190,035 0.73 %
Arizona 57 33,787,134 5.87
Arkansas 4 391,838 0.07
California 353 218,766,573 37.99
Colorado 25 18,691,521 3.25
Connecticut 7 4,599,202 0.80
Delaware 3 1,737,030 0.30
District of Columbia 2 1,076,000 0.19
Florida 189 87,899,876 15.26
Georgia 73 16,837,668 2.92
Hawaii 7 6,404,000 1.11
Idaho 18 5,028,284 0.87
Illinois 94 26,998,082 4.69
Indiana 12 1,562,259 0.27
Iowa 1 46,373 0.01
Kentucky 2 637,843 0.11
Maryland 52 28,806,103 5.00
Massachusetts 10 5,159,252 0.90
Michigan 16 6,242,452 1.08
Minnesota 8 3,084,542 0.54
Missouri 6 3,228,239 0.56
Nevada 42 22,701,488 3.94
New Hampshire 4 1,368,688 0.24
New Jersey 15 8,075,555 1.40
New York 15 9,562,123 1.66
North Carolina 15 6,383,960 1.11
Ohio 12 2,977,993 0.52
Oregon 5 2,507,027 0.44
Pennsylvania 4 1,483,074 0.26
South Carolina 8 4,951,824 0.86
Tennessee 6 1,444,686 0.25
Texas 25 7,096,294 1.23
Utah 9 3,914,287 0.68
Virginia 37 20,663,159 3.59
Washington 13 5,394,648 0.94
Wisconsin 3 1,362,969 0.24
Wyoming 1 780,000 0.14
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
*No more than approximately 0.79% of the Mortgage Loans by Scheduled Principal
Balance will be secured by properties located in any one zip code area.
Credit Scores as of the Date of Origination of the Mortgage Loans in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Range of Credit Scores --------------------- ------------------------------------ --------------------
0 - 0 23 $ 6,701,128 1.16 %
600 - 619 2 1,490,500 0.26
620 - 639 96 44,392,180 7.71
640 - 659 107 52,576,019 9.13
660 - 679 177 86,157,893 14.96
680 - 699 197 103,015,337 17.89
700 - 719 165 89,094,376 15.47
720 - 739 126 61,938,003 10.76
740 - 759 104 48,889,837 8.49
760 - 779 78 39,700,987 6.89
780 - 799 65 28,737,888 4.99
800 819 23 12,697,934 2.21
820 - 839 1 450,000 0.08
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Non-Zero Weighted Average Credit Score: 704
Property Types of the Mortgage Properties in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Property Type --------------------- ------------------------------------ --------------------
2-4 Family 49 $ 24,858,482 4.32 %
Condominium 153 61,708,406 10.72
PUD 317 173,843,001 30.19
Single Family 626 311,013,852 54.01
Townhouse 19 4,418,342 0.77
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
==================================================================================
Occupancy Status of Mortgage Properties in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Occupancy Status --------------------- ------------------------------------ --------------------
Investor 247 $ 72,494,983 12.59 %
Owner Occupied 792 439,687,519 76.36
Second Home 125 63,659,580 11.06
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Loan Purpose of the Mortgage Loans in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Loan Purpose --------------------- ------------------------------------ --------------------
Cash Out Refinance 231 $ 146,471,491 25.44 %
Purchase 831 364,403,929 63.28
Rate/Term Refinance 102 64,966,662 11.28
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Documentation Type of the Mortgage Loans in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Documentation Type --------------------- ------------------------------------ --------------------
Full/Alternative 120 $ 54,585,951 9.48 %
No Documentation 143 56,872,652 9.88
Reduced 191 102,242,413 17.76
Stated 710 362,141,067 62.89
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Original Terms to Stated Maturity of the Mortgage Loans in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Original Term (Months) --------------------- ------------------------------------ --------------------
300 1 $ 2,000,000 0.35 %
360 1,154 568,817,709 98.78
480 9 5,024,373 0.87
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Minimum Original Term to Stated Maturity (Mths): 300
Maximum Original Term to Stated Maturity (Mths): 480
Weighted Average Orig. Term to Stated Mat. (Mths): 361
Remaining Terms to Stated Maturity of the Mortgage Loans in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Stated Remaining Term (Months) --------------------- ------------------------------------ --------------------
240 - 299 1 $ 2,000,000 0.35 %
300 - 359 861 376,671,534 65.41
360 - 360 293 192,146,175 33.37
361 - 9 5,024,373 0.87
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Minimum Remaining Term to Stated Maturity (Mths): 299
Maximum Remaining Term to Stated Maturity (Mths): 480
Weighted Average Rem. Term to Stated Mat. (Mths): 360
Index of the Mortgage Loans in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Index --------------------- ------------------------------------ --------------------
1 Mo Libor 1 $ 2,000,000 0.35 %
1 YR CMT 8 2,305,316 0.40
1 YR Libor 624 336,634,245 58.46
6 Mo Libor 531 234,902,522 40.79
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Rate Adjustment Frequency of the Mortgage Loans in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Rate Adjustment Frequency --------------------- ------------------------------------ --------------------
1 Month 1 $ 2,000,000 0.35 %
6 Months 531 234,902,522 40.79
12 Months 632 338,939,561 58.86
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Months to Next Rate Adjustment* of the Mortgage Loans in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Months to Next Rate Adjustment --------------------- ------------------------------------ --------------------
0 - 3 2 $ 2,293,300 0.40 %
4 - 6 2 1,017,909 0.18
7 - 9 5 1,308,260 0.23
10 - 12 1 100,307 0.02
13 - 15 4 992,841 0.17
19 - 21 2 1,152,196 0.20
22 - 24 10 2,638,264 0.46
25 - 27 4 722,384 0.13
28 - 30 1 136,766 0.02
31 - 33 6 1,360,456 0.24
34 - 36 87 28,050,099 4.87
49 - 51 3 902,000 0.16
52 - 54 1 1,000,000 0.17
55 - 57 69 16,223,653 2.82
58 - 60 967 517,943,649 89.95
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Weighted Average Months to Next Rate Adjustment : 57
*Months to next rate adjustment is calculated by using the first rate adjustment date for the loans still in a
hybrid period and by using next rate adjustment for loans that are fully indexed.
Maximum Lifetime Mortgage Rate of the Mortgage Loans in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Maximum Mortgage Rates (%) --------------------- ------------------------------------ --------------------
9.751 - 10.000 2 $ 1,029,380 0.18 %
10.001 - 10.250 3 1,556,600 0.27
10.251 - 10.500 6 3,790,625 0.66
10.501 - 10.750 4 1,832,769 0.32
10.751 - 11.000 19 10,672,273 1.85
11.001 - 11.250 27 16,535,628 2.87
11.251 - 11.500 56 37,328,383 6.48
11.501 - 11.750 69 45,229,523 7.85
11.751 - 12.000 96 59,993,879 10.42
12.001 - 12.250 49 30,300,433 5.26
12.251 - 12.500 93 44,567,965 7.74
12.501 - 12.750 112 52,026,469 9.03
12.751 - 13.000 156 77,964,081 13.54
13.001 - 13.250 95 47,113,172 8.18
13.251 - 13.500 145 72,408,073 12.57
13.501 - 13.750 110 38,331,842 6.66
13.751 - 14.000 51 13,833,064 2.40
14.001 - 14.250 18 5,302,474 0.92
14.251 - 14.500 34 9,273,201 1.61
14.501 - 14.750 11 2,688,821 0.47
14.751 - 15.000 3 2,840,400 0.49
15.001 - 15.250 2 251,339 0.04
15.501 - 15.750 2 471,688 0.08
16.001 or greater 1 500,000 0.09
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Weighted Average Maximum Mortgage Rate: 12.632%
Periodic Rate Cap of the Mortgage Loans in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Periodic Rate Cap (%) --------------------- ------------------------------------ --------------------
NonCapped 26 $ 6,852,148 1.19 %
1.000 420 206,033,956 35.78
2.000 717 362,455,978 62.94
6.000 1 500,000 0.09
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Non-Zero Weighted Average Periodic Rate Cap: 1.641%
Initial Rate Cap of the Mortgage Loans in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Initial Rate Cap (%) --------------------- ------------------------------------ --------------------
NonCapped 20 $ 5,267,948 0.91 %
2.000 74 21,872,641 3.80
3.000 16 4,236,680 0.74
5.000 883 472,912,709 82.13
6.000 169 71,191,105 12.36
6.125 1 140,700 0.02
6.375 1 220,300 0.04
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Non-Zero Weighted Average Initial Rate Cap: 4.996%
Gross Margin of the Mortgage Loans in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Gross Margins (%) --------------------- ------------------------------------ --------------------
1.501 - 2.000 1 $ 720,000 0.13 %
2.001 - 2.500 1,123 559,689,475 97.19
2.501 - 3.000 26 10,171,708 1.77
3.001 - 3.500 4 991,882 0.17
3.501 - 4.000 3 1,333,300 0.23
4.501 - 5.000 3 1,057,261 0.18
5.001 - 5.500 4 1,878,456 0.33
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Weighted Average Gross Margin: 2.280%
Interest Only Feature of the Mortgage Loans in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Interest Only Feature --------------------- ------------------------------------ --------------------
None 199 $ 61,638,130 10.70 %
3 Years 38 10,193,790 1.77
5 Years 265 107,930,838 18.74
10 Years 662 396,079,325 68.78
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Original Prepayment Penalty Term of the Mortgage Loans in Total Group I
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Original Prepayment Penalty Term (Months) --------------------- ------------------------------------ --------------------
None 767 $ 363,941,765 63.20 %
5 Months 2 1,738,200 0.30
6 Months 25 12,949,691 2.25
7 Months 3 2,040,000 0.35
12 Months 100 60,752,412 10.55
24 Months 4 1,898,960 0.33
36 Months 239 116,564,171 20.24
60 Months 24 15,956,884 2.77
----------------------------------------------------------------------------------
Total 1,164 $ 575,842,083 100.00 %
==================================================================================
Principal Balances of the Mortgage Loans at Origination in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Original Principal Balance ($) --------------------- ------------------------------------ --------------------
0 - 100,000 64 $ 5,082,661 0.73 %
100,001 - 200,000 455 68,847,652 9.92
200,001 - 300,000 293 72,341,191 10.42
300,001 - 350,000 69 22,345,364 3.22
350,001 - 400,000 60 22,437,142 3.23
400,001 - 450,000 119 50,513,362 7.28
450,001 - 500,000 151 72,025,511 10.38
500,001 - 550,000 109 57,191,093 8.24
550,001 - 600,000 90 51,746,460 7.46
600,001 - 650,000 76 47,959,890 6.91
650,001 - 700,000 28 18,958,895 2.73
700,001 - 800,000 55 41,283,748 5.95
800,001 - 900,000 29 24,511,680 3.53
900,001 - 1,000,000 49 47,561,340 6.85
1,000,001 - 1,100,000 3 3,232,000 0.47
1,100,001 - 1,200,000 11 12,732,508 1.83
1,200,001 - 1,300,000 11 13,644,672 1.97
1,300,001 - 1,400,000 10 13,738,098 1.98
1,400,001 - 1,500,000 8 11,694,529 1.68
1,500,001 or greater 19 36,234,744 5.22
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
==================================================================================
Minimum Original Principal Balance: $40,410
Maximum Original Principal Balance: $2,698,500
Average Original Principal Balance: $406,998
Scheduled Principal Balances of the Mortgage Loans as of the Cut-Off Date in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Scheduled Principal Balance ($) --------------------- ------------------------------------ --------------------
0 - 100,000 65 $ 5,084,503 0.73 %
100,001 - 200,000 455 68,847,652 9.92
200,001 - 300,000 295 72,901,191 10.50
300,001 - 350,000 70 22,662,364 3.27
350,001 - 400,000 60 22,557,277 3.25
400,001 - 450,000 117 50,338,604 7.25
450,001 - 500,000 152 72,525,511 10.45
500,001 - 550,000 108 56,810,957 8.19
550,001 - 600,000 89 51,302,377 7.39
600,001 - 650,000 75 47,459,890 6.84
650,001 - 700,000 28 18,958,895 2.73
700,001 - 800,000 55 41,283,748 5.95
800,001 - 900,000 29 24,511,680 3.53
900,001 - 1,000,000 49 47,561,340 6.85
1,000,001 - 1,100,000 3 3,232,000 0.47
1,100,001 - 1,200,000 11 12,732,508 1.83
1,200,001 - 1,300,000 11 13,644,672 1.97
1,300,001 - 1,400,000 10 13,738,098 1.98
1,400,001 - 1,500,000 8 11,694,529 1.68
1,500,001 or greater 19 36,234,744 5.22
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
==================================================================================
Minimum Scheduled Principal Balance: $1,841
Maximum Scheduled Principal Balance: $2,698,500
Average Scheduled Principal Balance: $406,134
Mortgage Rates of the Mortgage Loans as of the Cut-Off Date in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Mortgage Interest Rates (%) --------------------- ------------------------------------ --------------------
3.750 - 3.999 1 $ 185,923 0.03 %
4.250 - 4.499 2 1,071,264 0.15
4.500 - 4.749 1 401,566 0.06
4.750 - 4.499 3 1,104,560 0.16
5.000 - 5.249 3 1,978,596 0.29
5.250 - 5.499 2 1,059,422 0.15
5.500 - 5.749 13 5,583,606 0.80
5.750 - 5.999 30 12,309,070 1.77
6.000 - 6.249 56 24,026,876 3.46
6.250 - 6.499 141 51,844,898 7.47
6.500 - 6.749 262 111,364,031 16.04
6.750 - 6.999 403 179,507,607 25.86
7.000 - 7.249 259 103,329,434 14.89
7.250 - 7.499 246 94,524,647 13.62
7.500 - 7.749 104 37,280,216 5.37
7.750 - 7.999 79 31,101,971 4.48
8.000 - 8.249 22 7,466,910 1.08
8.250 - 8.499 36 16,278,885 2.35
8.500 - 8.749 23 6,986,216 1.01
8.750 - 8.999 20 5,733,922 0.83
9.000 - 9.249 2 748,000 0.11
10.250 - 10.499 1 194,920 0.03
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
==================================================================================
Minimum Mortgage Rate: 3.875%
Maximum Mortgage Rate: 10.375%
Weighted Average Mortgage Rate: 6.940%
Original Loan-to-Value Ratios* in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Loan-to-Value Ratios (%) --------------------- ------------------------------------ --------------------
0.00 - 30.00 7 $ 2,002,325 0.29 %
30.01 - 40.00 7 1,863,250 0.27
40.01 - 50.00 38 14,595,477 2.10
50.01 - 55.00 19 7,894,972 1.14
55.01 - 60.00 42 17,434,883 2.51
60.01 - 65.00 67 31,366,163 4.52
65.01 - 70.00 127 81,588,230 11.75
70.01 - 75.00 138 77,399,022 11.15
75.01 - 80.00 992 394,691,486 56.87
80.01 - 85.00 6 2,287,953 0.33
85.01 - 90.00 51 12,958,689 1.87
90.01 - 95.00 28 7,970,547 1.15
95.01 - 100.00 187 42,029,541 6.06
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
==================================================================================
Weighted Average Original Loan-to-Value: 76.84%
*Loan to value ratios are calculated by taking the Original Principal Balance and dividing the lesser of the
original appraised value and sell price of the property.
Geographic Distribution* of the Mortgage Properties in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Geographic Distribution --------------------- ------------------------------------ --------------------
Alabama 9 $ 3,139,167 0.45 %
Arizona 47 21,382,580 3.08
California 412 237,108,800 34.16
Colorado 30 16,072,421 2.32
Connecticut 8 5,586,221 0.80
District of Columbia 2 562,900 0.08
Florida 418 131,555,871 18.95
Georgia 313 84,325,658 12.15
Hawaii 7 7,964,848 1.15
Idaho 3 683,067 0.10
Illinois 46 14,056,171 2.03
Indiana 2 109,817 0.02
Kentucky 3 430,632 0.06
Louisiana 1 519,624 0.07
Maine 2 520,443 0.07
Maryland 20 9,553,601 1.38
Massachusetts 21 14,645,058 2.11
Michigan 10 2,092,687 0.30
Minnesota 2 2,548,000 0.37
Mississippi 1 45,000 0.01
Missouri 4 687,198 0.10
Montana 1 1,225,000 0.18
Nevada 51 25,027,367 3.61
New Hampshire 3 1,307,112 0.19
New Jersey 23 13,795,056 1.99
New Mexico 1 649,885 0.09
New York 29 18,612,178 2.68
North Carolina 90 25,189,771 3.63
Ohio 8 2,400,785 0.35
Oregon 10 4,426,495 0.64
Pennsylvania 6 1,815,705 0.26
Rhode Island 2 772,402 0.11
South Carolina 19 5,846,366 0.84
Tennessee 4 1,023,437 0.15
Texas 18 3,680,610 0.53
Utah 5 1,692,588 0.24
Virginia 38 17,309,418 2.49
Washington 34 13,278,401 1.91
West Virginia 1 312,732 0.05
Wisconsin 3 1,491,609 0.21
Wyoming 2 635,863 0.09
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
*No more than approximately 0.82% of the Mortgage Loans by Scheduled Principal
Balance will be secured by properties located in any one zip code area.
Credit Scores as of the Date of Origination of the Mortgage Loans in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Range of Credit Scores --------------------- ------------------------------------ --------------------
0 - 0 7 $ 3,081,703 0.44 %
575 - 599 1 546,150 0.08
600 - 619 11 5,122,455 0.74
620 - 639 62 30,876,009 4.45
640 - 659 117 50,863,445 7.33
660 - 679 194 88,808,873 12.80
680 - 699 245 101,885,217 14.68
700 - 719 255 93,269,449 13.44
720 - 739 211 88,809,093 12.80
740 - 759 209 77,685,738 11.19
760 - 779 200 74,107,541 10.68
780 - 799 138 55,547,455 8.00
800 - 819 59 23,479,411 3.38
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
Non-Zero Weighted Average Credit Score: 715
Property Types of the Mortgage Properties in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Property Type --------------------- ------------------------------------ --------------------
2-4 Family 54 $ 29,435,950 4.24 %
Condominium 285 90,059,766 12.98
PUD 579 226,169,872 32.59
Single Family 786 347,712,612 50.10
Townhouse 5 704,340 0.10
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
Occupancy Status of Mortgage Properties in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Occupancy Status --------------------- ------------------------------------ --------------------
Investor 211 $ 62,006,253 8.93 %
Owner Occupied 1,278 556,324,780 80.15
Second Home 220 75,751,506 10.91
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
==================================================================================
Loan Purpose of the Mortgage Loans in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Loan Purpose --------------------- ------------------------------------ --------------------
Cash Out Refinance 403 $ 190,810,637 27.49 %
Purchase 1,143 429,920,553 61.94
Rate/Term Refinance 163 73,351,348 10.57
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
Documentation Type of the Mortgage Loans in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Documentation Type --------------------- ------------------------------------ --------------------
Full/Alternative 596 $ 194,883,124 28.08 %
No Documentation 74 23,668,734 3.41
Reduced 146 57,100,035 8.23
Stated 893 418,430,646 60.29
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
Original Terms to Stated Maturity of the Mortgage Loans in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Original Term (Months) --------------------- ------------------------------------ --------------------
360 1,701 $ 692,054,296 99.71 %
480 8 2,028,243 0.29
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
Minimum Original Term to Stated Maturity (Mths): 360
Maximum Original Term to Stated Maturity (Mths): 480
Weighted Average Orig. Term to Stated Mat. (Mths): 360
Remaining Terms to Stated Maturity of the Mortgage Loans in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Stated Remaining Term (Months) --------------------- ------------------------------------ --------------------
300 - 359 1,672 $ 678,896,924 97.81 %
360 - 360 29 13,157,372 1.90
361 - 8 2,028,243 0.29
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
Minimum Remaining Term to Stated Maturity (Mths): 332
Maximum Remaining Term to Stated Maturity (Mths): 479
Weighted Average Rem. Term to Stated Mat. (Mths): 359
Index of the Mortgage Loans in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Index --------------------- ------------------------------------ --------------------
1 YR CMT 26 $ 12,187,807 1.76 %
1 YR Libor 1,381 579,503,542 83.49
6 Mo Libor 302 102,391,190 14.75
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
Rate Adjustment Frequency of the Mortgage Loans in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Rate Adjustment Frequency --------------------- ------------------------------------ --------------------
6 Months 302 $ 102,391,190 14.75 %
12 Months 1,407 591,691,349 85.25
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
Months to Next Rate Adjustment* of the Mortgage Loans in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Months to Next Rate Adjustment --------------------- ------------------------------------ --------------------
31 - 33 1 $ 671,476 0.10 %
40 - 42 2 882,293 0.13
43 - 45 2 716,229 0.10
46 - 48 4 1,743,688 0.25
49 - 51 5 1,702,031 0.25
52 - 54 8 4,341,927 0.63
55 - 57 76 22,822,234 3.29
58 - 60 390 133,168,753 19.19
73 - 75 2 1,527,672 0.22
76 - 78 8 3,850,799 0.55
79 - 81 124 50,639,006 7.30
82 - 84 868 412,894,213 59.49
106 - 108 5 932,159 0.13
109 - 111 2 510,320 0.07
112 - 114 8 2,890,428 0.42
115 - 117 43 11,254,005 1.62
118 - 120 161 43,535,304 6.27
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
Weighted Average Months to Next Rate Adjustment : 80
*Months to next rate adjustment is calculated by using the first rate adjustment date for the loans still in a
hybrid period and by using next rate adjustment for loans that are fully indexed.
Maximum Lifetime Mortgage Rate of the Mortgage Loans in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Maximum Mortgage Rates (%) --------------------- ------------------------------------ --------------------
- 9.750 2 $ 857,399 0.12 %
9.751 - 10.000 1 940,000 0.14
10.001 - 10.250 3 1,209,560 0.17
10.251 - 10.500 3 1,144,452 0.16
10.501 - 10.750 8 2,623,615 0.38
10.751 - 11.000 15 5,756,380 0.83
11.001 - 11.250 32 12,286,352 1.77
11.251 - 11.500 104 52,761,743 7.60
11.501 - 11.750 170 85,823,874 12.37
11.751 - 12.000 234 126,324,931 18.20
12.001 - 12.250 206 94,714,736 13.65
12.251 - 12.500 184 72,155,664 10.40
12.501 - 12.750 165 63,252,577 9.11
12.751 - 13.000 203 69,918,492 10.07
13.001 - 13.250 140 46,036,105 6.63
13.251 - 13.500 102 22,426,935 3.23
13.501 - 13.750 68 18,098,597 2.61
13.751 - 14.000 34 10,533,614 1.52
14.001 - 14.250 9 2,428,413 0.35
14.251 - 14.500 14 2,806,458 0.40
14.501 - 14.750 8 1,267,723 0.18
14.751 - 15.000 3 520,000 0.07
15.251 or Greater 1 194,920 0.03
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
==================================================================================
Weighted Average Maximum Mortgage Rate: 12.322%
Periodic Rate Cap of the Mortgage Loans in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Periodic Rate Cap (%) --------------------- ------------------------------------ --------------------
NonCapped 4 $ 1,279,916 0.18 %
1.000 155 61,648,952 8.88
2.000 1,548 630,673,170 90.86
2.250 2 480,500 0.07
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
Non Zero Weighted Average Periodic Rate Cap: 1.911%
Initial Rate Cap of the Mortgage Loans in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Initial Rate Cap (%) --------------------- ------------------------------------ --------------------
NonCapped 5 $ 1,399,916 0.20 %
2.000 1 124,600 0.02
3.000 2 549,284 0.08
5.000 1,471 613,606,660 88.41
6.000 199 68,675,751 9.89
6.125 7 1,453,541 0.21
6.250 8 1,799,894 0.26
6.375 2 400,850 0.06
6.500 3 648,899 0.09
6.625 1 799,958 0.12
6.750 1 280,000 0.04
7.000 1 725,000 0.10
7.250 4 1,658,785 0.24
7.375 1 514,800 0.07
7.500 3 1,444,600 0.21
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
==================================================================================
Non Zero Weighted Average Initial Rate Cap: 5.122%
Gross Margin of the Mortgage Loans in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Gross Margins (%) --------------------- ------------------------------------ --------------------
2.001 - 2.500 1,663 $ 674,725,838 97.21 %
2.501 - 3.000 41 17,936,104 2.58
3.001 - 3.500 4 1,240,597 0.18
4.501 - 5.000 1 180,000 0.03
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
==================================================================================
Weighted Average Gross Margin: 2.269%
Interest Only Feature of the Mortgage Loans in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Interest Only Feature --------------------- ------------------------------------ --------------------
None 168 $ 50,987,129 7.35 %
3 Years 12 6,029,253 0.87
5 Years 249 75,381,302 10.86
7 Years 401 136,746,875 19.70
114 Months 1 799,958 0.12
10 Years 878 424,138,021 61.11
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
==================================================================================
Original Prepayment Penalty Term of the Mortgage Loans in Total Group II
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Original Prepayment Penalty Term (Months) --------------------- ------------------------------------ --------------------
None 1,400 $ 539,404,390 77.71 %
4 Months 2 918,790 0.13
6 Months 13 5,610,044 0.81
12 Months 141 83,031,264 11.96
24 Months 1 335,920 0.05
36 Months 117 50,652,537 7.30
60 Months 35 14,129,594 2.04
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,709 $ 694,082,539 100.00 %
==================================================================================
==================================================================================
Principal Balances of the Mortgage Loans at Origination in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Original Principal Balance ($) --------------------- ------------------------------------ --------------------
0 - 100,000 18 $ 1,530,577 0.92 %
100,001 - 200,000 159 23,665,426 14.25
200,001 - 300,000 117 29,296,079 17.64
300,001 - 350,000 21 6,854,016 4.13
350,001 - 400,000 27 10,164,458 6.12
400,001 - 450,000 33 13,984,859 8.42
450,001 - 500,000 29 13,889,053 8.36
500,001 - 550,000 17 8,797,687 5.30
550,001 - 600,000 19 11,010,971 6.63
600,001 - 650,000 5 3,020,100 1.82
650,001 - 700,000 6 4,055,135 2.44
700,001 800,000 7 5,339,671 3.22
800,001 900,000 4 3,313,640 2.00
900,001 1,000,000 14 13,661,282 8.23
1,100,001 1,200,000 1 1,200,000 0.72
1,200,001 1,300,000 2 2,440,000 1.47
1,300,001 1,400,000 2 2,724,750 1.64
1,400,001 1,500,000 5 7,350,929 4.43
1,500,001 - 2 3,750,000 2.26
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Minimum Original Principal Balance: $61,700
Maximum Original Principal Balance: $2,000,000
Average Original Principal Balance: $341,184
Scheduled Principal Balances of the Mortgage Loans as of the Cut-Off Date in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Scheduled Principal Balance ($) --------------------- ------------------------------------ --------------------
0 - 100,000 18 $ 1,530,577 0.92 %
100,001 - 200,000 159 23,665,426 14.25
200,001 - 300,000 117 29,296,079 17.64
300,001 - 350,000 22 7,171,016 4.32
350,001 - 400,000 28 10,544,593 6.35
400,001 - 450,000 32 13,667,859 8.23
450,001 - 500,000 30 14,389,053 8.67
500,001 - 550,000 16 8,417,552 5.07
550,001 - 600,000 19 11,010,971 6.63
600,001 - 650,000 4 2,520,100 1.52
650,001 - 700,000 6 4,055,135 2.44
700,001 - 800,000 7 5,339,671 3.22
800,001 - 900,000 4 3,313,640 2.00
900,001 - 1,000,000 14 13,661,282 8.23
1,100,001 - 1,200,000 1 1,200,000 0.72
1,200,001 - 1,300,000 2 2,440,000 1.47
1,300,001 - 1,400,000 2 2,724,750 1.64
1,400,001 - 1,500,000 5 7,350,929 4.43
1,500,001 - 2 3,750,000 2.26
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Minimum Scheduled Principal Balance: $61,700
Maximum Scheduled Principal Balance: $2,000,000
Average Scheduled Principal Balance: $340,264
Mortgage Rates of the Mortgage Loans as of the Cut-Off Date in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Mortgage Interest Rates (%) --------------------- ------------------------------------ --------------------
4.250 - 4.499 2 $ 1,071,264 0.65 %
4.500 - 4.749 1 401,566 0.24
4.750 - 4.999 3 1,104,560 0.67
5.000 - 5.249 1 487,396 0.29
5.250 - 5.499 2 1,059,422 0.64
5.500 - 5.749 7 3,561,788 2.15
5.750 - 5.999 19 8,659,467 5.22
6.000 - 6.249 20 7,538,205 4.54
6.250 - 6.499 47 14,868,822 8.95
6.500 - 6.749 81 26,426,496 15.91
6.750 - 6.999 95 33,456,316 20.15
7.000 - 7.249 88 28,823,249 17.36
7.250 - 7.499 93 32,087,928 19.32
7.500 - 7.749 14 3,283,750 1.98
7.750 - 7.999 13 2,919,102 1.76
8.000 - 8.249 2 299,300 0.18
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Minimum Mortgage Rate: 4.250%
Maximum Mortgage Rate: 8.000%
Weighted Average Mortgage Rate: 6.747%
Original Loan-to-Value Ratios* in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Loan-to-Value Ratios (%) --------------------- ------------------------------------ --------------------
0.00 - 30.00 3 $ 1,554,491 0.94 %
30.01 - 40.00 1 300,000 0.18
40.01 - 50.00 10 5,293,164 3.19
50.01 - 55.00 5 1,897,351 1.14
55.01 - 60.00 9 3,462,021 2.08
60.01 - 65.00 18 8,297,351 5.00
65.01 - 70.00 28 11,974,568 7.21
70.01 - 75.00 27 16,442,147 9.90
75.01 - 80.00 311 98,137,960 59.10
80.01 - 85.00 2 673,988 0.41
85.01 - 90.00 10 2,488,698 1.50
90.01 - 95.00 7 1,598,900 0.96
95.01 - 100.00 57 13,927,991 8.39
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Weighted Average Original Loan-to-Value: 76.97%
*Loan to value ratios are calculated by taking the Original Principal Balance and dividing the lesser of the
original appraised value and sell price of the property.
Geographic Distribution* of the Mortgage Properties in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Geographic Distribution --------------------- ------------------------------------ --------------------
Alabama 6 $ 1,151,167 0.69 %
Arizona 15 5,211,319 3.14
California 94 44,314,117 26.69
Colorado 6 4,073,817 2.45
Connecticut 2 1,510,382 0.91
Florida 72 22,674,867 13.66
Georgia 162 46,329,828 27.90
Hawaii 1 1,235,000 0.74
Illinois 35 7,410,536 4.46
Maryland 4 1,684,565 1.01
Michigan 5 1,128,123 0.68
Missouri 2 290,274 0.17
Nevada 16 5,574,097 3.36
New Hampshire 1 166,500 0.10
New Jersey 7 4,404,834 2.65
New York 3 1,114,450 0.67
North Carolina 8 2,438,374 1.47
Ohio 3 339,631 0.20
Oregon 1 136,200 0.08
South Carolina 3 770,753 0.46
Tennessee 1 366,180 0.22
Texas 4 343,107 0.21
Utah 1 241,200 0.15
Virginia 19 8,424,390 5.07
Washington 14 4,159,445 2.50
Wisconsin 2 391,609 0.24
Wyoming 1 163,866 0.10
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
*No more than approximately 2.48% of the Mortgage Loans by Scheduled Principal
Balance will be secured by properties located in any one zip code area.
Credit Scores as of the Date of Origination of the Mortgage Loans in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Range of Credit Scores --------------------- ------------------------------------ --------------------
0 - 0 1 $ 143,920 0.09 %
620 - 639 14 6,227,510 3.75
640 - 659 17 7,176,300 4.32
660 - 679 40 14,564,989 8.77
680 - 699 66 21,145,977 12.73
700 - 719 72 22,282,303 13.42
720 - 739 63 23,869,209 14.37
740 - 759 78 24,671,238 14.86
760 - 779 76 24,633,335 14.84
780 - 799 45 15,357,594 9.25
800 - 819 16 5,976,258 3.60
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Non-Zero Weighted Average Credit Score: 726
Property Types of the Mortgage Properties in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Property Type --------------------- ------------------------------------ --------------------
2-4 Family 12 $ 3,952,646 2.38 %
Condominium 80 17,951,873 10.81
PUD 170 65,673,919 39.55
Single Family 223 78,125,054 47.05
Townhouse 3 345,140 0.21
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Occupancy Status of Mortgage Properties in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Occupancy Status --------------------- ------------------------------------ --------------------
Investor 39 $ 7,557,887 4.55 %
Owner Occupied 388 140,975,977 84.90
Second Home 61 17,514,767 10.55
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Loan Purpose of the Mortgage Loans in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Loan Purpose --------------------- ------------------------------------ --------------------
Cash Out Refinance 94 $ 38,360,189 23.10 %
Purchase 354 113,409,848 68.30
Rate/Term Refinance 40 14,278,594 8.60
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Documentation Type of the Mortgage Loans in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Documentation Type --------------------- ------------------------------------ --------------------
Full/Alternative 192 $ 62,083,399 37.39 %
No Documentation 34 11,772,103 7.09
Reduced 37 13,953,450 8.40
Stated 225 78,239,680 47.12
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Original Terms to Stated Maturity of the Mortgage Loans in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Original Term (Months) --------------------- ------------------------------------ --------------------
360 488 $ 166,048,632 100.00 %
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Minimum Original Term to Stated Maturity (Mths): 360
Maximum Original Term to Stated Maturity (Mths): 360
Weighted Average Orig. Term to Stated Mat. (Mths): 360
Remaining Terms to Stated Maturity of the Mortgage Loans in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Stated Remaining Term (Months) --------------------- ------------------------------------ --------------------
300 - 359 482 $ 163,091,082 98.22 %
360 - 360 6 2,957,550 1.78
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Minimum Remaining Term to Stated Maturity (Mths): 332
Maximum Remaining Term to Stated Maturity (Mths): 360
Weighted Average Rem. Term to Stated Mat. (Mths): 358
Index of the Mortgage Loans in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Index --------------------- ------------------------------------ --------------------
1 YR CMT 25 $ 11,712,340 7.05 %
1 YR Libor 333 100,441,682 60.49
6 Mo Libor 130 53,894,609 32.46
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Rate Adjustment Frequency of the Mortgage Loans in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Rate Adjustment Frequency --------------------- ------------------------------------ --------------------
6 Months 130 $ 53,894,609 32.46 %
12 Months 358 112,154,023 67.54
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Months to Next Rate Adjustment* of the Mortgage Loans in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Months to Next Rate Adjustment --------------------- ------------------------------------ --------------------
31 - 33 1 $ 671,476 0.40 %
40 - 42 2 882,293 0.53
43 - 45 2 716,229 0.43
46 - 48 4 1,743,688 1.05
49 - 51 5 1,702,031 1.03
52 - 54 8 4,341,927 2.61
55 57 76 22,822,234 13.74
58 - 60 390 133,168,753 80.20
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Weighted Average Months to Next Rate Adjustment : 58
*Months to next rate adjustment is calculated by using the first rate adjustment date for the loans still in a
hybrid period and by using next rate adjustment for loans that are fully indexed.
Maximum Lifetime Mortgage Rate of the Mortgage Loans in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Maximum Mortgage Rates (%) --------------------- ------------------------------------ --------------------
- 9.750 1 $ 671,476 0.40 %
10.001 - 10.250 2 658,360 0.40
10.501 - 10.750 4 1,158,650 0.70
10.751 - 11.000 4 1,236,515 0.74
11.001 - 11.250 10 3,075,699 1.85
11.251 - 11.500 19 6,263,886 3.77
11.501 - 11.750 33 10,412,708 6.27
11.751 - 12.000 71 28,652,955 17.26
12.001 - 12.250 83 30,295,905 18.25
12.251 - 12.500 81 28,731,136 17.30
12.501 - 12.750 45 15,539,463 9.36
12.751 - 13.000 55 19,913,748 11.99
13.001 - 13.250 33 8,736,406 5.26
13.251 13.500 29 6,213,892 3.74
13.501 13.750 12 3,111,634 1.87
13.751 - 14.000 6 1,376,200 0.83
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Weighted Average Maximum Mortgage Rate: 12.344%
Periodic Rate Cap of the Mortgage Loans in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Periodic Rate Cap (%) --------------------- ------------------------------------ --------------------
Uncapped 2 $ 1,024,100 0.62 %
1.000 80 36,103,361 21.74
2.000 404 128,440,671 77.35
2.250 2 480,500 0.29
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Weighted Average Periodic Rate Cap: 1.782%
Initial Rate Cap of the Mortgage Loans in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Initial Rate Cap (%) --------------------- ------------------------------------ --------------------
Uncapped 2 $ 1,024,100 0.62 %
2.000 1 124,600 0.08
3.000 2 549,284 0.33
5.000 408 134,412,610 80.95
6.000 63 24,580,295 14.80
6.125 1 271,200 0.16
6.250 1 428,000 0.26
6.375 1 240,400 0.14
6.625 1 799,958 0.48
7.250 4 1,658,785 1.00
7.375 1 514,800 0.31
7.500 3 1,444,600 0.87
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Weighted Average Initial Rate Cap: 5.207%
Gross Margin of the Mortgage Loans in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Gross Margins (%) --------------------- ------------------------------------ --------------------
2.001 - 2.500 456 $ 152,134,859 91.62 %
2.501 - 3.000 31 13,519,489 8.14
3.001 - 3.500 1 394,284 0.24
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Weighted Average Gross Margin: 2.303%
Interest Only Feature of the Mortgage Loans in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Interest Only Feature --------------------- ------------------------------------ --------------------
None 65 $ 17,035,666 10.26 %
3 Years 12 6,029,253 3.63
5 Years 249 75,381,302 45.40
114 Months 1 799,958 0.48
10 Years 161 66,802,452 40.23
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Original Prepayment Penalty Term of the Mortgage Loans in Loan Group II-1
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Original Prepayment Penalty Term --------------------- ------------------------------------ --------------------
None 432 $ 142,956,535 86.09 %
4 Months 1 487,590 0.29
6 Months 4 2,659,015 1.60
12 Months 8 4,424,810 2.66
36 Months 43 15,520,682 9.35
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 488 $ 166,048,632 100.00 %
==================================================================================
==================================================================================
Principal Balances of the Mortgage Loans at Origination in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Original Principal Balance ($) --------------------- ------------------------------------ --------------------
0 - 100,000 28 $ 2,293,617 0.49 %
100,001 - 200,000 215 32,630,211 6.96
200,001 - 300,000 115 28,193,547 6.01
300,001 - 350,000 32 10,309,859 2.20
350,001 - 400,000 21 7,759,145 1.65
400,001 - 450,000 81 34,406,556 7.34
450,001 - 500,000 115 54,825,210 11.69
500,001 - 550,000 91 47,875,905 10.21
550,001 - 600,000 67 38,452,293 8.20
600,001 - 650,000 67 42,399,040 9.04
650,001 - 700,000 20 13,545,010 2.89
700,001 - 800,000 46 34,474,077 7.35
800,001 - 900,000 25 21,198,040 4.52
900,001 - 1,000,000 33 31,962,307 6.82
1,000,001 - 1,100,000 3 3,232,000 0.69
1,100,001 - 1,200,000 9 10,362,508 2.21
1,200,001 - 1,300,000 8 9,950,672 2.12
1,300,001 - 1,400,000 6 8,213,348 1.75
1,400,001 - 1,500,000 3 4,343,600 0.93
1,500,001 - 17 32,484,744 6.93
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Minimum Original Principal Balance: $48,000
Maximum Original Principal Balance: $2,698,500
Average Original Principal Balance: $468,973
Scheduled Principal Balances of the Mortgage Loans as of the Cut-Off Date in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Scheduled Principal Balance ($) --------------------- ------------------------------------ --------------------
0 - 100,000 29 $ 2,295,458 0.49 %
100,001 - 200,000 215 32,630,211 6.96
200,001 - 300,000 117 28,753,547 6.13
300,001 - 350,000 32 10,309,859 2.20
350,001 - 400,000 20 7,499,145 1.60
400,001 - 450,000 80 34,548,797 7.37
450,001 - 500,000 115 54,825,210 11.69
500,001 - 550,000 91 47,875,905 10.21
550,001 - 600,000 66 38,008,210 8.11
600,001 - 650,000 67 42,399,040 9.04
650,001 - 700,000 20 13,545,010 2.89
700,001 - 800,000 46 34,474,077 7.35
800,001 - 900,000 25 21,198,040 4.52
900,001 1,000,000 33 31,962,307 6.82
1,000,001 1,100,000 3 3,232,000 0.69
1,100,001 1,200,000 9 10,362,508 2.21
1,200,001 - 1,300,000 8 9,950,672 2.12
1,300,001 - 1,400,000 6 8,213,348 1.75
1,400,001 - 1,500,000 3 4,343,600 0.93
1,500,001 - 17 32,484,744 6.93
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Minimum Scheduled Principal Balance: $1,841
Maximum Scheduled Principal Balance: $2,698,500
Average Scheduled Principal Balance: $467,976
Mortgage Rates of the Mortgage Loans as of the Cut-Off Date in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Mortgage Interest Rates (%) --------------------- ------------------------------------ --------------------
5.000 - 5.249 2 $ 1,491,200 0.32 %
5.500 - 5.749 4 1,513,885 0.32
5.750 - 5.999 9 3,140,370 0.67
6.000 - 6.249 27 13,872,244 2.96
6.250 - 6.499 63 29,342,416 6.26
6.500 - 6.749 143 73,783,917 15.74
6.750 - 6.999 241 128,663,411 27.44
7.000 - 7.249 154 69,326,748 14.78
7.250 - 7.499 133 58,102,409 12.39
7.500 - 7.749 82 32,427,011 6.92
7.750 - 7.999 56 25,444,172 5.43
8.000 - 8.249 17 6,745,713 1.44
8.250 - 8.499 33 15,441,085 3.29
8.500 - 8.749 21 5,681,775 1.21
8.750 - 8.999 16 3,835,335 0.82
9.000 - 9.249 1 100,000 0.02
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Minimum Mortgage Rate: 5.000%
Maximum Mortgage Rate: 9.000%
Weighted Average Mortgage Rate: 7.010%
Original Loan-to-Value Ratios* in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Loan-to-Value Ratios (%) --------------------- ------------------------------------ --------------------
0.00 - 30.00 1 $ 137,500 0.03 %
30.01 - 40.00 4 1,319,250 0.28
40.01 - 50.00 14 6,619,800 1.41
50.01 - 55.00 9 4,988,482 1.06
55.01 - 60.00 22 10,753,531 2.29
60.01 - 65.00 31 16,465,450 3.51
65.01 - 70.00 88 65,408,912 13.95
70.01 - 75.00 96 56,358,753 12.02
75.01 - 80.00 582 269,049,613 57.38
80.01 - 85.00 4 1,613,965 0.34
85.01 - 90.00 31 8,303,863 1.77
90.01 - 95.00 13 4,631,959 0.99
95.01 - 100.00 107 23,260,613 4.96
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Weighted Average Original Loan-to-Value: 76.97%
*Loan to value ratios are calculated by taking the Original Principal Balance and dividing the lesser of the
original appraised value and sell price of the property.
Geographic Distribution* of the Mortgage Properties in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Geographic Distribution --------------------- ------------------------------------ --------------------
Alabama 3 $ 1,988,000 0.42 %
Arizona 26 15,116,390 3.22
California 283 181,733,710 38.76
Colorado 19 10,013,081 2.14
Connecticut 5 3,723,838 0.79
District of Columbia 1 371,000 0.08
Florida 292 93,623,389 19.97
Georgia 104 26,474,293 5.65
Hawaii 5 6,315,600 1.35
Illinois 11 6,645,634 1.42
Kentucky 1 71,157 0.02
Louisiana 1 519,624 0.11
Maine 1 276,000 0.06
Maryland 14 7,473,486 1.59
Massachusetts 19 14,323,607 3.05
Michigan 2 663,880 0.14
Minnesota 2 2,548,000 0.54
Missouri 1 151,920 0.03
Montana 1 1,225,000 0.26
Nevada 32 18,265,780 3.90
New Hampshire 1 782,579 0.17
New Jersey 15 9,320,201 1.99
New Mexico 1 649,885 0.14
New York 22 15,100,728 3.22
North Carolina 60 16,361,956 3.49
Ohio 5 2,061,154 0.44
Oregon 8 3,958,395 0.84
Pennsylvania 3 1,386,630 0.30
Rhode Island 1 458,200 0.10
South Carolina 14 4,674,613 1.00
Tennessee 1 452,000 0.10
Texas 9 2,555,208 0.54
Utah 2 1,067,500 0.23
Virginia 17 8,305,028 1.77
Washington 18 8,682,229 1.85
Wisconsin 1 1,100,000 0.23
Wyoming 1 471,997 0.10
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
*No more than approximately 0.91% of the Mortgage Loans by Scheduled Principal
Balance will be secured by properties located in any one zip code area.
Credit Scores as of the Date of Origination of the Mortgage Loans in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Range of Credit Scores --------------------- ------------------------------------ --------------------
0 - 0 6 $ 2,937,783 0.63 %
575 - 599 1 546,150 0.12
600 - 619 3 3,011,065 0.64
620 - 639 39 21,431,649 4.57
640 - 659 81 39,598,849 8.44
660 - 679 130 67,980,280 14.50
680 - 699 161 74,302,406 15.85
700 - 719 149 60,995,488 13.01
720 - 739 125 59,729,728 12.74
740 - 759 102 46,008,211 9.81
760 - 779 96 42,596,908 9.08
780 - 799 78 36,408,969 7.76
800 - 819 31 13,364,204 2.85
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Weighted Average Credit Score: 711
Property Types of the Mortgage Properties in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Property Type --------------------- ------------------------------------ --------------------
2-4 Family 32 $ 22,280,109 4.75 %
Condominium 174 64,713,023 13.80
PUD 330 139,039,108 29.65
Single Family 464 242,520,251 51.72
Townhouse 2 359,200 0.08
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Occupancy Status of Mortgage Properties in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Occupancy Status --------------------- ------------------------------------ --------------------
Investor 144 $ 48,977,254 10.44 %
Owner Occupied 738 370,452,315 79.00
Second Home 120 49,482,122 10.55
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Loan Purpose of the Mortgage Loans in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Loan Purpose --------------------- ------------------------------------ --------------------
Cash Out Refinance 249 $ 134,736,678 28.73 %
Purchase 654 281,761,496 60.09
Rate/Term Refinance 99 52,413,518 11.18
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Documentation Type of the Mortgage Loans in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Documentation Type --------------------- ------------------------------------ --------------------
Full/Alternative 305 $ 108,784,625 23.20 %
No Documentation 28 9,648,734 2.06
Reduced 85 35,864,025 7.65
Stated 584 314,614,306 67.09
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Original Terms to Stated Maturity of the Mortgage Loans in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Original Term (Months) --------------------- ------------------------------------ --------------------
360 998 $ 467,597,706 99.72 %
480 4 1,313,984 0.28
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Minimum Original Term to Stated Maturity (Mths): 360
Maximum Original Term to Stated Maturity (Mths): 480
Weighted Average Orig. Term to Stated Mat. (Mths): 360
Remaining Terms to Stated Maturity of the Mortgage Loans in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Stated Remaining Term (Months) --------------------- ------------------------------------ --------------------
300 - 359 984 $ 459,347,436 97.96 %
360 - 360 14 8,250,270 1.76
361 - 4 1,313,984 0.28
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Minimum Remaining Term to Stated Maturity (Mths): 349
Maximum Remaining Term to Stated Maturity (Mths): 479
Weighted Average Rem. Term to Stated Mat. (Mths): 359
Index of the Mortgage Loans in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Index --------------------- ------------------------------------ --------------------
1 YR CMT 1 $ 475,466 0.10 %
1 YR Libor 847 428115169.8 91.30
6 Mo Libor 154 40321054.7 8.60
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Rate Adjustment Frequency of the Mortgage Loans in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Rate Adjustment Frequency --------------------- ------------------------------------ --------------------
6 Months 154 $ 40,321,055 8.60 %
12 Months 848 428,590,636 91.40
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Months to Next Rate Adjustment* of the Mortgage Loans in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Months to Next Rate Adjustment --------------------- ------------------------------------ --------------------
73 - 75 2 $ 1,527,672 0.33 %
76 - 78 8 3,850,799 0.82
79 - 81 124 50,639,006 10.80
82 - 84 868 412,894,213 88.05
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Weighted Average Months to Next Rate Adjustment : 82
*Months to next rate adjustment is calculated by using the first rate adjustment date for the loans still in a
hybrid period and by using next rate adjustment for loans that are fully indexed.
Maximum Lifetime Mortgage Rate of the Mortgage Loans in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Maximumm Mortgage Rates (%) --------------------- ------------------------------------ --------------------
9.751 - 10.000 1 $ 940,000 0.20 %
10.001 - 10.250 1 551,200 0.12
10.251 - 10.500 2 786,420 0.17
10.501 - 10.750 3 1,315,065 0.28
10.751 - 11.000 7 3,378,308 0.72
11.001 - 11.250 12 7,056,537 1.50
11.251 - 11.500 62 41,464,418 8.84
11.501 - 11.750 111 69,247,466 14.77
11.751 - 12.000 146 94,293,717 20.11
12.001 - 12.250 110 59,654,938 12.72
12.251 - 12.500 87 38,431,513 8.20
12.501 - 12.750 90 37,893,681 8.08
12.751 - 13.000 123 41,682,859 8.89
13.001 - 13.250 87 33,458,780 7.14
13.251 - 13.500 62 12,589,437 2.68
13.501 - 13.750 46 13,627,607 2.91
13.751 - 14.000 21 6,286,576 1.34
14.001 - 14.250 6 1,658,989 0.35
14.251 - 14.500 14 2,806,458 0.60
14.501 - 14.750 8 1,267,723 0.27
14.751 or 15.000 3 520,000 0.11
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Weighted Average Maximum Mortgage Rate: 12.294%
Periodic Rate Cap of the Mortgage Loans in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Periodic Rate Cap (%) --------------------- ------------------------------------ --------------------
Uncapped 2 $ 255,816 0.05 %
1.000 60 18,382,593 3.92
2.000 940 450,273,281 96.03
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Non Zero Weighted Average Periodic Rate Cap: 1.961%
Initial Rate Cap of the Mortgage Loans in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Initial Rate Cap (%) --------------------- ------------------------------------ --------------------
Uncapped 3 $ 375,816 0.08 %
5.000 869 426,118,250 90.87
6.000 111 38,049,040 8.11
6.125 6 1,182,341 0.25
6.250 7 1,371,894 0.29
6.375 1 160,450 0.03
6.500 3 648,899 0.14
6.750 1 280,000 0.06
7.000 1 725,000 0.15
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Non Zero Weighted Average Initial Rate Cap: 5.094%
Gross Margin of the Mortgage Loans in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Gross Margins (%) --------------------- ------------------------------------ --------------------
2.001 - 2.500 993 $ 464,477,305 99.05 %
2.501 - 3.000 7 3,699,585 0.79
3.001 - 3.500 1 554,800 0.12
4.501 - 5.000 1 180,000 0.04
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Weighted Average Gross Margin: 2.256%
Interest Only Feature of the Mortgage Loans in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Interest Only Feature --------------------- ------------------------------------ --------------------
None 69 $ 27,981,389 5.97 %
7 Years 401 136,746,875 29.16
10 Years 532 304,183,427 64.87
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Original Prepayment Penalty Term of the Mortgage Loans in Loan Group II-2
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Original Prepayment Penalty Term --------------------- ------------------------------------ --------------------
None 804 $ 348,732,436 74.37 %
6 Months 3 892,000 0.19
12 Months 123 76,499,367 16.31
36 Months 52 30,987,522 6.61
60 Months 20 11,800,366 2.52
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 1,002 $ 468,911,691 100.00 %
==================================================================================
==================================================================================
Principal Balances of the Mortgage Loans at Origination in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Original Principal Balance ($) --------------------- ------------------------------------ --------------------
0 - 100,000 18 $ 1,258,468 2.13 %
100,001 - 200,000 81 12,552,015 21.23
200,001 - 300,000 61 14,851,564 25.12
300,001 - 350,000 16 5,181,489 8.76
350,001 - 400,000 12 4,513,539 7.63
400,001 - 450,000 5 2,121,948 3.59
450,001 - 500,000 7 3,311,248 5.60
500,001 - 550,000 1 517,500 0.88
550,001 - 600,000 4 2,283,196 3.86
600,001 - 650,000 4 2,540,750 4.30
650,001 - 700,000 2 1,358,750 2.30
700,001 - 800,000 2 1,470,000 2.49
900,001 - 1,000,000 2 1,937,750 3.28
1,100,001 - 1,200,000 1 1,170,000 1.98
1,200,001 - 1,300,000 1 1,254,000 2.12
1,300,001 - 1,400,000 2 2,800,000 4.74
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Minimum Original Principal Balance: $40,410
Maximum Original Principal Balance: $1,400,000
Average Original Principal Balance: $270,095
Scheduled Principal Balances of the Mortgage Loans as of the Cut-Off Date in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Scheduled Principal Balance ($) --------------------- ------------------------------------ --------------------
0 - 100,000 18 $ 1,258,468 2.13 %
100,001 - 200,000 81 12,552,015 21.23
200,001 - 300,000 61 14,851,564 25.12
300,001 - 350,000 16 5,181,489 8.76
350,001 - 400,000 12 4,513,539 7.63
400,001 - 450,000 5 2,121,948 3.59
450,001 - 500,000 7 3,311,248 5.60
500,001 - 550,000 1 517,500 0.88
550,001 - 600,000 4 2,283,196 3.86
600,001 - 650,000 4 2,540,750 4.30
650,001 - 700,000 2 1,358,750 2.30
700,001 - 800,000 2 1,470,000 2.49
900,001 - 1,000,000 2 1,937,750 3.28
1,100,001 - 1,200,000 1 1,170,000 1.98
1,200,001 - 1,300,000 1 1,254,000 2.12
1,300,001 - 1,400,000 2 2,800,000 4.74
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Minimum Scheduled Principal Balance: $40,273
Maximum Scheduled Principal Balance: $1,400,000
Average Scheduled Principal Balance: $269,964
Mortgage Rates of the Mortgage Loans as of the Cut-Off Date in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Mortgage Interest Rates (%) --------------------- ------------------------------------ --------------------
3.750 - 3.999 1 $ 185,923 0.31 %
5.500 - 5.749 2 507,933 0.86
5.750 - 5.999 2 509,233 0.86
6.000 - 6.249 9 2,616,427 4.43
6.250 - 6.499 31 7,633,659 12.91
6.500 - 6.749 38 11,153,618 18.87
6.750 - 6.999 67 17,387,880 29.41
7.000 - 7.249 17 5,179,438 8.76
7.250 - 7.499 20 4,334,310 7.33
7.500 - 7.749 8 1,569,454 2.65
7.750 - 7.999 10 2,738,697 4.63
8.000 - 8.249 3 421,897 0.71
8.250 - 8.499 3 837,800 1.42
8.500 - 8.749 2 1,304,440 2.21
8.750 - 8.999 4 1,898,587 3.21
9.000 - 9.249 1 648,000 1.10
10.250 - 10.499 1 194,920 0.33
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Minimum Mortgage Rate: 3.875%
Maximum Mortgage Rate: 10.375%
Weighted Average Mortgage Rate: 6.928%
Original Loan-to-Value Ratios* in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Loan-to-Value Ratios (%) --------------------- ------------------------------------ --------------------
0.00 - 30.00 3 $ 310,334 0.52 %
30.01 - 40.00 2 244,000 0.41
40.01 - 50.00 14 2,682,513 4.54
50.01 - 55.00 5 1,009,139 1.71
55.01 - 60.00 11 3,219,332 5.45
60.01 - 65.00 18 6,603,361 11.17
65.01 - 70.00 11 4,204,750 7.11
70.01 - 75.00 15 4,598,122 7.78
75.01 - 80.00 99 27,503,914 46.52
85.01 - 90.00 10 2,166,127 3.66
90.01 - 95.00 8 1,739,687 2.94
95.01 - 100.00 23 4,840,937 8.19
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Weighted Average Original Loan-to-Value: 75.42%
*Loan to value ratios are calculated by taking the Original Principal Balance and dividing the lesser of the
original appraised value and sell price of the property.
Geographic Distribution* of the Mortgage Properties in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Geographic Distribution --------------------- ------------------------------------ --------------------
Arizona 6 $ 1,054,870 1.78 %
California 35 11,060,973 18.71
Colorado 5 1,985,523 3.36
Connecticut 1 352,000 0.60
District of Columbia 1 191,900 0.32
Florida 54 15,257,615 25.81
Georgia 47 11,521,537 19.49
Hawaii 1 414,248 0.70
Idaho 3 683,067 1.16
Indiana 2 109,817 0.19
Kentucky 2 359,475 0.61
Maine 1 244,443 0.41
Maryland 2 395,550 0.67
Massachusetts 2 321,450 0.54
Michigan 3 300,685 0.51
Mississippi 1 45,000 0.08
Missouri 1 245,004 0.41
Nevada 3 1,187,490 2.01
New Hampshire 1 358,033 0.61
New Jersey 1 70,022 0.12
New York 4 2,397,000 4.05
North Carolina 22 6,389,440 10.81
Oregon 1 331,900 0.56
Pennsylvania 3 429,075 0.73
Rhode Island 1 314,202 0.53
South Carolina 2 401,000 0.68
Tennessee 2 205,257 0.35
Texas 5 782,294 1.32
Utah 2 383,889 0.65
Virginia 2 580,000 0.98
Washington 2 436,727 0.74
West Virginia 1 312,732 0.53
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
*No more than approximately 2.37% of the Mortgage Loans by Scheduled Principal
Balance will be secured by properties located in any one zip code area.
Credit Scores as of the Date of Origination of the Mortgage Loans in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Range of Credit Scores --------------------- ------------------------------------ --------------------
600 - 619 8 $ 2,111,390 3.57 %
620 - 639 9 3,216,851 5.44
640 - 659 19 4,088,296 6.91
660 - 679 24 6,263,603 10.59
680 - 699 18 6,436,834 10.89
700 - 719 34 9,991,658 16.90
720 - 739 23 5,210,157 8.81
740 - 759 29 7,006,290 11.85
760 - 779 28 6,877,297 11.63
780 - 799 15 3,780,892 6.40
800 - 819 12 4,138,950 7.00
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Non-Zero Weighted Average Credit Score: 717
Property Types of the Mortgage Properties in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Property Type --------------------- ------------------------------------ --------------------
2-4 Family 10 $ 3,203,194 5.42 %
Condominium 31 7,394,870 12.51
PUD 79 21,456,846 36.29
Single Family 99 27,067,307 45.78
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Occupancy Status of Mortgage Properties in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Occupancy Status --------------------- ------------------------------------ --------------------
Investor 28 $ 5,471,111 9.25 %
Owner Occupied 152 44,896,489 75.94
Second Home 39 8,754,617 14.81
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Loan Purpose of the Mortgage Loans in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Loan Purpose --------------------- ------------------------------------ --------------------
Cash Out Refinance 60 $ 17,713,770 29.96 %
Purchase 135 34,749,210 58.78
Rate/Term Refinance 24 6,659,236 11.26
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Documentation Type of the Mortgage Loans in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Documentation Type --------------------- ------------------------------------ --------------------
Full/Alternative 99 $ 24,015,100 40.62 %
No Documentation 12 2,247,897 3.80
Reduced 24 7,282,560 12.32
Stated 84 25,576,660 43.26
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Original Terms to Stated Maturity of the Mortgage Loans in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Original Term (Months) --------------------- ------------------------------------ --------------------
360 215 $ 58,407,958 98.79 %
480 4 714,258 1.21
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Minimum Original Term to Stated Maturity (Mths): 360
Maximum Original Term to Stated Maturity (Mths): 480
Weighted Average Orig. Term to Stated Mat. (Mths): 361
Remaining Terms to Stated Maturity of the Mortgage Loans in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Stated Remaining Term (Months) --------------------- ------------------------------------ --------------------
300 - 359 206 $ 56,458,406 95.49 %
360 - 360 9 1,949,552 3.30
361 - 4 714,258 1.21
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Minimum Remaining Term to Stated Maturity (Mths): 346
Maximum Remaining Term to Stated Maturity (Mths): 478
Weighted Average Rem. Term to Stated Mat. (Mths): 359
Index of the Mortgage Loans in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Index --------------------- ------------------------------------ --------------------
1 YR Libor 201 $ 50,946,690 86.17 %
6 Mo Libor 18 8,175,526 13.83
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Rate Adjustment Frequency of the Mortgage Loans in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Rate Adjustment Frequency --------------------- ------------------------------------ --------------------
6 Months 18 $ 8,175,526 13.83 %
12 Months 201 50,946,690 86.17
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Months to Next Rate Adjustment* of the Mortgage Loans in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Months to Next Rate Adjustment --------------------- ------------------------------------ --------------------
106 - 108 5 $ 932,159 1.58 %
109 - 111 2 510,320 0.86
112 - 114 8 2,890,428 4.89
115 - 117 43 11,254,005 19.04
118 - 120 161 43,535,304 73.64
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Weighted Average Months to Next Rate Adjustment : 118
*Months to next rate adjustment is calculated by using the first rate adjustment date for the loans still in a
hybrid period and by using next rate adjustment for loans that are fully indexed.
Maximum Lifetime Mortgage Rate of the Mortgage Loans in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Maximum Mortgage Rates (%) --------------------- ------------------------------------ --------------------
- 9.750 1 $ 185,923 0.31 %
10.251 - 10.500 1 358,033 0.61
10.501 - 10.750 1 149,900 0.25
10.751 - 11.000 4 1,141,557 1.93
11.001 - 11.250 10 2,154,117 3.64
11.251 - 11.500 23 5,033,439 8.51
11.501 - 11.750 26 6,163,700 10.43
11.751 - 12.000 17 3,378,259 5.71
12.001 - 12.250 13 4,763,894 8.06
12.251 - 12.500 16 4,993,016 8.45
12.501 - 12.750 30 9,819,433 16.61
12.751 - 13.000 25 8,321,885 14.08
13.001 - 13.250 20 3,840,919 6.50
13.251 - 13.500 11 3,623,605 6.13
13.501 - 13.750 10 1,359,356 2.30
13.751 - 14.000 7 2,870,838 4.86
14.001 - 14.250 3 769,424 1.30
15.251 - 15.500 1 194,920 0.33
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Weighted Average Maximum Mortgage Rate: 12.485%
Periodic Rate Cap of the Mortgage Loans in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Periodic Rate Cap (%) --------------------- ------------------------------------ --------------------
1.000 15 $ 7,162,998 12.12 %
2.000 204 51,959,219 87.88
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Weighted Average Periodic Rate Cap: 1.879%
Initial Rate Cap of the Mortgage Loans in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Initial Rate Cap (%) --------------------- ------------------------------------ --------------------
5.000 194 $ 53,075,800 89.77 %
6.000 25 6,046,417 10.23
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Weighted Average Initial Rate Cap: 5.102%
Gross Margin of the Mortgage Loans in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Gross Margins (%) --------------------- ------------------------------------ --------------------
2.001 - 2.500 214 $ 58,113,673 98.29 %
2.501 - 3.000 3 717,029 1.21
3.001 - 3.500 2 291,514 0.49
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Weighted Average Gross Margin: 2.269%
Interest Only Feature of the Mortgage Loans in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Interest Only Feature --------------------- ------------------------------------ --------------------
None 34 $ 5,970,074 10.10 %
10 Years 185 53,152,142 89.90
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
Original Prepayment Penalty Term of the Mortgage Loans in Loan Group II-3
Number of Mortgage Aggregate Stated Principal % of
Loans Balance Outstanding as of Mortgage
Cut-off Date Loans
Original Prepayment Penalty Term --------------------- ------------------------------------ --------------------
None 164 $ 47,715,419 80.71 %
4 Months 1 431,200 0.73
6 Months 6 2,059,029 3.48
12 Months 10 2,107,088 3.56
24 Months 1 335,920 0.57
36 Months 22 4,144,333 7.01
60 Months 15 2,329,228 3.94
----------------------------------------------------------------------------------
----------------------------------------------------------------------------------
Total 219 $ 59,122,216 100.00 %
==================================================================================
==================================================================================
SCHEDULE B
Group II-2
The principal amount of each Exchanged Class is equal to the principal amount of Class II-2A-1B
Certificates. The Class II-2A-1B Certificates may be exchanged with the various combinations of the Class
II-2X-2, Class II-2X-3, Class II-2X-4 and Class II-2X-5 Certificates (the "Group II-2 Strip
Certificates") set forth below. The notional amount of any Group II-2 Strip Certificate exchanged must
equal the current principal amount of the Class II-2A-1B Certificate with which it is exchanged. The
pass-through rate of the Exchanged Class will equal the sum of the pass-through rates of the related
Exchangeable Classes.
Exchangeable Classes Exchanged Classes Pass-Through Rate
__________________________________________________________________________________
II-2A-1B, II-2X-4 I-AE-1 WAC-0.79%
II-2A-1B, II-2X-3 I-AE-2 WAC-0.69%
II-2A-1B, II-2X-3, II-2X-4 I-AE-3 WAC-0.59%
II-2A-1B, II-2X-3, II-2X-4, II-2X-5 I-AE-4 WAC-0.49%
II-2A-1B, II-2X-2, II-2X-3, II-2X-4, II-2X-5 I-AE-5 WAC
STRUCTURED ASSET MORTGAGE INVESTMENTS II INC.
Depositor
MORTGAGE PASS-THROUGH CERTIFICATES
MORTGAGE-BACKED NOTES
___________________________________________________________________________________________________________________________________
You should consider carefully the risk factors beginning on page 6 in this prospectus and the risk factors in the prospectus
supplement.
___________________________________________________________________________________________________________________________________
The Offered Securities
The depositor proposes to establish one or more trusts to issue and sell from time to time one or more classes of offered securities,
which shall be mortgage pass-through certificates or mortgage-backed notes.
The Trust Fund
Each series of securities will be secured by a trust fund consisting primarily of a segregated pool of mortgage loans, including:
o mortgage loans secured by first and junior liens on the related mortgage property;
o home equity revolving lines of credit;
o mortgage loans where the borrower has little or no equity in the related mortgaged property;
o mortgage loans secured by one-to-four-family residential properties;
o mortgage loans secured by multifamily properties, commercial properties and mixed residential and commercial properties,
provided that the concentration of these properties is less than 10% of the pool;
o manufactured housing conditional sales contracts and installment loan agreements or interests therein; and
o mortgage securities issued or guaranteed by Ginnie Mae, Fannie Mae, Freddie Mac or other government agencies or
government-sponsored agencies or privately issued mortgage securities;
in each case acquired by the depositor from one or more affiliated or unaffiliated institutions.
Credit Enhancement
If so specified in the related prospectus supplement, the trust for a series of securities may include any one or any combination of a
financial guaranty insurance policy, mortgage pool insurance policy, letter of credit, special hazard insurance policy or reserve fund,
currency or interest rate exchange agreements or other type of credit enhancement. In addition to or in lieu of the foregoing, credit
enhancement may be provided by means of subordination of one or more classes of securities, by cross-collateralization or by
overcollateralization.
The securities of each series will represent interests or obligations of the issuing entity, and will not represent interests in or
obligations of the sponsor, depositor, or any of their affiliates.
The offered securities may be offered to the public through different methods as described in "Methods of Distribution" in this
prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities offered
hereby or determined that this prospectus or the prospectus supplement is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is October 23, 2006.
INTRODUCTION
All capitalized terms in this prospectus are defined in the glossary at the end.
General
The mortgage pass-through certificates or mortgage-backed notes offered by this prospectus and the related prospectus
supplement will be offered from time to time in series. The securities of each series will consist of the offered securities of the
series, together with any other mortgage pass-through certificates or mortgage-backed notes of the series.
Each series of certificates will represent in the aggregate the entire beneficial ownership interest in, and each series of
notes will represent indebtedness of, a trust fund to be established by the depositor. Each trust fund will consist primarily of a pool
of mortgage loans or interests therein, which may include mortgage securities, acquired by the depositor from one or more affiliated or
unaffiliated sellers. See "The Depositor" and "The Mortgage Pools" in this prospectus. The mortgage loans may include sub-prime mortgage
loans. The trust fund assets, may also include, if applicable, reinvestment income, reserve funds, cash accounts, swaps and other
derivatives that are described in this prospectus, and various forms of credit enhancement as described in this prospectus and will be
held in trust for the benefit of the related securityholders pursuant to: (1) with respect to each series of certificates, a pooling and
servicing agreement or other agreement, or (2) with respect to each series of notes, an indenture, in each case as more fully described
in this prospectus and in the related prospectus supplement. Information regarding the offered securities of a series, and the general
characteristics of the mortgage loans and other trust fund assets in the related trust fund, will be set forth in the related prospectus
supplement.
Each series of securities will include one or more classes. Each class of securities of any series will represent the right,
which right may be senior or subordinate to the rights of one or more of the other classes of the securities, to receive a specified
portion of payments of principal or interest or both on the mortgage loans and the other trust fund assets in the related trust fund in
the manner described in this prospectus under "Description of the Securities" and in the related prospectus supplement. A series may
include one or more classes of securities entitled to principal distributions, with disproportionate, nominal or no interest
distributions, or to interest distributions, with disproportionate, nominal or no principal distributions. A series may include two or
more classes of securities which differ as to the timing, sequential order, priority of payment, pass-through rate or amount of
distributions of principal or interest or both.
The depositor's only obligations with respect to a series of securities will be pursuant to representations and warranties made
by the depositor, except as provided in the related prospectus supplement. The master servicer and each principal servicer for any
series of securities will be named in the related prospectus supplement. The principal obligations of the master servicer will be
pursuant to its contractual servicing obligations, which include its limited obligation to make advances in the event of delinquencies
in payments on the related mortgage loans if the servicer of a mortgage loan fails to make such advance. See "Description of theSecurities" in this prospectus.
If so specified in the related prospectus supplement, the trust fund for a series of securities may include any one or any
combination of a financial guaranty insurance policy, mortgage pool insurance policy, letter of credit, special hazard insurance policy,
reserve fund, currency or interest rate exchange agreements or any other type of credit enhancement described in this prospectus. In
addition to or in lieu of the foregoing, credit enhancement may be provided by means of subordination of one or more classes of
securities, by cross-collateralization or by overcollateralization. See "Description of Credit Enhancement" in this prospectus.
The rate of payment of principal of each class of securities entitled to a portion of principal payments on the mortgage loans
in the related mortgage pool and the trust fund assets will depend on the priority of payment of the class and the rate and timing of
principal payments on the mortgage loans and other trust fund assets, including by reason of prepayments, defaults, liquidations and
repurchases of mortgage loans. A rate of principal payments lower or faster than that anticipated may affect the yield on a class of
securities in the manner described in this prospectus and in the related prospectus supplement. See "Yield Considerations" in this
prospectus.
With respect to each series of securities, one or more separate elections may be made to treat the related trust fund or a
designated portion thereof as a REMIC for federal income tax purposes. If applicable, the prospectus supplement for a series of
securities will specify which class or classes of the securities will be considered to be regular interests in the related REMIC and
which class of securities or other interests will be designated as the residual interest in the related REMIC. See "Federal Income TaxConsequences" in this prospectus.
The offered securities may be offered through one or more different methods, including offerings through underwriters, as more
fully described under "Methods of Distribution" in this prospectus and in the related prospectus supplement.
There will be no secondary market for the offered securities of any series prior to the offering thereof. There can be no
assurance that a secondary market for any of the offered securities will develop or, if it does develop, that it will continue. The
offered securities will not be listed on any securities exchange, unless so specified in the related prospectus supplement.
RISK FACTORS
You should carefully consider, among other things, the following factors in connection with the purchase of the offered
certificates:
The Offered Certificates or Notes Will Have Limited Liquidity, So You May Be Unable to Sell Your Securities or May Be Forced to Sell
Them at a Discount from Their Fair Market Value.
The underwriter intends to make a secondary market in the offered certificates or notes, however the underwriter will not be
obligated to do so. There can be no assurance that a secondary market for the offered certificates or notes will develop or, if it does
develop, that it will provide holders of the offered certificates or notes with liquidity of investment or that it will continue for the
life of the offered certificates or notes. As a result, any resale prices that may be available for any offered certificate in any
market that may develop may be at a discount from the initial offering price or the fair market value thereof. The offered certificates
or notes will not be listed on any securities exchange.
The Rate and Timing of Principal Distributions on the Offered Certificates or Notes Will Be Affected by Prepayment Speeds.
The rate and timing of distributions allocable to principal on the offered certificates or notes, other than the interest only
certificates, will depend, in general, on the rate and timing of principal payments, including prepayments and collections upon
defaults, liquidations and repurchases, on the mortgage loans in the related loan group, or in the case of the offered subordinate
certificates, both loan groups, and the allocation thereof to pay principal on these certificates as provided in the prospectus
supplement. As is the case with mortgage pass-through certificates generally, the offered certificates or notes are subject to
substantial inherent cash-flow uncertainties because the mortgage loans may be prepaid at any time. However, if applicable, with
respect to the percentage of the mortgage loans set forth in the prospectus supplement, a prepayment within five years, as provided in
the mortgage note, of its origination may subject the related mortgagor to a prepayment charge, which may act as a deterrent to
prepayment of the mortgage loan. See "The Mortgage Pool" in the prospectus supplement.
Generally, when prevailing interest rates are increasing, prepayment rates on mortgage loans tend to decrease. A decrease in
the prepayment rates on the mortgage loans will result in a reduced rate of return of principal to investors in the offered certificates
or notes at a time when reinvestment at higher prevailing rates would be desirable.
Conversely, when prevailing interest rates are declining, prepayment rates on mortgage loans tend to increase. An increase in
the prepayment rates on the mortgage loans will result in a greater rate of return of principal to investors in the offered certificates
or notes, at time when reinvestment at comparable yields may not be possible.
During a certain period as described in the related prospectus supplement after the closing date, the entire amount of any
prepayments and certain other unscheduled recoveries of principal with respect to the mortgage loans in a loan group will be allocated
to the senior certificates in the related certificate group, other than the interest only certificates, with such allocation to be
subject to further reduction over an additional four year period thereafter, as described in the prospectus supplement, unless the
amount of subordination provided to the senior certificates by the subordinate certificates is twice the amount as of the cut-off date,
and certain loss and delinquency tests are satisfied. This will accelerate the amortization of the senior certificates in each
certificate group, other than the interest only certificates, as a whole while, in the absence of losses in respect of the mortgage
loans in the related loan group, increasing the percentage interest in the principal balance of the mortgage loans in such loan group
the subordinate certificates evidence.
For further information regarding the effect of principal prepayments on the weighted average lives of the offered certificates
or notes, see "Yield on the Certificates" or "Yield on the Notes" in the prospectus supplement, including the table entitled "Percent of
Initial Principal Balance Outstanding at the Following Percentages of the Prepayment Assumption" in the prospectus supplement.
The Yield to Maturity on the Offered Certificates or Notes Will Depend on a Variety of Factors.
The yield to maturity on the offered certificates or notes, particularly the interest only certificates, will depend, in
general, on:
o the applicable purchase price; and
o the rate and timing of principal payments, including prepayments and collections upon defaults, liquidations and
repurchases, on the related mortgage loans and the allocation thereof to reduce the current principal amount or
notional amount of the offered certificates or notes, as well as other factors.
The yield to investors on the offered certificates or notes will be adversely affected by any allocation thereto of interest
shortfalls on the mortgage loans.
In general, if the offered certificates or notes, other than the interest only certificates or notes, are purchased at a
premium and principal distributions occur at a rate faster than anticipated at the time of purchase, the investor's actual yield to
maturity will be lower than that assumed at the time of purchase. Conversely, if the offered certificates or notes, other than the
interest only certificates, are purchased at a discount and principal distributions occur at a rate slower than that anticipated at the
time of purchase, the investor's actual yield to maturity will be lower than that originally assumed.
The proceeds to the depositor from the sale of the offered certificates or notes were determined based on a number of
assumptions, including a constant rate of prepayment each month, or CPR, relative to the then outstanding principal balance of the
mortgage loans. No representation is made that the mortgage loans will prepay at this rate or at any other rate, or that the mortgage
loans will prepay at the same rate. The yield assumptions for the offered certificates or notes will vary as determined at the time of
sale. See "Yield on the Certificates" or "Yield on the Notes" in the prospectus supplement.
The Mortgage Loans Concentrated in a Specific Region May Present a Greater Risk of Loss with Respect to Such Mortgage Loans.
Mortgage loans secured by properties located in the State of California are more likely to incur defaults or losses as a result
of physical damage to the properties resulting from natural causes such as earthquake, mudslide and wildfire, as compared to mortgage
loans secured by properties located in other locations. Investors should note that some geographic regions of the United States from
time to time will experience weaker regional economic conditions and housing markets, and, consequently, will experience higher rates of
loss and delinquency than will be experienced on mortgage loans generally. For example, a region's economic condition and housing market
may be directly, or indirectly, adversely affected by natural disasters or civil disturbances such as earthquakes, hurricanes, floods,
eruptions or riots. The economic impact of any of these types of events may also be felt in areas beyond the region immediately affected
by the disaster or disturbance. The mortgage loans securing the offered certificates or notes may be concentrated in these regions, and
any concentration may present risk considerations in addition to those generally present for similar mortgage-backed securities without
this concentration. Any risks associated with mortgage loan concentration may affect the yield to maturity of the offered certificates
or notes to the extent losses caused by these risks are not covered by the subordination provided by the non-offered subordinate
certificates or notes.
Statutory and Judicial Limitations on Foreclosure Procedures May Delay Recovery in Respect of the Mortgaged Property and, in Some
Instances, Limit the Amount That May Be Recovered by the Foreclosing Lender, Resulting in Losses on the Mortgage Loans That Might be
Allocated to the Offered Certificates or Notes.
Foreclosure procedures may vary from state to state. Two primary methods of foreclosing a mortgage instrument are judicial
foreclosure, involving court proceedings, and non-judicial foreclosure pursuant to a power of sale granted in the mortgage instrument. A
foreclosure action is subject to most of the delays and expenses of other lawsuits if defenses are raised or counterclaims are asserted.
Delays may also result from difficulties in locating necessary defendants. Non-judicial foreclosures may be subject to delays resulting
from state laws mandating the recording of notice of default and notice of sale and, in some states, notice to any party having an
interest of record in the real property, including junior lienholders. Some states have adopted "anti-deficiency" statutes that limit
the ability of a lender to collect the full amount owed on a loan if the property sells at foreclosure for less than the full amount
owed. In addition, United States courts have traditionally imposed general equitable principles to limit the remedies available to
lenders in foreclosure actions that are perceived by the court as harsh or unfair. The effect of these statutes and judicial principles
may be to delay and/or reduce distributions in respect of the offered certificates or notes. See "Legal Aspects of Mortgage
Loans—Foreclosure on Mortgages and Some Contracts" in this prospectus.
The Value of the Mortgage Loans May Be Affected By, Among Other Things, a Decline in Real Estate Values, Which May Result in Losses on
the Offered Certificates or Notes.
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 mortgage loans. If the residential real estate market should experience an overall decline in property values
so that the outstanding balances of the mortgage loans, and any secondary financing on the mortgaged properties, in the mortgage pool
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 some areas of the United States, real estate values
have risen at a greater rate in recent years than in the past. In particular, mortgage loans with high principal balances or high
loan-to-value ratios will be affected by any decline in real estate values. Real estate values in any area of the country may be
affected by several factors, including population trends, mortgage interest rates, and the economic well-being of that area. Any
decrease in the value of the mortgage loans may result in the allocation of losses which are not covered by credit enhancement to the
offered certificates or notes.
The Ratings on the Offered Certificates or Notes Are Not a Recommendation to Buy, Sell or Hold the Offered Certificates or Notes and Are
Subject to Withdrawal at Any Time, Which May Affect the Liquidity or the Market Value of the Offered Certificates or Notes.
It is a condition to the issuance of the offered certificates or notes that each class of offered certificates or notes be
rated in one of the four highest rating categories by a nationally recognized statistical rating agency. A security rating is not a
recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time. No person is obligated to
maintain the rating on any offered certificate, and, accordingly, there can be no assurance that the ratings assigned to any offered
certificate on the date on which the offered certificates or notes are initially issued will not be lowered or withdrawn by a rating
agency at any time thereafter. In the event any rating is revised or withdrawn, the liquidity or the market value of the related offered
certificates or notes may be adversely affected. See "Ratings" in the prospectus supplement and "Rating" in this prospectus.
The ratings of the offered certificates or notes by the rating agencies may be lowered following the initial issuance thereof
as a result of losses on the mortgage loans in excess of the levels contemplated by the rating agencies at the time of their initial
rating analysis. Neither the depositor, the master servicer, the servicers, the securities administrator, the trustee nor any of their
respective affiliates will have any obligation to replace or supplement any credit enhancement, or to take any other action to maintain
the ratings of the offered certificates or notes. See "Description of Credit Enhancement—Reduction or Substitution of Credit
Enhancement" in this prospectus.
The Mortgage Loans May Have Limited Recourse to the Related Borrower, Which May Result in Losses with Respect to These Mortgage Loans.
Some or all of the mortgage loans included in the trust fund will be nonrecourse loans or loans for which recourse may be
restricted or unenforceable. As to those mortgage loans, recourse in the event of mortgagor default will be limited to the specific real
property and other assets, if any, that were pledged to secure the mortgage loan. However, even with respect to those mortgage loans
that provide for recourse against the mortgagor and its assets generally, there can be no assurance that enforcement of the recourse
provisions will be practicable, or that the other assets of the mortgagor will be sufficient to permit a recovery in respect of a
defaulted mortgage loan in excess of the liquidation value of the related mortgaged property. Any risks associated with mortgage loans
with no or limited recourse may affect the yield to maturity of the offered certificates or notes to the extent losses caused by these
risks which are not covered by credit enhancement are allocated to the offered certificates or notes.
The Mortgage Loans May Have Environmental Risks, Which May Result in Increased Losses with Respect to These Mortgage Loans.
To the extent that a servicer or the master servicer, in its capacity as successor servicer, for a mortgage loan acquires title
to any related mortgaged property which is contaminated with or affected by hazardous wastes or hazardous substances, these mortgage
loans may incur losses. See "Servicing of Mortgage Loans—Realization Upon or Sale of Defaulted Mortgage Loans" and "Legal Aspects of
Mortgage Loans—Environmental Legislation" in this prospectus. To the extent these environmental risks result in losses on the mortgage
loans, the yield to maturity of the offered certificates or notes, to the extent not covered by credit enhancement, may be affected.
Violation of Various Federal, State and Local Laws May Result in Losses on the Mortgage Loans.
Applicable state and local laws generally regulate interest rates and other charges, require specific disclosure, and require
licensing of the originator. In addition, other state and local laws, public policy and general principles of equity relating to the
protection of consumers, unfair and deceptive practices and debt collection practices may apply to the origination, servicing and
collection of the mortgage loans.
The mortgage loans are also subject to federal laws, including:
o the Federal Truth-in-Lending Act and Regulation Z promulgated thereunder, which require specific disclosures to the
borrowers regarding the terms of the mortgage loans;
o the Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit discrimination on the basis
of age, race, color, sex, religion, marital status, national origin, receipt of public assistance or the exercise of
any right under the Consumer Credit Protection Act, in the extension of credit; and
o the Fair Credit Reporting Act, which regulates the use and reporting of information related to the borrower's credit
experience.
Depending on the provisions of the applicable law and the specific facts and circumstances involved, violations of these
federal or state laws, policies and principles may limit the ability of the trust to collect all or part of the principal of or interest
on the mortgage loans, may entitle the borrower to a refund of amounts previously paid and, in addition, could subject the trust to
damages and administrative enforcement. See "Legal Aspects of Mortgage Loans" in this prospectus.
On the closing date, the Sponsor will represent that each mortgage loan at the time it was made complied in all material
respects with all applicable laws and regulations, including, without limitation, usury, equal credit opportunity, disclosure and
recording laws and all anti-predatory lending laws; and each mortgage loan has been serviced in all material respects in accordance with
all applicable laws and regulations, including, without limitation, usury, equal credit opportunity, disclosure and recording laws and
all anti-predatory lending laws and the terms of the related mortgage note, the mortgage and other loan documents. In the event of a
breach of this representation, the Sponsor will be obligated to cure the breach or repurchase or substitute the affected mortgage loan
in the manner described in the prospectus.
Under the anti-predatory lending laws of some states, the borrower is required to meet a net tangible benefits test in
connection with the origination of the related mortgage loan. This test may be highly subjective and open to interpretation. As a
result, a court may determine that a mortgage loan does not meet the test even if the originator reasonably believed that the test was
satisfied, Any determination by a court that the mortgage loan does not meet the test will result in a violation of the state
anti-predatory lending law, in which case the related Sponsor will be required to purchase that mortgage loan from the trust.
The Return on the Offered Certificates or Notes Could Be Reduced by Shortfalls Due to the Application of the Servicemembers Civil Relief
Act and Similar State Laws.
The Servicemembers Civil Relief Act, or the Relief Act, and similar state laws provide relief to mortgagors who enter active
military service and to mortgagors in reserve status and the national guard who are called to active military service after the
origination of their mortgage loans. The military operations by the United States in Iraq and Afghanistan has caused an increase in the
number of citizens in active military duty, including those citizens previously in reserve status. Under the Relief Act the interest
rate applicable to a mortgage loan for which the related mortgagor is called to active military service will be reduced from the
percentage stated in the related mortgage note to 6.00%. This interest rate reduction and any reduction provided under similar state
laws will result in an interest shortfall because neither the master servicer nor the related servicer will be able to collect the
amount of interest which otherwise would be payable with respect to such mortgage loan if the Relief Act or similar state law was not
applicable thereto. This shortfall will not be paid by the mortgagor on future due dates or advanced by the master servicer or the
related servicer and, therefore, will reduce the amount available to pay interest to the certificateholders on subsequent distribution
dates. We do not know how many mortgage loans in the mortgage pool have been or may be affected by the application of the Relief Act or
similar state law. In addition, the Relief Act imposes limitations that would impair the ability of the master servicer or the related
servicer to foreclose on an affected single family loan during the mortgagor's period of active duty status, and, under some
circumstances, during an additional three month period thereafter. Thus, in the event that the Relief Act or similar legislation or
regulations applies to any mortgage loan which goes into default, there may be delays in payment and losses on the certificates or notes
in connection therewith. Any other interest shortfalls, deferrals or forgiveness of payments on the mortgage loans resulting from
similar legislation or regulations may result in delays in payments or losses to holders of the offered certificates or notes.
Negative Amortization May Increase Losses Applied to the Certificates or Notes.
When interest due on a negative amortization loan is added to the principal balance of the negative amortization loan through
negative amortization, the mortgaged property provides proportionally less security for the repayment of the negative amortization
loan. Therefore, if the mortgagor defaults on the negative amortization loan, there is a greater likelihood that a loss will be
incurred upon the liquidation of the mortgaged property. Furthermore, the loss will be larger than would otherwise have been in the
absence of negative amortization.
Allocation of Deferred Interest May Affect the Yield on the Certificates or Notes.
The amount of deferred interest, if any, with respect to the negative amortization loans for a given month will reduce the
amount of interest collected on the negative amortization loans and available to be distributed as interest to the certificates or
notes. The reduction in interest collections will be offset, in whole or in part, by applying principal prepayments received on the
mortgage loans to interest distributions on the certificates or notes. To the extent the amount of deferred interest on the negative
amortization loans exceeds the principal prepayments and/or other amounts as described in the related prospectus supplement received on
the mortgage loans, the net rate cap on the certificates or notes will be reduced.
A Security Interest In A Manufactured Home Could Be Rendered Subordinate to the Interests of Other Parties Claiming an Interest in the
Home.
Perfection of security interests in manufactured homes and enforcement of rights to realize upon the value of the manufactured
homes as collateral for the manufactured housing contracts are subject to a number of federal and state laws, including the Uniform
Commercial Code as adopted in each state and each state's certificate of title statutes. The steps necessary to perfect the security
interest in a manufactured home will vary from state to state. If the servicer of the contract fails, due to clerical errors or
otherwise, to take the appropriate steps to perfect the security interest, the trustee may not have a first priority security interest
in the manufactured home securing a manufactured housing contract. Additionally, courts in many states have held that manufactured homes
may 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.
Acquiring Board Approval for the Sale of Cooperative Loans Could Limit the Number of Potential Purchasers for those Shares and Otherwise
Limit the Servicer's Ability to Sell, and Realize the Value of, those Shares Backed by Such Loans.
With respect to collateral securing a cooperative loan, any prospective purchaser 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 proprietary lease or
occupancy agreement securing the cooperative loan. This approval is usually based on the purchaser's income and net worth and numerous
other factors. The necessity of acquiring board approval could limit the number of potential purchasers for those shares and otherwise
limit the servicer's ability to sell, and realize the value of, those shares. In addition, the servicer will not require that a hazard
or flood insurance policy be maintained for any cooperative loan. Generally, the cooperative 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. However, if a cooperative and the related borrower on a cooperative note do not maintain hazard insurance or do not
maintain adequate coverage or any insurance proceeds are not applied to the restoration of the damaged property, damage to the related
borrower's cooperative apartment or the cooperative's building could significantly reduce the value of the collateral securing the
cooperative note.
Defects in Security Interest Could Result in Losses.
o The security interest in certain manufactured homes may not be perfected.
Every contract will be secured by either (1) a security interest in the manufactured home or (2) if it is a land-and-home
contract, the mortgage or deed of trust on the real estate where the manufactured home is permanently affixed. Several federal and state
laws, including (i) the UCC as adopted in the relevant state, (ii) certificate of title statutes as adopted in the relevant states; and
(iii) if applicable, the real estate laws as adopted in the states in which the manufactured homes are located, govern the perfection of
security interests in the manufactured homes and the enforcement of rights to realize upon the value of the manufactured homes as
collateral for the contracts. The steps required to perfect a security interest in a manufactured home vary from state to state. The
originator will represent and warrant that each contract is secured by a perfected security interest in the manufactured home, and the
originator must repurchase the contract if there is a breach of this representation and warranty. Nevertheless, if the originator fails
to perfect its security interest in the manufactured homes securing a number of contracts, it could cause an increase in losses on the
contracts, and you could suffer a loss on your investment as a result. In addition, under federal and state laws, a number of factors
may limit the ability of the holder of a perfected security interest in manufactured homes to realize upon the related manufactured
homes or may limit the amount realized to less than the amount due under the related contract which could result in a loss on your
investment.
o The assignment of the security interest in the manufactured home to the trustee may not be perfected.
Due to the expense and administrative inconvenience, the originator will not amend a certificate of title to a manufactured
home to name the trustee as the lienholder or note the trustee's interest on the certificate of title. As a result, in some states the
assignment of the security interest in the manufactured home to the trustee may not be effective against the seller's creditors or a
trustee in the event the seller enters bankruptcy, or the security interest may not be perfected. Also, the seller will not record the
assignment to the trustee of the mortgage or deed of trust securing land-and-home contracts because of the expense and administrative
inconvenience involved. As a result, in some states the assignment of the mortgage or deed of trust to the trustee may not be effective
against the seller's creditors or bankruptcy trustee. If an affiliate of the seller is no longer the servicer and the trustee or a
successor servicer is unable to enforce the security interest in the manufactured home following a default on a contract, losses on the
contracts would increase and you could suffer a loss on your investment as a result.
FICO Scores are Not an Indicator of Future Performance of Borrowers.
Investors should be aware that FICO scores are based on past payment history of the borrower. Investors should not rely on
FICO scores as an indicator of future borrower performance. See "Loan Program — FICO Scores" in this prospectus.
THE MORTGAGE POOLSGeneral
Each mortgage pool will consist primarily of mortgage loans. The mortgage loans may consist of single family loans, multifamily
loans, commercial loans, mixed-use loans and Contracts, each as described below.
The single family loans will be evidenced by mortgage notes and secured by mortgages that, in each case, create a first or
junior lien on the related mortgagor's fee or leasehold interest in the related mortgaged property. The related mortgaged property for a
single family loan may be owner-occupied or may be a vacation, second or non-owner-occupied home.
If specified in the related prospectus supplement relating to a series of securities, the single family loans may include
cooperative apartment loans evidenced by a mortgage note secured by security interests in the related mortgaged property including
shares issued by cooperatives and in the related proprietary leases or occupancy agreements granting exclusive rights to occupy specific
dwelling units in the related buildings.
The multifamily loans will be evidenced by mortgage notes and secured by mortgages that create a first or junior lien on
residential properties consisting of five or more dwelling units in high-rise, mid- rise or garden apartment structures or projects.
The commercial loans will be evidenced by mortgage notes and secured mortgages that create a first or junior lien on commercial
properties including office building, retail building and a variety of other commercial properties as may be described in the related
prospectus supplement.
The mixed-use loans will be evidenced by mortgage loans and secured by mortgages that create a first or junior lien on
properties consisting of mixed residential and commercial structures.
The aggregate concentration by original principal balance of commercial, multifamily and mixed-use loans in any mortgage pool
will be less than 10% of the original principal balance of the mortgage pool.
Mortgaged properties may be located in any one of the 50 states, the District of Columbia or the Commonwealth of Puerto Rico.
The mortgage loans will not be guaranteed or insured by the depositor or any of its affiliates. However, if so specified in the
related prospectus supplement, mortgage loans may be insured by the FHA or guaranteed by the VA. See "Description of Primary Mortgage
Insurance, Hazard Insurance; Claims Thereunder—FHA Insurance" and "—VA Mortgage Guaranty" in this prospectus.
A mortgage pool may include mortgage loans that are delinquent as of the date the related series of securities is issued. In
that case, the related prospectus supplement will set forth, as to each mortgage loan, available information as to the period of
delinquency and any other information relevant for a prospective investor to make an investment decision. No mortgage loan in a mortgage
pool shall be non-performing. Mortgage loans which are more than 30 days delinquent included in any mortgage pool will have delinquency
data relating to them included in the related prospectus supplement. No mortgage pool will include a concentration of mortgage loans
which is more than 30 days delinquent of 20% or more.
A mortgage pool may contain more than one mortgage loan made to the same borrower with respect to a single mortgaged property,
and may contain multiple mortgage loans made to the same borrower on several mortgaged properties.
The mortgage loans may include "sub-prime" mortgage loans. "Sub-prime" mortgage loans will be underwritten in accordance with
underwriting standards which are less stringent than guidelines for "A" quality borrowers. Mortgagors may have a record of outstanding
judgments, prior bankruptcies and other credit items that do not satisfy the guidelines for "A" quality borrowers. They may have had
past debts written off by past lenders.
A mortgage pool may include mortgage loans that do not meet the purchase requirements of Fannie Mae and Freddie Mac. These
mortgage loans are known as nonconforming loans. The mortgage loans may be nonconforming because they exceed the maximum principal
balance of mortgage loans purchased by Fannie Mae and Freddie Mac, known as jumbo loans, because the mortgage loan may have been
originated with limited or no documentation, because they are sub-prime mortgage loans, or because of some other failure to meet the
purchase criteria of Fannie Mae and Freddie Mac. The related prospectus supplement will detail to what extent the mortgage loans are
nonconforming mortgage loans.
Each mortgage loan will be selected by the depositor or its affiliates for inclusion in a mortgage pool from among those
purchased by the depositor, either directly or through its affiliates, from Unaffiliated Sellers or Affiliated Sellers. As to each
series of securities, the mortgage loans will be selected for inclusion in the mortgage pool based on rating agency criteria, compliance
with representations and warranties, and conformity to criteria relating to the characterization of securities for tax, ERISA, SMMEA,
Form S-3 eligibility and other legal purposes. If a mortgage pool is composed of mortgage loans acquired by the depositor directly from
Unaffiliated Sellers, the related prospectus supplement will specify the extent of mortgage loans so acquired. The characteristics of
the mortgage loans will be as described in the related prospectus supplement. Other mortgage loans available for purchase by the
depositor may have characteristics which would make them eligible for inclusion in a mortgage pool but were not selected for inclusion
in the mortgage pool.
The mortgage loans may be delivered to the trust fund pursuant to a Designated Seller Transaction, concurrently with the
issuance of the related series of securities. These securities may be sold in whole or in part to the Seller in exchange for the related
mortgage loans, or may be offered under any of the other methods described in this prospectus under "Methods of Distribution." The
related prospectus supplement for a mortgage pool composed of mortgage loans acquired by the depositor pursuant to a Designated Seller
Transaction will generally include information, provided by the related Seller, about the Seller, the mortgage loans and the
underwriting standards applicable to the mortgage loans.
If specified in the related prospectus supplement, the trust fund for a series of securities may include mortgage securities,
as described in this prospectus. The mortgage securities may have been issued previously by the depositor or an affiliate thereof, a
financial institution or other entity engaged generally in the business of mortgage lending or a limited purpose corporation organized
for the purpose of, among other things, acquiring and depositing mortgage loans into trusts, and selling beneficial interests in
trusts. In addition the mortgage securities may have been issued or guaranteed by Ginnie Mae, Fannie Mae, Freddie Mac or other
government agencies or government-sponsored agencies, as specified in the related prospectus supplement. The mortgage securities will be
generally similar to securities offered under this prospectus. In any securitization where mortgage securities are included in a trust
fund, unless the mortgage securities are exempt from registration under the Securities Act, the offering of the mortgage securities will
be registered if required in accordance with Rule 190 under the Securities Act. As to any series of mortgage securities, the related
prospectus supplement will include a description of (1) the mortgage securities and any related credit enhancement, and (2) the mortgage
loans underlying the mortgage securities.
In addition, if specified in the related prospectus supplement United States Treasury securities and other securities issued by
the U.S. Government, any of its agencies or other issuers established by federal statute may be included in the trust fund. Such
securities will be backed by the full faith and credit of the United States or will represent the obligations of the U.S. Government or
such agency or such other issuer or obligations payable from the proceeds of U.S. Government Securities, as specified in the related
prospectus supplement.
The Mortgage Loans
Each of the mortgage loans will be a type of mortgage loan described or referred to below:
o Fixed-rate, fully-amortizing mortgage loans (which may include mortgage loans converted from adjustable-rate mortgage loans
or otherwise modified) providing for level monthly payments of principal and interest and terms at origination or
modification of not more than approximately 15 years;
o Fixed-rate, fully-amortizing mortgage loans (which may include mortgage loans converted from adjustable-rate mortgage loans
or otherwise modified) providing for level monthly payments of principal and interest and terms at origination or
modification of more than 15 years, but not more than approximately 30 years;
o Fully-amortizing ARM Loans having an original or modified term to maturity of not more than approximately 30 years with a
related mortgage rate which generally adjusts initially either three months, six months or one, two, three, five, seven or
ten years or other intervals subsequent to the initial payment date, and thereafter at either three- month, six-month,
one-year or other intervals (with corresponding adjustments in the amount of monthly payments) over the term of the mortgage
loan to equal the sum of the related Note Margin and the note index. The related prospectus supplement will set forth the
relevant Index, which will be of a type that is customarily used in the debt and fixed income markets to measure the cost of
borrowed funds, and the highest, lowest and weighted average Note Margin with respect to the ARM Loans in the related
mortgage pool. The related prospectus supplement will also indicate any periodic or lifetime limitations on changes in any
per annum mortgage rate at the time of any adjustment. If specified in the related prospectus supplement, an ARM Loan may
include a provision that allows the mortgagor to convert the adjustable mortgage rate to a fixed rate at some point during
the term of the ARM Loan generally not later than six to ten years subsequent to the initial payment date;
o Negatively-amortizing ARM Loans having original or modified terms to maturity of not more than approximately 30 years with
mortgage rates which generally adjust initially on the payment date referred to in the related prospectus supplement, and on
each of specified periodic payment dates thereafter, to equal the sum of the Note Margin and the Index. The scheduled monthly
payment will be adjusted as and when described in the related prospectus supplement to an amount that would fully amortize
the mortgage loan over its remaining term on a level debt service basis; provided that increases in the scheduled monthly
payment may be subject to limitations as specified in the related prospectus supplement. Any Deferred Interest will be added
to the principal balance of the mortgage loan;
o Fixed-rate, graduated payment mortgage loans having original or modified terms to maturity of not more than approximately 15
years with monthly payments during the first year calculated on the basis of an assumed interest rate which is a specified
percentage below the mortgage rate on the mortgage loan. Monthly payments on these mortgage loans increase at the beginning
of the second year by a specified percentage of the monthly payment during the preceding year and each year thereafter to the
extent necessary to amortize the mortgage loan over the remainder of its approximately 15-year term. Deferred Interest, if
any, will be added to the principal balance of these mortgage loans;
o Fixed-rate, graduated payment mortgage loans having original or modified terms to maturity of not more than approximately 30
years with monthly payments during the first year calculated on the basis of an assumed interest rate which is a specified
percentage below the mortgage rate on the mortgage loan. Monthly payments on these mortgage loans increase at the beginning
of the second year by a specified percentage of the monthly payment during the preceding year and each year thereafter to the
extent necessary to fully amortize the mortgage loan over the remainder of its approximately 30-year term. Deferred Interest,
if any, will be added to the principal balance of these mortgage loans;
o Balloon loans having payment terms similar to those described in one of the preceding paragraphs, calculated on the basis of
an assumed amortization term, but providing for a balloon payment of all outstanding principal and interest to be made at the
end of a specified term that is shorter than the assumed amortization term;
o Mortgage loans that provide for a line of credit pursuant to which amounts may be advanced to the borrower from time to time;
o Mortgage loans that require that each monthly payment consist of an installment of interest which is calculated according to
the simple interest method. This method calculates interest using the outstanding principal balance of the mortgage loan
multiplied by the loan rate and further multiplied by a fraction, the numerator of which is the number of days in the period
elapsed since the preceding payment of interest was made and the denominator of which is the number of days in the annual
period for which interest accrues on the mortgage loan. As payments are received on simple interest mortgage loans, the
amount received is applied first to interest accrued to the date of payment and the balance is applied to reduce the unpaid
principal balance of the mortgage loan; or
o Mortgage loans which provide for an interest only period and do not provide for the payment of principal for the number of
years specified in the related prospectus supplement.
The mortgage pool may contain mortgage loans secured by junior liens. The related senior lien, which may have been made at the
same time as the first lien, may or may not be included in the mortgage pool as well. The primary risk to holders of mortgage loans
secured by junior liens is the possibility that adequate funds will not be received in connection with a foreclosure of the related
senior liens to satisfy fully both the senior liens and the mortgage loan secured by a junior lien. In the event that a holder of a
senior lien forecloses on a mortgaged property, the proceeds of the foreclosure or similar sale will be applied first to the payment of
court costs and fees in connection with the foreclosure, second to real estate taxes, third in satisfaction of all principal, interest,
prepayment or acceleration penalties, if any, and any other sums due and owing to the holder of the senior liens. The claims of the
holders of the senior liens will be satisfied in full out of proceeds of the liquidation of the related mortgaged property, if the
proceeds are sufficient, before the trust fund as holder of the junior lien receives any payments in respect of the mortgage loan. If
the master servicer or a servicer were to foreclose on a mortgage loan secured by a junior lien, it would do so subject to any related
senior liens. In order for the debt related to the mortgage loan to be paid in full at the sale, a bidder at the foreclosure sale of the
mortgage loan would have to bid an amount sufficient to pay off all sums due under the mortgage loan and the senior liens or purchase
the mortgaged property subject to the senior liens. In the event that the proceeds from a foreclosure or similar sale of the related
mortgaged property are insufficient to satisfy all senior liens and the mortgage loan in the aggregate, the trust fund, as the holder of
the junior lien, and, accordingly, holders of one or more classes of the securities of the related series bear (1) the risk of delay in
distributions while a deficiency judgment against the borrower is sought and (2) the risk of loss if the deficiency judgment is not
realized upon. Moreover, deficiency judgments may not be available in some jurisdictions or the mortgage loan may be nonrecourse. In
addition, a junior mortgagee may not foreclose on the property securing a junior mortgage unless it forecloses subject to the senior
mortgages.
A mortgage loan may require payment of a prepayment charge or penalty, the terms of which will be more fully described in the
prospectus supplement. Prepayment penalties may apply if the borrower makes a substantial prepayment, or may apply only if the borrower
refinances the mortgage loans. A multifamily, commercial or mixed-use loan may also contain a prohibition on prepayment or lock-out
period.
The mortgage loans may be "equity refinance" mortgage loans, as to which a portion of the proceeds are used to refinance an
existing mortgage loan, and the remaining proceeds may be retained by the mortgagor or used for purposes unrelated to the mortgaged
property. Alternatively, the mortgage loans may be "rate and term refinance" mortgage loans, as to which substantially all of the
proceeds (net of related costs incurred by the mortgagor) are used to refinance an existing mortgage loan or loans (which may include a
junior lien) primarily in order to change the interest rate or other terms thereof. The mortgage loans may be mortgage loans which have
been consolidated and/or have had various terms changed, mortgage loans which have been converted from adjustable rate mortgage loans to
fixed rate mortgage loans, or construction loans which have been converted to permanent mortgage loans. In addition, a mortgaged
property may be subject to secondary financing at the time of origination of the mortgage loan or thereafter. In addition, some or all
of the single family loans secured by junior liens may be High LTV Loans.
If provided for in the related prospectus supplement, a mortgage pool may contain convertible mortgage loans which allow the
mortgagors to convert the interest rates on these mortgage loans from a fixed rate to an adjustable rate, or an adjustable rate to a
fixed rate, at some point during the life of these mortgage loans. In addition, if provided for in the related prospectus supplement, a
mortgage pool may contain mortgage loans which may provide for modification to other fixed rate or adjustable rate programs offered by
the Seller. If specified in the related prospectus supplement, upon any conversion or modification, the depositor, the related master
servicer, the related servicer, the applicable Seller or a third party will repurchase the converted or modified mortgage loan as and to
the extent set forth in the related prospectus supplement. Upon the failure of any party so obligated to repurchase any converted or
modified mortgage loan, it will remain in the mortgage pool.
If provided for in the related prospectus supplement, the mortgage loans may include buydown mortgage loans. Under the terms of
a buydown mortgage loan, the monthly payments made by the mortgagor during the early years of the mortgage loan will be less than the
scheduled monthly payments on the mortgage loan. The resulting difference will be made up from:
o funds contributed by the Seller of the mortgaged property or another source and placed in a custodial account,
o if funds contributed by the Seller are contributed on a present value basis, investment earnings on these funds, or
o additional funds to be contributed over time by the mortgagor's employer or another source.
Generally, the mortgagor under each buydown mortgage loan will be qualified at the applicable lower monthly payment.
Accordingly, the repayment of a buydown mortgage loan is dependent on the ability of the mortgagor to make larger level monthly payments
after the Buydown Funds have been depleted and, for some buydown mortgage loans, during the Buydown Period.
The prospectus supplement for each series of securities will contain information as to the type of mortgage loans that will be
included in the related mortgage pool. Each prospectus supplement applicable to a series of securities will include information,
generally as of the cut-off date and to the extent then available to the depositor, on an approximate basis, as to the following:
o the aggregate principal balance of the mortgage loans,
o the type of property securing the mortgage loans,
o the original or modified terms to maturity of the mortgage loans,
o the range of principal balances of the mortgage loans at origination or modification,
o the earliest origination or modification date and latest maturity date of the mortgage loans,
o the Loan-to-Value Ratios of the mortgage loans,
o the mortgage rate or range of mortgage rates borne by the mortgage loans,
o if any of the mortgage loans are ARM Loans, the applicable Index, the range of Note Margins and the weighted average Note
Margin,
o the geographical distribution of the mortgage loans,
o the percentage of buydown mortgage loans, if applicable, and
o the percent of ARM Loans which are convertible to fixed-rate mortgage loans, if applicable.
A Current Report on Form 8-K will be sent, upon request, to holders of the related series of securities and will be filed, together
with the related pooling and servicing agreement, with respect to each series of certificates, or the related servicing agreement, owner
trust agreement and indenture, with respect to each series of notes, with the Commission after the initial issuance of the securities.
In the event that mortgage loans are added to or deleted from the trust fund after the date of the related prospectus supplement but on
or before the date of issuance of the securities if any material pool characteristic differs by 5% or more from the description in the
prospectus supplement, revised disclosure will be provided either in a supplement or in a Current Report on Form 8-K which will be
available to investors on the SEC website.
The depositor will cause the mortgage loans included in each mortgage pool, or mortgage securities evidencing interests
therein, to be assigned, without recourse, to the trustee named in the related prospectus supplement, for the benefit of the holders of
the securities of a series. Except to the extent that servicing of any mortgage loan is to be transferred to a special servicer, the
master servicer named in the related prospectus supplement will service the mortgage loans, directly or through servicers, pursuant to a
pooling and servicing agreement, with respect to each series of certificates, or a servicing agreement, with respect to each series of
notes, and will receive a fee for these services. See "Servicing of Mortgage Loans,""Description of the Securities" and "TheAgreements" in this prospectus. The master servicer's obligations with respect to the mortgage loans will consist principally of its
contractual servicing obligations under the related pooling and servicing agreement or servicing agreement (including its obligation to
supervise, monitor and oversee the obligations of the servicers to service and administer their respective mortgage loans in accordance
with the terms of the applicable servicing agreements), as more fully described in this prospectus under "Servicing of Mortgage
Loans—Servicers," and, if and to the extent set forth in the related prospectus supplement, its obligation to make cash advances in the
event of delinquencies in payments on or with respect to the mortgage loans as described in this prospectus under "Description of the
Securities—Advances") or pursuant to the terms of any mortgage securities. The obligations of a master servicer to make advances may be
subject to limitations, to the extent this prospectus and the related prospectus supplement so provides.
Underwriting Standards
Mortgage loans to be included in a mortgage pool will be purchased on the closing date by the depositor either directly or
indirectly from Affiliated Sellers or Unaffiliated Sellers. The depositor will acquire mortgage loans utilizing re-underwriting criteria
which it believes are appropriate, depending to some extent on the depositor's or its affiliates' prior experience with the Seller and
the servicer, as well as the depositor's prior experience with a particular type of mortgage loan or with mortgage loans relating to
mortgaged properties in a particular geographical region. A standard approach to re-underwriting is to compare loan file information
and information that is represented to the depositor on a tape with respect to a percentage of the mortgage loans the depositor deems
appropriate in the circumstances. The depositor will not undertake any independent investigations of the creditworthiness of particular
obligors.
The mortgage loans, as well as mortgage loans underlying mortgage securities will have been originated in accordance with
underwriting standards described below.
The underwriting standards to be used in originating the mortgage loans are primarily intended to assess the creditworthiness
of the mortgagor, the value of the mortgaged property and the adequacy of the property as collateral for the mortgage loan.
The mortgage loans will be originated under "full/alternative", "stated income/verified assets", "stated income/stated assets",
"no documentation" or "no ratio" programs. The "full/alternative" documentation programs generally verify income and assets in
accordance with Fannie Mae/Freddie Mac automated underwriting requirements. The stated income/verified assets, stated income/stated
assets, no documentation or no ratio programs generally require less documentation and verification than do full documentation programs
which generally require standard Fannie Mae/Freddie Mac approved forms for verification of income/employment, assets and certain payment
histories. Generally, under both "full/alternative" documentation programs, at least one month of income documentation is provided.
This documentation is also required to include year-to-date income or prior year income in case the former is not sufficient to
establish consistent income. Generally under a "stated income verified assets" program no verification of a mortgagor's income is
undertaken by the origination however, verification of the mortgagor's assets is obtained. Under a "stated income/stated assets"
program, no verification of either a mortgagor's income or a mortgagor's assets is undertaken by the originator although both income and
assets are stated on the loan application and a "reasonableness test" is applied. Generally, under a "no documentation" program, the
mortgagor is not required to state his or her income or assets and therefore, no verification of such mortgagor's income or assets is
undertaken by the originator. The underwriting for such mortgage loans may be based primarily or entirely on the estimated value of the
mortgaged property and the LTV ratio at origination as well as on the payment history and credit score. Generally, under a "no ratio"
program, the mortgagor is not required to disclose their income although the nature of employment is disclosed. Additionally, on a "no
ratio" program assets are verified.
The primary considerations in underwriting a mortgage loan are the mortgagor's employment stability and whether the mortgagor
has sufficient monthly income available (1) to meet the mortgagor's monthly obligations on the proposed mortgage loan (generally
determined on the basis of the monthly payments due in the year of origination) and other expenses related to the home (including
property taxes and hazard insurance) and (2) to meet monthly housing expenses and other financial obligations and monthly living
expenses. However, the Loan-to-Value Ratio of the mortgage loan is another critical factor. In addition, a mortgagor's credit history
and repayment ability, as well as the type and use of the mortgaged property, are also considerations.
High LTV Loans are underwritten with an emphasis on the creditworthiness of the related mortgagor. High LTV Loans are
underwritten with a limited expectation of recovering any amounts from the foreclosure of the related mortgaged property.
In the case of the multifamily loans, commercial loans or mixed-use loans, lenders typically look to the debt service coverage
ratio of a loan as an important measure of the risk of default on that loan. Unless otherwise defined in the related prospectus
supplement, the debt service coverage ratio of a multifamily loan, commercial loan or mixed-use loan at any given time is the ratio of
(1) the net operating income of the related mortgaged property for a twelve-month period to (2) the annualized scheduled payments on the
mortgage loan and on any other loan that is secured by a lien on the mortgaged property prior to the lien of the related mortgage. The
net operating income of a mortgaged property is the total operating revenues derived from a multifamily, commercial or mixed-use
property, as applicable, during that period, minus the total operating expenses incurred in respect of that property during that period
other than (a) non-cash items such as depreciation and amortization, (b) capital expenditures and (c) debt service on loans (including
the related mortgage loan) secured by liens on that property. The net operating income of a multifamily, commercial or mixed-use
property, as applicable, will fluctuate over time and may or may not be sufficient to cover debt service on the related mortgage loan at
any given time. As the primary source of the operating revenues of a multifamily, commercial or mixed-use property, as applicable,
rental income (and maintenance payments from tenant-stockholders of a cooperatively owned multifamily property) may be affected by the
condition of the applicable real estate market and/or area economy. Increases in operating expenses due to the general economic climate
or economic conditions in a locality or industry segment, such as increases in interest rates, real estate tax rates, energy costs,
labor costs and other operating expenses, and/or to changes in governmental rules, regulations and fiscal policies, may also affect the
risk of default on a multifamily, commercial or mixed-use loan. Lenders also look to the Loan-to-Value Ratio of a multifamily,
commercial or mixed-use loan as a measure of risk of loss if a property must be liquidated following a default.
Each prospective mortgagor will generally complete a mortgage loan application that includes information on the applicant's
liabilities, income, credit history, employment history and personal information. One or more credit reports on each applicant from
national credit reporting companies generally will be required. The report typically contains information relating to credit history
with local and national merchants and lenders, installment debt payments and any record of defaults, bankruptcies, repossessions, or
judgments. In the case of a multifamily loan, commercial loan or mixed-use loan, the mortgagor will also be required to provide certain
information regarding the related mortgaged property, including a current rent roll and operating income statements (which may be pro
forma and unaudited). In addition, the originator will generally also consider the location of the mortgaged property, the availability
of competitive lease space and rental income of comparable properties in the relevant market area, the overall economy and demographic
features of the geographic area and the mortgagor's prior experience in owning and operating properties similar to the multifamily
properties or commercial properties, as the case may be.
Mortgaged properties generally will be appraised by licensed appraisers or through an automated valuation system. A licensed
appraiser will generally address neighborhood conditions, site and zoning status and condition and valuation of improvements. In the
case of mortgaged properties secured by single family loans, the appraisal report will generally include a reproduction cost analysis
(when appropriate) based on the current cost of constructing a similar home and a market value analysis based on recent sales of
comparable homes in the area. With respect to multifamily properties, commercial properties and mixed-use properties, 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 property's projected net cash flow, capitalization and other operational information in determining the property's value. The
market approach to value analyzes the prices paid for the purchase of similar properties in the property's area, with adjustments made
for variations between those other properties and the property being appraised. The cost approach to value requires the appraiser to
make an estimate of land value and then determine the current cost of reproducing the improvements less any accrued depreciation. In any
case, the value of the property being financed, as indicated by the appraisal, must support, and support in the future, the outstanding
loan balance. All appraisals by licensed appraisers are required to be on forms acceptable to Fannie Mae or Freddie Mac. Automated
valuation systems generally rely on publicly available information regarding property values and will be described more fully in the
related prospectus supplement. An appraisal for purposes of determining the Value of a mortgaged property may include an automated
valuation.
Notwithstanding the foregoing, Loan-to-Value Ratios will not necessarily provide an accurate measure of the risk of liquidation
loss in a pool of mortgage loans. For example, the value of a mortgaged property as of the date of initial issuance of the related
series of securities may be less than the Value determined at loan origination, and will likely continue to fluctuate from time to time
based upon changes in economic conditions and the real estate market. Mortgage loans which are subject to negative amortization will
have Loan-to-Value Ratios which will increase after origination as a result of negative amortization. Also, even when current, an
appraisal is not necessarily a reliable estimate of value for a multifamily property or commercial property. As stated above, appraised
values of multifamily, commercial and mixed-use properties are generally based on the market analysis, the cost analysis, the income
analysis, or upon a selection from or interpolation of the values derived from those approaches. Each of these appraisal methods can
present analytical difficulties. It is often difficult to find truly comparable properties that have recently been sold; the replacement
cost of a property may have little to do with its current market value; and income capitalization is inherently based on inexact
projections of income and expenses and the selection of an appropriate capitalization rate. Where more than one of these appraisal
methods are used and provide significantly different results, an accurate determination of value and, correspondingly, a reliable
analysis of default and loss risks, is even more difficult.
If so specified in the related prospectus supplement, the underwriting of a multifamily loan, commercial loan or mixed-use loan
may also include environmental testing. Under the laws of some states, contamination of real property may give rise to a lien on the
property to assure the costs of cleanup. In several states, this type of lien has priority over an existing mortgage lien on that
property. In addition, under the laws of some states and under CERCLA, a lender may be liable, as an "owner" or "operator", for costs of
addressing releases or threatened releases of hazardous substances at a property, if agents or employees of the lender have become
sufficiently involved in the operations of the borrower, regardless of whether or not the environmental damage or threat was caused by
the borrower or a prior owner. A lender also risks such liability on foreclosure of the mortgage as described under "Legal Aspects of
Mortgage Loans—Environmental Legislation" in this prospectus.
With respect to any FHA loan or VA loans the mortgage loan Seller will be required to represent that it has complied with the
applicable underwriting policies of the FHA or VA, respectively. See "Description of Primary Mortgage Insurance, Hazard Insurance;
Claims Thereunder—FHA Insurance" and "—VA Insurance" in this prospectus.
FICO Scores
The FICO Score is a statistical ranking of likely future credit performance developed by Fair, Isaac & Company ("Fair, Isaac")
and the three national credit repositories-Equifax, Trans Union and First American (formerly Experian which was formerly TRW). The FICO
Scores available from the three national credit repositories are calculated by the assignment of weightings to the most predictive data
collected by the credit repositories and range from the 300's to the 900's. Although the FICO Scores are based solely on the
information at the particular credit repository, such FICO Scores have been calibrated to indicate the same level of credit risk
regardless of which credit repository is used. The FICO Scores is used along with, but not limited to, mortgage payment history,
seasoning on bankruptcy and/or foreclosure, and is not a substitute for the underwriter's judgment.
Qualifications of Originators and Sellers
Each mortgage loan generally will be originated, directly or through mortgage brokers and correspondents, by a savings and loan
association, savings bank, commercial bank, credit union, insurance company, or similar institution which is supervised and examined by
a federal or state authority, or by a mortgagee approved by the Secretary of Housing and Urban Development pursuant to sections 203 and
211 of the Housing Act, unless otherwise provided in the related prospectus supplement.
Representations by Sellers
Each Seller will have made representations and warranties in respect of the mortgage loans and/or mortgage securities sold by
the Seller and evidenced by a series of securities. In the case of mortgage loans, representations and warranties will generally
include, among other things, that as to each mortgage loan:
o With respect to any first lien mortgage loan, a lender's title insurance policy (on an ALTA or CLTA form) or binder,
or other assurance of title customary in the relevant jurisdiction therefore in a form acceptable to Fannie Mae or
Freddie Mac, was issued on the date that each mortgage loan was created by a title insurance company which, to the
best of the related seller's knowledge, was qualified to do business in the jurisdiction where the related mortgaged
property is located, insuring the related seller and its successors and assigns that the mortgage is a first priority
lien on the related mortgaged property in the original principal amount of the mortgage loan; and the related seller
is the sole insured under such lender's title insurance policy, and such policy, binder or assurance is valid and
remains in full force and effect, and each such policy, binder or assurance shall contain all applicable endorsements
including a negative amortization endorsement, if applicable. With respect to any second lien mortgage loan, other
than any Piggyback Loan that has an initial principal amount less than or equal to $200,000, (a) a lender's title
insurance policy or binder, or other assurance of title customary in the relevant jurisdiction therefore in a form
acceptable to Fannie Mae or Freddie Mac, was issued on the date that each mortgage loan was created by a title
insurance company which, to the best of the related seller's knowledge, was qualified to do business in the
jurisdiction where the related mortgaged property is located, insuring the related seller and its successors and
assigns; and the related seller is the sole insured under such lender's title insurance policy, and such policy,
binder or assurance is valid and remains in full force and effect, and each such policy, binder or assurance shall
contain all applicable endorsements including a negative amortization endorsement, if applicable, or (b) a lien
search was conducted at the time of origination with respect to the related property;
o immediately prior to the transfer to the depositor, the related Seller was the sole owner of beneficial title and
holder of the mortgage and mortgage note relating to such mortgage loan and is conveying the same free and clear of
any and all liens, claims, encumbrances, participation interests, equities, pledges, charges or security interests of
any nature and the related Seller has full right and authority to sell or assign the same pursuant to the related
mortgage loan purchase agreement;
o there is no mechanics' lien or claim for work, labor or material affecting the premises subject to any mortgage which
is or may be a lien prior to, or equal with, the lien of such mortgage except those which are insured against by the
title insurance policy referred to above;
o the mortgage is a valid and enforceable first or other applicable lien on the property securing the related mortgage
note and each mortgaged property is owned by the mortgagor in fee simple (except with respect to common areas in the
case of condominiums, PUDs and de minimis PUDs) or by leasehold for a term longer than the term of the related
mortgage, subject only to (i) the lien of current real property taxes and assessments, (ii) covenants, conditions and
restrictions, rights of way, easements and other matters of public record as of the date of recording of such
mortgage, such exceptions being acceptable to mortgage lending institutions generally or specifically reflected in the
appraisal obtained in connection with the origination of the related mortgage loan or referred to in the lender's
title insurance policy delivered to the originator of the related mortgage loan and (iii) other matters to which like
properties are commonly subject which do not materially interfere with the benefits of the security intended to be
provided by such mortgage;
o the physical property subject to the mortgage is free of material damage and is in good repair and there is no
proceeding pending or threatened for the total or partial condemnation of any mortgaged property;
o there was no delinquent tax or assessment lien against the property subject to any mortgage, except where such lien
was being contested in good faith and a stay had been granted against levying on the property; and
o each mortgage loan at the time it was made complied in all material respects with all applicable local, state and
federal laws and regulations, including, without limitation, usury, equal credit opportunity, disclosure and recording
laws and all applicable predatory, abusive and fair lending laws; and each mortgage loan has been serviced in all
material respects in accordance with all applicable laws and regulations, including, without limitation, usury, equal
credit opportunity, disclosure and recording laws and all applicable anti-predatory lending laws and the terms of the
related mortgage note, the mortgage and other loan documents.
If the mortgage loans include cooperative mortgage loans, representations and warranties with respect to title insurance or hazard
insurance may not be given. Generally, the cooperative itself is responsible for the maintenance of hazard insurance for property owned
by the cooperative, and the borrowers (tenant-stockholders) of the cooperative do not maintain hazard insurance on their individual
dwelling units. In the case of mortgage securities, representations and warranties will generally include, among other things, that as
to each mortgage security, the Seller has good title to the mortgage security free of any liens. In the event of a breach of a Seller's
representation or warranty that materially adversely affects the interests of the securityholders in a mortgage loan or mortgage
security, the related Seller will be obligated to cure the breach or repurchase or, if permitted, replace the mortgage loan or mortgage
security as described below. However, there can be no assurance that a Seller will honor its obligation to repurchase or, if permitted,
replace any mortgage loan or mortgage security as to which a breach of a representation or warranty arises.
All of the representations and warranties of a Seller in respect of a mortgage loan or mortgage security will have been made as
of the date on which the mortgage loan or mortgage security was purchased from the Seller by or on behalf of the depositor, unless a
specific representation or warranty relates to an earlier date, in which case such representation or warranty shall be made as of such
earlier date. As a result, the date as of which the representations and warranties were made may be a date prior to the date of initial
issuance of the related series of securities or, in the case of a Designated Seller Transaction, will be the date of closing of the
related sale by the applicable Seller. A substantial period of time may have elapsed between the date as of which the representations
and warranties were made and the later date of initial issuance of the related series of securities. Accordingly, the Seller's
repurchase obligation (or, if specified in the related prospectus supplement, limited replacement option) described below will not arise
if, during the period commencing on the date of sale of a mortgage loan or mortgage security by the Seller, an event occurs that would
have given rise to a repurchase obligation had the event occurred prior to sale of the affected mortgage loan or mortgage security, as
the case may be. The only representations and warranties to be made for the benefit of holders of securities in respect of any related
mortgage loan or mortgage security relating to the period commencing on the date of sale of the mortgage loan or mortgage security by
the Seller to or on behalf of the depositor will be the limited corporate representations of the depositor and the master servicer
described under "Description of the Securities—Assignment of Trust Fund Assets" below.
The depositor will assign to the trustee for the benefit of the holders of the related series of securities all of its right,
title and interest in each purchase agreement by which it purchased a mortgage loan or mortgage security from a Seller insofar as the
purchase agreement relates to the representations and warranties made by the Seller in respect of the mortgage loan or mortgage security
and any remedies provided for with respect to any breach of representations and warranties with respect to the mortgage loan or mortgage
security. If a Seller cannot cure a breach of any representation or warranty made by it in respect of a mortgage loan or mortgage
security which materially and adversely affects the interests of the securityholders therein within a specified period after having
discovered or received notice of a breach, then, the Seller will be obligated to repurchase the mortgage loan or mortgage security at a
purchase price set forth in the related pooling and servicing agreement or other agreement which purchase price generally will be equal
to the principal balance thereof as of the date of repurchase plus accrued and unpaid interest through or about the date of repurchase
at the related mortgage rate or pass-through rate, as applicable (net of any portion of this interest payable to the Seller in respect
of master servicing compensation, special servicing compensation or servicing compensation, as applicable, and any interest retained by
the depositor).
As to any mortgage loan required to be repurchased by a Seller as provided above, rather than repurchase the mortgage loan, the
Seller, if so specified in the related prospectus supplement, will be entitled, at its sole option, to remove the Deleted Mortgage Loan
from the trust fund and substitute in its place a Qualified Substitute Mortgage Loan; however, with respect to a series of certificates
for which no REMIC election is to be made, the substitution must be effected within 120 days of the date of the initial issuance of the
related series of certificates. With respect to a trust fund for which a REMIC election is to be made, the substitution of a defective
mortgage loan must be effected within two years of the date of the initial issuance of the related series of certificates, and may not
be made if the substitution would cause the trust fund, or any portion thereof, to fail to qualify as a REMIC or result in a Prohibited
Transaction Tax under the Code. Any Qualified Substitute Mortgage Loan generally will, on the date of substitution:
o have an outstanding principal balance, after deduction of the principal portion of the monthly payment due in the month of
substitution, not in excess of the outstanding principal balance of the Deleted Mortgage Loan (the amount of any shortfall to
be deposited in the Distribution Account by the related Seller or the master servicer in the month of substitution for
distribution to the securityholders),
o have a mortgage rate and a Net Mortgage Rate not less than (and not materially greater than) the mortgage rate and Net
Mortgage Rate, respectively, of the Deleted Mortgage Loan as of the date of substitution,
o have a Loan-to-Value Ratio at the time of substitution no higher than that of the Deleted Mortgage Loan at the time of
substitution,
o have a remaining term to maturity not materially earlier or later than (and not later than the latest maturity date of any
mortgage loan) that of the Deleted Mortgage Loan, and
o comply with all of the representations and warranties made by the Seller as of the date of substitution.
The related mortgage loan purchase agreement may include additional requirements relating to ARM Loans or other specific types of
mortgage loans, or additional provisions relating to meeting the foregoing requirements on an aggregate basis where a number of
substitutions occur contemporaneously. A Seller will have an option to substitute for a mortgage security that it is obligated to
repurchase in connection with a breach of a representation and warranty only if it satisfies the criteria set forth in the related
prospectus supplement.
The master servicer or the trustee will be required under the applicable pooling and servicing agreement or servicing agreement
to use reasonable efforts to enforce this repurchase or substitution obligation for the benefit of the trustee and the securityholders,
following those practices it would employ in its good faith business judgment and which are normal and usual in its general mortgage
servicing activities; provided, however, that this repurchase or substitution obligation will not become an obligation of the master
servicer in the event the applicable Seller fails to honor the obligation. In instances where a Seller is unable, or disputes its
obligation, to repurchase affected mortgage loans and/or mortgage securities, the master servicer or the trustee, employing the
standards set forth in the preceding sentence, may negotiate and enter into one or more settlement agreements with the related Seller
that could provide for the repurchase of only a portion of the affected mortgage loans and/or mortgage securities. Any settlement could
lead to losses on the mortgage loans and/or mortgage securities which would be borne by the related securities. In accordance with the
above described practices, the master servicer or trustee will not be required to enforce any repurchase obligation of a Seller arising
from any misrepresentation by the Seller, if the master servicer determines in the reasonable exercise of its business judgment that the
matters related to the misrepresentation did not directly cause or are not likely to directly cause a loss on the related mortgage loan
or mortgage security. If the Seller fails to repurchase and no breach of any other party's representations has occurred, the Seller's
repurchase obligation will not become an obligation of the depositor or any other party. In the case of a Designated Seller Transaction
where the Seller fails to repurchase a mortgage loan or mortgage security and neither the depositor nor any other entity has assumed the
representations and warranties, the repurchase obligation of the Seller will not become an obligation of the depositor or any other
party. The foregoing obligations will constitute the sole remedies available to securityholders or the trustee for a breach of any
representation by a Seller or for any other event giving rise to the obligations as described above.
Neither the depositor nor the master servicer will be obligated to repurchase a mortgage loan or mortgage security if a Seller
defaults on its obligation to do so, and no assurance can be given that the Sellers will carry out their repurchase obligations. A
default by a Seller is not a default by the depositor or by the master servicer. However, to the extent that a breach of the
representations and warranties of a Seller also constitutes a breach of a representation made by the depositor or the master servicer,
as described below under "Description of the Securities—Assignment of Trust Fund Assets," the depositor or the master servicer may have
a repurchase or substitution obligation. Any mortgage loan or mortgage security not so repurchased or substituted for shall remain in
the related trust fund and any losses related thereto shall be allocated to the related credit enhancement, to the extent available, and
otherwise to one or more classes of the related series of securities.
If a person other than a Seller makes the representations and warranties referred to in the first paragraph of this
"—Representations by Sellers" section, or a person other than a Seller is responsible for repurchasing or replacing any mortgage loan or
mortgage security for a breach of those representations and warranties, the identity of that person will be specified in the related
prospectus supplement. The master servicer's responsibilities for enforcing these representations and warranties will be as provided in
the second preceding paragraph.
Optional Purchase of Defaulted Mortgage Loans
If the related prospectus supplement so specifies, the master servicer or another entity identified in such prospectus
supplement may, at its option, purchase from the trust fund any mortgage loan which is delinquent in payment by 90 days or more or is an
REO Mortgage Loan as the date of such purchase. Any such purchase shall be at the price described in the related prospectus supplement.
STATIC POOL INFORMATION
For each mortgage pool discussed above, the depositor will provide static pool information with respect to the experience of
the sponsor, or other appropriate entity, in securitizing asset pools of the same type to the extent material.
With respect to each series of securities, the information referred to in this section will be provided through an internet web
site at the address disclosed in the related prospectus supplement.
SERVICING OF MORTGAGE LOANSGeneral
The mortgage loans and mortgage securities included in each mortgage pool will be serviced and administered pursuant to either
a pooling and servicing agreement or a servicing agreement. A form of pooling and servicing agreement and a form of servicing agreement
have each been filed as an exhibit to the registration statement of which this prospectus is a part. However, the provisions of each
pooling and servicing agreement or servicing agreement will vary depending upon the nature of the related mortgage pool. The following
summaries describe the material servicing-related provisions that may appear in a pooling and servicing agreement or servicing agreement
for a mortgage pool that includes mortgage loans. The related prospectus supplement will describe any servicing-related provision of its
related pooling and servicing agreement or servicing agreement that materially differs from the description thereof contained in this
prospectus. If the related mortgage pool includes mortgage securities, the related prospectus supplement will summarize the material
provisions of the related pooling and servicing agreement and identify the responsibilities of the parties to that pooling and servicing
agreement.
With respect to any series of securities as to which the related mortgage pool includes mortgage securities, the servicing and
administration of the mortgage loans underlying any mortgage securities will be pursuant to the terms of those mortgage securities.
Mortgage loans underlying mortgage securities in a mortgage pool will be serviced and administered generally in the same manner as
mortgage loans included in a mortgage pool, however, there can be no assurance that this will be the case, particularly if the mortgage
securities are issued by an entity other than the depositor or any of its affiliates.
The Master Servicer
The master servicer, if any, for a series of securities will be named in the related prospectus supplement and may be an
affiliate of the depositor. The master servicer is required to maintain a fidelity bond and errors and omissions policy with respect to
its officers and employees and other persons acting on behalf of the master servicer in connection with its activities under a pooling
and servicing agreement or a servicing agreement.
The master servicer shall supervise, monitor and oversee the obligation of the servicers to service and administer their
respective mortgage loans in accordance with the terms of the applicable servicing agreements and shall have full power and authority to
do any and all things which it may deem necessary or desirable in connection with such master servicing and administration. In addition,
the Master Servicer shall oversee and consult with each servicer as necessary from time-to-time to carry out the master servicer's
obligations under the pooling and servicing agreement or servicing agreement, shall receive, review and evaluate all reports,
information and other data provided to the master servicer by each servicer and shall cause each servicer to perform and observe the
covenants, obligations and conditions to be performed or observed by such servicer under its applicable servicing agreement. Each
pooling and servicing agreement or servicing agreement, as applicable, for a series of securities, will provide that in the event a
servicer fails to perform its obligations in accordance with its servicing agreement, the master servicer shall terminate such servicer
and act as servicer of the related mortgage loans or cause the trustee to enter into a new servicing agreement with a successor servicer
selected by the master servicer.
The Servicers
Each of the servicers, if any, for a series of securities will be named in the related prospectus supplement and may be an
affiliate of the depositor or the Seller of the mortgage loans for which it is acting as servicer. Each servicer will service the
mortgage loans pursuant to a servicing agreement between the master servicer and the related servicer, which servicing agreement will
not contain any terms which are inconsistent with the related pooling and servicing agreement or other agreement that governs the
servicing responsibilities of the master servicer or pursuant to the related pooling and servicing agreement, as specified in the
related prospectus supplement. Each servicer is required to maintain a fidelity bond and errors and omissions policy with respect to its
officers and employees and other persons acting on behalf of the servicer in connection with its activities under a servicing agreement
or the related pooling and servicing agreement.
Collection and Other Servicing Procedures; Mortgage Loan Modifications
The master servicer for any mortgage pool will be obligated under the pooling and servicing agreement or servicing agreement to
supervise, monitor and oversee the obligations of the servicers to service and administer their respective mortgage loans in the
mortgage pool for the benefit of the related securityholders, in accordance with applicable law, the terms of the pooling and servicing
agreement or servicing agreement, the mortgage loans and any instrument of credit enhancement included in the related trust fund, and,
to the extent consistent with the foregoing, the customs and standards of prudent institutional mortgage lenders servicing comparable
mortgage loans for their own account in the jurisdictions where the related mortgaged properties are located. Subject to the foregoing,
the master servicer will have full power and authority to do any and all things in connection with servicing and administration that it
may deem necessary and desirable.
As part of its servicing duties, the master servicer will be required to, and to cause each of the servicers to, make
reasonable efforts to collect all payments called for under the terms and provisions of the mortgage loans that it services. The master
servicer and each servicer will be obligated to follow the same collection procedures as it would follow for comparable mortgage loans
held for its own account, so long as these procedures are consistent with the servicing standard of and the terms of the related pooling
and servicing agreement or servicing agreement and the servicing standard generally described in the preceding paragraph, and do not
impair recovery under any instrument of credit enhancement included in the related trust fund. Consistent with the foregoing, the master
servicer or any servicer will be permitted, to the extent provided in the related prospectus supplement, to waive any prepayment
premium, late payment charge or other charge in connection with any mortgage loan.
Under a pooling and servicing agreement or a servicing agreement, a master servicer and each servicer may be granted discretion
to extend relief to mortgagors whose payments become delinquent. In the case of single family loans and Contracts, a master servicer or
servicer may, for example, grant a period of temporary indulgence to a mortgagor or may enter into a liquidating plan providing for
repayment of delinquent amounts within a specified period from the date of execution of the plan. However, the master servicer or
servicer must first determine that any waiver or extension will not impair the coverage of any related insurance policy or materially
adversely affect the security for the mortgage loan. In addition, unless otherwise specified in the related prospectus supplement, if a
material default occurs or a payment default is reasonably foreseeable with respect to a multifamily loan, commercial loan or mixed-use
loan, the master servicer or servicer will be permitted, subject to any specific limitations set forth in the related pooling and
servicing agreement or servicing agreement and described in the related prospectus supplement, to modify, waive or amend any term of
such mortgage loan, including deferring payments, extending the stated maturity date or otherwise adjusting the payment schedule,
provided that the modification, waiver or amendment (1) is reasonably likely to produce a greater recovery with respect to that mortgage
loan on a present value basis than would liquidation and (2) will not adversely affect the coverage under any applicable instrument of
credit enhancement.
In the case of multifamily loans, commercial loans and mixed-use loans, a mortgagor's failure to make required mortgage loan
payments may mean that operating income is insufficient to service the mortgage debt, or may reflect the diversion of that income from
the servicing of the mortgage debt. In addition, a mortgagor under a multifamily, commercial or mixed-use loan that is unable to make
mortgage loan payments may also be unable to make timely payment of taxes and otherwise to maintain and insure the related mortgaged
property. Generally, the related master servicer or servicer will be required to monitor any multifamily loan or commercial loan that is
in default, evaluate whether the causes of the default can be corrected over a reasonable period without significant impairment of the
value of the related mortgaged property, initiate corrective action in cooperation with the mortgagor if cure is likely, inspect the
related mortgaged property and take any other actions as are consistent with the servicing standard described above and in the pooling
and servicing agreement or servicing agreement. A significant period of time may elapse before the master servicer or servicer is able
to assess the success of any such corrective action or the need for additional initiatives. The time within which the master servicer or
servicer can make the initial determination of appropriate action, evaluate the success of corrective action, develop additional
initiatives, institute foreclosure proceedings and actually foreclose (or accept a deed to a mortgaged property in lieu of foreclosure)
on behalf of the securityholders of the related series may vary considerably depending on the particular multifamily, commercial or
mixed-use loan, the mortgaged property, the mortgagor, the presence of an acceptable party to assume that loan and the laws of the
jurisdiction in which the mortgaged property is located. If a mortgagor files a bankruptcy petition, the master servicer or servicer may
not be permitted to accelerate the maturity of the related multifamily, commercial or mixed-use loan or to foreclose on the mortgaged
property for a considerable period of time. See "Legal Aspects of Mortgage Loans" in this prospectus.
Some or all of the mortgage loans in a mortgage pool may contain a due-on-sale clause that entitles the lender to accelerate
payment of the mortgage loan upon any sale or other transfer of the related mortgaged property made without the lender's consent. In any
case in which a mortgaged property is being conveyed by the mortgagor, the master servicer will in general be obligated, to the extent
it has knowledge of the conveyance, to exercise its rights, or cause the servicer of the mortgage loan to exercise its rights, to
accelerate the maturity of the related mortgage loan under any due-on-sale clause applicable thereto, but only if the exercise of these
rights is permitted by applicable law and only to the extent it would not adversely affect or jeopardize coverage under any Primary
Insurance Policy or applicable credit enhancement arrangements. If applicable law prevents the master servicer or servicer from
enforcing a due-on-sale or due-on-encumbrance clause or if the master servicer or servicer determines that it is reasonably likely that
the related mortgagor would institute a legal action to avoid enforcement of a due-on-sale or due-on-encumbrance clause, the master
servicer or servicer may enter into (1) an assumption and modification agreement with the person to whom the property has been or is
about to be conveyed, pursuant to which this person becomes liable under the mortgage note subject to specified conditions and the
mortgagor, to the extent permitted by applicable law, remains liable thereon or (2) a substitution of liability agreement pursuant to
which the original mortgagor is released from liability and the person to whom the property has been or is about to be conveyed is
substituted for the original mortgagor and becomes liable under the mortgage note, subject to specified conditions. The original
mortgagor may be released from liability on a single family loan if the master servicer or servicer shall have determined in good faith
that the release will not adversely affect the collectability of the mortgage loan. The master servicer or servicer will determine
whether to exercise any right the trustee may have under any due-on-sale or due-on-encumbrance provision in a multifamily loan,
commercial loan or mixed-use loan in a manner consistent with the servicing standard. The master servicer or servicer generally will be
entitled to retain as additional servicing compensation any fee collected in connection with the permitted transfer of a mortgaged
property. See "Legal Aspects of Mortgage Loans—Enforceability of Certain Provisions" in this prospectus. FHA loans do not contain
due-on-sale or due-on-encumbrance clauses and may be assumed by the purchaser of the mortgaged property.
Mortgagors may, from time to time, request partial releases of the mortgaged properties, easements, consents to alteration or
demolition and other similar matters. The master servicer or the servicer may approve a request if it has determined, exercising its
good faith business judgment in the same manner as it would if it were the owner of the related mortgage loan, that approval will not
adversely affect the security for, or the timely and full collectability of, the related mortgage loan. Any fee collected by the master
servicer or servicer for processing these requests will be retained by the master servicer or servicer, as the case may be, as
additional servicing compensation.
In the case of mortgage loans secured by junior liens on the related mortgaged properties, the master servicer will be required
to file, or cause the servicer of the mortgage loans to file, of record a request for notice of any action by a superior lienholder
under the senior lien for the protection of the related trustee's interest, where permitted by local law and whenever applicable state
law does not require that a junior lienholder be named as a party defendant in foreclosure proceedings in order to foreclose the junior
lienholder's equity of redemption. The master servicer also will be required to notify, or cause the servicer of the mortgage loan to
notify, any superior lienholder in writing of the existence of the mortgage loan and request notification of any action (as described
below) to be taken against the mortgagor or the mortgaged property by the superior lienholder. If the master servicer or a servicer is
notified that any superior lienholder has accelerated or intends to accelerate the obligations secured by the related senior lien, or
has declared or intends to declare a default under the mortgage or the promissory note secured thereby, or has filed or intends to file
an election to have the related mortgaged property sold or foreclosed, then, the master servicer will be required to take, or cause the
servicer of the related mortgaged property to take, on behalf of the related trust fund, whatever actions are necessary to protect the
interests of the related securityholders, and/or to preserve the security of the related mortgage loan, subject to the REMIC Provisions,
if applicable. The master servicer will be required to advance, or cause the servicer of the mortgage loan to advance, the necessary
funds to cure the default or reinstate the superior lien, if the advance is in the best interests of the related securityholders and the
master servicer or the servicer, as the case may be, determines the advances are recoverable out of payments on or proceeds of the
related mortgage loan.
The master servicer for any mortgage pool will also be required to perform, or cause the servicers of the mortgage loans in the
mortgage pool to perform, other customary functions of a servicer of comparable loans, including maintaining escrow or impound accounts
for payment of taxes, insurance premiums and similar items, or otherwise monitoring the timely payment of those items; adjusting
mortgage rates on ARM Loans; maintaining Buydown Accounts; supervising foreclosures and similar proceedings; managing REO properties;
and maintaining servicing records relating to the mortgage loans in the mortgage pool. The master servicer will be responsible for
filing and settling claims in respect of particular mortgage loans under any applicable instrument of credit enhancement. See
"Description of Credit Enhancement" in this prospectus.
Special Servicers
If and to the extent specified in the related prospectus supplement, a special servicer may be a party to the related pooling
and servicing agreement or servicing agreement or may be appointed by the master servicer or another specified party to perform
specified duties in respect of servicing the related mortgage loans that would otherwise be performed by the master servicer (for
example, the workout and/or foreclosure of defaulted mortgage loans). The rights and obligations of any special servicer will be
specified in the related prospectus supplement, and the master servicer will be liable for the performance of a special servicer only
if, and to the extent, set forth in that prospectus supplement.
Realization Upon or Sale of Defaulted Mortgage Loans
Except as described below and in the related prospectus supplement, the master servicer will be required, in a manner
consistent with the servicing standard, to, or to cause the servicers of the mortgage loans to, foreclose upon or otherwise comparably
convert the ownership of properties securing any mortgage loans in the related mortgage pool that come into and continue in default and
as to which no satisfactory arrangements can be made for collection of delinquent payments. Generally, the foreclosure process will
commence no later than 90 days after delinquency of the related mortgage loan. The master servicer and each servicer will be authorized
to institute foreclosure proceedings, exercise any power of sale contained in the related mortgage, obtain a deed in lieu of
foreclosure, or otherwise acquire title to the related mortgaged property, by operation of law or otherwise, if the action is consistent
with the servicing standard. The master servicer's or applicable servicer's actions in this regard must be conducted, however, in a
manner that will permit recovery under any instrument of credit enhancement included in the related trust fund. In addition, neither the
master servicer nor any other servicer will be required to expend its own funds in connection with any foreclosure or to restore any
damaged property unless it shall determine that (1) the foreclosure and/or restoration will increase the proceeds of liquidation of the
mortgage loan to the related securityholders after reimbursement to itself for these expenses and (2) these expenses will be recoverable
to it from related Insurance Proceeds, Liquidation Proceeds or amounts drawn out of any fund or under any instrument constituting credit
enhancement (respecting which it shall have priority for purposes of withdrawal from the Distribution Account in accordance with the
pooling and servicing agreement or servicing agreement).
However, unless otherwise specified in the related prospectus supplement, neither the master servicer nor any other servicer
may acquire title to any multifamily property or commercial property securing a mortgage loan or take any other action that would cause
the related trustee, for the benefit of securityholders of the related series, or any other specified person to be considered to hold
title to, to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator" of such mortgaged property within the meaning of
federal environmental laws, unless the master servicer or the servicer of the mortgage loan has previously determined, based on a report
prepared by a person who regularly conducts environmental audits (which report will be an expense of the trust fund), that either:
(1) the mortgaged property is in compliance with applicable environmental laws and regulations or, if not, that
taking actions as are necessary to bring the mortgaged property into compliance with these laws is reasonably likely to produce
a greater recovery on a present value basis than not taking those actions; and
(2) there are no circumstances or conditions present at the mortgaged property that have resulted in any
contamination for which investigation, testing, monitoring, containment, clean-up or remediation could be required under any
applicable environmental laws and regulations or, if those circumstances or conditions are present for which any such action
could be required, taking those actions with respect to the mortgaged property is reasonably likely to produce a greater
recovery on a present value basis than not taking those actions. See "Legal Aspects of Mortgage Loans—Environmental
Legislation" in this prospectus.
Neither the master servicer nor any other servicer will be obligated to foreclose upon or otherwise convert the ownership of
any mortgaged property securing a single family loan if it has received notice or has actual knowledge that the property may be
contaminated with or affected by hazardous wastes or hazardous substances; however, environmental testing will not be required. The
master servicer or servicer, as applicable, will not be liable to the securityholders of the related series if, based on its belief that
no such contamination or effect exists, the master servicer or such servicer forecloses on a mortgaged property and takes title to the
mortgaged property, and thereafter the mortgaged property is determined to be so contaminated or affected.
With respect to a mortgage loan in default, the master servicer or servicer of the mortgage loan may pursue foreclosure (or
similar remedies) concurrently with pursuing any remedy for a breach of a representation and warranty. However, neither the master
servicer nor the servicer of the mortgage loan is required to continue to pursue both remedies if it determines that one remedy is more
likely than the other to result in a greater recovery. Upon the first to occur of final liquidation (by foreclosure or otherwise) or a
repurchase or substitution pursuant to a breach of a representation and warranty, the mortgage loan will be removed from the related
trust fund if it has not been removed previously. The master servicer or servicer may elect to treat a defaulted mortgage loan as having
been finally liquidated if a substantial portion or all of the amounts expected to be received from that mortgage loan have been
received. Any additional liquidation expenses relating to the mortgage loan thereafter incurred will be reimbursable to the master
servicer or servicer, as applicable, from any amounts otherwise distributable to holders of securities of the related series, or may be
offset by any subsequent recovery related to the mortgage loan. Alternatively, for purposes of determining the amount of related
Liquidation Proceeds to be distributed to securityholders, the amount of any Realized Loss or the amount required to be drawn under any
applicable form of credit support, the master servicer and servicer may take into account minimal amounts of additional receipts
expected to be received, as well as estimated additional liquidation expenses expected to be incurred in connection with the defaulted
mortgage loan.
As provided above, the master servicer or a servicer may pass through less than the full amount it expects to receive from the
related mortgage loan; however, the master servicer or servicer may only do this if the master servicer or servicer reasonably believes
it will maximize the proceeds to the securityholders in the aggregate. To the extent the master servicer or servicer receives additional
recoveries following liquidation, the amount of the Realized Loss will be restated, and the additional recoveries will be passed through
the trust as Liquidation Proceeds. In the event the amount of the Realized Loss is restated, the amount of overcollateralization or the
principal balance of the most subordinate class of securities in the trust may be increased. However, the holders of any securities
whose principal balance is increased will not be reimbursed interest for the period during which the principal balance of their
securities was lower.
With respect to a series of securities, if so provided in the related prospectus supplement, the applicable form of credit
enhancement may provide, to the extent of coverage, that a defaulted mortgage loan will be removed from the trust fund prior to the
final liquidation thereof. In addition, a pooling and servicing agreement or servicing agreement may grant to the depositor, an
affiliate of the depositor, the master servicer, a special servicer, a provider of credit enhancement and/or the holder or holders of
specified classes of securities of the related series a right of first refusal to purchase from the trust fund, at a predetermined
purchase price, any mortgage loan as to which a specified number of scheduled payments are delinquent. If the purchase price is
insufficient to fully fund the entitlements of securityholders to principal and interest, it will be specified in the related prospectus
supplement. Furthermore, a pooling and servicing agreement or a servicing agreement may authorize the master servicer or servicer of the
mortgage loan to sell any defaulted mortgage loan if and when the master servicer or servicer determines, consistent with the servicing
standard, that the sale would produce a greater recovery to securityholders on a present value basis than would liquidation of the
related mortgaged property.
In the event that title to any mortgaged property is acquired by foreclosure or by deed in lieu of foreclosure, the deed or
certificate of sale will be issued to the trustee or to its nominee on behalf of securityholders of the related series. Notwithstanding
any acquisition of title and cancellation of the related mortgage loan, the REO Mortgage Loan will be considered for most purposes to be
an outstanding mortgage loan held in the trust fund until the mortgaged property is sold and all recoverable Liquidation Proceeds and
Insurance Proceeds have been received with respect to the defaulted mortgage loan. For purposes of calculations of amounts distributable
to securityholders in respect of an REO Mortgage Loan, the amortization schedule in effect at the time of any acquisition of title
(before any adjustment thereto by reason of any bankruptcy or any similar proceeding or any moratorium or similar waiver or grace
period) will be deemed to have continued in effect (and, in the case of an ARM Loan, the amortization schedule will be deemed to have
adjusted in accordance with any interest rate changes occurring on any adjustment date therefor) so long as the REO Mortgage Loan is
considered to remain in the trust fund.
If title to any mortgaged property is acquired by a trust fund as to which a REMIC election has been made, the master servicer,
on behalf of the trust fund, will be required to sell, or cause the servicer of the mortgage loan to sell, the mortgaged property within
three years of acquisition, unless (1) the IRS grants an extension of time to sell the property or (2) the trustee receives an opinion
of independent counsel to the effect that the holding of the property by the trust fund for more than three years after its acquisition
will not result in the imposition of a tax on the trust fund or cause the trust fund to fail to qualify as a REMIC under the Code at any
time that any certificate is outstanding. Subject to the foregoing and any other tax-related constraints, the master servicer generally
will be required to solicit bids, or to cause a servicer to solicit bids, for any mortgaged property so acquired in a manner as will be
reasonably likely to realize a fair price for the property. If title to any mortgaged property is acquired by a trust fund as to which a
REMIC election has been made, the master servicer will also be required to ensure that the mortgaged property is administered so that it
constitutes "foreclosure property" within the meaning of Section 860G(a)(8) of the Code at all times, that the sale of the property does
not result in the receipt by the trust fund of any income from non-permitted assets as described in Section 860F(a)(2)(B) of the Code,
and that the trust fund does not derive any "net income from foreclosure property" within the meaning of Section 860G(c)(2) of the Code
with respect to the property.
If Liquidation Proceeds collected with respect to a defaulted mortgage loan are less than the outstanding principal balance of
the defaulted mortgage loan plus accrued interest plus the aggregate amount of reimbursable expenses incurred by the master servicer or
the servicer, as applicable, with respect to the mortgage loan, and the shortfall is not covered under any applicable instrument or fund
constituting credit enhancement, the trust fund will realize a loss in the amount of the difference. The master servicer or servicer, as
applicable, will be entitled to reimburse itself from the Liquidation Proceeds recovered on any defaulted mortgage loan, prior to the
distribution of Liquidation Proceeds to securityholders, amounts that represent unpaid servicing compensation in respect of the mortgage
loan, unreimbursed servicing expenses incurred with respect to the mortgage loan and any unreimbursed advances of delinquent payments
made with respect to the mortgage loan. If so provided in the related prospectus supplement, the applicable form of credit enhancement
may provide for reinstatement subject to specified conditions in the event that, following the final liquidation of a mortgage loan and
a draw under the credit enhancement, subsequent recoveries are received. In addition, if a gain results from the final liquidation of a
defaulted mortgage loan or an REO Mortgage Loan which is not required by law to be remitted to the related mortgagor, the master
servicer or servicer, as applicable, will be entitled to retain the gain as additional servicing compensation unless the related
prospectus supplement provides otherwise. For a description of the master servicer's (or other specified person's) obligations to
maintain and make claims under applicable forms of credit enhancement and insurance relating to the mortgage loans, see "Description ofCredit Enhancement" and "Description of Primary Mortgage Insurance, Hazard Insurance; Claims Thereunder" in this prospectus.
Servicing and Other Compensation and Payment of Expenses; Retained Interest
The principal servicing compensation to be paid to the master servicer in respect of its master servicing activities for a
series of securities will be equal to the percentage or range of percentages per annum described in the related prospectus supplement of
the outstanding principal balance of each mortgage loan, and this compensation will be retained by it on a monthly or other periodic
basis from collections of interest on each mortgage loan in the related trust fund at the time the collections are deposited into the
applicable Distribution Account. This portion of the servicing fee will be calculated with respect to each mortgage loan by multiplying
the fee by the principal balance of the mortgage loan. In addition, to the extent not permitted to be retained by the servicer of the
mortgage loan, the master servicer may retain all prepayment premiums, assumption fees and late payment charges, to the extent collected
from mortgagors, and any benefit which may accrue as a result of the investment of funds in the applicable Distribution Account. Any
additional servicing compensation will be described in the related prospectus supplement.
The principal servicing compensation to be paid to each servicer in respect of its servicing activities for a series of
securities will be equal to the percentage or range of percentages per annum described in the related prospectus supplement of the
outstanding principal balance of each mortgage loan serviced by such servicer, and this compensation will be retained by it on a monthly
or other periodic basis from collections of interest on each mortgage loan in the related trust fund at the time the collections are
deposited into such servicer's Protected Account. This portion of the servicing fee will be calculated with respect to each mortgage
loan serviced by a servicer by multiplying the fee by the principal balance of the mortgage loan. In addition, each servicer may retain
all prepayment premiums, assumption fees and late payment charges, to the extent collected from mortgagors, and any benefit which may
accrue as a result of the investment of funds in its Protected Account. Any additional servicing compensation will be described in the
related prospectus supplement.
The master servicer will pay or cause to be paid some of the ongoing expenses associated with each trust fund and incurred by
it in connection with its responsibilities under the pooling and servicing agreement or servicing agreement, including, if so specified
in the related prospectus supplement, payment of any fee or other amount payable in respect of any alternative credit enhancement
arrangements, payment of the fees and disbursements of the trustee, any custodian appointed by the trustee and the security registrar,
and payment of expenses incurred in enforcing the obligations of the servicers and the Sellers. The master servicer will be entitled to
reimbursement of expenses incurred in enforcing the obligations of the servicers and the Sellers under limited circumstances. In
addition, the master servicer and each servicer will be entitled to reimbursements for some of its expenses incurred in connection with
liquidated mortgage loans and in connection with the restoration of mortgaged properties, this right of reimbursement being prior to the
rights of securityholders to receive any related Liquidation Proceeds or Insurance Proceeds. If and to the extent so provided in the
related prospectus supplement, the master servicer and each servicer will be entitled to receive interest on amounts advanced to cover
reimbursable expenses for the period that the advances are outstanding at the rate specified in the prospectus supplement, and the
master servicer and each servicer will be entitled to payment of the interest periodically from general collections on the mortgage
loans in the related trust fund prior to any payment to securityholders or as otherwise provided in the related pooling and servicing
agreement or servicing agreement and described in the prospectus supplement.
If and to the extent provided in the related prospectus supplement, the master servicer and the servicers may be required to
apply a portion of the servicing compensation otherwise payable to it in respect of any period to any Prepayment Interest Shortfalls
resulting from mortgagor prepayments during that period. See "Yield Considerations" in this prospectus.
DESCRIPTION OF THE SECURITIESGeneral
The securities will be issued in series. Each series of certificates (or, in some instances, two or more series of
certificates) will be issued pursuant to a pooling and servicing agreement, similar to one of the forms filed as an exhibit to the
registration statement of which this prospectus is a part. Each pooling and servicing agreement will be filed with the Commission as an
exhibit to a Current Report on Form 8-K. Each series of notes (or, in some instances, two or more series of notes) will be issued
pursuant to an indenture between the related issuing entity and the trustee, similar to the form filed as an exhibit to the registration
statement of which this prospectus is a part. The trust fund will be created pursuant to an owner trust agreement between the depositor
and the owner trustee. Each indenture, along with the related servicing agreement and owner trust agreement, will be filed with the
Commission as an exhibit to a Current Report on Form 8-K. Qualified counsel will render an opinion to the effect that the trust fund's
assets will not be considered assets of the Seller or the depositor in the event of the bankruptcy of the Seller or the depositor. The
following summaries (together with additional summaries under "The Agreements" below) describe the material provisions relating to the
securities common to each Agreements.
Certificates of each series covered by a particular pooling and servicing agreement will evidence specified beneficial
ownership interests in a separate trust fund created pursuant to the pooling and servicing agreement. Each series of notes covered by a
particular indenture will evidence indebtedness of a separate trust fund created pursuant to the related owner trust agreement. A trust
fund will consist of, to the extent provided in the pooling and servicing agreement or owner trust agreement:
o the mortgage loans (and the related mortgage documents) or interests therein (including any mortgage securities) underlying a
particular series of securities as from time to time are subject to the pooling and servicing agreement or servicing
agreement, exclusive of, if specified in the related prospectus supplement, any interest retained by the depositor or any of
its affiliates with respect to each mortgage loan;
o all payments and collections in respect of the mortgage loans or mortgage securities due after the related cut-off date, as
from time to time are identified as deposited in respect thereof in the related Protected Account, Distribution Account or
any other account established pursuant to the Agreement as described below;
o any property acquired in respect of mortgage loans in the trust fund, whether through foreclosure of a mortgage loan or by
deed in lieu of foreclosure;
o hazard insurance policies, Primary Insurance Policies, FHA insurance policies and VA guarantees, if any, maintained in
respect of mortgage loans in the trust fund and the proceeds of these policies;
o U.S. Government Securities;
o the rights of the depositor under any mortgage loan purchase agreement, including in respect of any representations and
warranties therein; and
o any combination, as and to the extent specified in the related prospectus supplement, of a financial guaranty insurance
policy, mortgage pool insurance policy, letter of credit, special hazard insurance policy, or currency or interest rate
exchange agreements as described under "Description of Credit Enhancement" in this prospectus.
If provided in the related prospectus supplement, the original principal amount of a series of securities may exceed the
principal balance of the mortgage loans or mortgage securities initially being delivered to the trustee. Cash in an amount equal to this
difference will be deposited into a pre-funding account maintained with the trustee. During the period set forth in the related
prospectus supplement, amounts on deposit in the pre-funding account may be used to purchase additional mortgage loans or mortgage
securities for the related trust fund. Any amounts remaining in the pre-funding account at the end of the period will be distributed as
a principal prepayment to the holders of the related series of securities at the time and in the manner set forth in the related
prospectus supplement.
Each series of securities may consist of any one or a combination of the following types of classes:
Accretion Directed A class of securities designated to receive principal payments
primarily from the interest that accrues on specified Accrual
Classes.
Accrual A class of securities where the accrued interest otherwise
payable to such certificates is allocated to specified classes of
certificates as principal payments in reduction of their
certificate principal balance. The certificate principal balance
of the Accrual Class will be increased to the extent such accrued
interest is so allocated.
Companion A class that receives principal payments on any distribution date
only if scheduled payments have been made on specified planned
amortization classes, targeted amortization classes or scheduled
principal classes.
Component A class consisting of "components." The components of a class of
component securities may have different principal and/or interest
payment characteristics but together constitute a single class.
Each component of a class of component securities may be
identified as falling into one or more of the categories in this
list.
Fixed Rate A class with an interest rate that is fixed throughout the life
of the class.
Floating Rate A class that receives interest payments based on an interest rate
that fluctuates each payment period based on a designated index,
which will be of a type that is customarily used in the debt and
fixed income markets to measure the cost of borrowed funds, plus
a specified margin.
Interest Only or IO A class of securities with no principal balance and which is not
entitled to principal payments. Interest usually accrues based
on a specified notional amount.
Inverse Floating Rate A class of securities where the pass-through rate adjusts based
on the excess between a specified rate and LIBOR or another
index, which will be of a type that is customarily used in the
debt and fixed income markets to measure the cost of borrowed
funds.
Lock Out A class of securities which is "locked out" of certain payments,
usually principal, for a specified period of time.
Partial Accrual A class that accretes a portion of the amount of accrued interest
thereon, which amount will be added to the principal balance of
such class on each applicable distribution date, with the
remainder of such accrued interest to be distributed currently as
interest on such class. Such accretion may continue until a
specified event has occurred or until such Partial Accrual class
is retired.
Principal Only A class of securities which is not entitled to interest payments.
Planned Amortization Class or PAC A class of securities with a principal balance that is reduced
based on a schedule of principal balances, assuming a certain
range of prepayment rates on the underlying assets.
Scheduled Principal A class that is designed to receive principal payments using a
predetermined principal balance schedule but is not designated as
a Planned Amortization Class or Targeted Amortization Class. In
many cases, the schedule is derived by assuming two constant
prepayment rates for the underlying assets. These two rates are
the endpoints for the "structuring range" for the scheduled
principal class.
Senior Support A class that absorbs the realized losses other than excess losses
that would otherwise be allocated to a Super Senior Class after
the related classes of subordinated securities are no longer
outstanding.
Sequential Pay Classes that receive principal payments in a prescribed sequence,
that do not have predetermined principal balance schedules and
that under all circumstances receive payments of principal
continuously from the first distribution date on which they
receive principal until they are retired. A single class that
receives principal payments before or after all other classes in
the same series of securities may be identified as a sequential
pay class.
Super Senior A class that will not bear its proportionate share of realized
losses (other than excess losses) as its share is directed to
another class, referred to as the "support class" until the class
principal balance of the support class is reduced to zero.
Target Amortization or TAC A class of securities with a principal balance that is reduced
based on a scheduled of principal balances, assuming a certain
targeted rate of prepayments on the related collateral.
Variable Rate A class with an interest rate that resets periodically and is
calculated by reference to the rate or rates of interest
applicable to specified assets or instruments (e.g., the mortgage
rates borne by the underlying loans).
With respect to any series of notes, the related Equity Certificates, insofar as they represent the beneficial ownership interest in the
Issuing Entity, will be subordinate to the related notes. As to each series, the offered securities will be rated in one of the four
highest rating categories by one or more Rating Agencies. Credit support for the offered securities of each series may be provided by a
financial guaranty insurance policy, mortgage pool insurance policy, letter of credit, reserve fund, currency or interest rate exchange
agreement, overcollateralization, cross-collateralization or by the subordination of one or more other classes of securities, each, as
described under "Description of Credit Enhancement" in this prospectus, or by any combination of the foregoing.
If so specified in the prospectus supplement relating to a series of certificates, one or more elections may be made to treat
the related trust fund, or a designated portion thereof, as a REMIC. If an election is made with respect to a series of certificates,
one of the classes of certificates in the series will be designated as evidencing the sole class of "residual interests" in each related
REMIC, as defined in the Code; alternatively, a separate class of ownership interests will evidence the residual interests. All other
classes of certificates in the series will constitute "regular interests" in the related REMIC, as defined in the Code. As to each
series of certificates as to which a REMIC election is to be made, the master servicer, trustee or other specified entity will be
obligated to take specified actions required in order to comply with applicable laws and regulations.
Form of Securities
Except as described below, the offered securities of each series will be issued as physical certificates or notes in fully
registered form only in the denominations specified in the related prospectus supplement, and will be transferable and exchangeable at
the corporate trust office of the registrar named in the related prospectus supplement. No service charge will be made for any
registration of exchange or transfer of offered securities, but the trustee may require payment of a sum sufficient to cover any tax or
other governmental charge. A "securityholder" or "holder" is the entity whose name appears on the records of the registrar (consisting
of or including the security register) as the registered holder of a security.
If so specified in the related prospectus supplement, specified classes of a series of securities will be initially issued
through the book-entry facilities of DTC. As to any class of DTC Registered Securities, the recordholder of the securities will be DTC's
nominee. DTC is a limited-purpose trust company organized under the laws of the State of New York, which holds securities for its
participants and facilitates the clearance and settlement of securities transactions between participants through electronic book-entry
changes in the accounts of participants. Intermediaries have indirect access to DTC's clearance system.
If securities are issued as DTC Registered Securities, no Beneficial Owner will be entitled to receive a security representing
its interest in registered, certificated form, unless either (1) DTC ceases to act as depository in respect thereof and a successor
depository is not obtained, or (2) the depositor elects, with the consent of the Beneficial Owners, to discontinue the registration of
the securities through DTC. Prior to one of these events, Beneficial Owners will not be recognized by the trustee or the master servicer
as holders of the related securities for purposes of the related pooling and servicing agreement or indenture, and Beneficial Owners
will be able to exercise their rights as owners of the securities only indirectly through DTC, participants and Intermediaries. Any
Beneficial Owner that desires to purchase, sell or otherwise transfer any interest in DTC Registered Securities may do so only through
DTC, either directly if the Beneficial Owner is a participant or indirectly through participants and, if applicable, Intermediaries.
Pursuant to the procedures of DTC, transfers of the beneficial ownership of any DTC Registered Securities will be required to be made in
minimum denominations specified in the related prospectus supplement. The ability of a Beneficial Owner to pledge DTC Registered
Securities to persons or entities that are not participants in the DTC system, or to otherwise act with respect to the securities, may
be limited because of the lack of physical certificates or notes evidencing the securities and because DTC may act only on behalf of
participants.
Distributions in respect of the DTC Registered Securities will be forwarded by the trustee or other specified entity to DTC,
and DTC will be responsible for forwarding the payments to participants, each of which will be responsible for disbursing the payments
to the Beneficial Owners it represents or, if applicable, to Intermediaries. Accordingly, Beneficial Owners may experience delays in the
receipt of payments in respect of their securities. Under DTC's procedures, DTC will take actions permitted to be taken by holders of
any class of DTC Registered Securities under the pooling and servicing agreement or indenture only at the direction of one or more
participants to whose account the DTC Registered Securities are credited and whose aggregate holdings represent no less than any minimum
amount of Percentage Interests or voting rights required therefor. DTC may take conflicting actions with respect to any action of
holders of securities of any class to the extent that participants authorize these actions. None of the master servicer, the depositor,
the trustee or any of their respective affiliates will have any liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the DTC Registered Securities, or for maintaining, supervising or reviewing any records
relating to the beneficial ownership interests.
Global Securities
Some of the offered securities may be Global Securities. Except in some limited circumstances, the Global Securities will be
available only in book-entry form. Investors in the Global Securities may hold those Global Securities through any of DTC, Clearstream,
or Euroclear System (in Europe). The Global Securities will be traceable 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 through Clearstream and Euroclear System will be conducted in the ordinary way in
accordance with the normal rules and operating procedures of Clearstream and Euroclear System and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary market trading between investors through DTC will be conducted according to DTC's rules and procedures applicable to
U.S. corporate debt obligations.
Secondary cross-market trading between Clearstream or Euroclear System and DTC participants holding interests in Global
Securities will be effected on a delivery-against-payment basis through the respective depositories of Clearstream and Euroclear System
(in that capacity) and as DTC participants.
Non-U.S. holders (as described below) of interests in Global Securities will be subject to U.S. withholding taxes unless those
holders meet various requirements and deliver appropriate U.S. tax documents to the securities clearing organizations or their
participants.
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 System will hold positions on behalf of their participants through their relevant
depositary which in turn will hold those positions in their accounts as DTC participants.
Investors electing to hold their interests in Global Securities through DTC will follow DTC settlement practices. Investor
securities custody accounts will be credited with their holdings against payment in same-day funds on the settlement date.
Investors electing to hold their interests in Global Securities through Clearstream or Euroclear System 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.
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.
Secondary market trading between DTC participants will occur in accordance with DTC rules. Secondary market trading between
Clearstream participants or Euroclear System participants will be settled using the procedures applicable to conventional eurobonds in
same-day funds. When Global Securities are to be transferred from the account of a DTC participant to the account of a Clearstream
participant or a Euroclear System participant, the purchaser will send instructions to Clearstream or Euroclear System through a
Clearstream participant or Euroclear System participant at least one business day prior to settlement. Clearstream or Euroclear System
will instruct the relevant depositary, as the case may be, to receive the Global Securities against payment. Payment will include
interest accrued on the Global Securities from and including the last coupon payment date to and excluding the settlement date, on the
basis of the actual number of days in that accrual period and a year assumed to consist of 360 days. For transactions settling on the
31st of the month, payment will include interest accrued to and excluding the first day of the following month. Payment will then be
made by the relevant depositary to the DTC participant's account against delivery of the Global Securities. After settlement has been
completed, the Global Securities will be credited to the respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Clearstream participant's or Euroclear System participant's account. The securities credit will appear the next
day (European time) and the cash debit 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 System cash debit will be valued instead as of the actual settlement date.
Clearstream participants and Euroclear System 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 System. Under
this approach, they may take on credit exposure to Clearstream or Euroclear System until the Global Securities are credited to their
account one day later. As an alternative, if Clearstream or Euroclear System has extended a line of credit to them, Clearstream
participants or Euroclear System participants can elect not to preposition funds and allow that credit line to be drawn upon to finance
settlement. Under this procedure, Clearstream participants or Euroclear System 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 those overdraft charges, although the
result will depend on each Clearstream participant's or Euroclear System participant's particular cost of funds. Since the settlement is
taking place during New York business hours, DTC participants can employ their usual procedures for crediting Global Securities to the
respective European depositary for the benefit of Clearstream participants or Euroclear System 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.
Due to time zone differences in their favor, Clearstream participants and Euroclear System 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 System through a Clearstream
participant or Euroclear System participant at least one business day prior to settlement. In these cases Clearstream or Euroclear
System will instruct the respective depositary, as appropriate, to credit the Global Securities to the DTC participant's account against
payment. Payment will include interest accrued on the Global Securities from and including the last coupon payment to and excluding the
settlement date on the basis of the actual number of days in that accrual period and a year assumed to consist to 360 days. For
transactions settling on the 31st of the month, payment will include interest accrued to and excluding the first day of the following
month. The payment will then be reflected in the account of Clearstream participant or Euroclear System participant the following day,
and receipt of the cash proceeds in the Clearstream participant's or Euroclear System 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
System 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
System participant's account would instead be valued as of the actual settlement date.
Finally, day traders that use Clearstream or Euroclear System and that purchase interests in Global Securities from DTC
participants for delivery to Clearstream participants or Euroclear System participants should note that these trades would automatically
fail on the sale side unless affirmative action is taken. At least three techniques should be readily available to eliminate this
potential problem:
o borrowing through Clearstream or Euroclear System for one day (until the purchase side of the trade is reflected in their
Clearstream or Euroclear System accounts) in accordance with the clearing system's customary procedures;
o 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 System account in order to
settle the sale side of the trade; or
o staggering the value dates for the buy and sell sides of the trade so that the value date for the purchase from the DTC
participant is at least one day prior to the value date for the sale to the Clearstream participant or Euroclear System
participant.
A beneficial owner of interests in Global Securities holding securities through Clearstream or Euroclear System (or through DTC
if the holder has an address outside the U.S.) will be subject to the 30% U.S. withholding tax that generally applies to payments of
interest (including original issue discount) on registered debt issued by U.S. Persons (as defined below), unless (i) each clearing
system, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business in the
chain of intermediaries between that beneficial owner and the U.S. entity required to withhold tax complies with applicable
certification requirements and (ii) that 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 holders of interests in Global Securities that are Non-U.S. Persons (as defined
below) can obtain a complete exemption from the withholding tax by filing a signed Form W-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 that change.
A Non-U.S. Person (as defined below), including a non-U.S. corporation or bank with a U.S. branch, for which the interest
income is effectively connected with its conduct of a trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form W-8ECI (Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or
Business in the United States).
Non-U.S. Persons residing in a country that has a tax treaty with the United States can obtain an exemption or reduced tax rate
(depending on the treaty terms) by filing Form W-8BEN (Holdership, Exemption or Reduced Rate Certificate). Form W-8BEN may be filed by
Noteholders or their agent.
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).
The holder of an interest in a Global Security or, in the case of a Form W-8BEN or a Form W-8ECI filer, his agent, files by
submitting the appropriate form to the person through whom it holds the security (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 for three calendar years. The term "U.S.
Person" means a citizen or resident of the United States, a corporation, partnership or other entity created or organized in, or under
the laws of, the United States or any political subdivision thereof (except, in the case of a partnership, to the extent provided in
regulations), or an estate whose income is subject to United States federal income tax regardless of its source, or 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 the authority to control all substantial decisions of the trust. The term "Non-U.S. Person" means any person who is not a
U.S. Person. This 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.
Exchangeable SecuritiesGeneral
As the related prospectus supplement will discuss, some series will include one or more classes of exchangeable securities. In
any of these series, the holders specified in the related prospectus supplement will be entitled, after notice and payment to the
trustee of an administrative fee, to exchange all or a portion of those classes for proportionate interests in one or more of the other
classes of exchangeable securities.
If the related prospectus supplement describes the issuance of exchangeable securities, all of these classes of exchangeable
securities will be listed on the cover of the prospectus supplement. The classes of securities that are exchangeable for one another
will be referred to in the related prospectus supplement as "related" to each other, and each related grouping of exchangeable
securities will be referred to as a "combination." Each combination of exchangeable securities will be issued by the related trust fund
and, in the aggregate, will represent a distinct combination of uncertificated interests in the trust fund. At any time after their
initial issuance, any class of exchangeable securities may be exchanged for the related class or classes of exchangeable securities. In
some cases, multiple classes of exchangeable securities may be exchanged for one or more classes of related exchangeable securities.
Descriptions in the related prospectus supplement about the securities of that series, including descriptions of principal and
interest distributions, registration and denomination of securities, credit enhancement, yield and prepayment considerations and tax,
ERISA and legal investment considerations, will also apply to each class of exchangeable securities. The related prospectus supplement
will separately describe the yield and prepayment considerations applicable to, and the risks of investment in, each class of
exchangeable securities in a combination. For example, separate decrement tables and yield tables, if applicable, will be included for
each class of a combination of exchangeable securities.
Exchanges
If a holder elects to exchange its exchangeable securities for related exchangeable securities the following three conditions
must be satisfied:
o the aggregate principal balance of the exchangeable securities received in the exchange, immediately after the exchange, must
equal the aggregate principal balance, immediately prior to the exchange, of the exchanged securities—for purposes of
this condition, an interest only class will have a principal balance of zero;
o the annual interest amount payable with respect to the exchangeable securities received in the exchange must equal the
aggregate annual interest amount of the exchanged securities; and
o the class or classes of exchangeable securities must be exchanged in the applicable proportions, if any, described in the
related prospectus supplement.
There are different types of combinations that can exist. Any individual series of securities may have multiple types of
combinations. Some examples of combinations include:
o A class of exchangeable securities with an interest rate that varies directly with changes in an index and a class of
exchangeable securities with an interest rate that varies indirectly with changes in an index may be exchangeable for
a class of exchangeable securities with a fixed interest rate. In this case, the classes that vary with an index
would produce, in the aggregate, an annual interest amount equal to that generated by the class with a fixed interest
rate. In addition, the aggregate principal balance of the two classes that vary with an index would equal the
principal balance of the class with the fixed interest rate.
o An interest only class and principal only class of exchangeable securities may be exchangeable, together, for a class that is
entitled to both principal and interest payments. The principal balance of the principal and interest class would be
equal to the principal balance of the exchangeable principal only class, and the interest rate on the principal and
interest class would be a fixed rate that when applied to the principal balance of this class would generate an annual
interest amount equal to the annual interest amount of the exchangeable interest only class.
o Two classes of principal and interest classes with different fixed interest rates may be exchangeable, together, for a class
that is entitled to both principal and interest payments, with a principal balance equal to the aggregate principal
balance of the two exchanged classes, and a fixed interest rate that when applied to the principal balance of the
exchanged for class, would generate an annual interest amount equal to the aggregate annual interest amount of the two
exchanged classes.
These examples of combinations of exchangeable securities describe combinations of exchangeable securities which differ in
their interest characteristics. In some series, a securityholder may be able to exchange its exchangeable securities for other
exchangeable securities that have different principal payment characteristics. Examples of these types of combinations include:
o A class of exchangeable securities that accretes all of its interest for a specified period, with the accreted amount added to
the principal balance of the accreting class, and a class of exchangeable securities that receives principal payments
from these accretions may be exchangeable, together, for a single class of exchangeable securities that receives
payments of principal continuously from the first distribution date on which it receives interest until it is retired.
o A class of exchangeable securities that is designed to receive principal payments in accordance with a predetermined schedule,
or a planned amortization class, and a class of exchangeable securities that only receives principal payments on a
distribution date if scheduled payments have been made on the planned amortization class, may be exchangeable,
together, for a class of exchangeable securities that receives principal payments without regard to the schedule from
the first distribution date on which it receives principal until it is retired.
A number of factors may limit the ability of an exchangeable securityholder to effect an exchange. For example, the
securityholder must own, at the time of the proposed exchange, the class or classes necessary to make the exchange in the necessary
proportions. If a securityholder does not own the necessary classes or does not own the necessary classes in the proper proportions,
the securityholder may not be able to obtain the desired class of exchangeable securities. The securityholder desiring to make the
exchange may not be able to purchase the necessary class from the then-current owner at a reasonable price or the necessary proportion
of the needed class may no longer be available due to principal payments or prepayments that have been applied to that class.
Procedures
The related prospectus supplement will describe the procedures that must be followed to make an exchange. A securityholder
will be required to provide notice to the trustee five business days prior to the proposed exchange date or as otherwise specified in
the related prospectus supplement. The notice must include the outstanding principal or notional amount of the securities to be
exchanged and to be received, and the proposed exchange date. When the trustee receives this notice, it will provide instructions to
the securityholder regarding delivery of the securities and payment of the administrative fee. A securityholder's notice to the trustee
will become irrevocable on the second business day prior to the proposed exchange date. Any exchangeable securities in book-entry form
will be subject to the rules, regulations and procedures applicable to DTC's book-entry securities.
If the related prospectus supplement describes exchange proportions for a combination of classes of exchangeable securities,
these proportions will be based on the original, rather than the outstanding, principal or notional amounts of these classes.
The first payment on an exchangeable security received in an exchange will be made on the distribution date in the month
following the month of the exchange or as otherwise described in the related prospectus supplement. This payment will be made to the
securityholder of record as of the applicable record date.
Assignment of Trust Fund Assets
At the time of issuance of a series of securities, the depositor will assign, or cause to be assigned, to the related trustee
(or its nominee),without recourse, the mortgage loans or mortgage securities being included in the related trust fund, together with,
all principal and interest received on or with respect to the mortgage loans or mortgage securities after the cut-off date, other than
principal and interest due on or before the cut-off date. If specified in the related prospectus supplement, the depositor or any of its
affiliates may retain an interest in the trust fund assets, if any, for itself or transfer the same to others. The trustee will,
concurrently with the assignment, deliver the securities of the series to or at the direction of the depositor in exchange for the
mortgage loans and/or mortgage securities in the related trust fund. Each mortgage loan will be identified in a schedule appearing as an
exhibit to the related pooling and servicing agreement or servicing agreement. The schedule will include, among other things,
information as to the principal balance of each mortgage loan in the related trust fund as of the cut-off date, as well as information
respecting the mortgage rate, the currently scheduled monthly payment of principal and interest, the maturity of the mortgage note and
the Loan-to-Value Ratio at origination or modification (without regard to any secondary financing).
In addition, the depositor will, as to each mortgage loan, other than (1) mortgage loans underlying any mortgage securities and
(2) Contracts, deliver, or cause to be delivered, to the related trustee (or to the custodian described below) the following documents:
o the mortgage note endorsed, without recourse, either in blank or to the order of the trustee (or its nominee),
o the mortgage with evidence of recording indicated on the mortgage (except for any mortgage not returned from the public
recording office) or, in the case of a cooperative mortgage loan, on the related financing statement,
o an assignment of the mortgage in blank or to the trustee (or its nominee) in recordable form (or, with respect to a
cooperative mortgage loan, an assignment of the respective security agreements, any applicable UCC financing statements,
recognition agreements, relevant stock certificates, related blank stock powers and the related proprietary leases or
occupancy agreements),
o any intervening assignments of the mortgage with evidence of recording on the assignment (except for any assignment not
returned from the public recording office),
o if applicable, any riders or modifications to the mortgage note and mortgage,
o if the mortgage loan is secured by additional collateral, certain security and assignment documents relating to the pledge of
the additional collateral, and
o any other documents set forth in the related pooling and servicing agreement, mortgage loan purchase agreement or servicing
agreement.
The assignments may be blanket assignments covering mortgages on mortgaged properties located in the same county, if permitted by law.
Notwithstanding the foregoing, a trust fund may include mortgage loans where the original mortgage note is not delivered to the
trustee if the depositor delivers, or causes to be delivered, to the related trustee (or the custodian) a copy or a duplicate original
of the mortgage note, together with an affidavit certifying that the original thereof has been lost or destroyed. In addition, if the
depositor cannot deliver, with respect to any mortgage loan, the mortgage or any intervening assignment with evidence of recording on
the assignment concurrently with the execution and delivery of the related pooling and servicing agreement or servicing agreement
because of a delay caused by the public recording office, the depositor will deliver, or cause to be delivered, to the related trustee
(or the custodian) a true and correct photocopy of the mortgage or assignment as submitted for recording within one year. The depositor
will deliver, or cause to be delivered, to the related trustee (or the custodian) the mortgage or assignment with evidence of recording
indicated on the assignment after receipt thereof from the public recording office. If the depositor cannot deliver, with respect to any
mortgage loan, the mortgage or any intervening assignment with evidence of recording on the mortgage or assignment concurrently with the
execution and delivery of the related pooling and servicing agreement or servicing agreement because the mortgage or assignment has been
lost, the depositor will deliver, or cause to be delivered, to the related trustee (or the custodian) a true and correct photocopy of
the mortgage or assignment with evidence of recording on the mortgage or assignment. If the depositor cannot deliver, with respect to
any mortgage loan, the mortgage or any intervening assignment with evidence of recording on the mortgage or assignment because the
applicable jurisdiction retains the originals of such documents, the depositor will deliver photocopies of such documents containing an
original certification by the judicial or other governmental authority of the jurisdiction where such documents were recorded.
Assignments of the mortgage loans to the trustee (or its nominee) will be recorded in the appropriate public recording office, except
(1) where recordation is not required by the Rating Agencies rating the applicable securities, (2) in states where, in the opinion of
counsel acceptable to the trustee, recording is not required to protect the trustee's interests in the mortgage loan against the claim
of any subsequent transferee or any successor to or creditor of the depositor or the originator of the mortgage loan or (3) where
Mortgage Electronic Registration Systems, Inc. is identified on the mortgage or a properly recorded assignment of mortgage as the
mortgagee of record solely as nominee for a Seller and its successors and assigns. In addition, the depositor shall not be required to
deliver intervening assignments or mortgage note endorsements between the underlying sellers of the mortgage loans and the Seller,
between the Seller and the depositor and between the depositor and the trustee.
As to each Contract, the depositor will deliver, or cause to be delivered, to the related trustee (or the custodian) the
following documents:
o the original Contract endorsed, without recourse, to the order of the trustee,
o copies of documents and instruments related to the Contract and the security interest in the Manufactured Home securing the
Contract, and
o a blanket assignment to the trustee of all Contracts in the related trust fund and the related documents and instruments.
In order to give notice of the right, title and interest of the securityholders to the Contracts, the depositor will cause to be
executed and delivered to the trustee a UCC-1 financing statement identifying the trustee as the secured party and identifying all
Contracts as collateral.
The depositor will, as to each mortgage security included in a mortgage pool, deliver, or cause to be delivered, to the related
trustee (or the custodian), either (i) cause an electronic transfer of that security or (ii) provide a physical certificate or note
evidencing the mortgage security, registered in the name of the related trustee (or its nominee), or endorsed in blank or to the related
trustee (or its nominee), or accompanied by transfer documents sufficient to effect a transfer to the trustee (or its nominee).
The trustee (or the custodian) will hold the documents in trust for the benefit of the related securityholders, and generally
will review the documents within 180 days after receipt thereof in the case of documents delivered concurrently with the execution and
delivery of the related pooling and servicing agreement or indenture, and within the time period specified in the related pooling and
servicing agreement or indenture in the case of all other documents delivered. If any document is found to be missing or defective in
any material respect, the trustee (or the custodian) will be required to promptly so notify the master servicer, the depositor, and the
related Seller. If the related Seller does not cure the omission or defect within a specified period after notice is given thereto by
the trustee, and the omission or defect materially and adversely affects the interests of securityholders in the affected mortgage loan
or mortgage security, then, the related Seller will be obligated to repurchase the mortgage loan or mortgage security from the trustee
at its purchase price (or, if and to the extent it would otherwise be permitted to do so for a breach of representation and warranty as
described under "The Mortgage Pools—Representations of Sellers," to substitute for the mortgage loan or mortgage security). The trustee
will be obligated to enforce this obligation of the Seller to the extent described above under "The Mortgage Pools—Representations by
Sellers," but there can be no assurance that the applicable Seller will fulfill its obligation to repurchase (or substitute for) the
affected mortgage loan or mortgage security as described above. The depositor will not be obligated to repurchase or substitute for the
mortgage loan or mortgage security if the Seller defaults on its obligation to do so. This repurchase or substitution obligation
constitutes the sole remedy available to the related securityholders and the related trustee for omission of, or a material defect in, a
constituent document. Any affected mortgage loan or mortgage security not so repurchased or substituted for shall remain in the related
trust fund.
The trustee will be authorized at any time to appoint one or more custodians pursuant to a custodial agreement to hold title to
the mortgage loans and/or mortgage securities in any mortgage pool, and to maintain possession of and, if applicable, to review, the
documents relating to the mortgage loans and/or mortgage securities, in any case as the agent of the trustee. The identity of any
custodian to be appointed on the date of initial issuance of the securities will be set forth in the related prospectus supplement. A
custodian may be an affiliate of the depositor or the master servicer.
Except as to mortgage loans underlying any mortgage securities, the Seller will make representations and warranties as to the
types and geographical concentrations of the mortgage loans and as to the accuracy of some of the information furnished to the related
trustee in respect of each mortgage loan (for example, the original Loan-to-Value Ratio, the principal balance as of the cut-off date,
the mortgage rate and maturity). Upon a breach of any of these representations which materially and adversely affects the interests of
the securityholders in a mortgage loan, the Seller will be obligated to cure the breach in all material respects, to repurchase the
mortgage loan at its purchase price or, to substitute for the mortgage loan a Qualified Substitute Mortgage Loan in accordance with the
provisions for substitution by Sellers as described above under "The Mortgage Pools—Representations by Sellers." This repurchase or
substitution obligation constitutes the sole remedy available to securityholders or the trustee for a breach of a representation by a
Seller. Any mortgage loan not so repurchased or substituted for shall remain in the related trust fund.
Pursuant to the related pooling and servicing agreement or servicing agreement, the master servicer for any mortgage pool,
either directly or through servicers, will service and administer the mortgage loans included in the mortgage pool and assigned to the
related trustee as more fully set forth under "Servicing of Mortgage Loans" in this prospectus. Each of the depositor and the master
servicer will make limited representations and warranties regarding its authority to enter into, and its ability to perform its
obligations under, the pooling and servicing agreement or servicing agreement.
Distribution AccountGeneral. The master servicer, trustee or securities administrator, as applicable, will, as to each trust fund, establish and
maintain or cause to be established and maintained a Distribution Account, which will be established so as to comply with the standards
of each Rating Agency that has rated any one or more classes of securities of the related series. A Distribution Account shall be
maintained as an Eligible Account, and the funds held therein may be held as cash or invested in Permitted Investments. The master
servicer, trustee or securities administrator, or other entity designated in the related prospectus supplement, will have sole
discretion to determine the particular investments made so long as it complies with the investment terms of the related pooling and
servicing agreement or the related servicing agreement and indenture. Any Permitted Investments shall not cause the depositor to
register under the Investment Company Act of 1940. Any interest or other income earned on funds in the Distribution Account will be paid
to the master servicer, trustee or securities administrator, or other entity designated in the related prospectus supplement, as
additional compensation or will be available for payments on the securities as provided in the prospectus supplement. If permitted by
the Rating Agency or Agencies and so specified in the related prospectus supplement, a Distribution Account may contain funds relating
to more than one series of mortgage pass-through certificates or mortgage-backed notes and may contain other funds representing payments
on mortgage loans owned by the related master servicer or serviced by it on behalf of others.
Deposits. With respect to each series of securities, the related master servicer, servicers, trustee or special servicer will
be required to deposit or cause to be deposited in the Distribution Account for the related trust fund within a period following receipt
(in the case of collections and payments), the following payments and collections received, or advances made, by the master servicer,
the servicers, the trustee or any special servicer subsequent to the cut-off date with respect to the mortgage loans and/or mortgage
securities in the trust fund (other than payments due on or before the cut-off date):
o all payments on account of principal, including principal prepayments, on the mortgage loans;
o all payments on account of interest on the mortgage loans, including any default interest collected, in each case net of any
portion thereof retained by the master servicer, any servicer or any special servicer as its servicing compensation or as
compensation to the trustee, and further net of any retained interest of the depositor;
o all payments on the mortgage securities;
o all payments on the U.S. Government Securities (if any);
o all Insurance Proceeds and Liquidation Proceeds;
o any amounts paid under any instrument or drawn from any fund that constitutes credit enhancement for the related series of
securities as described under "Description of Credit Enhancement" in this prospectus;
o any advances made as described under "—Advances" below;
o any Buydown Funds (and, if applicable, investment earnings on the Buydown Funds) required to be paid to securityholders, as
described below;
o any amounts paid by the master servicer and the servicers to cover Prepayment Interest Shortfalls arising out of the
prepayment of mortgage loans as described under "Servicing of Mortgage Loans—Servicing and Other Compensation and Payment of
Expenses; Retained Interest" in this prospectus;
o to the extent that any item does not constitute additional servicing compensation to the master servicer, a servicer or a
special servicer, any payments on account of modification or assumption fees, late payment charges or prepayment premiums on
the mortgage loans;
o any amount required to be deposited by the master servicer or the trustee in connection with losses realized on investments
for the benefit of the master servicer or the trustee, as the case may be, of funds held in the Distribution Account; and
o any other amounts required to be deposited in the Distribution Account as provided in the related pooling and servicing
agreement or the related servicing agreement and indenture and described in this prospectus or in the related prospectus
supplement.
With respect to each buydown mortgage loan, the master servicer will be required to deposit, or cause the related servicer to
deposit, the related Buydown Funds provided to it in a Buydown Account which will comply with the requirements set forth in this
prospectus with respect to the Distribution Account. The terms of all buydown mortgage loans provide for the contribution of Buydown
Funds in an amount equal to or exceeding either (1) the total payments to be made from the funds pursuant to the related buydown plan or
(2) if the Buydown Funds are to be deposited on a discounted basis, that amount of Buydown Funds which, together with investment
earnings on the Buydown Funds at a rate as will support the scheduled level of payments due under the buydown mortgage loan. Neither the
master servicer, any servicer nor the depositor will be obligated to add to any discounted Buydown Funds any of its own funds should
investment earnings prove insufficient to maintain the scheduled level of payments. To the extent that any insufficiency is not
recoverable from the mortgagor or, in an appropriate case, from the Seller, distributions to securityholders may be affected. With
respect to each buydown mortgage loan, the master servicer will be required monthly to withdraw from the Buydown Account and deposit, or
cause the servicer of the mortgage loans to withdraw from the Buydown Account and deposit, in the Distribution Account as described
above the amount, if any, of the Buydown Funds (and, if applicable, investment earnings on the Buydown Funds) for each buydown mortgage
loan that, when added to the amount due from the mortgagor on the buydown mortgage loan, equals the full monthly payment which would be
due on the buydown mortgage loan if it were not subject to the buydown plan.
If the mortgagor on a buydown mortgage loan prepays the mortgage loan in its entirety during the Buydown Period, the master
servicer or servicer of the mortgage loan will be required to withdraw from the Buydown Account and remit to the mortgagor or the other
designated party in accordance with the related buydown plan any Buydown Funds remaining in the Buydown Account. If a prepayment by a
mortgagor during the Buydown Period together with Buydown Funds will result in full prepayment of a buydown mortgage loan, the master
servicer or servicer of the mortgage loan generally will be required to withdraw from the Buydown Account and deposit in the
Distribution Account the Buydown Funds and investment earnings on the Buydown Funds, if any, which together with the prepayment will
result in a prepayment in full; provided that Buydown Funds may not be available to cover a prepayment under some mortgage loan
programs. Any Buydown Funds so remitted to the master servicer or the servicer of the mortgage loan in connection with a prepayment
described in the preceding sentence will be deemed to reduce the amount that would be required to be paid by the mortgagor to repay
fully the related mortgage loan if the mortgage loan were not subject to the buydown plan. Any investment earnings remaining in the
Buydown Account after prepayment or after termination of the Buydown Period will be remitted to the related mortgagor or the other
designated party pursuant to the Buydown Agreement relating to each buydown mortgage loan. If the mortgagor defaults during the Buydown
Period with respect to a buydown mortgage loan and the property securing the buydown mortgage loan is sold in liquidation (either by the
master servicer, the servicer of the mortgage loan, the primary insurer, any pool insurer or any other insurer), the master servicer or
related servicer will be required to withdraw from the Buydown Account the Buydown Funds and all investment earnings on the Buydown
Funds, if any, and either deposit the same in the Distribution Account or, alternatively, pay the same to the primary insurer or the
pool insurer, as the case may be, if the mortgaged property is transferred to the insurer and the insurer pays all of the loss incurred
in respect of the default.
Prior to the deposit of funds into the Distribution Account, as described under "—Deposits" above, funds related to the
mortgage loans serviced by a master servicer or a servicer may be maintained by a master servicer or a servicer in a Protected Account
which will be established so as to comply with the standards of each Rating Agency that has rated any one or more classes of securities
of the related series. Each Protected Account shall be maintained as an Eligible Account, and the funds held therein may be held as cash
or invested in Permitted Investments. Any interest or other income earned on funds in a Protected Account will be paid to the master
servicer or servicer, as applicable, as additional compensation. If permitted by the Rating Agency or Agencies and so specified in the
related prospectus supplement, a Protected Account may contain funds relating to more than one series of mortgage pass-through
certificates or mortgage-backed notes and may contain other funds representing payments on mortgage loans owned by the related master
servicer or serviced by it on behalf of others. In the event that a trust fund has multiple servicers, funds from the Protected
Accounts may first be remitted to a Master Servicer Collection Account, meeting the same eligibility standards as the Protected
Accounts, prior to being deposited into the Distribution Account.
Withdrawals. With respect to each series of securities, the master servicer, trustee or special servicer generally may make
withdrawals from the Distribution Account for the related trust fund for any one or more of the following purposes, unless otherwise
provided in the related agreement and described in the related prospectus supplement:
(1) to make distributions to the related securityholders on each distribution date;
(2) to reimburse the master servicer, any servicer or any other specified person for unreimbursed amounts advanced by it
in respect of mortgage loans in the trust fund as described under "—Advances" below, these reimbursements to be made
out of amounts received which were identified and applied by the master servicer or a servicer as late collections of
interest (net of related servicing fees) on and principal of the particular mortgage loans with respect to which the
advances were made or out of amounts drawn under any form of credit enhancement with respect to the mortgage loans;
(3) to reimburse the master servicer, a servicer or a special servicer for unpaid servicing fees earned by it and some
unreimbursed servicing expenses incurred by it with respect to mortgage loans in the trust fund and properties
acquired in respect thereof, these reimbursement to be made out of amounts that represent Liquidation Proceeds and
Insurance Proceeds collected on the particular mortgage loans and properties, and net income collected on the
particular properties, with respect to which the fees were earned or the expenses were incurred or out of amounts
drawn under any form of credit enhancement with respect to the mortgage loans and properties;
(4) to reimburse the master servicer, a servicer or any other specified person for any advances described in clause (2)
above made by it and any servicing expenses referred to in clause (3) above incurred by it which, in the good faith
judgment of the master servicer, the applicable servicer or the other person, will not be recoverable from the amounts
described in clauses (2) and (3), respectively, the reimbursement to be made from amounts collected on other mortgage
loans in the trust fund or, if and to the extent so provided by the related pooling and servicing agreement or the
related servicing agreement and indenture and described in the related prospectus supplement, only from that portion
of amounts collected on the other mortgage loans that is otherwise distributable on one or more classes of subordinate
securities of the related series;
(5) if and to the extent described in the related prospectus supplement, to pay the master servicer, a servicer, a special
servicer or another specified entity (including a provider of credit enhancement) interest accrued on the advances
described in clause (2) above made by it and the servicing expenses described in clause (3) above incurred by it while
these remain outstanding and unreimbursed;
(6) to reimburse the master servicer, a servicer, the depositor, or any of their respective directors, officers, employees
and agents, as the case may be, for expenses, costs and liabilities incurred thereby, as and to the extent described
under "The Agreements—Certain Matters Regarding the Master Servicer and the Depositor" in this prospectus;
(7) if and to the extent described in the related prospectus supplement, to pay the fees of the trustee;
(8) to reimburse the trustee or any of its directors, officers, employees and agents, as the case may be, for expenses,
costs and liabilities incurred thereby, as and to the extent described under "The Agreements—Some Matters Regarding
the Trustee" in this prospectus;
(9) to pay the master servicer or the trustee, as additional compensation, interest and investment income earned in
respect of amounts held in the Distribution Account;
(10) to pay (generally from related income) the master servicer, a servicer or a special servicer for costs incurred in
connection with the operation, management and maintenance of any mortgaged property acquired by the trust fund by
foreclosure or by deed in lieu of foreclosure;
(11) if one or more elections have been made to treat the trust fund or designated portions thereof as a REMIC, to pay any
federal, state or local taxes imposed on the trust fund or its assets or transactions, as and to the extent described
under "Federal Income Tax Consequences—REMICS—Prohibited Transactions and Other Possible REMIC Taxes" in this
prospectus;
(12) to pay for the cost of an independent appraiser or other expert in real estate matters retained to determine a fair
sale price for a defaulted mortgage loan or a property acquired in respect thereof in connection with the liquidation
of the mortgage loan or property;
(13) to pay for the cost of various opinions of counsel obtained pursuant to the related pooling and servicing agreement or
the related servicing agreement and indenture for the benefit of the related securityholders;
(14) to pay to itself, the depositor, a Seller or any other appropriate person all amounts received with respect to each
mortgage loan purchased, repurchased or removed from the trust fund pursuant to the terms of the related pooling and
servicing agreement or the related servicing agreement and indenture and not required to be distributed as of the date
on which the related purchase price is determined;
(15) to make any other withdrawals permitted by the related pooling and servicing agreement or the related servicing
agreement and indenture and described in the related prospectus supplement;
(16) to pay for costs and expenses incurred by the trust fund for environmental site assessments performed with respect to
multifamily or commercial properties that constitute security for defaulted mortgage loans, and for any containment,
clean-up or remediation of hazardous wastes and materials present on that mortgaged properties, as described under
"Servicing of Mortgage Loans—Realization Upon or Sale of Defaulted Mortgage Loans" in this prospectus; and
(17) to clear and terminate the Distribution Account upon the termination of the trust fund.
Distributions
Distributions on the securities of each series will be made by or on behalf of the related trustee or securities administrator,
as applicable, on each distribution date as specified in the related prospectus supplement from the available funds for the series and
the distribution date. The available funds for any series of securities and any distribution date will generally refer to the total of
all payments or other collections (or advances in lieu thereof) on, under or in respect of the mortgage loans and/or mortgage securities
and any other assets included in the related trust fund that are available for distribution to the securityholders of the series on that
date. The particular components of the available funds for any series on each distribution date will be more specifically described in
the related prospectus supplement.
Distributions on the securities of each series (other than the final distribution in retirement of any certificate) will be
made to the persons in whose names the securities are registered on the Record Date, and the amount of each distribution will be
determined as of the Determination Date. All distributions with respect to each class of securities on each distribution date will be
allocated in accordance with the holder's Percentage Interest in a particular class. Payments will be made either by wire transfer in
immediately available funds to the account of a securityholder at a bank or other entity having appropriate facilities therefor, if the
securityholder has provided the trustee or other person required to make the payments with wiring instructions no later than five
business days prior to the related Record Date or other date specified in the related prospectus supplement (and, if so provided in the
related prospectus supplement, the securityholder holds securities in any requisite amount or denomination specified therein), or by
check mailed to the address of the securityholder as it appears on the security register; provided, however, that the final distribution
in retirement of any class of securities will be made only upon presentation and surrender of the securities at the location specified
in the notice to securityholders of the final distribution.
Distributions of Interest and Principal on the Securities
Each class of securities of each series, other than Strip Securities and REMIC Residual Certificates that have no security
interest rate, may have a different per annum rate at which interest accrues on that class of securities, which may be fixed, variable
or adjustable, or any combination of rates. The related prospectus supplement will specify the security interest rate or, in the case of
a variable or adjustable security interest rate, the method for determining the security interest rate, for each class. The related
prospectus supplement will specify whether interest on the securities of the series will be calculated on the basis of a 360-day year
consisting of twelve 30-day months or on a different method.
Distributions of interest in respect of the securities of any class, other than any class of Accrual Securities, Strip
Securities or REMIC Residual Certificates that is not entitled to any distributions of interest, will be made on each distribution date
based on the accrued interest for the class and the distribution date, subject to the sufficiency of the portion of the available funds
allocable to the class on the distribution date. Prior to the time interest is distributable on any class of Accrual Securities, the
amount of accrued interest otherwise distributable on the class will be added to the principal balance thereof on each distribution
date. With respect to each class of interest-bearing securities, accrued interest for each distribution date will be equal to interest
at the applicable security interest rate accrued for a specified period (generally one month) on the outstanding principal balance
thereof immediately prior to the distribution date. Accrued interest for each distribution date on Strip Securities entitled to
distributions of interest will be similarly calculated except that it will accrue on a notional amount that is based on either (1) the
principal balances of some or all of the mortgage loans and/or mortgage securities in the related trust fund or (2) the principal
balances of one or more other classes of securities of the same series. Reference to a notional amount with respect to a class of Strip
Securities is solely for convenience in making calculations of accrued interest and does not represent the right to receive any
distribution of principal. If so specified in the related prospectus supplement, the amount of accrued interest that is otherwise
distributable on (or, in the case of Accrual Securities, that may otherwise be added to the principal balance of) one or more classes of
the securities of a series will be reduced to the extent that any Prepayment Interest Shortfalls, as described under "YieldConsiderations" in this prospectus, exceed the amount of any sums (including, if and to the extent specified in the related prospectus
supplement, the master servicer's or applicable servicer's servicing compensation) that are applied to offset the shortfalls. The
particular manner in which the shortfalls will be allocated among some or all of the classes of securities of that series will be
specified in the related prospectus supplement. The related prospectus supplement will also describe the extent to which the amount of
accrued interest that is otherwise distributable on (or, in the case of Accrual Securities, that may otherwise be added to the principal
balance of) a class of offered securities may be reduced as a result of any other contingencies, including delinquencies, losses and
Deferred Interest on or in respect of the related mortgage loans or application of the Relief Act with respect to the mortgage loans.
Any reduction in the amount of accrued interest otherwise distributable on a class of securities by reason of the allocation to the
class of a portion of any Deferred Interest on or in respect of the related mortgage loans will result in a corresponding increase in
the principal balance of the class.
As and to the extent described in the related prospectus supplement, distributions of principal with respect to a series of
securities will be made on each distribution date to the holders of the class or classes of securities of the series entitled thereto
until the principal balance or balances of the securities have been reduced to zero. In the case of a series of securities which
includes two or more classes of securities, the timing, order, priority of payment or amount of distributions in respect of principal,
and any schedule or formula or other provisions applicable to the determination thereof (including distributions among multiple classes
of senior securities or subordinate securities), shall be as set forth in the related prospectus supplement. Distributions of principal
with respect to one or more classes of securities may be made at a rate that is faster (and, in some cases, substantially faster) than
the rate at which payments or other collections of principal are received on the mortgage loans and/or mortgage securities in the
related trust fund, may not commence until the occurrence of events such as the retirement of one or more other classes of securities of
the same series, or may be made at a rate that is slower (and, in some cases, substantially slower) than the rate at which payments or
other collections of principal are received on the mortgage loans and/or mortgage securities. In addition, distributions of principal
with respect to one or more classes of securities may be made, subject to available funds, based on a specified principal payment
schedule and, with respect to one or more classes of securities, may be contingent on the specified principal payment schedule for
another class of the same series and the rate at which payments and other collections of principal on the mortgage loans and/or mortgage
securities in the related trust fund are received.
Pre-Funding Account
If so specified in the related prospectus supplement, the pooling and servicing agreement or other agreement may provide for
the transfer by the Sellers of additional mortgage loans to the related trust after the Closing Date. The additional mortgage loans will
be required to conform to the requirements set forth in the related pooling and servicing agreement or other agreement providing for the
transfer, and will be underwritten to the same standards as the mortgage loans initially included in the trust fund as described in the
prospectus supplement. As specified in the related prospectus supplement, the transfer may be funded by the establishment of a
pre-funding account established with the trustee. If a pre-funding account is established, all or a portion of the proceeds of the sale
of one or more classes of securities of the related series will be deposited in the account to be released as additional mortgage loans
are transferred. A pre-funding account will be required to be maintained as an Eligible Account, the amounts therein may be required to
be invested in Permitted Investments and the amount held therein shall at no time exceed 50% of the proceeds of the offering of the
related securities. The related pooling and servicing agreement or other agreement providing for the transfer of additional mortgage
loans generally will provide that the transfers must be made within up to three months (with respect to any series of certificates) or
up to, but not in excess of, one year (with respect to any series of notes) after the Closing Date, and that amounts set aside to fund
the transfers (whether in a pre-funding account or otherwise) and not so applied within the required period of time will be deemed to be
principal prepayments and applied in the manner set forth in the prospectus supplement. To the extent amounts in any pre-funding account
have not been used to purchase additional mortgage loans, holders of the securities may receive an additional prepayment, which may
affect their yield to maturity. In addition, securityholders may not be able to reinvest amounts received from any pre-funding account
in comparable securities, or may only be able to do so at a lower interest rate.
Distributions on the Securities in Respect of Prepayment Premiums
Prepayment premiums will generally be retained by the master servicer, a servicer, or by the Seller as additional compensation.
However, if so provided in the related prospectus supplement, prepayment premiums received on or in connection with the mortgage loans
or mortgage securities in any trust fund will be distributed on each distribution date to the holders of the class or classes of
securities of the related series entitled thereto in accordance with the provisions described in the prospectus supplement.
Allocation of Losses and Shortfalls
The amount of any losses or shortfalls in collections on the mortgage loans and/or mortgage securities in any trust fund (to
the extent not covered or offset by draws on any reserve fund or under any instrument of credit enhancement or applied against
overcollateralization) will be allocated among the respective classes of securities of the related series in the priority and manner,
and subject to the limitations, specified in the related prospectus supplement. As described in the related prospectus supplement, these
allocations may result in reductions in the entitlements to interest and/or principal balances of one or more classes of securities, or
may be effected simply by a prioritization of payments among classes of securities.
Advances
If and to the extent provided in the related prospectus supplement, and subject to any limitations specified therein, the
related master servicer or any servicer will be obligated to advance, or have the option of advancing, on or before each distribution
date, from its own funds or from excess funds held in the related Master Servicer Collection Account or Protected Account that are not
part of the available funds for the related series of securities for that distribution date, an amount up to the aggregate of any
scheduled payments of interest (and, if specified in the related prospectus supplement, principal) on the mortgage loans that were
delinquent on, or not received by, the related Determination Date (or such other date specified in the Agreement, but in any event prior
to the related distribution date). No notice will be given to the certificateholders of these advances. Advances are intended to
maintain a regular flow of scheduled interest and principal payments to holders of the class or classes of securities entitled thereto,
rather than to guarantee or insure against losses. Accordingly, all advances made from the master servicer's or a servicer's own funds
will be reimbursable out of related recoveries on the mortgage loans (including, to the extent described in the prospectus supplement,
amounts received under any fund or instrument constituting credit enhancement) respecting which advances were made and other specific
sources as may be identified in the related prospectus supplement, including amounts which would otherwise be payable to the offered
securities. No Nonrecoverable Advance will be required to be made by the master servicer or a servicer; and, if previously made by a
master servicer or a servicer, a Nonrecoverable Advance will be reimbursable from any amounts in the related Master Servicer Collection
Account or Protected Account prior to any distributions being made to the related series of securityholders. If advances have been made
from excess funds in a Master Servicer Collection Account, the master servicer will be required to replace the funds in such account on
any future distribution date to the extent that funds then in such account are insufficient to permit full distributions to
securityholders on that date. If so specified in the related prospectus supplement, the obligation of a master servicer or a servicer to
make advances may be secured by a cash advance reserve fund or a surety bond. If applicable, information regarding the characteristics
of, and the identity of any obligor on, a surety bond, will be set forth in the related prospectus supplement. If any person other than
the master servicer has any obligation to make advances as described above, the related prospectus supplement will identify the person.
If and to the extent so provided in the related prospectus supplement, any entity making advances will be entitled to receive interest
on the advances for the period that the advances are outstanding at the rate specified in the prospectus supplement, and the entity will
be entitled to payment of the interest periodically from general collections on the mortgage loans in the related trust fund prior to
any payment to securityholders or as otherwise provided in the related pooling and servicing agreement or servicing agreement and
described in the prospectus supplement. As specified in the related prospectus supplement with respect to any series of securities as to
which the trust fund includes mortgage securities, the advancing obligations with respect to the underlying mortgage loans will be
pursuant to the terms of the mortgage securities, as may be supplemented by the terms of the applicable pooling and servicing agreements
or servicing agreements for such mortgage securities, and may differ from the provisions described above.
Modifications
In instances in which a mortgage loan is in default or if default is reasonably foreseeable, and if determined by the master
servicer to be in the best interest of the securityholders, the master servicer or servicer may permit servicing modifications of the
mortgage loan rather than proceeding with foreclosure. However, the master servicer's and the servicer's ability to perform servicing
modifications will be subject to some limitations, including but not limited to the following:
o Advances and other amounts may be added to the outstanding principal balance of a mortgage loan only once during the
life of a mortgage loan.
o Any amounts added to the principal balance of the mortgage loan, or capitalized amounts added to the mortgage loan,
will be required to be fully amortized over the remaining term of the mortgage loan.
o All capitalizations are to be implemented in accordance with the sponsor's standards and may be implemented only by
servicers that have been approved by the master servicer for that purpose.
o The final maturity of any mortgage loan shall not be extended beyond the assumed final distribution date.
o No servicing modification with respect to a mortgage loan will have the effect of reducing the mortgage rate below one
half of the mortgage rate as in effect on the cut off date, but not less than the servicing fee rate.
Any advances made on any mortgage loan will be reduced to reflect any related servicing modifications previously made. The
mortgage rate and Net Mortgage Rate as to any mortgage loan will be deemed not reduced by any servicing modification, so that the
calculation of accrued certificate interest (as defined in the prospectus supplement) payable on the offered securities will not be
affected by the servicing modification.
Reports to Securityholders
With each distribution to securityholders of a particular class of offered securities, the related master servicer, trustee or
other specified person will make available to each holder of record of the class of securities a monthly statement or statements with
respect to the related trust fund setting forth the information specifically described in the related prospectus supplement and the
related pooling and servicing agreement or the related servicing agreement or indenture.
In addition, within a reasonable period of time after the end of each calendar year, the master servicer, trustee or securities
administrator, as applicable, will furnish a report to each holder of record of a class of offered securities at any time during the
calendar year or, in the event the person was a holder of record of a class of securities during a portion of the calendar year, for the
applicable portion of the year. Reports, whether monthly or annual, will be transmitted in the method described in the related
prospectus supplement to the holder of record of the class of securities contemporaneously with the distribution on that particular
class. In addition, the monthly reports will be posted on a website as described below under "Available Information" and "Reports toSecurityholders" in this prospectus.
DESCRIPTION OF CREDIT ENHANCEMENTGeneral
As set forth below and in the applicable prospectus supplement, credit enhancement may be provided by one or more of a
financial guaranty insurance policy, a special hazard insurance policy, a mortgage pool insurance policy or a letter of credit. In
addition, if provided in the applicable prospectus supplement, in lieu of or in addition to any or all of the foregoing arrangements,
credit enhancement may be in the form of a reserve fund to cover the losses, subordination of one or more classes of subordinate
securities for the benefit of one or more classes of senior securities, of cross-collateralization or overcollateralization, or a
combination of the foregoing. The credit support may be provided by an assignment of the right to receive specified cash amounts, a
deposit of cash into a reserve fund or other pledged assets, or by guarantees provided by a third-party or any combination thereof
identified in the applicable prospectus supplement. Each component will have limitations and will provide coverage with respect to
Realized Losses on the related mortgage loans. Credit support will cover Defaulted Mortgage Losses, but coverage may be limited or
unavailable with respect to Special Hazard Losses, Fraud Losses, Bankruptcy Losses and Extraordinary Losses. To the extent that the
credit support for the offered securities of any series is exhausted, the holders thereof will bear all further risk of loss.
The amounts and types of credit enhancement arrangements as well as the providers thereof, if applicable, with respect to the
offered securities of each series will be set forth in the related prospectus supplement. To the extent provided in the applicable
prospectus supplement and the pooling and servicing agreement or indenture, the credit enhancement arrangements may be periodically
modified, reduced and substituted for based on the aggregate outstanding principal balance of the mortgage loans covered thereby or the
principal amount or interest due on one or more classes of securities. See "Description of Credit Enhancement—Reduction or Substitution
of Credit Enhancement" in this prospectus. If specified in the applicable prospectus supplement, credit support for the offered
securities of one series may cover the offered securities of one or more other series.
In general, references to "mortgage loans" under this "Description of Credit Enhancement" section are to mortgage loans in a
trust fund. However, if so provided in the prospectus supplement for a series of securities, any mortgage securities included in the
related trust fund and/or the related underlying mortgage loans may be covered by one or more of the types of credit support described
in this prospectus. The related prospectus supplement will specify, as to each form of credit support, the information indicated below
with respect thereto, to the extent the information is material and available.
Subordinate Securities
If so specified in the related prospectus supplement, one or more classes of securities of a series may be subordinate
securities. Subordinate securities may be offered securities. To the extent specified in the related prospectus supplement, the rights
of the holders of subordinate securities to receive distributions from the Distribution Account on any distribution date will be
subordinated to the corresponding rights of the holders of senior securities. In addition, as provided in the prospectus supplement,
losses or shortfalls will be allocated to subordinate securities before they are allocated to more senior securities. If so provided in
the related prospectus supplement, the subordination of a class may apply only in the event of (or may be limited to) some types of
losses or shortfalls. The related prospectus supplement will set forth information concerning the manner and amount of subordination
provided by a class or classes of subordinate securities in a series and the circumstances under which the subordination will be
available.
Cross-Collateralization
If the mortgage loans and/or mortgage securities in any trust fund are divided into separate groups, each supporting a separate
class or classes of securities of the related series, credit enhancement may be provided by cross-collateralization support provisions
requiring that distributions be made on senior securities evidencing interests in one group of mortgage loans and/or mortgage securities
prior to distributions on subordinate securities evidencing interests in a different group of mortgage loans and/or mortgage securities
within the trust fund. The prospectus supplement for a series that includes a cross-collateralization provision will describe the manner
and conditions for applying the provisions.
Overcollateralization
If so specified in the related prospectus supplement, interest collections on the mortgage loans may exceed interest payments
on the offered securities for the related distribution date. The excess interest may be deposited into a reserve fund or applied as a
payment of principal on the securities. To the extent excess interest is applied as principal payments on the securities, the effect
will be to reduce the principal balance of the securities relative to the outstanding balance of the mortgage loans, thereby creating
overcollateralization and additional protection to the securityholders, as specified in the related prospectus supplement. If so
provided in the related prospectus supplement, overcollateralization may also be provided as to any series of securities by the issuance
of securities in an initial aggregate principal amount which is less than the aggregate principal amount of the related mortgage loans.
Financial Guaranty Insurance Policy
If so specified in the related prospectus supplement, a financial guaranty insurance policy may be obtained and maintained for
a class or series of securities. The insurer with respect to a financial guaranty insurance policy will be described in the related
prospectus supplement.
A financial guaranty insurance policy will be unconditional and irrevocable and will guarantee to holders of the applicable
securities that an amount equal to the full amount of payments due to the holders will be received by the trustee or its agent on behalf
of the holders for payment on each distribution date. The specific terms of any financial guaranty insurance policy will be set forth in
the related prospectus supplement. A financial guaranty insurance policy may have limitations and generally will not insure the
obligation of the Sellers or the master servicer to repurchase or substitute for a defective mortgage loan, will not insure Prepayment
Interest Shortfalls or interest shortfalls due to the application of the Relief Act and will not guarantee any specific rate of
principal payments. The insurer will be subrogated to the rights of each holder to the extent the insurer makes payments under the
financial guaranty insurance policy.
Mortgage Pool Insurance Policies
Any mortgage pool insurance policy obtained by the depositor for a trust fund will be issued by the insurer named in the
applicable prospectus supplement. Each mortgage pool insurance policy will cover Defaulted Mortgage Losses in an amount equal to a
percentage specified in the applicable prospectus supplement of the aggregate principal balance of the mortgage loans on the cut-off
date, or will cover a portion of Defaulted Mortgage Losses on any mortgage up to a specified percentage of the Value of that mortgage
loan. As set forth under "Maintenance of Credit Enhancement" in this prospectus, the master servicer will use reasonable efforts to
maintain, or cause the servicers to maintain, any mortgage pool insurance policy and to present claims thereunder to the insurer on
behalf of itself, the related trustee and the related securityholders. The mortgage pool insurance policies, however, are not blanket
policies against loss, since claims thereunder may only be made respecting particular defaulted mortgage loans and only upon
satisfaction of the terms of the related policy. Any exceptions to coverage will be described in the related prospectus supplement.
Unless specified in the related prospectus supplement, the mortgage pool insurance policies may not cover losses due to a failure to pay
or denial of a claim under a Primary Insurance Policy, irrespective of the reason therefor.
Letter of Credit
If any component of credit enhancement as to the offered securities of a series is to be provided by a letter of credit, a bank
will deliver to the related trustee an irrevocable letter of credit. The letter of credit may provide direct coverage with respect to
the mortgage loans. The bank that delivered the letter of credit, as well as the amount available under the letter of credit with
respect to each component of credit enhancement, will be specified in the applicable prospectus supplement. If so specified in the
related prospectus supplement, the letter of credit may permit draws only in the event of certain types of losses and shortfalls. The
letter of credit may also provide for the payment of required advances which the master servicer or any servicer fails to make. The
amount available under the letter of credit will, in all cases, be reduced to the extent of any unreimbursed payments thereunder and may
otherwise be reduced as described in the related prospectus supplement. The letter of credit will expire on the expiration date set
forth in the related prospectus supplement, unless earlier terminated or extended in accordance with its terms.
Special Hazard Insurance Policies
Any special hazard insurance policy covering Special Hazard Losses obtained by the depositor for a trust fund will be issued by
the insurer named in the applicable prospectus supplement. Each special hazard insurance policy will, subject to limitations described
below, protect holders of the related series of securities from Special Hazard Losses. See "Description of Primary Mortgage Insurance,Hazard Insurance; Claims Thereunder" in this prospectus. However, a special hazard insurance policy will not cover losses occasioned by
war, civil insurrection, some governmental actions, errors in design, faulty workmanship or materials (except under some circumstances),
nuclear reaction, chemical contamination, waste by the mortgagor and other risks. Aggregate claims under a special hazard insurance
policy will be limited to the amount set forth in the related prospectus supplement and will be subject to reduction as described in the
related prospectus supplement.
Subject to the foregoing limitations, a special hazard insurance policy will provide that, where there has been damage to
property securing a foreclosed mortgage loan (title to which has been acquired by the insured) and to the extent the damage is not
covered by the hazard insurance policy or flood insurance policy, if any, maintained by the mortgagor or the master servicer, special
servicer or the servicer, the insurer will pay the lesser of (1) the cost of repair or replacement of the property or (2) upon transfer
of the property to the insurer, the unpaid principal balance of the mortgage loan at the time of acquisition of the property by
foreclosure or deed in lieu of foreclosure, plus accrued interest at the mortgage rate to the date of claim settlement and expenses
incurred by the master servicer, special servicer or servicer with respect to the property. If the property is transferred to a third
party in a sale approved by the issuer of the special hazard insurance policy, the amount that the issuer will pay will be the amount
under (2) above reduced by the net proceeds of the sale of the property. No claim may be validly presented under the special hazard
insurance policy unless hazard insurance on the property securing a defaulted mortgage loan has been kept in force and other
reimbursable protection, preservation and foreclosure expenses have been paid (all of which must be approved in advance by the issuer of
the special hazard insurance policy). If the unpaid principal balance plus accrued interest and expenses is paid by the 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 of repair of the property will further reduce coverage by that amount. Restoration
of the property with the proceeds described under (1) above will satisfy the condition under each mortgage pool insurance policy that
the property be restored before a claim under the mortgage pool insurance policy may be validly presented with respect to the defaulted
mortgage loan secured by the property. The payment described under (2) above will render presentation of a claim in respect of the
mortgage loan under the related mortgage pool insurance policy unnecessary. Therefore, so long as a mortgage pool insurance policy
remains in effect, the payment by the insurer under a special hazard insurance policy of the cost of repair or of the unpaid principal
balance of the related mortgage loan plus accrued interest and expenses will not affect the total Insurance Proceeds paid to
securityholders, but will affect the relative amounts of coverage remaining under the related special hazard insurance policy and
mortgage pool insurance policy.
As and to the extent set forth in the applicable prospectus supplement, coverage in respect of Special Hazard Losses for a
series of securities may be provided, in whole or in part, by a type of instrument other than a special hazard insurance policy or by
means of a special hazard representation of the Seller or the depositor.
Reserve Funds
If so provided in the related prospectus supplement, the depositor will deposit or cause to be deposited in a reserve fund any
combination of cash, one or more irrevocable letters of credit or one or more Permitted Investments in specified amounts, or any other
instrument satisfactory to the relevant Rating Agency or Agencies, which will be applied and maintained in the manner and under the
conditions specified in the prospectus supplement. In the alternative or in addition to the deposit, to the extent described in the
related prospectus supplement, a reserve fund may be funded through application of all or a portion of amounts otherwise payable on any
related subordinate securities, from the retained interest of the depositor or otherwise. To the extent that the funding of the reserve
fund is dependent on amounts otherwise payable on related subordinate securities, any retained interest of the depositor or other cash
flows attributable to the related mortgage loans or reinvestment income, the reserve fund may provide less coverage than initially
expected if the cash flows or reinvestment income on which the funding is dependent are lower than anticipated. In addition, with
respect to any series of securities as to which credit enhancement includes a letter of credit, if so specified in the related
prospectus supplement, if specified conditions are met, the remaining amount of the letter of credit may be drawn by the trustee and
deposited in a reserve fund. Amounts in a reserve fund may be distributed to securityholders, or applied to reimburse the master
servicer or a servicer for outstanding advances, or may be used for other purposes, in the manner and to the extent specified in the
related prospectus supplement. The related prospectus supplement will disclose whether a reserve fund is part of the related trust fund.
If set forth in the related prospectus supplement, a reserve fund may provide coverage to more than one series of securities.
In connection with the establishment of any reserve fund, the reserve fund will be structured so that the trustee will have a
perfected security interest for the benefit of the securityholders in the assets in the reserve fund. However, to the extent that the
depositor, any affiliate thereof or any other entity has an interest in any reserve fund, in the event of the bankruptcy, receivership
or insolvency of that entity, there could be delays in withdrawals from the reserve fund and corresponding payments to the
securityholders which could adversely affect the yield to investors on the related securities.
Amounts deposited in any reserve fund for a series will be invested in Permitted Investments by, or at the direction of, and
for the benefit of the master servicer or any other person named in the related prospectus supplement.
Cash Flow Agreements
If so provided in the related prospectus supplement, the trust fund may include guaranteed investment contracts pursuant to
which moneys held in the funds and accounts established for the related series will be invested at a specified rate. The principal terms
of a guaranteed investment contract or other cash flow agreement, and the identity of the obligor, will be described in the prospectus
supplement for a series of notes.
Maintenance of Credit Enhancement
To the extent that the applicable prospectus supplement does not expressly provide for alternative credit enhancement
arrangements in lieu of some or all of the arrangements mentioned below, the following paragraphs shall apply.
If a financial guaranty insurance policy has been obtained for one or more classes of securities of a series, the trustee will
be obligated to exercise reasonable efforts to keep the financial guaranty insurance policy in full force and effect throughout the term
of the applicable pooling and servicing agreement or servicing agreement, until the specified class or classes of securities have been
paid in full, unless coverage thereunder has been exhausted through payment of claims, or until the financial guaranty insurance policy
is replaced in accordance with the terms of the applicable pooling and servicing agreement or servicing agreement. The trustee will
agree to remit the premiums for each financial guaranty insurance policy, from available funds of the related trust, in accordance with
the provisions and priorities set forth in the applicable pooling and servicing agreement or servicing agreement, on a timely basis. In
the event the insurer ceases to be a qualified insurer as described in the related prospectus supplement, or fails to make a required
payment under the related financial guaranty insurance policy, neither the trustee nor any other person will have any obligation to
replace the insurer. Any losses associated with any reduction or withdrawal in rating by an applicable Rating Agency shall be borne by
the related securityholders.
If a mortgage pool insurance policy has been obtained for some or all of the mortgage loans related to a series of securities,
the master servicer will be obligated to exercise reasonable efforts to keep the mortgage pool insurance policy (or an alternate form of
credit support) in full force and effect throughout the term of the applicable pooling and servicing agreement or servicing agreement to
the extent provided in the related prospectus supplement. The master servicer will agree to pay the premiums for each mortgage pool
insurance policy on a timely basis. In the event the pool insurer ceases to be a qualified insurer because it ceases to be qualified by
law to transact pool insurance business or coverage is terminated for any reason other than exhaustion of the coverage, the master
servicer will use reasonable efforts to obtain from another qualified insurer a replacement insurance policy comparable to the mortgage
pool insurance policy with a total coverage equal to the then outstanding coverage of the mortgage pool insurance policy, provided that,
if the cost of the replacement policy is greater than the cost of the mortgage pool insurance policy, the coverage of the replacement
policy will, unless otherwise agreed to by the depositor, be reduced to a level such that its premium rate does not exceed the premium
rate on the mortgage pool insurance policy.
If a letter of credit or alternate form of credit enhancement has been obtained for a series, the trustee will be obligated to
exercise reasonable efforts cause to be kept or to keep the letter of credit (or an alternate form of credit support) in full force and
effect throughout the term of the applicable pooling and servicing agreement or indenture, unless coverage thereunder has been exhausted
through payment of claims or otherwise, or substitution therefor is made as described below under "—Reduction or Substitution of CreditEnhancement." Unless otherwise specified in the applicable prospectus supplement, if a letter of credit obtained for a series of
securities is scheduled to expire prior to the date the final distribution on the securities is made and coverage under the letter of
credit has not been exhausted and no substitution has occurred, the trustee will draw the amount available under the letter of credit
and maintain the amount in trust for the securityholders.
If a special hazard insurance policy has been obtained for the mortgage loans related to a series of securities, the master
servicer will also be obligated to exercise reasonable efforts to maintain and keep the policy in full force and effect throughout the
term of the applicable pooling and servicing agreement or servicing agreement, unless coverage thereunder has been exhausted through
payment of claims or otherwise or substitution therefor is made as described below under "—Reduction or Substitution of CreditEnhancement." If coverage for Special Hazard Losses takes the form of a special hazard insurance policy, the policy will provide
coverage against risks of the type described in this prospectus under "Description of Credit Enhancement—Special Hazard Insurance
Policies." The master servicer may obtain a substitute policy for the existing special hazard insurance policy if prior to the
substitution the master servicer obtains written confirmation from the Rating Agency or Agencies that rated the related securities that
the substitution shall not adversely affect the then-current ratings assigned to the securities by the Rating Agency or Agencies.
The master servicer, on behalf of itself, the trustee and securityholders, will provide the trustee information required for
the trustee to draw under the letter of credit and will present claims to each pool insurer, to the issuer of each special hazard
insurance policy, and, in respect of defaulted mortgage loans for which there is no servicer, to each primary insurer and take any
reasonable steps as are necessary to permit recovery under the letter of credit, insurance policies or comparable coverage respecting
defaulted mortgage loans or mortgage loans which are the subject of a bankruptcy proceeding. As set forth above, all collections by the
master servicer under any mortgage pool insurance policy or any Primary Insurance Policy and, where the related property has not been
restored, a special hazard insurance policy, are to be deposited in the related Distribution Account, subject to withdrawal as described
above. All draws under any letter of credit are also to be deposited in the related Distribution Account. In those cases in which a
mortgage loan is serviced by a servicer, the servicer, on behalf of itself, the trustee and the securityholders will present claims to
the primary insurer, and all paid claims shall initially be deposited in a Protected Account prior to being delivered to the master
servicer for ultimate deposit to the related Distribution Account.
If any property securing a defaulted mortgage 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 any financial guaranty insurance policy, mortgage pool insurance policy, letter of credit or any related Primary
Insurance Policy, neither the master servicer nor any servicer is required to expend its own funds to restore the damaged property
unless it determines (1) that the restoration will increase the proceeds to one or more classes of securityholders on liquidation of the
mortgage loan after reimbursement of the master servicer for its expenses and (2) that the expenses will be recoverable by it through
liquidation Proceeds or Insurance Proceeds. If recovery under any financial guaranty insurance policy, mortgage pool insurance policy,
letter of credit or any related Primary Insurance Policy is not available because the master servicer or a servicer has been unable to
make the above determinations, has made the determinations incorrectly or recovery is not available for any other reason, the master
servicer and each servicer is nevertheless obligated to follow the normal practices and procedures (subject to the preceding sentence)
as it deems necessary or advisable to realize upon the defaulted mortgage loan and in the event the determinations have been incorrectly
made, is entitled to reimbursement of its expenses in connection with the restoration.
Reduction or Substitution of Credit Enhancement
The amount of credit support provided pursuant to any form of credit enhancement may be reduced. In most cases, the amount
available pursuant to any form of credit enhancement will be subject to periodic reduction in accordance with a schedule or formula on a
nondiscretionary basis pursuant to the terms of the related pooling and servicing agreement or indenture. Additionally, in most cases,
the form of credit support (and any replacements therefor) may be replaced, reduced or terminated, and the formula used in calculating
the amount of coverage with respect to Bankruptcy Losses, Special Hazard Losses or Fraud losses may be changed, without the consent of
the securityholders, upon the written assurance from each applicable Rating Agency that its then-current rating of the related series of
securities will not be adversely affected. Furthermore, in the event that the credit rating of any obligor under any applicable credit
enhancement is downgraded, the credit rating or ratings of the related series of securities may be downgraded to a corresponding level,
and, neither the master servicer nor any other person will be obligated to obtain replacement credit support in order to restore the
rating or ratings of the related series of securities. The master servicer will also be permitted to replace the credit support with
other credit enhancement instruments issued by obligors whose credit ratings are equivalent to the downgraded level and in lower amounts
which would satisfy the downgraded level, provided that the then-current rating or ratings of the related series of securities are
maintained. Where the credit support is in the form of a reserve fund, a permitted reduction in the amount of credit enhancement will
result in a release of all or a portion of the assets in the reserve fund to the depositor, the master servicer or the other person that
is entitled thereto. Any assets so released will not be available for distributions in future periods.
OTHER FINANCIAL OBLIGATIONS RELATED TO THE SECURITIESDerivatives
The trust fund may include one or more derivative instruments, as described in this section. All derivative instruments
included in any trust fund will be used only in a manner that reduces or alters risk resulting from the mortgage loans or other assets
in the pool, and only in a manner such that the return on the offered securities will be based primarily on the performance of the
mortgage loans or other assets in the pool. Derivative instruments may include 1) interest rate swaps (or caps, floors and collars) and
yield supplement agreements as described below, 2) currency swaps and 3) market value swaps that are referenced to the value of one or
more of the mortgage loans or other assets included in the trust fund or to a class of offered securities.
An interest rate swap is an agreement between two parties to exchange a stream of interest payments on an agreed hypothetical
or "notional" principal amount. No principal amount is exchanged between the counterparties to an interest rate swap. In a typical swap,
one party agrees to pay a fixed rate on a notional principal amount, while the counterparty pays a floating rate based on one or more
reference interest rates including the London Interbank Offered Rate, or LIBOR, a specified bank's prime rate or U.S. Treasury Bill
rates. Interest rate swaps also permit counterparties to exchange a floating rate obligation based upon one reference interest rate,
such as LIBOR, for a floating rate obligation based upon another referenced interest rate, such as U.S. Treasury Bill rates. An
interest rate cap, collar or floor is an agreement where the counterparty agrees to make payments representing interest on a notional
principal amount when a specified reference interest rate is above a strike rate, outside of a range of strike rates, or below a strike
rate as specified in the agreement, generally in exchange for a fixed amount paid to the counterparty at the time the agreement is
entered into. A yield supplement agreement is a type of cap agreement, and is substantially similar to a cap agreement as described
above.
The trustee, securities administrator or supplemental interest trust trustee on behalf of the related trust fund may enter into
interest rate swaps, caps, floors and collars, or yield supplement agreements, to minimize the risk to securityholders from adverse
changes in interest rates or to provide supplemental credit support. Cap agreements and yield supplement agreements may be entered into
to supplement the interest rate or other rates available to make interest payments on one or more classes of the securities of any
series.
A market value swap might be used in a structure where the pooled assets are hybrid ARMs, or mortgage loans that provide for a
fixed rate period and then convert by their terms to adjustable rate loans. Such a structure might provide that at a specified date near
the end of the fixed rate period, the investors must tender their securities to the trustee who will then transfer the securities to
other investors in a mandatory auction procedure. The market value swap would ensure that the original investors would receive at least
par at the time of tender, by covering any shortfall between par and the then current market value of their securities.
In a market value swap, five business days prior to the mandatory auction date set forth in the prospectus supplement, the
auction administrator will auction the classes of certificates referred to in the prospectus supplement as the mandatory auction
certificates then outstanding, to third party investors. On the mandatory auction date, the mandatory auction certificates will be
transferred, as described in the prospectus supplement, to third party investors, and holders of the mandatory auction certificates will
be entitled to receive the current principal amount of those certificates, after application of all principal distributions and realized
losses on the mandatory auction date, plus accrued interest on such classes at the related pass-through rate from the first day of the
month of the mandatory auction, up to but excluding the mandatory auction date.
The auction administrator will enter into a market value swap with a swap counterparty pursuant to which the swap counterparty
will agree to pay the excess, if any, of the current principal amount of the mandatory auction certificates, after application of all
principal distributions and realized losses on such distribution date, plus, accrued interest as described above, over the amount
received in the auction. The transfer in the auction will not occur in the event that the swap counterparty fails to pay any amounts
payable under the market value swap.
In the event that all or a portion of a class of the mandatory auction certificates is not sold in the auction, the swap
counterparty will make no payment with respect to such class or portion thereof, and the holders thereof will not be able to transfer
those certificates on the mandatory auction date as a result of the auction. However, the auction administrator will repeat the auction
procedure each month thereafter until a bid has been received for each class or portion thereof. Upon receipt of a bid, the swap
counterparty will make the payment described above if required.
Any derivative contracts will be documented based upon the standard forms provided by the International Swaps and Derivatives
Association, or ISDA. These forms generally consist of an ISDA master agreement, a schedule to the master agreement, and a
confirmation, although in some cases the schedule and confirmation will be combined in a single document and the standard ISDA master
agreement will be incorporated therein by reference. Standard ISDA definitions also will be incorporated by reference. Each
confirmation will provide for payments to be made by the derivative counterparty to the trust, and in some cases by the trust to the
derivative counterparty, generally based upon specified notional amounts and upon differences between specified interest rates or
values. For example, the confirmation for an interest rate cap agreement will contain a schedule of fixed interest rates, generally
referred to as strike rates, and a schedule of notional amounts, for each distribution date during the term of the interest rate cap
agreement. The confirmation also will specify a reference rate, generally a floating or adjustable interest rate, and will provide that
payments will be made by the derivative counterparty to the trust on each distribution date, based on the notional amount for that
distribution date and the excess, if any, of the specified reference rate over the strike rate for that distribution date.
In the event of the withdrawal of the credit rating of a derivative counterparty or the downgrade of such credit rating below
levels specified in the derivative contract (where the derivative contract is relevant to the ratings of the offered securities, such
levels generally are set by the rating agencies rating the offered securities), the derivative counterparty may be required to post
collateral for the performance of its obligations under the derivative contract, or to take certain other measures intended to assure
performance of those obligations. Posting of collateral will be documented using the ISDA Credit Support Annex.
There can be no assurance the trustee, securities administrator or supplemental interest trust trustee will be able to enter
into derivatives at any specific time or at prices or on other terms that are advantageous. In addition, although the terms of the
derivatives may provide for termination under various circumstances, there can be no assurance that the trustee will be able to
terminate a derivative when it would be economically advantageous to the trust fund to do so.
Purchase Obligations
Some types of trust assets and some classes of securities of any series, as specified in the related prospectus supplement, may
be subject to a purchase obligation that would become applicable on one or more specified dates, or upon the occurrence of one or more
specified events, or on demand made by or on behalf of the applicable securityholders. A purchase obligation may be in the form of a
conditional or unconditional purchase commitment, liquidity facility, maturity guaranty, put option or demand feature. The terms and
conditions of each purchase obligation, including the purchase price, timing and payment procedure, will be described in the
accompanying prospectus supplement. A purchase obligation relating to trust assets may apply to those trust assets or to the related
securities. Each purchase obligation may be a secured or unsecured obligation of the provider thereof, which may include a bank or other
financial institution or an insurance company. Each purchase obligation will be evidenced by an instrument delivered to the trustee for
the benefit of the applicable securityholders of the related series. As specified in the accompanying prospectus supplement, each
purchase obligation relating to trust assets will be payable solely to the trustee for the benefit of the securityholders of the related
series. Other purchase obligations may be payable to the trustee or directly to the holders of the securities to which that obligation
relate.
DESCRIPTION OF PRIMARY MORTGAGE INSURANCE, HAZARD INSURANCE;
CLAIMS THEREUNDERGeneral
The mortgaged property with respect to each mortgage loan will be required to be covered by a hazard insurance policy and, if
required as described below, a Primary Insurance Policy. The following is only a brief description of these insurance policies and does
not purport to summarize or describe all of the provisions of these policies. The insurance is subject to underwriting and approval of
individual mortgage loans by the respective insurers.
Primary Mortgage Insurance Policies
In a securitization of single family loans, single family loans included in the related mortgage pool having a Loan-to-Value
Ratio at origination of over 80% (or other percentage as described in the related prospectus supplement) may be required by the
depositor to be covered by a Primary Insurance Policy. The Primary Insurance Policy will insure against default on a mortgage loan as to
at least the principal amount thereof exceeding 75% of the Value of the related mortgaged property (or other percentage as described in
the related prospectus supplement) at origination of the mortgage loan, unless and until the principal balance of the mortgage loan is
reduced to a level that would produce a Loan-to-Value Ratio equal to or less than at least 80% (or other percentage as described in the
prospectus supplement). This type of mortgage loan will not be considered to be an exception to the foregoing standard if no Primary
Insurance Policy was obtained at origination but the mortgage loan has amortized to below the above Loan-to-Value Ratio percentage as of
the applicable cut-off date. Mortgage loans which are subject to negative amortization will only be covered by a Primary Insurance
Policy if the coverage was so required upon their origination, notwithstanding that subsequent negative amortization may cause the
mortgage loan's Loan-to-Value Ratio, based on the then-current balance, to subsequently exceed the limits which would have required the
coverage upon their origination. Multifamily, commercial and mixed-use loans will not be covered by a Primary Insurance Policy,
regardless of the related Loan-to-Value Ratio.
While the terms and conditions of the Primary Insurance Policies issued by a primary insurer will differ from those in Primary
Insurance Policies issued by other primary insurers, each Primary Insurance Policy will in general cover the Primary Insurance Covered
Loss. The primary insurer generally will be required to pay:
o the insured percentage of the Primary Insurance Covered Loss;
o the entire amount of the Primary Insurance Covered Loss, after receipt by the primary insurer of good and merchantable title
to, and possession of, the mortgaged property; or
o at the option of the primary insurer, the sum of the delinquent monthly payments plus any advances made by the insured, both
to the date of the claim payment and, thereafter, monthly payments in the amount that would have become due under the
mortgage loan if it had not been discharged plus any advances made by the insured until the earlier of (1) the date the
mortgage loan would have been discharged in full if the default had not occurred or (2) an approved sale.
As conditions precedent to the filing or payment of a claim under a Primary Insurance Policy, in the event of default by the
mortgagor, the insured will typically be required, among other things, to:
o advance or discharge (1) hazard insurance premiums and (2) as necessary and approved in advance by the primary insurer, real
estate taxes, protection and preservation expenses and foreclosure and related costs;
o in the event of any physical loss or damage to the mortgaged property, have the mortgaged property restored to at least its
condition at the effective date of the Primary Insurance Policy (ordinary wear and tear excepted); and
o tender to the primary insurer good and merchantable title to, and possession of, the mortgaged property.
For any single family loan for which the coverage is required under the standard described above, the master servicer will
maintain, or will cause each servicer to maintain, in full force and effect and to the extent coverage is available a Primary Insurance
Policy with regard to each single family loan, provided that the Primary Insurance Policy was in place as of the cut-off date and the
depositor had knowledge of the Primary Insurance Policy. The master servicer or the Seller will not cancel or refuse to renew a Primary
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 pooling and servicing agreement or indenture unless the replacement Primary Insurance Policy for the canceled or non-renewed
policy is maintained with an insurer whose claims-paying ability is acceptable to the Rating Agency or Agencies that rated the series of
securities for mortgage pass-through certificates or mortgage-backed notes having a rating equal to or better than the highest
then-current rating of any class of the series of securities. For further information regarding the extent of coverage under any
mortgage pool insurance policy or primary Insurance Policy, see "Description of Credit Enhancement—Mortgage Pool insurance Policies" in
this prospectus.
Hazard Insurance Policies
The terms of the mortgage loans require each mortgagor to maintain a hazard insurance policy for their mortgage loan.
Additionally, the pooling and servicing agreement or servicing agreement will require the master servicer to cause to be maintained for
each mortgage loan a hazard insurance policy providing for no less than the coverage of the standard form of fire insurance policy with
extended coverage customary in the state in which the property is located. The coverage generally will be in an amount equal to the
lesser of the principal balance owing on the mortgage loan and 100% of the insurable value of the improvements securing the mortgage
loan; provided, that in any case, such amount shall be sufficient to prevent the mortgagor and/or mortgagee from becoming a co-insurer.
The ability of the master servicer to ensure that hazard insurance proceeds are appropriately applied may be dependent on it, or the
servicer of the mortgage loan, being named as an additional insured under any hazard insurance policy and under any flood insurance
policy referred to below, or upon the extent to which information in this regard is furnished to the master servicer by mortgagors or
servicers.
As set forth above, all amounts collected by the master servicer or a servicer under any hazard policy (except for amounts to
be applied to the restoration or repair of the mortgaged property or released to the mortgagor in accordance with teamster servicer's
normal servicing procedures) will be deposited in the related Distribution Account. The pooling and servicing agreement or servicing
agreement will provide that the master servicer may satisfy its obligation to cause hazard policies to be maintained by maintaining, or
causing a servicer to maintain, a blanket policy insuring against losses on the mortgage loans. If the blanket policy contains a
deductible clause, the master servicer will deposit, or will cause the applicable servicer to deposit, in the related Distribution
Account all sums which would have been deposited therein but for the clause.
In general, the standard form of fire and extended coverage policy covers physical damage to or destruction of the improvements
on the property by fire, lightning, explosion, smoke, windstorm, hail, riot, strike and civil commotion, subject to the conditions and
exclusions specified in each policy. Although the policies relating to the mortgage loans will be underwritten by different insurers
under different state laws in accordance with different applicable state forms and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and most of these 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 mudflows), nuclear reactions, wet or dry rot, vermin, rodents, insects or domestic
animals, theft and, depending on the case, vandalism. The foregoing list is merely indicative of the kinds of uninsured risks and is not
intended to be all-inclusive. Where the improvements securing a mortgage loan are located in a federally designated flood area at the
time of origination of the mortgage loan, the pooling and servicing agreement or servicing agreement requires the master servicer to
cause to be maintained for this mortgage loan, flood insurance (to the extent available) in an amount equal in general to the lesser of
the amount required to compensate for any loss or damage on a replacement cost basis or the maximum insurance available under the
federal flood insurance program.
The hazard insurance policies covering the mortgaged properties typically contain a co-insurance clause which in effect
requires the insured at all times to carry insurance of a specified percentage (generally 80% to 90%) of the full replacement value of
the improvements on the property in order to recover the full amount of any partial loss. If the insured's coverage falls below this
specified percentage, the clause generally provides that the insurer's liability in the event of partial loss does not exceed the
greater of (1) the replacement cost of the improvements damaged or destroyed less physical depreciation or (2) the proportion of the
loss as the amount of insurance carried bears to the specified percentage of the full replacement cost of the improvements.
Since the amount of hazard insurance that mortgagors are required to maintain on the improvements securing the mortgage loans
may decline as the principal balances of the related mortgage loans decrease, and since residential properties have historically
appreciated in value over time, hazard insurance proceeds could be insufficient to restore fully the damaged property in the event of a
partial loss. See "Description of Credit Enhancement—Special Hazard Insurance Policies" in this prospectus for a description of the
limited protection afforded by any special hazard insurance policy against losses occasioned by hazards which are otherwise uninsured
against (including losses caused by the application of the co-insurance clause described in the preceding paragraph).
Under the terms of the mortgage loans, mortgagors are generally required to present claims to insurers under hazard insurance
policies maintained on the mortgaged properties. The master servicer, on behalf of the trustee and securityholders, is obligated to
present claims, or cause the servicer of the mortgage loans to present claims, under any special hazard insurance policy and any blanket
insurance policy insuring against hazard losses on the mortgaged properties. However, the ability of the master servicer or servicer to
present the claims is dependent upon the extent to which information in this regard is furnished to the master servicer or the servicers
by mortgagors.
FHA Mortgage Insurance
The Housing Act authorizes various FHA mortgage insurance programs. Some of the mortgage loans may be insured under either
Section 203(b), Section 221, Section 223, Section 234 or Section 235 of the Housing Act. Under Section 203(b), FHA insures mortgage
loans of up to 30 years' duration for the purchase of one- to four-family dwelling units. Mortgage loans for the purchase of multifamily
residential rental properties are insured by the FHA under Section 221 and Section 223. Mortgage loans for the purchase of condominium
units are insured by FHA under Section 234. Trust assets insured under these programs must bear interest at a rate not exceeding the
maximum rate in effect at the time the loan is made, as established by HUD, and may not exceed specified percentages of the lesser of
the appraised value of the property and the sales price, less seller-paid closing costs for the property, up to certain specified
maximums. In addition, FHA imposes initial investment minimums and other requirements on mortgage loans insured under the Section 203(b)
and Section 234 programs.
Under Section 235, assistance payments are paid by HUD to the mortgagee on behalf of eligible borrowers for as long as the
borrowers continue to be eligible for the payments. To be eligible, a borrower must be part of a family, have income within the limits
prescribed by HUD at the time of initial occupancy, occupy the property and meet requirements for recertification at least annually.
The regulations governing these programs provide that insurance benefits are payable either on foreclosure, or other
acquisition of possession, and conveyance of the mortgaged premises to HUD or on assignment of the defaulted mortgage loan to HUD. The
FHA insurance that may be provided under these programs on the conveyance of the home to HUD is equal to 100% of the outstanding
principal balance of the mortgage loan, plus accrued interest, as described below, and certain additional costs and expenses. When
entitlement to insurance benefits results from assignment of the mortgage loan to HUD, the insurance payment is computed as of the date
of the assignment and includes the unpaid principal amount of the mortgage loan plus mortgage interest accrued and unpaid to the
assignment date.
When entitlement to insurance benefits results from foreclosure (or other acquisition of possession) and conveyance, the
insurance payment is equal to the unpaid principal amount of the mortgage loan, adjusted to reimburse the mortgagee for certain tax,
insurance and similar payments made by it and to deduct certain amounts received or retained by the mortgagee after default, plus
reimbursement not to exceed two-thirds of the mortgagee's foreclosure costs. Any FHA insurance relating to the mortgage loans underlying
a series of securities will be described in the related prospectus supplement.
The mortgage loans may also be insured under Title I Program of the FHA. The applicable provisions of this program will be
described in the related prospectus supplement. The master servicer will be required to take steps, or cause the servicers of the
mortgage loans to take steps, reasonably necessary to keep any FHA insurance in full force and effect.
VA Mortgage Guaranty
The Servicemen's Readjustment Act of 1944, as amended, permits a veteran or, in some instances, his or her spouse, to obtain a
mortgage loan guaranty by the VA covering mortgage financing of the purchase of a one-to four-family dwelling unit to be occupied as the
veteran's home at an interest rate not exceeding the maximum rate in effect at the time the loan is made, as established by HUD. The
program has no limit on the amount of a mortgage loan, requires no down payment for the purchaser and permits the guaranty of mortgage
loans with terms, limited by the estimated economic life of the property, up to 30 years. The maximum guaranty that may be issued by the
VA under this program is 50% of the original principal amount of the mortgage loan up to a dollar limit established by the VA. The
liability on the guaranty is reduced or increased pro rata with any reduction or increase in amount of indebtedness, but in no event
will the amount payable on the guaranty exceed the amount of the original guaranty. Notwithstanding the dollar and percentage
limitations of the guaranty, a mortgagee will ordinarily suffer a monetary loss only when the difference between the unsatisfied
indebtedness and the proceeds of a foreclosure sale of mortgaged premises is greater than the original guaranty as adjusted. The VA may,
at its option, and without regard to the guaranty, make full payment to a mortgagee of the unsatisfied indebtedness on a mortgage upon
its assignment to the VA.
Since there is no limit imposed by the VA on the principal amount of a VA-guaranteed mortgage loan but there is a limit on the
amount of the VA guaranty, additional coverage under a Primary Mortgage Insurance Policy may be required by the depositor for VA loans
in excess of amounts specified by the VA. The amount of the additional coverage will be set forth in the related prospectus supplement.
Any VA guaranty relating to Contracts underlying a series of certificates or notes will be described in the related prospectus
supplement.
THE SPONSOR
The sponsor will be EMC Mortgage Corporation ("EMC") for each series of securities unless otherwise indicated in the related
prospectus supplement. The sponsor was incorporated in the State of Delaware on September 26, 1990, as a wholly owned subsidiary
corporation of The Bear Stearns Companies Inc., and is an affiliate of the depositor and the underwriter. The sponsor was established
as a mortgage banking company to facilitate the purchase and servicing of whole loan portfolios containing various levels of quality
from "investment quality" to varying degrees of "non-investment quality" up to and including real estate owned assets ("REO"). The
sponsor commenced operation in Texas on October 9, 1990.
Since its inception in 1990, the sponsor has purchased over $100 billion in residential whole loans and servicing rights, which
include the purchase of newly originated alternative A, jumbo (prime) and sub-prime loans. Loans are purchased on a bulk and flow
basis. The sponsor is one of the United States' largest purchasers of scratch and dent, sub-performing and non-performing residential
mortgages and REO from various institutions, including banks, mortgage companies, thrifts and the U.S. government. Loans are generally
purchased with the ultimate strategy of securitization into an array of Bear Stearns' securitizations based upon product type and credit
parameters, including those where the loan has become re-performing or cash-flowing.
Performing loans include first lien fixed rate and ARMs, as well as closed end fixed rate second liens and lines of credit
("HELOCs"). Performing loans acquired by the sponsor are subject to varying levels of due diligence prior to purchase. Portfolios may
be reviewed for credit, data integrity, appraisal valuation, documentation, as well as compliance with certain laws. Performing loans
purchased will have been originated pursuant to the sponsor's underwriting guidelines or the originator's underwriting guidelines that
are acceptable to the sponsor.
Subsequent to purchase by the sponsor, performing loans are pooled together by product type and credit parameters and
structured into RMBS, with the assistance of Bear Stearns' Financial Analytics and Structured Transactions Group, for distribution into
the primary market.
The sponsor has been securitizing residential mortgage loans since 1999.
THE DEPOSITOR
The depositor, Structured Asset Mortgage Investments II Inc., was formed in the state of Delaware on June 10, 2003, and is a
wholly-owned subsidiary of The Bear Stearns Companies Inc. The depositor was organized for the sole purpose of serving as a private
secondary mortgage market conduit. The depositor does not have, nor is it expected in the future to have, any significant assets.
The depositor has been serving as a private secondary mortgage market conduit for residential mortgage loans since 2003. In
conjunction with the Seller's acquisition of the mortgage loans, the depositor will execute a mortgage loan purchase agreement through
which the loans will be transferred to itself. These loans are subsequently deposited in a common law or statutory trust, described in
this prospectus supplement, which will then issue the certificates or notes.
After issuance and registration of the securities contemplated in this prospectus, in the related prospectus supplement and any
supplement hereto, the depositor will have substantially no duties or responsibilities with respect to the pool assets or the
securities, other than certain administrative duties as described in the related prospectus supplement.
THE AGREEMENTSGeneral
Each series of certificates will be issued pursuant to a pooling and servicing agreement or other agreement specified in the
related prospectus supplement. In general, the parties to a pooling and servicing agreement will include the depositor, the trustee, the
master servicer and, in some cases, a special servicer. However, a pooling and servicing agreement that relates to a trust fund that
includes mortgage securities may include a party solely responsible for the administration of the mortgage securities, and a pooling and
servicing agreement that relates to a trust fund that consists solely of mortgage securities may not include a master servicer, special
servicer or other servicer as a party. All parties to each pooling and servicing agreement under which securities of a series are issued
will be identified in the related prospectus supplement. Each series of notes will be issued pursuant to an indenture. The parties to
each indenture will be the related Issuing Entity and the trustee. The Issuing Entity will be created pursuant to an owner trust
agreement between the depositor and the owner trustee and the mortgage loans or mortgage securities securing the notes will be serviced
pursuant to a servicing agreement between the depositor and the master servicer.
Forms of the Agreements have been filed as exhibits to the registration statement of which this prospectus is a part. However,
the provisions of each Agreement will vary depending upon the nature of the related securities and the nature of the related trust fund.
The following summaries describe provisions that may appear in a pooling and servicing agreement with respect to a series of
certificates or in either the servicing agreement or indenture with respect to a series of notes. The prospectus supplement for a series
of securities will describe material provisions of the related Agreements that differ from the description thereof set forth below. The
depositor will provide a copy of each Agreement (without exhibits) that relates to any series of securities without charge upon written
request of a holder of an offered security of the series addressed to it at its principal executive offices specified in this prospectus
under "The Depositor". As to each series of securities, the related agreements will be filed with the Commission in a current report on
Form 8-K following the issuance of the securities.
Certain Matters Regarding the Master Servicer and the Depositor
The pooling and servicing agreement or servicing agreement for each series of securities will provide that the master servicer
may not resign from its obligations and duties except upon a determination that performance of the duties is no longer permissible under
applicable law or except (1) in connection with a permitted transfer of servicing or (2) upon appointment of a successor servicer
reasonably acceptable to the trustee and upon receipt by the trustee of letter from each Rating Agency generally to the effect that the
resignation and appointment will not, in and of itself, result in a downgrading of the securities. No resignation will become effective
until the trustee or a successor servicer has assumed the master servicer's responsibilities, duties, liabilities and obligations under
the pooling and servicing agreement or servicing agreement.
Each pooling and servicing agreement and servicing agreement will also provide that the master servicer, the depositor and
their directors, officers, employees or agents will not be under any liability to the trust fund or the securityholders for any action
taken or for refraining from the taking of any action in good faith, or for errors in judgment, unless the liability which would
otherwise be imposed was by reason of willful misfeasance, bad faith or gross negligence in the performance of duties or by reason of
reckless disregard of obligations and duties. Each pooling and servicing agreement and servicing agreement will further provide that the
master servicer, the depositor, and any director, officer, employee or agent of the master servicer or the depositor are entitled to
indemnification by the trust fund and will be held harmless against any loss, liability or expense (including reasonable legal fees and
disbursements of counsel) incurred in connection with any legal action relating to the pooling and servicing agreement or servicing
agreement or the related series of securities, other than any loss, liability or expense related to any specific mortgage loan or
mortgage loans (except a loss, liability or expense otherwise reimbursable pursuant to the pooling and servicing agreement) and any
loss, liability or expense incurred by reason of willful misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of obligations and duties. In addition, each pooling and servicing agreement and servicing agreement
will provide that neither the master servicer nor the depositor will be under any obligation to appear in, prosecute or defend any legal
or administrative action that is not incidental to its respective duties under the pooling and servicing agreement or servicing
agreement and which in its opinion may involve it in any expense or liability. The master servicer or the depositor may, however, in its
discretion undertake any action which it may deem necessary or desirable with respect to the pooling and servicing agreement or
servicing agreement and the rights and duties of the parties to that agreement and the interests of the securityholders. 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
servicer or the depositor, as the case may be, will be entitled reimbursement from funds otherwise distributable to securityholders.
Any person into which the master servicer may be merged or consolidated, any person resulting from any merger or consolidation
to which the master servicer is a party or any person succeeding to the business of the master servicer will be the successor of the
master servicer under the related pooling and servicing agreement or servicing agreement, provided that (1) the person is qualified to
service mortgage loans on behalf of Fannie Mae or Freddie Mac and (2) the merger, consolidation or succession does not adversely affect
the then-current ratings of the classes of securities of the related series that have been rated. In addition, notwithstanding the
prohibition on its resignation, the master servicer may assign its rights under a pooling and servicing agreement or servicing
agreement, provided clauses (1) and (2) above are satisfied and the person is reasonably satisfactory to the depositor and the trustee.
In the case of an assignment, the master servicer will be released from its obligations under the pooling and servicing agreement or
servicing agreement, exclusive of liabilities and obligations incurred by it prior to the time of the assignment.
Events of Default and Rights Upon Event of DefaultPooling and Servicing Agreement
Events of default under the pooling and servicing agreement in respect of a series of certificates, unless otherwise specified
in the prospectus supplement, will include:
o any failure by the master servicer to make a required deposit to the Distribution Account (other than a Monthly Advance)
which continues unremedied for 3 days (or other time period described in the related prospectus supplement) after the giving
of written notice of the failure to the master servicer;
o any failure by the master servicer to observe or perform in any material respect any other of its material covenants or
agreements in the pooling and servicing agreement with respect to the series of certificates, which covenants and agreements
materially affect the rights of certificateholders of such series, and which failure continues unremedied for a period of 60
days days (or other time period described in the related prospectus supplement) after the date on which written notice of
such failure, properly requiring the same to be remedied, shall have been given to the master servicer by the trustee, or to
the master servicer and the trustee by the holders of certificates evidencing not less than 25% of the aggregate undivided
interests (or, if applicable, voting rights) in the related trust fund;
o events of insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings regarding the master
servicer and some actions by the master servicer indicating its insolvency or inability to pay its obligations, as specified
in the related pooling and servicing agreement;
o any failure of the master servicer to make advances as described in this prospectus under "Description of the
Securities—Advances," by the date and time set forth in the pooling and servicing agreement;
o any assignment or delegation by the master servicer of its rights and duties under the pooling and servicing agreement, in
contravention of the provisions permitting assignment and delegation in the pooling and servicing agreement; and
o any other event of default as set forth in the pooling and servicing agreement.
Additional events of default will be described in the related prospectus supplement. A default pursuant to the terms of any mortgage
securities included in any trust fund will not constitute an event of default under the related pooling and servicing agreement.
So long as an event of default remains unremedied, either the trustee or holders of certificates evidencing not less than a
percentage specified in the related prospectus supplement of the aggregate undivided interests (or, if applicable, voting rights) in the
related trust fund as specified in the related pooling and servicing agreement may, by written notification to the master servicer (and
to the trustee if given by certificateholders), with the consent of EMC, terminate all of the rights and obligations of the master
servicer under the pooling and servicing agreement (other than any right of the master servicer as certificateholder and other than the
right to receive servicing compensation and expenses for master servicing the mortgage loans during any period prior to the date of the
termination) covering the trust fund and in and to the mortgage loans and the proceeds thereof. Upon such notification, the trustee or,
upon notice to the depositor and with the depositor's (or an affiliate of the depositor's) consent, its designee will succeed to all
responsibilities, duties and liabilities of the master servicer under the pooling and servicing agreement (other than any obligation to
purchase mortgage loans) and will be entitled to similar compensation arrangements. In the event that the trustee would be obligated to
succeed the master servicer but is unwilling so to act, it may appoint (or if it is unable so to act, it shall appoint) or petition a
court of competent jurisdiction for the appointment of, an established mortgage loan servicing institution with a net worth of at least
an amount specified in the related prospectus supplement to act as successor to the master servicer under the pooling and servicing
agreement (unless otherwise set forth in the pooling and servicing agreement). Pending an appointment, the trustee is obligated to act
as master servicer. The trustee and the successor may agree upon the servicing compensation to be paid, which in no event may be greater
than the compensation to the initial master servicer under the pooling and servicing agreement. Notwithstanding the above, upon a
termination or resignation of the master servicer in accordance with terms of the pooling and servicing agreement, EMC shall have the
right to either assume the duties of the master servicer or appoint a successor master servicer meeting the requirements set forth in
the pooling and servicing agreement. In addition, even if none of the events of default listed above under "—Events of Default andRights Upon Event of Default — Pooling and Servicing Agreement" have occurred, EMC will have the right under the pooling and servicing
agreement to terminate the master servicer without cause and either assume the duties of the master servicer or a appoint a successor
master servicer meeting the requirements set forth in the pooling and servicing agreement.
No certificateholder will have any right under a pooling and servicing agreement to institute any proceeding with respect to
the pooling and servicing agreement unless (1) that holder previously gave the trustee written notice of a default that is continuing,
(2) the holders of certificates evidencing not less than the percentage specified in the related prospectus supplement of the aggregate
undivided interests (or, if applicable, voting rights) in the related trust fund requested the trustee in writing to institute the
proceeding in its own name as trustee and shall have offered to the trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities that may be incurred in or because of the proceeding and (3) the trustee for 60 days after receipt of
the request and indemnity has neglected or refused to institute any proceeding.
The holders of certificates representing at least 51% of the aggregate undivided interests (or, if applicable, voting rights)
evidenced by those certificates may waive the default or event of default (other than a failure by the master servicer to make an
advance); provided, however, that (1) a default or event of default under the first or fourth items listed under "—Events of Default"
above may be waived only by all of the holders of certificates affected by the default or event of default and (2) no waiver shall
reduce in any manner the amount of, or delay the timing of, payments received on mortgage loans which are required to be distributed to,
or otherwise materially adversely affect, any non-consenting certificateholder.
Servicing Agreement
For a series of notes, a servicing default under the related servicing agreement generally will include:
o any failure by the master servicer to make a required deposit to the Distribution Account or, if the master servicer
is so required, to distribute to the holders of any class of notes or Equity Certificates of the series any required
payment which continues unremedied for 5 business days (or other period of time described in the related prospectus
supplement) after the giving of written notice of the failure to the master servicer by the trustee or the Issuing
Entity;
o any failure by the master servicer to observe or perform in any material respect any other of its material covenants
or agreements in the servicing agreement with respect to the series of securities, which covenants and agreements
materially affect the rights of the securityholders of such series, and which failure continues unremedied for a
period of 60 days after the date on which written notice of such failure, properly requiring the same to be remedied,
shall have been given to the master servicer by the trustee or the Issuing Entity;
o events of insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings regarding the
master servicer and some actions by the master servicer indicating its insolvency or inability to pay its obligations,
as specified in the related servicing agreement;
o any failure of the master servicer to make advances as described in this prospectus under "Description of the
Securities—Advances," and
o any other servicing default as set forth in the servicing agreement.
So long as a servicing default remains unremedied, either the trustee or holders of notes evidencing not less than a percentage
specified in the related prospectus supplement of the voting rights of the related trust fund, as specified in the related servicing
agreement may, by written notification to the master servicer and to the Issuing Entity (and to the trustee if given by noteholders),
with the consent of EMC, terminate all of the rights and obligations of the master servicer under the servicing agreement (other than
any right of the master servicer as noteholder or as holder of the Equity Certificates and other than the right to receive servicing
compensation and expenses for master servicing the mortgage loans during any period prior to the date of the termination), whereupon the
trustee will succeed to all responsibilities, duties and liabilities of the master servicer under the servicing agreement (other than
any obligation to purchase mortgage loans) and will be entitled to similar compensation arrangements. In the event that the trustee
would be obligated to succeed the master servicer but is unwilling so to act, it may appoint (or if it is unable so to act, it shall
appoint) or petition a court of competent jurisdiction for the appointment of an approved mortgage servicing institution with a net
worth of at least an amount specified in the related prospectus supplement to act as successor to the master servicer under the
servicing agreement (unless otherwise set forth in the servicing agreement). Pending the appointment, the trustee is obligated to act in
the capacity. The trustee and the successor may agree upon the servicing compensation to be paid, which in no event may be greater than
the compensation to the initial master servicer under the servicing agreement. Notwithstanding the above, upon a termination or
resignation of the master servicer in accordance with terms of the servicing agreement, EMC shall have the right to either assume the
duties of the master servicer or appoint a successor master servicer meeting the requirements set forth in the servicing agreement. In
addition, even if none of the events of default listed above under "—Events of Default and Rights Upon Event of Default— ServicingAgreement" have occurred, EMC will have the right under the related servicing agreement to terminate the master servicer without cause
and either assume the duties of the master servicer or a appoint a successor master servicer meeting the requirements set forth in the
related servicing agreement.
Indenture
For a series of notes, an event of default under the indenture generally will include:
o a default for five days or more (or other period of time described in the related prospectus supplement) in the
payment of any principal of or interest on any note of the series;
o failure to perform any other covenant of the Depositor in the indenture which continues for a period of thirty days
after notice thereof is given in accordance with the procedures described in the related indenture;
o any representation or warranty made by the Depositor in the indenture or in any certificate or other writing delivered
pursuant thereto or in connection therewith with respect to or affecting the series having been incorrect in a
material respect as of the time made, and the breach is not cured within thirty days after notice thereof is given in
accordance with the procedures described in the related indenture;
o events of bankruptcy, insolvency, receivership or liquidation of the Depositor, as specified in the indenture; or
o any other event of default provided with respect to notes of that series.
If an event of default with respect to the notes of any series at the time outstanding occurs and is continuing, the trustee or
the holders of a majority of the then aggregate outstanding amount of the notes of the series may declare the principal amount of all
the notes of the series to be due and payable immediately. The declaration may, in some circumstances, be rescinded and annulled by the
holders of a majority in aggregate outstanding amount of the related notes.
If following an event of default with respect to any series of notes, the notes of the 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 the series and to continue to apply payments on the collateral as if there had been no declaration of acceleration if the
collateral continues to provide sufficient funds for the payment of principal of and interest on the notes of the series 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 (1) the holders of 100% of the then aggregate outstanding amount of
the notes of the series consent to the sale, (2) the proceeds of the sale or liquidation are sufficient to pay in full the principal of
and accrued interest, due and unpaid, on the outstanding notes of the series at the date of the sale or (3) the trustee determines that
the collateral would not be sufficient on an ongoing basis to make all payments on the notes as the payments would have become due if
the notes had not been declared due and payable, and the trustee obtains the consent of the holders of a percentage specified in the
related prospectus supplement of the then aggregate outstanding amount of the notes of the series.
In the event that the trustee liquidates the collateral in connection with an event of default, the indenture provides that the
trustee will have a prior lien on the proceeds of the liquidation for unpaid fees and expenses. As a result, upon the occurrence of an
event of default, the amount available for payments to the noteholders would be less than would otherwise be the case. However, the
trustee may not institute a proceeding for the enforcement of its lien except in connection with a proceeding for the enforcement of the
lien of the indenture for the benefit of the noteholders after the occurrence of the event of default.
In the event the principal of the notes of a series is declared due and payable, as described above, the holders of the notes
issued at a discount from par may be entitled to receive no more than an amount equal to the unpaid principal amount thereof less the
amount of the discount that is unamortized.
No noteholder or holder of an Equity Certificate generally will have any right under an owner trust agreement or indenture to
institute any proceeding with respect to the Agreement unless (1) that holder previously has given to the trustee written notice of
default and the continuance thereof, (2) the holders of notes or Equity Certificates of any class evidencing not less than 25% of the
aggregate Percentage Interests constituting that class (a) have made written request upon the trustee to institute the proceeding in its
own name as trustee and (b) have offered to the trustee reasonable security or indemnity against the costs, expenses and liabilities
that may be incurred in or because of the proceeding, (3) the trustee has neglected or refused to institute the proceeding for 60 days
after receipt of the request and indemnity and (4) no direction inconsistent with the written request has been given to the trustee
during the 60 day period by the holders of a majority of the aggregate Percentage Interests constituting that class.
Amendment
Each pooling and servicing agreement may be amended by the parties thereto, without the consent of any of the holders of
certificates covered by the pooling and servicing agreement,
o to cure any ambiguity,
o to correct or supplement any provision therein which may be defective or inconsistent with any other provision therein,
o if a REMIC election has been made with respect to the related trust fund, to modify, eliminate or add to any of its
provisions (A) to the extent as shall be necessary to maintain the qualification of the trust fund as a REMIC or to avoid or
minimize the risk of imposition of any tax on the related trust fund, provided that the trustee has received an opinion of
counsel to the effect that (1) the action is necessary or desirable to maintain the qualification or to avoid or minimize the
risk, and (2) the action will not adversely affect in any material respect the interests of any holder of certificates
covered by the pooling and servicing agreement, or (B) to restrict the transfer of the REMIC Residual Certificates, provided
that the depositor has determined that the then-current ratings of the classes of the certificates that have been rated will
not be adversely affected, as evidenced by a letter from each applicable Rating Agency, and that the amendment will not give
rise to any tax with respect to the transfer of the REMIC Residual Certificates to a non-permitted transferee,
o to make any other provisions with respect to matters or questions arising under the pooling and servicing agreement which are
not materially inconsistent with the provisions thereof, provided that the action will not adversely affect in any material
respect the interests of any certificateholder, or
o to comply with any changes in the Code.
The pooling and servicing agreement may also be amended by the parties thereto with the consent of the holders of certificates
evidencing over 50% of the aggregate Percentage Interests of the trust fund or of the applicable class or classes, if such amendment
affects only such class or classes, 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 certificates covered by the
pooling and servicing agreement, except that the amendment may not (1) reduce in any manner the amount of, or delay the timing of,
payments received on mortgage loans which are required to be distributed on a certificate of any class without the consent of the holder
of the certificate or (2) reduce the aforesaid percentage of certificates of any class the holders of which are required to consent to
the amendment without the consent of the holders of all certificates of the class covered by the pooling and servicing agreement then
outstanding.
With respect to each series of notes, each related servicing agreement or indenture may be amended by the parties thereto
without the consent of any of the holders of the notes covered by the Agreement, to cure any ambiguity, to correct, modify or supplement
any provision therein, or to make any other provisions with respect to matters or questions arising under the Agreement which are not
inconsistent with the provisions thereof, provided that the action will not adversely affect in any material respect the interests of
any holder of notes covered by the Agreement. Each Agreement may also be amended by the parties thereto with the consent of the holders
of notes evidencing not less than the percentage specified in the related prospectus supplement of the voting rights, for any purpose;
provided, however, that the amendment may not:
(1) reduce in any manner the amount of or delay the timing of, payments received on trust fund assets which are
required to be distributed on any certificate without the consent of the holder of the certificate,
(2) adversely affect in any material respect the interests of the holders of any class of notes in a manner other
than as described in (1), without the consent of the holders of notes of the class evidencing not less than
the percentage specified in the related prospectus supplement of the aggregate Percentage Interests of the
trust fund or of the applicable class or classes, if such amendment affects only such class or classes or
(3) reduce the aforesaid percentage of voting rights required for the consent to the amendment without the consent
of the holders of all notes covered by the Agreement then outstanding.
The voting rights evidenced by any security will be the portion of the voting rights of all of the securities in the related series
allocated in the manner described in the related prospectus supplement.
Notwithstanding the foregoing, if a REMIC election has been made with respect to the related trust fund, the trustee or
indenture trustee will not be entitled to consent to any amendment to a pooling and servicing agreement or an indenture without having
first received an opinion of counsel to the effect that the amendment or the exercise of any power granted to the master servicer, the
depositor, the trustee or indenture trustee, or any other specified person in accordance with the amendment will not result in the
imposition of a tax on the related trust fund or cause the trust fund to fail to qualify as a REMIC.
The Master Servicer and any director, officer, employee or agent of the Master Servicer may rely in good faith on any document
of any kind prima facie properly executed and submitted by any Person respecting any matters arising under the transaction documents.
Termination; Retirement of Securities
The obligations created by the related Agreements for each series of securities (other than the limited payment and notice
obligations of the trustee) will terminate upon the payment to securityholders of that series of all amounts held in the Distribution
Account or by the master servicer and required to be paid to them pursuant to the Agreements following the earlier of, (1) the final
payment or other liquidation or disposition (or any advance with respect thereto) of the last mortgage loan, REO property and/or
mortgage security subject thereto and (2) the purchase by the master servicer, a servicer, the depositor or its designee (or (a) if
specified in the related prospectus supplement with respect to each series of certificates, by the holder of the REMIC Residual
Certificates (see "Federal Income Tax Consequences" below) or (b) if specified in the prospectus supplement with respect to each series
of notes, by the holder of the Equity Certificates) from the trust fund for the series of all remaining mortgage loans, REO properties
and/or mortgage securities. In addition to the foregoing, the master servicer, a servicer, the depositor or its designee may have the
option to purchase, in whole but not in part, the securities specified in the related prospectus supplement in the manner set forth in
the related prospectus supplement. With respect to any series of certificates which provides for such a purchase, the purchase shall not
be made unless either: (1) the aggregate principal balance of the certificates as of the date is equal to or less than the percentage
specified in the related prospectus supplement of the aggregate principal balance of the certificates as of the Closing Date or (2) the
aggregate principal balance of the mortgage loans as of the date is equal to or less than the percentage specified in the related
prospectus supplement of the aggregate principal balance of the mortgage loans as of the cut-off date. In the event that any series of
certificates which provides for such a purchase at 25% or more of the aggregate principal balance outstanding, the certificates will use
the word "Callable" in their title. With respect to any series of notes which provides for such a purchase, the purchase shall not be
made unless the aggregate principal balance of the notes as of the date is equal to or less than the percentage specified in the related
prospectus supplement of the aggregate principal balance of the notes as of the Closing Date or a period specified in the related
prospectus supplement has elapsed since the initial distribution date. In the event that any series of notes which provides for such a
purchase at 25% or more of the aggregate principal balance outstanding, the notes will use the word "Callable" in their title. Upon the
purchase of the securities or at any time thereafter, at the option of the master servicer, a servicer, the depositor or its designee,
the assets of the trust fund may be sold, thereby effecting a retirement of the securities and the termination of the trust fund, or the
securities so purchased may be held or resold by the master servicer, the depositor or its designee. In no event, however, unless
otherwise provided in the prospectus supplement, will a trust created by a pooling and servicing agreement related to a series of
certificates continue beyond the expiration of 21 years from the death of the survivor of the persons named in the pooling and servicing
agreement. Written notice of termination of the pooling and servicing agreement will be given to each securityholder, and the final
distribution will be made only upon surrender and cancellation of the securities at an office or agency appointed by the trustee which
will be specified in the notice of termination. If the securityholders are permitted to terminate the trust under the applicable pooling
and servicing agreement, a penalty may be imposed upon the securityholders based upon the fee that would be foregone by the master
servicer because of the termination.
The purchase of mortgage loans and property acquired in respect of mortgage loans evidenced by a series of securities shall be
made at the option of the master servicer, a servicer, the depositor, its designee or, if applicable, the holder of the REMIC Residual
Certificates or Equity Certificates at the price specified in the related prospectus supplement. The exercise of the right will effect
early retirement of the securities of that series, but the right of the master servicer, a servicer, the depositor, its designee or, if
applicable, the holder to so purchase is subject to the aggregate principal balance of the mortgage loans and/or mortgage securities in
the trust fund for that series as of the distribution date on which the purchase is to occur being less than the percentage specified in
the related prospectus supplement of the aggregate principal balance of the mortgage loans and/or mortgage securities at the cut-off
date or closing date, as specified in the prospectus supplement, for that series. The prospectus supplement for each series of
securities will set forth the amounts that the holders of the securities will be entitled to receive upon the early retirement. The
early termination may adversely affect the yield to holders of the securities. With respect to any series of certificates, an optional
purchase of the mortgage loans in the related trust fund may not result in the related certificates receiving an amount equal to the
principal balance thereof plus accrued and unpaid interest and any undistributed shortfall on the related certificates. If a REMIC
election has been made, the termination of the related trust fund will be effected in a manner consistent with applicable federal income
tax regulations and its status as a REMIC.
Following any optional termination, there will be no continuing direct or indirect liability of the trust fund or any
securityholder as sellers of the assets of the trust fund.
The Securities Administrator
Each prospectus supplement for a series of securities may provide for a securities administrator which shall be responsible for
performing certain administrative and tax functions typically performed by the trustee. The securities administrator shall at all times
be a corporation or an association organized and doing business under the laws of any state or the United States of America, authorized
under the laws to exercise corporate trust powers, having a combined capital and surplus of at least $40,000,000 and subject to
supervision or examination by federal or state authority. The entity that serves as securities administrator may have typical banking or
other relationships with the depositor and its affiliates. The securities administrator may also act as master servicer for a series of
securities.
Duties of Securities Administrator
The securities administrator for each series of securities will make no representation as to the validity or sufficiency of the
related Agreements, the securities or any underlying mortgage loan, mortgage security or related document and will not be accountable
for the use or application by or on behalf of any master servicer (unless the securities administrator is also acting as master
servicer), servicer or special servicer of any funds paid to the master servicer, servicer or special servicer in respect of the
securities or the underlying mortgage loans or mortgage securities, or any funds deposited into or withdrawn from the Distribution
Account for the series or any other account by or on behalf of the master servicer, servicer or special servicer. The securities
administrator for each series of securities will be required to perform only those duties specifically required under the related
Agreement. However, upon receipt of any of the various certificates, reports or other instruments required to be furnished to it
pursuant to the related Agreement, a securities administrator will be required to examine the documents and to determine whether they
conform to the requirements of the agreement.
Some Matters Regarding the Securities Administrator
As and to the extent described in the related prospectus supplement, the fees and normal disbursements of any securities
administrator may be the expense of the related master servicer or other specified person or may be required to be borne by the related
trust fund.
The securities administrator for each series of securities generally will be entitled to indemnification from amounts held in
the Distribution Account for the series, for any loss, liability or expense incurred by the securities administrator in connection with
the securities administrator's administration of the trust under the related pooling and servicing agreement or indenture unless the
loss, liability, cost or expense was incurred by reason of willful misfeasance, bad faith or negligence on the part of the securities
administrator in the performance of its obligations and duties, or by reason of its reckless disregard of its obligations or duties.
Resignation and Removal of the Securities Administrator
The securities administrator for each series of securities may resign at any time, in which event the depositor will be
obligated to appoint a successor securities administrator. The depositor may also remove the securities administrator if the securities
administrator ceases to be eligible to continue as such under the pooling and servicing agreement or indenture or if the securities
administrator becomes incapable of acting, bankrupt, insolvent or if a receiver or public officer takes charge of the securities
administrator or its property. Upon such resignation or removal of the securities administrator, the depositor will be entitled to
appoint a successor securities administrator. The securities administrator may also be removed at any time by the holders of securities
evidencing ownership of not less than the percentage specified in the related prospectus supplement of the trust. In the event that the
securityholders remove the securities administrator, the compensation of any successor securities administrator shall be paid by the
securityholders to the extent that such compensation exceeds the amount agreed to by the depositor and the original securities
administrator. Any resignation or removal of the securities administrator and appointment of a successor securities administrator will
not become effective until acceptance of the appointment by the successor securities administrator.
The Trustee
The trustee under each pooling and servicing agreement and indenture will be named in the related prospectus supplement. The
trustee shall at all times be a corporation or an association organized and doing business under the laws of any state or the United
States of America, authorized under the laws to exercise corporate trust powers, having a combined capital and surplus of at least
$40,000,000 and subject to supervision or examination by federal or state authority. The entity that serves as trustee may have typical
banking relationships with the depositor and its affiliates.
Duties of the Trustee
The trustee for each series of securities will make no representation as to the validity or sufficiency of the related
Agreements, the securities or any underlying mortgage loan, mortgage security or related document and will not be accountable for the
use or application by or on behalf of any master servicer, servicer or special servicer of any funds paid to the master servicer,
servicer or special servicer in respect of the securities or the underlying mortgage loans or mortgage securities, or any funds
deposited into or withdrawn from the Distribution Account for the series or any other account by or on behalf of the master servicer,
servicer or special servicer. If no event of default has occurred and is continuing, the trustee for each series of securities will be
required to perform only those duties specifically required under the related pooling and servicing agreement or indenture. However,
upon receipt of any of the various certificates, reports or other instruments required to be furnished to it pursuant to the related
Agreement, a trustee will be required to examine the documents and to determine whether they conform to the requirements of the
agreement.
If an Event of Default shall occur, the trustee shall, by notice in writing to the master servicer, which may be delivered by
telecopy, immediately terminate all of the rights and obligations (but not the liabilities) of the master servicer thereafter arising
under the Agreements, but without prejudice to any rights it may have as a security holder or to reimbursement of Monthly Advances and
other advances of its own funds. Upon the receipt by the master servicer of the written notice, all authority and power of the master
servicer under the Agreements, whether with respect to the securities, the Mortgage Loans, REO Property or under any other related
agreements (but only to the extent that such other agreements relate to the Mortgage Loans or related REO Property) shall automatically
and without further action pass to and be vested in the trustee. The trustee shall act to carry out the duties of the master servicer,
including the obligation to make any Monthly Advance the nonpayment of which was an Event of Default. Any such action taken by the
trustee must be prior to the distribution on the relevant Distribution Date.
Upon the receipt by the master servicer of a notice of termination, the trustee shall automatically become the successor in all
respects to the master servicer in its capacity under the Agreements and the transactions set forth or provided for therein and shall
thereafter be subject to all the responsibilities, duties, liabilities and limitations on liabilities relating thereto placed on the
master servicer by the terms and provisions thereof; provided, however, that the sponsor shall have the right to either (a) immediately
assume the duties of the master servicer or (b) select a successor master servicer; provided further, however, that the trustee shall
have no obligation whatsoever with respect to any liability (other than advances deemed recoverable and not previously made) incurred by
the master servicer at or prior to the time of termination. As compensation, the trustee shall be entitled to compensation which the
master servicer would have been entitled to retain if the master servicer had continued to act thereunder, except for those amounts due
the master servicer as reimbursement permitted under the Agreements for advances previously made or expenses previously incurred.
Notwithstanding the above, the trustee may, if it shall be unwilling so to act, or shall, if it is legally unable so to act, appoint or
petition a court of competent jurisdiction to appoint, any established housing and home finance institution which is a Fannie Mae- or
Freddie Mac-approved servicer, and with respect to a successor to the master servicer only, having a net worth of not less than an
amount specified in the related prospectus supplement, as the successor to the master servicer hereunder in the assumption of all or any
part of the responsibilities, duties or liabilities of the master servicer hereunder; provided, that the trustee shall obtain a letter
from each rating agency that the ratings, if any, on each of the securities will not be lowered as a result of the selection of the
successor to the master servicer. Pending appointment of a successor to the master servicer, the trustee shall act in such capacity as
hereinabove provided. In connection with such appointment and assumption, the trustee may make such arrangements for the compensation of
such successor out of payments on the Mortgage Loans as it and such successor shall agree; provided, however, that the provisions of the
Agreements shall apply, the compensation shall not be in excess of that which the master servicer would have been entitled to if the
master servicer had continued to act hereunder, and that such successor shall undertake and assume the obligations of the Trustee to pay
compensation to any third Person acting as an agent or independent contractor in the performance of master servicing responsibilities
hereunder. The trustee and such successor shall take such action, consistent with the Agreements, as shall be necessary to effectuate
any such succession.
If the trustee shall succeed to any duties of the master servicer respecting the Mortgage Loans as provided herein, it shall do
so in a separate capacity and not in its capacity as trustee and, accordingly, the provisions of the Agreements concerning the trustee's
duties shall be inapplicable to the trustee in its duties as the successor to the master servicer in the servicing of the Mortgage Loans
(although such provisions shall continue to apply to the trustee in its capacity as trustee); the provisions of the Agreements relating
to the master servicer, however, shall apply to it in its capacity as successor master servicer.
Upon any termination or appointment of a successor to the master servicer, the trustee shall give prompt written notice thereof
to security holders of record pursuant to the Agreements and to the rating agencies.
The trustee shall transmit by mail to all securityholders, within the number of days specified by the Agreements after the
occurrence of any Event of Default actually known to a responsible officer of the trustee, unless such Event of Default shall have been
cured, notice of each such Event of Default. In the event that the security holders waive the Event of Default pursuant to the
Agreements, the trustee shall give notice of any such waiver to the rating agencies.
Upon written request of three or more securityholders of record, for purposes of communicating with other securityholders with
respect to their rights under the Agreements, the trustee will afford such securityholders access during business hours to the most
recent list of securityholders held by the trustee.
Some Matters Regarding the Trustee
As and to the extent described in the related prospectus supplement, the fees and normal disbursements of any trustee may be
the expense of the related master servicer or other specified person or may be required to be borne by the related trust fund.
The trustee for each series of securities generally will be entitled to indemnification from amounts held in the Distribution
Account for the series, for any loss, liability or expense incurred by the trustee in connection with the trustee's acceptance or
administration of its trusts under the related pooling and servicing agreement or indenture unless the loss, liability, cost or expense
was incurred by reason of willful misfeasance, bad faith or negligence on the part of the trustee in the performance of its obligations
and duties, or by reason of its reckless disregard of its obligations or duties.
Resignation and Removal of the Trustee
The trustee may resign at any time, in which event the depositor will be obligated to appoint a successor trustee. The
depositor may also remove the trustee if the trustee ceases to be eligible to continue under the pooling and servicing agreement or if
the trustee becomes insolvent. Upon becoming aware of the circumstances, the depositor will be obligated to appoint a successor trustee.
The trustee may also be removed at any time by the holders of securities evidencing not less than the percentage specified in the
related prospectus supplement of the aggregate undivided interests (or, if applicable, voting rights) in the related trust fund. Any
resignation or removal of the trustee and appointment of a successor trustee will not become effective until acceptance of the
appointment by the successor trustee. If the trustee resigns or is removed by the depositor, the expenses associated with the change of
trustees will be paid by the former trustee and reimbursed from the Distribution Account by the paying agent. If the trustee is removed
by holders of securities, such holders shall be responsible for paying any compensation payable to a successor trustee, in excess of the
amount paid to the predecessor trustee.
YIELD CONSIDERATIONS
The yield to maturity of an offered security will depend on the price paid by the holder for the security, the security
interest rate on a security entitled to payments of interest (which security interest rate may vary if so specified in the related
prospectus supplement) and the rate and timing of principal payments (including prepayments, defaults, liquidations and repurchases) on
the mortgage loans and the allocation thereof to reduce the principal balance of the security (or notional amount thereof if applicable)
and other factors.
A class of securities may be entitled to payments of interest at a fixed security interest rate, a variable security interest
rate or adjustable security interest rate, or any combination of security interest rates, each as specified in the related prospectus
supplement. A variable security interest rate may be calculated based on the weighted average of the Net Mortgage Rates of the related
mortgage loans, or the weighted average of the interest rates (which may be net of trustee fees) paid on the mortgage securities, for
the month preceding the distribution date if so specified in the related prospectus supplement. As will be described in the related
prospectus supplement, the aggregate payments of interest on a class of securities, and their yield to maturity, will be affected by the
rate of payment of principal on the securities (or the rate of reduction in the notional balance of securities entitled only to payments
of interest), in the case of securities evidencing interests in ARM Loans, by changes in the Net Mortgage Rates on the ARM Loans, and in
the case of securities evidencing interests in mortgage securities with floating or variable rates, by changes in such rates and the
indices on which they are based. See "Maturity and Prepayment Considerations" below. The yield on the securities will also be affected
by liquidations of mortgage loans following mortgagor defaults and by purchases of mortgage loans in the event of breaches of
representations and warranties made in respect of the mortgage loans by the depositor, the master servicer and others, or conversions of
ARM Loans to a fixed interest rate. See "The Mortgage Pools—Representations by Sellers" and "Descriptions of the Securities—Assignment
of Trust Fund Assets" above. Holders of Strip Securities or a class of securities having a security interest rate that varies based on
the weighted average mortgage rate of the underlying mortgage loans may be affected by disproportionate prepayments and repurchases of
mortgage loans having higher Net Mortgage Rates or rates applicable to the Strip Securities, as applicable.
With respect to any series of securities, a period of time will elapse between the date upon which payments on the related
mortgage loans are due and the distribution date on which the payments are passed through to securityholders. That delay will
effectively reduce the yield that would otherwise be produced if payments on the mortgage loans were distributed to securityholders on
or near the date they were due.
In general, if a class of securities is purchased at initial issuance at a premium and payments of principal on the related
mortgage loans occur at a rate faster than anticipated at the time of purchase, the purchaser's actual yield to maturity will be lower
than that assumed at the time of purchase. Similarly, if a class of securities is purchased at initial issuance at a discount and
payments of principal on the related mortgage loans occur at a rate slower than that assumed at the time of purchase, the purchaser's
actual yield to maturity will be lower than that originally anticipated. The effect of principal prepayments, liquidations and purchases
on yield will be particularly significant in the case of a series of securities having a class entitled to payments of interest only or
to payments of interest that are disproportionately high relative to the principal payments to which the class is entitled. Such a class
will likely be sold at a substantial premium to its principal balance and any faster than anticipated rate of prepayments will adversely
affect the yield to its holders. Extremely rapid prepayments may result in the failure of such holders to recoup their original
investment. In addition, the yield to maturity on other types of classes of securities, including Accrual Securities and securities with
a security interest rate which fluctuates inversely with or at a multiple of an index, may be relatively more sensitive to the rate of
prepayment on the related mortgage loans than other classes of securities.
The timing of changes in the rate of principal payments on or repurchases of the mortgage loans may significantly affect an
investor's actual yield to maturity, even if the average rate of principal payments experienced over time is consistent with an
investor's expectation. In general, the earlier a prepayment of principal on the underlying mortgage loans or a repurchase thereof, the
greater will be the effect on an investor's yield to maturity. As a result, the effect on an investor's yield of principal payments and
repurchases occurring at a rate higher (or lower) than the rate anticipated by the investor during the period immediately following the
issuance of a series of securities would not be fully offset by a subsequent like reduction (or increase) in the rate of principal
payments.
When a principal prepayment in full is made on a mortgage loan, the borrower is generally charged interest only for the period
from the due date of the preceding scheduled payment up to the date of the prepayment, instead of for the full accrual period, that is,
the period from the due date of the preceding scheduled payment up to the due date for the next scheduled payment. In addition, a
partial principal prepayment may likewise be applied as of a date prior to the next scheduled due date (and, accordingly, be accompanied
by accrued interest for less than the full accrual period). However, interest accrued and distributable on any series of securities on
any distribution date will generally correspond to interest accrued on the principal balance of mortgage loans for their respective full
accrual periods. Consequently, if a prepayment on any mortgage loan is distributable to securityholders on a particular distribution
date, but the prepayment is not accompanied by accrued interest for the full accrual period, the interest charged to the borrower (net
of servicing and administrative fees and any retained interest of the depositor) may be less than the corresponding amount of interest
accrued and otherwise payable on the related mortgage loan, and a Prepayment Interest Shortfall will result. If and to the extent that
the shortfall is allocated to a class of offered securities, its yield will be adversely affected. The prospectus supplement for a
series of securities will describe the manner in which the shortfalls will be allocated among the classes of the securities. If so
specified in the related prospectus supplement, the master servicer, or the servicer servicing the mortgage loan which was prepaid, will
be required to apply some or all of its servicing compensation for the corresponding period to offset the amount of the shortfalls. The
related prospectus supplement will also describe any other amounts available to off set the shortfalls. See "Servicing of Mortgage
Loans—Servicing and Other Compensation and Payment of Expenses; Retained Interest" in this prospectus.
The trust fund with respect to any series may include ARM Loans. As is the case with conventional, fixed-rate mortgage loans
originated in a high interest rate environment which may be subject to a greater rate of principal prepayments when interest rates
decrease, ARM Loans may be subject to a greater rate of principal prepayments (or purchases by the related servicer or the master
servicer) due to their refinancing in a low interest rate environment. For example, if prevailing interest rates fall significantly, ARM
Loans could be subject to higher prepayment rates than if prevailing interest rates remain constant because the availability of
fixed-rate or other adjustable-rate mortgage loans at competitive interest rates may encourage mortgagors to refinance their
adjustable-rate mortgages to "lock in" a lower fixed interest rate or to take advantage of the availability of other adjustable-rate
mortgage loans. A rising interest rate environment may also result in an increase in the rate of defaults on the mortgage loans.
The trust fund with respect to any series may include convertible ARM Loans. Convertible ARM Loans may be subject to a greater
rate of principal prepayments (or purchases by the related servicer or the master servicer) due to their conversion to fixed interest
rate loans in a low interest rate environment. The conversion feature may also be exercised in a rising interest rate environment as
mortgagors attempt to limit their risk of higher rates. A rising interest rate environment may also result in an increase in the rate of
defaults on these mortgage loans. If the related servicer or the master servicer purchases convertible ARM Loans, a mortgagor's exercise
of the conversion option will result in a distribution of the principal portion thereof to the securityholders, as described in this
prospectus. Alternatively, to the extent a servicer or the master servicer fails to purchase converting ARM Loans, the mortgage pool
will include fixed-rate mortgage loans.
The rate of defaults on the mortgage loans will also affect the rate and timing of principal payments on the mortgage loans and
thus the yield on the securities. In general, defaults on single family loans are expected to occur with greater frequency in their
early years. The rate of default on single family loans which are refinanced or limited documentation mortgage loans, and on mortgage
loans, with high Loan-to-Value Ratios, may be higher than for other types of mortgage loans. Furthermore, the rate and timing of
prepayments, defaults and liquidations on the mortgage loans will be affected by the general economic condition of the region of the
country in which the related mortgaged properties are located. The risk of delinquencies and loss is greater and prepayments are less
likely in regions where a weak or deteriorating economy exists, as may be evidenced by, among other factors, increasing unemployment or
falling property values.
With respect to some mortgage loans in a mortgage pool, the mortgage rate at origination may be below the rate that would
result if the index and margin relating thereto were applied at origination. Under the applicable underwriting standards, the mortgagor
under each mortgage loan generally will be qualified, or the mortgage loan otherwise approved, on the basis of the mortgage rate in
effect at origination. The repayment of the mortgage loan may thus be dependent on the ability of the mortgagor to make larger level
monthly payments following the adjustment of the mortgage rate. In addition, the periodic increase in the amount paid by the mortgagor
of a buydown mortgage loan during or at the end of the applicable Buydown Period may create a greater financial burden for the
mortgagor, who might not have otherwise qualified for a mortgage under applicable underwriting guidelines, and may accordingly increase
the risk of default with respect to the related mortgage loan.
The mortgage rates on ARM Loans subject to negative amortization generally adjust monthly and their amortization schedules
adjust less frequently. During a period of rising interest rates as well as immediately after origination (initial mortgage rates are
generally lower than the sum of the Indices applicable at origination and the related Note Margins), the amount of interest accruing on
the principal balance of the mortgage loans may exceed the amount of their minimum scheduled monthly payment. As a result, a portion of
the accrued interest on negatively amortizing mortgage loans may become Deferred Interest which will be added to the principal balance
thereof and will bear interest at the applicable mortgage rate. The addition of the Deferred Interest to the principal balance of any
related class or classes of securities will lengthen the weighted average life thereof and may adversely affect yield to holders
thereof, depending upon the price at which the securities were purchased. In addition, with respect to ARM Loans subject to negative
amortization, during a period of declining interest rates, it might be expected that each minimum scheduled monthly payment on the
mortgage loan would exceed the amount of scheduled principal and accrued interest on the principal balance thereof, and since the excess
will be applied to reduce the principal balance of the related class or classes of securities, the weighted average life of the
securities will be reduced and may adversely affect the yield to holders thereof, depending upon the price at which the securities were
purchased.
MATURITY AND PREPAYMENT CONSIDERATIONS
As indicated above under "The Mortgage Pools," the original terms to maturity of the mortgage loans in a given mortgage pool
will vary depending upon the type of mortgage loans included in the mortgage pool. The prospectus supplement for a series of securities
will contain information with respect to the types and maturities of the mortgage loans in the related mortgage pool. The prepayment
experience with respect to the mortgage loans in a mortgage pool will affect the life and yield of the related series of securities.
With respect to balloon loans, payment of the balloon payment (which, based on the amortization schedule of the mortgage loans,
is expected to be a substantial amount) will generally depend on the mortgagor's ability to obtain refinancing of the mortgage loans or
to sell the mortgaged property prior to the maturity of the balloon loan. The ability to obtain refinancing will depend on a number of
factors prevailing at the time refinancing or sale is required, including real estate values, the mortgagor's financial situation,
prevailing mortgage loan interest rates, the mortgagor's equity in the related mortgaged property, tax laws and prevailing general
economic conditions. None of the depositor, the master servicer, a servicer or any of their affiliates will be obligated to refinance or
repurchase any mortgage loan or to sell the mortgaged property.
The extent of prepayments of principal of the mortgage loans may be affected by a number of factors, including solicitations
and the availability of mortgage credit, the relative economic vitality of the area in which the mortgaged properties are located and,
in the case of multifamily, commercial and mixed-use loans, the quality of management of the mortgage properties, the servicing of the
mortgage loans, possible changes in tax laws and other opportunities for investment. In addition, the rate of principal payments on the
mortgage loans may be affected by the existence of lock-out periods and requirements that principal prepayments be accompanied by
prepayment premiums, as well as due-on-sale and due-on-encumbrance provisions, and by the extent to which the provisions may be
practicably enforced. See "Servicing of Mortgage Loans—Collection and Other Servicing Procedures" and "Legal Aspects of the Mortgage
Loans—Enforceability of Certain Provisions" in this prospectus for a description of provisions of the pooling and servicing agreement
and legal aspects of mortgage loans that may affect the prepayment experience on the mortgage loans.
The rate of prepayment on a pool of mortgage loans is also affected by prevailing market interest rates for mortgage loans of a
comparable type, term and risk level. When the prevailing market interest rate is below a mortgage coupon, a borrower may have an
increased incentive to refinance its mortgage loan. In addition, as prevailing market interest rates decline, even borrowers with ARM
Loans that have experienced a corresponding interest rate decline may have an increased incentive to refinance for purposes of either
(1) converting to a fixed rate loan and thereby "locking in" the rate or (2) taking advantage of the initial "teaser rate" (a mortgage
interest rate below what it would otherwise be if the applicable index and gross margin were applied) on another adjustable rate
mortgage loan. Moreover, although the mortgage rates on ARM Loans will be subject to periodic adjustments, the adjustments generally
will not increase or decrease the mortgage rates by more than a fixed percentage amount on each adjustment date, will not increase the
mortgage rates over a fixed percentage amount during the life of any ARM Loan and will be based on an index (which may not rise and fall
consistently with mortgage interest rates) plus the related Note Margin (which may be different from margins being used at the time for
newly originated adjustable rate mortgage loans). As a result, the mortgage rates on the ARM Loans at any time may not equal the
prevailing rates for similar, newly originated adjustable rate mortgage loans. In high interest rate environments, the prevailing rates
on fixed-rate mortgage loans may be sufficiently high in relation to the then-current mortgage rates on newly originated ARM Loans that
the rate of prepayment may increase as a result of refinancings. There can be no assurance as to the rate of prepayments on the mortgage
loans during any period or over the life of any series of securities.
If the applicable pooling and servicing agreement for a series of securities provides for a pre-funding account or other means
of funding the transfer of additional mortgage loans to the related trust fund, as described under "Description of the
Securities—Pre-Funding Account" in this prospectus, and the trust fund is unable to acquire the additional mortgage loans within any
applicable time limit, the amounts set aside for the purpose may be applied as principal payments on one or more classes of securities
of the series. See "Yield Considerations" in this prospectus for a description of certain provisions of the mortgage loans that may
affect the prepayment experience on the mortgage loans.
There can be no assurance as to the rate of prepayment of the mortgage loans. The depositor is not aware of any publicly
available statistics relating to the principal prepayment experience of diverse portfolios of mortgage loans such as the mortgage loans
over an extended period of time. All statistics known to the depositor that have been compiled with respect to prepayment experience on
mortgage loans indicate that while some mortgage loans may remain outstanding until their stated maturities, a substantial number will
be paid prior to their respective stated maturities. No representation is made as to the particular factors that will affect the
prepayment of the mortgage loans or as to the relative importance of these factors.
As described in this prospectus and in the prospectus supplement, the master servicer, the depositor, an affiliate of the
depositor or a person specified in the related prospectus supplement (other than holder of any class of offered certificates, other than
the REMIC Residual Certificates, if offered) may have the option to purchase the assets in a trust fund and effect early retirement of
the related series of securities. See "The Agreements—Termination; Retirement of Securities" in this prospectus.
LEGAL ASPECTS OF MORTGAGE LOANS
The following discussion summarizes legal aspects of mortgage loans that is general in nature. The summaries do not purport to
be complete. They do not reflect the laws of any particular state nor the laws of all states in which the mortgaged properties may be
situated. This is because these legal aspects are governed in part by the law of the state that applies to a particular mortgaged
property and the laws of the states may vary substantially. You should refer to the applicable federal and state laws governing the
mortgage loans.
Mortgages
Each single family, multifamily, commercial and mixed-use loan and, if applicable, the Contracts (in each case other than
cooperative mortgage loans),will be evidenced by a note or bond and secured by an instrument granting a security interest in real
property, which may be a mortgage, deed of trust or a deed to secure debt, depending upon the prevailing practice and law in the state
in which the related mortgaged property is located, and may have first, second or third priority. Mortgages and deeds to secure debt are
referred to as "mortgages."Contracts evidence both the obligation of the obligor to repay the loan evidenced thereby and grant a
security interest in the related Manufactured Homes to secure repayment of the loan. However, as Manufactured Homes have become larger
and often have been attached to their sites without any apparent intention by the borrowers to move them, courts in many states have
held that Manufactured Homes may become subject to real estate title and recording laws. See "—Contracts" below. In some states, a
mortgage or deed of trust creates a lien upon the real property encumbered by the mortgage or deed of trust. However, in other states,
the mortgage or deed of trust conveys legal title to the property respectively, to the mortgagee or to a trustee for the benefit of the
mortgagee subject to a condition subsequent (i.e., the payment of the indebtedness secured thereby). The lien created by the mortgage or
deed of trust is not prior to the lien for real estate taxes and assessments and other charges imposed under governmental police powers.
Priority between mortgages depends on their terms or on the terms of separate subordination or inter-creditor agreements, the knowledge
of the parties in some cases and generally on the order of recordation of the mortgage in the appropriate recording office. There are
two parties to a mortgage, the mortgagor, who is the borrower and homeowner, and the mortgagee, who is the lender. Under the mortgage
instrument, the mortgagor delivers to the mortgagee a note or bond and the mortgage. In the case of a land trust, there are three
parties because title to the property is held by a land trustee under a land trust agreement of which the borrower is the beneficiary;
at origination of a mortgage loan, the borrower executes a separate undertaking to make payments on the mortgage note. Although a deed
of trust is similar to a mortgage, a deed of trust has three parties: the trustor who is the borrower-homeowner; the beneficiary who is
the lender; 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. The trustee's authority
under a deed of trust, the grantee's authority under a deed to secure debt and the mortgagee's authority under a mortgage are governed
by the law of the state in which the real property is located, the express provisions of the deed of trustor mortgage, and, in deed of
trust transactions, the directions of the beneficiary.
Cooperative Mortgage Loans
If specified in the prospectus supplement relating to a series of certificates, the mortgage loans and Contracts may include
cooperative mortgage loans. Each mortgage note evidencing a cooperative mortgage loan will be secured by a security interest in shares
issued by the related Cooperative, and in the related proprietary lease or occupancy agreement granting exclusive rights to occupy a
specific dwelling unit in the Cooperative's building. The security agreement will create a lien upon the shares of the Cooperative, the
priority of which will depend on, among other things, the terms of the particular security agreement as well as the order of recordation
and/or filing of the agreement (or financing statements related thereto) in the appropriate recording office.
Cooperative buildings relating to the cooperative mortgage loans are located primarily in the State of New York. Generally,
each Cooperative owns in fee or has a long-term leasehold interest in all the real property and owns in fee or leases the building and
all separate dwelling units therein. The Cooperative is directly responsible for property management and, in most cases, payment of real
estate taxes, other governmental impositions and hazard and liability insurance. If there is an underlying mortgage (or mortgages) on
the Cooperative's building or underlying land, as is generally the case, or an underlying lease of the land, as is the case in some
instances, the Cooperative, as mortgagor or lessor, as the case may be, is also responsible for fulfilling the mortgage or rental
obligations. An underlying mortgage loan is ordinarily obtained by the Cooperative in connection with either the construction or
purchase of the Cooperative's building or the obtaining of capital by the Cooperative. The interest of the occupant under proprietary
leases or occupancy agreements as to which that Cooperative is the landlord is generally subordinate to the interest of the holder of an
underlying mortgage and to the interest of the holder of a land lease. If the Cooperative is unable to meet the payment obligations (1)
arising under an underlying mortgage, the mortgagee holding an underlying mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements or (2) arising under its land lease, the holder of the landlord's interest under
the land lease could terminate it and all subordinate proprietary leases and occupancy agreements. In addition, an underlying 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 final payment at maturity. The inability of the Cooperative to refinance a mortgage and its consequent inability to
make the final payment could lead to foreclosure by the mortgagee. Similarly, a land lease has an expiration date and the inability of
the Cooperative to extend its term or, in the alternative, to purchase the land, could lead to termination of the Cooperative's interest
in the property and termination of all proprietary leases and occupancy agreements. In either event, a foreclosure by the holder of an
underlying mortgage or the termination of the underlying lease could eliminate or significantly diminish the value of any collateral
held by the mortgagee who financed the purchase by an individual tenant-stockholder of shares of the Cooperative or, in the case of the
mortgage loans, the collateral securing the cooperative mortgage loans.
Each Cooperative is owned by shareholders (referred to as tenant-stockholders) who, through ownership of stock or shares in the
Cooperative, receive proprietary leases or occupancy agreements which confer exclusive rights to occupy specific dwellings. Generally, a
tenant-stockholder of a Cooperative must make a monthly payment to the Cooperative pursuant to the proprietary lease, which payment
represents the tenant-stockholder's proportional share of the Cooperative's payments for its underlying mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership interest in a Cooperative and accompanying occupancy rights
may be financed through a cooperative mortgage loan evidenced by a mortgage note and secured by an assignment of and a security interest
in the occupancy agreement or proprietary lease and a security interest in the related shares of the related Cooperative. The mortgagee
generally 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 mortgagee'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 mortgage note, dispose of the collateral at a public or private sale or
otherwise proceed against the collateral or 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. See "—Foreclosure on Shares ofCooperatives" below.
Tax Aspects of Cooperative Ownership
In general, a "tenant-stockholder" (as defined in Section 216(b)(2) of the 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 interest expenses and real estate taxes allowable as
a deduction under Section 216(a) of the Code to the 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 its taxable year in which the items are allowable as a deduction to the corporation,
that section requires, among other things, that at least 80% of the gross income of the 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 the cooperative mortgage loans
will qualify under the section for any particular year. In the event that the Cooperative fails to qualify for one or more years, the
value of the collateral securing any related cooperative mortgage loans 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 a failure
would be permitted to continue over a period of years appears remote.
Leases and Rents
Mortgages that encumber income-producing multifamily and commercial properties often contain an assignment of rents and leases,
pursuant to which the borrower assigns to the lender the borrower's right, title and interest as landlord under each lease and the
income derived therefrom, while (unless rents are to be paid directly to the lender) retaining a revocable license to collect the rents
for so long as there is no default. If the borrower defaults, the license terminates and the lender is entitled to collect the rents.
Local law may require that the lender take possession of the property and/or obtain a court-appointed receiver before becoming entitled
to collect the rents.
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. Financing statements are effective for five years and must be renewed prior to the end of each
five year period. 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 issued by the motor vehicles department (or a similar entity) of the
state. In the states that 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 the appropriate motor vehicle registration office, depending on state law.
The master servicer will be required under the related pooling and servicing agreement or servicing agreement to, or to cause
the servicer of the Contract to, effect the 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. In the event the master
servicer or servicer, as applicable, fails, due to clerical errors or otherwise, to effect the notation or delivery, 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 a Contract. As Manufactured Homes have become
larger and often have been attached to their sites without any apparent intention by the borrowers to move them, courts in many states
have held that Manufactured Homes may 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 home is located. These filings must be made in the real estate records office of the county where the home is located.
Generally, Contracts will contain provisions prohibiting the obligor from permanently attaching the Manufactured Home to its site. So
long as the obligor 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 that is prior to the security interest
originally retained by the Seller and transferred to the depositor.
The depositor will assign or cause to be assigned a security interest in the Manufactured Homes to the trustee, on behalf of
the securityholders. Neither the depositor, the master servicer, any servicer, nor 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, the assignment of the security interest might not be held effective against
creditors of the depositor or Seller.
In the absence of fraud, forgery or permanent affixation of the Manufactured Home to its site by the Manufactured Home owner,
or administrative error by state recording officials, the notation of the lien of the depositor 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 a
Manufactured Home or subsequent lenders who take a security interest in the Manufactured Home. If there are any Manufactured Homes as to
which the depositor has failed to perfect or cause to be perfected the security interest assigned to the trust fund, the security
interest would be subordinate to, among others, subsequent purchasers for value of Manufactured Homes and holders of perfected security
interests. There also exists a risk in not identifying the trustee, on behalf of the securityholders, as the new secured party on the
certificate of title that, through fraud or negligence, the security interest of the trustee could be released.
In the event that the owner of a Manufactured Home moves it to a state other than the state in which the Manufactured Home
initially is registered, under the laws of most states the perfected security interest in the Manufactured Home would continue for four
months after the relocation and thereafter until the owner re-registers the Manufactured Home in the state of relocation. If the owner
were to relocate a Manufactured Home to another state and re-register the Manufactured Home in that state, and if the depositor did not
take steps to re-perfect its security interest in that 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 depositor must surrender possession if it holds the certificate of title to the Manufactured Home or, in the case of Manufactured
Homes registered in states that provide for notation of lien, the depositor would receive notice of surrender if the security interest
in the Manufactured Home is noted on the certificate of title. Accordingly, the depositor would have the opportunity to re-perfect its
security interest in the Manufactured Home in the state of relocation. In states that do not require a certificate of title for
registration of a Manufactured Home, re-registration could defeat perfection. Similarly, when an obligor under a manufactured housing
conditional sales contract sells a Manufactured Home, the obligee 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 conditional sales contract before release of the lien. Under each related pooling and servicing agreement or
servicing agreement, the master servicer will be obligated to, or to cause each of the servicers of the Contracts to, take these steps,
at the master servicer's or servicers expense, as are 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 related Seller that it has no knowledge of any of these liens with respect
to any Manufactured Home securing a Contract. However, these liens could arise at any time during the term of a Contract. No notice will
be given to the trustee or securityholders in the event this type of lien arises.
Foreclosure on Mortgages and Some Contracts
Foreclosure of a deed of trust is generally accomplished by a non-judicial trustee's sale under a specific provision in the
deed of trust which authorizes the trustee to sell the property upon any default by the borrower under the terms of the note or deed of
trust. In addition to any notice requirements contained in a deed of trust, in some states, the trustee must record a notice of default
and send a copy to the borrower- trustor and to any person who has recorded a request for a copy of notice of default and notice of
sale. In addition, the trustee must provide notice in some states to any other individual having an interest of record in the real
property, including any junior lienholders. If the deed of trust is not reinstated within a specified period, 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 a specified manner
prior to the date of trustee's sale. 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 of record in the real property.
In some states, the borrower-trustor has the right to reinstate the loan at any time following default until shortly before the
trustee's sale. In general, in these states, the borrower, or any other person having a junior encumbrance on the real estate, may,
during a reinstatement period, cure the default by paying the entire amount in arrears plus the costs and expenses incurred in enforcing
the obligation.
Foreclosure of a mortgage is generally accomplished by judicial action. Generally, the action is initiated by the service of
legal pleadings upon all parties having an interest of record in the real property. Delays in completion of the foreclosure may
occasionally result from difficulties in locating necessary parties. Judicial foreclosure proceedings are often not contested by any of
the applicable parties. If the mortgagee's right to foreclose is contested, the legal proceedings necessary to resolve the issue can be
time-consuming.
In the case of foreclosure under either a mortgage or a deed of trust, the sale by the referee or other designated officer or
by the trustee is a public sale. However, because of the difficulty a potential buyer at the sale would have in determining the exact
status of title and because the physical condition of the property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at a foreclosure sale. Rather, it is common for the lender to purchase the property
from the trustee or referee for a credit bid less than or equal to the unpaid principal amount of the note plus the accrued and unpaid
interest and the expense of foreclosure, in which case the mortgagor's debt will be extinguished unless the lender purchases the
property for a lesser amount in order to preserve its right against a borrower to seek a deficiency judgment and the remedy is available
under state law and the related loan documents. In the same states, there is a statutory minimum purchase price which the lender may
offer for the property and generally, state law controls the amount of foreclosure costs and expenses, including attorneys' fees, which
may be recovered by a lender. Thereafter, subject to the right of the borrower in some states to remain in possession during the
redemption period, the lender will assume the burdens of ownership, including obtaining hazard insurance, paying taxes and making the
repairs at its own expense as are necessary to render the property suitable for sale. Generally, the lender will 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 and, in some states, the lender may
be entitled to a deficiency judgment. Any loss may be reduced by the receipt of any mortgage insurance proceeds or other forms of credit
enhancement for a series of certificates. See "Description of Credit Enhancement" in this prospectus.
A junior mortgagee may not foreclose on the property securing a junior mortgage unless it forecloses subject to the senior
mortgages. The junior mortgagee must either pay the entire amount due on the senior mortgages prior to or at the time of the foreclosure
sale or undertake to pay on any senior mortgages on which the mortgagor is currently in default. Under either course of action, the
junior mortgagee may add the amounts paid to the balance due on the junior loan, and may be subrogated to the rights of the senior
mortgagees. In addition, in the event that the foreclosure of a junior mortgage triggers the enforcement of a "due-on-sale" clause, the
junior mortgagee may be required to pay the full amount of the senior mortgages to the senior mortgagees. Accordingly, with respect to
those single family loans which are junior mortgage loans, if the lender purchases the property, the lender's title will be subject to
all senior liens and claims and governmental liens. The proceeds received by the referee or trustee from the sale are applied first to
the costs, fees and expenses of sale and then in satisfaction of the indebtedness secured by the mortgage or deed of trust under which
the sale was conducted. Any remaining proceeds are generally payable to the holders of junior mortgages or deeds of trust and other
liens and claims in order of their priority, whether or not the borrower is in default. Any additional proceeds are generally payable to
the mortgagor or trustor. The payment of the proceeds to the holders of junior mortgages may occur in the foreclosure action of the
senior mortgagee or may require the institution of separate legal proceeds.
In foreclosure, courts have imposed general equitable principles. The equitable principles are generally designed to relieve
the borrower from the legal effect of its 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 for 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 the lender to foreclose if the
default under the mortgage instrument is not monetary, such as the borrower's failure to adequately maintain the property or the
borrower's execution of a second mortgage or deed of trust 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 deeds of trust or mortgages 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 the sale by a trustee under a deed of trust, or under a
mortgage having a power of sale, does not involve sufficient state action to afford constitutional protection to the borrower.
Foreclosure on Shares of Cooperatives
The Cooperative shares owned by the tenant-stockholder, together with the rights of the tenant- stockholder under the
proprietary lease or occupancy agreement, are pledged to the lender and are, in almost all cases, subject to restrictions on transfer as
set forth in the Cooperative's certificate of incorporation and by-laws, as well as in the proprietary lease or occupancy agreement. The
Cooperative may cancel the proprietary lease or occupancy agreement, even while pledged, for failure by the tenant- stockholder to pay
the obligations or charges owed by the tenant-stockholder, including mechanics' liens against the Cooperative's building incurred by the
tenant-stockholder. Generally, obligations and charges arising under a proprietary lease or occupancy agreement which are owed to the
Cooperative are made liens upon the shares to which the proprietary lease or occupancy agreement relates. In addition, the Cooperative
may generally terminate a proprietary lease or occupancy agreement in the event the borrower breaches its covenants in the proprietary
lease or occupancy agreement. Typically, the lender and the Cooperative enter into a recognition agreement which, together with any
lender protection provisions contained in the proprietary lease or occupancy agreement, 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 the lease or agreement until the lender has been provided
with notice of and 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 a sale of the shares and the
proprietary lease or occupancy agreement allocated to the dwelling, subject, however, to the Cooperative's right to sums due under the
proprietary lease or occupancy agreement or which have become liens on the shares relating to 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 amount realized upon a sale of the collateral below the outstanding principal balance of the cooperative
mortgage loan and accrued and unpaid interest on the loan.
Recognition agreements also generally provide that in the event the lender succeeds to the tenant- shareholder's shares and
proprietary lease or occupancy agreement as the result of realizing upon its collateral for a cooperative mortgage loan, the lender must
obtain the approval or consent of the board of directors of the Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. The approval or consent is usually based on the prospective purchaser's income
and net worth, among other factors, and may significantly reduce the number of potential purchasers, which could limit the ability of
the lender to sell and realize upon the value of the collateral. Generally, the lender is not limited in any rights it may have to
dispossess the tenant-stockholder.
Because of the nature of cooperative mortgage loans, lenders do not require the tenant-stockholder (i.e., the borrower) to
obtain title insurance of any type. Consequently, the existence of any prior liens or other imperfections of title affecting the
Cooperative's building or real estate also may adversely affect the marketability of the shares allocated to the dwelling unit in the
event of foreclosure.
In New York, foreclosure on the Cooperative shares is accomplished by public sale in accordance with the provisions of Article
9 of the New York UCC and the security agreement relating to those shares. Article 9 of the New York UCC requires that a sale be
conducted in a "commercially reasonable" manner. Whether a 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 sale and the sale price. Generally, a sale conducted according to the usual practice of banks
selling similar collateral in the same area will be considered reasonably conducted.
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 corporation to receive sums due under the proprietary
lease or occupancy agreement. If there are proceeds remaining, the lender must account to the tenant-stockholder for the surplus.
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.
Repossession with respect to ContractsGeneral. Repossession of manufactured housing is governed by state law. A few states have enacted legislation that requires
that the debtor be given an opportunity to cure its default (typically 30 days to bring the account current) before repossession can
commence. So long as a manufactured home has not become so attached to real estate that it would be treated as a part of the real estate
under the law of the state where it is located, repossession of the home in the event of a default by the obligor generally will be
governed by the UCC (except in Louisiana). 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 small particulars, the general repossession procedure established by
the UCC is as follows:
1. 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 are more commonly employed, and 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.
2. 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 terms of the sale are commercially reasonable.
3. Sale proceeds are to be applied first to 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 judgement in those states that do not prohibit or limit deficiency 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 debtor. 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.
Louisiana Law. Any contract secured by a manufactured home located in Louisiana will be governed by Louisiana law rather than
Article 9 of the UCC. Louisiana laws provide similar mechanisms for perfection and enforcement of security interests 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 by voluntary consent of the obligor, executory process
(repossession proceedings which must be initiated through the courts but which involve minimal court supervision) or a civil suit for
possession. In connection with a voluntary surrender, the obligor must be given a full release from liability for all amounts due under
the contract. In executory process repossessions, a sheriff's sale (without court supervision) is permitted, unless the obligor brings
suit to enjoin the sale, and the lender is prohibited from seeking a deficiency judgment against the obligor unless the lender obtained
an appraisal of the manufactured home prior to the sale and the property was sold for at least two-thirds of its appraised value.
Rights of Redemption
Single Family, Multifamily and Commercial Properties. The purposes of a foreclosure action in respect of a mortgaged property
is to enable the lender to realize upon its security and to bar the borrower, and all persons who have interests in the property that
are subordinate to that of the foreclosing lender, from exercise of their "equity of redemption". The doctrine of equity of redemption
provides that, until the property encumbered by a mortgage has been sold in accordance with a properly conducted foreclosure and
foreclosure sale, those having interests that are subordinate to that of the foreclosing lender have an equity of redemption and may
redeem the property by paying the entire debt with interest. Those having an equity of redemption must generally be made parties and
joined in the foreclosure proceeding in order for their equity of redemption to be terminated.
The equity of redemption is a common-law (non-statutory) right which should be distinguished from post-sale statutory rights of
redemption. 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 property. In some states, statutory redemption may occur only upon payment
of the foreclosure sale price. In other states, redemption may be permitted if the former borrower pays only a portion of the sums due.
The effect of a statutory right of redemption is to diminish the ability of the lender to sell the foreclosed property because the
exercise of a right of redemption would defeat the title of any purchase through a foreclosure. Consequently, the practical effect of
the redemption right is to force the lender to maintain the property and pay the expenses of ownership until the redemption period has
expired. In some states, a post-sale statutory right of redemption may exist following a judicial foreclosure, but not following a
trustee's sale under a deed of trust.
Manufactured Homes. While state laws do not usually require notice to be given to 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 the home so that the owner may redeem at or before resale. In
addition, the sale must comply with the requirements of the UCC.
Anti-Deficiency Legislation and Other Limitations on Lenders
Single Family, Multifamily and Commercial Loans. Some states have imposed statutory prohibitions which limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage. In some states (including California), statutes limit the right of
the beneficiary or mortgagee to obtain a deficiency judgment against the borrower following non-judicial foreclosure by power of sale. A
deficiency judgment is a personal judgment against the former borrower equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the lender. In the case of a mortgage loan secured by a
property owned by a trust where the mortgage note is executed on behalf of the trust, a deficiency judgment against the trust following
foreclosure or sale under a deed of trust, even if obtainable under applicable law, may be of little value to the mortgagee or
beneficiary if there are no trust assets against which the deficiency judgment may be executed. Some state statutes require the
beneficiary or mortgagee to exhaust the security afforded under a deed of trust or mortgage by foreclosure in an attempt to satisfy the
full debt before bringing a personal action against the borrower. In other states, the lender has the option of bringing a personal
action against the borrower on the debt without first exhausting the security; however in some of these states, the lender, following
judgment on the personal action, may be deemed to have elected a remedy and may be precluded from exercising remedies with respect to
the security. Consequently, the practical effect of the election requirement, in those states permitting the election, is that lenders
will usually proceed against the security first rather than bringing a personal action against the borrower. Finally, in some states,
statutory provisions limit any deficiency judgment against the former borrower following a foreclosure to the excess of the outstanding
debt over the fair value of the property at the time of the public sale. The purpose of these statutes is generally to prevent a
beneficiary or mortgagee from obtaining a large deficiency judgment against the former borrower as a result of low or no bids at the
judicial sale.
Generally, Article 9 of the UCC governs foreclosure on Cooperative Shares and the related proprietary lease or occupancy
agreement. Some courts have interpreted Article 9 to prohibit or limit a deficiency award in some circumstances, including circumstances
where the disposition of the collateral (which, in the case of a cooperative mortgage loan, would be the shares of the Cooperative and
the related proprietary lease or occupancy agreement) was not conducted in a commercially reasonable manner.
In addition to laws limiting or prohibiting deficiency judgments, numerous other federal and state statutory provisions,
including the federal bankruptcy laws and state laws affording relief to debtors, may interfere with or affect the ability of the
secured mortgage lender to realize upon collateral or enforce a deficiency judgment. For example, under the federal Bankruptcy Code,
virtually all actions (including foreclosure actions and deficiency judgment proceedings) to collect a debt are automatically stayed
upon the filing of the bankruptcy petition and, often, no interest or principal payments are made during the course of the bankruptcy
case. The delay and the consequences thereof caused by the automatic stay can be significant. Also, under the Bankruptcy Code, the
filing of a petition in a bankruptcy by or on behalf of a junior lienor may stay the senior lender from taking action to foreclose out
the junior lien. Moreover, with respect to federal bankruptcy law, a court with federal bankruptcy jurisdiction may permit a debtor
through his or her Chapter 11 or Chapter 13 rehabilitative plan to cure a monetary default in respect of a mortgage loan on a debtor's
residence by paying arrearage within a reasonable time period and reinstating the original mortgage loan payment schedule even though
the lender accelerated the mortgage loan and final judgment of foreclosure had been entered in state court (provided no sale of the
residence had yet occurred) prior to the filing of the debtor's petition. Some courts with federal bankruptcy jurisdiction have approved
plans, based on the particular facts of the reorganization case, that effected the curing of a mortgage loan default by paying arrearage
over a number of years.
Courts with federal bankruptcy jurisdiction have also indicated that the terms of a mortgage loan secured by property of the
debtor may be modified. These courts have allowed modifications that include reducing the amount of each monthly payment, changing the
rate of interest, altering the repayment schedule, forgiving all or a portion of the debt and reducing the lender's security interest to
the value of the residence, thus leaving the lender a general unsecured creditor for the difference between the value of the residence
and the outstanding balance of the loan. Generally, however, the terms of a mortgage loan secured only by a mortgage on real property
that is the debtor's principal residence may not be modified pursuant to a plan confirmed pursuant to Chapter 13 except with respect to
mortgage payment arrearages, which may be cured within a reasonable time period.
In the case of income-producing multifamily properties, federal bankruptcy law may also have the effect of interfering with or
affecting the ability of the secured lender to enforce the borrower's assignment of rents and leases related to the mortgaged property.
Under Section 362 of the Bankruptcy Code, the lender will be stayed from enforcing the assignment, and the legal proceedings necessary
to resolve the issue could be time-consuming, with resulting delays in the lender's receipt of the rents.
Tax liens arising under the Code may have priority over the lien of a mortgage or deed of trust. 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, Real Estate Settlement Procedures
Act, Equal Credit Opportunity Act, 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.
Contracts. In addition to the laws limiting or prohibiting deficiency judgments, numerous other statutory provisions, including
federal bankruptcy laws and related state laws, may interfere with or affect the ability of a lender to realize upon collateral and/or
enforce a deficiency judgment. For example, in a Chapter 13 proceeding under the federal bankruptcy law, a court may prevent a lender
from repossessing a home, and, as part of the rehabilitation plan, reduce the amount of the secured indebtedness to the market value of
the home at the time of bankruptcy (as determined by the court), leaving the party providing financing as a general unsecured creditor
for the remainder of the indebtedness. A bankruptcy court may also reduce the monthly payments due under a contract or change the rate
of interest and time of repayment of the indebtedness.
Environmental Legislation
Under CERCLA, and under state law in some states, a secured party which takes a deed-in-lieu of foreclosure, purchases a
mortgaged property at a foreclosure sale, or operates a mortgaged property may become liable for the costs of cleaning up hazardous
substances regardless of whether they have contaminated the property. CERCLA imposes strict, as well as joint and several, liability on
several classes of potentially responsible parties, including current owners and operators of the property who did not cause or
contribute to the contamination. Furthermore, liability under CERCLA is not limited to the original or unamortized principal balance of
a loan or to the value of the property securing a loan. Lenders may be held liable under CERCLA as owners or operators unless they
qualify for the secured creditor exemption to CERCLA. This exemption exempts from the definition of owners and operators those who,
without participating in the management of a facility, hold indicia of ownership primarily to protect a security interest in the
facility.
The Conservation Act amended, among other things, the provisions of CERCLA with respect to lender liability and the secured
creditor exemption. The Conservation Act offers substantial protection to lenders by defining the activities in which a lender can
engage and still have the benefit of the secured creditor exemption. In order for lender to be deemed to have participated in the
management of a mortgaged property, the lender must actually participate in the operational affairs of the property of the borrower. The
Conservation Act provides that "merely having the capacity to influence, or unexercised right to control" operations does not constitute
participation in management. A lender will lose the protection of the secured creditor exemption 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 mortgaged property. The Conservation Act also provides that a lender will continue to
have the benefit of the secured creditor exemption even if it forecloses on a mortgaged property, purchases it at a foreclosure sale or
accepts a deed-in-lieu of foreclosure provided that the lender seeks to sell the mortgaged property at the earliest practicable
commercially reasonable time on commercially reasonable terms.
Other federal and state laws may impose liability on a secured party which takes a deed-in-lieu of foreclosure, purchases a
mortgaged property at a foreclosure sale, or operates a mortgaged property on which contaminants other than CERCLA hazardous substances
are present, including petroleum, agricultural chemicals, hazardous wastes, asbestos, radon, and lead-based paint. The cleanup costs may
be substantial. It is possible that the cleanup costs could become a liability of a trust fund and reduce the amounts otherwise
distributable to the holders of the related series of certificates or notes. Moreover, federal statutes and states by statute may impose
a lien for any cleanup costs incurred by the state on the property that is the subject of the cleanup costs. All subsequent liens on the
property generally are subordinated to the lien and, in some states, even prior recorded liens are subordinated to such lien. In the
latter states, the security interest of the trustee in a related parcel of real property that is subject to the lien could be adversely
affected.
Traditionally, many residential mortgage lenders have not taken steps to evaluate whether contaminants are present with respect
to any mortgaged property prior to the origination of the mortgage loan or prior to foreclosure or accepting a deed-in-lieu of
foreclosure. Accordingly, the depositor has not made and will not make the evaluations prior to the origination of the secured
contracts. Neither the master servicer nor any servicer will be required by any Agreement to undertake these evaluations prior to
foreclosure or accepting a deed-in-lieu of foreclosure. The depositor does not make any representations or warranties or assume any
liability with respect to the absence or effect of contaminants on any related real property or any casualty resulting from the presence
or effect of contaminants. However, neither the master servicer nor any servicer will be obligated to foreclose on related real property
or accept a deed-in-lieu of foreclosure if it knows or reasonably believes that there are material contaminated conditions on the
property. A failure so to foreclose may reduce the amounts otherwise available to certificateholders of the related series.
Consumer Protection Laws
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 TILA, 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
obligors' rescinding the mortgage loans either against the originators or assignees. Further, the failure of the borrower to use the
correct form of notice of right to cancel in connection with non-purchase money transactions could subject the originator and assignees
to extended borrower rescission rights.
Homeownership Act and Similar State Laws
Some of the mortgage loans, known as High Cost Loans, may be subject to special rules, disclosure requirements and other
provisions that were added to the federal TILA by the Homeownership Act, if such trust assets were originated after October 1, 1995, are
not loans made to finance the purchase of the mortgaged property and have interest rates or origination costs in excess of certain
prescribed levels. The Homeownership Act requires certain additional disclosures, specifies the timing of those disclosures and limits
or prohibits the inclusion of certain provisions in mortgages subject to the Homeownership Act. Purchasers or assignees of any High Cost
Loan, including any trust, could be liable under federal law for all claims and subject to all defenses that the borrower could assert
against the originator of the High Cost Loan under the federal TILA or any other law, unless the purchaser or assignee did not know and
could not with reasonable diligence have determined that the mortgage loan was subject to the provisions of the Homeownership Act.
Remedies available to the borrower include monetary penalties, as well as rescission rights if the appropriate disclosures were not
given as required or if the particular mortgage includes provisions prohibited by law. The maximum damages that may be recovered under
these 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 the federal, state and local
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 interest rates or origination costs in excess of prescribed levels,
and require that borrowers be given certain disclosures prior to the consummation of the mortgage loans. In some cases, state or local
law may impose requirements and restrictions greater than those in the Homeownership Act. An originators' failure to comply with these
laws could subject the trust (and other assignees of the mortgage loans) to monetary penalties and could result in the borrowers
rescinding the mortgage loans against either the trust or subsequent holders of the mortgage loans.
Lawsuits have been brought in various states making claims against assignees of High Cost Loans for violations of state law
allegedly committed by the originator. Named defendants in these cases include numerous participants within the secondary mortgage
market, including some securitization trusts.
Under the anti-predatory lending laws of some states, the borrower is required to meet a net tangible benefits test in
connection with the origination of the related mortgage loan. This test may be highly subjective and open to interpretation. As a
result, a court may determine that a mortgage loan does not meet the test even if the originator reasonably believed that the test was
satisfied. Any determination by a court that the mortgage loan does not meet the test will result in a violation of the state
anti-predatory lending law, in which case the related seller will be required to purchase that mortgage loan from the trust.
Additional Consumer Protections Laws with Respect to ContractsContracts often contain provisions obligating the obligor to pay late charges if payments are not timely made. Federal and
state law may specifically limit the amount of late charges that may be collected. Under the related pooling and servicing agreement or
servicing agreement, late charges will be retained by the master servicer or servicer as additional servicing compensation, and any
inability to collect these amounts will not affect payments to Securityholders.
Courts have imposed general equitable principles upon repossession and litigation involving deficiency balances. These
equitable principles are generally designed to relieve a consumer from the legal consequences of a default.
In several cases, consumers have asserted that the remedies provided to secured parties under the UCC and related laws violate
the due process protections provided under the 14th Amendment to the Constitution of the United States. For the most part, courts have
upheld the notice provisions of the UCC and related laws as reasonable or have found that the repossession and resale by the creditor
does not involve sufficient state action to afford constitutional protection to consumers.
The FTC Rule has the effect of subjecting a seller (and some 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 the FTC Rule is limited to the amounts paid by a debtor on the Contract, and the holder of the
Contract may also be unable to collect amounts still due under the Contract. Most of the Contracts in a trust fund will be subject to
the requirements of the FTC Rule. Accordingly, the trust fund, as holder of the 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, subject to a maximum
liability equal to the amounts paid by the obligor on the Contract. If an obligor is successful in asserting the claim or defense, and
if the Seller had or should have had knowledge of the claim or defense, the master servicer will have the right to require the Seller to
repurchase the Contract because of breach of its Seller's representation and warranty that no claims or defenses exist that would affect
the obligor's obligation to make the required payments under the Contract. The Seller would then have the right to require the
originating dealer to repurchase the Contract from it and might also have the right to recover from the dealer any losses suffered by
the Seller with respect to which the dealer would have been primarily liable to the obligor.
Enforceability of Certain Provisions
Transfer of Mortgaged Properties. Unless the related prospectus supplement indicates otherwise, the mortgage loans generally
contain due-on-sale clauses. These clauses permit the lender to accelerate the maturity of the loan if the borrower sells, transfers or
conveys the property without the prior consent of the lender. The enforceability of these clauses has been the subject of legislation or
litigation in many states, and in some cases the enforceability of these clauses was limited or denied. However, Garn-St Germain Act
preempts state constitutional, statutory and case law that prohibits the enforcement of due-on-sale clauses and permits lenders to
enforce these clauses in accordance with their terms, subject to limited exceptions. The Garn-St Germain Act does "encourage" lenders to
permit assumption of loans at the original rate of interest or at some other rate less than the average of the original rate and the
market rate.
The Garn-St Germain Act also sets forth nine specific instances in which a mortgage lender covered by the Garn-St Germain Act
may not exercise a due-on-sale clause, notwithstanding the fact that a transfer of the property may have occurred. These include,
amongst others, intra-family transfers, some transfers by operation of law, leases of fewer than three years and the creation of a
junior encumbrance. Regulations promulgated under the Garn-St Germain Act also prohibit the imposition of a prepayment penalty upon the
acceleration of a loan pursuant to a due-on-sale clause.
The inability to enforce a due-on-sale clause may result in a mortgage loan bearing an interest rate below the current market
rate being assumed by the buyer rather than being paid off, which may have an impact upon the average life of the mortgage loans and the
number of mortgage loans which may be outstanding until maturity.
Transfer of Manufactured Homes. Generally, Contracts contain provisions prohibiting the sale or transfer of the related
Manufactured Home without the consent of the obligee on the Contract and permitting the acceleration of the maturity of the Contracts by
the obligee on the Contract upon a sale or transfer that is not consented to. The master servicer will, or will cause the servicer of
the Contract, to the extent it has knowledge of the conveyance or proposed conveyance, to exercise or cause to be exercised its rights
to accelerate the maturity of the related Contracts through enforcement of due-on-sale clauses, subject to applicable state law. In some
cases, the transfer may be made by a delinquent obligor in order to avoid a repossession proceeding with respect to a Manufactured Home.
In the case of a transfer of a Manufactured Home as to which the master servicer or servicer of the Contract desires to
accelerate the maturity of the related Contract, the master servicer's or servicer's ability to do so will depend on the enforceability
under state law of the due-on-sale clause. The Garn-St Germain Act preempts, subject to certain exceptions and conditions, state laws
prohibiting enforcement of due-on-sale clauses applicable to the Manufactured Homes. Consequently, in some cases the master servicer or
servicer may be prohibited from enforcing a due-on-sale clause in respect of a Manufactured Home.
Late Payment Charges and Prepayment Restrictions. Notes and mortgages, as well as manufactured housing conditional sales
contracts and installment loan agreements, may contain provisions that obligate the borrower to pay a late charge or additional interest
if payments are not timely made, and in some circumstances, may prohibit prepayments for a specified period and/or condition prepayments
upon the borrower's payment of prepayment fees or yield maintenance penalties. In some states, there are or may be specific limitations
upon the late charges which a lender may collect from a borrower for delinquent payments or the amounts that a lender may collect from a
borrower as an additional charge if the loan is prepaid even when the loans expressly provide for the collection of those charges.
Although 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 and late fees may not be collected even on
loans that provide for the payment of those charges unless otherwise specified in the related prospectus supplement. The master
servicer or another entity identified in the accompanying prospectus supplement will be entitled to all prepayment charges and late
payment charges received on the loans and those amounts will not be available for payment on the bonds. The Office of Thrift
Supervision (OTS), the agency that administers the Parity Act for unregulated housing creditors, withdrew its favorable Parity Act
regulations and Chief Counsel Opinions that previously authorized lenders to charge prepayment charges and late fees in certain
circumstances notwithstanding contrary state law, effective with respect to loans originated on or after July 1, 2003. However, the
OTS's ruling does not retroactively affect loans originated before July 1, 2003.
Subordinate Financing
When the mortgagor encumbers mortgaged property with one or more junior liens, the senior lender is subjected to additional
risk. First, the mortgagor may have difficulty servicing and repaying multiple loans. In addition, if the junior loan permits recourse
to the mortgagor (as junior loans often do) and the senior loan does not, a mortgagor may be more likely to repay sums due on the junior
loan than those on the senior loan. Second, acts of the senior lender that prejudice the junior lender or impair the junior lender's
security may create a superior equity in favor of the junior lender. For example, if the mortgagor and the senior lender agree to an
increase in the principal amount of or the interest rate payable on the senior loan, the senior lender may lose its priority to the
extent an existing junior lender is harmed or the mortgagor is additionally burdened. Third, if the mortgagor defaults on the senior
loan and/or any junior loan or loans, the existence of junior loans and actions taken by junior lenders can impair the security
available to the senior lender and can interfere with or delay the taking of action by the senior lender. Moreover, the bankruptcy of a
junior lender may operate to stay foreclosure or similar proceedings by the senior lender.
Installment Contracts
The trust fund assets may also consist of installment sales contracts. Under an installment contract the seller (referred to in
this section as the "lender") retains legal title to the property and enters into an agreement with the purchaser (referred to in this
section as the "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 installment 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 the 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 its
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 this situation is not required 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 these 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 defaulted 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, 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.
Applicability of Usury Laws
Title V provides that state usury limitations shall not apply to some types of residential first mortgage loans originated by
some lenders after March 31,1980. A similar federal statute was in effect with respect to mortgage loans made during the first three
months of 1980. The Office of Thrift Supervision is authorized to issue rules and regulations and to publish interpretations governing
implementation of Title V. The statute authorized any state to reimpose interest rate limits by adopting, before April 1, 1983, a law or
constitutional provision which expressly rejects application of the federal law. In addition, even where Title V is not so rejected, any
state is authorized by the law to adopt a provision limiting discount points or other charges on mortgage loans covered by Title V. Some
states have taken action to reimpose interest rate limits or to limit discount points or other charges.
Title V also provides that, subject to the following conditions, state usury limitations shall not apply to any loan that is
secured by a first lien on some kinds of Manufactured Housing. Contracts would be covered if they satisfy conditions including, among
other things, terms governing any prepayments, late charges and deferral fees and requiring a 30-day notice period prior to instituting
any action leading to repossession of or foreclosure with respect to the related unit. Title V 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 this type of law prior to the April 1,1983 deadline. In addition, even
where Title V was not so rejected, any state is authorized by the law to adopt a provision limiting discount points or other charges on
loans covered by Title V. In any state in which application of Title V was expressly rejected or a provision limiting discount points or
other charges has been adopted, no Contract which imposes finance charges or provides for discount points or charges in excess of
permitted levels has been included in the trust fund.
Usury limits apply to junior mortgage loans in many states. Any applicable usury limits in effect at origination will be
reflected in the maximum mortgage rates for ARM Loans, as set forth in the related prospectus supplement.
As indicated above under "The Mortgage Pools—Representations by Sellers," each Seller of a mortgage loan will have represented
that the mortgage loan was originated in compliance with then applicable state laws, including usury laws, in all material respects.
However, the mortgage rates on the mortgage loans will be subject to applicable usury laws as in effect from time to time.
Alternative Mortgage Instruments
Alternative mortgage instruments, including adjustable rate mortgage loans and early ownership mortgage loans, originated by
non-federally chartered lenders historically have been subjected to a variety of restrictions. The restrictions differed from state to
state, resulting in difficulties in determining whether a particular alternative mortgage instrument originated by a state-chartered
lender was in compliance with applicable law. These difficulties were alleviated substantially as a result of the enactment of Title
VIII. Title VIII provides that, notwithstanding any state law to the contrary, (1) state-chartered banks may originate alternative
mortgage instruments in accordance with regulations promulgated by the Comptroller of the Currency with respect to origination of
alternative mortgage instruments by national banks, (2) state-chartered credit unions may originate alternative mortgage instruments in
accordance with regulations promulgated by the National Credit Union Administration with respect to origination of alternative mortgage
instruments by federal credit unions, and (3) all other non-federally chartered housing creditors, including state-chartered savings and
loan associations, state-chartered savings banks and mutual savings banks and mortgage banking companies, may originate alternative
mortgage instruments in accordance with the regulations promulgated by the Federal Home Loan Bank Board, predecessor to the Office of
Thrift Supervision, with respect to origination of alternative mortgage instruments by federal savings and loan associations. Title VIII
provides that any state may reject applicability of the provisions of Title VIII by adopting, prior to October 15, 1985, a law or
constitutional provision expressly rejecting the applicability of the provisions. Some states have taken this action.
Formaldehyde Litigation with Respect to Contracts
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 components of manufactured housing such as plywood flooring and wall paneling.
Some of these lawsuits are pending against manufacturers of manufactured housing, suppliers of component parts, and related persons in
the distribution process. The depositor is aware of a limited number of cases in which plaintiffs have won judgments in these lawsuits.
Under the FTC Rule, which is described above under "Consumer Protection Laws", the holder of any Contract secured by a
Manufactured Home with respect to which a formaldehyde claim has been successfully asserted may be liable to the obligor for the amount
paid by the obligor on the related Contract and may be unable to collect amounts still due under the Contract. In the event an obligor
is successful in asserting this claim, the related securityholders could suffer a loss if (1) the related Seller fails or cannot be
required to repurchase the affected Contract for a breach of representation and warranty and (2) the master servicer, servicer of the
Contract or the trustee were unsuccessful in asserting any claim of contribution or subornation on behalf of the securityholders against
the manufacturer or other persons who were directly liable to the plaintiff for the damages. Typical products liability insurance
policies held by manufacturers and component suppliers of manufactured homes may not cover liabilities arising from formaldehyde in
manufactured housing, with the result that recoveries from these manufacturers, suppliers or other persons may be limited to their
corporate assets without the benefit of insurance.
The Servicemembers Civil Relief Act
Under the terms of the Relief Act, a mortgagor who enters military service after the origination of the mortgagor's mortgage
loan (including a mortgagor who was in reserve status and is called to active duty after origination of the mortgage loan), may not be
charged interest (including fees and charges) above an annual rate of 6% during the period of the mortgagor's active duty status, unless
a court orders otherwise upon application of the lender. The Relief Act applies to mortgagors who are members of the Army, Navy, Air
Force, Marines, National Guard, Reserves, Coast Guard, and officers of the U.S. Public Health Service assigned to duty with the
military. Because the Relief Act applies to mortgagors who enter military service, including reservists who are called to active duty,
after origination of the related mortgage loan, no information can be provided as to the number of loans that may be affected by the
Relief Act. With respect to any mortgage loan subject to the Relief Act with an interest rate in excess of 6% per annum, application of
the Relief Act would adversely affect, for an indeterminate period of time, the ability of the master servicer or servicer to collect
full amounts of interest on that mortgage loan. Any shortfall in interest collections resulting from the application of the Relief Act
or similar legislation or regulations, which would not be recoverable from the related mortgage loans, would result in a reduction of
the amounts distributable to the holders of the related securities, and would not be covered by advances by the master servicer, any
servicer or other entity or by any form of credit enhancement provided in connection with the related series of securities, unless
described in the prospectus supplement. In addition, the Relief Act imposes limitations that would impair the ability of the master
servicer or servicer to foreclose on an affected single family loan or enforce rights under a Contract during the mortgagor's period of
active duty status, and, under some circumstances, during an additional three month period thereafter. Thus, in the event that the
Relief Act or similar legislation or regulations applies to any mortgage loan which goes into default, there may be delays in payment
and losses on the related securities in connection therewith. Any other interest shortfalls, deferrals or forgiveness of payments on the
mortgage loans resulting from similar legislation or regulations may result in delays in payments or losses to securityholders of the
related series.
Certain states have enacted or may enact their own versions of the Relief Act which may provide for more enhanced consumer
protection provisions than those set forth in the Relief Act. The Relief Act may not preempt those state laws.
Forfeitures in Drug and RICO Proceedings
Federal law provides that property owned by persons convicted of drug-related crimes or of criminal violations of RICO can be
seized by the government if the property was used in, or purchased with the proceeds of, these crimes. Under procedures contained in the
Crime Control Act, the government may seize the property even before conviction. The government must publish notice of the forfeiture
proceeding and may give notice to all parties "known to have an alleged interest in the property", including the holders of mortgage
loans.
A lender may avoid forfeiture of its interest in the property if it establishes that: (1) its mortgage was executed and
recorded before commission of the crime upon which the forfeiture is based, or (2) the lender was, at the time of execution of the
mortgage, "reasonably without cause to believe" that the property was used in, or purchased with the proceeds of, illegal drug or RICO
activities.
Junior Mortgages
Some of the mortgage loans may be secured by mortgages or deeds of trust which are junior to senior mortgages or deeds of trust
which are not part of the trust fund. The rights of the securityholders, as mortgagee under a junior mortgage, are subordinate to those
of the mortgagee under the senior mortgage, including the prior rights of the senior mortgagee to receive hazard insurance and
condemnation proceeds and to cause the property securing the mortgage loan to be sold upon default of the mortgagor, which may
extinguish the junior mortgagee's lien unless the junior mortgagee asserts its subordinate interest in the property in foreclosure
litigation and, in some cases, either reinitiates or satisfies the defaulted senior loan or loans. A junior mortgagee may satisfy a
defaulted senior loan in full or, in some states, may cure the default and bring the senior loan current thereby reinstating the senior
loan, in either event usually 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. Where applicable law or the terms of
the senior mortgage or deed of trust do not require notice of default to the junior mortgagee, the lack of this notice may prevent the
junior mortgagee from exercising any right to reinstate the loan which applicable law may provide.
The standard form of the mortgage or deed of trust 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 the proceeds and awards to any indebtedness secured by the mortgage or deed of trust, in the order 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 junior mortgages in the order of their priority.
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 are 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 thereof, 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 or beneficiary is given the right under some mortgages or deeds of trust 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 a senior mortgagee become part of the indebtedness secured by the senior mortgage.
Negative Amortization Loans
A notable case decided by the United States Court of Appeals, First Circuit, held that state restrictions on the compounding of
interest are not preempted by the provisions of the DIDMC and as a result, a mortgage loan that provided for negative amortization
violated New Hampshire's requirement that first mortgage loans provide for computation of interest on a simple interest basis. The
holding was limited to the effect of DIDMC on state laws regarding the compounding of interest and the court did not address the
applicability of the Parity Act, which authorizes lender to make residential mortgage loans that provide for negative amortization. The
First Circuit's decision is binding authority only on Federal District Courts in Maine, New Hampshire, Massachusetts, Rhode Island and
Puerto Rico.
FEDERAL INCOME TAX CONSEQUENCESGeneral
The following discussion is the opinion of Thacher Proffitt & Wood llp, Orrick, Herrington & Sutcliffe LLP and Greenberg
Traurig, LLP counsel to the depositor, with respect to the anticipated material federal income tax consequences of the purchase,
ownership and disposition of offered securities offered under this prospectus and the prospectus supplement insofar as it relates to
matters of law or legal conclusions with respect thereto. This discussion is directed solely to securityholders that hold the securities
as capital assets within the meaning of Section 1221 of the Code and does not purport to discuss all federal income tax consequences
that may be applicable to the individual circumstances of particular categories of investors, some of which (such as banks, insurance
companies and foreign investors) may be subject special treatment under the Code. Further, the authorities on which this discussion, and
the opinion referred to below, are based are subject to change or differing interpretations, which could apply retroactively.
Prospective investors should note that no rulings have been or will be sought from the IRS with respect to any of the federal income tax
consequences discussed below, and no assurance can be given that the IRS will not take contrary positions. Taxpayers and preparers of
tax returns (including those filed by any REMIC or other issuer) should be aware that under applicable Treasury regulations a provider
of advice on specific issues of law is not considered an income tax return preparer unless the advice (1) is given with respect to
events that have occurred at the time the advice is rendered and is not given with respect to the consequences of contemplated actions,
and (2) is directly relevant to the determination of an entry on a tax return. Accordingly, taxpayers are encouraged to consult their
own tax advisors and tax return preparers regarding the preparation of any item on a tax return, even where the anticipated tax
treatment has been discussed in this prospectus. In addition to the federal income tax consequences described in this prospectus,
potential investors are encouraged to consider the state and local tax consequences, if any, of the purchase, ownership and disposition
of the securities. See "State and Other Tax Consequences" in this prospectus.
The following discussion addresses securities of three general types:
1. REMIC Certificates representing interests in a trust fund, or a portion thereof, that the REMIC Administrator will elect to
have treated as one or more REMICs under the REMIC Provisions of the Code,
2. notes representing indebtedness of a trust fund as to which no REMIC election will be made,
3. Grantor Trust Certificates representing interests in a Grantor Trust Fund as to which no REMIC election will be made, and
4. securities representing an ownership interest in some or all of the assets included in the exchangeable security trust fund for
an ES Class.
The prospectus supplement for each series of certificates will indicate whether a REMIC election (or elections) will be made for the
related trust fund and, if this election is to be made, will identify all "regular interests" and "residual interests" in the REMIC. For
purposes of this tax discussion, references to a "securityholder,""certificateholder" or a "holder" are to the beneficial owner of a
security or certificate, as the case may be.
The prospectus supplement for each series of securities will indicate which of the foregoing treatments will apply to that
series. In addition, if a Partnership Structure is being used, the tax treatment of such structure will be described in the related
prospectus supplement.
The following discussion is based in part upon the OID Regulations and in part upon REMIC Regulations. The OID Regulations do
not adequately address issues relevant to securities such as the offered securities. In some instances, the OID Regulations provide that
they are not applicable to securities such as the offered securities.
REMICS
Classification of REMICS. On or prior to the date of the related prospectus supplement with respect to the proposed issuance
of each series of REMIC Certificates, any of Thacher Proffitt & Wood llp, Orrick, Herrington & Sutcliffe LLP or Greenberg Traurig LLP,
as counsel to the depositor, or another law firm identified in the related prospectus supplement, will deliver its opinion generally to
the effect that, assuming compliance with all provisions of the related pooling and servicing agreement, for federal income tax
purposes, the related trust fund (or each applicable portion thereof) will qualify as a REMIC and the REMIC Certificates offered with
respect thereto will be considered to evidence ownership of REMIC Regular Certificates or REMIC Residual Certificates in that REMIC
within the meaning of the REMIC Provisions.
If an entity electing to be treated as a REMIC fails to comply with one or more of the ongoing requirements of the Code for
status as a REMIC during any taxable year, the Code provides that the entity will not be treated as a REMIC for that year and
thereafter. In that event, the entity may be taxable as a corporation under Treasury regulations, and the related REMIC Certificates may
not be accorded the status or given the tax treatment described below. Although the Code authorizes the Treasury Department to issue
regulations providing relief in the event of an inadvertent termination of REMIC status, no such regulations have been issued. Any such
relief, moreover, 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 status as a REMIC are not satisfied. The pooling and servicing agreement with respect to
each REMIC will include provisions designed to maintain the related trust fund's status as a REMIC under the REMIC Provisions. It is not
anticipated that the status of any trust fund as a REMIC will be inadvertently terminated.
Characterization of Investments in REMIC Certificates. In general, the REMIC Certificates will be "real estate assets" within
the meaning of Section 856(c)(4)(A) of the Code and assets described in Section 7701(a)(19)(C) of the Code in the same proportion that
the assets of the REMIC underlying the certificates would be so treated. Moreover, if 95% or more of the assets of the REMIC qualify for
any of the foregoing treatments at all times during a calendar year, the REMIC Certificates will qualify for the corresponding status in
their entirety for that calendar year. Interest (including original issue discount) on the REMIC Regular Certificates and income
allocated to the class of REMIC Residual Certificates will be interest described in Section 856(c)(3)(B) of the Code to the extent that
the certificates are treated as "real estate assets" within the meaning of Section 856(c)(4)(A) of the Code. In addition, the REMIC
Regular Certificates will be "qualified mortgages" within the meaning of Section 860G(a)(3) of the Code if transferred to another REMIC
on its startup day in exchange for regular or residual interests therein. The determination as to the percentage of the REMIC's assets
that constitute assets described in the foregoing sections of the Code will be made with respect to each calendar quarter based on the
average adjusted basis of each category of the assets held by the REMIC during the calendar quarter. The REMIC Administrator will report
those determinations to certificateholders in the manner and at the times required by applicable Treasury regulations.
The assets of the REMIC will include, in addition to mortgage loans, payments on mortgage loans held pending distribution on
the REMIC Certificates and any property acquired by foreclosure held pending sale, and may include amounts in reserve accounts. It is
unclear whether property acquired by foreclosure held pending sale and amounts in reserve accounts would be considered to be part of the
mortgage loans, or whether the assets (to the extent not invested in assets described in the foregoing sections) otherwise would receive
the same treatment as the mortgage loans for purposes of all of the Code sections mentioned in the immediately preceding paragraph. In
addition, in some instances mortgage loans may not be treated entirely as assets described in the foregoing sections of the Code. If so,
the related prospectus supplement will describe the mortgage loans that may not be so treated. The REMIC Regulations do provide,
however, that cash received from payments on mortgage loans held pending distribution is considered part of the mortgage loans for
purposes of Section 856(c)(4)(A) of the Code. Furthermore, foreclosure property will qualify as "real estate assets" under Section
856(c)(4)(A) of the Code.
Tiered REMIC Structures. For some series of REMIC Certificates, two or more separate elections may be made to treat designated
portions of the related trust fund as REMICs for federal income tax purposes. As to each such series of REMIC Certificates, in the
opinion of counsel to the depositor, assuming compliance with all provisions of the related pooling and servicing agreement, each of the
REMICs in that trust fund will qualify as a REMIC and the REMIC Certificates issued by these REMICs will be considered to evidence
ownership of REMIC Regular Certificates or REMIC Residual Certificates in the related REMIC within the meaning of the REMIC Provisions.
Solely for purposes of determining whether the REMIC Certificates will be "real estate assets" within the meaning of Section
856(c)(4)(A) of the Code, and "loans secured by an interest in real property" under Section 7701(a)(19)(C) of the Code, and whether the
income on the certificates is interest described in Section 856(c)(3)(B) of the Code, all of the REMICs in that trust fund will be
treated as one REMIC.
Taxation of Owners of REMIC Regular Certificates.General. Except as otherwise stated in this discussion, REMIC 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 REMIC
Regular Certificates that otherwise report income under a cash method of accounting will be required to report income with respect to
REMIC Regular Certificates under an accrual method.
Original Issue Discount. A REMIC Regular Certificate may be issued with "original issue discount" within the meaning of Section
1273(a) of the Code. Any holder of a REMIC Regular Certificate issued with original issue discount generally will be required to include
original issue discount in income as it accrues, in accordance with the "constant yield" method described below, in advance of the
receipt of the cash attributable to that income. In addition, Section 1272(a)(6) of the Code provides special rules applicable to REMIC
Regular Certificates and some other debt instruments issued with original issue discount. Regulations have not been issued under that
section.
The Code requires that a reasonable prepayment assumption be used with respect to mortgage loans held by a REMIC in computing
the accrual of original issue discount on REMIC Regular Certificates issued by that REMIC, and that adjustments be made in the amount
and rate of accrual of that discount to reflect differences between the actual prepayment rate and the prepayment assumption. The
prepayment assumption is to be determined in a manner prescribed in Treasury regulations; as noted above, those regulations have not
been issued. The Committee Report indicates that the regulations will provide that the prepayment assumption used with respect to a
REMIC Regular Certificate must be the same as that used in pricing the initial offering of the REMIC Regular Certificate. The Prepayment
Assumption used in reporting original issue discount for each series of REMIC Regular Certificates will be consistent with this standard
and will be disclosed in the related prospectus supplement. However, none of the depositor, the master servicer or the trustee will make
any representation that the mortgage loans will in fact prepay at a rate conforming to the Prepayment Assumption or at any other rate.
The original issue discount, if any, on a REMIC Regular Certificate will be the excess of its stated redemption price at
maturity over its issue price. The issue price of a particular class of REMIC Regular Certificates will be the first cash price at which
a substantial amount of REMIC Regular Certificates of that class is sold (excluding sales to bond houses, brokers and underwriters). If
less than a substantial amount of a particular class of REMIC Regular Certificates is sold for cash on or prior to the Closing Date, the
issue price for that class will be the fair market value of that class on the Closing Date. Under the OID Regulations, the stated
redemption price of a REMIC Regular Certificate is equal to the total of all payments to be made on the certificate other than
"qualified stated interest.""Qualified stated interest" is interest that is unconditionally payable at least annually (during the entire
term of the instrument) at a single fixed rate, or at a "qualified floating rate," an "objective rate," a combination of a single fixed
rate and one or more "qualified floating rates" or one "qualified inverse floating rate," or a combination of "qualified floating rates"
that does not operate in a manner that accelerates or defers interest payments on the REMIC Regular Certificate.
In the case of REMIC Regular Certificates bearing adjustable interest rates, the determination of the total amount of original
issue discount and the timing of the inclusion thereof will vary according to the characteristics of the REMIC Regular Certificates. If
the original issue discount rules apply to the certificates in a particular series, the related prospectus supplement will describe the
manner in which these rules will be applied with respect to the certificates in that series that bear an adjustable interest rate in
preparing information returns to the certificateholders and the IRS.
The first interest payment on a REMIC Regular Certificate may be made more than one month after the date of issuance, which is
a period longer than the subsequent monthly intervals between interest payments. Assuming the "accrual period" (as defined below) for
original issue discount is each monthly period that ends on the day prior to each distribution date, in some cases, as a consequence of
this "long first accrual period," some or all interest payments may be required to be included in the stated redemption price of the
REMIC Regular Certificate and accounted for as original issue discount. Because interest on REMIC Regular Certificates must in any event
be accounted for under an accrual method, applying this analysis would result in only a slight difference in the timing of the inclusion
in income of the yield on the REMIC Regular Certificates.
In addition, if the accrued interest to be paid on the first distribution date is computed with respect to a period that begins
prior to the Closing Date, a portion of the purchase price paid for a REMIC Regular Certificate will reflect the accrued interest. In
such cases, information returns to the certificateholders and the IRS will be based on the position that the portion of the purchase
price paid for the interest accrued with respect to periods prior to the Closing Date is treated as part of the overall cost of the
REMIC Regular Certificate (and not as a separate asset the cost of which is recovered entirely out of interest received on the next
distribution date) and that portion of the interest paid on the first distribution date in excess of interest accrued for a number of
days corresponding to the number of days from the Closing Date to the first distribution date should be included in the stated
redemption price of the REMIC Regular Certificate. However, the OID Regulations state that all or some portion of the accrued interest
may be treated as a separate asset the cost of which is recovered entirely out of interest paid on the first distribution date. It is
unclear how an election to do so would be made under the OID Regulations and whether such an election could be made unilaterally by a
certificateholder.
Notwithstanding the general definition of original issue discount, original issue discount on a REMIC Regular Certificate will
be considered to be de minimis if it is less than 0.25% of the stated redemption price of the REMIC Regular Certificate multiplied by
its weighted average life. For this purpose, the weighted average life of a REMIC Regular Certificate is computed as the sum of the
amounts determined, as to each payment included in the stated redemption price of the REMIC Regular Certificate, by multiplying (1) the
number of complete years (rounding down for partial years) from the issue date until that payment is expected to be made (presumably
taking into account the Prepayment Assumption) by (2) a fraction, the numerator of which is the amount of the payment, and the
denominator of which is the stated redemption price at maturity of the REMIC Regular Certificate. Under the OID Regulations, original
issue discount of only a de minimis amount (other than de minimis original issue discount attributable to a so-called "teaser" interest
rate or an initial interest holiday) will be included in income as each payment of stated principal is made, based on the product of the
total amount of de minimis original issue discount attributable to that certificate and a fraction, the numerator of which is the amount
of the principal payment and the denominator of which is the outstanding stated principal amount of the REMIC Regular Certificate. The
OID Regulations also would permit a certificateholder to elect to accrue de minimis original issue discount into income currently based
on a constant yield method. See "REMICS—Taxation of Owners of REMIC Regular Certificates—Market Discount" in this prospectus for a
description of this election under the OID Regulations.
If original issue discount on a REMIC Regular Certificate is in excess of a de minimis amount, the holder of the certificate
must include in ordinary gross income the sum of the "daily portions" of original issue discount for each day during its taxable year on
which it held the REMIC Regular Certificate, including the purchase date but excluding the disposition date. In the case of an original
holder of a REMIC Regular Certificate, the daily portions of original issue discount will be determined as follows.
As to each "accrual period," that is, each period that ends on a date that corresponds to the day prior to each distribution
date and begins on the first day following the immediately preceding accrual period (or in the case of the first such period, begins on
the Closing Date), a calculation will be made of the portion of the original issue discount that accrued during the accrual period. The
portion of original issue discount that accrues in any accrual period will equal the excess, if any, of (1) the sum of (a) the present
value, as of the end of the accrual period, of all of the distributions remaining to be made on the REMIC Regular Certificate, if any,
in future periods and (b) the distributions made on the REMIC Regular Certificate during the accrual period of amounts included in the
stated redemption price, over (2) the adjusted issue price of the REMIC Regular Certificate at the beginning of the accrual period. The
present value of the remaining distributions referred to in the preceding sentence will be calculated (1) assuming that distributions on
the REMIC Regular Certificate will be received in future periods based on the mortgage loans being prepaid at a rate equal to the
Prepayment Assumption, (2) using a discount rate equal to the original yield to maturity of the certificate and (3) taking into account
events (including actual prepayments) that have occurred before the close of the accrual period. For these purposes, the original yield
to maturity of the certificate will be calculated based on its issue price and assuming that distributions on the certificate will be
made in all accrual periods based on the mortgage loans being prepaid at a rate equal to the Prepayment Assumption. The adjusted issue
price of a REMIC Regular Certificate at the beginning of any accrual period will equal the issue price of the certificate, increased by
the aggregate amount of original issue discount that accrued with respect to the certificate in prior accrual periods, and reduced by
the amount of any distributions made on the certificate in prior accrual periods of amounts included in the stated redemption price. The
original issue discount accruing during any accrual period, computed as described above, will be allocated ratably to each day during
the accrual period to determine the daily portion of original issue discount for that day.
A subsequent purchaser of a REMIC Regular Certificate that purchases a certificate that is treated as having been issued with
original issue discount at a cost (excluding any portion of the cost attributable to accrued qualified stated interest) less than its
remaining stated redemption price will also be required to include in gross income the daily portions of any original issue discount
with respect to the certificate. However, each such daily portion will be reduced, if the cost of the certificate is in excess of its
"adjusted issue price," in proportion to the ratio the excess bears to the aggregate original issue discount remaining to be accrued on
the REMIC Regular Certificate. The adjusted issue price of a REMIC Regular Certificate on any given day equals the sum of (1) the
adjusted issue price (or, in the case of the first accrual period, the issue price) of the certificate at the beginning of the accrual
period which includes that day and (2) the daily portions of original issue discount for all days during the accrual period prior to
that day.
Market Discount. A certificateholder that purchases a REMIC Regular Certificate at a market discount, that is, in the case of a
REMIC Regular Certificate issued without original issue discount, at a purchase price less than its remaining stated principal amount,
or in the case of a REMIC Regular Certificate issued with original issue discount, at a purchase price less than its adjusted issue
price will recognize gain upon receipt of each distribution representing stated redemption price. In particular, under Section 1276 of
the Code such a certificateholder generally will be required to allocate the portion of each distribution representing stated redemption
price 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, the 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
to elect to accrue all interest, discount (including de minimis market or original issue discount) in income, and to amortize premium,
based on a constant yield method. If such an election were made with respect to a REMIC Regular Certificate with market discount, the
certificateholder would be deemed to have made an election to include currently market discount in income with respect to all other debt
instruments having market discount that the certificateholder acquires during the taxable year of the election or thereafter.
Similarly, a certificateholder that made this election for a certificate that is acquired at a premium would 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 "REMICS—Taxation of Owners of REMIC Regular Certificates—Premium" below. Each of these elections to accrue interest,
discount and premium with respect to a certificate on a constant yield method would be irrevocable, except with the approval of the IRS.
However, market discount with respect to a REMIC Regular Certificate will be considered to be de minimis for purposes of
Section 1276 of the Code if the market discount is less than 0.25% of the remaining stated redemption price of the REMIC Regular
Certificate multiplied by the number of complete years to maturity remaining after the date of its purchase. In interpreting a similar
rule with respect to original issue discount on obligations payable in installments, the OID Regulations refer to the weighted average
maturity of obligations, and it is likely that the same rule will be applied with respect to market discount, presumably taking into
account the Prepayment Assumption. If market discount is treated as de minimis under this rule, it appears that the actual discount
would be treated in a manner similar to original issue discount of a de minimis amount. See "REMICS—Taxation of Owners of REMIC Regular
Certificates—Original Issue Discount" above. This treatment would result in discount being included in income at a slower rate than
discount would be required to be included in income using the method described above.
Section 1276(b)(3) of the Code specifically authorizes the Treasury Department to issue regulations providing for the method
for accruing market discount on debt instruments, the principal of which is payable in more than one installment. Until regulations are
issued by the Treasury Department, the rules described in the Committee Report apply. The Committee Report indicates that in each
accrual period market discount on REMIC Regular Certificates should accrue, at the certificateholder's option: (1) on the basis of a
constant yield method, (2) in the case of a REMIC Regular Certificate issued without original issue discount, in an amount that bears
the same ratio to the total remaining market discount as the stated interest paid in the accrual period bears to the total amount of
stated interest remaining to be paid on the REMIC Regular Certificate as of the beginning of the accrual period, or (3) in the case of a
REMIC Regular Certificate issued with original issue discount, in an amount that bears the same ratio to the total remaining market
discount as the original issue discount accrued in the accrual period bears to the total original issue discount remaining on the REMIC
Regular Certificate at the beginning of the accrual period. Moreover, the Prepayment Assumption used in calculating the accrual of
original issue discount is also used in calculating the accrual of market discount. Because the regulations referred to in this
paragraph have not been issued, it is not possible to predict what effect these regulations might have on the tax treatment of a REMIC
Regular Certificate purchased at a discount in the secondary market.
To the extent that REMIC Regular Certificates provide for monthly or other periodic distributions throughout their term, the
effect of these rules may be to require market discount to be includible in income at a rate that is not significantly slower than the
rate at which the discount would accrue if it were original issue discount. Moreover, in any event a holder of a REMIC Regular
Certificate generally will be required to treat a portion of any gain on the sale or exchange of the certificate as ordinary income to
the extent of the market discount accrued to the date of disposition under one of the foregoing methods, less any accrued market
discount previously reported as ordinary income.
Further, under Section 1277 of the Code a holder of a REMIC Regular Certificate may be required to defer a portion of its
interest deductions for the taxable year attributable to any indebtedness incurred or continued to purchase or carry a REMIC Regular
Certificate purchased with market discount. For these purposes, the de minimis rule referred to above applies. Any such deferred
interest expense would not exceed the market discount that accrues during the taxable year and is, in general, allowed as a deduction
not later than the year in which the market discount is includible in income. If a holder elects to include market discount in income
currently as it accrues on all market discount instruments acquired by the holder in that taxable year or thereafter, the interest
deferral rule described above will not apply.
Premium. A REMIC Regular Certificate purchased at a cost (excluding any portion of the cost attributable to accrued qualified
stated interest) greater than its remaining stated redemption price will be considered to be purchased at a premium. The holder of a
REMIC Regular Certificate may elect under Section 171 of the Code to amortize the premium under the constant yield method over the life
of the certificate. If made, the election will apply to all debt instruments having amortizable bond premium that the holder owns or
subsequently acquires. Amortizable premium will be treated as an offset to interest income on the related debt instrument, rather than
as a separate interest deduction. The OID Regulations also permit certificateholders to elect to include all interest, discount and
premium in income based on a constant yield method, further treating the certificateholder as having made the election to amortize
premium generally. See "REMICS—Taxation of Owners of REMIC Regular Certificates—Market Discount" above. The Committee Report states that
the same rules that apply to accrual of market discount (which rules will require use of a Prepayment Assumption in accruing market
discount with respect to REMIC Regular Certificates without regard to whether the certificates have original issue discount) will also
apply in amortizing bond premium under Section 171 of the Code. The use of an assumption that there will be no prepayments may be
required.
Realized Losses. Under Section 166 of the Code, both corporate holders of the REMIC Regular Certificates and non-corporate
holders of the REMIC Regular Certificates that acquire the certificates in connection with a trade or business should be allowed to
deduct, as ordinary losses, any losses sustained during a taxable year in which their certificates become wholly or partially worthless
as the result of one or more realized losses on the mortgage loans. However, it appears that a non-corporate holder that does not
acquire a REMIC Regular Certificate in connection with a trade or business will not be entitled to deduct a loss under Section 166 of
the Code until the holder's certificate becomes wholly worthless (i.e., until its outstanding principal balance has been reduced to
zero) and that the loss will be characterized as a short-term capital loss.
Each holder of a REMIC Regular Certificate will be required to accrue interest and original issue discount with respect to the
certificate, without giving effect to any reductions in distributions attributable to defaults or delinquencies on the mortgage loans or
the certificate underlying the REMIC Certificates, as the case may be, until it can be established that the reduction ultimately will
not be recoverable. As a result, the amount of taxable income reported in any period by the holder of a REMIC Regular Certificate could
exceed the amount of economic income actually realized by that holder in the period. Although the holder of a REMIC Regular Certificate
eventually will recognize a loss or reduction in income attributable to previously accrued and included income that as the result of a
realized loss ultimately will not be realized, the law is unclear with respect to the timing and character of this loss or reduction in
income.
Taxation of Owners of REMIC Residual Certificates
General. Although a REMIC is a separate entity for federal income tax purposes, a REMIC generally is not subject to
entity-level taxation, except with regard to prohibited transactions and some other transactions. See "—Prohibited Transactions andOther Possible REMIC Taxes" below. Rather, the taxable income or net loss of a REMIC is generally taken into account by the holder of
the REMIC Residual Certificates. Accordingly, the REMIC Residual Certificates will be subject to tax rules that differ significantly
from those that would apply if the REMIC Residual Certificates were treated for federal income tax purposes as direct ownership
interests in the mortgage loans or as debt instruments issued by the REMIC.
A holder of a REMIC Residual Certificate generally will be required to report its daily portion of the taxable income or,
subject to the limitations noted in this discussion, the net loss of the REMIC for each day during a calendar quarter that the holder
owned the REMIC Residual Certificate. For this purpose, the taxable income or net loss of the REMIC will be allocated to each day in the
calendar quarter ratably using a "30 days per month/90 days per quarter/360 days per year" convention unless otherwise disclosed in the
related prospectus supplement. The daily amounts so allocated will then be allocated among the REMIC Residual Certificateholders in
proportion to their respective ownership interests on that day. Any amount included in the gross income or allowed as a loss of any
REMIC Residual Certificateholder by virtue of this paragraph will be treated as ordinary income or loss. The taxable income of the REMIC
will be determined under the rules described below in "Taxable Income of the REMIC" and will be taxable to the REMIC Residual
Certificateholders without regard to the timing or amount of cash distributions by the REMIC. Ordinary income derived from REMIC
Residual Certificates will be "portfolio income" for purposes of the taxation of taxpayers subject to limitations under Section 469 of
the Code on the deductibility of "passive losses."
A holder of a REMIC Residual Certificate that purchased the certificate from a prior holder of that certificate also will be
required to report on its federal income tax return amounts representing its daily share of the taxable income (or net loss) of the
REMIC for each day that it holds the REMIC Residual Certificate. Those daily amounts generally will equal the amounts of taxable income
or net loss determined as described above. The Committee Report indicates that some modifications of the general rules may be made, by
regulations, legislation or otherwise to reduce (or increase) the income of a REMIC Residual Certificateholder that purchased the REMIC
Residual Certificate from a prior holder of the certificate at a price greater than (or less than) the adjusted basis (as defined below)
the REMIC Residual Certificate would have had in the hands of an original holder of the certificate. The REMIC Regulations, however, do
not provide for any such modifications.
Any payments received by a holder of a REMIC Residual Certificate in connection with the acquisition of the REMIC Residual
Certificate will be taken into account in determining the income of the holder for federal income tax purposes. Although it appears
likely that any of these payments would be includible in income immediately upon its receipt, the IRS might assert that these payments
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 these payments, holders of REMIC Residual Certificates are encouraged to consult their tax
advisors concerning the treatment of these payments for income tax purposes.
The amount of income REMIC Residual Certificateholders will be required to report (or the tax liability associated with the
income) may exceed the amount of cash distributions received from the REMIC for the corresponding period. Consequently, REMIC Residual
Certificateholders should have other sources of funds sufficient to pay any federal income taxes due as a result of their ownership of
REMIC Residual Certificates or unrelated deductions against which income may be offset, subject to the rules relating to "excessinclusions" and "noneconomic" residual interests discussed below. The fact that the tax liability associated with the income allocated
to REMIC Residual Certificateholders may exceed the cash distributions received by the REMIC Residual Certificateholders for the
corresponding period may significantly adversely affect the REMIC Residual Certificateholders' after-tax rate of return. This disparity
between income and distributions may not be offset by corresponding losses or reductions of income attributable to the REMIC Residual
Certificateholder until subsequent tax years and, then, may not be completely offset due to changes in the Code, tax rates or character
of the income or loss.
Taxable Income of the REMIC. The taxable income of the REMIC will equal the income from the mortgage loans and other assets of
the REMIC plus any cancellation of indebtedness income due to the allocation of realized losses to REMIC Regular Certificates, less the
deductions allowed to the REMIC for interest (including original issue discount and reduced by any income from premium on issuance) on
the REMIC Regular Certificates (and any other class of REMIC Certificates constituting "regular interests" in the REMIC not offered by
the prospectus), amortization of any premium on the mortgage loans, bad debt losses with respect to the mortgage loans and, except as
described below, for servicing, administrative and other expenses.
For purposes of determining its taxable income, the REMIC will have an initial aggregate basis in its assets equal to the sum
of the issue prices of all REMIC Certificates (or, if a class of REMIC Certificates is not sold initially, their fair market values).
The aggregate basis will be allocated among the mortgage loans and the other assets of the REMIC in proportion to their respective fair
market values. The issue price of any offered REMIC Certificates will be determined in the manner described above under "—Taxation of
Owners of REMIC Regular Certificates—Original Issue Discount." The issue price of a REMIC Certificate received in exchange for an
interest in the mortgage loans or other property will equal the fair market value of the interests in the mortgage loans or other
property. Accordingly, if one or more classes of REMIC Certificates are retained initially rather than sold, the REMIC Administrator may
be required to estimate the fair market value of the interests in order to determine the basis of the REMIC in the mortgage loans and
other property held by the REMIC.
Subject to possible application of the de minimis rules, the method of accrual by the REMIC of original issue discount income
and market discount income with respect to mortgage loans that it holds will be equivalent to the method for accruing original issue
discount income for holders of REMIC Regular Certificates (that is, under the constant yield method taking into account the Prepayment
Assumption). However, a REMIC that acquires loans at a market discount must include the market discount in income currently, as it
accrues, on a constant yield basis. See "—Taxation of Owners of REMIC Regular Certificates" above, which describes a method for accruing
discount income that is analogous to that required to be used by a REMIC as to mortgage loans with market discount that it holds.
A mortgage loan will be deemed to have been acquired with discount (or premium) to the extent that the REMIC's basis therein,
determined as described in the preceding paragraph, is less than (or greater than) its stated redemption price. Any such discount will
be includible in the income of the REMIC as it accrues, in advance of receipt of the cash attributable to the income, under a method
similar to the method described above for accruing original issue discount on the REMIC Regular Certificates. It is anticipated that
each REMIC will 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 may be amortized under a constant yield method, presumably taking into account a Prepayment Assumption. Further,
such an election would not apply to any mortgage loan originated on or before September 27, 1985. Instead, premium on such a mortgage
loan should be allocated among the principal payments thereon and be deductible by the REMIC as those payments become due or upon the
prepayment of the mortgage loan.
A REMIC will be allowed deductions for interest (including original issue discount) on the REMIC Regular Certificates
(including any other class of REMIC Certificates constituting "regular interests" in the REMIC not offered by this prospectus) equal to
the deductions that would be allowed if the REMIC Regular Certificates (including any other class of REMIC Certificates constituting
"regular interests" in the REMIC not offered by this prospectus) were indebtedness of the REMIC. Original issue discount will be
considered to accrue for this purpose as described above under "—Taxation of Owners of REMIC Regular certificates—Original Issue
Discount," except that the de minimis rule and the adjustments for subsequent holders of REMIC Regular Certificates (including any other
class of REMIC Certificates constituting "regular interests" in the REMIC not offered by this prospectus) described therein will not
apply.
If a class of REMIC Regular Certificates is issued with Issue Premium, the net amount of interest deductions that are allowed
the REMIC in each taxable year with respect to the REMIC Regular Certificates of that class will be reduced by an amount equal to the
portion of the Issue Premium that is considered to be amortized or repaid in that year. Although the matter is not entirely clear, it is
likely that Issue Premium would be amortized under a constant yield method in a manner analogous to the method of accruing original
issue discount described above under "—Taxation of Owners of REMIC Regular certificates—Original Issue Discount."
As a general rule, the taxable income of a REMIC will be determined in the same manner as if the REMIC were an individual
having the calendar year as its taxable year and using the accrual method of accounting. However, no item of income, gain, loss or
deduction allocable to a prohibited transaction will betaken into account. See "—Prohibited Transactions and Other Possible REMIC Taxes"
below. Further, the limitation on miscellaneous itemized deductions imposed on individuals by Section 67 of the Code (which allows these
deductions only to the extent they exceed in the aggregate two percent of the taxpayer's adjusted gross income) will not be applied at
the REMIC level so that the REMIC will be allowed deductions for servicing, administrative and other non-interest expenses in
determining its taxable income. All such expenses will be allocated as a separate item to the holders of REMIC Certificates, subject to
the limitation of Section 67 of the Code. See "—Possible Pass-Through of Miscellaneous Itemized Deductions" below. If the deductions
allowed to the REMIC exceed its gross income for a calendar quarter, the excess will be the net loss for the REMIC for that calendar
quarter.
Basis Rules, Net Losses and Distributions. The adjusted basis of a REMIC Residual Certificate will be equal to the amount paid
for the REMIC Residual Certificate, increased by amounts included in the income of the REMIC Residual Certificateholder and decreased
(but not below zero) by distributions made, and by net losses allocated, to the REMIC Residual Certificateholder.
A REMIC Residual Certificateholder is not allowed to take into account any net loss for any calendar quarter to the extent the
net loss exceeds the REMIC Residual Certificateholder's adjusted basis in its REMIC Residual Certificate as of the close of the calendar
quarter (determined without regard to the net loss). Any loss that is not currently deductible by reason of this limitation may be
carried forward indefinitely to future calendar quarters and, subject to the same limitation, may be used only to offset income from the
REMIC Residual Certificate. The ability of REMIC Residual Certificateholders to deduct net losses may be subject to additional
limitations under the Code, as to which REMIC Residual Certificateholders are encouraged to consult their tax advisors.
Any distribution on a REMIC Residual Certificate will be treated as a nontaxable return of capital to the extent it does not
exceed the holder's adjusted basis in the REMIC Residual Certificate. To the extent a distribution on a REMIC Residual Certificate
exceeds the adjusted basis, it will be treated as gain from the sale of the REMIC Residual Certificate. Holders of REMIC Residual
Certificates may be entitled to distributions early in the term of the related REMIC under circumstances in which their bases in the
REMIC Residual Certificates will not be sufficiently large that the distributions will be treated as nontaxable returns of capital.
Their bases in the REMIC Residual Certificates will initially equal the amount paid for the REMIC Residual Certificates and will be
increased by their allocable shares of taxable income of the REMIC. However, these bases increases may not occur until the end of the
calendar quarter, or perhaps the end of the calendar year, with respect to which the REMIC taxable income is allocated to the REMIC
Residual Certificateholders. To the extent the REMIC Residual Certificateholders' initial bases are less than the distributions to the
REMIC Residual Certificateholders, and increases in initial bases either occur after the distributions or (together with their initial
bases) are less than the amount of the distributions, gain will be recognized to the REMIC Residual Certificateholders on these
distributions and will be treated as gain from the sale of their REMIC Residual Certificates.
The effect of these rules is that a REMIC Residual Certificateholder may not amortize its basis in a REMIC Residual
Certificate, but may only recover its basis through distributions, through the deduction of any net losses of the REMIC or upon the sale
of its REMIC Residual Certificate. See "—Sales of REMIC Certificates" below. For a discussion of possible modifications of these rules
that may require adjustments to income of a holder of a REMIC Residual Certificate other than an original holder in order to reflect any
difference between the cost of the REMIC Residual Certificate to the REMIC Residual Certificateholder and the adjusted basis the REMIC
Residual Certificate would have in the hands of an original holder, see "—Taxation of Owners of REMIC Residual Certificates—General"
above.
Excess Inclusions. Any "excess inclusions" with respect to a REMIC Residual Certificate will be subject to federal income tax
in all events. In general, the "excess inclusions" with respect to a REMIC Residual Certificate for any calendar quarter will be the
excess, if any, of (1) the daily portions of REMIC taxable income allocable to the REMIC Residual Certificate over (2) the sum of the
"daily accruals" (as defined below) for each day during the quarter that the REMIC Residual Certificate was held by the REMIC Residual
Certificateholder. The daily accruals of a REMIC Residual Certificateholder will be determined by allocating to each day during a
calendar quarter its ratable portion of the product of the "adjusted issue price" of the REMIC Residual Certificate at the beginning of
the calendar quarter and 120% of the "long-term Federal rate" in effect on the Closing Date. For this purpose, the adjusted issue price
of a REMIC Residual Certificate as of the beginning of any calendar quarter will be equal to the issue price of the REMIC Residual
Certificate, increased by the sum of the daily accruals for all prior quarters and decreased (but not below zero) by any distributions
made with respect to the REMIC Residual Certificate before the beginning of that quarter. The issue price of a REMIC Residual
Certificate is the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of the REMIC
Residual Certificates were sold. The "long-term Federal 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. Although it has not done so, the Treasury has authority to
issue regulations that would treat the entire amount of income accruing on a REMIC Residual Certificate as an excess inclusion if the
REMIC Residual Certificates are not considered to have "significant value."
For REMIC Residual Certificateholders, an excess inclusion (1) will not be permitted to be offset by deductions, losses or loss
carryovers from other activities, (2) will be treated as "unrelated business taxable income" to an otherwise tax-exempt organization and
(3) will not be eligible for any rate reduction or exemption under any applicable tax treaty with respect to the 30% United States
withholding tax imposed on distributions to REMIC Residual Certificateholders that are foreign investors. See, however, "—Foreigninvestors in REMIC Certificates," below.
Furthermore, for purposes of the alternative minimum tax, excess inclusions will not be permitted to be offset by the
alternative tax net operating loss deduction and alternative minimum taxable income may not be less than the taxpayer's excess
inclusions. The latter rule has the effect of preventing nonrefundable tax credits from reducing the taxpayer's income tax to an amount
lower than the tentative minimum tax on excess inclusions.
In the case of any REMIC Residual Certificates held by a real estate investment trust, the aggregate excess inclusions with
respect to the REMIC 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 the trust in
proportion to the dividends received by the shareholders from the trust, and any amount so allocated will be treated as an excess
inclusion with respect to a REMIC Residual Certificate as if held directly by the shareholder. Treasury regulations yet to be issued
could apply a similar rule to regulated investment companies, common trust funds and cooperatives; the REMIC Regulations currently do
not address this subject.
Noneconomic REMIC Residual Certificates. Under the REMIC Regulations, transfers of "noneconomic" REMIC Residual Certificates
will be disregarded for all federal income tax purposes if "a significant purpose of the transfer was to enable the transferor to impede
the assessment or collection of tax." If the transfer is disregarded, the purported transferor will continue to remain liable for any
taxes due with respect to the income on the "noneconomic" REMIC Residual Certificate. The REMIC Regulations provide that a REMIC
Residual Certificate is non-economic unless, based on the Prepayment Assumption and on any required or permitted clean up calls, or
required liquidation provided for in the REMIC's organizational documents, (1) the present value of the expected future distributions
(discounted using the "applicable Federal rate" for obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual Certificate, which rate is computed and published monthly by the
IRS) on the REMIC Residual Certificate equals at least the present value of the expected tax on the anticipated excess inclusions, and
(2) the transferor reasonably expects that the transferee will receive distributions with respect to the REMIC Residual Certificate at
or after the time the taxes accrue on the anticipated excess inclusions in an amount sufficient to satisfy the accrued taxes.
Accordingly, all transfers of REMIC Residual Certificates that may constitute noneconomic residual interests will be subject to
restrictions under the terms of the related pooling and servicing agreement that are intended to reduce the possibility of any such
transfer being disregarded. These restrictions will require each party to a transfer to provide an affidavit that no purpose of the
transfer is to impede the assessment or collection of tax, including representations as to the financial condition of the prospective
transferee, as to which the transferor is also required to make a reasonable investigation to determine the transferee's historic
payment of its debts and ability to continue to pay its debts as they come due in the future. The IRS has issued final REMIC regulations
that add to the conditions necessary to assure that a transfer of a noneconomic residual interest would be respected. The additional
conditions require that in order to qualify as a safe harbor transfer of a residual, the transferee represent that it will not cause the
income "to be attributable to a foreign permanent establishment or fixed base (within the meaning of an applicable income tax treaty) of
the transferee or another U.S. taxpayer" and either (i) the amount received by the transferee be no less on a present value basis than
the present value of the net tax detriment attributable to holding the residual interest reduced by the present value of the projected
payments to be received on the residual interest or (ii) the transfer is to a domestic taxable corporation with specified large amounts
of gross and net assets and that meets certain other requirements where agreement is made that all future transfers will be to taxable
domestic corporations in transactions that qualify for the same "safe harbor" provision. Eligibility for the safe harbor requires, among
other things, that the facts and circumstances known to the transferor at the time of transfer not indicate to a reasonable person that
the taxes with respect to the residual interest will not be paid, with an unreasonably low cost for the transfer specifically mentioned
as negating eligibility. The regulations generally apply to transfers of residual interests occurring on or after February 4, 2000.
Prior to purchasing a REMIC Residual Certificate, prospective purchasers are encouraged to consider the possibility that a purported
transfer of the REMIC Residual Certificate by such a purchaser to another purchaser at some future day may be disregarded in accordance
with the above described rules which would result in the retention of tax liability by that purchaser.
The related prospectus supplement will disclose whether offered REMIC Residual Certificates may be considered "noneconomic"
residual interests under the REMIC Regulations; provided, however, that any disclosure that a REMIC Residual Certificate will not be
considered "noneconomic" will be based upon assumptions, and the depositor will make no representation that a REMIC Residual Certificate
will not be considered "noneconomic" for purposes of the above-described rules. See "—Foreign Investors in REMIC Certificates—REMIC
Residual Certificates" below for additional restrictions applicable to transfers of REMIC Residual Certificates to foreign persons.
On May 11, 2004, the IRS issued final regulations relating to the federal income tax treatment of "inducement fees" received by
transferees of noneconomic REMIC residual interests. The regulations provide tax accounting rules for the inclusion of such fees in
income over an appropriate period, and clarify that inducement fees represent income from sources within the United States. These rules
apply to taxable years ending on or after May 11, 2004. On the same date, the IRS issued administrative guidance addressing the
procedures by which transferees of such REMIC residual interests may obtain consent to change the method of accounting for REMIC
inducement fee income to one of the methods provided in the regulations. Prospective purchasers of REMIC Residual Certificates are
encouraged to consult with their tax advisors regarding the effect of these regulations and the related administrative guidance.
Mark-to-Market Rules. In general, all securities owned by a dealer, except to the extent that the dealer has specifically
identified a security as held for investment, must be marked to market in accordance with the applicable Code provision and the related
regulations. However, the IRS has issued regulations which provide that for purposes of this mark-to-market requirement, a REMIC
Residual Certificate is not treated as a security and thus may not be marked to market.
Possible Pass-Through of Miscellaneous Itemized Deductions. Fees and expenses of a REMIC generally will be allocated to the
holders of the related REMIC Residual Certificates. The applicable Treasury regulations indicate, however, that in the case of a REMIC
that is similar to a single class grantor trust, all or a portion of these fees and expenses should be allocated to the holders of the
related REMIC Regular Certificates. Except as stated in the related prospectus supplement, these fees and expenses will be allocated to
holders of the related REMIC Residual Certificates in their entirety and not to the holders of the related REMIC Regular Certificates.
With respect to REMIC Residual Certificates or REMIC Regular Certificates the holders of which receive an allocation of fees
and expenses in accordance with the preceding discussion, if any holder thereof is an individual, estate or trust, or a "pass-through
entity" beneficially owned by one or more individuals, estates or trusts, (1) an amount equal to the individual's, estate's or trust's
share of the fees and expenses will be added to the gross income of the holder and (2) the individual's, estate's or trust's share of
the fees and expenses will be treated as a miscellaneous itemized deduction allowable subject to the limitation of Section 67 of the
Code, which permits these deductions only to the extent they exceed in the aggregate two percent of taxpayer'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 specified amount will be reduced by the lesser of (1) 3% of the excess of the individual's adjusted gross income
over the amount or (2) 80% of the amount of itemized deductions otherwise allowable for the taxable year. The amount of additional
taxable income reportable by REMIC Certificateholders that are subject to the limitations of either Section 67 or Section 68 of the Code
may be substantial. Furthermore, in determining the alternative minimum taxable income of such a holder of a REMIC Certificate that is
an individual, estate or trust, or a "pass-through entity" beneficially owned by one or more individuals, estates or trusts, no
deduction will be allowed for the holder's allocable portion of servicing fees and other miscellaneous itemized deductions of the REMIC,
even though an amount equal to the amount of the fees and other deductions will be included in the holder's gross income. Accordingly,
these REMIC Certificates may not be appropriate investments for individuals, estates, or trusts, or pass-through entities beneficially
owned by one or more individuals, estates or trusts. Prospective investors are encouraged to consult with their tax advisors prior to
making an investment in the certificates.
Sales of REMIC Certificates. If a REMIC Certificate is sold, the selling Certificateholder will recognize gain or loss equal to
the difference between the amount realized on the sale and its adjusted basis in the REMIC Certificate. The adjusted basis of a REMIC
Regular Certificate generally will equal the cost of the REMIC Regular Certificate to the certificateholder, increased by income
reported by the certificateholder with respect to the REMIC Regular Certificate (including original issue discount and market discount
income) and reduced (but not below zero) by distributions on the REMIC Regular Certificate received by the certificateholder and by any
amortized premium. The adjusted basis of a REMIC Residual Certificate will be determined as described under "—Taxation of Owners of
REMIC Residual Certificates—Basis Rules, Net Losses and Distributions" in this prospectus. Except as provided in the following four
paragraphs, any such gain or loss will be capital gain or loss, provided the REMIC Certificate is held as a capital asset (generally,
property held for investment) within the meaning of Section 1221 of the Code.
Gain from the sale of a REMIC Regular Certificate that might otherwise be capital gain will be treated as ordinary income to
the extent the gain does not exceed the excess, if any, of (1) the amount that would have been includible in the seller's income with
respect to the REMIC Regular Certificate assuming that income had accrued thereon at a rate equal to 110% of the "applicable Federal
rate" (generally, a rate based on an average of current yields on Treasury securities having a maturity comparable to that of the
certificate based on the application of the Prepayment Assumption applicable to the certificate, which rate is computed and published
monthly by the IRS), determined as of the date of purchase of the REMIC Regular Certificate, over (2) the amount of ordinary income
actually includible in the seller's income prior to the sale. In addition, gain recognized on the sale of a REMIC Regular Certificate by
a seller who purchased the REMIC Regular Certificate at a market discount will be taxable as ordinary income in an amount not exceeding
the portion of the discount that accrued during the period the REMIC Certificate was held by the holder, reduced by any market discount
included in income under the rules described above under "—Taxation of Owners of REMIC Regular Certificates—Market Discount"
and"—Premium."
REMIC 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 REMIC Certificate by a bank or thrift institution to which this section applies will be ordinary
income or loss.
A portion of any gain from the sale of a REMIC Regular Certificate that might otherwise be capital gain may be treated as
ordinary income to the extent that the certificate is held as part of a "conversion transaction" within the meaning of Section 1258 of
the Code. A conversion transaction generally is one in which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the taxpayer's return is attributable to the time value of the
taxpayer's net investment in the transaction. The amount of gain so realized in a conversion transaction that is recharacterized as
ordinary income generally will not exceed the amount of interest that would have accrued on the taxpayer's net investment at 120% of the
appropriate "applicable Federal rate" (which rate is computed and published monthly by the IRS) at the time the taxpayer enters into the
conversion transaction, subject to appropriate reduction for prior inclusion of interest and other ordinary income items from the
transaction.
Finally, a taxpayer may elect to have net capital gain taxed at ordinary income rates rather than capital gains rates in order
to include the net capital gain in total net investment income for the taxable year, for purposes of the rule that limits the deduction
of interest on indebtedness incurred to purchase or carry property held for investment to a taxpayer's net investment income.
Except as may be provided in Treasury regulations yet to be issued, if the seller of a REMIC Residual Certificate reacquires
the REMIC Residual Certificate, or acquires any other residual interest in a REMIC or any 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 the
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 REMIC
Residual Certificateholder on the sale will not be deductible, but instead will be added to the REMIC Residual Certificateholder's
adjusted basis in the newly-acquired asset.
Losses on the sale of a REMIC Residual Certificate in excess of a threshold amount (which amount could need to be aggregated
with similar or previous losses) may require disclosure of such loss on an IRS Form 8886. Investors are encouraged to consult with
their tax advisors as to the need to file such form.
Prohibited Transactions and Other Possible REMIC Taxes. In the event a REMIC engages in a prohibited transaction, the Code
imposes a 100% tax on the income derived by the REMIC from the prohibited transaction. In general, subject to specified exceptions, a
prohibited transaction means the disposition of a mortgage loan, the receipt of income from a source other than a mortgage loan or other
permitted investments, the receipt of compensation for services, or gain from the disposition of an asset purchased with the payments on
the mortgage loans for temporary investment pending distribution on the REMIC Certificates. It is not anticipated that any REMIC will
engage in any prohibited transactions in which it would recognize a material amount of net income.
In addition, a contribution to a REMIC made after the day on which the REMIC issues all of its interests could result in the
imposition on the REMIC of a tax equal to 100% of the value of the contributed property. Each pooling and servicing agreement will
include provisions designed to prevent the acceptance of any contributions that would be subject to this tax.
REMICs also are subject to federal income tax at the highest corporate rate on "net income from foreclosure property,"
determined by reference to the rules applicable to real estate investment trusts. "Net income from foreclosure property" generally means
gain from the sale of a foreclosure property that is inventory property and gross income from foreclosure property other than qualifying
rents and other qualifying income for a real estate investment trust. It is not anticipated that any REMIC will recognize "net income
from foreclosure property" subject to federal income tax.
To the extent permitted by then applicable laws, any tax resulting from a prohibited transaction, tax resulting from a
contribution made after the Closing Date, tax on "net income from foreclosure property" or state or local income or franchise tax that
may be imposed on the REMIC will be borne by the related master servicer or trustee in either case out of its own funds, provided that
the master servicer or the trustee, as the case may be, has sufficient assets to do so, and provided further that the tax arises out of
a breach of the master servicer's or the trustee's obligations, as the case may be, under the related pooling and servicing agreement
and in respect of compliance with applicable laws and regulations. Any such tax not borne by the master servicer or the trustee will be
charged against the related trust fund resulting in a reduction in amounts payable to holders of the related REMIC Certificates.
Tax and Restrictions on Transfers of REMIC Residual Certificates to Certain Organizations. If a REMIC Residual Certificate is
transferred to a "disqualified organization" (as defined below), a tax would be imposed in an amount (determined under the REMIC
Regulations) equal to the product of (1) the present value (discounted using the "applicable Federal rate" for obligations whose term
ends on the close of the last quarter in which excess inclusions are expected to accrue with respect to the REMIC Residual Certificate,
which rate is computed and published monthly by the IRS) of the total anticipated excess inclusions with respect to the REMIC Residual
Certificate for periods after the transfer and (2) the highest marginal federal income tax rate applicable to corporations. The
anticipated excess inclusions must be determined as of the date that the REMIC Residual Certificate is transferred and must be based on
events that have occurred up to the time of the transfer, the Prepayment Assumption and any required or permitted clean up calls or
required liquidation provided for in the REMIC's organizational documents. Such a tax generally would be imposed on the transferor of
the REMIC Residual Certificate, except that where the transfer is through an agent for a disqualified organization, the tax would
instead be imposed on the agent. However, a transferor of a REMIC Residual Certificate would in no event be liable for the tax with
respect to a transfer if the transferee furnishes to the transferor an affidavit that the transferee is not a disqualified organization
and, as of the time of the transfer, the transferor does not have actual knowledge that the affidavit is false. Moreover, an entity will
not qualify as a REMIC unless there are reasonable arrangements designed to ensure that (1) residual interests in the entity are not
held by disqualified organizations and (2) information necessary for the application of the tax described in this prospectus will be
made available. Restrictions on the transfer of REMIC Residual Certificates and other provisions that are intended to meet this
requirement will be included in the pooling and servicing agreement, and will be discussed more fully in any prospectus supplement
relating to the offering of any REMIC Residual Certificate.
In addition, if a "pass-through entity" (as defined below) includes in income excess inclusions with respect to a REMIC
Residual Certificate, and a disqualified organization is the record holder of an interest in the entity, then a tax will be imposed on
the entity equal to the product of (1) the amount of excess inclusions on the REMIC Residual Certificate that are allocable to the
interest in the pass-through entity held by the disqualified organization and (2) the highest marginal federal income tax rate imposed
on corporations. A pass-through entity will not be subject to this tax for any period, however, if each record holder of an interest in
the pass-through entity furnishes to the pass-through entity (1) the holder's social security number and a statement under penalties of
perjury that the social security number is that of the recordholder or (2) a statement under penalties of perjury that the record holder
is not a disqualified organization. For taxable years beginning after December 31,1997, notwithstanding the preceding two sentences, in
the case of a REMIC Residual Certificate held by an "electing large partnership," all interests in the partnership shall be treated as
held by disqualified organizations (without regard to whether the record holders of the partnership furnish statements described in the
preceding sentence) and the amount that is subject to tax under the second preceding sentence is excluded from the gross income of the
partnership allocated to the partners (in lieu of allocating to the partners a deduction for the tax paid by the partnership).
For these purposes, a "disqualified organization" means:
1. the United States, any State or political subdivision thereof, any foreign government, any international organization, or any
agency or instrumentality of the foregoing (but would not include instrumentalities described in Section 168(h)(2)(D) of the Code or
Freddie Mac),
2. any organization (other than a cooperative described in Section 521 of the Code) that is exempt from federal income tax, unless
it is subject to the tax imposed by Section 511 of the Code,
3. any organization described in Section 1381(a)(2)(C) of the Code, or
4. an electing large partnership within the meaning of Section 775 of the Code.
For these purposes, a "pass-through entity" means any regulated investment company, real estate investment trust, trust, partnership or
certain other entities described in Section 860E(e)(6) of the Code. In addition, a person holding an interest in a pass-through entity
as a nominee for another person will, with respect to the interest, be treated as a pass-through entity.
Termination. A REMIC will terminate immediately after the distribution date following receipt by the REMIC of the final payment
in respect of the mortgage loans or upon a sale of the REMIC's assets following the adoption by the REMIC of a plan of complete
liquidation. The last distribution on a REMIC Regular Certificate will be treated as a payment in retirement of a debt instrument. In
the case of a REMIC Residual Certificate, if the last distribution on the REMIC Residual Certificate is less than the REMIC Residual
Certificateholder's adjusted basis in the certificate, the REMIC Residual Certificateholder should (but may not) be treated as realizing
a loss equal to the amount of the difference, and the loss may be treated as a capital loss.
Reporting and Other Administrative Matters. Solely for purposes of the administrative provisions of the Code, the REMIC will be
treated as a partnership and REMIC Residual Certificateholders will be treated as partners. The REMIC Administrator (or other party
described in the related prospectus supplement) will file REMIC federal income tax returns on behalf of the related REMIC, and under the
terms of the related Agreement will either (1) be irrevocably appointed by the holders of the largest percentage interest in the related
REMIC Residual Certificates as their agent to perform all of the duties of the "tax matters person" with respect to the REMIC in all
respects or (2) will be designated as and will act as the "tax matters person" with respect to the related REMIC in all respects and
will hold at least a nominal amount of REMIC Residual Certificates.
The REMIC Administrator, as the tax matters person or as agent for the tax matters person, subject to notice requirements and
various restrictions and limitations, generally will have the authority to act on behalf of the REMIC and the REMIC Residual
Certificateholders in connection with the administrative and judicial review of items of income, deduction, gain or loss of the REMIC,
as well as the REMIC's classification. REMIC Residual Certificateholders generally will be required to report these REMIC items
consistently with their treatment on the REMIC's tax return and may in some circumstances be bound by a settlement agreement between the
REMIC Administrator, as either tax matters person or as agent for the tax matters person, and the IRS concerning any such REMIC item.
Adjustments made to the REMIC tax return may require a REMIC Residual Certificateholder to make corresponding adjustments on its return,
and an audit of the REMIC's tax return, or the adjustments resulting from such an audit, could result in an audit of a REMIC Residual
Certificateholder's return. Any person that holds a REMIC 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 the person and other information.
Reporting of interest income, including any original issue discount, with respect to REMIC Regular Certificates is required
annually, and may be required more frequently under Treasury regulations. These information reports generally are required to be sent to
individual holders of REMIC Regular Interests and the IRS; holders of REMIC Regular Certificates that are corporations, trusts,
securities dealers and some other non-individuals will be provided interest and original issue discount income information and the
information set forth in the following paragraph upon request in accordance with the requirements of the applicable regulations. The
information must be provided by the later of 30 days after the end of the quarter for which the information was requested, or two weeks
after the receipt of the request. The REMIC must also comply with rules requiring a REMIC Regular Certificate issued with original issue
discount to disclose the information to the IRS. Reporting with respect to the REMIC Residual Certificates, including income, excess
inclusions, investment expenses and relevant information regarding qualification of the REMIC's assets will be made as required under
the Treasury regulations, generally on a quarterly basis.
As applicable, the REMIC Regular Certificate information reports will include a statement of the adjusted issue price of the
REMIC Regular Certificate at the beginning of each accrual period. In addition, the reports will include information required by
regulations with respect to computing the accrual of any market discount. Because exact computation of the accrual of market discount on
a constant yield method would require information relating to the holder's purchase price that the REMIC may not have, Treasury
regulations only require that information pertaining to the appropriate proportionate method of accruing market discount be provided.
See "REMICS—Taxation of Owners of REMIC Regular certificates—Market Discount" in this prospectus.
The responsibility for complying with the foregoing reporting rules will be borne by the REMIC Administrator or other party
designated in the related prospectus supplement.
Backup Withholding With Respect to REMIC Certificates. Payments of interest and principal, as well as payments of proceeds from
the sale of REMIC Certificates, may be subject to the "backup withholding tax" under Section 3406 of the Code if recipients of the
payments fail to furnish to the payor certain information, including their taxpayer identification numbers, or otherwise fail to
establish an exemption from the backup withholding tax. Any amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against the recipient's federal income tax. Furthermore, penalties may be imposed by the IRS on a recipient of
payments that is required to supply information but that does not do so in the proper manner.
Foreign Investors in REMIC Certificates. A REMIC Regular Certificateholder that is not a United States person and is not
subject to federal income tax as a result of any direct or indirect connection to the United States in addition to its ownership of a
REMIC Regular Certificate will not be subject to United States federal income or withholding tax in respect of a distribution on a REMIC
Regular Certificate, provided that the holder complies to the extent necessary with identification requirements, including delivery of a
statement, signed by the certificateholder under penalties of perjury, certifying that the certificateholder is not a United States
person and providing the name and address of the certificateholder. This statement is generally made on IRS Form W-8BEN and must be
updated whenever required information has changed or within 3 calendar years after the statement is first delivered. It is possible that
the IRS may assert that the foregoing tax exemption should not apply with respect to a REMIC Regular Certificate held by a REMIC
Residual Certificateholder that owns directly or indirectly a 10% or greater interest in the REMIC Residual Certificates. If the holder
does not qualify for exemption, distributions of interest, including distributions in respect of accrued original issue discount, to the
holder may be subject to a tax rate of 30%, subject to reduction under any applicable tax treaty.
Special rules apply to partnerships, estates and trusts, and in certain circumstances certifications as to foreign status and
other matters may be required to be provided by partners and beneficiaries thereof.
In addition, in certain circumstances the foregoing rules will not apply to exempt a United States shareholder of a controlled
foreign corporation from taxation on the United States shareholder's allocable portion of the interest income received by the controlled
foreign corporation.
Further, it appears that a REMIC Regular Certificate would not be included in the estate of a non- resident alien individual
and would not be subject to United States estate taxes. However, certificateholders who are non-resident alien individuals are
encouraged to consult their tax advisors concerning this question.
Except as stated in the related prospectus supplement, transfers of REMIC Residual Certificates to investors that are not
United States persons will be prohibited under the related pooling and servicing agreement.
Notes
On or prior to the date of the related prospectus supplement with respect to the proposed issuance of each series of notes, any
of Thacher Proffitt & Wood llp, Orrick, Herrington & Sutcliffe LLP or Greenberg Traurig LLP as counsel to the depositor, or another law
firm identified in the related prospectus supplement, will deliver its opinion to the effect that, assuming compliance with all
provisions of the indenture, owner trust agreement and other related documents, for federal income tax purposes (1) the notes will be
treated as indebtedness and (2) the Issuing Entity, as created pursuant to the terms and conditions of the owner trust agreement, will
not be characterized as an association (or publicly traded partnership) taxable as a corporation or as a taxable mortgage pool. For
purposes of this tax discussion, references to a "noteholder" or a "holder" are to the beneficial owner of a note.
Status as Real Property Loans
Notes held by a domestic building and loan association will not constitute "loans . . . secured by an interest in real
property" within the meaning of Code section 7701(a)(19)(C)(v); notes held by a real estate investment trust will not constitute "real
estate assets" within the meaning of Code section 856(c)(4)(A), and interest on notes will not be considered "interest on obligations
secured by mortgages on real property" within the meaning of Code section 856(c)(3)(B).
Taxation of Noteholders
Notes generally will be subject to the same rules of taxation as REMIC Regular Certificates issued by a REMIC, as described
above, except that (1) income reportable on any notes issued without original issue discount is not required to be reported under the
accrual method unless the holder otherwise uses the accrual method and (2) the special rule treating a portion of the gain on sale or
exchange of a REMIC Regular Certificate that does not exceed a specified amount as ordinary income is inapplicable to the notes. See
"REMICS—Taxation of Owners of REMIC Regular Certificates" and "—Sales of REMIC Certificates" in this prospectus.
Grantor Trust Funds
Classification of Grantor Trust Funds. On or prior to the date of the related prospectus supplement with respect to the
proposed issuance of each series of Grantor Trust Certificates, any of Thacher Proffitt & Wood llp, Orrick, Herrington & Sutcliffe LLP
or Greenberg Traurig LLP, as counsel to the depositor, or another law firm identified in the related prospectus supplement, will deliver
its opinion generally to the effect that, assuming compliance with all provisions of the related pooling and servicing agreement, the
related Grantor Trust Fund will be classified as a grantor trust under subpart E, part I of subchapter J of Chapter 1 of the Code and
not as a partnership or an association taxable as a corporation.
Characterization of Investments in Grantor Trust Certificates.
Grantor Trust Fractional Interest Certificates. In the case of Grantor Trust Fractional Interest Certificates, except as
disclosed in the related prospectus supplement, counsel to the depositor will deliver an opinion that, in general, Grantor Trust
Fractional Interest Certificates will represent interests in (1) "loans . . . secured by an interest in real property" within the
meaning of Section 7701(a)(19)(C)(v) of the Code; (2) "obligation[s] (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) of the Code; and (3)
"real estate assets" within the meaning of Section 856(c)(4)(A) of the Code. In addition, counsel to the depositor will deliver an
opinion that interest on Grantor Trust Fractional Interest Certificates will to the same extent 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.
Grantor Trust Strip Certificates. Even if Grantor Trust Strip Certificates evidence an interest in a Grantor Trust Fund
consisting of mortgage loans that are "loans . . . secured by an interest in real property" within the meaning of Section
7701(a)(19)(C)(v) of the Code, and "real estate assets" within the meaning of Section 856(c)(4)(A) of the Code, and the interest on
which is "interest on obligations secured by mortgages on real property" within the meaning of Section 856(c)(3)(B) of the Code, it is
unclear whether the Grantor Trust Strip Certificates, and the income therefrom, will be so characterized. However, the policies
underlying these sections (namely, to encourage or require investments in mortgage loans by thrift institutions and real estate
investment trusts) may suggest that this characterization is appropriate. Counsel to the depositor will not deliver any opinion on these
questions. Prospective purchasers to which the characterization of an investment in Grantor Trust Strip Certificates is material are
encouraged to consult their tax advisors regarding whether the Grantor Trust Strip Certificates, and the income therefrom, will be so
characterized.
The Grantor Trust Strip Certificates will be "obligation[s] (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.
Taxation of Owners of Grantor Trust Fractional Interest Certificates. Holders of a particular series of Grantor Trust
Fractional Interest Certificates generally will be required to report on their federal income tax returns their shares of the entire
income from the mortgage loans (including amounts used to pay reasonable servicing fees and other expenses) and will be entitled to
deduct their shares of any such reasonable servicing fees and other expenses. Because of stripped interests, market or original issue
discount, or premium, the amount includible in income on account of a Grantor Trust Fractional Interest Certificate may differ
significantly from the amount distributable thereon representing interest on the mortgage loans. Under Section 67 of the Code, an
individual, estate or trust holding a Grantor Trust Fractional Interest Certificate directly or through some pass-through entities will
be allowed a deduction for the reasonable servicing fees and expenses only to the extent that the aggregate of the holder's
miscellaneous itemized deductions exceeds two percent 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 specified
amount will be reduced by the lesser of (1) 3% of the excess of the individual's adjusted gross income over the amount or (2) 80% of the
amount of itemized deductions otherwise allowable for the taxable year. The amount of additional taxable income reportable by holders of
Grantor Trust Fractional Interest Certificates who are subject to the limitations of either Section 67 or Section 68 of the Code may be
substantial. Further, certificateholders (other than corporations) subject to the alternative minimum tax may not deduct miscellaneous
itemized deductions in determining the holder's alternative minimum taxable income. Although it is not entirely clear, it appears that
in transactions in which multiple classes of Grantor Trust Certificates (including Grantor Trust Strip Certificates) are issued, the
fees and expenses should be allocated among the classes of Grantor Trust Certificates using a method that recognizes that each such
class benefits from the related services. In the absence of statutory or administrative clarification as to the method to be used, it
currently is intended to base information returns or reports to the IRS and certificateholders on a method that allocates the expenses
among classes of Grantor Trust Certificates with respect to each period based on the distributions made to each such class during that
period.
The federal income tax treatment of Grantor Trust Fractional Interest Certificates of any series will depend on whether they
are subject to the "stripped bond" rules of Section 1286 of the Code. Grantor Trust Fractional Interest Certificates may be subject to
those rules if (1) a class of Grantor Trust Strip Certificates is issued as part of the same series of certificates or (2) the depositor
or any of its affiliates retains (for its own account or for purposes of resale) a right to receive a specified portion of the interest
payable on the mortgage loans. Further, the IRS has ruled that an unreasonably high servicing fee retained by a seller or servicer will
be treated as a retained ownership interest in mortgages that constitutes a stripped coupon. For purposes of determining what
constitutes reasonable servicing fees for various types of mortgages the IRS has established "safe harbors." The servicing fees paid
with respect to the mortgage loans for a series of Grantor Trust Certificates may be higher than the "safe harbors" and, accordingly,
may not constitute reasonable servicing compensation. The related prospectus supplement will include information regarding servicing
fees paid to the master servicer, any subservicer or their respective affiliates necessary to determine whether the preceding "safe
harbor" rules apply.
If Stripped Bond Rules Apply. If the stripped bond rules apply, each Grantor Trust Fractional Interest Certificate will be
treated as having been issued with "original issue discount" within the meaning of Section 1273(a) of the Code, subject, however, to the
discussion below regarding the treatment of some stripped bonds as market discount bonds and the discussion regarding de minimis market
discount. See "REMICS—Taxation of Owners of Grantor Trust Fractional Interest Certificates—Market Discount" below. Under the stripped
bond rules, the holder of a Grantor Trust Fractional Interest Certificate (whether a cash or accrual method taxpayer) will be required
to report interest income from its Grantor Trust Fractional Interest Certificate for each month in an amount equal to the income that
accrues on the certificate in that month calculated under a constant yield method, in accordance with the rules of the Code relating to
original issue discount.
The original issue discount on a Grantor Trust Fractional Interest Certificate will be the excess of the certificate's stated
redemption price over its issue price. The issue price of a Grantor Trust Fractional Interest Certificate as to any purchaser will be
equal to the price paid by the purchaser for the Grantor Trust Fractional Interest Certificate. The stated redemption price of a Grantor
Trust Fractional Interest Certificate will be the sum of all payments to be made on the certificate, other than "qualified stated
interest," if any, as well as the certificate's share of reasonable servicing fees and other expenses. See "REMICS—Taxation of Owners of
Grantor Trust Fractional Interest Certificates—If Stripped Bond Rules Do Not Apply" in this prospectus for a definition of "qualified
stated interest." In general, the amount of the income that accrues in any month would equal the product of the holder's adjusted basis
in the Grantor Trust Fractional Interest Certificate at the beginning of the month (see "Sales of Grantor Trust Certificates" in this
prospectus) and the yield of the Grantor Trust Fractional Interest Certificate to the holder. This yield would be computed at the rate
(compounded based on the regular interval between distribution dates) that, if used to discount the holder's share of future payments on
the mortgage loans, would cause the present value of those future payments to equal the price at which the holder purchased the
certificate. In computing yield under the stripped bond rules, a certificateholder's share of future payments on the mortgage loans will
not include any payments made in respect of any ownership interest in the mortgage loans retained by the depositor, the master servicer,
any subservicer or their respective affiliates, but will include the certificateholder's share of any reasonable servicing fees and
other expenses.
To the extent the Grantor Trust Fractional Interest Certificates represent an interest in any pool of debt instruments the
yield on which may be affected by reason of prepayments, for taxable years beginning after August 5, 1997, Section 1272(a)(6) of the
Code requires (1) the use of a reasonable prepayment assumption in accruing original issue discount and (2) adjustments in the accrual
of original issue discount when prepayments do not conform to the prepayment assumption. It is uncertain, if a prepayment assumption is
used, whether the assumed prepayment rate would be determined based on conditions at the time of the first sale of the Grantor Trust
Fractional Interest Certificate or, with respect to any holder, at the time of purchase of the Grantor Trust Fractional Interest
Certificate by that holder. Certificateholders are advised to consult their own tax advisors concerning reporting original issue
discount with respect to Grantor Trust Fractional Interest Certificates and, in particular, whether a prepayment assumption should be
used in reporting original issue discount.
In the case of a Grantor Trust Fractional Interest Certificate acquired at a price equal to the principal amount of the
mortgage loans allocable to the certificate, the use of a prepayment assumption generally would not have any significant effect on the
yield used in calculating accruals of interest income. In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a discount or premium (that is, at a price less than or greater than the principal amount, respectively), the use of a
reasonable prepayment assumption would increase or decrease the yield, and thus accelerate or decelerate, respectively, the reporting of
income.
If a prepayment assumption is not used, then when a mortgage loan prepays in full, the holder of a Grantor Trust Fractional
Interest Certificate acquired at a discount or a premium generally will recognize ordinary income or loss equal to the difference
between the portion of the prepaid principal amount of the mortgage loan that is allocable to the certificate and the portion of the
adjusted basis of the certificate that is allocable to the certificateholder's interest in the mortgage loan. If a prepayment assumption
is used, it appears that no separate item of income or loss should be recognized upon a prepayment. Instead, a prepayment should be
treated as a partial payment of the stated redemption price of the Grantor Trust Fractional Interest Certificate and accounted for under
a method similar to that described for taking account of original issue discount on REMIC Regular Certificates. See "REMICS—Taxation of
Owners of REMIC Regular Certificates—Original Issue Discount" in this prospectus. It is unclear whether any other adjustments would be
required to reflect differences between an assumed prepayment rate and the actual rate of prepayments.
It is currently intended to base information reports or returns to the IRS and certificateholders in transactions subject to
the stripped bond rules on a Prepayment Assumption that will be disclosed in the related prospectus supplement and on a constant yield
computed using a representative initial offering price for each class of certificates. However, none of the depositor, the master
servicer or the trustee will make any representation that the mortgage loans will in fact prepay at a rate conforming to the Prepayment
Assumption or any other rate and certificateholders should bear in mind that the use of a representative initial offering price will
mean that the information returns or reports, even if otherwise accepted as accurate by the IRS, will in any event be accurate only as
to the initial certificateholders of each series who bought at that price.
Under Treasury regulation Section 1.1286-1, some stripped bonds are to be treated as market discount bonds and, accordingly,
any purchaser of such a bond is to account for any discount on the bond as market discount rather than original issue discount. This
treatment only applies, however, if immediately after the most recent disposition of the bond by a person stripping one or more coupons
from the bond and disposing of the bond or coupon (1) there is no original issue discount (or only a de minimis amount of original issue
discount) or (2) the annual stated rate of interest payable on the original bond is no more than one percentage point lower than the
gross interest rate payable on the original mortgage loan (before subtracting any servicing fee or any stripped coupon). If interest
payable on a Grantor Trust Fractional Interest Certificate is more than one percentage point lower than the gross interest rate payable
on the mortgage loans, the related prospectus supplement will disclose that fact. If the original issue discount or market discount on
a Grantor Trust Fractional Interest Certificate determined under the stripped bond rules is less than 0.25% of the stated redemption
price multiplied by the weighted average maturity of the mortgage loans, then that original issue discount or market discount will be
considered to be de minimis. Original issue discount or market discount of only a de minimis amount will be included in income in the
same manner as de minimis original issue and market discount described in "Characteristics of Investments in Grantor Trust
Certificates—If Stripped Bond Rules Do Not Apply" and"—Market Discount" below.
If Stripped Bond Rules Do Not Apply. Subject to the discussion below on original issue discount, if the stripped bond rules do
not apply to a Grantor Trust Fractional Interest Certificate, the certificateholder will be required to report its share of the interest
income on the mortgage loans in accordance with the certificateholder's normal method of accounting. The original issue discount rules
will apply to a Grantor Trust Fractional Interest Certificate to the extent it evidences an interest in mortgage loans issued with
original issue discount.
The original issue discount, if any, on the mortgage loans will equal the difference between the stated redemption price of the
mortgage loans and their issue price. Under the OID Regulations, the stated redemption price is equal to the total of all payments to be
made on the mortgage loan other than "qualified stated interest.""Qualified stated interest" is interest that is unconditionally
payable at least annually at a single fixed rate, or at a "qualified floating rate," an "objective rate," a combination of a single
fixed rate and one or more "qualified floating rates" or one "qualified inverse floating rate," or a combination of "qualified floating
rates" that does not operate in a manner that accelerates or defers interest payments on the mortgage loan. In general, the issue price
of a mortgage loan will be the amount received by the borrower from the lender under the terms of the mortgage loan, less any "points"
paid by the borrower, and the stated redemption price of a mortgage loan will equal its principal amount, unless the mortgage loan
provides for an initial below-market rate of interest or the acceleration or the deferral of interest payments. The determination as to
whether original issue discount will be considered to be de minimis will be calculated using the same test described in the REMIC
discussion. See "—Taxation of Owners of REMIC Regular Certificates—Original Issue Discount" above.
In the case of mortgage loans bearing adjustable or variable interest rates, the related prospectus supplement will describe
the manner in which the rules will be applied with respect to those mortgage loans by the master servicer or the trustee in preparing
information returns to the certificateholders and the IRS.
If original issue discount is in excess of a de minimis amount, all original issue discount with respect to a mortgage loan
will be required to be accrued and reported in income each month, based on a constant yield. Section 1272(a)(6) of the Code requires
that a prepayment assumption be made in computing yield with respect to any pool of debt instruments the yield on which may be affected
by reason of prepayments. Accordingly, for certificates or notes backed by these pools, it is intended to base information reports and
returns to the IRS and certificateholders for taxable years beginning after August 5, 1997, on the use of a prepayment assumption.
Certificateholders are advised to consult their own tax advisors concerning whether a prepayment assumption should be used in reporting
original issue discount with respect to Grantor Trust Fractional Interest Certificates. Certificateholders should refer to the related
prospectus supplement with respect to each series to determine whether and in what manner the original issue discount rules will apply
to mortgage loans in the series.
A purchaser of a Grantor Trust Fractional Interest Certificate that purchases the Grantor Trust Fractional Interest Certificate
at a cost less than the certificate's allocable portion of the aggregate remaining stated redemption price of the mortgage loans held in
the related trust fund will also be required to include in gross income the certificate's daily portions of any original issue discount
with respect to the mortgage loans. However, each such daily portion will be reduced, if the cost of the Grantor Trust Fractional
Interest Certificate to the purchaser is in excess of the certificate's allocable portion of the aggregate "adjusted issue prices" of
the mortgage loans held in the related trust fund, approximately in proportion to the ratio the excess bears to the certificate's
allocable portion of the aggregate original issue discount remaining to be accrued on the mortgage loans. The adjusted issue price of a
mortgage loan on any given day equals the sum of (1) the adjusted issue price (or, in the case of the first accrual period, the issue
price) of the mortgage loan at the beginning of the accrual period that includes the day and (2) the daily portions of original issue
discount for all days during the accrual period prior to the day. The adjusted issue price of a mortgage loan at the beginning of any
accrual period will equal the issue price of the mortgage loan, increased by the aggregate amount of original issue discount with
respect to the mortgage loan that accrued in prior accrual periods, and reduced by the amount of any payments made on the mortgage loan
in prior accrual periods of amounts included in its stated redemption price.
In addition to its regular reports, the master servicer or the trustee, except as provided in the related prospectus
supplement, will provide to any holder of a Grantor Trust Fractional Interest Certificate such information as the holder may reasonably
request from time to time with respect to original issue discount accruing on Grantor Trust Fractional Interest Certificates. See
"Grantor Trust Reporting" below.
Market Discount. If the stripped bond rules do not apply to the Grantor Trust Fractional Interest Certificate, a
certificateholder may be subject to the market discount rules of Sections 1276 through 1278 of the Code to the extent an interest in a
mortgage loan is considered to have been purchased at a "market discount," that is, in the case of a mortgage loan issued without
original issue discount, at a purchase price less than its remaining stated redemption price (as defined above), or in the case of a
mortgage loan issued with original issue discount, at a purchase price less than its adjusted issue price (as defined above). If market
discount is in excess of a de minimis amount (as described below), the holder generally will be required to include in income in each
month the amount of the discount that has accrued (under the rules described in the next paragraph) through the month that has not
previously been included in income, but limited, in the case of the portion of the discount that is allocable to any mortgage loan, to
the payment of stated redemption price on the mortgage loan that is received by the trust fund in that month. A certificateholder may
elect to include market discount in income currently as it accrues (under a constant yield method based on the yield of the certificate
to the holder) rather than including it on a deferred basis in accordance with the foregoing under rules similar to those described in
"—Taxation of Owners of REMIC Regular Certificates—Market Discount" above.
Section 1276(b)(3) of the Code authorized the Treasury Department to issue regulations providing for the method for accruing
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 Department, some rules described in the Committee Report will apply. Under those rules, in each accrual period
market discount on the mortgage loans should accrue, at the certificateholder's option: (1) on the basis of a constant yield method, (2)
in the case of a mortgage loan issued without original issue discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period bears to the total stated interest remaining to be paid on the
mortgage loan as of the beginning of the accrual period, or (3) in the case of a mortgage loan issued with original issue discount, in
an amount that bears the same ratio to the total remaining market discount as the original issue discount accrued in the accrual period
bears to the total original issue discount remaining at the beginning of the accrual period. The prepayment assumption, if any, used in
calculating the accrual of original issue discount is to be used in calculating the accrual of market discount. The effect of using a
prepayment assumption could be to accelerate the reporting of the discount income.
Because the mortgage loans will provide for periodic payments of stated redemption price, the market discount may be required
to be included in income at a rate that is not significantly slower than the rate at which the discount would be included in income if
it were original issue discount.
Market discount with respect to mortgage loans may be considered to be de minimis and, if so, will be includible in income
under de minimis rules similar to those described above in "—REMICs—Taxation of Owners of REMIC Regular Certificates—Original Issue
Discount" with the exception that it is less likely that a prepayment assumption will be used for purposes of these rules with respect
to the mortgage loans.
Further, under the rules described in "—REMICs—Taxation of Owners of REMIC Regular Certificates—Market Discount," above, any
discount that is not original issue discount and exceeds a de minimis amount may require the deferral of interest expense deductions
attributable to accrued market discount not yet includible in income, unless an election has been made to report market discount
currently as it accrues. This rule applies without regard to the origination dates of the mortgage loans.
Premium. If a certificateholder is treated as acquiring the underlying mortgage loans at a premium, that is, at a price in
excess of their remaining stated redemption price, the certificateholder may elect under Section 171 of the Code to amortize using a
constant yield method the portion of the premium allocable to mortgage loans originated after September 27, 1985. Amortizable premium is
treated as an offset to interest income on the related debt instrument, rather than as a separate interest deduction. However, premium
allocable to mortgage loans originated before September 28, 1985 or to mortgage loans for which an amortization election is not made,
should be allocated among the payments of stated redemption price on the mortgage loan and be allowed as a deduction as these payments
are made (or, for a certificateholder using the accrual method of accounting, when the payments of stated redemption price are due).
It is unclear whether a prepayment assumption should be used in computing amortization of premium allowable under Section 171
of the Code. If premium is not subject to amortization using a prepayment assumption and a mortgage loan prepays in full, the holder of
a Grantor Trust Fractional Interest Certificate acquired at a premium should recognize a loss, equal to the difference between the
portion of the prepaid principal amount of the mortgage loan that is allocable to the certificate and the portion of the adjusted basis
of the certificate that is allocable to the mortgage loan. If a prepayment assumption is used to amortize premium, it appears that such
a loss would be unavailable. Instead, if a prepayment assumption is used, a prepayment should be treated as a partial payment of the
stated redemption price of the Grantor Trust Fractional Interest Certificate and accounted for under a method similar to that described
for taking account of original issue discount on REMIC Regular Certificates. See "REMICS—Taxation of Owners of REMIC Regular
Certificates—Original Issue discount" in this prospectus. It is unclear whether any other adjustments would be required to reflect
differences between the prepayment assumption used, and the actual rate of prepayments.
Taxation of Owners of Grantor Trust Strip Certificates. The "stripped coupon" rules of Section 1286 of the Code will apply to
the Grantor Trust Strip Certificates. Except as described above in "Characterization of Investments in Grantor Trust Certificates—If
Stripped Bond Rules Apply," no regulations or published rulings under Section 1286 of the Code have been issued and some uncertainty
exists as to how it will be applied to securities such as the Grantor Trust Strip Certificates. Accordingly, holders of Grantor Trust
Strip Certificates are encouraged to consult their own tax advisors concerning the method to be used in reporting income or loss with
respect to the certificates.
The OID Regulations do not apply to "stripped coupons," although they provide general guidance as to how the original issue
discount sections of the Code will be applied. In addition, the discussion below is subject to the discussion under "—PossibleApplication of Contingent Payment Rules" and assumes that the holder of a Grantor Trust Strip Certificate will not own any Grantor Trust
Fractional Interest Certificates.
Under the stripped coupon rules, it appears that original issue discount will be required to be accrued in each month on the
Grantor Trust Strip Certificates based on a constant yield method. In effect, each holder of Grantor Trust Strip Certificates would
include as interest income in each month an amount equal to the product of the holder's adjusted basis in the Grantor Trust Strip
Certificate at the beginning of that month and the yield of the Grantor Trust Strip Certificate to the holder. The yield would be
calculated based on the price paid for that Grantor Trust Strip Certificate by its holder and the payments remaining to be made thereon
at the time of the purchase, plus an allocable portion of the servicing fees and expenses to be paid with respect to the mortgage loans.
See "Characterization of Investments in Grantor Trust Certificates—If Stripped Bond Rules Apply" above.
As noted above, Section 1272(a)(6) of the Code requires that a prepayment assumption be used in computing the accrual of
original issue discount with respect to some categories of debt instruments, and that adjustments be made in the amount and rate of
accrual of the discount when prepayments do not conform to the prepayment assumption. To the extent the Grantor Trust Strip Certificates
represent an interest in any pool of debt instruments the yield on which may be affected by reason of prepayments, those provisions will
apply to the Grantor Trust Strip Certificates for taxable years beginning after August 5, 1997. It is uncertain, if a prepayment
assumption is used, whether the assumed prepayment rate would be determined based on conditions at the time of the first sale of the
Grantor Trust Strip Certificate or, with respect to any subsequent holder, at the time of purchase of the Grantor Trust Strip
Certificate by that holder.
The accrual of income on the Grantor Trust Strip Certificates will be significantly slower if a prepayment assumption is
permitted to be made than if yield is computed assuming no prepayments. It currently is intended to base information returns or reports
to the IRS and certificateholders on the Prepayment Assumption disclosed in the related prospectus supplement and on a constant yield
computed using a representative initial offering price for each class of certificates. However, none of the depositor, the master
servicer or the trustee will make any representation that the mortgage loans will in fact prepay at a rate conforming to the Prepayment
Assumption or at any other rate, and certificateholders should bear in mind that the use of a representative initial offering price will
mean that the information returns or reports, even if otherwise accepted as accurate by the IRS, will in any event be accurate only as
to the initial certificateholders of each series who bought at that price. Prospective purchasers of the Grantor Trust Strip
Certificates are encouraged to consult their own tax advisors regarding the use of the Prepayment Assumption.
It is unclear under what circumstances, if any, the prepayment of a mortgage loan will give rise to a loss to the holder of a
Grantor Trust Strip Certificate. If a Grantor Trust Strip 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 Grantor Trust Strip
Certificate, it appears that no loss may be available as a result of any particular prepayment, except possibly if prepayments occur at
a rate faster than the Prepayment Assumption. However, if a Grantor Trust Strip Certificate is treated as an interest in discrete
mortgage loans, or if the Prepayment Assumption is not used, then when a mortgage loan is prepaid, the holder of a Grantor Trust Strip
Certificate should be able to recognize a loss equal to the portion of the adjusted issue price of the Grantor Trust Strip Certificate
that is allocable to the mortgage loan.
Possible Application of Contingent Payment Rules. The coupon stripping rules' general treatment of stripped coupons is to
regard them as newly issued debt instruments in the hands of each purchaser. To the extent that payments on the Grantor Trust Strip
Certificates would cease if the mortgage loans were prepaid in full, the Grantor Trust Strip Certificates could be considered to be debt
instruments providing for contingent payments. Under the OID Regulations, debt instruments providing for contingent payments are not
subject to the same rules as debt instruments providing for noncontingent payments. Regulations were promulgated on June 14, 1996,
regarding contingent payment debt instruments (the "Contingent Payment Regulations"), but it appears that Grantor Trust Strip
Certificates, to the extent subject to Section 1272(a)(6) of the Code, as described above, or due to their similarity to other
mortgage-backed securities(such as REMIC regular interests and debt instruments subject to Section 1272(a)(6) of the Code) that are
expressly excepted from the application of the Contingent Payment Regulations, are or may be excepted from these regulations. Like the
OID Regulations, the Contingent Payment Regulations do not specifically address securities, such as the Grantor Trust Strip
Certificates, that are subject to the stripped bond rules of Section 1286 of the Code.
If the contingent payment rules under the Contingent Payment Regulations were to apply, the holder of a Grantor Trust Strip
Certificate would be required to apply the "noncontingent bond method." Under the "noncontingent bond method," the issuing entity of a
Grantor Trust Strip Certificate determines a projected payment schedule on which interest will accrue. Holders of Grantor Trust Strip
Certificates are bound by the issuing entity's projected payment schedule. The projected payment schedule consists of all noncontingent
payments and a projected amount for each contingent payment based on the projected yield (as described below) of the Grantor Trust Strip
Certificate. The projected amount of each payment is determined so that the projected payment schedule reflects the projected yield. The
projected amount of each payment must reasonably reflect the relative expected values of the payments to be received by the holder of a
Grantor Trust Strip Certificate. The projected yield referred to above is a reasonable rate, not less than the "applicable Federal rate"
that, as of the issue date, reflects general market conditions, the credit quality of the Depositor, and the terms and conditions of the
mortgage loans. The holder of a Grantor Trust Strip Certificate would be required to include as interest income in each month the
adjusted issue price of the Grantor Trust Strip Certificate at the beginning of the period multiplied by the projected yield, and would
add to, or subtract from, the income any variation between the payment actually received in that month and the payment originally
projected to be made in that month.
Assuming that a prepayment assumption were used, if the Contingent Payment Regulations or their principles were applied to
Grantor Trust Strip Certificates, the amount of income reported with respect thereto would be substantially similar to that described
under "Taxation of Owners of Grantor Trust Strip Certificates" in this prospectus. Certificateholders are encouraged to consult their
tax advisors concerning the possible application of the contingent payment rules to the Grantor Trust Strip Certificates.
Sales of Grantor Trust Certificates. Any gain or loss equal to the difference between the amount realized on the sale or
exchange of a Grantor Trust Certificate and its adjusted basis, recognized on the sale or exchange of a Grantor Trust Certificate by an
investor who holds the Grantor Trust Certificate as a capital asset, will be capital gain or loss, except to the extent of accrued and
unrecognized market discount, which will be treated as ordinary income, and (in the case of banks and other financial institutions)
except as provided under Section 582(c) of the Code. The adjusted basis of a Grantor Trust Certificate generally will equal its cost,
increased by any income reported by the seller (including original issue discount and market discount income) and reduced (but not below
zero) by any previously reported losses, any amortized premium and by any distributions with respect to the Grantor Trust Certificate.
Gain or loss from the sale of a Grantor Trust Certificate may be partially or wholly ordinary and not capital in some
circumstances. Gain attributable to accrued and unrecognized market discount will be treated as ordinary income, as will gain or loss
recognized by banks and other financial institutions subject Section 582(c) of the Code. Furthermore, a portion of any gain that might
otherwise be capital gain may be treated as ordinary income to the extent that the Grantor Trust Certificate is held as part of a
"conversion transaction" within the meaning of Section 1258 of the Code. A conversion transaction generally is one in which the taxpayer
has taken two or more positions in the same or similar property that reduce or eliminate market risk, if substantially all of the
taxpayer's return is attributable to the time value of the taxpayer's net investment in the transaction. The amount of gain realized in
a conversion transaction that is recharacterized as ordinary income generally will not exceed the amount of interest that would have
accrued on the taxpayer's net investment at 120% of the appropriate "applicable Federal rate" (which rate is computed and published
monthly by the IRS) at the time the taxpayer enters into the conversion transaction, subject to appropriate reduction for prior
inclusion of interest and other ordinary income items from the transaction. Finally, a taxpayer may elect to have net capital gain taxed
at ordinary income rates rather than capital gains rates in order to include the net capital gain in total net investment income for
that taxable year, for purposes of the rule that limits the deduction of interest on indebtedness incurred to purchase or carry property
held for investment to a taxpayer's net investment income.
Grantor Trust Reporting. The master servicer or the trustee will furnish to each holder of a Grantor Trust Fractional Interest
Certificate with each distribution a statement setting forth the amount of the distribution allocable to principal on the underlying
mortgage loans and to interest thereon at the related pass-through rate. In addition, the master servicer or the trustee will furnish,
within a reasonable time after the end of each calendar year, to each holder of a Grantor Trust Certificate who was a holder at any time
during that year, information regarding the amount of servicing compensation received by the master servicer and subservicer (if any)
and any other customary factual information as the master servicer or the trustee deems necessary or desirable to enable holders of
Grantor Trust Certificates to prepare their tax returns and will furnish comparable information to the IRS as and when required by law
to do so. Because the rules for accruing discount and amortizing premium with respect to the Grantor Trust Certificates are uncertain in
various respects, there is no assurance the IRS will agree with the trust fund's information reports of these items of income and
expense. Moreover, these information reports, even if otherwise accepted as accurate by the IRS, will in any event be accurate only as
to the initial certificateholders that bought their certificates at the representative initial offering price used in preparing the
reports.
Except as disclosed in the related prospectus supplement, the responsibility for complying with the foregoing reporting rules
will be borne by the master servicer or the trustee.
Backup Withholding. In general, the rules described in "—REMICS—Backup Withholding with Respect to REMIC Certificates" in this
prospectus will also apply to Grantor Trust Certificates.
Foreign Investors. In general, the discussion with respect to REMIC Regular certificates in "REMICS—Foreign Investors in REMIC
Certificates" in this prospectus applies to Grantor Trust Certificates except that Grantor Trust Certificates will, except as disclosed
in the related prospectus supplement, be eligible for exemption from U.S. withholding tax, subject to the conditions described in the
discussion, only to the extent the related mortgage loans were originated after July 18, 1984.
To the extent that interest on a Grantor Trust Certificate would be exempt under Sections 871(h)(1) and 881(c) of the Code from
United States withholding tax, and the Grantor Trust Certificate is not held in connection with a certificateholder's trade or business
in the United States, the Grantor Trust Certificate will not be subject to United States estate taxes in the estate of a non-resident
alien individual.
Taxation of Classes of Exchangeable SecuritiesGeneral
The arrangement pursuant to which the ES Classes of a series are created, sold and administered will be classified as a grantor
trust under subpart E, part I of subchapter J of the Code. The interests in the classes of securities that have been exchanged for ES
Classes will be the assets of the exchangeable security trust fund, and the ES Classes represent beneficial ownership of these interests
in the classes of securities.
Tax Status
The ES Classes will represent "real estate assets" within the meaning of Code Section 856(c)(4)(A) and assets described in
Section 7701(a)(19)(C) of the Code, and original issue discount and interest accruing on ES Classes will represent "interest on
obligations secured by mortgages on real property" within the meaning of Section 856(c)(3)(B) of the Code, in each case, to the extent
the securities or income on the securities would be qualifying if held directly (although the matter is not entirely clear for Strips,
defined below). ES Classes will be "qualified mortgages" under Section 860G(a) (3) of the Code for a REMIC to the extent the securities
the interest in which is represented by such classes would be qualifying if held directly.
Tax Accounting for Exchangeable Securities
An ES Class represents beneficial ownership of an interest in one or more classes of securities on deposit in an exchangeable
security trust fund, as specified in the applicable prospectus supplement. If it represents an interest in more than one class of
securities, a purchaser must allocate its basis in the ES Class among the interests in the classes of securities in accordance with
their relative fair market values as of the time of acquisition. Similarly, on the sale of such an ES Class, the holder must allocate
the amount received on the sale among the interests in the classes of securities in accordance with their relative fair market values as
of the time of sale.
The holder of an ES Class must account separately for each interest in a class of securities (there may be only one such
interest). Where the interest represents a pro rata portion of a class of securities that are REMIC regular securities, the holder of
the ES Class should account for such interest as described under "REMICS—Taxation of Owners of REMIC Regular Certificates" above. Where
the interest represents beneficial ownership of a disproportionate part of the principal and interest payments on a class of securities
(a "Strip"), the holder is treated as owning, pursuant to Section 1286 of the Code, "stripped bonds" to the extent of its share of
principal payments and "stripped coupons" to the extent of its share of interest payments on such class of securities. We intend to
treat each Strip as a single debt instrument for purposes of information reporting. The IRS, however, could take a different position.
For example, the IRS could contend that a Strip should be treated as a pro rata part of the class of securities to the extent that the
Strip represents a pro rata portion thereof, and "stripped bonds" or "stripped coupons" with respect to the remainder. An investor is
encouraged to consult its tax advisor regarding this matter.
A holder of an ES Class should calculate original issue discount with respect to each Strip and include it in ordinary income
as it accrues, which may be before the receipt of cash attributable to such income, in accordance with a constant interest method that
takes into account the compounding of interest. The holder should determine its yield to maturity based on its purchase price allocated
to the Strip and on a schedule of payments projected using a prepayment assumption, and then make periodic adjustments to take into
account actual prepayment experience. With respect to a particular holder, Treasury regulations do not address whether the prepayment
assumption used to calculate original issue discount would be determined at the time of purchase of the Strip or would be the original
prepayment assumption with respect to the related class of securities. Further, if the related class of securities is subject to
redemption as described in the applicable prospectus supplement, Treasury regulations do not address the extent to which such prepayment
assumption should take into account the possibility of the retirement of the Strip concurrently with the redemption of such class of
securities. An investor is encouraged to consult its tax advisor regarding these matters. For purposes of information reporting
relating to original issue discount, the original yield to maturity of the Strip, determined as of the date of issuance of the series,
will be calculated based on the original prepayment assumption.
If original issue discount accruing with respect to a Strip, computed as described above, is negative for any period, the
holder may be entitled to offset such amount only against future positive original issue discount accruing from such Strip (or possibly
also against original issue discount from prior periods). We intend to report by offsetting negative OID accruals only against future
positive accruals of OID. Although not entirely free from doubt, such a holder may be entitled to deduct a loss to the extent that its
remaining basis would exceed the maximum amount of future payments to which the holder is entitled with respect to such Strip, assuming
no further prepayments of the Mortgages (or, perhaps, assuming prepayments at a rate equal to the prepayment assumption). Although the
issue is not free from doubt, all or a portion of such loss may be treated as a capital loss if the Strip is a capital asset in the
hands of the holder.
A holder realizes gain or loss on the sale of a Strip in an amount equal to the difference between the amount realized and its
adjusted basis in such Strip. The holder's adjusted basis generally is equal to the holder's allocated cost of the Strip, increased by
income previously included, and reduced (but not below zero) by distributions previously received. Except as described below, any gain
or loss on such sale generally is capital gain or loss if the holder has held its interest as a capital asset and is long-term if the
interest has been held for the long-term capital gain holding period (more than one year). Such gain or loss will be ordinary income or
loss (1) for a bank or thrift institution or (2) if the securities are REMIC regular securities to the extent income recognized by the
holder is less than the income that would have been recognized if the yield on such interest were 110% of the applicable federal rate
under Section 1274(d) of the Code.
If a holder exchanges a single ES Class, an "Exchanged ES Class", for several ES Classes, each, a "Received ES Class," and then
sells one of the Received ES Classes, the sale may be subject the investor to the coupon stripping rules of Section 1286 of the Code.
The holder must allocate its basis in the Exchanged ES Class between the part of such class underlying the Received ES Class that was
sold and the part of the Exchanged ES Class underlying the Received ES Classes that were retained, in proportion to their relative fair
market values as of the date of such sale. The holder is treated as purchasing the interest retained for the amount of basis allocated
to such interest. The holder must calculate original issue discount with respect to the retained interest as described above.
Although the matter is not free from doubt, a holder that acquires in one transaction a combination of ES Classes that may be
exchanged for a single ES Class that is identical to a class of securities that is on deposit in the related exchangeable security trust
fund should be treated as owning the relevant class of securities.
Exchanges of Exchangeable Securities
An exchange of an interest in one or more ES Classes for an interest in one or more other related ES Classes that are part of
the same combination, or vice versa, will not be a taxable exchange. After the exchange, the holder is treated as continuing to own the
interests in the class or classes of exchangeable securities that it owned immediately before the exchange.
Tax Treatment of Foreign Investors
A foreign holder of an ES Class is subject to taxation in the same manner as foreign holders of REMIC Regular Certificates.
Such manner of taxation is discussed under the heading in this prospectus "—REMICS —Foreign Investors in REMIC Certificates."
Backup Withholding
A holder of an ES Class is subject to backup withholding rules similar to those applicable to REMIC Regular Certificates. Such
manner of taxation is discussed under the heading in this prospectus "—REMICS —Backup Withholding With Respect to REMIC Certificates."
Reporting and Administrative Matters
Reports will be made to the IRS and to holders of record of ES Classes that are not excepted from the reporting requirements.
Callable Classes
The tax consequences of holding or selling a Callable Class will be discussed in the related Prospectus Supplement.
PENALTY AVOIDANCE
The summary of tax considerations contained in this prospectus was written to support the promotion and marketing of the
securities, and was not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding United States
Federal income tax penalties that may be imposed. Each taxpayer is encouraged to seek advice based on the taxpayer's particular
circumstances from an independent tax advisor.
STATE AND OTHER TAX CONSEQUENCES
In addition to the federal income tax consequences described in this prospectus in "Federal Income Tax Consequences", potential
investors should consider the state and local tax consequences of the acquisition, ownership, and disposition of the securities offered
under this prospectus and the prospectus supplement. State and local law may differ substantially from the corresponding federal tax
law, and the discussion above does not purport to describe any aspect of the tax laws of any state or other jurisdiction. Therefore,
prospective investors are encouraged to consult their own tax advisors with respect to the various state and other tax consequences of
investments in the securities offered under this prospectus and the prospectus supplement.
ERISA CONSIDERATIONS
Sections 404 and 406 of ERISA impose fiduciary and prohibited transaction restrictions on ERISA Plans and on various other
retirement plans and arrangements, including bank collective investment funds and insurance company general and separate accounts in
which ERISA Plans are invested. Section 4975 of the Code imposes essentially the same prohibited transaction restrictions on Tax Favored
Plans. ERISA and the Code prohibit a broad range of transactions involving assets of Plans and persons having obtained specified
relationships to a Plan, called "Parties in Interest", unless a statutory or administrative exemption is available with respect to any
such transaction.
Some employee benefit plans, including 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 the ERISA requirements.
Accordingly, assets of these plans may be invested in the securities without regard to the ERISA considerations described below, subject
to the provisions of other applicable federal, state and local law. Any such plan which is qualified and exempt from taxation under
Sections 401(a) and 501(a) of the Code, however, is subject to the prohibited transaction rules set forth in Section 503 of the Code.
ERISA generally imposes on Plan fiduciaries general fiduciary requirements, including those of investment prudence and
diversification and the requirement that a Plan's investments be made for the exclusive benefit of Plan participants and their
beneficiaries and in accordance with the documents governing the Plan. Any person who has discretionary authority or control with
respect to the management or disposition of Plan Assets and any person who provides investment advice with respect to Plan Assets for a
fee is a fiduciary of the investing Plan. If the mortgage loans and other assets included in the trust fund were to constitute Plan
Assets, then any party exercising management or discretionary control with respect to those Plan Assets may be deemed to be a Plan
"fiduciary," and thus subject to the fiduciary responsibility provisions of ERISA and the prohibited transaction provisions of ERISA and
Section 4975 of the Code with respect to any investing Plan. In addition, the acquisition or holding of securities by or on behalf of a
Plan or with Plan Assets, as well as the operation of the trust fund, may constitute or involve a prohibited transaction under ERISA and
the Code unless a statutory or administrative exemption is available. Further, ERISA and the Code prohibit a broad range of transactions
involving Plan Assets and persons, called Parties in Interest unless a statutory or administrative exemption is available. Some Parties
in Interest that participate in a prohibited transaction may be subject to a penalty (or an excise tax) imposed under Section 502(i) of
ERISA or Section 4975 of the Code, unless a statutory or administrative exemption is available with respect to any transaction of this
sort.
Some transactions involving the trust fund might be deemed to constitute prohibited transactions under ERISA and the Code with
respect to a Plan that purchases the securities, if the mortgage loans and other assets included in a trust fund are deemed to be assets
of the Plan. The DOL has promulgated the DOL Regulations concerning whether or not a Plan's assets, or "Plan Assets" would be deemed to
include an interest in the underlying assets of an entity, including a trust fund, for purposes of applying the general fiduciary
responsibility provisions of ERISA and the prohibited transaction provisions of ERISA and the Code. Under the DOL Regulations,
generally, when a Plan acquires an "equity interest" in another entity (such as the trust fund), the underlying assets of that entity
may be considered to be Plan Assets unless an exception applies. Exceptions contained in the DOL Regulations provide that a Plan's
assets will not include an undivided interest in each asset of an entity in which the Plan makes an equity investment if: (1) the entity
is an operating company; (2) the equity investment made by the Plan is either a "publicly-offered security" that is "widely held," both
as defined in the DOL Regulations, or a security issued by an investment company registered under the Investment Company Act of 1940, as
amended; or (3) Benefit Plan Investors do not own 25% or more in value of any class of equity securities issued by the entity. In
addition, the DOL Regulations provide that the term "equity interest" means any interest in an entity other than an instrument which is
treated as indebtedness under applicable local law and which has no "substantial equity features." Under the DOL Regulations, Plan
Assets will be deemed to include an interest in the instrument evidencing the equity interest of a Plan (such as a security with
"substantial equity features"), and, because of the factual nature of some of the rules set forth in the DOL Regulations, Plan Assets may
be deemed to include an interest in the underlying assets of the entity in which a Plan acquires an interest (such as the trust fund).
Without regard to whether the securities are characterized as equity interests, the purchase, sale and holding of securities by or on
behalf of a Plan could be considered to give rise to a prohibited transaction if the Issuing Entity, the trustee or any of their
respective affiliates is or becomes a Party in Interest with respect to the Plan. The depositor, Bear, Stearns & Co. Inc., the master
servicer or other servicer, any pool insurer, any special hazard insurer, the trustee, and certain of their affiliates might be
considered "parties in interest" or "disqualified persons" with respect to a Plan. If so, the acquisition, holding or disposition of
securities by or on behalf of such Plan could be considered to give rise to a "prohibited transaction" within the meaning of ERISA and
the Code unless an exemption is available. Neither Plans nor persons investing Plan Assets should acquire or hold securities in reliance
upon the availability of any exception under the DOL Regulations.
Class Exemptions
The DOL has issued Prohibited Transaction Class Exemptions ("PTCEs") which provide exemptive relief to parties to any
transaction which satisfies the conditions of the exemption. A partial listing of the PTCEs which may be available for investments in
securities follows. Each of these exemptions is available only if specified conditions are satisfied and may provide relief for some,
but not all, of the prohibited transactions that a particular transaction may cause. The prospectus supplement for a particular
offering of securities may tell you whether the securities themselves satisfy the conditions of these exemptions. You should consult
with your advisors regarding the specific scope, terms and conditions of an exemption as it applies to you, as an investor, before
relying on that exemption's availability.
Class exemptions for purchases and sales of securities.
The following exemptions may apply to a purchase or sale of securities between a Plan, on the one hand, and a Party in
Interest, on the other hand:
o PTCE 84-14, which exempts certain transactions approved on behalf of the Plan by a qualified professional asset
manager.
o PTCE 86-128, which exempts certain transactions between a Plan and certain broker-dealers.
o PTCE 90-1, which exempts certain transactions entered into by insurance company pooled separate accounts in which
Plans have made investments.
o PTCE 91-38, which exempts certain transactions entered into by bank collective investment funds in which Plans have
made investments.
o PTCE 96-23, which exempts certain transactions approved on behalf of a Plan by an in-house investment manager.
These exemptions do not expressly address prohibited transactions that might result from transactions incidental to the
operation of a trust. The issuing entity cannot assure you that a purchase or sale of securities in reliance on one of these exemptions
will not give rise to indirect, non-exempt prohibited transactions.
Class exemptions for purchases and sales of securities and transactions incidental to the operation of the Issuing Entity.
The following exemptions may apply to a purchase or sale of securities between a Plan, on the one hand, and a Party in
Interest, on the other hand, and may also apply to prohibited transactions that may result from transactions incident to the operation
of the Issuing Entity:
o PTCE 95-60, which exempts certain transactions involving insurance company general accounts.
o PTCE 83-1, which exempts certain transactions involving the purchase of pass-through certificates in mortgage pool
investment trusts from, and the sale of such certificates to, the pool sponsor, as well as transactions in connection
with the servicing and operation of the pool.
Prohibited Transaction Class Exemption 83-1. The U.S. Department of Labor has issued an administrative exemption, Prohibited
Transaction Class Exemption 83-1 ("PTCE 83-1"), which, under certain conditions, exempts from the application of the prohibited
transaction rules of ERISA and the excise tax provisions of Section 4975 of the Code transactions involving a Plan in connection with
the operation of a "mortgage pool" and the purchase, sale and holding of "mortgage pool pass-through certificates." A "mortgage pool" is
defined as an investment pool, consisting solely of interest bearing obligations secured by first or second mortgages or deeds of trust
on single-family residential property, property acquired in foreclosure and undistributed cash. A "mortgage pool pass-through
certificate" is defined as a certificate which represents a beneficial undivided interest in a mortgage pool which entitles the holder to
pass-through payments of principal and interest from the mortgage loans.
For the exemption to apply, PTCE 83-1 requires that:
o the depositor and the trustee maintain a system of insurance or other protection for the mortgage loans and the
property securing such mortgage loans, and for indemnifying holders of certificates against reductions in pass-through
payments due to defaults in loan payments or property damage in an amount at least equal to the greater of 1% of the
aggregate principal balance of the mortgage loans, or 1% of the principal balance of the largest covered pooled
mortgage loan;
o the trustee may not be an affiliate of the depositor;
o and the payments made and retained by the depositor in connection with the trust fund, together with all funds inuring
to the depositor's benefit for administering the trust fund, represent no more than "adequate consideration" for
selling the mortgage loans, plus reasonable compensation for services provided to the trust fund.
In addition, if it is applicable, PTCE 83-1 exempts the initial sale of certificates to a Plan with respect to which the
depositor, the special hazard insurer, the pool insurer, the master servicer, or other servicer, or the trustee are or is a party in
interest if the Plan does not pay more than fair market value for such certificate and the rights and interests evidenced by such
certificate are not subordinated to the rights and interests evidenced by other certificates of the same pool. PTCE 83-1 also exempts
from the prohibited transaction rules any transactions in connection with the servicing and operation of the mortgage pool, provided
that any payments made to the master servicer in connection with the servicing of the trust fund are made in accordance with a binding
agreement, copies of which must be made available to prospective investors.
In the case of any Plan with respect to which the depositor, the master servicer, the special hazard insurer, the pool insurer,
or the trustee is a fiduciary, PTCE 83-1 will only apply if, in addition to the other requirements:
o the initial sale, exchange or transfer of certificates is expressly approved by an independent fiduciary who has
authority to manage and control those plan assets being invested in certificates;
o the Plan pays no more for the certificates than would be paid in an arm's length transaction;
o no investment management, advisory or underwriting fee, sale commission, or similar compensation is paid to the
depositor with regard to the sale, exchange or transfer of certificates or notes to the Plan;
o the total value of the certificates purchased by such Plan does not exceed 25% of the amount issued; and
o at least 50% of the aggregate amount of certificates is acquired by persons independent of the depositor, the trustee,
the master servicer, and the special hazard insurer or pool insurer.
Before purchasing certificates, a fiduciary of a Plan should confirm that the trust fund is a "mortgage pool," that the
certificates constitute "mortgage pool pass-through certificates," and that the conditions set forth in PTCE 83-1 would be satisfied. In
addition to making its own determination as to the availability of the exemptive relief provided in PTCE 83-1, the Plan fiduciary should
consider the availability of any other prohibited transaction exemptions. The Plan fiduciary also should consider its general fiduciary
obligations under ERISA in determining whether to purchase any certificates on behalf of a Plan.
Underwriter Exemption
The DOL has issued Exemptions to some underwriters, which generally exempt from the application of the prohibited transaction
provisions of Section 406 of ERISA, and the excise taxes imposed on those prohibited transactions pursuant to Section 4975(a) and (b) of
the Code, some transactions, among others, relating to the servicing and operation of mortgage pools and the initial purchase, holding
and subsequent resale of mortgage-backed securities or other "securities" underwritten by an Underwriter, as defined below, provided
that the conditions set forth in the Exemption are satisfied. For purposes of this section "ERISA Considerations", the term
"Underwriter" shall include (1) the underwriter, (2) any person directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with the underwriter and (3) any member of the underwriting syndicate or selling group of which a
person described in (1) or (2) is a manager or co-manager with respect to a class of securities.
The Exemption sets forth seven general conditions which must be satisfied for the Exemption to apply.
First, the acquisition of securities by a Plan or with Plan Assets must be on terms that are at least as favorable to the Plan
as they would be in an arm's-length transaction with an unrelated party.
Second, the Exemption only applies to securities evidencing rights and interests that are not subordinated to the rights and
interests evidenced by other securities of the same trust, unless none of the mortgage loans has a loan-to- value ratio or combined
loan-to-value ratio at the date of issuance of the securities that exceeds 100%.
Third, the securities at the time of acquisition by a Plan or with Plan Assets must be rated in one of the four highest generic
rating categories by an Exemption Rating Agency. However, the securities must be rated in one of the two highest generic categories by
an Exemption Rating Agency if the loan-to-value ratio or combined loan-to-value ratio of any one- to four-family residential mortgage
loan or home equity loan held in the trust exceeds 100% but does not exceed 125% at the date of issuance of the securities, and in that
case the Exemption will not apply: (1) to any of the securities if any mortgage loan or other asset held in the trust (other than a one-
to four-family residential mortgage loan or home equity loan) has a loan-to-value ratio or combined loan-to-value ratio that exceeds
100% at the Closing Date or (2) to any subordinate securities.
Fourth, the trustee cannot be an affiliate of any member of the Restricted Group (which consists of any Underwriter, the master
servicer, the special servicer, any subservicer, the depositor, any counterparty to an "eligible swap" (as described below) and any
officer with respect to assets included in the trust fund consisting of more than 5% of the aggregate unamortized principal balance of
the assets in the trust fund as of the date of initial issuance of the securities) other than the underwriter.
Fifth, the sum of all payments made to and retained by the Underwriter(s) must represent not more than reasonable compensation
for underwriting the securities; the sum of all payments made to and retained by the depositor pursuant to the assignment of the assets
to the related trust fund must represent not more than the fair market value of the obligations; and the sum of all payments made to and
retained by the master servicer, the special servicer and any subservicer must represent not more than reasonable compensation for the
person's services under the related Agreement and reimbursement of the person's reasonable expenses in connection therewith.
Sixth, the investing Plan or Plan Asset investor must be an accredited investor as defined in Rule 501(a)(1) of Regulation D of
the Commission under the Securities Act.
Seventh, for Issuing Entities other than certain trusts, the documents establishing the Issuing Entity and governing the
transaction must contain certain provisions as described in the Exemption intended to protect the assets of the Issuing Entity from
creditors of the Depositor.
Permitted trust funds include owner-trusts, as well as grantor-trusts and REMICs. Owner-trusts are subject to certain
restrictions in their governing documents to ensure that their assets may not be reached by creditors of the depositor in the event of
bankruptcy or other insolvency and must provide certain legal opinions.
The Exemption permits interest rate swaps, interest rate caps and yield supplement agreements to be assets of a trust fund if
certain conditions are satisfied.
An interest-rate swap or (if purchased by or on behalf of the Issuing Entity) an interest-rate cap contract (collectively, a
"swap" or "swap agreement") is a permitted trust fund asset if it: (a) is an "eligible swap;" (b) is with an "eligible counterparty;"
(c) meets certain additional specific conditions which depend on whether the swap is a "ratings dependent swap" or a "non-ratings
dependent swap" and (d) permits the Issuing Entity to make termination payments to the swap counterparty (other than currently scheduled
payments) solely from excess spread or amounts otherwise payable to the servicer, depositor, sponsor or any other seller. Securities to
which one or more swap agreements apply may be acquired or held by only "qualified plan investors."
An "eligible swap" is one which: (a) is denominated in U.S. dollars; (b) pursuant to which the Issuing Entity pays or
receives, on or immediately prior to the respective payment or distribution date for the class of securities to which the swap relates,
a fixed rate of interest or a floating rate of interest based on a publicly available index (e.g., LIBOR or the U.S. Federal Reserve's
Cost of Funds Index (COFI)), with the Issuing Entity receiving such payments on at least a quarterly basis and obligated to make
separate payments no more frequently than the counterparty, with all simultaneous payments being netted ("allowable interest rate"); (c)
has a notional amount that does not exceed either: (i) the principal balance of the class of securities to which the swap relates, or
(ii) the portion of the principal balance of such class represented by obligations ("allowable notional amount"); (d) is not leveraged
(i.e., payments are based on the applicable notional amount, the day count fractions, the fixed or floating rates permitted above, and
the difference between the products thereof, calculated on a one-to-one ratio and not on a multiplier of such difference) ("leveraged");
(e) has a final termination date that is either the earlier of the date on which the issuer terminates or the related class of
securities are fully repaid and (f) does not incorporate any provision which could cause a unilateral alteration in the requirements
described in (a) through (d) of this paragraph.
An "eligible counterparty" means a bank or other financial institution which has a rating at the date of issuance of the
securities, which is in one of the three highest long term credit rating categories or one of the two highest short term credit rating
categories, utilized by at least one of the exemption rating agencies rating the securities; provided that, if a counterparty is relying
on its short term rating to establish eligibility under the Exemption, such counterparty must either have a long term rating in one of
the three highest long term rating categories or not have a long term rating from the applicable exemption rating agency.
A "qualified plan investor" is a plan where the decision to buy a class of securities is made on behalf of the plan by an
independent fiduciary qualified to understand the swap transaction and the effect the swap would have on the rating of the securities
and such fiduciary is either (a) a "qualified professional asset manager" ("QPAM") under PTCE 84-14, (b) an "in-house asset manager"
under PTCE 96-23 or (c) has total assets (both plan and non-plan) under management of at least $100 million at the time the securities
are acquired by the plan.
In "ratings dependent swaps" (where the rating of a class of securities is dependent on the terms and conditions of the swap),
the swap agreement must provide that if the credit rating of the counterparty is withdrawn or reduced by any exemption rating agency
below a level specified by the exemption rating agency, the servicer must, within the period specified under the Pooling and Servicing
Agreement: (a) obtain a replacement swap agreement with an eligible counterparty which is acceptable to the exemption rating agency and
the terms of which are substantially the same as the current swap agreement (at which time the earlier swap agreement must terminate);
or (b) cause the swap counterparty to establish any collateralization or other arrangement satisfactory to the exemption rating agency
such that the then current rating by the exemption rating agency of the particular class of securities will not be withdrawn or reduced
(and the terms of the swap agreement must specifically obligate the counterparty to perform these duties for any class of securities
with a term of more than one year). In the event that the servicer fails to meet these obligations, holders of the securities that are
employee benefit plans or other retirement arrangements must be notified in the immediately following periodic report which is provided
to the holders of the securities but in no event later than the end of the second month beginning after the date of such failure. Sixty
days after the receipt of such report, the exemptive relief provided under the underwriter exemption will prospectively cease to be
applicable to any class of securities held by an employee benefit plan or other retirement arrangement which involves such ratings
dependent swap.
"Non-ratings dependent swaps" (those where the rating of the securities does not depend on the terms and conditions of the
swap) are subject to the following conditions. If the credit rating of the counterparty is withdrawn or reduced below the lowest level
permitted above, the servicer will, within a specified period after such rating withdrawal or reduction: (a) obtain a replacement swap
agreement with an eligible counterparty, the terms of which are substantially the same as the current swap agreement (at which time the
earlier swap agreement must terminate); (b) cause the counterparty to post collateral with the Issuing Entity in an amount equal to all
payments owed by the counterparty if the swap transaction were terminated; or (c) terminate the swap agreement in accordance with its
terms.
An "eligible yield supplement agreement" is any yield supplement agreement or similar arrangement or (if purchased by or on
behalf of the Issuing Entity) an interest rate cap contract to supplement the interest rates otherwise payable on obligations held by
the trust fund ("EYS Agreement"). If the EYS Agreement has a notional principal amount and/or is written on an International Swaps and
Derivatives Association, Inc. (ISDA) form, the EYS Agreement may only be held as an asset of the trust fund if it meets the following
conditions: (a) it is denominated in U.S. dollars; (b) it pays an allowable interest rate; (c) it is not leveraged; (d) it does not
allow any of these three preceding requirements to be unilaterally altered without the consent of the trustee; (e) it is entered into
between the Issuing Entity and an eligible counterparty and (f) it has an allowable notional amount.
The Exemption also requires that the trust fund meet the following requirements: (1) the trust fund must consist solely of
assets of the type that have been included in other investment pools; (2) securities evidencing interests in the other investment pools
must have been rated in one of the four highest generic categories of one of the Exemption Rating Agencies for at least one year prior
to the acquisition of securities by or on behalf of a Plan or with Plan Assets; and (3) securities evidencing interests in the other
investment pools must have been purchased by investors other than Plans for at least one year prior to any acquisition of securities by
or on behalf of a Plan or with Plan Assets.
A fiduciary of a Plan or any person investing Plan Assets to purchase a security must make its own determination that the
conditions set forth above will be satisfied with respect to the security.
If the general conditions of the Exemption are satisfied, the Exemption may provide an exemption from the restrictions imposed
by Sections 406(a) and 407(a) of ERISA, and the excise taxes imposed by Sections 4975(a) and (b) of the Code by reason of Sections
4975(c)(1)(A) through (D) of the Code, in connection with the direct or indirect sale, exchange or transfer of securities in the initial
issuance of the securities or the direct or indirect acquisition or disposition in the secondary market of securities by a Plan or with
Plan Assets or the continued holding of securities acquired by a Plan or with Plan Assets pursuant to either of the foregoing. However,
no exemption is provided from the restrictions of Sections 406(a)(1)(E), 406(a)(2) and 407 of ERISA for the acquisition or holding of a
security on behalf of an "Excluded Plan" by any person who has discretionary authority or renders investment advice with respect to the
assets of an Excluded Plan. For purposes of the securities, an Excluded Plan is a Plan sponsored by any member of the Restricted Group.
If the specific conditions of the Exemption are also satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(b)(1) and (b)(2) of ERISA, and the excise taxes imposed by Sections 4975(a) and (b) of the Code by
reason of Section 4975(c)(1)(E) of the Code, in connection with:
1. The direct or indirect sale, exchange or transfer of securities in the initial issuance of securities between the
depositor or an Underwriter and a Plan when the person who has discretionary authority or renders investment advice
with respect to the investment of Plan Assets in the securities is (a) a mortgagor with respect to 5% or less of the
fair market value of the trust fund assets or (b) an affiliate of such a person, provided that:
i. The Plan is not an Excluded Plan,
ii. Each Plan's investment in each class of securities does not exceed 25% of the outstanding securities
in the class,
iii. After the Plan's acquisition of the securities, no more than 25% of the assets over which the
fiduciary has investment authority are invested in securities of a trust fund containing assets which
are sold or serviced by the same entity, and
iv. In the case of initial issuance (but not secondary market transactions), at least 50% of each class
of securities and at least 50% of the aggregate interests in the trust fund are acquired by persons
independent of the Restricted Group;
2. The direct or indirect acquisition or disposition in the secondary market of securities by a Plan or with Plan assets
provided that the conditions in (i), (iii) and (iv) of 1 above are met; and
3. The continued holding of securities acquired by a Plan or with Plan Assets pursuant to sections 1 or 2 above.
Further, if the specific conditions of the Exemption are satisfied, the Exemption may provide an exemption from the
restrictions imposed by Sections 406(a), 406(b) and 407 of ERISA, and the excise taxes imposed by Sections 4975(a) and (b) of the Code
by reason of Section 4975(c) of the Code for transactions in connection with the servicing, management and operation of the trust fund.
The depositor expects that the specific conditions of the Exemption required for this purpose will be satisfied with respect to the
securities so that the Exemption would provide an exemption from the restrictions imposed by Sections 406(a) and (b) of ERISA (as well
as the excise taxes imposed by Sections 4975(a) and (b) of the Code by reason of Section 4975(c) of the Code) for transactions in
connection with the servicing, management and operation of the trust fund, provided that the general conditions of the Exemption are
satisfied.
The Exemption also may provide an exemption from the application of the prohibited transaction provisions of Sections 406(a)
and 407(a) of ERISA, and the excise taxes imposed by Section 4975(a) and (b) of the Code by reason of Sections 4975(c)(1)(A) through (D)
of the Code if the restrictions are deemed to otherwise apply merely because a person is deemed to be a Party in Interest with respect
to an investing Plan by virtue of providing services to the Plan (or by virtue of having a specified relationship to such a person)
solely as a result of the Plan's ownership of securities.
The Exemption generally extends exemptive relief to mortgage-backed and asset-backed securities transactions using pre-funding
accounts for trusts issuing securities. With respect to the securities, the Exemption will generally allow mortgage loans supporting
payments to securityholders, and having a value equal to no more than 25% of the total principal amount of the securities being offered
by the trust fund, to be transferred to the trust fund within the Pre-Funding Period (as defined below) instead of requiring that all
the mortgage loans be either identified or transferred on or before the Closing Date. In general, the relief applies to the purchase,
sale and holding of securities which otherwise qualify for the Exemption, provided that the following general conditions are met:
o the ratio of the amount allocated to the pre-funding account to the total principal amount of the securities being
offered must be less than or equal to 25%;
o all additional mortgage loans transferred to the related trust fund after the Closing Date must meet the same terms
and conditions for eligibility as the original mortgage loans used to create the trust fund, which terms and
conditions have been approved by one of the Exemption Rating Agencies;
o the transfer of the additional mortgage loans to the trust fund during the Pre-Funding Period must not result in the
securities to be covered by the Exemption receiving a lower credit rating from an Exemption Rating Agency upon
termination of the Pre-Funding Period than the rating that was obtained at the time of the initial issuance of the
securities by the trust fund;
o solely as a result of the use of pre-funding, the weighted average annual percentage interest rate for the mortgage
loans included in the related trust fund on the Closing Date and all additional mortgage loans transferred to the
related trust fund after the Closing Date at the end of the Pre- Funding Period must not be more than 100 basis points
lower than the rate for the mortgage loans which were transferred to the trust fund on the Closing Date;
o either:
(1) the characteristics of the additional mortgage loans transferred to the related trust fund after the Closing
Date must be monitored by an insurer or other credit support provider which is independent of the depositor; or
(2) an independent accountant retained by the depositor must provide the depositor with a letter (with copies
provided to the Exemption Rating Agency rating the securities, the Underwriter and the trustee) stating
whether or not the characteristics of the additional mortgage loans transferred to the related trust fund
after the Closing Date conform to the characteristics described in the prospectus or prospectus supplement
and/or agreement. In preparing the letter, the independent accountant must use the same type of procedures as
were applicable to the mortgage loans which were transferred to the trust fund as of the Closing Date;
o the Pre-Funding Period must end no later than three months or 90 days after the Closing Date or earlier in some
circumstances if the pre-funding accounts falls below the minimum level specified in the Agreement or an event of
default occurs;
o amounts transferred to any pre-funding accounts and/or capitalized interest account used in connection with the
pre-funding may be invested only in investments which are permitted by the Exemption Rating Agencies rating the
securities and must:
(1) be 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 the obligations are backed by the
full faith and credit of the United States); or
(2) have been rated (or the obligor has been rated) in one of the three highest generic rating categories by one
of the Exemption Rating Agencies ("ERISA Permitted Investments");
o the prospectus or prospectus supplement must describe the duration of the Pre-Funding Period;
o the trustee (or any agent with which the trustee contracts to provide trust services) must be a substantial financial
institution or trust company experienced in trust activities and familiar with its duties, responsibilities and
liabilities with ERISA. The trustee, as legal owner of the trust fund, must enforce all the rights created in favor of
securityholders of the trust fund, including employee benefit plans subject to ERISA.
Insurance company general accounts
o In the event that securities which are certificates, but not notes, do not meet the requirements of the Exemption
solely because they are subordinate certificates or fail to meet a minimum rating requirements under the Exemption,
certain Plans may be eligible to purchase certificates pursuant to Sections I and III of PTCE 95-60 which permits
insurance company general accounts as defined in PTCE 95-60 to purchase such certificates if they otherwise meet all
of the other requirements of the Exemption.
o Insurance companies contemplating the investment of general account assets in the securities are encouraged to
consult with their legal advisors with respect to the applicability of Section 401(c) of ERISA. The DOL issued final
regulations under Section 401(c) which became effective on July 5, 2001.
Revolving pool features
The Exemption only covers certificates backed by a "fixed" pool of loans which requires that all the loans must be transferred
to the trust fund or identified at closing (or transferred within the Pre-Funding Period, if pre-funding meeting the conditions
described above is used). Accordingly, certificates issued by trust funds which feature revolving pools of assets will not be eligible
for a purchase by Plans. However, securities which are notes backed by revolving pools of assets may be eligible for purchase by Plans
pursuant to certain other prohibited transaction exemptions. See discussion below in "ERISA Considerations Relating to Notes."ERISA Considerations Relating to Notes
Under the DOL Regulations, the assets of the trust fund would be treated as "plan assets" of a Plan for the purposes of ERISA
and the Code only if the Plan acquires an "equity interest" in the trust fund and none of the exceptions contained in the DOL
Regulations is applicable. An equity interest is defined under the DOL Regulations as an interest other than an instrument which is
treated as indebtedness under applicable local law and which has no substantial equity features. Assuming that the notes are treated as
indebtedness without substantial equity features for purposes of the DOL Regulations, then such notes will be eligible for purchase by
Plans. However, without regard to whether the notes are treated as an "equity interest" for such purposes, the acquisition or holding of
notes by or on behalf of a Plan could be considered to give rise to a prohibited transaction if the trust fund or any of its affiliates
is or becomes a party in interest or disqualified person with respect to such Plan, or in the event that a note is purchased in the
secondary market and such purchase constitutes a sale or exchange between a Plan and a party in interest or disqualified person with
respect to such Plan. There can be no assurance that the trust fund or any of its affiliates will not be or become a party in interest
or a disqualified person with respect to a Plan that acquires notes.
The Exemption permits trust funds which are grantor trusts, owner-trusts or REMICs to issue notes, as well as certificates,
provided a legal opinion is received to the effect that the noteholders have a perfected security interest in the trust fund's assets.
The exemptive relief provided under the Exemption for any prohibited transactions which could be caused as a result of the operation,
management or servicing of the trust fund and its assets would not be necessary with respect to notes with no substantial equity
features which are issued as obligations of the trust fund. Nevertheless, because other prohibited transactions might be involved, the
Exemption would provide prohibited transaction exemptive relief, provided that the same conditions of the Exemption described above
relating to certificates are met with respect to the notes. The same limitations of such exemptive relief relating to acquisitions of
certificates by fiduciaries with respect to Excluded Plans would also be applicable to the notes as described in this prospectus.
In the event that the Exemption is not applicable to the notes, one or more other prohibited transactions exemptions may be
available to Plans purchasing or transferring the notes depending in part upon the type of Plan fiduciary making the decision to acquire
the notes and the circumstances under which such decision is made. These exemptions include, but are not limited to, PTCE Exemption 90-1
(regarding investments by insurance company pooled separate accounts), PTCE 91-38 (regarding investments by bank collective investments
funds), PTCE 84-14 (regarding transactions effected by "qualified professional asset managers"), PTCE 95-60 (regarding investments by
insurance company general accounts) and PTCE 96-23 (regarding transactions effected by "in-house asset managers") (collectively, the
"Investor-Based Exemptions"). However, even if the conditions specified in these Investor-Based Exemptions are met, the scope of the
relief provided under such Exemptions might or might not cover all acts which might be construed as prohibited transactions.
In the event that the Exemption is not applicable to the notes, there can be no assurance that any class of notes will be
treated as indebtedness without substantial equity features for purposes of the DOL Regulations. There is increased uncertainty
regarding the characterization of debt instruments that do not carry an investment grade rating. Consequently, in the event of a
withdrawal or downgrade to below investment grade of the rating of a class of notes, the subsequent transfer of such notes or any
interest therein to a Plan trustee or other person acting on behalf of a Plan, or using Plan Assets to effect such transfer, will be
restricted. Unless otherwise stated in the related prospectus supplement, by acquiring a note, each purchaser will be deemed to
represent that either (1) it is not acquiring the note with Plan Assets; or (2) (A) either (i) none of the issuing entity, the depositor
any underwriter, the trustee, the master servicer, any other servicer or any of their affiliates is a party in interest with respect to
such purchaser that is a Plan or (ii) PTCE 90-1, PTCE 91-38, PTCE 84-14, PTCE 95-60, PTCE 96-23 or some other prohibited transaction
exemption is applicable to the acquisition and holding of the note by such purchaser and (B) the notes are rated investment grade or
better and such person believes that the notes are properly treated as indebtedness without substantial equity features for purposes of
the DOL Regulations, and agrees to so treat the notes. Alternatively, regardless of the rating of the notes, such person may provide the
trustee with an opinion of counsel, which opinion of counsel will not be at the expense of the issuing entity, the depositor, the
trustee, the master servicer or any other servicer, which opines that the purchase, holding and transfer of such note or interest
therein is permissible under applicable law, will not constitute or result in a non-exempt prohibited transaction under ERISA or Section
4975 of the Code and will not subject the issuing entity, the depositor, the trustee, the master servicer or any other servicer to any
obligation in addition to those undertaken in the indenture.
EACH PROSPECTUS SUPPLEMENT WILL CONTAIN INFORMATION CONCERNING CONSIDERATIONS RELATING TO ERISA AND THE CODE THAT ARE
APPLICABLE TO THE RELATED SECURITIES. BEFORE PURCHASING SECURITIES IN RELIANCE ON THE EXEMPTION, THE INVESTOR-BASED EXEMPTIONS OR ANY
OTHER EXEMPTION, A FIDUCIARY OF A PLAN SHOULD ITSELF CONFIRM THAT REQUIREMENTS SET FORTH IN SUCH EXEMPTION WOULD BE SATISFIED.
ANY PLAN INVESTOR WHO PROPOSES TO USE "PLAN ASSETS" OF ANY PLAN TO PURCHASE SECURITIES OF ANY SERIES OR CLASS ARE ENCOURAGED TO
CONSULT WITH ITS COUNSEL WITH RESPECT TO THE POTENTIAL CONSEQUENCES UNDER ERISA AND SECTION 4975 OF THE CODE OF THE ACQUISITION AND
OWNERSHIP OF SUCH SECURITIES.
Exchangeable Securities
With respect to those classes of exchangeable securities which were eligible for exemptive relief under the Exemption when
purchased, the Exemption would also cover the acquisition or disposition of such exchangeable securities when the securityholder
exercises its exchange rights. However, with respect to classes of exchangeable securities which were not eligible for exemptive relief
under the Exemption when purchased, the exchange, purchase or sale of such securities pursuant to the exercise of exchange rights or
call rights may give rise to prohibited transactions if a Plan and a Party in Interest with respect to such Plan are involved in the
transaction. However, one or more Investor-Based Exemptions discussed above may be applicable to these transactions.
Tax Exempt Investors
A Plan that is exempt from federal income taxation pursuant to Section 501 of the Code nonetheless will be subject to federal
income taxation to the extent that its income is "unrelated business taxable income" within the meaning of Section 512 of the Code.
Consultation with Counsel
There can be no assurance that the Exemption or any other DOL exemption will apply with respect to any particular Plan that
acquires the securities or, even if all the conditions specified therein were satisfied, that any such exemption would apply to
transactions involving the trust fund. In addition, the recently enacted Pension Protection Act of 2006 modified the ERISA rules
relating to prohibited transactions and Plan Assets. Prospective Plan investors should consult with their legal counsel concerning the
impact of ERISA and the Code and the potential consequences to their specific circumstances prior to making an investment in the
securities. Neither the depositor, the trustees, the master servicer nor any of their respective affiliates will make any representation
to the effect that the securities satisfy all legal requirements with respect to the investment therein by Plans generally or any
particular Plan or to the effect that the securities are an appropriate investment for Plans generally or any particular Plan.
Before purchasing a security in reliance on the Exemption, or an Investor-Based Exemption, or any other exemption, a fiduciary
of a Plan or other Plan Asset Investor should itself confirm that (a) all the specific and general conditions set forth in the
Exemption, an Investor-Based Exemption or other exemption would be satisfied and (b) in the case of a security purchased under the
Exemption, the security constitutes a "security" for purposes of the Exemption. In addition to making its own determination as to the
availability
of the exemptive relief provided in the Exemption, and Investor-Based Exemption or other exemption, the Plan fiduciary should consider
its general fiduciary obligations under ERISA in determining whether to purchase the securities on behalf of a Plan.
A governmental plan as defined in Section 3(32) of ERISA is not subject to ERISA, or Code Section 4975. However, such
governmental plan may be subject to federal, state and local law, which is, to a material extent, similar to the provisions of ERISA or
a Code Section 4975. A fiduciary of a governmental plan should make its own determination as to the propriety of such investment under
applicable fiduciary or other investment standards, and the need for the availability of any exemptive relief under any similar law.
LEGAL INVESTMENT MATTERS
Each class of certificates or notes offered by this prospectus and by the related prospectus supplement will be rated at the
date of issuance in one of the four highest rating categories by at least one Rating Agency. If so specified in the related prospectus
supplement, each such class that is rated in one of the two highest rating categories by at least one Rating Agency will constitute
"mortgage related securities" for purposes of SMMEA, and, as such, 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 whose authorized investments are
subject to state regulation to the same extent that, under applicable law, obligations issued by or guaranteed as to principal and
interest by the United States or any agency or instrumentality thereof constitute legal investments for the entities. Under SMMEA, if a
State enacted legislation on or prior to October 3, 1991 specifically limiting the legal investment authority of any such entities with
respect to "mortgage related securities," such securities will constitute legal investments for entities subject to the legislation only
to the extent provided therein. Some States have enacted legislation which overrides the preemption provisions of SMMEA. 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 "mortgage related securities," or require the sale or other disposition of the securities, so long as the contractual
commitment was made or the securities 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 with "mortgage related securities" without
limitation as to the percentage of their assets represented thereby, federal credit unions may invest in the securities, and national
banks may purchase the securities 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 regulatory authority may
prescribe.
The Federal Financial Institutions Examination Council has issued a supervisory policy statement applicable to all depository
institutions, setting forth guidelines for and significant restrictions on investments in "high-risk mortgage securities." The policy
statement has been adopted by the Federal Reserve Board, the Office of the Comptroller of the Currency, the FDIC and the OTS with an
effective date of February 10, 1992. The policy statement generally indicates that a mortgage derivative product will be deemed to be
high risk if it exhibits greater price volatility than a standard fixed rate thirty-year mortgage security. According to the policy
statement, prior to purchase, a depository institution will be required to determine whether a mortgage derivative product that it is
considering acquiring is high-risk, and if so that the proposed acquisition would reduce the institution's overall interest rate risk.
Reliance on analysis and documentation obtained from a securities dealer or other outside party without internal analysis by the
institution would be unacceptable. There can be no assurance as to which classes of offered securities will be treated as high-risk
under the policy statement.
The predecessor to the OTS issued a bulletin, entitled, "Mortgage Derivative Products and Mortgage Swaps", which is applicable
to thrift institutions regulated by the OTS. The bulletin established guidelines for the investment by savings institutions in certain
"high-risk" mortgage derivative securities and limitations on the use of the securities by insolvent, undercapitalized or otherwise
"troubled" institutions. According to the bulletin, such "high-risk" mortgage derivative securities include securities having specified
characteristics, which may include some classes of offered securities. In addition, the National Credit Union Administration has issued
regulations governing federal credit union investments which prohibit investment in specified types of securities, which may include
some classes of offered securities. Similar policy statements have been issued by regulators having jurisdiction over other types of
depository institutions.
Any class of securities that is not rated in one of the two highest rating categories by at least one Rating Agency, and any
other class of securities specified in the related prospectus supplement, will not constitute "mortgage related securities" for purposes
of SMMEA. Prospective investors in these classes of securities, in particular, should consider the matters discussed in the following
paragraph.
There may be other restrictions on the ability of investors either to purchase some classes of offered securities or to
purchase any class of offered securities representing more than a specified percentage of the investors' assets. The depositor will make
no representations as to the proper characterization of any class of offered securities for legal investment or other purposes, or as to
the ability of particular investors to purchase any class of certificates or notes under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of any class of certificates or notes. Accordingly, all investors whose investment
activities are subject to legal investment laws and regulations, regulatory capital requirements or review by regulatory authorities
should consult with their own legal advisors in determining whether and to what extent the offered securities of any class thereof
constitute legal investments or are subject to investment, capital or other restrictions, and, if applicable, whether SMMEA has been
overridden in any jurisdiction relevant to the investor.
USE OF PROCEEDS
Substantially all of the net proceeds to be received from the sale of certificates or notes will be applied by the depositor to
finance the purchase of, or to repay short-term loans incurred to finance the purchase of, the mortgage loans and/or mortgage securities
in the respective mortgage pools and to pay other expenses. The depositor expects that it will make additional sales of securities
similar to the offered securities from time to time, but the timing and amount of any such additional offerings will be dependent upon a
number of factors, including the volume of mortgage loans purchased by the depositor, prevailing interest rates, availability of funds
and general market conditions.
METHODS OF DISTRIBUTION
The depositor will offer the securities in series. The distribution of the securities 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, Bear, Stearns & Co. Inc., an
affiliate of the depositor, acting as underwriter with other underwriters, if any, named in such prospectus supplement will distribute
the securities in a firm commitment underwriting, subject to the terms and conditions of the underwriting agreement. In such event, the
related prospectus supplement may also specify that the underwriters will not be obligated to pay for any securities agreed to be
purchased by purchasers pursuant to purchase agreements acceptable to the depositor. In connection with the sale of the securities,
underwriters may receive compensation from the depositor or from purchasers of the securities in the form of discounts, concessions or
commissions. The related prospectus supplement will describe any such compensation that is paid by the depositor.
As to any offering of securities, in addition to the method of distribution as described in the prospectus supplement and this
base prospectus, the distribution of any class of the offered securities may be effected through one or more resecuritization
transactions, in accordance with Rule 190(b).
Alternatively, the related prospectus supplement may specify that Bear, Stearns & Co. Inc. acting as agent or in some cases as
principal with respect to securities that it has previously purchased or agreed to purchase, will distribute the securities. If Bear,
Stearns & Co. Inc. acts as agent in the sale of securities, Bear, Stearns & Co. Inc. will receive a selling commission with respect to
each series of securities, depending on market conditions, expressed as a percentage of the aggregate principal balance of the
securities sold hereunder as of the closing date. The exact percentage for each series of securities will be disclosed in the related
prospectus supplement. To the extent that Bear, Stearns & Co. Inc. elects to purchase securities as principal, Bear, Stearns & Co. Inc.
may realize losses or profits based upon the difference between its purchase price and the sales price. The related 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 securities of such series.
The depositor will indemnify Bear, Stearns & Co. Inc. and any underwriters against certain civil liabilities, including
liabilities under the Securities Act of 1933, or will contribute to payments Bear, Stearns & Co. Inc. and any underwriters may be
required to make in respect thereof.
In the ordinary course of business, the depositor and Bear, Stearns & Co. Inc. 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 such
mortgage loans or interests in such mortgage loans, including the securities.
Bear, Stearns & Co. Inc. may use this prospectus and the related prospectus supplement in connection with offers and sales
related to market-making transactions in the securities. Bear, Stearns & Co. Inc. may act as principal or agent in such transactions.
Such sales will be made at prices related to prevailing market prices at the time of sale or otherwise.
The depositor anticipates that the securities will be sold primarily to institutional investors or sophisticated
non-institutional investors. Purchasers of securities, 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 by them
of securities. Securityholders should consult with their legal advisors in this regard before any such reoffer or sale.
LEGAL MATTERS
Legal matters in connection with the securities of each series, including both federal income tax matters and the legality of
the securities being offered, will be passed upon for the depositor by Thacher Proffitt & Wood llp, New York, New York, Orrick,
Herrington & Sutcliffe LLP, New York, New York, or Greenberg Traurig LLP, New York, New York.
FINANCIAL INFORMATION
With respect to each series, a new trust fund will be formed, and no trust fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related series. Accordingly, no financial statements with respect to any trust
fund will be included in this prospectus or in the related prospectus supplement.
RATINGS
It is a condition to the issuance of any class of offered securities that they shall have been rated not lower than investment
grade, that is, in one of the four highest rating categories, by at least one Rating Agency.
Ratings on mortgage pass-through certificates and mortgage-backed notes address the likelihood of receipt by the holders
thereof of all collections on the underlying mortgage assets to which the holders are entitled. These ratings address the structural,
legal and issuer-related aspects associated with the certificates and notes, the nature of the underlying mortgage assets and the credit
quality of the guarantor, if any. Ratings on mortgage pass-through certificates and mortgage-backed notes do not represent any
assessment of the likelihood of principal prepayments by borrowers or of the degree by which the prepayments might differ from those
originally anticipated. As a result, securityholders might suffer a lower than anticipated yield, and, in addition, holders of stripped
interest securities in extreme cases might fail to recoup their initial 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.
AVAILABLE INFORMATION
The depositor is subject to the informational requirements of the Exchange Act and in accordance therewith files reports and
other information with the Commission. Reports and other information filed by the depositor can be inspected and copied at the Public
Reference Room maintained by the Commission at 100 F Street NE, Washington, DC 20549, and its Regional Offices located as follows:
Chicago Regional Office, 500 West Madison, 14th Floor, Chicago, Illinois60661; New York Regional Office, 233 Broadway, New York, NewYork10279. Copies of the material can also be obtained from the Public Reference Section of the Commission, 100 F Street NE,
Washington, DC 20549, at prescribed rates and electronically through the Commission's Electronic Data Gathering, Analysis and Retrieval
system at the Commission's Website (http://www.sec.gov). Information about the operation of the Public Reference Room may be obtained by
calling the Securities and Exchange Commission at (800) SEC-0330. Exchange Act reports as to any series filed with the Commission will
be filed under the issuing entity's name. The depositor does not intend to send any financial reports to security holders.
The issuing entity's annual reports on Form 10-K (including reports of assessment of compliance with the AB Servicing Criteria,
attestation reports, and statements of compliance, discussed in "Servicing of Mortgage Loans—Evidence as to Compliance" in the related
prospectus supplement and "Description of the Securities — Reports to Securityholders" in this prospectus, required to be filed under
Regulation AB), periodic distribution reports on Form 10-D, current reports on Form 8-K and amendments to those reports, together with
such other reports to security holders or information about the securities as shall have been filed with the Commission will be posted
on the trustee's or the securities administrator's internet web site, as applicable, as soon as reasonably practicable after it has been
electronically filed with, or furnished to, the Commission. The address of the website will be provided in the related Prospectus
Supplement.
This prospectus does not contain all of the information set forth in the registration statement (of which this prospectus forms
a part) and exhibits thereto which the depositor has filed with the Commission under the Securities Act and to which reference is hereby
made.
REPORTS TO SECURITYHOLDERS
The master servicer or another designated person will be required to provide periodic unaudited reports concerning each trust
fund to all registered holders of offered securities of the related series with respect to each trust fund as are required under the
Exchange Act and the Commission's related rules and regulations, and under the terms of the applicable agreements.
As to each issuing entity, so long as it is required to file reports under the Exchange Act, those reports will be made
available as described above under "Available Information".
As to each issuing entity that is no longer required to file reports under the Exchange Act, periodic distribution reports will
be posted on the website of the sponsor, depositor, master servicer or securities administrator, as applicable, referenced above under
"Available Information" as soon as practicable. Annual reports of assessment of compliance with the AB Servicing Criteria, attestation
reports, and statements of compliance will be provided to registered holders of the related securities upon request free of charge. See
"Servicing of Mortgage Loans—Evidence as to Compliance" in the related prospectus supplement and "Description of the Securities —
Reports to Securityholders" in this prospectus.
INCORPORATION OF INFORMATION BY REFERENCE
There are incorporated into this prospectus and in the related prospectus supplement by reference all documents, including but
not limited to the financial statements and reports filed or caused to be filed or incorporated by reference by the depositor with
respect to a trust fund pursuant to the requirements of Sections 13(a) or 15(d) of the Exchange Act, prior to the termination of the
offering of the offered securities of the related series; provided, however, this prospectus and any related prospectus supplement do not
incorporate by reference any of the issuing entity's annual reports filed on Form 10-K with respect to a trust fund.
The depositor will provide or cause to be provided without charge to each person to whom this prospectus is delivered in
connection with the offering of one or more classes of offered securities, upon written or oral request of the person, a copy of any or
all the reports incorporated in this prospectus by reference, in each case to the extent the reports relate to one or more of such
classes of the offered securities, other than the exhibits to the documents, unless the exhibits are specifically incorporated by
reference in the documents. Requests should be directed in writing to Structured Asset Mortgage Investments II Inc., 383 Madison Avenue,
New York, New York10179, Attention: Secretary, or by telephone at (212) 272-2000. The depositor has determined that its financial
statements will not be material to the offering of any offered securities.
GLOSSARY
Accrual Security — A security with respect to which some or all of its accrued interest will not be distributed as interest but
rather an amount equal to that interest will be added to the principal balance thereof on each distribution date for the period
described in the related prospectus supplement.
Affiliated Seller — Banks, savings and loan associations, mortgage bankers, mortgage brokers, investment banking firms, and
other mortgage loan originators or sellers affiliated with the depositor, which may include EMC.
Agreement — An owner trust agreement, servicing agreement, indenture or pooling and servicing agreement.
ARM Loan — A mortgage loan with an adjustable interest rate.
Assumption Fee — The fee paid to the mortgagee upon the assumption of the primary liability for payment of the mortgage.
Bankruptcy Amount — The amount of Bankruptcy Losses that may be allocated to the credit enhancement of the related series.
Bankruptcy Code — Title 11 of the United States Code, as amended from time to time.
Bankruptcy Loss — A Realized Loss attributable to certain actions which may be taken by a bankruptcy court in connection with a
mortgage loan, including a reduction by a bankruptcy court of the principal balance of or the mortgage rate on a mortgage loan or an
extension of its maturity.
Beneficial Owner — A person acquiring an interest in any DTC Registered Security.
Benefit Plan Investors — Plans subject to Part 4 of Title I of ERISA in Section 4975 of the Code and any entity whose
underlying assets include Plan Assets by reason of such Plan's investment in the entity.
Buydown Account — With respect to a buydown mortgage loan, the custodial account where the Buydown Funds are placed.
Buydown Funds — With respect a buydown mortgage loan, the amount contributed by the seller of the mortgaged property or another
source and placed in the Buydown Account.
Buydown Period — The period during which funds on a buydown mortgage loan are made up for from the Buydown Account.
Call Class — A class of securities which entitles the holder thereof to direct the trustee to redeem a Callable class of
securities.
Callable Class — A class of securities of a series which is redeemable, directly or indirectly, at the direction of the holder
of the related Call Class, as provided in the related prospectus supplement. A Callable Class may have a "lock-out period" during which
such securities cannot be called and generally will be called only if the market value of the assets in the trust fund for such Callable
Class exceeds the outstanding principal balance of such assets.
CERCLA — The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.
Class Factor — For any exchangeable security and any month, will be a truncated seven digit decimal which, which when
multiplied by the original principal amount of that class, will equal its remaining principal amount, after giving effect to any payment
of (or addition to) principal to be made on the distribution date in the following month.
Clearstream — Clearstream Banking, société anonyme, formerly known as Cedelbank SA.
Closing Date — With respect to any series of securities, the date on which the securities are issued.
Code — The Internal Revenue Code of 1986.
Commission — The Securities and Exchange Commission.
Committee Report — The Conference Committee Report accompanying the Tax Reform Act of 1986.
Conservation Act — The Asset Conservation, Lender Liability and Deposit Insurance Act of 1996.
Contract — Manufactured housing conditional sales contracts and installment loan agreements each secured by a Manufactured Home.
Contributions Tax — With respect to specific contributions to a REMIC made after the Closing Date, a tax on the REMIC equal to
100% of the value of the contributed property.
Cooperative — With respect to a cooperative mortgage loan, the corporation that owns the related apartment building.
Crime Control Act — The Comprehensive Crime Control Act of 1984.
Defaulted Mortgage Loss — A Realized Loss other than a Special Hazard Loss, Extraordinary Loss or other losses resulting from
damage to a mortgaged property, Bankruptcy Loss or Fraud Loss.
Deferred Interest — If an adjustment to the mortgage rate on a mortgage loan has caused the amount of accrued interest on the
mortgage loan in any month to exceed the scheduled monthly payment on the mortgage loan, the resulting amount of interest that has
accrued but is not then payable;
Deleted Mortgage Loan — A mortgage loan which has been removed from the related trust fund.
Designated Seller Transaction — A series of securities where the related mortgage loans are provided either directly or
indirectly to the depositor by one or more Sellers identified in the related prospectus supplement.
Determination Date — The close of business on the date on which the amount of each distribution to securityholders will be
determined, which shall be stated in each prospectus supplement.
Distribution Account — One or more separate accounts for the collection of payments on the related mortgage loans and/or
mortgage securities constituting the related trust fund, which may be a Master Servicer Collection Account.
DIDMC — The Depository Institutions Deregulation and Monetary Control Act of 1980.
DOL — The U.S. Department of Labor.
DOL Regulations — Regulations by the DOL promulgated at 29 C.F.R. § 2510.3-101.
DTC — The Depository Trust Company.
DTC Registered Security — Any security initially issued through the book-entry facilities of the DTC.
Eligible Account — An account maintained with a federal or state chartered depository institution (i) the short-term
obligations of which are rated by each of the Rating Agencies in its highest rating at the time of any deposit therein, or (ii) insured
by the FDIC (to the limits established by the FDIC), the uninsured deposits in which account are otherwise secured such that, as
evidenced by an opinion of counsel (obtained by and at the expense of the person requesting that the account be held pursuant to this
clause (ii)) delivered to the trustee prior to the establishment of the account, the securityholders will have a claim with respect to
the funds in the account and a perfected first priority security interest against any collateral (which shall be limited to Permitted
Instruments) securing the funds that is superior to claims of any other depositors or general creditors of the depository institution
with which the account is maintained or (iii) a trust account or accounts maintained with a federal or state chartered depository
institution or trust company with trust powers acting in its fiduciary capacity or (iv) an account or accounts of a depository
institution acceptable to the Rating Agencies (as evidenced in writing by the Rating Agencies that use of any such account as the
Distribution Account will not have an adverse effect on the then-current ratings assigned to the classes of the securities then rated by
the Rating Agencies). Eligible Accounts may or may not bear interest.
Equity Certificates — With respect to any series of notes, the certificate or certificates representing a beneficial ownership
interest in the related issuing entity.
ERISA — The Employee Retirement Income Security Act of 1974, as amended.
ERISA Plans — Employee pension and welfare benefit plans subject to ERISA.
ES Class — A class of exchangeable securities, as described under "Description of the Certificates — Exchangeable Securities."
Exemption — An individual prohibited transactions exemption issued by the DOL to an underwriter, as amended by Prohibited
Transaction Exemption ("PTE") 97-34, 62 Fed. Reg. 39021 (July 21, 1997), PTE 2000-58, 65 Fed. Reg. 67765 (November 13, 2000), and PTE
2002-41, 67 Fed. Reg. 54487 (August 22, 2002).
Exemption Rating Agency — Standard & Poor's, a division of The McGraw-Hill Companies, Inc., Moody's Investors Service, Inc., or
Fitch, Inc.
Exchange Act — The Securities Exchange Act of 1934, as amended.
Extraordinary Loss — Any Realized Loss occasioned by war, civil insurrection, certain governmental actions, nuclear reaction
and certain other risks.
Fraud Loss — A Realized Loss incurred on a defaulted mortgage loan as to which there was fraud in the origination of the
mortgage loan.
Fraud Loss Amount — The amount of Fraud Losses that may be allocated to the credit enhancement of the related series.
FTC Rule — The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission.
Garn-St Germain Act — The Garn-St Germain Depository Institutions Act of 1982.
Ginnie Mae — The Government National Mortgage Association.
Global Securities — The certificated securities registered in the name of DTC, its nominee or another depository representing
interests in the class or classes specified in the related prospectus supplement which are held in book-entry form.
Grantor Trust Certificate — A certificate representing an interest in a Grantor Trust Fund.
Grantor Trust Fractional Interest Certificate — A Grantor Trust Certificate representing an undivided equitable ownership
interest in the principal of the mortgage loans constituting the related Grantor Trust Fund, together with interest on the Grantor Trust
Certificates at a pass-through rate.
Grantor Trust Strip Certificate — A certificate representing ownership of all or a portion of the difference between interest
paid on the mortgage loans constituting the related Grantor Trust Fund (net of normal administration fees and any retained interest of
the depositor) and interest paid to the holders of Grantor Trust Fractional Interest Certificates issued with respect to the Grantor
Trust Fund. A Grantor Trust Strip Certificate may also evidence a nominal ownership interest in the principal of the mortgage loans
constituting the related Grantor Trust Fund.
Grantor Trust Fund — A trust fund as to which no REMIC election will be made and which qualifies as a "grantor trust" within
the meaning of Subpart E, part I of subchapter J of the Code.
High Cost Loans — Mortgage loans subject to the Homeownership Act, which amended TILA to provide new requirements applicable to
loans that exceed certain interest rate and/or points and fees thresholds.
High LTV Loans — Mortgage loans with Loan-to-Value Ratios in excess of 80% and as high as 150% and which are not be insured by
a Primary Insurance Policy.
Homeownership Act —The Home Ownership and Equity Protection Act of 1994.
Housing Act — The National Housing Act of 1934, as amended.
Index — With respect to an ARM Loan, the related index will be specified in the related prospectus supplement, will be of a
type that are customarily used in the debt and fixed income markets to measure the cost of borrowed funds, and may include one of the
following indexes: (1) the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of either six months or one
year, (2) the weekly auction average investment yield of U.S. Treasury bills of six months, (3) the daily Bank Prime Loan rate made
available by the Federal Reserve Board, (4) the cost of funds of member institutions for the Federal Home Loan Bank of San Francisco,
(5) the interbank offered rates for U.S. dollar deposits in the London market, each calculated as of a date prior to each scheduled
interest rate adjustment date which will be specified in the related prospectus supplement or (6) any other index described in the
related prospectus supplement.
Insurance Proceeds — Proceeds received under any hazard, title, primary mortgage, FHA or other insurance policy that provides
coverage with respect to a particular mortgaged property or the related mortgage loan (other than proceeds applied to the restoration of
the property or released to the related borrower in accordance with the customary servicing practices of the master servicer (or, if
applicable, a special servicer) and/or the terms and conditions of the related mortgage.
Intermediary — An institution that is not a participant in the DTC but clears through or maintains a custodial relationship
with a participant.
IRS — The Internal Revenue Service.
Issue Premium — The excess of the issue price of a REMIC Regular Certificate over its stated redemption price.
Issuing Entity — With respect to a series of notes, the Delaware statutory trust or other trust, created pursuant to the owner
trust agreement, that issues the notes.
Liquidation Proceeds — (1) All amounts, other than Insurance Proceeds received and retained in connection with the liquidation
of defaulted mortgage loans or property acquired in respect thereof, by foreclosure or otherwise, together with the net operating income
(less reasonable reserves for future expenses) derived from the operation of any mortgaged properties acquired by the trust fund through
foreclosure or otherwise and (2) all proceeds of any mortgage loan or mortgage security purchased (or, in the case of a substitution,
amounts representing a principal adjustment) by the master servicer, the depositor, a Seller or any other person pursuant to the terms
of the related pooling and servicing agreement or servicing agreement as described under "The Mortgage Pools—Representations by
Sellers,""Servicing of Mortgage Loans—Realization Upon and Sale of Defaulted Mortgage Loans,""—Assignment of Trust Fund Assets" above
and "The Agreements—Termination."
Loan-to-Value Ratio — With respect to any mortgage loan at any given time is the ratio (expressed as a percentage) of the then
outstanding principal balance of the mortgage loan plus the principal balance of any senior mortgage loan to the Value of the related
mortgaged property.
Manufactured Home — Manufactured homes within the meaning of 42 United States Code, Section 5402(6), which defines a
"manufactured home" as "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 the 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."
Master Servicer Collection Account — One or more separate accounts established by a master servicer, into which each of the
related servicers are required to remit collections of payments on the related mortgage loans included in the related trust fund.
Net Mortgage Rate — With respect to a mortgage loan, the mortgage rate net of the per annum rate or rates applicable to the
calculation of servicing and administrative fees and any retained interest of the depositor.
Nonrecoverable Advance — An advance which, in the good faith judgment of the master servicer or a servicer, as applicable, will
not be recoverable from recoveries on the related mortgage loan or another specifically identified source.
Note Margin — With respect to an ARM Loan, the fixed percentage set forth in the related mortgage note, which when added to the
related Index, provides the mortgage rate for the ARM Loan.
OID Regulations — The rules governing original issue discount that are set forth in Sections 1271-1273 and 1275 of the Code and
in the related Treasury regulations.
OTS — The Office of Thrift Supervision.
Parity Act — The Alternative Mortgage Transaction Parity Act of 1982.
Parties in Interest — With respect to a Plan, persons who have specified relationships to the Plans, either "Parties in
Interest" within the meaning of ERISA or "Disqualified Persons" within the meaning of Section 4975 of the Code.
Percentage Interest — With respect to a security of a particular class, the percentage obtained by dividing the initial
principal balance or notional amount of the security by the aggregate initial amount or notional balance of all the securities of the
class.
Permitted Investments — United States government securities and other investment grade obligations specified in the related
pooling and servicing agreement or the related servicing agreement and indenture.
Piggyback Loan — A second lien mortgage loan originated by the same originator to the same borrower at the same time as the
first lien mortgage loan, each secured by the same mortgaged property.
Plan Assets — "Plan assets" of a Plan, within the meaning of the DOL Regulations.
Plans — ERISA Plans and Tax Favored Plans.
Prepayment Assumption — With respect to a REMIC Regular Certificate or a Grantor Trust Certificate, the prepayment assumption
used in pricing the initial offering of that security.
Prepayment Interest Shortfall — With respect to any mortgage loan with a prepayment in part or in full the excess, if any, of
interest accrued and otherwise payable on the related mortgage loan over the interest charged to the borrower (net of servicing and
administrative fees and any retained interest of the depositor).
Primary Insurance Covered Loss — With respect to a mortgage loan covered by a Primary Insurance Policy, the amount of the
related loss covered pursuant to the terms of the Primary Insurance Policy, which will generally consist of the unpaid principal amount
of the mortgage loan and accrued and unpaid interest on the mortgage loan and reimbursement of specific expenses, less (1) rents or
other payments collected or received by the insured (other than the proceeds of hazard insurance) that are derived from the related
mortgaged property, (2) hazard insurance proceeds in excess of the amount required to restore the related mortgaged property and which
have not been applied to the payment of the mortgage loan, (3) amounts expended but not approved by the primary insurer, (4) claim
payments previously made on the mortgage loan and (5) unpaid premiums and other specific amounts.
Primary Insurance Policy — A primary mortgage guaranty insurance policy.
Primary Insurer — An issuer of a Primary Insurance Policy.
Protected Account — One or more separate accounts established by each servicer servicing the mortgage loans, for the collection
of payments on the related mortgage loans included in the related trust fund.
PTCE — Prohibited Transaction Class Exemption.
Qualified Substitute Mortgage Loan — A mortgage loan substituted for a Deleted Mortgage Loan, meeting the requirements
described under "The Mortgage Pools— Representations by Sellers" in this prospectus.
Rating Agency — A "nationally recognized statistical rating organization" within the meaning of Section 3(a)(41) of the
Exchange Act.
Realized Loss — Any loss on a mortgage loan attributable to the mortgagor's failure to make any payment of principal or
interest as required under the mortgage note.
Record Date — The close of business on the last business day of the month preceding the month in which the applicable
distribution date occurs.
Relief Act — The Servicemembers Civil Relief Act..
REMIC — A real estate mortgage investment conduit as defined in Sections 860A through 860G of the Code.
REMIC Administrator — The trustee, the master servicer or another specified party who administers the related REMIC.
REMIC Certificates — Certificates evidencing interests in a trust fund as to which a REMIC election has been made.
REMIC Provisions — Sections 860A through 860G of the Code.
REMIC Regular Certificate — A REMIC Certificate designated as a "regular interest" in the related REMIC.
REMIC Regular Certificateholder — A holder of a REMIC Regular Certificate.
REMIC Residual Certificate — A REMIC Certificate designated as a "residual interest" in the related REMIC.
REMIC Residual Certificateholder — A holder of a REMIC Residual Certificate.
REMIC Regulations — The REMIC Provisions and the related Treasury regulations.
REO Mortgage Loan — A mortgage loan where title to the related mortgaged property has been obtained by the trustee or to its
nominee on behalf of securityholders of the related series.
RICO — The Racketeer Influenced and Corrupt Organizations statute.
Securities Act — The Securities Act of 1933, as amended.
Seller — The seller of the mortgage loans or mortgage securities included in a trust fund to the depositor with respect a
series of securities, who shall be an Affiliated Seller or an Unaffiliated Seller.
Single Family Property — An attached or detached one-family dwelling unit, two-to four-family dwelling unit, condominium,
townhouse, row house, individual unit in a planned-unit development and other individual dwelling units.
SMMEA — The Secondary Mortgage Market Enhancement Act of 1984.
Special Hazard Amount — The amount of Special Hazard Losses that may be allocated to the credit enhancement of the related
series.
Special Hazard Loss — (1) losses due to direct physical damage to a mortgaged property other than any loss of a type covered by
a hazard insurance policy or a flood insurance policy, if applicable, and (2) losses from partial damage caused by reason of the
application of the co-insurance clauses contained in hazard insurance policies.
Strip Security — A security which will be entitled to (1) principal distributions, with disproportionate, nominal or no
interest distributions or (2) interest distributions, with disproportionate, nominal or no principal distributions.
Tax Favored Plans — Plans that meet the definition of "plan" in Section 4975(e)(1) of the Code, including tax-qualified
retirement plans described in Section 401(a) of the Code and individual retirement accounts and annuities described in Section 408 of
the Code.
TILA — The Federal Truth-in-Lending Act.
Title V — Title V of the Depository Institutions Deregulation and Monetary Control Act of 1980, enacted in March 1980.
Title VIII — Title VIII of the Garn-St Germain Act.
Unaffiliated Sellers — Banks, savings and loan associations, mortgage bankers, mortgage brokers, investment banking firms, the
Resolution Trust Corporation, the FDIC and other mortgage loan originators or sellers not affiliated with the depositor.
United States Person — A citizen or resident of the United States, a corporation or partnership (including an entity treated as
a corporation or partnership for federal income tax purposes) created or organized in, or under the laws of, the United States or any
state thereof or the District of Columbia (except, in the case of a partnership, to the extent provided in regulations),or an estate
whose income is subject to United States federal income tax regardless of its source, or 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 the authority to
control all substantial decisions of the trust. To the extent prescribed in regulations by the Secretary of the Treasury, which have not
yet been issued, a trust which was in existence on August 20, 1996 (other than a trust treated as owned by the grantor under subpart E
of part I of subchapter J of chapter 1 of the Code), and which was treated as a United States person on August 20, 1996 may elect to
continue to be treated as a United States person notwithstanding the previous sentence.
Value — With respect to a mortgaged property securing a single family, multifamily, commercial or mixed-use loan, the lesser of
(x) the appraised value determined in an appraisal obtained at origination of the mortgage loan, if any, or, if the related mortgaged
property has been appraised subsequent to origination, the value determined in the subsequent appraisal and (y) the sales price for the
related mortgaged property (except in circumstances in which there has been a subsequent appraisal). However, in the case of refinanced,
modified or converted single family, multifamily, commercial or mixed-use loans, the "Value" of the related mortgaged property will be
equal to the lesser of (x) the appraised value of the related mortgaged property determined at origination or in an appraisal, if any,
obtained at the time of refinancing, modification or conversion and (y) the sales price of the related mortgaged property or, if the
mortgage loan is not a rate and term refinance mortgage loan and if the mortgaged property was owned for a relatively short period of
time prior to refinancing, modification or conversion, the sum of the sales price of the related mortgaged property plus the added value
of any improvements. With respect to a new Manufactured Home, the "Value" is no greater than the sum of a fixed percentage of the list
price of the unit actually billed by the manufacturer to the dealer (exclusive of freight to the dealer site), including "accessories"
identified in the invoice, plus the actual cost of any accessories purchased from the dealer, a delivery and set-up allowance, depending
on the size of the unit, and the cost of state and local taxes, filing fees and up to three years prepaid hazard insurance premiums.
With respect to a used Manufactured Home, the "Value" is the least of the sale price, the appraised value, and the National Automobile
Dealer's 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. An appraisal for purposes of determining the Value of a mortgaged property may include an automated valuation.
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$1,252,719,000 (Approximate)
Structured Asset Mortgage Investments II Inc.
Depositor
Bear Stearns ALT-A Trust
Mortgage Pass-Through Certificates,
Series 2006-7
__________________________________________________________________________________________________________________
Prospectus Supplement
__________________________________________________________________________________________________________________
Bear, Stearns & Co. Inc.
Underwriter
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 offered certificates in any state where offer is not permitted.
Dealers will be required to deliver a prospectus supplement and prospectus when acting as underwriters of the
certificates offered by this prospectus supplement and with respect to their unsold allotments or
subscriptions. In addition, all dealers selling the offered certificates, whether or not participating in this
offering, may be required to deliver a prospectus supplement and prospectus for 90 days after the date of this
prospectus supplement, such delivery obligation generally may be satisfied through the filing of the prospectus
supplement and prospectus with the Securities and Exchange Commission.
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Dates Referenced Herein and Documents Incorporated by Reference
