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Wells Fargo Asset Securities Corp – ‘424B5’ on 7/18/05 re: Wells Fargo Asset Securities Corp Mortgage Pass-Through Certificates Series 2005-AR14

On:  Monday, 7/18/05, at 3:00pm ET   ·   Accession #:  1193125-5-143513   ·   File #s:  333-122307, -17

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 7/18/05  Wells Fargo Asset Securities Corp 424B5                  1:2.0M Wells Fargo Asset Secs… 2005-AR14 RR Donnelley/FA

Prospectus   —   Rule 424(b)(5)
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 1: 424B5       Wfmbs 2005-Ar14                                     HTML   1.70M 


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  WFMBS 2005-AR14  
Table of Contents

PROSPECTUS SUPPLEMENT

(To Prospectus Dated June 14, 2005)

LOGO

Wells Fargo Mortgage Backed Securities 2005-AR14 Trust

Issuer

 

 

LOGO

Seller

 

$991,507,100

(Approximate)

Mortgage Pass-Through Certificates, Series 2005-AR14

Principal and interest payable monthly, commencing in August 2005

 

 

You should carefully consider the risk factors beginning on page S-12 of this prospectus supplement.

 

Neither the offered certificates nor the underlying mortgage loans are insured or guaranteed by any governmental agency or instrumentality or any other entity.

 

The offered certificates will represent interests in the trust only and will not represent interests in or obligations of the seller or any affiliate of the seller.

 

This prospectus supplement may be used to offer and sell the offered certificates only if accompanied by the prospectus.

 

 

The Trust Will Issue—

 

Ÿ Seven classes of senior Class A Certificates.

 

Ÿ Six classes of Class B Certificates, all of which are subordinated to, and provide credit enhancement for, the Class A Certificates. Each class of Class B Certificates is also subordinated to each class of Class B Certificates, if any, with a lower number.

 

The classes of offered certificates are listed under the heading “Offered Certificates” in the table on page S-4.

 

The Assets of the Trust Will Include—

 

Ÿ  A pool of fully amortizing, one- to four-family, adjustable interest rate, residential first mortgage loans, substantially all of which have original terms to stated maturity of approximately 30 years. Certain of the mortgage loans will require only payments of interest for a term specified in the related mortgage note.

 

Neither the SEC nor any state securities commission has approved the certificates offered by this prospectus supplement or determined that this prospectus supplement or the prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

 

The underwriter will purchase the offered certificates from the seller and offer them to investors at varying prices to be determined at the time of sale. The offered certificates will be available for delivery to investors on or about July 19, 2005. Total proceeds to the seller for the offered certificates will be approximately $998,108,157 before deducting expenses estimated at $340,000 plus accrued interest from July 1, 2005 to July 19, 2005.

 

Merrill Lynch & Co.

 

The date of this prospectus supplement is July 14, 2005


Table of Contents

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

 

 

     Page

Summary Information    S-5  
Risk Factors    S-12

Prepayments May Adversely Affect Yield

   S-12

Geographic Concentration May Increase Risk of Loss Because of Adverse Economic Conditions or Natural Disasters

   S-12

Subordination of Super Senior Support Certificates and Class B Certificates Increases Risk of Loss

   S-13

Rights of Beneficial Owners May Be Limited By Book-Entry System for Certain Classes of Certificates

   S-13

The Variable Rate of Interest on the Offered Certificates Will Affect Your Yield

   S-13

There Is a Risk that Interest Payments on the Mortgage Loans May Be Insufficient to Pay Interest on Your Certificates

   S-14

Certificates May Not Be Appropriate For Certain Individual Investors

   S-14

Interest Only Loans May Have Higher Risk of Default or Rates of Prepayment

   S-15

There Are Risks Relating to Second Lien Mortgage Loans

   S-15

Residual Certificates May Have Adverse Tax Consequences

   S-15

United States Military Operations May Increase Risk of Relief Act Shortfalls

   S-15
Forward Looking Statements    S-16
Description of the Certificates    S-16

General

   S-16

Distributions

   S-16

Interest

   S-18

Principal (Including Prepayments)

   S-20

Calculation of Amount to be Distributed on the Certificates

   S-20

Allocation of Amount to be Distributed on the Class A Certificates

   S-23

Additional Rights of the Residual Certificateholders

   S-24

Restrictions on Transfer of the Residual Certificates

   S-24

Periodic Advances

   S-24

Subordination of Class B Certificates

   S-24

Allocation of Losses

   S-25
Description of the Mortgage Loans    S-27

General

   S-27

Mortgage Loan Data Appearing in
Appendix A

   S-28
     Page

Mortgage Loan Underwriting

   S-30

Mandatory Repurchase or Substitution of Mortgage Loans

   S-30

Optional Purchase or Substitution of Mortgage Loans

   S-30
Prepayment and Yield Considerations    S-30

General

   S-30

Yield Considerations with Respect to the Class B-2 and Class B-3 Certificates

   S-35

Wells Fargo Bank

   S-37
Pooling and Servicing Agreement    S-37

General

   S-37

Distributions

   S-37

Voting

   S-37

Trustee

   S-38

Custodian

   S-38

Master Servicer

   S-38

Optional Termination

   S-38
Servicing of the Mortgage Loans    S-38

The Servicers

   S-39

Servicing Compensation and Payment of Expenses

   S-39
Delinquency and Foreclosure Experience    S-39
Federal Income Tax Considerations    S-40

Regular Certificates

   S-40

Residual Certificates

   S-40
ERISA Considerations    S-41
Legal Investment    S-42
Secondary Market    S-43
Underwriting    S-43
Legal Matters    S-43
Use of Proceeds    S-43
Ratings    S-44

Index of Significant Prospectus Supplement Definitions

   S-45
Appendix A—Mortgage Loan Data     
Appendix B—Decrement Tables     

Appendix C—Subordinate Sensitivity
Tables

    

 

S-2


Table of Contents

IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS

PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS

 

Information is provided to you about the offered certificates in two separate documents that progressively provide more detail:

 

    the accompanying prospectus, which provides general information, some of which may not apply to your certificates; and

 

    this prospectus supplement, which describes the specific terms of your certificates.

 

If the description of the terms of your certificates varies between this prospectus supplement and the accompanying prospectus, you should rely on the information in this prospectus supplement.

 

Cross-references are included in this prospectus supplement and the accompanying prospectus to captions in these materials where you can find further related discussions. The foregoing Table of Contents and the Table of Contents included in the accompanying prospectus provide the pages on which these captions are located.

 

You can find a listing of the pages where capitalized terms used in this prospectus supplement and the accompanying prospectus are defined under the caption “Index of Significant Prospectus Supplement Definitions” on page S-45 in this document and under the caption “Index of Significant Definitions” beginning on page 102 in the accompanying prospectus. Any capitalized terms used but not defined in this prospectus supplement have the meanings assigned in the prospectus.

 

S-3


Table of Contents

THE SERIES 2005-AR14 CERTIFICATES

 

Class


   Initial
Principal
Balance(1)


   Pass-
Through
Rate


   Principal Types(2)

   Interest Types(2)

   Initial Rating
of Offered
Certificates(3)


   Original
Form(4)


   Minimum
Denomination(5)


   Incremental
Denomination(5)


               S&P

   Moody’s

        
Offered Certificates                                        
Class A-1    $ 465,616,000    (6)    Super Senior, Pass-
Through
   Variable Rate    AAA    Aaa    BE    $ 25,000    $ 1,000
Class A-2    $ 293,863,000    (6)    Super Senior, Sequential
Pay
   Variable Rate    AAA    Aaa    BE    $ 25,000    $ 1,000
Class A-3    $ 60,639,000    (6)    Super Senior Sequential
Pay
   Variable Rate    AAA    Aaa    BE    $ 25,000    $ 1,000
Class A-4    $ 85,830,000    (6)    Super Senior, Sequential
Pay
   Variable Rate    AAA    Aaa    BE    $ 25,000    $ 1,000
Class A-5    $ 25,283,000    (6)    Super Senior, Sequential
Pay
   Variable Rate    AAA    Aaa    BE    $ 25,000    $ 1,000
Class A-6    $ 33,776,000    (6)    Super Senior Support,
Pass-Through
   Variable Rate    AAA    Aa1    BE    $ 100,000    $ 1,000
Class A-R    $ 100    (6)    Senior, Sequential Pay    Variable Rate    AAA    None    D    $ 100      N/A
Class B-1    $ 13,000,000    (6)    Subordinated    Variable Rate    AA    Aa2    BE    $ 100,000    $ 1,000
Class B-2    $ 8,500,000    (6)    Subordinated    Variable Rate    A    A2    BE    $ 100,000    $ 1,000
Class B-3    $ 5,000,000    (6)    Subordinated    Variable Rate    BBB    Baa2    BE    $ 100,000    $ 1,000
Non-Offered Certificates                                   
Class B-4    $ 3,500,000    (6)    Subordinated    Variable Rate    N/A    N/A    N/A      N/A      N/A
Class B-5    $ 3,000,000    (6)    Subordinated    Variable Rate    N/A    N/A    N/A      N/A      N/A
Class B-6    $ 2,000,722    (6)    Subordinated    Variable Rate    N/A    N/A    N/A      N/A      N/A

(1) Approximate. The initial principal balances are subject to adjustment as described in this prospectus supplement.
(2) See “Description of the Certificates — Categories of Classes of Certificates” in the prospectus for a description of the principal and interest categories listed.
(3)   A description of the ratings of the offered certificates is set forth under the heading “Rating of Certificates” in the Summary Information and under “Ratings” in the main text of this prospectus supplement.
(4)   See “Description of the Certificates — Definitive Form” and “— Book-Entry Form” in the prospectus for a description of the forms of certificates. Book-entry form is designated as “BE” and definitive form is designated as “D” in the table above.
(5)   If necessary, in order to aggregate the initial principal balance of a class, one certificate of the class will be issued in an incremental denomination of less than that shown.
(6)   The pass-through rate with respect to each distribution date will be a per annum rate equal to the net WAC (as defined in this prospectus supplement under “Description of the Certificates — Interest”) of the mortgage loans. For the initial distribution date in August 2005, this rate is expected to be approximately 5.395% per annum.

 

S-4


Table of Contents

 

SUMMARY INFORMATION

 

Ÿ   This summary highlights selected information from this document, but does not contain all of the information that you should consider in making your investment decision. Please read this entire prospectus supplement and the accompanying prospectus carefully for additional detailed information about the offered certificates.

 

 

RELEVANT PARTIES

 

Issuer

 

The Wells Fargo Mortgage Backed Securities 2005-AR14 Trust.

 

Seller

 

Wells Fargo Asset Securities Corporation.

 

Master Servicer

 

Wells Fargo Bank, N.A.

 

Servicers

 

Initially, Wells Fargo Bank, N.A. Any other servicer will be approved by the master servicer.

 

Trustee

 

Wachovia Bank, National Association.

 

Custodian

 

Wells Fargo Bank, N.A.

 

RATING OF CERTIFICATES

 

The trust will not issue the offered certificates unless they have received at least the ratings set forth in the table on page S-4.

 

Ÿ   The ratings of the rating agencies are not recommendations to buy, sell or hold the certificates rated. A rating may be revised or withdrawn at any time by the assigning rating agency.

 

Ÿ   The ratings do not address the possibility that, as a result of principal prepayments, the yield on your certificate may be lower than anticipated.

 

 

See “— Effects of Prepayments on Your Investment Expectations” below and “Ratings” in this prospectus supplement.

 

DESCRIPTION OF CERTIFICATES

 

The certificates consist of:

 

Ÿ   the seven classes of senior Class A Certificates designated as “Senior,” “Super Senior” and “Super Senior Support” certificates in the table on page S-4; and

 

Ÿ   the six classes of junior Class B Certificates designated as “Subordinated” certificates in the table on page S-4.

 

Only the Class A Certificates and the Class B-1, Class B-2 and Class B-3 Certificates are being offered by this prospectus supplement and the accompanying prospectus. The Class B-4, Class B-5 and Class B-6 Certificates are not being offered pursuant to this prospectus supplement and the accompanying prospectus, and the seller may retain or sell such classes. Information provided with respect to the Class B-4, Class B-5 and Class B-6 Certificates is included solely to aid your understanding of the offered certificates.

 

See the table on page S-4 for more information with respect to each class of certificates.

 

Cut-Off Date

 

July 1, 2005.

 

Closing Date

 

On or about July 19, 2005.

 

Distribution Dates

 

The 25th day of each month, or the following business day if the 25th day is not a business day, commencing in August 2005.

 

S-5


Table of Contents

 

Principal Balance of the Certificates

 

The certificates will have an approximate total initial principal balance of $1,000,007,822. Any difference between the total principal balance of the certificates as of the date of issuance of the certificates and the approximate total initial principal balance of the certificates as of the date of this prospectus supplement will not exceed 5% of the total initial principal balance of the certificates. Any such difference will be allocated among the various classes of certificates so as to materially retain the characteristics of the offered certificates described in this prospectus supplement.

 

Interests in Mortgage Loans

 

The relative interests in the mortgage loans represented by the Class A Certificates and the Class B Certificates are subject to change over time because:

 

Ÿ   certain unscheduled principal payments on the mortgage loans will be disproportionately allocated to the Class A Certificates for a specified period; and

 

Ÿ   certain losses and certain shortfalls on the mortgage loans will be allocated first to the classes of Class B Certificates in reverse numerical order prior to the allocation of such losses and shortfalls to the Class A Certificates, as discussed in “Description of the Certificates — Distributions” and “— Subordination of Class B Certificates” in this prospectus supplement.

 

Forms of Certificates; Denominations

 

Your certificates will be issued either in book-entry form or in fully registered, certificated form and in the minimum denomination and the incremental denomination set forth in the table on page S-4. The offered certificates are not intended to be directly or indirectly held or beneficially owned by anyone in amounts lower than such minimum denominations.

 

MORTGAGE POOL

 

The assets of the trust are expected to consist of approximately 1,936 mortgage loans with an aggregate unpaid principal balance as of the cut-off date of approximately $1,000,007,822. The mortgage loans, which are the source of distributions to holders of the certificates, will consist of conventional, adjustable interest rate, monthly pay, fully amortizing, one- to four-family, residential first mortgage loans, substantially all of which have original terms to stated maturity of approximately 30 years. Some of the mortgage loans were made in connection with the relocation of employees of various corporate employers. Some of these corporate employers participate in Wells Fargo Bank, N.A.’s relocation program.

 

The mortgage loans provide for a fixed interest rate during an initial period of approximately ten years and thereafter provide for adjustments to that interest rate on an annual basis. The interest rate of each mortgage loan will adjust to equal the sum of the index and a gross margin. Interest rate adjustments will be subject to certain limitations stated in the related mortgage note on increases and decreases for any adjustment date. In addition, interest rate adjustments will be subject to a lifetime maximum mortgage interest rate and a minimum mortgage interest rate which will be the related gross margin. The index will be the weekly average yield on United States Treasury Securities adjusted to a constant maturity of one year as described under “Description of the Mortgage Loans” in this prospectus supplement.

 

Certain of the mortgage loans will require only payments of interest for a term specified in the related mortgage note. For substantially all of such mortgage loans, this term is equal to the fixed-rate period described in the preceding paragraph.

 

See “Appendix A” and “Description of the Mortgage Loans” in this prospectus supplement.

 

Changes to Mortgage Pool

 

The seller may remove mortgage loans from the pool, or may make substitutions for certain mortgage loans, in advance of the closing date.

 

After the issuance of the certificates, the seller may remove certain mortgage loans from the pool through repurchase or, under certain circumstances, may make substitutions for certain mortgage loans.

 

See “Description of the Mortgage Loans—Mandatory Repurchase or Substitution of Mortgage Loans” and “—Optional Purchase or Substitution of Mortgage Loans” in this prospectus supplement.

 

Optional Termination of the Trust

 

The seller may, subject to certain conditions including the then-remaining size of the pool, purchase all outstanding mortgage loans in the pool and thereby

 

S-6


Table of Contents

 

effect early retirement of the certificates. See “Pooling and Servicing Agreement — Optional Termination” in this prospectus supplement.

 

DISTRIBUTIONS OF PRINCIPAL AND INTEREST TO CERTIFICATEHOLDERS

 

On each distribution date the amount available for distribution on the certificates, which consists of those payments, recoveries, advances and other receipts in respect of the mortgage loans which are available for distribution on such date, will be distributed generally in the following order of priority:

 

Ÿ   first, pro rata, to the holders of the Class A Certificates, in respect of interest which they are entitled to receive on such distribution date;

 

Ÿ   second, to the holders of the Class A Certificates in respect of principal which they are entitled to receive on such distribution date; and

 

Ÿ   third, to the holders of the Class B Certificates in numerical order beginning with the Class B-1 Certificates in respect of interest and principal which they are entitled to receive on such distribution date.

 

Interest Distributions

 

A class will accrue interest for each interest accrual period in an amount equal to:

 

Ÿ    1/12th of the pass-through rate for the class multiplied by the outstanding principal balance of such class on the related distribution date minus

 

Ÿ   the amount of certain interest shortfalls arising from the timing of prepayments on the mortgage loans and the application of the Servicemembers Civil Relief Act and comparable state legislation and interest losses allocated to the class, as described under “Description of the Certificates — Interest” in this prospectus supplement.

 

The allocation of interest distributions among the Class A Certificates will be made as described under “Description of the Certificates — Distributions” and “— Interest” in this prospectus supplement.

 

 

Principal Distributions

 

The calculation of the amount of principal which each class of offered certificates is entitled to receive on each distribution date and the priority of principal distributions among the Class A Certificates are described under “Description of the Certificates —  Distributions” and “— Principal (Including Prepayments)” in this prospectus supplement.

 

Credit Enhancement

 

The rights of the holders of each class of Class B Certificates to receive distributions will be subordinated to the rights of the holders of the Class A Certificates and the holders of the classes of Class B Certificates, if any, with lower numerical designations to receive distributions.

 

In general, the protection afforded the holders of more senior classes of certificates by means of this subordination will be effected in two ways:

 

Ÿ   by the preferential right of the holders of such classes to receive, prior to any distribution being made on any distribution date to the holders of the more junior classes of certificates, the amounts of interest and principal due on the more senior classes of certificates and, if necessary, by the right of such more senior holders to receive future distributions on the mortgage loans that would otherwise have been allocated to the holders of the more junior classes of certificates; and

 

Ÿ   by the allocation of losses resulting from the liquidation of defaulted mortgage loans or the bankruptcy of mortgagors to the more junior classes of certificates in inverse order of seniority, until their respective principal balances have been reduced to zero, prior to the allocation of such losses to the more senior classes of certificates.

 

S-7


Table of Contents

 

Credit support for the Class A Certificates is provided by subordination of the Class B Certificates as follows:

 

LOGO

 

The approximate initial credit support percentages set forth in the preceding chart show the initial principal balance of the class or classes of Certificates subordinate to a class or classes as a percentage of the aggregate unpaid principal balance of the mortgage loans as of the cut-off date.

 

In addition, in order to increase the period during which the principal balances of the Class B Certificates remain available as credit enhancement to the Class A Certificates, a disproportionate amount of prepayments and unscheduled principal receipts with respect to the mortgage loans will be allocated to the Class A Certificates in the aggregate. This allocation will accelerate the amortization of the Class A Certificates while, in the absence of losses due to the liquidation of defaulted mortgage loans or losses resulting from the bankruptcy of mortgagors, increasing the percentage interest in the principal balance of the mortgage loans evidenced by the Class B Certificates. See “Description of the Certificates” and “Prepayment and Yield Considerations” in this prospectus supplement.

 

After the principal balances of the Class B Certificates have been reduced to zero, the principal portion of all losses will be allocated to the Class A Certificates. The principal portion of any losses borne by the Class A Certificates will be shared pro rata by the classes of Class A Certificates based on their then-outstanding principal balances and the interest portion of such losses will be shared pro rata by the Class A Certificates based on interest accrued. However, the share of principal losses allocated to the super senior certificates will be borne by the super senior support certificates, together with such super senior support certificates’ own share of losses. To this extent, the super senior support certificates are subordinate to the super senior certificates. See “Description of the Certificates — Interest” and “— Subordination of Class B Certificates — Allocation of Losses” in this prospectus supplement.

 

See “Description of the Certificates — Distributions” and “— Subordination of Class B Certificates” in this prospectus supplement.

 

EFFECTS OF PREPAYMENTS ON YOUR INVESTMENT EXPECTATIONS

 

The rate of prepayments on the mortgage loans will affect the investment performance of the offered certificates.

 

The offered certificates were structured assuming, among other things, that prepayments on the mortgage loans occur at a constant rate of 25% of the constant prepayment rate described in this prospectus supplement under “Prepayment and Yield Considerations.” However, no one can predict the actual rate of prepayment of principal on the mortgage loans.

 

In deciding whether to purchase any offered certificates, you should make an independent decision as to the appropriate prepayment assumptions to use. If prepayments on the mortgage loans are higher or lower than you anticipate, the investment performance of the offered certificates may vary materially and adversely from your investment expectations.

 

Factors affecting the rate of prepayment on the mortgage loans and the manner in which prepayments are allocated among the classes of certificates are discussed in this prospectus supplement under “Description of the Certificates — Principal (Including Prepayments)” and “Prepayment and Yield Considerations.”

 

The actual yield on your certificates may not be equal to the yield you anticipated at the time of pur -

 

S-8


Table of Contents

 

chase. In addition, even if the actual yield is equal to the yield you anticipated at the time of purchase, the total return on investment you expected or the expected weighted average life of your certificates may not be realized. These effects are summarized below.

 

Yield

 

The actual yield on your certificates depends on the:

 

Ÿ   pass-through rate, if any;

 

Ÿ   price paid;

 

Ÿ absence or occurrence of interest shortfalls or losses;

 

Ÿ   absence or occurrence of principal losses; and

 

Ÿ   rate and timing of principal prepayments.

 

If you purchase offered certificates, your yield, absent shortfalls or losses, will primarily be a function of the price paid and the rate and timing of prepayments on the mortgage loans.

 

Ÿ If you purchase your certificate at an amount equal to its unpaid principal balance — that is, at “par”— your effective yield will approximate the pass-through rate on that certificate.

 

Ÿ If you pay less or more than the unpaid principal balance of your certificate — that is, buy the certificate at a “discount” or “premium,” respectively — then your effective yield will be higher or lower, respectively, than the pass-through rate on the certificate, because such discount or premium will be amortized over the life of the certificate.

 

Ÿ Any deviation in the actual rate of prepayments on the mortgage loans from the rate you assumed will affect the period of time over which, or the rate at which, any discount or premium will be amortized and, consequently, will cause your actual yield to differ from that which you anticipated.

 

In addition, the pass-through rate on each certificate may decrease, and may decrease significantly, after the mortgage interest rates on the mortgage loans begin to adjust as a result of, among other factors, the dates of adjustment, the gross margins and changes in the index. Moreover, although each mortgage loan has a maximum mortgage interest rate, none of the mortgage loans has a specified floor. Accordingly, the minimum mortgage interest rates to which the mortgage loans may adjust will be the applicable gross margin. Also, if, despite increases in the index, the mortgage interest rate on any mortgage loan cannot increase due to a maximum mortgage interest rate limitation or a periodic cap, the yield on a certificate could be adversely affected. Because the pass-through rates on the certificates will be equal to the net WAC of the mortgage loans, disproportionate prepayments on the mortgage loans having net mortgage interest rates higher or lower than the then-current pass-through rates on the related certificates may affect the pass-through rate for those certificates for future periods and the yield on those certificates.

 

The yield to maturity of classes subordinated to other classes will be more sensitive to losses due to liquidations of the mortgage loans and the timing thereof than the classes to which they are subordinated.

 

If you are purchasing super senior support certificates, which are subordinate to the classes of super senior certificates after the Class B Certificates are no longer outstanding, you should consider this increased sensitivity to losses on your yield to maturity.

 

The sensitivities of the yields to maturity of the Class B-2 and Class B-3 Certificates to losses are illustrated in the tables appearing in Appendix C. These illustrations are based on default, loss and other assumptions which are unlikely to match actual experience on the mortgage loans; therefore, your results will vary.

 

If you are purchasing offered certificates at a discount, you should consider the risk that a slower than anticipated rate of principal payments on the mortgage loans will have a negative effect on the yield to maturity of your certificates.

 

If you are purchasing offered certificates at a premium, you should consider the risk that a faster than anticipated rate of principal payments on the mortgage loans will have a negative effect on the yield to maturity of your certificates and that a rapid rate of principal payments on the mortgage loans could result in the loss of all or part of your initial investment.

 

Reinvestment Risk

 

As stated above, if you purchase an offered certificate at par, fluctuations in the rate of distributions of principal will generally not affect your yield to maturity. However, the total return on your investment, even if you purchase your certificates at par, will be reduced if principal distributions received on your certificates cannot be reinvested at a rate as high as the stated pass-through rate.

 

S-9


Table of Contents

 

You should consider the risk that rapid rates of prepayments on the mortgage loans may coincide with periods of low prevailing market interest rates. During periods of low prevailing market interest rates, mortgagors may be expected to prepay or refinance mortgage loans that carry interest rates higher than then-current interest rates for mortgage loans. Consequently, the amount of principal distributions available to you for reinvestment at such low prevailing interest rates may be relatively large.

 

Moreover, some mortgagors who prefer the certainty provided by fixed interest rate mortgage loans may nevertheless obtain adjustable interest rate mortgage loans at a time when they regard the mortgage interest rates (and, therefore, the payments) on fixed interest rate mortgage loans as unacceptably high. These mortgagors may be induced to refinance adjustable interest rate mortgage loans when the mortgage interest rates and monthly payments on comparable fixed interest rate mortgage loans decline to levels which these mortgagors regard as acceptable, even if such mortgage interest rates and monthly payments may be significantly higher than current mortgage interest rates and monthly payments on the mortgagors’ adjustable interest rate mortgage loans.

 

Conversely, slow rates of prepayments on the mortgage loans may coincide with periods of high prevailing market interest rates. During such periods, it is less likely that mortgagors will elect to prepay or refinance mortgage loans and, therefore, the amount of principal distributions available to you for reinvestment at such high prevailing interest rates may be relatively small.

 

Weighted Average Life Volatility

 

One indication of the impact of varying prepayment speeds on a security is the change in its weighted average life.

 

Ÿ   The “weighted average life” of an offered certificate is the average amount of time that will elapse between the date of issuance of the certificate and the date on which each dollar in reduction of the principal balance of the certificate is distributed to the investor.

 

Low rates of prepayment may result in the extension of the weighted average life of a certificate. High rates of prepayment may result in the shortening of the weighted average life of a certificate.

 

In general, if you purchase your certificates at par and the weighted average life of your certificates is extended beyond your anticipated time period, the market value of your certificates may be adversely affected even though the yield to maturity on your certificates is unaffected.

 

The sensitivities of the weighted average lives of the offered certificates to prepayments are illustrated in the tables appearing in Appendix B. These illustrations are based on prepayment and other assumptions which are unlikely to match the actual experience on the mortgage loans. Therefore, your results will vary.

 

See “Risk Factors — Prepayments May Adversely Affect Yield” and “— Interest Only Loans May Have Higher Risk of Default or Rates of Prepayment” and “Prepayment and Yield Considerations” in this prospectus supplement.

 

FEDERAL INCOME TAX STATUS

 

For federal income tax purposes, the trust estate will be treated as a REMIC.

 

Ÿ   The offered certificates (other than the Class A-R Certificates) and the Class B-4, Class B-5 and Class B-6 Certificates will constitute “regular interests” in the REMIC and will be treated as newly-originated debt instruments for most federal income tax purposes.

 

Ÿ   The Class A-R Certificates are residual certificates. The Class A-R Certificates will be the “residual interest” in the REMIC.

 

You must report income received on your certificates as it accrues from distribution date to distribution date, even if it is before such income is distributed in cash to you.

 

Certain classes of certificates may be issued with “original issue discount.” If your class of certificates is issued with original issue discount, you must report original issue discount income over the life of your certificate, often well before such income is distributed in cash to you. See “Federal Income Tax Considerations” in this prospectus supplement.

 

The residual certificates will not be treated as debt instruments for federal income tax purposes. Instead, if you are a holder of a residual certificate, you must include the taxable income or loss of the REMIC in determining your federal taxable income. You may

 

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have to use funds other than distributions on your certificate to meet the tax liabilities resulting from the ownership of a residual certificate.

 

In addition, certain transfers of the residual certificates may be disregarded for federal tax purposes, with the transferor continuing to have tax liabilities for the transferred certificates. See “Description of the Certificates — Restrictions on Transfer of the Residual Certificates” and “Federal Income Tax Considerations” in this prospectus supplement and “Certain Federal Income Tax Consequences — Federal Income Tax Consequences for REMIC Certificates” in the prospectus.

 

ERISA CONSIDERATIONS

 

If you are a fiduciary of a retirement plan or other employee benefit plan or arrangement subject to ERISA, the Internal Revenue Code or any federal, state or local law which is, to a material extent, similar to ERISA or the Internal Revenue Code, you should carefully review with your legal advisors whether the purchase or holding of offered certificates could give rise to a transaction prohibited or not otherwise permissible under the rules or regulations referred to above.

 

The residual certificates may not be purchased by or transferred to a plan or a person acting on behalf of or investing the assets of a plan. See “Description of the Certificates — Restrictions on Transfer of the Residual Certificates” and “ERISA Considerations” in this prospectus supplement.

 

 

LEGAL INVESTMENT

 

Ÿ   The Class A and Class B-1 Certificates will constitute “mortgage related securities” for purposes of the Secondary Mortgage Market Enhancement Act of 1984 as amended, so long as they are rated in one of the two highest rating categories by at least one nationally recognized statistical rating organization.

 

Ÿ   The Class B-2 and Class B-3 Certificates will not constitute “mortgage related securities” under this act.

 

If your investment activities are subject to legal investment laws and regulations, regulatory capital requirements or review by regulatory authorities, you may be subject to restrictions on investment in the offered certificates and should consult your own legal, tax and accounting advisors in determining the suitability of and consequences to you of the purchase, ownership and disposition of the offered certificates.

 

See “Legal Investment” in the prospectus.

 

MONTHLY REPORTS AND ADDITIONAL INFORMATION

 

The master servicer will prepare, and the trustee will make available to certificateholders via the internet, the monthly report described under “Reports to Certificateholders” and “The Pooling and Servicing Agreement — Reports to Certificateholders” in the prospectus. In addition, the seller intends to make the information contained in the monthly report, together with certain additional information, available to any interested investor via the internet and other electronic means described under “Where You Can Find More Information” in the prospectus.

 

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RISK FACTORS

 

Prepayments May Adversely Affect Yield

 

The rate of distributions of principal and the yield to maturity on your certificates will be directly related to the rate of payments of principal on the mortgage loans and the amount and timing of mortgagor defaults resulting in realized losses. Mortgagors are permitted to prepay the mortgage loans, in whole or in part, at any time without penalty. The rate of principal payments on the mortgage loans will be affected by, among other things:

 

    the amortization schedules of the mortgage loans;

 

    the rate of principal prepayments (including partial prepayments and those resulting from refinancing) thereon by mortgagors;

 

    liquidations of defaulted mortgage loans;

 

    repurchases of mortgage loans by the seller as a result of defective documentation or breaches of representations and warranties;

 

    optional purchases by the seller of defaulted mortgage loans; and

 

    the optional purchase by the seller of all of the mortgage loans in connection with the termination of the trust estate.

 

See “Prepayment and Yield Considerations,” “Pooling and Servicing Agreement — Optional Termination” and “Description of the Mortgage Loans — Mandatory Repurchase or Substitution of Mortgage Loans” herein and “The Pooling and Servicing Agreement — Assignment of Mortgage Loans to the Trustee,” “— Optional Purchases” and “— Termination; Optional Purchase of Mortgage Loans” in the prospectus.

 

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 rates for similar mortgage loans fall below the mortgage interest rates on the mortgage loans, the rate of prepayment would generally be expected to increase.

 

    Conversely, if interest rates on similar mortgage loans rise above the mortgage interest rates on the mortgage loans, the rate of prepayment would generally be expected to decrease.

 

The rate of prepayment on the mortgage loans may also be influenced by programs offered by mortgage originators (including Wells Fargo Bank, N.A.), on a general or targeted basis, to encourage refinancing. See “Prepayment and Yield Considerations — Refinancings” in the prospectus.

 

If you are purchasing offered certificates at a discount, you should consider the risk that if principal payments on the mortgage loans occur at a rate slower than you expected, there will be a negative effect on the yield to maturity of your certificates.

 

If you are purchasing offered certificates at a premium, you should consider the risk that if principal payments on the mortgage loans occur at a rate faster than you expected, there will be a negative effect on the yield to maturity of your certificates.

 

See “Interest Only Loans May Have Higher Risk of Default or Rates of Prepayment” below and “Summary Information — Effects of Prepayments on Your Investment Expectations” and “Prepayment and Yield Considerations” herein.

 

Geographic Concentration May Increase Risk of Loss Because of Adverse Economic Conditions or Natural Disasters

 

The yield to maturity on your certificates may be affected by the geographic concentration of the mortgaged properties securing the mortgage loans. Certain regions of the United States from time to time will experience weaker regional economic conditions or might experience weaker housing markets or inflated housing prices. Any concentration of the mortgage loans in such a region may present risk considerations in

 

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addition to those generally present for similar mortgage-backed securities without such concentration. In addition, certain regions have experienced or may experience natural disasters, including earthquakes, fires, floods and hurricanes, which may adversely affect property values. Any deterioration in housing prices in the regions in which there is a significant concentration of mortgaged properties, as well as the other regions in which the mortgaged properties are located, and any deterioration of economic conditions in such regions which adversely affects the ability of borrowers to make payments on the mortgage loans may increase the likelihood of delinquencies and losses on the mortgage loans. Such delinquencies and losses, if they occur, may have an adverse effect on the yield to maturity of your certificates, especially if they are subordinated and particularly if they are Class B-3 Certificates. Also, any increase in the market value of properties located in the regions in which the mortgaged properties are located, would reduce the loan-to-value ratios and could, therefore, make alternative sources of financing available to the mortgagors at lower interest rates, which could result in an increased rate of prepayment of the mortgage loans. The concentrations of mortgaged properties by state and geographic areas are identified in Appendix A.

 

Subordination of Super Senior Support Certificates and Class B Certificates Increases Risk of Loss

 

If you purchase the super senior support certificates, you should consider the risk that on or after the date on which the aggregate principal balance of the Class B Certificates has been reduced to zero, the principal portion of realized losses allocated to the classes of super senior certificates will be borne by your super senior support certificates (in addition to the principal portion of realized losses allocated to your super senior support certificates) and not by the classes of super senior certificates so long as the principal balance of your super senior support certificates remains outstanding. See “Description of the Certificates — Subordination of Class B Certificates — Allocation of Losses” herein.

 

The rights of the holders of each class of Class B Certificates to receive distributions will be subordinated to such rights of the holders of the Class A Certificates and the holders of the lower-numbered classes of Class B Certificates, if any. In addition, realized losses will be allocated to the Class B Certificates in the reverse order in which they are entitled to distributions of principal before being allocated to the Class A Certificates. Accordingly, if you are purchasing Class B Certificates, you will be more likely to experience losses as a result of the occurrence of losses or interest shortfalls on the mortgage loans. See “Description of the Certificates — Subordination of Class B Certificates” herein.

 

Rights of Beneficial Owners May Be Limited By Book-Entry System for Certain Classes of Certificates

 

Transactions in the book-entry certificates generally can only be carried out through DTC, DTC participants and indirect DTC participants. If you are a beneficial owner of book-entry certificates, your ability to pledge your certificates, and the liquidity of your certificates in general, may be limited due to the fact that you will not have a physical certificate. In addition, you may experience delays in receiving payments on your certificates. See “Risk Factors — Book-Entry Certificates May Experience Decreased Liquidity and Payment Delay” and “Description of the Certificates — Book-Entry Form” in the prospectus.

 

The Variable Rate of Interest on the Offered Certificates Will Affect Your Yield

 

The mortgage interest rate on each mortgage loan will be fixed for an initial period of approximately ten years from the date of origination of such mortgage loan. Thereafter, each mortgage loan provides for adjustments to the mortgage interest rate on an annual basis. The mortgage interest rate on each mortgage loan will adjust to equal the sum of the index and a gross margin. Mortgage interest rate adjustments will be subject to the limitations stated in the mortgage note with respect to increases and decreases for any adjustment (i.e., a “periodic cap”). In addition, the mortgage interest rate will be subject to a lifetime maximum mortgage interest rate. See “Description of the Mortgage Loans” herein.

 

The pass-through rate on each offered certificate may decrease, and may decrease significantly, after the mortgage interest rates on the mortgage loans begin to adjust as a result of, among other factors, the dates of adjustment, the gross margins and changes in the index. The mortgage interest rates on the mortgage loans will not all begin to adjust on the same date. Therefore, the mortgage interest rates of some of the mortgage loans may still be in their fixed-rate period while the mortgage interest rates on other mortgage loans may have begun to adjust. The number of months until the first adjustment dates of the mortgage loans are set forth in a table

 

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appearing in Appendix A. Moreover, although each mortgage loan has a maximum mortgage interest rate, none of the mortgage loans has a specified floor. Accordingly, the minimum mortgage interest rate to which the mortgage loans may adjust will be the applicable gross margin. In addition, if, despite increases in the index, the mortgage interest rate on any mortgage loan cannot increase due to a maximum mortgage interest rate limitation or a periodic cap, the yield on such offered certificates could be adversely affected. In addition, because the pass-through rate on each offered certificate will be equal to the net WAC of the mortgage loans, disproportionate principal payments on the mortgage loans having net mortgage interest rates higher or lower than the then-current pass-through rate on a class of offered certificates may affect the pass-through rate for such offered certificates for future periods and the yield on such offered certificates. See “Description of the Mortgage Loans” and “Prepayment and Yield Considerations” herein.

 

There Is a Risk that Interest Payments on the Mortgage Loans May Be Insufficient to Pay Interest on Your Certificates

 

When a mortgage loan is prepaid in full, the mortgagor is charged interest only up to the date on which payment is made, rather than for an entire month. When a mortgagor makes a partial principal prepayment on a mortgage loan, the mortgagor is not charged interest on the amount prepaid for the month in which received. This may result in a shortfall in interest collections available for payment on the next distribution date. The master servicer is required to cover a portion of the shortfall in interest collections that are attributable to prepayments in full on the mortgage loans, but only up to the amount of compensating interest for such distribution date as described under “Description of the Certificates — Distributions to Certificateholders — Distributions of Interest” in the prospectus. To the extent these shortfalls from the mortgage loans are not covered by the amount of compensating interest, they will be allocated pro rata to the classes of interest-bearing certificates as described herein under “Description of the Certificates — Interest.”

 

The master servicer will not cover shortfalls in interest collections arising from partial prepayments. Any such shortfalls will be borne pro rata by the classes of interest-bearing certificates as described herein under “Description of the Certificates — Interest.”

 

Certificates May Not Be Appropriate For Certain Individual Investors

 

If you are an individual investor who does not have sufficient resources or expertise to evaluate the particular characteristics of the applicable class of offered certificates, the offered certificates may not be an appropriate investment for you. This may be the case because, among other things:

 

    if you purchase your certificates at a price other than par, your yield to maturity will be sensitive to the uncertain rate and timing of principal prepayments on the mortgage loans;

 

    the rate of principal distributions on, and the weighted average life of, the offered certificates will be sensitive to the uncertain rate and timing of principal prepayments on the mortgage loans and the priority of principal distributions among the classes of certificates, and, as such, the offered certificates may be inappropriate investments for you if you require a distribution of a particular amount of principal on a specific date or an otherwise predictable stream of distributions;

 

    you may not be able to reinvest amounts distributed in respect of principal on your certificates (which distributions in general, are expected to be greater during periods of relatively low interest rates) at a rate at least as high as the applicable pass-through rate or your expected yield;

 

    a secondary market for the offered certificates may not develop or provide you with liquidity of investment; and

 

    you must report interest as well as original issue discount, if any, on the accrual method of accounting, even if you are otherwise using the cash method of accounting.

 

If you are an individual investor considering the purchase of an offered certificate, you should also carefully consider the further risks and other special considerations discussed above and under the headings “Summary Information — Effects of Prepayments on Your Investment Expectations” and “Prepayment and Yield Considerations” herein and “Risk Factors — Rate of Prepayment on Mortgage Loans May Adversely Affect Average Lives and Yields on Certificates” in the prospectus.

 

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Interest Only Loans May Have Higher Risk of Default or Rates of Prepayment

 

Certain of the mortgage loans are interest only loans which require only the payment of interest for a term specified in the related mortgage note. This term will be the same as, longer than or shorter than the fixed-rate period. See the table with the heading “Remaining Interest Only Term” appearing in Appendix A. At that time, the payments on each such loan will be recalculated to fully amortize its unpaid principal balance over the remaining life of such loan and the mortgagor will be required to make payments of both principal and interest. The required payment of principal will increase the burden on the mortgagor and may increase the risk of default under such mortgage loan. In underwriting an interest only loan, the ability of the mortgagor to make payments in respect of principal is not considered.

 

The increase in the mortgagor’s monthly payment attributable to principal will occur when the mortgagor’s monthly interest payment may also be increasing as a result of an increase in the mortgage interest rate on the related adjustment date. The combination of these two factors may significantly increase the risk of default under such mortgage loan.

 

In addition, the increase in the monthly payment to be made by a mortgagor may induce the mortgagor to refinance such mortgage loan which would result in a prepayment of such loan.

 

The number of interest only loans and the percentage they represent of the trust estate is specified in Appendix A.

 

There Are Risks Relating to Second Lien Mortgage Loans

 

With respect to certain of the mortgage loans, at the time of origination of the first lien mortgage loan, the originator or another lender may have originated a second lien mortgage loan. With respect to mortgage loans that have second lien mortgage loans encumbering the same mortgaged property, foreclosure frequency may be increased relative to mortgage loans that do not have second lien mortgage loans behind them because mortgagors have less equity in the mortgaged property. Investors should also note that any mortgagor may obtain second lien mortgage loans at any time subsequent to the date of origination of their first lien mortgage loan from the originator or from any other lender. See the table with the heading “Original Combined Loan-To-Value Ratios” appearing in Appendix A.

 

Residual Certificates May Have Adverse Tax Consequences

 

The residual certificates will be the sole “residual interest” in the REMIC for federal income tax purposes. Holders of the residual certificates must report as ordinary income or loss the net income or the net loss of the REMIC whether or not any cash distributions are made to them. This allocation of income or loss may result in a zero or negative after-tax return. No cash distributions are expected to be made with respect to the residual certificates other than the distribution of their principal balance and interest on that balance. Due to their tax consequences, the residual certificates will be subject to restrictions on transfer that may affect their liquidity. In addition, the residual certificates may not be acquired by ERISA plans or similar governmental plans.

 

United States Military Operations May Increase Risk of Relief Act Shortfalls

 

As a result of military operations in Afghanistan and Iraq, the United States has placed a substantial number of armed forces reservists and members of the National Guard on active duty status. It is possible that the number of reservists and members of the National Guard placed on active duty status may remain at high levels for an extended time. To the extent that a member of the military, or a member of the armed forces reserves or National Guard who is called to active duty, is a mortgagor of a mortgage loan in the trust, the interest rate limitation of the Servicemembers Civil Relief Act and any comparable state law, will apply. This may result in interest shortfalls on the mortgage loans, which will be borne by all classes of interest-bearing certificates. The seller has not taken any action to determine whether any of the mortgage loans would be affected by such interest rate limitation. See “Description of the Certificates — Interest” herein and “Certain Legal Aspects of the Mortgage Loans — Servicemembers Civil Relief Act and Similar Laws” in the prospectus.

 

See “Risk Factors” in the prospectus for a description of certain other risks and special considerations applicable to the offered certificates.

 

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FORWARD LOOKING STATEMENTS

 

This prospectus supplement and the accompanying prospectus contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements, together with related qualifying language and assumptions, are found in the material, including each of the tables, set forth under “Risk Factors” and “Prepayment and Yield Considerations” and in the Appendices. Forward-looking statements are also found elsewhere in this prospectus supplement and the prospectus, and may be identified by, among other things, accompanying language including the words “expects,” “intends,” “anticipates,” “estimates” or analogous expressions, or by qualifying language or assumptions. Such statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results or performance to differ materially from such forward-looking statements. Such risks, uncertainties and other factors include, among others, general economic and business conditions, competition, changes in political, social and economic conditions, regulatory initiatives and compliance with government regulations, customer preference and various other matters, many of which are beyond the Seller’s control. These forward-looking statements speak only as of the date of this prospectus supplement. The Seller expressly disclaims any obligation or undertaking to disseminate any updates or revisions to such forward-looking statements to reflect any change in the Seller’s expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based.

 

DESCRIPTION OF THE CERTIFICATES

 

General

 

        The Wells Fargo Mortgage Backed Securities 2005-AR14 Trust (the “Trust”) will issue Mortgage Pass-Through Certificates, Series 2005-AR14 (the “Certificates”) on the Closing Date.

 

The Certificates will consist of seven classes of senior certificates (the “Class A Certificates”) and six classes of junior certificates (the “Class B Certificates” or “Subordinated Certificates”). Only the Class A Certificates and the Class B-1, Class B-2 and Class B-3 Certificates are being offered by this prospectus supplement and the accompanying prospectus (the “Offered Certificates”). The Offered Certificates will be issued in the forms and denominations set forth in the table on page S-4.

 

Distributions

 

On each Distribution Date, the Trustee or other paying agent will make monthly distributions of interest and in reduction of Principal Balance to holders of each Class of Certificates, to the extent of each Class’s entitlement thereto. Distributions will be made on each Distribution Date to holders of record (which, in the case of the Book-Entry Certificates, will be Cede, as nominee for DTC) at the close of business on the last business day of the preceding month (each, a “Record Date”).

 

The aggregate amount available for distribution to Certificateholders on each Distribution Date will be the Pool Distribution Amount. The “Pool Distribution Amount” for a Distribution Date will be the sum of:

 

(i)  all previously undistributed payments or other receipts on account of principal (including principal prepayments and Liquidation Proceeds in respect of principal, if any), and interest on or in respect of the Mortgage Loans received by the Master Servicer, including without limitation any related insurance proceeds, any proceeds received as a result of a substitution of a Mortgage Loan and the proceeds of any purchase of a related Mortgage Loan for breach of a representation or warranty or the sale of a Mortgaged Property by a Servicer in connection with the liquidation of the related Mortgage Loan on or prior to the Remittance Date in the month in which such Distribution Date occurs;

 

(ii)  all Periodic Advances made; and

 

(iii)  all other amounts (including any insurance proceeds and Compensating Interest) placed in the Certificate Account by any Servicer on or before the Remittance Date or by the Master Servicer on or before the Distribution Date pursuant to the Pooling and Servicing Agreement, but excluding the following:

 

(a)  amounts received as late payments of principal or interest as to which one or more unreimbursed Periodic Advances has been made;

 

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(b)  those portions of each payment of interest on a particular Mortgage Loan which represent (i) the applicable Servicing Fee and (ii) the Master Servicing Fee;

 

(c)  all amounts representing scheduled payments of principal and interest due after the Due Date occurring in the month in which such Distribution Date occurs;

 

(d)  all Unscheduled Principal Receipts that were received by the Servicers after the Unscheduled Principal Receipt Period relating to the Distribution Date for the applicable type of Unscheduled Principal Receipt, and all related payments of interest on such amounts;

 

(e)   all repurchase proceeds with respect to the Mortgage Loans repurchased by the Seller on or following the Determination Date in the month in which such Distribution Date occurs and the excess of the unpaid principal balance of any Mortgage Loan for which a Mortgage Loan was substituted over the unpaid principal balance of such substituted Mortgage Loan on or following the Determination Date in the month in which such Distribution Date occurs;

 

(f)  to the extent permitted by the Pooling and Servicing Agreement, that portion of Liquidation Proceeds or insurance proceeds with respect to a Mortgage Loan or proceeds of any Mortgaged Property that becomes owned by the Trust Estate which represents (i) any unpaid Servicing Fee or Master Servicing Fee to which such Servicer or Master Servicer, respectively, is entitled or (ii) any unreimbursed Periodic Advances;

 

(g)  all amounts representing certain expenses reimbursable to the Master Servicer or any Servicer and other amounts permitted to be retained by the Master Servicer or any Servicer or withdrawn by the Master Servicer from the Certificate Account pursuant to the Pooling and Servicing Agreement;

 

(h)  reinvestment earnings on payments received in respect of the Mortgage Loans or on other amounts on deposit in the Certificate Account;

 

(i)  Liquidation Profits;

 

(j)  Month End Interest; and

 

(k)  amounts reimbursable to a Servicer for PMI Advances.

 

See “Description of the Certificates — Distributions to Certificateholders” in the prospectus.

 

Each Servicer is required to deposit in the Certificate Account by the Remittance Date certain amounts in respect of the Mortgage Loans as set forth in the prospectus under “Servicing of the Mortgage Loans — Payments on Mortgage Loans.” The Master Servicer is required to remit to the Trustee on or before the Distribution Date any payments constituting part of the Pool Distribution Amount that are received by the Master Servicer or are required to be made with the Master Servicer’s own funds. Except as described below under “— Periodic Advances,” neither the Master Servicer nor the Trustee is obligated to remit any amounts which a Servicer was required but failed to deposit in the Certificate Account.

 

On each Distribution Date, the Pool Distribution Amount will be allocated among the Classes of Certificates and distributed to the holders thereof of record as of the related Record Date as follows (the “Pool Distribution Amount Allocation”):

 

first, to the Classes of Class A Certificates, pro rata, based on their respective Interest Accrual Amounts, in an aggregate amount up to the sum of their Interest Accrual Amounts with respect to such Distribution Date;

 

second, to the Classes of Class A Certificates, pro rata, based on their respective unpaid Interest Shortfall Amounts, in an aggregate amount up to the sum of their unpaid Interest Shortfall Amounts;

 

third, to the Class A Certificates, in an aggregate amount up to the Class A Optimal Principal Amount; and

 

fourth, sequentially, to the Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates so that each such Class shall receive (A) first, an amount up to its Interest Accrual Amount with respect to such Distribution Date, (B) then, an amount up to its previously unpaid Interest Shortfall Amounts and (C) finally, an amount up to its Class B Optimal Principal Amount before any Classes of

 

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Class B Certificates with higher numerical designations receive any payments in respect of interest or principal.

 

The undivided percentage interest (the “Percentage Interest”) represented by any Offered Certificate of a Class will be equal to the percentage obtained by dividing the initial principal balance of such Certificate by the initial Principal Balance of such Class.

 

Interest

 

Interest will accrue on each Class of Certificates during each one-month period ending on the last day of the month preceding the month in which each Distribution Date occurs (each, an “Interest Accrual Period”). The initial Interest Accrual Period will be deemed to have commenced on the Cut-Off Date. Interest which accrues on such Classes of Certificates will be calculated on the assumption that distributions in reduction of the Principal Balances thereof on a Distribution Date are made on the first day of the month of each Distribution Date.

 

The amount of interest that will accrue on each Class of Certificates during each Interest Accrual Period, after taking into account any Non-Supported Interest Shortfalls, Relief Act Shortfalls and the interest portion of certain losses allocated to such Class, is referred to herein as the “Interest Accrual Amount” for such Class.

 

The Interest Accrual Amount for each Class of Certificates equals (a) the product of (i)  1/12th of the Pass-Through Rate for such Class and (ii) the outstanding Principal Balance of such Class minus (b) the sum of (i) any Non-Supported Interest Shortfall allocable to such Class, (ii) any Relief Act Shortfall allocable to such Class and (iii) in the case of the Class A Certificates, the interest portion of any Realized Losses allocable to such Class on or after the Subordination Depletion Date. The pass-through rate (the “Pass-Through Rate”) for each Class of Certificates is the percentage described in the table on page S-4 of this prospectus supplement. Interest on each Class of Certificates will be calculated on the basis of a 360-day year consisting of twelve 30-day months.

 

Subject to the adjustment described below, the “Principal Balance” of a Class of Certificates as of any date will be the principal balance of such Class on the date of initial issuance of the Certificates, less all amounts previously distributed on such Class on prior Distribution Dates in reduction of the principal balance of such Class.

 

After distributions of principal have been made on a Distribution Date, the Principal Balances of the Certificates will be adjusted so that they equal the Adjusted Pool Amount for such Distribution Date. Such adjustment could result in an increase or decrease in the Principal Balance of a Class. Prior to the Subordination Depletion Date, the most subordinate Class of Class B Certificates then outstanding will be subject to the adjustment. After the Subordination Depletion Date, the Principal Balances of the Class A Certificates will be adjusted to equal the Adjusted Pool Amount. Any adjustment to the Class A Certificates will be allocated among the Class A Certificates pro rata, based on their Principal Balances.

 

Notwithstanding the foregoing, the Principal Balance of a Class may not be increased such that it exceeds the initial Principal Balance of such Class less all amounts previously distributed on such Class in reduction of the Principal Balance thereof.

 

A Recovery will be treated as a principal prepayment and will result in a payment of principal to one or more Classes of then-outstanding Certificates. A Class will cease to be entitled to any distributions after its Principal Balance is reduced to zero for any reason. It is possible that such payment will not be made to the Class that originally bore the loss. Further, even though a Class may have previously had its Principal Balance reduced as a result of a loss for which there is later a Recovery, that Class will not be entitled to any interest on the amount of such reduction. Because a Recovery results in a payment of principal to certain Classes without a corresponding decrease in the Adjusted Pool Amount, the Principal Balance of the most subordinate Class then outstanding (which may not be the Class that originally bore the loss if such Class is no longer outstanding) may be increased or such Principal Balance may be decreased by a lesser amount than would otherwise be the case based on any Realized Losses allocable to such Class.

 

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The “Class A Principal Balance” as of any date will be equal to the sum of the Principal Balances of the Classes of Class A Certificates as of such date.

 

The “Class B Principal Balance” as of any date will be equal to the sum of the Principal Balances of the Classes of Class B Certificates as of such date.

 

The “Aggregate Principal Balance” as of any date will be equal to the sum of the Class A Principal Balance and the Class B Principal Balance as of such date.

 

With respect to any Distribution Date, the “Adjusted Pool Amount” will equal the aggregate unpaid principal balance of the Mortgage Loans as of the Cut-Off Date minus the sum of (i) all amounts in respect of principal received in respect of the Mortgage Loans (including amounts received as Periodic Advances, principal prepayments and Liquidation Proceeds in respect of principal) and distributed to holders of the Certificates on such Distribution Date and all prior Distribution Dates, (ii) the principal portion of all Liquidated Loan Losses incurred on the Mortgage Loans for which the Liquidation Proceeds were received from the Cut-Off Date through the end of the applicable Unscheduled Principal Receipt Period for such Distribution Date and (iii) the principal portion of all Bankruptcy Losses (other than Debt Service Reductions) incurred on the Mortgage Loans from the Cut-Off Date through the end of the period which corresponds to the applicable Unscheduled Principal Receipt Period for principal prepayments in full for such Distribution Date.

 

The “Net Mortgage Interest Rate” on each Mortgage Loan will be equal to the Mortgage Interest Rate on such Mortgage Loan as provided for in the related mortgage note minus the sum of (i) the applicable Servicing Fee Rate and (ii) the Master Servicing Fee Rate for such Mortgage Loan. See “Servicing of the Mortgage Loans — Servicing Compensation and Payment of Expenses” herein.

 

The “Net WAC” for any Distribution Date will equal the weighted average of the Net Mortgage Interest Rates of the Mortgage Loans (based on the Scheduled Principal Balances of the Mortgage Loans on the first day of the month preceding the month in which such Distribution Date occurs).

 

As to any Distribution Date, Prepayment Interest Shortfalls, to the extent that they exceed Compensating Interest, and Curtailment Interest Shortfalls are referred to herein as “Non-Supported Interest Shortfalls” and will be allocated to (i) the Class A Certificates according to the percentage obtained by dividing the Class A Principal Balance by the Aggregate Principal Balance and (ii) the Class B Certificates according to the percentage obtained by dividing the Class B Principal Balance by the Aggregate Principal Balance. Such allocation of Non-Supported Interest Shortfalls will reduce the amount of interest due to be distributed to holders of Certificates then entitled to distributions in respect of interest. Any such reduction in respect of interest allocated to the Class A Certificates will be allocated among the Classes of Class A Certificates, pro rata, on the basis of their respective Interest Accrual Amounts without regard to any reduction pursuant to this paragraph, for such Distribution Date. Any such reduction in respect of interest allocated to the Class B Certificates will be allocated among such Classes of Class B Certificates, pro rata, on the basis of their respective Interest Accrual Amounts, without regard to any reduction pursuant to this paragraph, for such Distribution Date.

 

Any interest shortfalls arising from Unscheduled Principal Receipts in full that are not Prepayments in Full and any other interest shortfalls arising from Unscheduled Principal Receipts, other than Curtailments, will be borne first by the Classes of Class B Certificates in reverse numerical order and then pro rata by the Class A Certificates, based on interest accrued. After the Subordination Depletion Date, all interest shortfalls arising from Unscheduled Principal Receipts, other than Prepayment Interest Shortfalls covered by Compensating Interest, will be treated as Non-Supported Interest Shortfalls and allocated in reduction of interest accrued on the Class A Certificates.

 

See “Description of the Certificates — Distributions to Certificateholders — Distributions of Interest” in the prospectus for a discussion of Prepayment Interest Shortfalls, Curtailment Interest Shortfalls and Compensating Interest.

 

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Any interest shortfalls arising as a result of the reduction in the amount of monthly interest payments on any Mortgage Loans as a result of the application of the Servicemembers Civil Relief Act or comparable state legislation (“Relief Act Shortfalls”) will be allocated among the Class A Certificates and Class B Certificates in the same manner as Non-Supported Interest Shortfalls.

 

Allocations of the interest portion of Realized Losses first to the Classes of Class B Certificates in reverse numerical order will result from the priority of distributions first to the holders of the Class A Certificates and then to the holders of the Classes of Class B Certificates in numerical order of the Pool Distribution Amount as described above under “— Distributions.”

 

On each Distribution Date on which the amount available to be distributed in respect of interest on a Class of Certificates pursuant to the Pool Distribution Amount Allocation is less than such Class’s Interest Accrual Amount, the amount of any such deficiency (as to each Class, an “Interest Shortfall Amount”) will be added to the amount of interest distributable to such Class on subsequent Distribution Dates, but only for so long as such Class’s Principal Balance is greater than zero. No interest will accrue on any Interest Shortfall Amounts.

 

Principal (Including Prepayments)

 

The principal balance of a Certificate at any time is equal to the product of the related Class’s Principal Balance and such Certificate’s Percentage Interest, and represents the maximum specified dollar amount (exclusive of (i) any interest that may accrue on such Certificate and (ii) in the case of the Residual Certificates, any additional amounts to which the holders of such Certificates may be entitled as described below under “—Additional Rights of the Residual Certificateholders”) to which the holder thereof is entitled from the cash flow on the Mortgage Loans at such time and will decline to the extent of distributions in reduction of the principal balance of, and allocations of losses to, such Certificate. The approximate initial Principal Balance of each Class of Certificates is set forth in the table on page S-4 of this prospectus supplement.

 

Calculation of Amount to be Distributed on the Certificates

 

Distributions in reduction of the Principal Balance of the Class A Certificates will be made on each Distribution Date pursuant to the Pool Distribution Amount Allocation, in an aggregate amount equal to the Class A Principal Distribution Amount. The “Class A Principal Distribution Amount” with respect to any Distribution Date will be equal to the amount distributed pursuant to priority third of the Pool Distribution Amount Allocation in an aggregate amount up to the Class A Optimal Principal Amount.

 

Distributions in reduction of the Principal Balances of the Class B-1, Class B-2, Class B-3, Class B-4, Class B-5 and Class B-6 Certificates will be made on each Distribution Date first to the Class B-1 Certificates, second to the Class B-2 Certificates, third to the Class B-3 Certificates, fourth to the Class B-4 Certificates, fifth to the Class B-5 Certificates and then to the Class B-6 Certificates, pursuant to priority fourth clause (C) of the Pool Distribution Amount Allocation, in an aggregate amount with respect to each such Class (each, a “Class B Principal Distribution Amount”) up to the Class B Optimal Principal Amount for such Class.

 

The “Class A Optimal Principal Amount” and, with regard to each Class of Class B Certificates, the “Class B Optimal Principal Amount” with respect to each Distribution Date will be an amount equal to the sum of:

 

(I) for each outstanding Mortgage Loan (including each defaulted Mortgage Loan with respect to which the related Mortgaged Property has been acquired by the Trust Estate) the sum of:

 

(i)  the applicable Class Percentage of the scheduled payment of principal due on such Mortgage Loan on the first day of the month in which the Distribution Date occurs;

 

(ii)  the applicable Class Prepayment Percentage of all Unscheduled Principal Receipts (other than Recoveries) that were received by a Servicer with respect to such Mortgage Loan during the Unscheduled Principal Receipt Period relating to such Distribution Date for each applicable type of Unscheduled Principal Receipt;

 

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(iii)  the applicable Class Prepayment Percentage of the Scheduled Principal Balance of such Mortgage Loan which, during the one month period ending on the day preceding the Determination Date for such Distribution Date, was repurchased by the Seller, as described under the heading “Description of the Mortgage Loans — Mandatory Repurchase or Substitution of Mortgage Loans” herein; and

 

(iv)  the applicable Class Percentage of the excess of the unpaid principal balance of any Mortgage Loan for which a Mortgage Loan was substituted during the one month period ending on the day preceding the Determination Date for such Distribution Date over the unpaid principal balance of such substituted Mortgage Loan, less the amount allocable to the principal portion of any unreimbursed advances in respect of such Mortgage Loan. See “The Pooling and Servicing Agreement — Assignment of Mortgage Loans to the Trustee” and “— Optional Substitutions” in the prospectus; and

 

(II) in the case of the Class A Certificates and each Class of Class B Certificates, the applicable Class Prepayment Percentage of any Recoveries.

 

The “Class Percentage” will equal (i) the Class A Percentage, in the case of the calculation of the Class A Optimal Principal Amount and (ii) the applicable Class B Percentage, in the case of the calculation of the Class B Optimal Principal Amount for a Class of Class B Certificates.

 

The “Class Prepayment Percentage” will equal (i) the Class A Prepayment Percentage, in the case of the calculation of the Class A Optimal Principal Amount and (ii) the applicable Class B Prepayment Percentage, in the case of the calculation of the Class B Optimal Principal Amount for a Class of Class B Certificates.

 

The principal distribution to the holders of a Class of Class B Certificates will be reduced on any Distribution Date on which (i) the Principal Balance of such Class of Class B Certificates would be reduced to zero as a result of principal distributions or allocation of losses and (ii) the Principal Balance of any Class A Certificates or any Class of Class B Certificates with a lower numerical designation, would be subject to reduction as a result of the allocation of Realized Losses. The amount of any such reduction in the principal distributed to the holders of such Class of Class B Certificates will instead be distributed pro rata to the holders of any Class senior in priority to receive distributions in accordance with the Pool Distribution Amount Allocation.

 

The “Pool Balance” for any Distribution Date is the sum for each outstanding Mortgage Loan of the Scheduled Principal Balance of such Mortgage Loan as of such Distribution Date.

 

The “Class A Percentage” for any Distribution Date occurring on or prior to the Subordination Depletion Date is the percentage, which in no event will exceed 100%, obtained by dividing the Class A Principal Balance as of such date (before taking into account distributions in reduction of Principal Balance on such date) by the Pool Balance. The Class A Percentage for the first Distribution Date will be approximately 96.50%. The Class A Percentage for any Distribution Date occurring after the Subordination Depletion Date will be 100%.

 

The “Class A Prepayment Percentage” for any Distribution Date prior to the Distribution Date in August 2012 will be 100% and thereafter will be the applicable Class A Percentage for such Distribution Date plus the percentage of the applicable Subordinated Percentage indicated in the table below; provided, however, that if on any Distribution Date the Class A Percentage exceeds the initial Class A Percentage, the Class A Prepayment Percentage for such Distribution Date will equal 100%. See “Prepayment and Yield Considerations” herein and in the prospectus. Notwithstanding the foregoing, no reduction of the level of the Class A Prepayment Percentage will occur on any Distribution Date if the Delinquency and Loss Tests are not met.

 

The “Delinquency and Loss Tests” with respect to any Distribution Date are met if (i) as of such Distribution Date as to which any reduction in the Class A Prepayment Percentage applies, the average outstanding principal balance on such Distribution Date and for the preceding five Distribution Dates of the Mortgage Loans that were delinquent 60 days or more (including for this purpose any Mortgage Loans in foreclosure and Mortgage Loans with respect to which the related Mortgaged Property has been acquired by the Trust Estate) is less than 50% of the Class B Principal Balance and (ii) for any Distribution Date, cumulative Realized Losses

 

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with respect to the Mortgage Loans are less than or equal to the percentages of the principal balance of the Class B Certificates as of the Cut-Off Date (the “Original Class B Principal Balance”) indicated in the table below.

 

Distribution Date Occurring In


   Percentage of
Applicable
Subordinated
Percentage


    Percentage of
Original Class B
Principal Balance


 
August 2012 through July 2013    70 %   30 %
August 2013 through July 2014    60 %   35 %
August 2014 through July 2015    40 %   40 %
August 2015 through July 2016    20 %   45 %
August 2016 and thereafter    0 %   50 %

 

In addition, if on any Distribution Date, prior to giving effect to any distributions on such Distribution Date:

 

(i)    the Subordinated Percentage is greater than twice the Subordinated Percentage as of the Cut-Off Date;

 

(ii)    the average outstanding principal balance on such Distribution Date and for the preceding five Distribution Dates of the Mortgage Loans that were delinquent 60 days or more (including for this purpose any Mortgage Loans in foreclosure and Mortgage Loans with respect to which the related Mortgaged Property has been acquired by the Trust Estate) does not exceed 50% of the Class B Principal Balance; and

 

(iii)    either (A)  prior to the Distribution Date in August 2008, cumulative Realized Losses on the Mortgage Loans do not exceed 20% of the Original Class B Principal Balance; or

 

         (B)  on or after the Distribution Date in August 2008, cumulative Realized Losses on the Mortgage Loans do not exceed 30% of the Original Class B Principal Balance;

 

then, if (i), (ii) and (iii)(A) have occurred, the Class A Prepayment Percentage for such Distribution Date will equal the Class A Percentage for such Distribution Date plus 50% of the Subordinated Percentage for such Distribution Date, or if (i), (ii) and (iii)(B) have occurred, the Class A Prepayment Percentage for such Distribution Date will equal the Class A Percentage for such Distribution Date.

 

If on any Distribution Date the allocation to the Class A Certificates of full and partial principal prepayments and other amounts in the percentage required as described above would reduce the outstanding Class A Principal Balance below zero, the Class A Prepayment Percentage for such Distribution Date will be limited to the percentage necessary to reduce the Class A Principal Balance to zero.

 

This disproportionate allocation of unscheduled payments in respect of principal will have the effect of accelerating the amortization of the Class A Certificates while, in the absence of Realized Losses, increasing the interest in the principal balance of the Mortgage Loans evidenced by the Class B Certificates. Increasing the interest of the Class B Certificates relative to that of the Class A Certificates is intended to preserve the availability of the subordination provided by the Class B Certificates. See “— Subordination of Class B Certificates” below. The “Subordinated Percentage” for any Distribution Date will be calculated as the difference between 100% and the Class A Percentage for such date. The “Subordinated Prepayment Percentage” for any Distribution Date will be calculated as the difference between 100% and the Class A Prepayment Percentage for such date.

 

The “Class B Percentage” for a Class of Class B Certificates and any Distribution Date will equal the portion of the Subordinated Percentage represented by the fraction the numerator of which is the Principal Balance for such Class of Class B Certificates and the denominator of which is the Class B Principal Balance.

 

The “Class B Prepayment Percentage” for a Class of Class B Certificates and any Distribution Date will equal the portion of the Subordinated Prepayment Percentage represented by the fraction the numerator of which is the Principal Balance for such Class of Class B Certificates and the denominator of which is the Class B Principal Balance or, in the case of the unscheduled principal distributions described below, the sum of the Principal Balances of the Classes of Class B Certificates entitled to those unscheduled principal distributions for

 

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such Distribution Date described below. In the event that a Class of Class B Certificates is not entitled to the unscheduled principal distributions described below for such Distribution Date, the Class B Prepayment Percentage with respect to such unscheduled principal distributions for such Class will be 0% with respect to such Distribution Date.

 

In the event that on any Distribution Date the Current Fractional Interest of any Class of Class B Certificates is less than the Original Fractional Interest of such Class, then the Classes of Certificates that are subordinate to such Class will not be entitled to distributions in respect of unscheduled principal receipts including receipts from the repurchase of Mortgage Loans (other than Liquidation Proceeds on Liquidated Loans) and the Principal Balances of such subordinated Classes will not be used to determine the Class B Prepayment Percentages of the Classes of Class B Certificates that are senior to such subordinated Classes for such Distribution Date with respect to such unscheduled principal. The Class B-6 Certificates will not have original or current fractional interests which are required to be maintained as described above.

 

The “Original Fractional Interest” of a Class of Class B Certificates is the percentage obtained by dividing the sum of the initial Principal Balances of the Classes of Certificates that are subordinate to such Class by the initial Aggregate Principal Balance. The “Current Fractional Interest” of a Class of Class B Certificates for any Distribution Date is the percentage obtained by dividing the sum of the Principal Balances of the Classes of Certificates that are subordinate to such Class by the Aggregate Principal Balance.

 

The following table sets forth the expected approximate Original Fractional Interest for each Class of Class B Certificates on the date of issuance of the Certificates.

 

Class


  

Approximate

Original
Fractional
Interest


 
B-1    2.20 %
B-2    1.35 %
B-3    0.85 %
B-4    0.50 %
B-5    0.20 %
B-6    N/A  

 

Allocation of Amount to be Distributed on the Class A Certificates

 

On each Distribution Date occurring prior to the Subordination Depletion Date, the Class A Principal Distribution Amount will be allocated among and distributed in reduction of the Principal Balances of the Class A Certificates, sequentially, as follows:

 

first, to the Class A-R Certificates; and

 

second, concurrently, as follows:

 

(i)  approximately 51.7500909320%, concurrently, to the Class A-1 and Class A-6 Certificates, pro rata; and

 

(ii)  approximately 48.2499090680%, sequentially, to the Class A-2, Class A-3, Class A-4 and Class A-5 Certificates.

 

Notwithstanding the foregoing, on each Distribution Date occurring on or after the Subordination Depletion Date, the Class A Principal Distribution Amount will be distributed among the Classes of Class A Certificates pro rata in accordance with their respective outstanding Principal Balances without regard to either the proportions or the priorities set forth above.

 

Any amounts distributed on a Distribution Date to the holders of any Class in reduction of Principal Balance will be allocated among the holders of such Class pro rata in accordance with their respective Percentage Interests.

 

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Additional Rights of the Residual Certificateholders

 

The Residual Certificates will remain outstanding for as long as the Trust Estate shall exist, whether or not such Class is receiving current distributions of principal or interest. The holders of the Residual Certificates will be entitled to receive the proceeds of the remaining assets of the REMIC, if any, on the final Distribution Date for the Certificates, after distributions in respect of any accrued but unpaid interest on the Certificates and after distributions in reduction of Principal Balance have reduced the Principal Balances of the Certificates to zero. It is not anticipated that there will be any material assets remaining in the Trust Estate on the final Distribution Date following the distributions of interest and in reduction of Principal Balance made on the Certificates on such date.

 

In addition, the Class A-R Certificateholders will be entitled on each Distribution Date to receive any Pool Distribution Amount remaining after all distributions pursuant to the Pool Distribution Amount Allocation have been made. It is not anticipated that there will be any material undistributed portion of the Pool Distribution Amount.

 

Restrictions on Transfer of the Residual Certificates

 

The Residual Certificates will be subject to restrictions on transfer, and the Residual Certificates will contain a legend describing such restrictions.

 

Tax-related restrictions on transfer are discussed under “Certain Federal Income Tax Consequences — Federal Income Tax Consequences for REMIC Certificates — Taxation of Residual Certificates — Tax-Related Restrictions on Transfer of Residual Certificates” in the prospectus.

 

In addition, the Residual Certificates may not be purchased by or transferred to any person that is an employee benefit plan or other retirement plan or arrangement subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”) (any such plan or arrangement, an “ERISA Plan”) or that is a governmental plan, as defined in Section 3(32) of ERISA, subject to any federal, state or local law (“Similar Law”) which is, to a material extent, similar to the foregoing provisions of ERISA or the Code (collectively, with an ERISA Plan, a “Plan”), or any person acting on behalf of or investing the assets of such Plan. See “ERISA Considerations” herein and in the prospectus.

 

Periodic Advances

 

Generally, each Servicer is required to advance delinquent payments of principal and interest on any Mortgage Loan in the Trust Estate to the extent that such Servicer believes that such amounts will be recoverable by it from liquidation proceeds or other recoveries in respect of the related Mortgage Loan (each, a “Periodic Advance”). Upon a Servicer’s failure to make a Periodic Advance required by the Underlying Servicing Agreement, the Trustee, if such Servicer is Wells Fargo Bank, or the Master Servicer, if such Servicer is not Wells Fargo Bank, will be required to make such Periodic Advance.

 

Amounts advanced are reimbursable to the Servicer, the Master Servicer or the Trustee, as applicable, from amounts received on the related Mortgage Loan or from other funds in the Trust Estate if it is determined that the amounts advanced will not be recoverable from amounts received on such Mortgage Loan. See “Servicing of the Mortgage Loans — Periodic Advances and Limitations Thereon” in the prospectus.

 

Subordination of Class B Certificates

 

The rights of the holders of the Class B Certificates to receive distributions with respect to the Mortgage Loans in the Trust Estate will be subordinated to such rights of the holders of the Class A Certificates and the rights of the holders of the Classes of Class B Certificates with higher numerical designations to receive distributions with respect to the Mortgage Loans in the Trust Estate will be subordinated to such rights of the holders of Classes of Class B Certificates with lower numerical designations, all to the extent described below. This subordination is intended to enhance the likelihood of timely receipt by the holders of the more senior

 

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Certificates of the full amount of their scheduled monthly payments of interest and principal and to afford the holders of the more senior Certificates protection against Realized Losses, as more fully described below. If Realized Losses exceed the credit support provided through subordination to a given Class of Certificates, all or a portion of such losses will be borne by such Class of Certificates.

 

The protection afforded to the holders of more senior Classes of Certificates by means of the subordination feature will be accomplished by the preferential right of such holders to receive, prior to any distribution being made on a Distribution Date in respect of the more junior Classes of Certificates, the amounts of principal and interest due such holders on each Distribution Date out of the Pool Distribution Amount with respect to such date and, if necessary, by the right of such holders to receive future distributions on the Mortgage Loans that would otherwise have been payable to the holders of the more junior Classes of Certificates. Because of the priorities in distributing principal to the Class A Certificates, some Classes of Class A Certificates may be outstanding longer than other Classes of Class A Certificates. The aggregate Principal Balance of the Class B Certificates will be reduced on each Distribution Date either through principal distributions or the allocation of Realized Losses. The longer a Class of Class A Certificates is outstanding, the smaller the Principal Balances will be of the Class B Certificates providing subordination for such Class A Certificates.

 

Amounts distributed to holders of Subordinated Certificates will not be available to cover delinquencies or Realized Losses in respect of subsequent Distribution Dates.

 

Allocation of Losses

 

Realized Losses will not be allocated to the holders of the Class A Certificates until the date on which the aggregate Principal Balance of the Subordinated Certificates has been reduced to zero (the “Subordination Depletion Date”). Prior to such time, such Realized Losses will be allocated to the Classes of Class B Certificates sequentially in reverse numerical order, until the Principal Balance of each such Class has been reduced to zero.

 

The allocation of the principal portion of a Realized Loss (other than a Debt Service Reduction) will be effected through the adjustment of the Principal Balance of the most subordinate Class then outstanding in such amount as is necessary to cause the Aggregate Principal Balance to equal the Adjusted Pool Amount.

 

Allocations to the Classes of Class B Certificates of (i) the principal portion of Debt Service Reductions, (ii) the interest portion of Realized Losses, (iii) any shortfalls resulting from delinquencies for which the Servicer, the Master Servicer or the Trustee does not advance and (iv) any interest shortfalls resulting from the timing of the receipt of Unscheduled Principal Receipts (other than Prepayments in Full and Curtailments) with respect to Mortgage Loans will result from the priority of distributions of the Pool Distribution Amount first to the Class A Certificates and then to the Classes of Class B Certificates in numerical order as described above under “—Distributions.”

 

After distributions of principal have been made on a Distribution Date, the allocation of the principal portion of Realized Losses in respect of the Mortgage Loans allocated on or after the Subordination Depletion Date will be effected through the adjustment of the Class A Principal Balance such that such Class A Principal Balance equals the Adjusted Pool Amount. The principal portion of such Realized Losses allocated to the Class A Certificates will be allocated to such outstanding Classes of Class A Certificates, pro rata, in accordance with their Principal Balances. The interest portion of any Realized Loss allocated on or after the Subordination Depletion Date will be allocated among the outstanding Classes of Class A Certificates, pro rata in accordance with their respective Interest Accrual Amounts, without regard to any reduction pursuant to this sentence. Any such losses will be allocated among the outstanding Class A Certificates within each such Class pro rata in accordance with their respective Percentage Interests.

 

On or after the Subordination Depletion Date, the Principal Balance of the Class of Super Senior Support Certificates will be reduced not only by the principal portion of Realized Losses allocated to such Class as provided in the preceding paragraph, but also by the portion allocated to the Classes of Super Senior Certificates.

 

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If due to losses on the Mortgage Loans the Pool Distribution Amount is not sufficient to cover the Class A Optimal Principal Amount on a particular Distribution Date, then the applicable Class A Percentage on and after the next Distribution Date will be proportionately increased, thereby reducing, as a relative matter, the respective interest of the Class B Certificates in future payments of principal on the Mortgage Loans in the Trust Estate.

 

Notwithstanding the foregoing, the provisions relating to subordination will not be applicable in connection with a Bankruptcy Loss so long as the applicable Servicer has notified the Trustee and the Master Servicer in writing that such Servicer is diligently pursuing any remedies that may exist in connection with the representations and warranties made regarding the related Mortgage Loan and when (A) the related Mortgage Loan is not in default with regard to the payments due thereunder or (B) delinquent payments of principal and interest under the related Mortgage Loan and any premiums on any applicable Standard Hazard Insurance Policy and any related escrow payments in respect of such Mortgage Loan are being advanced on a current basis by such Servicer, in either case without giving effect to any Debt Service Reduction.

 

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DESCRIPTION OF THE MORTGAGE LOANS(1)

 

General

 

The mortgage loans to be included in the Trust Estate will be adjustable interest rate, conventional, monthly pay, fully amortizing, one- to four-family, residential first mortgage loans substantially all of which have original terms to stated maturity of approximately 30 years (the “Mortgage Loans”). Some of the Mortgage Loans were made in connection with the relocation of employees of various corporate employers. Some of these corporate employers participate in Wells Fargo Bank’s relocation program. The Mortgage Loans are expected to be secured by first liens (the “Mortgages”) on one- to four-family residential properties (the “Mortgaged Properties”) and to have the additional characteristics described herein and in the prospectus. Wells Fargo Asset Securities Corporation (the “Seller”) will transfer the Mortgage Loans to the Trust.

 

Each Mortgage Loan has a fixed Mortgage Interest Rate for approximately the first ten years after the origination of such Mortgage Loan. Each Mortgage Note provides for adjustments to the Mortgage Interest Rate thereon at the end of the initial fixed-rate period and annually thereafter (each, an “Adjustment Date”).

 

The Mortgage Interest Rate on each Mortgage Loan will adjust annually commencing on or about the tenth anniversary of the first Due Date. On each Adjustment Date, the Mortgage Interest Rate of such Mortgage Loan will adjust to the sum of its Index and the number of basis points specified in the applicable Mortgage Note (the “Gross Margin”), rounded to the nearest one-eighth of one percent, subject to the limitation that with respect to each Adjustment Date, the interest rate after such adjustment may not vary from the Mortgage Interest Rate in effect prior to such adjustment by more than the amount specified in the Mortgage Note (the “Periodic Cap”). The Periodic Cap on the Mortgage Loans is generally 5.00% for the first Adjustment Date and 2.00% for every Adjustment Date thereafter. In addition, adjustments to the interest rate for each Mortgage Loan are subject to a lifetime maximum Mortgage Interest Rate (a “Rate Ceiling”). Generally, the Rate Ceiling for each Mortgage Loan will equal the Mortgage Interest Rate at origination of such Mortgage Loan plus 5.00%. None of the Mortgage Loans is subject to a lifetime minimum Mortgage Interest Rate. Therefore, the minimum Mortgage Interest Rate will be the Gross Margin. Some of the Mortgage Loans will require only payments of interest for a term specified in the related Mortgage Note (the “Interest Only Loans”). On the first Due Date following each Adjustment Date for each Mortgage Loan beginning with the Adjustment Date at the end of interest-only period, the monthly payment for the Mortgage Loan will be adjusted, if necessary, to an amount that will fully amortize such Mortgage Loan at the then-current Mortgage Interest Rate over its remaining scheduled term to maturity.

 

If a mortgagor of an Interest Only Loan makes a partial principal prepayment during the interest-only period, the monthly payment of such Interest Only Loan will be reduced to equal the amount of interest at the current Mortgage Interest Rate owed on the reduced principal balance.

 


(1) The descriptions in this prospectus supplement of the Trust Estate and the properties securing the Mortgage Loans to be included in the Trust Estate are based upon the expected characteristics of the Mortgage Loans at the close of business on the Cut-Off Date, as adjusted for the scheduled principal payments due on or before such date. Notwithstanding the foregoing, any of such Mortgage Loans may be excluded from the Trust Estate (i) as a result of principal prepayment thereof in full or (ii) if, as a result of delinquencies or otherwise, the Seller otherwise deems such exclusion necessary or desirable. In either event, other Mortgage Loans may be included in the Trust Estate. The Seller believes that the information set forth herein with respect to the expected characteristics of the Mortgage Loans on the Cut-Off Date is representative of the characteristics as of the Cut-Off Date of the Mortgage Loans to be included in the Trust Estate as it will be constituted at the time the Certificates are issued, although the aggregate principal balance of the Mortgage Loans included in the Trust Estate as of the Cut-Off Date, the range of Mortgage Interest Rates and maturities, and certain other characteristics of the Mortgage Loans in the Trust Estate may vary. In the event that any of the characteristics as of the Cut-Off Date of the Mortgage Loans that constitute the Trust Estate on the date of initial issuance of the Certificates vary materially from those described herein, revised information regarding such Mortgage Loans will be made available to purchasers of the Offered Certificates, on or before such issuance date, and a Current Report on Form 8-K containing such information will be filed with the Securities and Exchange Commission within 15 days following such date.

 

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The index for the Mortgage Loans will be the One-Year CMT (the “Index”). “One-Year CMT” is defined to be the weekly average yield on United States Treasury Securities adjusted to a constant maturity of one year, as made available by the Federal Reserve Board, published in Federal Reserve Statistical Release H.15 (519) and most recently available as of the date 45 days before the applicable Adjustment Date. In the event such Index is no longer available, the applicable Servicer will select a substitute index in accordance with the terms of the related mortgage note in compliance with federal and state law.

 

Listed below are historical average values of the Index for the months and years shown. The monthly averages shown are intended only to provide a historical summary of the movements in yields on the Index and may not be indicative of future rates. The source of the daily values of the Index used in determining the monthly averages shown below is Bloomberg Professional Services®.

 

     Year

 

Month


   2005

    2004

    2003

    2002

    2001

    2000

    1999

    1998

 

January

   2.86 %   1.24 %   1.36 %   2.16 %   4.81 %   6.12 %   4.51 %   5.24 %

February

   3.03     1.24     1.30     2.23     4.68     6.22     4.70     5.31  

March

   3.30     1.19     1.24     2.57     4.30     6.22     4.78     5.39  

April

   3.32     1.43     1.27     2.48     3.98     6.15     4.69     5.38  

May

   3.33     1.78     1.18     2.35     3.78     6.33     4.85     5.44  

June

   3.36     2.12     1.01     2.20     3.58     6.17     5.10     5.41  

July

         2.10     1.12     1.96     3.62     6.08     5.03     5.36  

August

         2.02     1.31     1.76     3.47     6.18     5.20     5.21  

September

         2.12     1.24     1.72     2.82     6.13     5.25     4.71  

October

         2.23     1.25     1.65     2.33     6.01     5.43     4.12  

November

         2.50     1.34     1.49     2.18     6.09     5.55     4.53  

December

         2.67     1.31     1.45     2.22     5.60     5.84     4.52  

 

Each of the Mortgage Loans is subject to a due-on-sale clause. See “Certain Legal Aspects of the Mortgage Loans — ‘Due-on-Sale’ Clauses” and “Servicing of the Mortgage Loans — Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans” in the prospectus.

 

Mortgage Loan Data Appearing in Appendix A

 

The Mortgage Loans were originated by Wells Fargo Bank or affiliates or by other originators. No single other originator is expected to have accounted for more than 5.00% of the aggregate unpaid principal balance of the Mortgage Loans as of the Cut-Off Date.

 

In originating Mortgage Loans, the documentation levels vary depending upon several factors, including loan amount, Loan-to-Value Ratio and the type and purpose of the Mortgage Loan. Asset, income and mortgage verifications were obtained for Mortgage Loans processed with “full documentation.” In the case of “no documentation,” neither asset nor income verifications were obtained. For purposes of Appendix A, Mortgage Loans originated under Wells Fargo Bank’s retention program are included in the category of “no documentation.” Eligibility for loans included in the “asset verification” category is determined via a credit scoring model assessment, or this feature may be selected by the borrower with an associated pricing adjustment. See “The Mortgage Loan Programs—Mortgage Loan Underwriting—Wells Fargo Bank Underwriting—Retention Program Standards” in the prospectus. In most instances, a verification of the borrower’s employment was obtained.

 

The Mortgage Loans were originated for various purposes. In general, in the case of a Mortgage Loan made for “rate/term” refinance purpose, substantially all of the proceeds are used to pay in full the principal balance of a previous mortgage loan of the mortgagor with respect to a Mortgaged Property and to pay origination and closing costs associated with such refinancing. However, in the case of a Mortgage Loan made for “equity take out” refinance purpose, all or a portion of the proceeds are generally required by the mortgagor for uses unrelated to the Mortgaged Property. The amount of such proceeds retained by the mortgagor may be substantial.

 

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For purposes of Appendix A, the term “single-family dwellings” includes single family attached planned unit developments (“PUDs”), single family detached PUDs, single family townhouses and single family detached dwellings.

 

In addition, for purposes of Appendix A, the Loan-to-Value Ratio of a Mortgage Loan is calculated using the lesser of (i) the appraised value of the related Mortgaged Property, as established by an appraisal obtained by the originator from an appraiser at the time of origination and (ii) the sale price for such property. For the purpose of calculating the Loan-to-Value Ratio of any Mortgage Loan that is the result of the refinancing (including a refinancing for “equity take out” purposes) of an existing mortgage loan, the appraised value of the related Mortgaged Property is generally determined by reference to an appraisal. Although for purposes of applying the Underwriting Standards, the Loan-to-Value Ratio of an LOC Pledged Asset Mortgage Loan, if any, is calculated taking into account the value of the LOC, for purposes of this prospectus supplement, such Loan-to-Value Ratio is calculated without regard to the value of such LOC. See “The Trust Estates — Mortgage Loans — Pledged Asset Mortgage Loans” in the prospectus. There can be no assurance that such appraisal, which is based on the independent judgment of an appraiser and not an arms-length sales transaction, is an accurate representation of the market value of a Mortgaged Property. See “The Trust Estates — Mortgage Loans” in the prospectus. No assurance can be given that the values of the Mortgaged Properties securing the Mortgage Loans have remained or will remain at the levels used in calculating the Loan-to-Value Ratios shown in Appendix A. The Seller has taken no action to establish the current value of any Mortgaged Property. See “Risk Factors — Real Estate Market Conditions Affect Mortgage Loan Performance” and “— Geographic Concentration May Increase Rates of Loss and Delinquency” in the prospectus.

 

For purposes of Appendix A, the “Combined Loan-to-Value Ratio” or “CLTV” is the ratio, expressed as a percentage, of (i) the principal amount of the Mortgage Loan at origination plus (a) any junior mortgage encumbering the related Mortgaged Property originated by Wells Fargo Bank or of which Wells Fargo Bank has knowledge at the time of the origination of the Mortgage Loan or (b) the total available amount of any home equity line of credit originated by Wells Fargo Bank or of which Wells Fargo Bank has knowledge at the time of the origination of the Mortgage Loan, over (ii) the lesser of (a) the appraised value of the related Mortgaged Property at origination or (b) the sales price for such property. There can be no assurance that all data regarding junior mortgage loans or home equity lines of credit originated by parties other than Wells Fargo Bank is known by Wells Fargo Bank and therefor accurately reflected in the tables appearing in Appendix A.

 

Mortgage Loans with Loan-to-Value Ratios at origination greater than 80% may or may not be covered by a primary mortgage insurance policy. Certain Mortgage Loans may be covered by lender-paid primary mortgage insurance policies (each, an “LPMI Policy”). These LPMI Policies, if any, together with all borrower-paid primary mortgage insurance policies, will be assigned to the Trust on the Closing Date. Wells Fargo Bank will be responsible for paying the premiums under the LPMI Policies and may assign such obligation only with the consent of each Rating Agency and the respective primary mortgage insurance policy provider. Information with respect to the Mortgage Loans covered by LPMI Policies is set forth in Appendix A.

 

Appendix A also contains a table of the FICO Scores for the Mortgage Loans. “FICO Scores” are statistical credit scores obtained by many mortgage lenders in connection with the loan application to help assess a borrower’s credit-worthiness. FICO Scores are generated by models developed by a third party and are made available to lenders through three national credit bureaus. The models were derived by analyzing data on consumers in order to establish patterns which are believed to be indicative of the borrower’s probability of default. The FICO Score is based on a borrower’s historical credit data, including, among other things, payment history, delinquencies on accounts, levels of outstanding indebtedness, length of credit history, types of credit, and bankruptcy experience. FICO Scores range from approximately 300 to approximately 850, with higher scores indicating an individual with a more favorable credit history compared to an individual with a lower score. However, a FICO Score purports only to be a measurement of the relative degree of risk a borrower represents to a lender, i.e., that a borrower with a higher score is statistically expected to be less likely to default in payment than a borrower with a lower score. In addition, it should be noted that FICO Scores were developed to indicate a level of default probability over a two-year period, which does not correspond to the life

of a mortgage loan. Furthermore, FICO Scores were not developed specifically for use in connection with

 

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mortgage loans, but for consumer loans in general. Therefore, a FICO Score does not take into consideration the effect of mortgage loan characteristics on the probability of repayment by the borrower. The FICO Scores set forth in the table appearing in Appendix A were obtained at either the time of origination of the Mortgage Loan or more recently. Neither the Seller nor Wells Fargo Bank makes any representations or warranties as to the actual performance of any Mortgage Loan or that a particular FICO Score should be relied upon as a basis for an expectation that the borrower will repay the Mortgage Loan according to its terms.

 

In addition, Appendix A contains a table of the months to the first Adjustment Date for the Mortgage Loans. With respect to each Mortgage Loan, “Months to First Adjustment Date” equals the number of months from the Cut-Off Date to the month in which the interest rate applicable to such Mortgage Loan is initially adjusted.

 

The data appearing in Appendix A may not be exact due to rounding.

 

See “The Mortgage Loan Programs — Mortgage Loan Underwriting” in the prospectus.

 

Mortgage Loan Underwriting

 

All of the Mortgage Loans were generally originated in conformity with the underwriting standards described in the prospectus under the heading “The Mortgage Loan Programs — Mortgage Loan Underwriting — Wells Fargo Bank Underwriting” (the “Underwriting Standards”). In certain instances, exceptions to the Underwriting Standards may have been granted by Wells Fargo Bank. See “The Mortgage Loan Programs — Mortgage Loan Underwriting” in the prospectus.

 

Mandatory Repurchase or Substitution of Mortgage Loans

 

The Seller is required, with respect to Mortgage Loans that are found by the Trustee or Custodian to have defective documentation, or in respect of which the Seller has breached a representation or warranty, either to repurchase such Mortgage Loans or, at the Seller’s option, if within two years of the date of initial issuance of the Certificates, to substitute new Mortgage Loans therefor. See “Prepayment and Yield Considerations” herein and “The Pooling and Servicing Agreement — Assignment of Mortgage Loans to the Trustee” in the prospectus.

 

Optional Purchase or Substitution of Mortgage Loans

 

Under certain circumstances as described in the prospectus under “The Pooling and Servicing Agreement — Optional Purchases” the Seller may, at its sole discretion purchase certain Mortgage Loans from the Trust Estate. The Seller may also, for three months following the Closing Date, substitute, for any reason, a new Mortgage Loan for any Mortgage Loan in the Trust Estate. See “Prepayment and Yield Considerations” herein.

 

PREPAYMENT AND YIELD CONSIDERATIONS

 

General

 

The rate of distributions in reduction of the Principal Balance of any Class of the Offered Certificates, the aggregate amount of distributions on any Class of the Offered Certificates and the Weighted Average Life and yield to maturity of any Class of the Offered Certificates purchased at a discount or premium will be directly related to the rate of payments of principal on the Mortgage Loans in the Trust Estate and the amount and timing of mortgagor defaults resulting in Realized Losses. Prepayments (which, as used herein, include all unscheduled payments of principal, including payments as the result of liquidations, purchases and repurchases) of the Mortgage Loans in the Trust Estate will result in distributions to Certificateholders then entitled to distributions in respect of principal in respect of such Mortgage Loans of amounts which would otherwise be distributed over the remaining terms of such Mortgage Loans. Since the rate of prepayment on the Mortgage Loans will depend on future events and a variety of factors (as described more fully below and in the prospectus under “Prepayment and Yield Considerations”), no assurance can be given as to such rate or the rate of principal payments or yield on, or Weighted Average Life of, any Class of the Offered Certificates or the aggregate amount of distributions on any Class of the Offered Certificates.

 

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The rate of principal payments on the Mortgage Loans will be affected by the amortization schedules of the Mortgage Loans, the rate of principal prepayments (including partial prepayments and those resulting from refinancing) thereon by mortgagors, liquidations of defaulted Mortgage Loans, repurchases by the Seller of Mortgage Loans as a result of defective documentation or breaches of representations and warranties and optional purchases by the Seller of all of the Mortgage Loans in connection with the termination of the Trust Estate. See “Description of the Mortgage Loans — Mandatory Repurchase or Substitution of Mortgage Loans” and “Pooling and Servicing Agreement — Optional Termination” herein and “The Pooling and Servicing Agreement — Assignment of Mortgage Loans to the Trustee,” “— Optional Purchases” and “— Termination; Optional Purchase of Mortgage Loans” in the prospectus. Mortgagors are permitted to prepay the Mortgage Loans, in whole or in part, at any time without penalty. If prevailing rates for similar mortgage loans fall below the Mortgage Interest Rates on the Mortgage Loans, the rate of prepayment would generally be expected to increase. Conversely, if interest rates on similar mortgage loans rise above the Mortgage Interest Rates on the Mortgage Loans, the rate of prepayment would generally be expected to decrease.

 

The Interest Only Loans require only the payment of interest for a term specified in the related Mortgage Note. At that time, the payments on each Interest Only Loan will be recalculated to fully amortize its unpaid principal balance over the remaining life of such loan and the mortgagor will be required to make payments of both principal and interest, which may increase the burden of the mortgagor and may increase the risk of default under such Mortgage Loan.

 

The Mortgage Interest Rates on the Mortgage Loans will be fixed for approximately the first ten years after origination and thereafter will adjust annually and may vary significantly over time. When a Mortgage Loan begins its adjustable period, increases and decreases in the Mortgage Interest Rate on that Mortgage Loan will be based on the Index in effect 45 days prior to the related Adjustment Date plus the applicable Gross Margin and will be limited by the applicable Periodic Cap and Rate Ceiling. The Index may not rise and fall consistently with mortgage interest rates. As a result, the Mortgage Interest Rates on the Mortgage Loans at any time may not equal the prevailing mortgage interest rates for similar adjustable interest rate mortgage loans, and accordingly the prepayment rate may be lower or higher than would otherwise be anticipated. Moreover, some mortgagors who prefer the certainty provided by fixed interest rate mortgage loans may nevertheless obtain adjustable interest rate mortgage loans at a time when they regard the mortgage interest rates (and, therefore, the payments) on fixed interest rate mortgage loans as unacceptably high. These mortgagors may be induced to refinance adjustable interest rate mortgage loans when the mortgage interest rates and monthly payments on comparable fixed interest rate mortgage loans decline to levels which these mortgagors regard as acceptable, even though such mortgage interest rates and monthly payments may be significantly higher than the current Mortgage Interest Rates and monthly payments on the mortgagors’ adjustable interest rate mortgage loans. The ability to refinance a mortgage loan will depend on a number of factors prevailing at the time refinancing is desired, including, without limitation, real estate values, the mortgagor’s financial situation, prevailing mortgage interest rates, the mortgagor’s equity in the related mortgaged property, tax laws and prevailing general economic conditions.

 

The Pass-Through Rates on each Offered Certificate may decrease, and may decrease significantly, after the Mortgage Interest Rates on the Mortgage Loans begin to adjust as a result of, among other factors, the dates of adjustment, the gross margins and changes in the Index. The Mortgage Interest Rates on the Mortgage Loans will not all begin to adjust on the same date. Therefore, the Mortgage Interest Rates of some of the Mortgage Loans may still be in their fixed-rate period while the Mortgage Interest Rates on other Mortgage Loans may have begun to adjust. Moreover, although each Mortgage Loan has a maximum Mortgage Interest Rate, none of the Mortgage Loans has a specified floor. Accordingly, the minimum Mortgage Interest Rate to which the Mortgage Loans may adjust will be the applicable Gross Margin. In addition, if despite increases in the Index, the Mortgage Interest Rate on any Mortgage Loan cannot increase due to a maximum mortgage interest rate limitation or a Periodic Cap, the yield on such Offered Certificates could be adversely affected. In addition, because the Pass-Through Rate on each Offered Certificate will be equal to the Net WAC of the Mortgage Loans, disproportionate principal payments on the Mortgage Loans having Net Mortgage Interest Rates higher or lower than the then-current Pass-Through Rates on a Class of Offered Certificates may affect the Pass-Through Rates for such Offered Certificates for future periods and the yield on such Offered Certificates.

 

The rate of prepayment on the Mortgage Loans may also be influenced by programs offered by mortgage loan originators (including Wells Fargo Bank), servicers (including Wells Fargo Bank) and mortgage loan brokers

 

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to encourage refinancing through such originators, servicers and brokers, including, but not limited to, general or targeted solicitations (which may be based on characteristics including, but not limited to, the mortgage loan interest rate or payment history and the geographic location of the Mortgaged Property), reduced origination fees or closing costs, pre-approved applications, waiver of pre-closing interest accrued with respect to a refinanced loan prior to the pay-off of such loan, or other financial incentives. In particular, the application of Wells Fargo Bank’s “retention program,” which enables qualifying mortgagors to refinance at greatly reduced cost, to its servicing portfolio may substantially affect the rate of prepayment on the Mortgage Loans. See “Prepayment and Yield Considerations — Refinancings” in the prospectus. In addition, Wells Fargo Bank or third parties may enter into agreements with borrowers providing for the bi-weekly payment of principal and interest on the related mortgage loan, thereby accelerating payment of the mortgage loan resulting in partial prepayments.

 

Other factors affecting prepayment of mortgage loans include changes in mortgagors’ housing needs, job transfers, unemployment or substantial fluctuations in income, significant fluctuations in real estate values and adverse economic conditions either generally or in particular geographic areas, mortgagors’ equity in the Mortgaged Properties, including the use of the properties as second or vacation homes, and servicing decisions, such as, without limitation, the decision as to whether to foreclose on a Mortgage Loan or to modify the terms of the related Mortgage Note and decisions as to the timing of any foreclosure. Furthermore, certain characteristics of mortgage loans are thought by some in the mortgage industry to be more likely to affect prepayments. These characteristics include, but are not limited to, principal balance, loan-to-value ratio, credit quality of borrower and current interest rate higher than prevailing interest rates. No representation is made as to the rate of prepayment on the Mortgage Loans included in the Trust having any particular characteristic. In addition, all of the Mortgage Loans contain due-on-sale clauses which will be exercised upon the sale of the related Mortgaged Properties and enforced to the extent described in the prospectus under “Servicing of the Mortgage Loans — Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans.” Consequently, acceleration of mortgage payments as a result of any such sale will affect the level of prepayments on the Mortgage Loans. The extent to which defaulted Mortgage Loans are assumed by transferees of the related Mortgaged Properties or are refinanced will also affect the rate of principal payments. The rate of prepayment and, therefore, the yield to maturity of the Offered Certificates will be affected by, among other things, the extent to which (i) the Seller elects to repurchase, rather than substitute for, Mortgage Loans which are found by the Trustee or Custodian to have defective documentation or with respect to which the Seller has breached a representation or warranty, (ii) a substitute Mortgage Loan has an unpaid principal balance less than the Mortgage Loan for which it is substituted or (iii) a Servicer may take certain actions to mitigate losses on a defaulted Mortgage Loan which may include, but are not limited to, selling the Mortgaged Property of such Mortgage Loan for less than its unpaid principal balance or modifying the payment terms of such Mortgage Loan. See “Servicing of the Mortgage Loans — Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans” in the prospectus.

 

As described under “Description of the Certificates — Principal (Including Prepayments)” herein, all or a disproportionate percentage of principal prepayments on the Mortgage Loans (including liquidations and repurchases of Mortgage Loans) are expected to be distributed to the holders of the Class A Certificates then entitled to distributions in respect of principal during the eleven years beginning on the first Distribution Date.

 

The yield to maturity of the Offered Certificates will be sensitive in varying degrees to the rate and timing of principal payments (including prepayments, which may be made at any time without penalty) on the Mortgage Loans. Investors in the Offered Certificates should consider the associated risks, including, in the case of Offered Certificates purchased at a discount, the risk that a slower than anticipated rate of payments in respect of principal (including prepayments) on the Mortgage Loans will have a negative effect on the yield to maturity of such Certificates and, in the case of Offered Certificates purchased at a premium, the risk that a faster than anticipated rate of payments in respect of principal (including prepayments) on the Mortgage Loans will have a negative effect on the yield to maturity of such Certificates. Investors purchasing Offered Certificates at a premium should also consider the risk that a rapid rate of payments in respect of principal (including prepayments) on the Mortgage Loans could result in the failure of such investors to fully recover their initial investments. An investor is urged to make an investment decision with respect to any Class of Offered Certificates based on the anticipated yield to maturity of such Class resulting from its purchase price and such investor’s own determination as to anticipated Mortgage Loan prepayment rates under a variety of scenarios.

 

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The timing of changes in the rate of prepayment on the Mortgage Loans may significantly affect the actual yield to maturity experienced by an investor who purchases an Offered Certificate at a price other than par, even if the average rate of principal payments experienced over time is consistent with such investor’s expectation. In general, the earlier a prepayment of principal on the underlying Mortgage Loans, the greater the effect on such investor’s yield to maturity. As a result, the effect on such 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.

 

The yield to maturity on the Classes of Class B Certificates with higher numerical designations will generally be more sensitive to losses than the Classes with lower numerical designations because the entire amount of such losses will be allocable to the Classes of Class B Certificates in reverse numerical order, except as provided herein. To the extent not covered by Periodic Advances, delinquencies on Mortgage Loans will also have a relatively greater effect on the yield to maturity on the Classes of Class B Certificates with higher numerical designations because amounts otherwise distributable to holders of the Class B Certificates will be made available to protect the holders of the Class A Certificates against interruptions in distributions due to such unadvanced mortgagor delinquencies. Such unadvanced delinquencies, even if subsequently cured, may affect the timing of the receipt of distributions by the holders of the Class B Certificates.

 

On and after the Subordination Depletion Date, the yield to maturity of the Super Senior Support Certificates will be more sensitive to losses than that of the other Class A Certificates to losses on the Mortgage Loans because, while outstanding, the Super Senior Support Certificates will bear not only their own share of losses, but also the share allocated to the Super Senior Certificates.

 

The actual yield to maturity experienced by an investor may also be affected by the occurrence of interest shortfalls resulting from Unscheduled Principal Receipts to the extent, if any, to which such interest shortfalls are not covered by Compensating Interest or subordination. See “Description of the Certificates — Interest” herein and “Servicing of the Mortgage Loans — Changes in Servicing” in the prospectus.

 

The yield to maturity on the Offered Certificates and more particularly on the Class B-1, Class B-2 and Class B-3 Certificates, may be affected by the geographic concentration of the Mortgaged Properties securing the Mortgage Loans. Certain regions in the United States have experienced or may experience significant fluctuations in housing prices. In addition, certain regions have experienced or may experience natural disasters, including earthquakes, fires, floods and hurricanes, which may adversely affect property values. See “Description of the Mortgage Loans” herein. Any deterioration in housing prices in the regions in which there is a significant concentration of Mortgaged Properties, as well as other regions in which the Mortgaged Properties are located, and any deterioration of economic conditions in such regions which adversely affects the ability of borrowers to make payments on the Mortgage Loans, may increase the likelihood of losses on the Mortgage Loans. Such losses, if they occur, may have an adverse effect on the yield to maturity of the Offered Certificates and more particularly on the Class B-1, Class B-2 and Class B-3 Certificates.

 

As to Mortgaged Properties in regions that have recently experienced natural disasters, neither the Seller nor Wells Fargo Bank has undertaken the physical inspection of such Mortgaged Properties. As a result, there can be no assurance that material damage to any Mortgaged Property in an affected region has not occurred. In the Pooling and Servicing Agreement, the Seller will represent and warrant that, as of the date of issuance of the Certificates, each Mortgaged Property is undamaged by flood, water, fire, earthquake or earth movement, wind-storm, tornado or similar casualty (excluding casualty from the presence of hazardous wastes or hazardous substances, as to which the Seller makes no representation) so as to affect adversely the value of such Mortgaged Property as security for such Mortgage Loan or the use for which such premises was intended. In the event of a breach of such representation with respect to a Mortgaged Property which materially and adversely affects the interests of Certificateholders in the related Mortgage Loan, the Seller will be obligated to repurchase or substitute for such Mortgage Loan, as described under “The Mortgage Loan Programs — Representations and Warranties” and “The Pooling and Servicing Agreement — Assignment of Mortgage Loans to the Trustee” in the prospectus. Repurchase of any such Mortgage Loan will affect in varying degrees the yields and Weighted Average Lives of the related Classes of Offered Certificates and could adversely affect the yield of any related Offered Certificates purchased at a premium.

 

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No representation is made as to the rate of principal payments on the Mortgage Loans or as to the yield to maturity of any Class of Offered Certificates.

 

An investor should consider the risk that rapid rates of prepayments on the Mortgage Loans, and therefore of amounts distributable in reduction of principal balance of the related Offered Certificates, may coincide with periods of low prevailing interest rates. During such periods, the effective interest rates on securities in which an investor may choose to reinvest amounts distributed in reduction of the principal balance of such investor’s Offered Certificate may be lower than the applicable Pass-Through Rate or expected yield. Conversely, slower rates of prepayments on the Mortgage Loans, and therefore of amounts distributable in reduction of principal balance of the related Offered Certificates, may coincide with periods of high prevailing interest rates. During such periods, the amount of principal distributions available to an investor for reinvestment at such high prevailing interest rates may be relatively small.

 

Due to the special tax treatment of residual interests, the after-tax return of the Residual Certificates may be significantly lower than would be the case if the Residual Certificates were taxed as debt instruments, or may be negative. See “Federal Income Tax Considerations” herein.

 

As referred to herein, the “Weighted Average Life” of a Class of Offered Certificates refers to the average amount of time that will elapse from the date of issuance of such Class until each dollar in reduction of the Principal Balance of such Class is distributed to the investor.

 

Prepayments on mortgage loans are commonly measured relative to a prepayment standard or model. The model used in this prospectus supplement, the Constant Prepayment Rate (“CPR”), represents an assumed rate of prepayment each month relative to the outstanding principal balance of a pool of mortgage loans for the life of such mortgage loans. A prepayment assumption of 10% CPR assumes constant prepayment rates of 10% per annum of the then-outstanding principal balance of such mortgage loans. As used in the tables appearing in the appendices, “0% CPR” assumes prepayment rates equal to 0% of CPR, i.e., no prepayments. Correspondingly, “25% CPR” assumes prepayments rates equal to 25% of CPR, and so forth. CPR does not purport to be a historical description of prepayment experience or a prediction of the anticipated rate of prepayment of any pool of mortgage loans, including the Mortgage Loans.

 

Appendix B sets forth the decrement tables for the Offered Certificates. The tables appearing in Appendix B have been prepared assuming, among other things, the following (the “Structuring Assumptions”):

 

(i)  the Trust Estate consists of the “Assumed Mortgage Loans” with the characteristics set forth below;

 

(ii)  the scheduled payment in each month for each Assumed Mortgage Loan has been based on its outstanding balance as of the first day of the month preceding the month of such payment, its Mortgage Interest Rate and its remaining term to stated maturity, so that such scheduled payments (beginning with the scheduled payment after the interest-only period in the case of the Assumed Mortgage Loans with Original Interest Only Months greater than zero) would amortize the remaining balance over its remaining term to maturity;

 

(iii)  scheduled monthly payments of principal and interest on the Assumed Mortgage Loans will be timely received on the first day of each month (with no defaults), commencing in August 2005;

 

(iv)  the Seller does not repurchase any of the Assumed Mortgage Loans and the Seller does not exercise its option to purchase the Assumed Mortgage Loans and thereby cause a termination of the Trust Estate;

 

(v)  principal payments on the Assumed Mortgage Loans representing principal prepayments in full of individual mortgage loans will be received on the last day of each month commencing in July 2005 at the respective constant percentages of CPR set forth in the tables and there are no Curtailments, Prepayment Interest Shortfalls or Relief Act Shortfalls;

 

(vi)  the Certificates will be issued on the Closing Date;

 

(vii)  distributions to Certificateholders will be made on the 25th day of each month, commencing in August 2005;

 

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(viii) the Index remains constant at 3.51%;

 

(ix) the Periodic Cap is 5.00% for the first Adjustment Date for the Assumed Mortgage Loans and the Periodic Cap for each Adjustment Date thereafter is 2.00%;

 

(x) the Assumed Mortgage Loans adjust on the first Adjustment Date and annually on each anniversary thereof;

 

(xi)  the Master Servicing Fee Rate will be 0.010% per annum for each Assumed Mortgage Loan; and

 

(xii)  the initial Principal Balance of each Class of Certificates will be as set forth in the table on page S-4 of this prospectus supplement.

 

Assumed Mortgage Loan Characteristics

 

Assumed Mortgage Loan


 

Principal
Balance

as of the

Cut-Off Date


 

Current

Mortgage

Interest

Rate


   

Servicing

Fee Rate


   

Remaining

Term to
Maturity

(in Months)


 

Original

Term to
Maturity
(in Months)


 

Months to

First
Adjustment

Date


  Original
Interest
Only
Months


 

Rate

Ceiling


    Gross
Margin


 
1   $ 148,315,066.90   5.5809521018 %   0.250 %   358   359   119   0   10.58095 %   2.750 %
2   $ 85,268,664.72   5.5800930405 %   0.250 %   359   360   119   0   10.58009 %   2.750 %
3   $ 460,000.00   5.5000000000 %   0.250 %   359   360   119   60   10.50000 %   2.750 %
4   $ 304,000.00   5.3750000000 %   0.250 %   359   360   119   60   10.37500 %   2.750 %
5   $ 466,080,278.80   5.6608851910 %   0.250 %   359   360   119   120   10.66089 %   2.750 %
6   $ 299,045,812.00   5.7041825402 %   0.250 %   359   360   119   120   10.70418 %   2.750 %
7   $ 534,000.00   5.5000000000 %   0.250 %   359   360   119   180   10.50000 %   2.750 %

 

It is highly unlikely that the Mortgage Loans will prepay at any constant rate, that all of the Mortgage Loans will prepay at the same rate or that the Mortgage Loans will not experience any losses. In addition, there will be differences between the characteristics of the Mortgage Loans ultimately included in the Trust Estate and the characteristics which are assumed in preparing the tables, as described above. Any difference may have an effect upon the actual percentages of initial Principal Balances of the Classes of Certificates outstanding, the actual Weighted Average Lives of the Classes of Certificates and the date on which the Principal Balance of any Class of Certificates is reduced to zero.

 

Based upon the foregoing assumptions, the tables appearing in Appendix B indicate the Weighted Average Life of each Class of Offered Certificates, and set forth the percentages of the initial Principal Balance of each such Class of Offered Certificates that would be outstanding after each of the dates shown at constant percentages of CPR presented.

 

Interest accrued on the Offered Certificates will be reduced by the amount of any interest portions of Realized Losses allocated to such Certificates as described under “Description of the Certificates — Interest” herein. The yield on the Offered Certificates will be less than the yield otherwise produced by their respective Pass-Through Rates, if any, and the prices at which such Certificates are purchased because the interest which accrues on the Mortgage Loans during each month will not be passed through to Certificateholders until the 25th day of the month following the end of such month (or if such 25th day is not a business day, the following business day).

 

The Seller intends to file certain additional yield tables and other computational materials with respect to one or more Classes of Offered Certificates with the Securities and Exchange Commission in a Report on Form 8-K. See “Incorporation of Certain Information by Reference” in the prospectus. Such tables and materials will have been prepared by the Underwriter at the request of certain prospective investors, based on assumptions provided by, and satisfying the special requirements of, such investors. Such tables and assumptions may be based on assumptions that differ from the Structuring Assumptions. Accordingly, such tables and other materials may not be relevant to or appropriate for investors other than those specifically requesting them.

 

Yield Considerations with Respect to the Class B-2 and Class B-3 Certificates

 

Defaults on mortgage loans may be measured relative to a default standard or model. The model used in this prospectus supplement, the constant default rate (“CDR”), represents an assumed rate of default each month,

 

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expressed as an annual rate, relative to the then-outstanding performing principal balance of the Mortgage Loans. Such defaults are assumed to occur with respect to individual mortgage loans comprising, and which have characteristics identical to, the Assumed Mortgage Loans. CDR does not purport to be a historical description of default experience or a prediction of the anticipated rate of default of any pool of mortgage loans, including the Mortgage Loans.

 

The tables appearing in Appendix C indicate the sensitivity of the pre-tax yield to maturity on a semi-annual corporate bond equivalent (“CBE”) basis of the Class B-2 and Class B-3 Certificates to various rates of prepayment and varying levels of aggregate Realized Losses. The tables appearing in Appendix C are based upon, among other things, the Structuring Assumptions (other than the assumption that no defaults shall have occurred with respect to the Assumed Mortgage Loans) and the additional assumptions that (i) liquidations (other than those scenarios indicated as 0% of CDR (no defaults)) occur monthly on the last day of the preceding month at the percentages of CDR set forth in the tables and (ii) all delinquency tests are met.

 

In addition, it was assumed that (i) Realized Losses on liquidations of 15% or 25% of the outstanding principal balance of such liquidated Mortgage Loans, as indicated in the tables (referred to as a “Loss Severity Percentage”) will occur at the time of liquidation, (ii) there is no delay between the default and the liquidation of the mortgage loans and (iii) the Class B-2 and Class B-3 Certificates are purchased on the Closing Date at purchase prices equal to 99.7430% and 97.2117%, respectively, of the initial Principal Balances thereof, plus accrued interest from the first day of the initial Interest Accrual Period to (but not including) the Closing Date.

 

The actual Mortgage Loans ultimately included in the Trust Estate will have characteristics differing from those assumed in preparing the tables and it is unlikely that they will prepay or liquidate at any of the rates specified. In addition, it is unlikely that Realized Losses will be incurred according to any one particular pattern. The assumed percentages of CDR and CPR and the loss severities shown in the tables are for illustrative purposes only and the Seller makes no representations with respect to the reasonableness of such assumptions or that the actual rates of prepayment and liquidation and loss severity experience of the Mortgage Loans will in any way correspond to any of the assumptions made herein. For these reasons, and because the timing of cash flows is critical to determining yield, the actual pre-tax yields to maturity of the Class B-2 and Class B-3 Certificates are likely to differ from the pre-tax yields to maturity shown in the tables.

 

The pre-tax yields to maturity in the tables appearing in Appendix C were calculated by (i) determining the monthly discount rates which, when applied to the assumed streams of cash flows to be paid on the Class B-2 and Class B-3 Certificates, would cause the discounted present value of such assumed streams of cash flows to equal the assumed purchase prices of the Class B-2 and Class B-3 Certificates set forth above and (ii) converting such monthly rates to CBE rates. Such calculations do not take into account the interest rates at which investors may be able to reinvest funds received by them as distributions on the Class B-2 and Class B-3 Certificates and consequently do not purport to reflect the return on any investment in the Class B-2 and Class B-3 Certificates when such reinvestment rates are considered.

 

Investors are urged to make their investment decisions based on their determinations as to anticipated rates of prepayment and Realized Losses under a variety of scenarios. Investors in Class B-2 and Class B-3 Certificates should fully consider the risk that Realized Losses on the Mortgage Loans could result in the failure of such investors to fully recover their initial investments.

 

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WELLS FARGO BANK

 

Wells Fargo Bank, N.A. (“Wells Fargo Bank”) will act as the Custodian, the Master Servicer and a Servicer with respect to the Mortgage Loans. Even though Wells Fargo Bank will be acting in these multiple capacities, it is expected that with respect to the functions of Master Servicer and Custodian, on the one hand, and Servicer, on the other, different divisions within Wells Fargo Bank, acting through different personnel, will be performing these functions. See “Wells Fargo Bank” in the prospectus.

 

POOLING AND SERVICING AGREEMENT

 

General

 

The Certificates will be issued pursuant to a Pooling and Servicing Agreement to be dated as of the Closing Date (the “Pooling and Servicing Agreement”) among the Seller, the Master Servicer and the Trustee. Reference is made to the prospectus for important additional information regarding the terms and conditions of the Pooling and Servicing Agreement and the Certificates. See “Description of the Certificates,” “Servicing of the Mortgage Loans” and “The Pooling and Servicing Agreement” in the prospectus.

 

The Trust Estate created pursuant to the Pooling and Servicing Agreement will consist of (i) the Mortgage Loans, (ii) such assets as from time to time are identified as deposited in any account held for the benefit of the Certificateholders, (iii) any Mortgaged Properties acquired on behalf of the Certificateholders by foreclosure or by deed in lieu of foreclosure after the Closing Date and (iv) the rights of the Trustee to receive the proceeds of all insurance policies and performance bonds, if any, required to be maintained pursuant to the Pooling and Servicing Agreement.

 

Distributions

 

Distributions (other than the final distribution in retirement of the Offered Certificates of each Class) will be made by check mailed to the address of the person entitled thereto as it appears on the Certificate Register. However, with respect to any holder of an Offered Certificate evidencing at least a $100,000 initial Principal Balance, distributions will be made on the Distribution Date by wire transfer in immediately available funds. The final distribution in respect of each Class of Offered Certificates will be made only upon presentation and surrender of the related Certificate at the office or agency appointed by the Trustee specified in the notice of final distribution with respect to the related Class. See “Description of the Certificates — General” in the prospectus.

 

DTC will receive distributions on the Book-Entry Certificates from the Trustee and transmit them to DTC Participants for distribution to Beneficial Owners or their nominees.

 

Voting

 

With respect to any provisions of the Pooling and Servicing Agreement providing for the action, consent or approval of the holders of all Certificates evidencing specified Voting Interests in the Trust Estate, each Class of Certificates will be entitled to a pro rata portion of the Voting Interest based on the outstanding Principal Balance of such Class. Each Certificateholder of a Class will have a Voting Interest equal to the product of the Voting Interest to which such Class is collectively entitled and the Percentage Interest in such Class represented by such holder’s Certificates. With respect to any provisions of the Pooling and Servicing Agreement providing for action, consent or approval of each Class of Certificates or specified Classes of Certificates, each Certificateholder of a Class will have a Voting Interest in such Class equal to such holder’s Percentage Interest in such Class. Unless Definitive Certificates are issued as described under “Description of the Certificates—Book-Entry Form” in the prospectus, Beneficial Owners of Book-Entry Certificates may exercise their voting rights only through DTC Participants.

 

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Trustee

 

The “Trustee” for the Certificates will be Wachovia Bank, National Association, a national banking association. The corporate trust office of the Trustee is located at 401 South Tryon Street, Charlotte, North Carolina 28288. The Trustee will be required to make Periodic Advances to the limited extent described herein with respect to the Mortgage Loans serviced by Wells Fargo Bank if Wells Fargo Bank, as Servicer, fails to make a Periodic Advance required by the related Underlying Servicing Agreement. See “Description of the Certificates — Periodic Advances” herein and “The Pooling and Servicing Agreement — The Trustee” in the prospectus.

 

Custodian

 

The “Custodian” for the Mortgage Loans will be the Corporate Trust Services division of Wells Fargo Bank. See “The Pooling and Servicing Agreement — Assignment of Mortgage Loans to the Trustee” in the prospectus.

 

Master Servicer

 

The Corporate Trust Services division of Wells Fargo Bank will act as “Master Servicer” of the Mortgage Loans and, in that capacity, will supervise the servicing of the Mortgage Loans, cause the Mortgage Loans to be serviced in the event an Other Servicer is terminated and a successor servicer is not appointed, provide certain reports to the Trustee regarding the Mortgage Loans and the Certificates and make Periodic Advances to the limited extent described herein. See “Description of the Certificates — Periodic Advances” herein. Under the Pooling and Servicing Agreement, any good faith interpretation of the Master Servicer of any provisions of the Pooling and Servicing Agreement relating to the distributions to be made on or the allocation of any losses to the Certificates which the Master Servicer concludes are ambiguous or unclear will be binding on Certificateholders. The Master Servicer will be entitled to a “Master Servicing Fee” payable monthly equal to the product of (i)  1/12th of 0.010% (the “Master Servicing Fee Rate”) and (ii) the aggregate Scheduled Principal Balance of the Mortgage Loans as of the first day of each month. The Master Servicer will pay certain administrative expenses to the Trust Estate subject to reimbursement as described under “Servicing of the Mortgage Loans — The Master Servicer” in the prospectus.

 

Optional Termination

 

The Seller may purchase from the Trust Estate all of the Mortgage Loans and any REO Properties, and thereby effect early retirement of the Certificates, on any Distribution Date when the aggregate Scheduled Principal Balance of the Mortgage Loans is less than 10% of the aggregate unpaid principal balance of the Mortgage Loans as of the Cut-Off Date. In the event the Seller purchases the Mortgage Loans and any REO Properties as described above, holders of the Certificates, to the extent the purchase price as described in the prospectus under “The Pooling and Servicing Agreement — Termination; Optional Purchase of Mortgage Loans” is sufficient, will receive the unpaid principal balance of their Certificates and any accrued and unpaid interest thereon. For so long as the Seller is subject to regulation by the OCC, the FDIC, the Federal Reserve or the OTS, the Seller may purchase the Mortgage Loans and REO Properties only if the aggregate fair market value of such Mortgage Loans and REO Properties is greater than or equal to the purchase price. The amount, if any, remaining in the Certificate Account after the payment of all principal and interest on the Certificates and expenses of the REMIC will be distributed to the holders of the Class A-R Certificates. See “Description of the Certificates —  Additional Rights of the Residual Certificateholders” herein and “The Pooling and Servicing Agreement — Termination; Optional Purchase of Mortgage Loans” in the prospectus. The exercise of the foregoing option will be in the Seller’s sole discretion. Without limitation, the Seller may enter into agreements with third parties to (i) exercise such option at the direction of such third party or (ii) forbear from the exercise of such option.

 

SERVICING OF THE MORTGAGE LOANS

 

Wells Fargo Bank will, and other servicers (the “Other Servicers,” and collectively with Wells Fargo Bank, the “Servicers”) may, service the Mortgage Loans, each pursuant to a separate servicing agreement (each, an “Underlying Servicing Agreement”). Initially, it is anticipated that there will be no Other Servicers

 

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servicing the Mortgage Loans. The rights to enforce the related Servicer’s obligations under each Underlying Servicing Agreement with respect to the related Mortgage Loans will be assigned to the Trustee for the benefit of Certificateholders. Among other things, the Servicers are obligated under certain circumstances to advance delinquent payments of principal and interest with respect to the Mortgage Loans. See “Servicing of the Mortgage Loans” and “Wells Fargo Bank” in the prospectus.

 

The Servicers

 

All of the Mortgage Loans initially will be serviced by Wells Fargo Bank and will all be Type 1 Loans.

 

See “Description of the Certificates — Distributions to Certificateholders — Unscheduled Principal Receipts” and “Servicing of the Mortgage Loans — Changes in Servicing” in the prospectus.

 

Servicing Compensation and Payment of Expenses

 

The primary compensation payable to each of the Servicers is the aggregate of the Servicing Fees applicable to the related Mortgage Loans. The Servicing Fee applicable to each Mortgage Loan is expressed as a fixed percentage (the “Servicing Fee Rate”) of the scheduled principal balance (as defined in the Underlying Servicing Agreements) of such Mortgage Loan as of the first day of each month. The Servicing Fee Rate for each Mortgage Loan is 0.250% per annum. The Servicers also are entitled to additional servicing compensation, as described in the prospectus under “Servicing of the Mortgage Loans — Fixed Retained Yield, Servicing Compensation and Payment of Expenses.” No Fixed Retained Yield (as defined in the prospectus) will be retained with respect to any of the Mortgage Loans.

 

The Master Servicer will pay certain expenses, including fees of the Trustee incurred in connection with its responsibilities under the Pooling and Servicing Agreement, subject to certain rights of reimbursement as described in the prospectus. The servicing fees and other expenses of the REMIC will be allocated to the holders of the Class A-R Certificates. See “Federal Income Tax Considerations” herein and “Certain Federal Income Tax Consequences — Federal Income Tax Consequences for REMIC Certificates — Limitations on Deduction of Certain Expenses” in the prospectus.

 

DELINQUENCY AND FORECLOSURE EXPERIENCE

 

Certain information concerning recent delinquency and foreclosure experience as reported to the Master Servicer by the applicable servicers on adjustable-rate mortgage loans included in various mortgage pools underlying all series of the Seller’s mortgage pass-through certificates is set forth in the applicable table under “Delinquency and Foreclosure Experience” in the prospectus. There can be no assurance that the delinquency and foreclosure experience set forth in such table will be representative of the results that may be experienced with respect to the Mortgage Loans included in the Trust Estate.

 

See “Delinquency and Foreclosure Experience” in the prospectus for a discussion of various factors affecting delinquencies and foreclosures generally.

 

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FEDERAL INCOME TAX CONSIDERATIONS

 

The following discussion represents the opinion of Cadwalader, Wickersham & Taft LLP as to the anticipated material federal income tax consequences of the purchase, ownership and disposition of the Offered Certificates.

 

The Trust will qualify as a REMIC for federal income tax purposes. The assets of the REMIC will include the Mortgage Loans, together with the amounts held by the Master Servicer in a separate account in which collections on the Mortgage Loans will be deposited (the “Certificate Account”), the hazard insurance policies and primary mortgage insurance policies, if any, relating to the Mortgage Loans and any property that secured a Mortgage Loan that is acquired by foreclosure or deed in lieu of foreclosure.

 

Each Class of Offered Certificates (other than the Class A-R Certificates), together with each Class of Certificates not offered hereby (collectively, the “Regular Certificates”) will be designated as regular interests in the REMIC, and the Class A-R Certificates will be designated as the residual interest in the REMIC. The Class A-R Certificates are “Residual Certificates” for purposes of the prospectus.

 

The Offered Certificates will be treated as “loans . . . secured by an interest in real property which is . . . residential real property” for a domestic building and loan association, “real estate assets” for a real estate investment trust and, other than the Residual Certificates, “qualified mortgages” for a REMIC, to the extent described in the prospectus.

 

Regular Certificates

 

The Regular Certificates generally will be treated as newly originated debt instruments for federal income tax purposes. Beneficial Owners (or in the case of Definitive Certificates, holders) of the Regular Certificates will be required to report income on such Certificates in accordance with the accrual method of accounting.

 

It is anticipated that:

 

    The Class B-3 Certificates will be issued with original issue discount equal to the excess of their initial Principal Balance over their issue price (including accrued interest from the first day of the initial Interest Accrual Period); and

 

    The Class A-1, Class A-2, Class A-3, Class A-4, Class A-5, Class A-6, Class B-1 and Class B-2 Certificates will be issued at a premium.

 

 

It is also anticipated that the Class B-4, Class B-5 and Class B-6 Certificates, which are not offered hereby, will be issued with original issue discount.

 

See “Certain Federal Income Tax Consequences — Federal Income Tax Consequences for REMIC Certificates — Taxation of Regular Certificates” in the prospectus.

 

The Prepayment Assumption (as defined in the prospectus) that the Master Servicer intends to use in determining the rate of accrual of original issue discount and whether the original issue discount is considered de minimis, and that may be used by Beneficial Owners (or holders) to amortize premium, will be calculated assuming that the Mortgage Loans will prepay at 25% CPR. No representation is made as to the actual rate at which the Mortgage Loans will prepay.

 

If the method for computing original issue discount results in a negative amount for any period with respect to any holder of Offered Certificates, the amount of original issue discount allocable to that period would be zero. The holder would be permitted to offset the negative amount only against future original issue discount, if any, attributable to his or her Certificates. Any loss might be treated as a capital loss.

 

Residual Certificates

 

The holders of the Class A-R Certificates must include the taxable income or loss of the REMIC in determining their federal taxable income. The Residual Certificates will remain outstanding for federal income tax purposes until there are no Certificates of any other Class outstanding. Prospective investors are cautioned that the Residual Certificateholders’ REMIC taxable income and the tax liability thereon may exceed, and may

 

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substantially exceed, cash distributions to such holders during certain periods, in which event, the holders thereof must have sufficient alternative sources of funds to pay such tax liability. Furthermore, it is anticipated that all or a substantial portion of the taxable income of the REMIC includible by the holders of the Class A-R Certificates will be treated as “excess inclusion” income, resulting in (i) the inability of such holders to use net operating losses to offset such income from the REMIC, (ii) the treatment of such income as “unrelated business taxable income” to certain holders who are otherwise tax-exempt and (iii) the treatment of such income as subject to 30% withholding tax to certain non-U.S. investors, with no exemption or treaty reduction.

 

The Residual Certificates will be considered “noneconomic residual interests,” with the result that transfers thereof would be disregarded for federal income tax purposes if any significant purpose of the transferor was to impede the assessment or collection of tax. Accordingly, the Residual Certificates are subject to certain restrictions on transfer and any prospective transferee thereof will be required to furnish to the Trustee an affidavit as described under “Certain Federal Income Tax Consequences — Federal Income Tax Consequences for REMIC Certificates — Taxation of Residual Certificates — Tax-Related Restrictions on Transfer of Residual Certificates — Noneconomic Residual Interests” in the prospectus. See also “Certain Federal Income Tax Consequences — Federal Income Tax Consequences for REMIC Certificates — Taxation of Residual Certificates — Limitations on Offset or Exemption of REMIC Income” in the prospectus.

 

An individual, trust or estate that holds a Residual Certificate (whether such Certificate is held directly or indirectly through certain pass-through entities) also may have additional gross income with respect to, but may be subject to limitations on the deductibility of, Servicing Fees on the Mortgage Loans and other administrative expenses of the REMIC in computing such holder’s regular tax liability, and may not be able to deduct such fees or expenses to any extent in computing such holder’s alternative minimum tax liability. In addition, some portion of a purchaser’s basis, if any, in a Residual Certificate may not be recovered until termination of the REMIC.

 

Due to the special tax treatment of residual interests, the effective after-tax return of the Residual Certificates may be significantly lower than would be the case if the Residual Certificates were taxed as debt instruments, or may be negative.

 

See “Certain Federal Income Tax Consequences” in the prospectus.

 

ERISA CONSIDERATIONS

 

The Residual Certificates may not be purchased by or transferred to a Plan or a person acting on behalf of or investing the assets of a Plan. See “Description of the Certificates — Restrictions on Transfer of the Residual Certificates” herein.

 

Accordingly, the following discussion applies to the Offered Certificates (other than the Residual Certificates) and does not purport to discuss the considerations under ERISA, Code Section 4975 or Similar Law with respect to the purchase, acquisition or resale of a Residual Certificate.

 

As described in the prospectus under “ERISA Considerations,” ERISA and the Code impose certain duties and restrictions on ERISA Plans and certain persons who perform services for ERISA Plans. Comparable duties and restrictions may exist under Similar Law on governmental plans and certain persons who perform services for governmental plans. For example, unless exempted, investment by a Plan in the Offered Certificates may constitute a prohibited transaction under ERISA, the Code or Similar Law. There are certain exemptions issued by the United States Department of Labor (the “DOL”) that may be applicable to an investment by an ERISA Plan in the Offered Certificates, including the individual administrative exemption described below. For a further discussion of the individual administrative exemption, including the necessary conditions to its applicability, and other important factors to be considered by an ERISA Plan contemplating investing in the Offered Certificates, see “ERISA Considerations” in the prospectus.

 

The DOL issued an Underwriter Exemption to Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”). This Underwriter Exemption might apply to the acquisition, holding and resale of the Offered Certificates by an ERISA Plan, provided that specified conditions are met.

 

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Among the conditions which would have to be satisfied for the Underwriter Exemption to apply to the acquisition by an ERISA Plan of the Offered Certificates is the condition that the ERISA Plan investing in the Offered Certificates be an “accredited investor” as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”).

 

Before purchasing an Offered Certificate, a fiduciary of an ERISA Plan should make its own determination as to the availability of the exemptive relief provided in the Underwriter Exemption or the availability of any other prohibited transaction exemptions, and whether the conditions of any such exemption will be applicable to the Offered Certificates, and a fiduciary of a governmental plan should make its own determination as to the need for and availability of any exemptive relief under Similar Law. Any fiduciary of an ERISA Plan considering whether to purchase an Offered Certificate should also carefully review with its own legal advisors the applicability of the fiduciary duty and prohibited transaction provisions of ERISA and the Code to such investment. See “ERISA Considerations” in the prospectus.

 

LEGAL INVESTMENT

 

The Class A and Class B-1 Certificates constitute “mortgage related securities” for purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended (“SMMEA”) so long as they are rated in one of the two highest rating categories by at least one nationally recognized statistical rating organization. The Class B-2 and Class B-3 Certificates will not constitute “mortgage related securities” under SMMEA.

 

Prospective purchasers whose investment activities are subject to legal investment laws and regulations, regulatory capital requirements or review by regulatory authorities may be subject to restrictions on investment in the Offered Certificates and should consult their own legal, tax and accounting advisors in determining the suitability of and consequences to them of the purchase, ownership and disposition of the Offered Certificates. See “Legal Investment” in the prospectus.

 

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SECONDARY MARKET

 

There will not be any market for the Offered Certificates prior to the issuance thereof. The Underwriter intends to act as a market maker in the Offered Certificates, subject to applicable provisions of federal and state securities laws and other regulatory requirements, but is under no obligation to do so. There can be no assurance that a secondary market in the Offered Certificates will develop or, if such a market does develop, that it will provide holders of Offered Certificates with liquidity of investment at any particular time or for the life of the Offered Certificates. As a source of information concerning the Certificates and the Mortgage Loans, prospective investors in Certificates may obtain copies of the Monthly Reports to Certificateholders described under “The Pooling and Servicing Agreement — Reports to Certificateholders” in the prospectus upon written request to the Trustee at the Corporate Trust Office.

 

UNDERWRITING

 

Subject to the terms and conditions of the underwriting agreement dated May 10, 2004 and the terms agreement dated June 8, 2005 (together, the “Underwriting Agreement”) among Wells Fargo Bank, the Seller and Merrill Lynch, as underwriter (the “Underwriter”), the Offered Certificates are being purchased from the Seller by the Underwriter upon issuance thereof. The Underwriter, which is not an affiliate of the Seller, is committed to purchase all of the Offered Certificates if any such Certificates are purchased. The Underwriter has advised the Seller that it proposes to offer the Offered Certificates, from time to time, for sale in negotiated transactions or otherwise at prices determined at the time of sale. Proceeds to the Seller from the sale of the Offered Certificates are expected to be approximately $998,108,157, plus accrued interest thereon from the Cut-Off Date to (but not including) the Closing Date before deducting expenses payable by the Seller estimated to be $340,000. The Underwriter has advised the Seller that it has not allocated the purchase price paid to the Seller for the Class A Certificates among such Classes. The Underwriter and any dealers that participate with the Underwriter in the distribution of the Offered Certificates may be deemed to be underwriters, and any discounts or commissions received by them and any profit on the resale of Offered Certificates by them may be deemed to be underwriting discounts or commissions, under the Securities Act.

 

The Underwriting Agreement provides that the Seller or Wells Fargo Bank will indemnify the Underwriter against certain civil liabilities under the Securities Act or contribute to payments which the Underwriter may be required to make in respect thereof.

 

This prospectus supplement and the prospectus may be used by Wells Fargo Brokerage Services, LLC, an affiliate of the Seller and Wells Fargo Bank, to the extent required, in connection with market making transactions in the Offered Certificates. Wells Fargo Brokerage Services, LLC may act as principal or agent in such transactions.

 

LEGAL MATTERS

 

The validity of the Offered Certificates and certain tax matters with respect thereto will be passed upon for the Seller by Cadwalader, Wickersham & Taft LLP, New York, New York. Certain legal matters will be passed upon for the Underwriter by Stroock & Stroock & Lavan LLP, New York, New York.

 

USE OF PROCEEDS

 

The net proceeds to be received from the sale of the Offered Certificates will be applied by the Seller to the purchase from Wells Fargo Bank of the Mortgage Loans underlying the Certificates.

 

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RATINGS

 

It is a condition to the issuance of the Offered Certificates that each such Class will have received at least the rating set forth in the table on page S-4 from Standard & Poor’s, a division of The McGraw-Hill Companies (“S&P”) and Moody’s Investors Service, Inc. (“Moody’s,” and together with S&P, the “Rating Agencies”). A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Each security rating should be evaluated independently of any other security rating.

 

The ratings of S&P on mortgage pass-through certificates address the likelihood of the receipt by certificateholders of timely payments of interest and the ultimate return of principal. S&P’s ratings take into consideration the credit quality of the mortgage pool, including any credit support providers, structural and legal aspects associated with the certificates, and the extent to which the payment stream on the mortgage pool is adequate to make payments required under the certificates. S&P’s ratings on such certificates do not, however, constitute a statement regarding frequency of prepayments on the mortgage loans. S&P’s ratings do not address the possibility that investors may suffer a lower than anticipated yield as a result of prepayments of the underlying mortgages. In addition, it should be noted that in some structures a default on a mortgage is treated as a prepayment and may have the same effect on yield as a prepayment.

 

The ratings of Moody’s on mortgage pass-through certificates address the likelihood of the receipt by certificateholders of all distributions of principal and interest to which such certificateholders are entitled. Moody’s rating opinions address the structural, legal and issuer aspects associated with the certificates, including the nature of the underlying mortgage loans and the credit quality of the credit support provider, if any. Moody’s ratings on mortgage pass-through certificates do not represent any assessment of the likelihood that principal prepayments may differ from those originally anticipated and consequently any adverse effect the timing of such prepayments could have on an investor’s anticipated yield.

 

The Seller has not requested a rating on the Offered Certificates of any Class by any rating agency other than S&P and Moody’s, although data with respect to the Mortgage Loans may have been provided to other rating agencies solely for their informational purposes. There can be no assurance that any rating assigned by any other rating agency to the Offered Certificates will be as high as those assigned by S&P and Moody’s.

 

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INDEX OF SIGNIFICANT

PROSPECTUS SUPPLEMENT DEFINITIONS

Term


   Page

Adjusted Pool Amount    S-19
Adjustment Date    S-27
Aggregate Principal Balance    S-19
Assumed Mortgage Loans    S-34
CBE    S-36
CDR    S-35
Certificate Account    S-40
Certificates    S-16
Class A Certificates    S-16
Class A Optimal Principal Amount    S-20
Class A Percentage    S-21
Class A Prepayment Percentage    S-21
Class A Principal Balance    S-19
Class A Principal Distribution Amount    S-20
Class B Certificates    S-16
Class B Optimal Principal Amount    S-20
Class B Percentage    S-22
Class B Prepayment Percentage    S-22
Class B Principal Balance    S-19
Class B Principal Distribution Amount    S-20
Class Percentage    S-21
Class Prepayment Percentage    S-21
CLTV    S-29
Code    S-24
Combined Loan-to-Value Ratio    S-29
CPR    S-34
Current Fractional Interest    S-23
Custodian    S-38
Delinquency and Loss Tests    S-21
DOL    S-41
ERISA    S-24
ERISA Plan    S-24
FICO Scores    S-29
Gross Margin    S-27
Index    S-28
Interest Accrual Amount    S-18
Interest Accrual Period    S-18
Interest Only Loans    S-27
Interest Shortfall Amount    S-20
Loss Severity Percentage    S-36
LPMI Policy    S-29
Master Servicer    S-38
Master Servicing Fee    S-38
Master Servicing Fee Rate    S-38
Merrill Lynch    S-41
Moody’s    S-44
Mortgage Loans    S-27
Mortgaged Properties    S-27

Term


   Page

Mortgages    S-27
Net Mortgage Interest Rate    S-19
Net WAC    S-19
Non-Supported Interest Shortfalls    S-19
Offered Certificates    S-16
One-Year CMT    S-28
Original Class B Principal Balance    S-22
Original Fractional Interest    S-23
Other Servicers    S-38
Pass-Through Rate    S-18
Percentage Interest    S-18
Periodic Advance    S-24
Periodic Cap    S-27
Plan    S-24
Pool Balance    S-21
Pool Distribution Amount    S-16
Pool Distribution Amount Allocation    S-17
Pooling and Servicing Agreement    S-37
Principal Balance    S-18
PUDs    S-29
Rate Ceiling    S-27
Rating Agencies    S-44
Record Date    S-16
Regular Certificates    S-40
Relief Act Shortfalls    S-20
Residual Certificates    S-40
S&P    S-44
Securities Act    S-42
Seller    S-27
Servicers    S-38
Servicing Fee Rate    S-39
Similar Law    S-24
SMMEA    S-42
Structuring Assumptions    S-34
Subordinated Certificates    S-16
Subordinated Percentage    S-22
Subordinated Prepayment Percentage    S-22
Subordination Depletion Date    S-25
Trust    S-16
Trustee    S-38
Underlying Servicing Agreement    S-38
Underwriter    S-43
Underwriting Agreement    S-43
Underwriting Standards    S-30
Weighted Average Life    S-34
Wells Fargo Bank    S-37

 

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APPENDIX A

 

SELECTED MORTGAGE LOAN DATA

(as of the Cut-Off Date)

 

    

All

Mortgage Loans


Number of Mortgage Loans

   1,936

Aggregate Unpaid Principal Balance

   $1,000,007,822

Range of Unpaid Principal Balances

   $19,267 to $3,000,000

Average Unpaid Principal Balance

   $516,533

Range of Current Mortgage Interest Rates

   4.625% to 6.375%

Weighted Average Current Mortgage Interest Rate

   5.655%

Weighted Average Current Net Mortgage Interest Rate

   5.395%

Range of Remaining Terms to Stated Maturity

   239 to 360 Months

Weighted Average Remaining Term to Stated Maturity

   359 Months

Range of Original Loan-to-Value Ratios

   11.11% to 95.00%

Weighted Average Original Loan-to-Value Ratio

   68.82%

Range of Original Combined Loan-to-Value Ratios

   11.11% to 100.00%

Weighted Average Original Combined Loan-to-Value Ratio

   74.86%

Number of Mortgage Loans with Original Loan-to-Value Ratios
greater than 80% not covered by Primary Mortgage Insurance

   0

Mortgage Loans with Original Loan-to-Value Ratios greater than 80% not covered by Primary Mortgage Insurance as a Percentage of Aggregate Unpaid Principal Balance

   0.00%

Number of Mortgage Loans covered by an LPMI Policy

   2

Mortgage Loans covered by an LPMI Policy as a Percentage of Aggregate Unpaid Principal Balance

   0.07%

Number of Interest Only Loans

   1,499

Interest Only Loans as a Percentage of Aggregate Unpaid Principal Balance

   76.64%

Range of Remaining Interest Only Terms for Interest Only Mortgage Loans

   59 to 179 Months

Weighted Average Remaining Interest Only Term for Interest Only Mortgage Loans

   119 Months

Weighted Average Original Loan-to-Value Ratio of Mortgage Loans with Original Principal Balances greater than $600,000

   66.64%

Maximum Original Loan-to-Value Ratio of Mortgage Loans with Original Principal Balances greater than $600,000

   80.00%

Geographic Concentration of Mortgaged Properties Securing Mortgage Loans in
Excess of 5% of the Aggregate Unpaid Principal Balance

    

California

   43.38%

New York

   7.70%

Virginia

   5.73%

Florida

   5.56%
Maximum Five-Digit Zip Code Concentration    0.79%

Earliest Origination Month

   July 2004

Latest Origination Month

   June 2005
Latest Stated Maturity Date    July 1, 2035

Number of Buy-Down Loans

   4

Buy-Down Loans as a Percentage of Aggregate Unpaid Principal Balance

   0.20%

Range of Gross Margins

   2.750% to 2.750%

Weighted Average Gross Margin

   2.750%

Range of Rate Ceilings

   9.625% to 11.375%

Weighted Average Rate Ceiling

   10.655%

Range of Months to First Adjustment Date

   109 to 120 Months

Weighted Average Months to First Adjustment Date

   119 Months

Number of Relocation Mortgage Loans

   66

Relocation Mortgage Loans as a Percentage of Aggregate Unpaid Principal Balance

   3.57%

Number of Subsidy Loans

   7

Subsidy Loans as a Percentage of Aggregate Unpaid Principal Balance

   0.44%

Number of Home Asset ManagementSM Account Loans

   102

Home Asset ManagementSM Account Loans as a Percentage of Aggregate Unpaid Principal Balance

   3.34%

Number of LOC Pledged Asset Mortgage Loans

   0

LOC Pledged Asset Mortgage Loans as a Percentage of Aggregate Unpaid Principal Balance

   0.00%

Weighted Average FICO Score(1)

   747
 
  (1) Does not include the Mortgage Loans for which FICO Scores are not available.

 

 

A-1


Table of Contents

APPENDIX A (Continued)

 

MORTGAGE LOAN DATA

 

CURRENT MORTGAGE INTEREST RATES

 

Range of
Current Mortgage
Interest Rates


  Number

 

Aggregate
Unpaid

Principal

Balance


  Percentage
of Total
Aggregate
Unpaid
Principal
Balance


 

4.500% to 4.749%

  3   $ 1,086,768.64   0.11 %

4.750% to 4.999%

  15     6,755,133.10   0.68  

5.000% to 5.249%

  50     29,231,571.93   2.92  

5.250% to 5.499%

  236     134,925,261.08   13.49  

5.500% to 5.749%

  615     347,485,688.53   34.75  

5.750% to 5.999%

  784     385,162,222.66   38.52  

6.000% to 6.249%

  214     88,241,565.16   8.82  

6.250% to 6.375%

  19     7,119,611.32   0.71  
   
 

 

Total

  1,936   $ 1,000,007,822.42   100.00 %
   
 

 

 

DOCUMENTATION LEVELS

 

Documentation Level


  Number

 

Aggregate

Unpaid

Principal

Balance


  Percentage
of Total
Aggregate
Unpaid
Principal
Balance


 

Full Documentation

  832   $ 478,816,838.21   47.88 %

Income Verification

  27     13,250,796.00   1.33  

Asset Verification

  939     451,733,758.01   45.17  

No Documentation

  138     56,206,430.20   5.62  
   
 

 

Total

  1,936   $ 1,000,007,822.42   100.00 %
   
 

 

REMAINING TERMS TO STATED

MATURITY

 

Remaining Stated
Term (Months)


   Number

   Aggregate
Unpaid
Principal
Balance


   Percentage
of Total
Aggregate
Unpaid
Principal
Balance


 

239

   2    $ 1,169,636.56    0.12 %

349

   1      784,440.89    0.08  

353

   1      55,574.97    0.01  

354

   4      1,626,780.16    0.16  

355

   3      2,373,882.33    0.24  

356

   22      11,918,468.85    1.19  

357

   43      28,060,131.04    2.81  

358

   297      162,377,762.78    16.24  

359

   1,544      776,560,767.84    77.66  

360

   19      15,080,377.00    1.51  
    
  

  

Total

   1,936    $ 1,000,007,822.42    100.00 %
    
  

  

 

YEARS OF ORIGINATION

 

Year of Origination


   Number

   Aggregate
Unpaid
Principal
Balance


   Percentage
of Total
Aggregate
Unpaid
Principal
Balance


 

2004.

   6    $ 2,466,796.02    0.25 %

2005.

   1,930      997,541,026.40    99.75  
    
  

  

Total

   1,936    $ 1,000,007,822.42    100.00 %
    
  

  

 

A-2


Table of Contents

APPENDIX A (Continued)

 

MORTGAGE LOAN DATA

 

PROPERTY TYPES

 

Property Type


  Number

 

Aggregate

Unpaid

Principal

Balance


  Percentage
of Total
Aggregate
Unpaid
Principal
Balance


 

Single-family dwellings

  1,627   $ 842,665,310.99   84.27 %

Two-to four-family units

  21     10,860,742.21   1.09  

Condominiums

               

High-rise (greater than four stories)

  77     47,921,496.70   4.79  

Low-rise (four stories or less)

  189     83,628,216.97   8.36  

Cooperative Units

  22     14,932,055.55   1.49  

Manufactured Homes

  0     0.00   0.00  
   
 

 

Total

  1,936   $ 1,000,007,822.42   100.00 %
   
 

 

GEOGRAPHIC AREAS

 

Geographic Area


  Number

 

Aggregate
Unpaid

Principal
Balance


  Percentage
of Total
Aggregate
Unpaid
Principal
Balance


 

Alabama

  5   $ 1,278,790.04   0.13 %

Alaska

  2     570,000.00   0.06  

Arizona

  38     13,484,212.96   1.35  

Arkansas

  3     609,985.00   0.06  

California

  729     433,845,637.77   43.38  

Colorado

  62     29,908,874.80   2.99  

Connecticut

  25     16,884,798.24   1.69  

Delaware

  12     5,107,657.88   0.51  

District of Columbia

  24     12,666,951.80   1.27  

Florida

  108     55,594,166.93   5.56  

Georgia

  45     14,392,454.86   1.44  

Hawaii

  12     4,943,585.28   0.49  

Idaho

  7     4,251,502.01   0.43  

Illinois

  60     29,182,143.91   2.92  

Indiana

  6     2,628,032.37   0.26  

Iowa

  4     1,260,924.03   0.13  

Kansas

  5     2,338,156.27   0.23  

Louisiana

  2     837,032.26   0.08  

Maine

  5     2,554,084.48   0.26  

Maryland

  79     34,937,827.26   3.49  

Massachusetts

  38     19,719,398.22   1.97  

Michigan

  17     6,346,254.54   0.63  

Minnesota

  38     16,365,188.74   1.64  

Missouri

  18     7,554,387.21   0.76  

Montana

  1     405,150.19   0.04  

Nebraska

  7     3,044,959.69   0.30  

Nevada

  26     11,772,618.44   1.18  

New Hampshire

  5     2,040,071.98   0.20  

New Jersey

  84     43,589,310.97   4.36  

New Mexico .

  3     926,200.00   0.09  

New York

  125     76,992,992.12   7.70  

North Carolina

  36     13,178,979.32   1.32  

Ohio

  20     5,922,207.76   0.59  

Oklahoma

  1     352,000.00   0.04  

Oregon

  17     4,549,432.26   0.45  

Pennsylvania

  34     14,802,159.62   1.48  

Rhode Island

  2     1,104,000.00   0.11  

South Carolina

  11     5,927,067.09   0.59  

South Dakota

  2     835,600.00   0.08  

Tennessee

  2     1,014,475.00   0.10  

Texas

  19     10,056,816.29   1.01  

Utah

  6     4,068,558.28   0.41  

Vermont

  1     422,000.00   0.04  

Virginia

  126     57,344,350.78   5.73  

Washington

  53     19,960,500.81   2.00  

West Virginia

  1     124,960.16   0.01  

Wisconsin

  10     4,311,364.80   0.43  
   
 

 

Total

  1,936   $ 1,000,007,822.42   100.00 %
   
 

 

ORIGINAL LOAN-TO-VALUE RATIOS

 

Range of
Original
Loan-to-Value
Ratios


  Number

 

Aggregate

Unpaid

Principal
Balance


  Percentage
of Total
Aggregate
Unpaid
Principal
Balance


 

50% or less

  202   $ 100,383,053.01   10.04 %

50.01% to 55.00%

  77     49,672,538.55   4.97  

55.01% to 60.00%

  125     77,753,807.78   7.78  

60.01% to 65.00%

  151     94,772,568.48   9.48  

65.01% to 70.00%

  208     133,130,435.20   13.31  

70.01% to 75.00%

  230     135,293,515.72   13.53  

75.01% to 80.00%

  917     401,775,211.12   40.18  

80.01% to 85.00%

  2     445,000.00   0.04  

85.01% to 90.00%

  10     2,771,865.91   0.28  

90.01% to 95.00%

  14     4,009,826.65   0.40  
   
 

 

Total

  1,936   $ 1,000,007,822.42   100.00 %
   
 

 

FICO SCORES

Range of

FICO Scores


  Number

 

Aggregate

Unpaid

Principal

Balance


  Percentage
of Total
Aggregate
Unpaid
Principal
Balance


   

Weighted
Average
Original
Loan-to-

Value
Ratio


 

300 to 350

  0   $ 0.00   0.00 %   0.00 %

351 to 400

  0     0.00   0.00     0.00  

401 to 450

  0     0.00   0.00     0.00  

451 to 500

  0     0.00   0.00     0.00  

501 to 550

  0     0.00   0.00     0.00  

551 to 600

  0     0.00   0.00     0.00  

601 to 650

  20     9,705,295.67   0.97     75.38  

651 to 700

  309     148,854,027.48   14.89     70.43  

701 to 750

  584     310,321,989.86   31.03     69.01  

751 to 800

  885     473,126,194.63   47.31     68.48  

801 to 850

  138     58,000,314.78   5.80     65.41  

Not Available

  0     0.00   0.00     0.00  
   
 

 

 

Total/Weighted Average

  1,936   $ 1,000,007,822.42   100.00 %   68.82 %
   
 

 

 

 

ORIGINAL PRINCIPAL BALANCES

 

Range of Original
Principal Balances


  Number

 

Aggregate
Unpaid

Principal

Balance


  Percentage
of Total
Aggregate
Unpaid
Principal
Balance


 

Less than or equal to $50,000

  1   $ 40,000.00   0.00 %

$50,001 to $100,000

  17     1,470,122.75   0.15  

$100,001 to $150,000

  53     6,893,187.18   0.69  

$150,001 to $200,000

  94     16,518,840.80   1.65  

$200,001 to $250,000

  102     23,030,193.77   2.30  

$250,001 to $300,000

  105     29,094,829.50   2.91  

$300,001 to $350,000

  96     31,435,781.13   3.14  

$350,001 to $400,000

  236     89,081,175.56   8.91  

$400,001 to $450,000

  240     102,141,943.82   10.21  

$450,001 to $500,000

  192     92,097,191.24   9.21  

$500,001 to $550,000

  171     89,957,264.16   9.00  

$550,001 to $600,000

  114     66,043,015.21   6.60  

$600,001 to $650,000

  108     67,075,449.45   6.71  

$650,001 to $700,000

  61     40,911,144.56   4.09  

$700,001 to $750,000

  51     36,815,140.33   3.68  

$750,001 to $800,000

  54     42,057,301.82   4.21  

$800,001 to $850,000

  36     29,936,327.01   2.99  

$850,001 to $900,000

  29     25,553,326.36   2.56  

$900,001 to $950,000

  24     22,328,980.55   2.23  

$950,001 to $1,000,000

  85     84,634,002.96   8.46  

$1,000,001 to $1,500,000

  42     54,301,931.96   5.43  

$1,500,001 to $2,000,000

  20     35,472,472.30   3.55  

$2,000,001 to $2,500,000

  2     4,528,200.00   0.45  

$2,500,001 to $3,000,000

  3     8,590,000.00   0.86  
   
 

 

Total

  1,936   $ 1,000,007,822.42   100.00 %
   
 

 

 

A-3


Table of Contents

APPENDIX A (Continued)

 

MORTGAGE LOAN DATA

 

 

ORIGINATORS

Originator


  Number

 

Aggregate

Unpaid

Principal

Balance


  Percentage
of Total
Aggregate
Unpaid
Principal
Balance


 

Wells Fargo Bank or Affiliate

  1,855   $ 959,503,704.06   95.95 %

Other Originators

  81     40,504,118.36   4.05  
   
 

 

Total

  1,936   $ 1,000,007,822.42   100.00 %
   
 

 

 

PURPOSES

Purpose


  Number

 

Aggregate

Unpaid

Principal

Balance


  Percentage
of Total
Aggregate
Unpaid
Principal
Balance


 

Purchase

  1,162   $ 601,383,570.12   60.14 %

Equity Take Out Refinance

  467     230,540,845.91   23.05  

Rate/Term Refinance

  307     168,083,406.39   16.81  
   
 

 

Total

  1,936   $ 1,000,007,822.42   100.00 %
   
 

 

 

OCCUPANCY TYPES

Occupancy Type


  Number

 

Aggregate

Unpaid

Principal

Balance


  Percentage
of Total
Aggregate
Unpaid
Principal
Balance


 

Investment Property

  0   $ 0.00   0.00 %

Primary Residence

  1,741     895,997,586.49   89.60  

Second Home

  195     104,010,235.93   10.40  
   
 

 

Total

  1,936   $ 1,000,007,822.42   100.00 %
   
 

 

 

GROSS MARGINS

Range of
Gross Margins


  Number

 

Aggregate

Unpaid

Principal

Balance


  Percentage
of Total
Aggregate
Unpaid
Principal
Balance


 

2.750% to 2.750%

  1,936   $ 1,000,007,822.42   100.00 %
   
 

 

Total

  1,936   $ 1,000,007,822.42   100.00 %
   
 

 

 

MONTHS TO FIRST ADJUSTMENT DATE

Months to First

Adjustment Date


  Number

 

Aggregate

Unpaid

Principal

Balance


  Percentage
of Total
Aggregate
Unpaid
Principal
Balance


 

109

  1   $ 784,440.89   0.08 %

113

  1     55,574.97   0.01  

114

  4     1,626,780.16   0.16  

115

  3     2,373,882.33   0.24  

116

  22     11,918,468.85   1.19  

117

  43     28,060,131.04   2.81  

118

  297     162,377,762.78   16.24  

119

  1,546     777,730,404.40   77.77  

120

  19     15,080,377.00   1.51  
   
 

 

Total

  1,936   $ 1,000,007,822.42   100.00 %
   
 

 

RATE CEILINGS

Range of
Rate Ceilings


  Number

 

Aggregate

Unpaid

Principal

Balance


  Percentage
of Total
Aggregate
Unpaid
Principal
Balance


 

9.500% to 9.749%

  3   $ 1,086,768.64   0.11 %

9.750% to 9.999%

  15     6,755,133.10   0.68  

10.000% to 10.249%

  50     29,231,571.93   2.92  

10.250% to 10.499%

  236     134,925,261.08   13.49  

10.500% to 10.749%

  615     347,485,688.53   34.75  

10.750% to 10.999%

  784     385,162,222.66   38.52  

11.000% to 11.249%

  214     88,241,565.16   8.82  

11.250% to 11.375%

  19     7,119,611.32   0.71  
   
 

 

Total

  1,936   $ 1,000,007,822.42   100.00 %
   
 

 

 

ORIGINAL COMBINED

LOAN-TO-VALUE RATIOS

Range of
Original Combined

Loan-to-Value Ratios


  Number

 

Aggregate

Unpaid

Principal

Balance


  Percentage
of Total
Aggregate
Unpaid
Principal
Balance


 

50% or less

  153   $ 72,834,229.61   7.28 %

50.01% to 55.00%

  65     38,496,775.06   3.85  

55.01% to 60.00%

  91     49,461,762.33   4.95  

60.01% to 65.00%

  125     74,215,603.09   7.42  

65.01% to 70.00%

  172     105,670,804.66   10.57  

70.01% to 75.00%

  221     134,031,311.84   13.40  

75.01% to 80.00%

  444     217,303,070.51   21.73  

80.01% to 85.00%

  60     43,353,591.90   4.34  

85.01% to 90.00%

  278     141,302,367.11   14.13  

90.01% to 95.00%

  230     93,722,524.75   9.37  

95.01% to 100.00%

  97     29,615,781.56   2.96  
   
 

 

Total

  1,936   $ 1,000,007,822.42   100.00 %
   
 

 

 

REMAINING INTEREST ONLY TERMS

Remaining
Interest Only Term
(Months)


  Number

 

Aggregate

Unpaid

Principal

Balance


  Percentage
of Total
Aggregate
Unpaid
Principal
Balance


 
0   437   $ 233,583,731.62   23.36 %
59   2     764,000.00   0.08  
116   13     7,394,263.78   0.74  
117   30     20,488,230.62   2.05  
118   229     129,124,503.36   12.91  
119   1,217     599,236,831.04   59.92  
120   7     8,882,262.00   0.89  
179   1     534,000.00   0.05  
   
 

 

Total

  1,936   $ 1,000,007,822.42   100.00 %
   
 

 

 

A-4


Table of Contents

APPENDIX B

 

Percentage of Initial Principal Balance Outstanding For:

 

    

Class A-1 and Class A-6

Certificates at the
Following Percentages of
CPR


  

Class A-2

Certificates at the
Following Percentages of
CPR


Distribution Date


   0%

   10%

   25%

   35%

   50%

   60%

   75%

   0%

   10%

   25%

   35%

   50%

   60%

   75%

Initial

   100    100    100    100    100    100    100    100    100    100    100    100    100    100

July 2006

   100    89    74    64    48    38    23    100    83    59    42    18    2    0

July 2007

   99    80    54    40    23    14    5    99    68    28    5    0    0    0

July 2008

   99    71    40    25    11    5    1    98    54    5    0    0    0    0

July 2009

   99    63    30    16    5    2    *    98    42    0    0    0    0    0

July 2010

   98    57    22    11    3    1    *    97    31    0    0    0    0    0

July 2011

   98    50    17    7    1    *    *    97    21    0    0    0    0    0

July 2012

   97    45    12    4    1    *    *    96    13    0    0    0    0    0

July 2013

   97    40    9    3    *    *    *    95    5    0    0    0    0    0

July 2014

   96    36    7    2    *    *    *    94    0    0    0    0    0    0

July 2015

   96    32    5    1    *    *    *    93    0    0    0    0    0    0

July 2016

   93    28    4    1    *    *    *    89    0    0    0    0    0    0

July 2017

   91    25    3    *    *    *    *    85    0    0    0    0    0    0

July 2018

   88    21    2    *    *    *    *    81    0    0    0    0    0    0

July 2019

   85    19    1    *    *    *    *    76    0    0    0    0    0    0

July 2020

   82    16    1    *    *    *    *    71    0    0    0    0    0    0

July 2021

   78    14    1    *    *    *    *    65    0    0    0    0    0    0

July 2022

   74    12    1    *    *    *    *    60    0    0    0    0    0    0

July 2023

   71    10    *    *    *    *    0    53    0    0    0    0    0    0

July 2024

   66    9    *    *    *    *    0    47    0    0    0    0    0    0

July 2025

   62    7    *    *    *    *    0    40    0    0    0    0    0    0

July 2026

   57    6    *    *    *    *    0    33    0    0    0    0    0    0

July 2027

   52    5    *    *    *    *    0    25    0    0    0    0    0    0

July 2028

   47    4    *    *    *    *    0    16    0    0    0    0    0    0

July 2029

   42    3    *    *    *    *    0    7    0    0    0    0    0    0

July 2030

   36    2    *    *    *    *    0    0    0    0    0    0    0    0

July 2031

   29    2    *    *    *    0    0    0    0    0    0    0    0    0

July 2032

   22    1    *    *    *    0    0    0    0    0    0    0    0    0

July 2033

   15    1    *    *    *    0    0    0    0    0    0    0    0    0

July 2034

   7    *    *    *    *    0    0    0    0    0    0    0    0    0

July 2035

   0    0    0    0    0    0    0    0    0    0    0    0    0    0

Weighted Average
Life (years)(1)

   21.33    8.05    3.38    2.28    1.43    1.09    0.74    17.70    3.72    1.43    0.98    0.63    0.49    0.35
    

Class A-3

Certificates at the

Following Percentages of

CPR


  

Class A-4

Certificates at the

Following Percentages of

CPR


Distribution Date


   0%

   10%

   25%

   35%

   50%

   60%

   75%

   0%

   10%

   25%

   35%

   50%

   60%

   75%

Initial

   100    100    100    100    100    100    100    100    100    100    100    100    100    100

July 2006

   100    100    100    100    100    100    0    100    100    100    100    100    100    96

July 2007

   100    100    100    100    0    0    0    100    100    100    100    96    48    0

July 2008

   100    100    100    12    0    0    0    100    100    100    100    30    0    0

July 2009

   100    100    46    0    0    0    0    100    100    100    60    *    0    0

July 2010

   100    100    0    0    0    0    0    100    100    92    28    0    0    0

July 2011

   100    100    0    0    0    0    0    100    100    61    8    0    0    0

July 2012

   100    100    0    0    0    0    0    100    100    38    0    0    0    0

July 2013

   100    100    0    0    0    0    0    100    100    21    0    0    0    0

July 2014

   100    93    0    0    0    0    0    100    100    8    0    0    0    0

July 2015

   100    64    0    0    0    0    0    100    100    0    0    0    0    0

July 2016

   100    33    0    0    0    0    0    100    100    0    0    0    0    0

July 2017

   100    6    0    0    0    0    0    100    100    0    0    0    0    0

July 2018

   100    0    0    0    0    0    0    100    87    0    0    0    0    0

July 2019

   100    0    0    0    0    0    0    100    72    0    0    0    0    0

July 2020

   100    0    0    0    0    0    0    100    58    0    0    0    0    0

July 2021

   100    0    0    0    0    0    0    100    46    0    0    0    0    0

July 2022

   100    0    0    0    0    0    0    100    35    0    0    0    0    0

July 2023

   100    0    0    0    0    0    0    100    26    0    0    0    0    0

July 2024

   100    0    0    0    0    0    0    100    17    0    0    0    0    0

July 2025

   100    0    0    0    0    0    0    100    10    0    0    0    0    0

July 2026

   100    0    0    0    0    0    0    100    3    0    0    0    0    0

July 2027

   100    0    0    0    0    0    0    100    0    0    0    0    0    0

July 2028

   100    0    0    0    0    0    0    100    0    0    0    0    0    0

July 2029

   100    0    0    0    0    0    0    100    0    0    0    0    0    0

July 2030

   89    0    0    0    0    0    0    100    0    0    0    0    0    0

July 2031

   40    0    0    0    0    0    0    100    0    0    0    0    0    0

July 2032

   0    0    0    0    0    0    0    92    0    0    0    0    0    0

July 2033

   0    0    0    0    0    0    0    52    0    0    0    0    0    0

July 2034

   0    0    0    0    0    0    0    11    0    0    0    0    0    0

July 2035

   0    0    0    0    0    0    0    0    0    0    0    0    0    0

Weighted Average
Life (years)(1)

   25.86    10.52    4.03    2.69    1.70    1.30    0.88    28.10    16.12    6.76    4.51    2.78    2.11    1.41

(1) The Weighted Average Life of an Offered Certificate is determined by (i) multiplying the amount of net reduction of Principal Balance by the number of years from the date of the issuance of such Certificate to the related Distribution Date, (ii) adding the results and (iii) dividing the sum by the aggregate net reduction of Principal Balance referred to in clause (i).
*   Indicates a percentage greater than zero but less than 0.5% of the initial Principal Balance of such Class.

 

B-1


Table of Contents

APPENDIX B (Continued)

 

Percentage of Initial Principal Balance Outstanding For:

 

    

Class A-5

Certificates at the
Following Percentages of
CPR


  

Class A-R

Certificates at the
Following Percentages of
CPR


Distribution Date


   0%

   10%

   15%

   25%

   35%

   50%

   60%

   75%

   0%

   10%

   25%

   35%

   50%

   60%

   75%

Initial

   100    100    100    100    100    100    100    100    100    100    100    100    100    100    100

July 2006

   100    100    100    100    100    100    100    100    0    0    0    0    0    0    0

July 2007

   100    100    100    100    100    100    100    93    0    0    0    0    0    0    0

July 2008

   100    100    100    100    100    100    96    17    0    0    0    0    0    0    0

July 2009

   100    100    100    100    100    100    38    4    0    0    0    0    0    0    0

July 2010

   100    100    100    100    100    50    15    1    0    0    0    0    0    0    0

July 2011

   100    100    100    100    100    25    6    *    0    0    0    0    0    0    0

July 2012

   100    100    100    100    82    12    2    *    0    0    0    0    0    0    0

July 2013

   100    100    100    100    53    6    1    *    0    0    0    0    0    0    0

July 2014

   100    100    100    100    34    3    *    *    0    0    0    0    0    0    0

July 2015

   100    100    100    95    22    2    *    *    0    0    0    0    0    0    0

July 2016

   100    100    100    69    14    1    *    *    0    0    0    0    0    0    0

July 2017

   100    100    100    51    9    *    *    *    0    0    0    0    0    0    0

July 2018

   100    100    100    37    6    *    *    *    0    0    0    0    0    0    0

July 2019

   100    100    100    27    4    *    *    *    0    0    0    0    0    0    0

July 2020

   100    100    100    19    2    *    *    *    0    0    0    0    0    0    0

July 2021

   100    100    100    14    1    *    *    *    0    0    0    0    0    0    0

July 2022

   100    100    83    10    1    *    *    *    0    0    0    0    0    0    0

July 2023

   100    100    67    7    1    *    *    0    0    0    0    0    0    0    0

July 2024

   100    100    54    5    *    *    *    0    0    0    0    0    0    0    0

July 2025

   100    100    43    3    *    *    *    0    0    0    0    0    0    0    0

July 2026

   100    100    34    2    *    *    *    0    0    0    0    0    0    0    0

July 2027

   100    92    26    2    *    *    *    0    0    0    0    0    0    0    0

July 2028

   100    74    20    1    *    *    *    0    0    0    0    0    0    0    0

July 2029

   100    59    15    1    *    *    *    0    0    0    0    0    0    0    0

July 2030

   100    45    11    *    *    *    *    0    0    0    0    0    0    0    0

July 2031

   100    33    8    *    *    *    0    0    0    0    0    0    0    0    0

July 2032

   100    23    5    *    *    *    0    0    0    0    0    0    0    0    0

July 2033

   100    14    3    *    *    *    0    0    0    0    0    0    0    0    0

July 2034

   100    6    1    *    *    *    0    0    0    0    0    0    0    0    0

July 2035

   0    0    0    0    0    0    0    0    0    0    0    0    0    0    0

Weighted Average
Life (years)(1)

   29.64    25.03    20.24    12.99    8.88    5.50    4.10    2.63    0.10    0.10    0.10    0.10    0.10    0.10    0.10

 

    

Class B-1, Class B-2 and Class B-3

Certificates at the

Following Percentages of

CPR


Distribution Date


   0%

   10%

   25%

   35%

   50%

   60%

   75%

Initial

   100    100    100    100    100    100    100

July 2006

   100    100    100    100    100    92    75

July 2007

   99    99    99    93    73    59    38

July 2008

   99    99    91    74    51    37    19

July 2009

   99    99    68    48    26    15    5

July 2010

   98    98    51    31    13    6    1

July 2011

   98    98    38    20    6    2    *

July 2012

   97    93    28    13    3    1    *

July 2013

   97    83    21    8    2    *    *

July 2014

   96    75    16    5    1    *    *

July 2015

   96    67    12    4    *    *    *

July 2016

   93    59    9    2    *    *    *

July 2017

   91    51    6    1    *    *    *

July 2018

   88    45    5    1    *    *    *

July 2019

   85    39    3    1    *    *    *

July 2020

   82    34    2    *    *    *    *

July 2021

   78    29    2    *    *    *    *

July 2022

   74    25    1    *    *    *    *

July 2023

   71    21    1    *    *    *    0

July 2024

   66    18    1    *    *    *    0

July 2025

   62    15    *    *    *    *    0

July 2026

   57    13    *    *    *    *    0

July 2027

   52    10    *    *    *    *    0

July 2028

   47    8    *    *    *    *    0

July 2029

   42    7    *    *    *    *    0

July 2030

   36    5    *    *    *    *    0

July 2031

   29    4    *    *    *    0    0

July 2032

   22    3    *    *    *    0    0

July 2033

   15    2    *    *    *    0    0

July 2034

   7    1    *    *    *    0    0

July 2035

   0    0    0    0    0    0    0

Weighted Average
Life (years)(1)

   21.33    13.54    6.10    4.58    3.28    2.67    1.97

(1) The Weighted Average Life of an Offered Certificate is determined by (i) multiplying the amount of net reduction of Principal Balance by the number of years from the date of the issuance of such Certificate to the related Distribution Date, (ii) adding the results and (iii) dividing the sum by the aggregate net reduction of Principal Balance referred to in clause (i).
*   Indicates a percentage greater than zero but less than 0.5% of the initial Principal Balance of such Class.

 

B-2


Table of Contents

APPENDIX C

 

Sensitivity of Pre-Tax Yields to Maturity of the Class B-2

Certificates to Prepayments and Realized Losses at an Assumed Purchase Price of 99.7430% of the

Initial Principal Balance (plus Accrued Interest)

 

Percentage
of CDR        


   Loss
Severity
Percentage


   Percentages of CPR

      0%

   10%

   25%

   35%

   50%

   60%

   75%

0.0%

   N/A    5.68%    5.57%    5.46%    5.44%    5.42%    5.41%    5.40%

0.3%

   15%    5.68%    5.58%    5.46%    5.44%    5.42%    5.41%    5.40%

0.3%

   25%    4.63%    5.58%    5.46%    5.44%    5.42%    5.41%    5.40%

0.6%

   15%    3.54%    5.58%    5.46%    5.44%    5.42%    5.41%    5.40%

0.6%

   25%    (3.86)%    5.58%    5.46%    5.44%    5.42%    5.41%    5.40%

0.9%

   15%    (1.35)%    5.58%    5.46%    5.44%    5.42%    5.41%    5.40%

0.9%

   25%    (15.38)%    2.78%    5.46%    5.43%    5.42%    5.41%    5.40%

1.2%

   15%    (7.67)%    5.22%    5.46%    5.43%    5.42%    5.41%    5.40%

1.2%

   25%    (26.44)%    (7.03)%    5.46%    5.43%    5.42%    5.41%    5.40%

                                  

**     The pre-tax yield to maturity will be less than (99.99)%

              
Sensitivity of Pre-Tax Yields to Maturity of the Class B-3

Certificates to Prepayments and Realized Losses at an Assumed Purchase Price of 97.2117% of the

Initial Principal Balance (plus Accrued Interest)

 

Percentage
of CDR        


   Loss
Severity
Percentage


   Percentages of CPR

      0%

   10%

   25%

   35%

   50%

   60%

   75%

0.0%

   N/A    5.90%    5.86%    5.99%    6.10%    6.32%    6.49%    6.84%

0.3%

   15%    5.05%    5.86%    5.99%    6.11%    6.32%    6.49%    6.84%

0.3%

   25%    0.10%    5.86%    5.98%    6.11%    6.32%    6.49%    6.84%

0.6%

   15%    (2.83)%    5.86%    5.98%    6.11%    6.32%    6.50%    6.84%

0.6%

   25%    (17.90)%    1.36%    5.98%    6.10%    6.32%    6.50%    6.84%

0.9%

   15%    (13.88)%    3.57%    5.99%    6.10%    6.33%    6.50%    6.84%

0.9%

   25%    (36.13)%    (18.70)%    5.98%    6.11%    6.32%    6.50%    6.84%

1.2%

   15%    (24.52)%    (5.00)%    5.98%    6.11%    6.33%    6.51%    6.84%

1.2%

   25%    (54.28)%    (37.82)%    1.11%    6.11%    6.33%    6.50%    6.85%

                                  

**     The pre-tax yield to maturity will be less than (99.99)%

         

The following table sets forth the amount of Realized Losses that would be incurred with respect to the Mortgage Loans under the assumptions used to generate the pre-tax yields to maturity in the preceding tables, expressed as a percentage of the aggregate outstanding principal balance of the Mortgage Loans as of the Cut-Off Date.

Aggregate Realized Losses

 

Percentage
of CDR        


   Loss
Severity
Percentage


   Percentages of CPR

      0%

   10%

   25%

   35%

   50%

   60%

   75%

0.3%

   15%    0.93%    0.36%    0.15%    0.10%    0.07%    0.05%    0.03%

0.3%

   25%    1.55%    0.61%    0.26%    0.17%    0.11%    0.08%    0.06%

0.6%

   15%    1.80%    0.71%    0.31%    0.21%    0.13%    0.10%    0.07%

0.6%

   25%    2.99%    1.19%    0.51%    0.35%    0.22%    0.17%    0.11%

0.9%

   15%    2.61%    1.05%    0.45%    0.31%    0.20%    0.15%    0.10%

0.9%

   25%    4.35%    1.75%    0.76%    0.52%    0.33%    0.25%    0.17%

1.2%

   15%    3.37%    1.37%    0.60%    0.41%    0.26%    0.20%    0.14%

1.2%

   25%    5.61%    2.29%    1.00%    0.69%    0.44%    0.34%    0.23%

 

C-1


Table of Contents

 

PROSPECTUS

 

Wells Fargo Asset Securities Corporation

Seller

 

Mortgage Pass-Through Certificates

(Issuable in Series by separate Trusts)

 

 


 

 

 

You should carefully consider the risk factors beginning on page 9 of this prospectus.

 

Neither the certificates of any series nor the related underlying mortgage loans will be insured or guaranteed by any governmental agency or instrumentality.

 

The certificates of each series will represent interests in the related trust only and will not represent interests in or obligations of the seller or any affiliate of the seller.

 

This prospectus may be used to offer and sell any series of certificates only if accompanied by the prospectus supplement for that series.

 

  

Each Trust—

 

Ÿ  will issue a series of mortgage pass-through certificates, which will consist of one or more classes of certificates; and

 

Ÿ  will own—

 

Ÿ  a pool or pools of fixed or adjustable interest rate, conventional mortgage loans which are secured by a first lien on a one- to four-family residential property; and

 

Ÿ  other assets described in this prospectus and the accompanying prospectus supplement.

 

Each Pool of Mortgage Loans—

 

Ÿ  will be sold to the related trust by the seller, who will have in turn purchased them from Wells Fargo Bank, N.A., one of its affiliates;

 

Ÿ  will be underwritten to Wells Fargo Bank, N.A.’s standards or such other standards as described in this prospectus and the accompanying prospectus supplement; and

 

Ÿ  will be serviced by Wells Fargo Bank, N.A. individually or together with other servicers.

 

Each Series of Certificates—

 

Ÿ  will represent interests in the related trust;

 

Ÿ  may provide credit support for certain classes by “subordinating” certain classes to other classes of certificates; any subordinated classes will be entitled to payment subject to the payment of more senior classes and may bear losses before more senior classes;

 

Ÿ  may be entitled to one or more of the other types of credit support described in this prospectus; and

 

Ÿ  will be paid only from the assets of the related trust.

 

Neither the SEC nor any state securities commission has approved the certificates or determined that this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

 

 


 

 

The date of this prospectus is June 14, 2005


Table of Contents

TABLE OF CONTENTS

PROSPECTUS

     Page

Important Notice About Information Presented in This Prospectus and the Accompanying Prospectus Supplement

   4

Summary of Prospectus

   5

Risk Factors

   9

Limited Liquidity for Certificates

   9

Limited Assets for Payment of Certificates

   9

Credit Enhancement is Limited in Amount and Coverage

   9

Real Estate Market Conditions Affect Mortgage Loan Performance

   10

Geographic Concentration May Increase Rates of Loss and Delinquency

   10

Rate of Prepayment on Mortgage Loans May Adversely Affect Average Lives and Yields on Certificates

   11

Book-Entry Certificates May Experience Decreased Liquidity and Payment Delay

   11

Cash Flow Agreements are Subject to Counterparty Risk

   11

Consumer Protection Laws May Limit Remedies

   12

The Trust Estates

   12

General

   12

Mortgage Loans

   13

Cash Flow Agreements

   16

The Seller

   17

Wells Fargo Bank

   17

The Mortgage Loan Programs

   18

Mortgage Loan Production Sources

   18

Acquisition of Mortgage Loans from Correspondents

   18

Mortgage Loan Underwriting

   19

Wells Fargo Bank Underwriting

   19

Representations and Warranties

   23

Delinquency and Foreclosure
Experience

   24

Description of the Certificates

   28

General

   28

Definitive Form

   28

Book-Entry Form

   29

Distributions to Certificateholders

   34

General

   34

Unscheduled Principal Receipts

   35

Distributions of Interest

   35

Distributions of Principal

   37

Categories of Classes of Certificates

   39

Principal Types

   39

Interest Types

   40

Pass-Through Rates Based on LIBOR

   41

General

   41

Determination of LIBOR

   41

Other Credit Enhancement

   41

Limited Guarantee

   42
     Page

Financial Guaranty Insurance Policy or Surety Bond

   42

Letter of Credit

   42

Pool Insurance Policies

   42

Special Hazard Insurance Policies

   42

Mortgagor Bankruptcy Bond

   42

Reserve Fund

   42

Cross Support

   43

Prepayment and Yield
Considerations

   43

Pass-Through Rates

   43

Scheduled Delays in Distributions

   43

Effect of Principal Prepayments

   43

Weighted Average Life of Certificates

   44

Refinancings

   45

Servicing of the Mortgage Loans

   46

The Master Servicer

   46

The Servicers

   46

Payments on Mortgage Loans

   47

Periodic Advances and Limitations Thereon

   49

PMI Advances

   50

Collection and Other Servicing Procedures

   50

Enforcement of Due-on-Sale Clauses; Realization Upon Defaulted Mortgage Loans

   51

Modification of Mortgage Loans

   52

Insurance Policies

   53

Fixed Retained Yield, Servicing Compensation and Payment of Expenses

   53

Evidence as to Compliance

   54

Changes in Servicing

   55

Servicer Defaults

   55

Certain Matters Regarding the Master Servicer

   55

The Pooling and Servicing
Agreement

   56

Assignment of Mortgage Loans to the Trustee

   56

Optional Substitutions

   58

Optional Purchases

   58

Reports to Certificateholders

   58

List of Certificateholders

   59

Events of Default

   59

Rights Upon Event of Default

   59

Amendment

   60

Termination; Optional Purchase of Mortgage Loans

   61

The Trustee

   61

Special Servicing Agreements

   62

Certain Legal Aspects of the
Mortgage Loans

   62

General

   62

Foreclosure

   63

 

2


Table of Contents
     Page

Foreclosure on Shares of Cooperatives

   63

Rights of Redemption

   64

Anti-Deficiency Legislation, the Bankruptcy Code and Other Limitations on Lenders

   64

Forfeiture for Drug, RICO and Money Laundering Violations

   66

Homeowners Protection Act of 1998

   66

Texas Home Equity Loans

   67

Servicemembers Civil Relief Act and Similar Laws

   67

Environmental Considerations

   67

“Due-on-Sale” Clauses

   69

Applicability of Usury Laws

   70

Enforceability of Certain Provisions

   70

Certain Regulatory Matters

   70

Certain Federal Income Tax Consequences

   71

Federal Income Tax Consequences for REMIC Certificates

   71

General

   71

Status of REMIC Certificates

   72

Qualification as a REMIC

   72

Taxation of Regular Certificates

   74

General

   74

Original Issue Discount

   74

Acquisition Premium

   76

Variable Rate Regular Certificates

   76

Market Discount

   77

Premium

   78

Election to Treat All Interest Under the Constant Yield Method

   78

Treatment of Losses

   78

Sale or Exchange of Regular
Certificates

   79

Taxation of Residual Certificates

   79

Taxation of REMIC Income

   79

Basis and Losses

   80

Treatment of Certain Items of REMIC Income and Expense

   81

Original Issue Discount and Premium

   81

Market Discount

   81

Premium

   81

Limitations on Offset or Exemption of REMIC Income

   82

Tax-Related Restrictions on Transfer of Residual Certificates

   82

Sale or Exchange of a Residual Certificate

   85

Mark to Market Regulations

   85

Taxes That May Be Imposed on the REMIC Pool

   85

Prohibited Transactions

   85

Contributions to the REMIC Pool After the Startup Day

   86

Net Income from Foreclosure Property

   86

Liquidation of the REMIC Pool

   86
     Page

Administrative Matters

   86

Limitations on Deduction of Certain Expenses

   87

Taxation of Certain Foreign Investors

   87

Regular Certificates

   87

Residual Certificates

   87

Backup Withholding

   88

Reporting Requirements

   88

Federal Income Tax Consequences for Certificates as to Which No REMIC Election Is Made

   89

General

   89

Tax Status

   89

Premium and Discount

   90

Premium

   90

Original Issue Discount

   90

Market Discount

   90

Recharacterization of Servicing Fees

   90

Sale or Exchange of Certificates

   91

Stripped Certificates

   91

General

   91

Status of Stripped Certificates

   92

Taxation of Stripped Certificates

   93

Reporting Requirements and Backup Withholding

   94

Reportable Transactions

   94

Taxation of Certain Foreign Investors

   94

ERISA Considerations

   94

General

   94

Certain Requirements Under ERISA

   95

General

   95

Parties in Interest/Disqualified Persons

   95

Delegation of Fiduciary Duty

   95

Administrative Exemptions

   96

Individual Administrative Exemptions

   96

PTE 83-1

   97

Exempt Plans

   97

Unrelated Business Taxable Income—Residual Certificates

   97

Legal Investment

   98

Plan of Distribution

   99

Use of Proceeds

   100

Legal Matters

   100

Rating

   100

Reports to Certificateholders

   100

Where You Can Find More
Information

   101

Registration Statement and Other Materials Filed With the Securities and Exchange Commission

   101

Detailed Information Relating to the Mortgage Loans of a Series

   101

Incorporation of Certain Information by Reference

   101

Index of Significant Definitions

   102

 

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IMPORTANT NOTICE ABOUT INFORMATION PRESENTED IN THIS

PROSPECTUS AND THE ACCOMPANYING PROSPECTUS SUPPLEMENT

 

Information is provided to you about the certificates in two separate documents that progressively provide more detail: (a) this prospectus, which provides general information, some of which may not apply to a particular series of certificates, including your series, and (b) the accompanying prospectus supplement, which will describe the specific terms of your series of certificates, including:

 

  Ÿ   the principal balances and/or interest rates of each class;

 

  Ÿ   the timing and priority of interest and principal payments;

 

  Ÿ   statistical and other information about the mortgage loans;

 

  Ÿ   information about credit enhancement, if any, for each class;

 

  Ÿ   the ratings for each class; and

 

  Ÿ   the method for selling the certificates.

 

If the terms of a particular series of certificates vary between this prospectus and the prospectus supplement, you should rely on the information in the prospectus supplement.

 

You should rely only on the information provided in this prospectus and the accompanying prospectus supplement including the information incorporated by reference. No one has been authorized to provide you with different information. The certificates are not being offered in any state where the offer is not permitted. The seller does not claim the accuracy of the information in this prospectus or the accompanying prospectus supplement as of any date other than the dates stated on their respective covers.

 

Cross-references are included in this prospectus and in the accompanying prospectus supplement to captions in these materials where you can find further related discussions. The foregoing Table of Contents and the Table of Contents included in the accompanying prospectus supplement provide the pages on which these captions are located.

 

You can find a listing of the pages where capitalized terms used in this prospectus are defined under the caption “Index of Significant Definitions” beginning on page 102 in this prospectus.

 

The seller’s principal executive office is located at 7430 New Technology Way, Frederick, Maryland 21703, and the seller’s telephone number is (301) 846-8881.

 


 

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SUMMARY OF PROSPECTUS

 

Ÿ   This summary highlights selected information from this document, but does not contain all of the information that you should consider in making your investment decision. To understand all of the terms of a series of certificates, please read this entire document and the accompanying prospectus supplement carefully.

 

Ÿ   This summary provides an overview of certain calculations, cash flows and other information to aid your understanding of the terms of the certificates and is qualified by the full description of these calculations, cash flows and other information in this prospectus and the accompanying prospectus supplement.

 

 

RELEVANT PARTIES FOR EACH SERIES OF CERTIFICATES

 

Issuer

 

Each series of certificates will be issued by a separate trust. Each trust will be formed pursuant to a pooling and servicing agreement among the seller, the master servicer and the trustee specified in the applicable prospectus supplement.

 

Seller

 

With respect to each trust, Wells Fargo Asset Securities Corporation will act as seller to each trust and will acquire the mortgage loans from Wells Fargo Bank, N.A. and will transfer the mortgage loans to the trust. The seller is a direct, wholly-owned subsidiary of Wells Fargo Bank, N.A. which is an indirect, wholly-owned subsidiary of Wells Fargo & Company.

 

Master Servicer

 

Wells Fargo Bank, N.A. will act as master servicer of each trust and will supervise the servicers and perform certain other administrative and reporting duties with respect to each series of certificates. In addition, the master servicer will generally be required to make advances with respect to the mortgage loans in each trust to the extent that a related other servicer fails to make a required advance.

 

Servicers

 

Wells Fargo Bank, N.A. and, if specified in the applicable prospectus supplement, one or more other entities will service the mortgage loans in each trust. Each servicer will perform certain servicing functions with respect to the mortgage loans serviced by it pursuant to a related servicing agreement.

 

Trustee

 

The entity named as trustee in the related prospectus supplement.

 

THE MORTGAGE LOANS

 

Each trust will own the related mortgage loans (other than the fixed retained yield described in this prospectus, if any) and certain other related property, as specified in the applicable prospectus supplement.

 

The mortgage loans in each trust estate:

 

Ÿ   will be conventional, fixed or adjustable interest rate, mortgage loans secured by first liens on one- to four-family residential properties;

 

Ÿ   will have been acquired by the seller from Wells Fargo Bank, N.A.;

 

Ÿ   will have been originated by Wells Fargo Bank, N.A. or an affiliate or will have been acquired by Wells Fargo Bank, N.A. directly or indirectly from other mortgage loan originators; and

 

Ÿ   will have been underwritten either to Wells Fargo Bank, N.A. standards or, to the extent specified in the applicable prospectus supplement, to the standards of a pool insurer or to other standards.

 

See “The Trust Estates” and “The Mortgage Loan Programs—Mortgage Loan Underwriting.”

 

You should refer to the applicable prospectus supplement for the precise characteristics or expected characteristics of the mortgage loans and a description of the other property, if any, included in a particular trust estate.

 

DISTRIBUTIONS ON THE CERTIFICATES

 

Each series of certificates will include one or more classes. A class of certificates will be entitled, to the extent of funds available, to one of the following:

 

Ÿ   principal and interest payments in respect of the related mortgage loans;

 

Ÿ   principal distributions, with no interest distributions;

 

Ÿ   interest distributions, with no principal distributions; or

 

Ÿ   such other distributions as are described in the applicable prospectus supplement.

 

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Interest Distributions

 

With respect to each series of certificates, interest on the related mortgage loans at the weighted average of their mortgage interest rates after deducting servicing fees and certain other amounts as described in this prospectus or in the applicable prospectus supplement, will be passed through to holders of the related classes of certificates in accordance with the particular terms of each class of certificates. The terms of each class of certificates will be described in the related prospectus supplement. See “Description of the Certificates—Distributions to Certificateholders—Distributions of Interest.”

 

Except as otherwise specified in the applicable prospectus supplement, interest on each class of certificates of each series will accrue at the pass-through rate for each class indicated in the applicable prospectus supplement on their outstanding principal balance or notional amount.

 

Principal Distributions

 

With respect to a series of certificates, principal payments (including prepayments) on the related mortgage loans will be passed through to holders of the related certificates or otherwise applied in accordance with the related pooling and servicing agreement on each distribution date. Distributions in reduction of principal balance will be allocated among the classes of certificates of a series in the manner specified in the applicable prospectus supplement. See “Description of the Certificates—Distributions to Certificateholders—Distributions of Principal.”

 

Distribution Dates

 

Distributions on the certificates will be made on each distribution date which is generally the 25th day of each month, or, if such day is not a business day, the business day following the 25th day.

 

If so specified in the applicable prospectus supplement, distributions on certificates may be made on a different day of each month or may be made quarterly, or semi-annually, on the dates specified in such prospectus supplement.

 

Record Dates

 

Distributions will be made on each distribution date to certificateholders of record at the close of business on the last business day of the month preceding the month in which such distribution date occurs or another date specified in the applicable prospectus supplement.

 

CREDIT ENHANCEMENT

 

Subordination

 

A series of certificates may include one or more classes of senior certificates and one or more classes of subordinated certificates. The rights of the holders of subordinated certificates of a series to receive distributions will be subordinated to such rights of the holders of the senior certificates of the same series to the extent and in the manner specified in the applicable prospectus supplement.

 

Subordination is intended to enhance the likelihood of the timely receipt by the senior certificateholders of their proportionate share of scheduled monthly principal and interest payments on the related mortgage loans and to protect them from losses. This protection will be effected by:

 

Ÿ   the preferential right of the senior certificateholders to receive, prior to any distribution being made in respect of the related subordinated certificates on each distribution date, current distributions on the related mortgage loans of principal and interest due them on each distribution date out of the funds available for distributions on such date;

 

Ÿ   the right of such holders to receive future distributions on the mortgage loans that would otherwise have been payable to the holders of subordinated certificates; and/or

 

Ÿ   the prior allocation to the subordinated certificates of all or a portion of losses realized on the underlying mortgage loans.

 

Other Types of Credit Enhancement

 

If so specified in the applicable prospectus supplement, the certificates of any series, or any one or more classes of a series, may be entitled to the benefits of other types of credit enhancement, including but not limited to:

 

Ÿ limited guarantee

   Ÿ   mortgage pool
    insurance policy

Ÿ financial guaranty

  

    insurance policy

   Ÿ reserve fund

Ÿ surety bond

   Ÿ cross-support

Ÿ letter of credit

    

 

Any credit support will be described in the applicable prospectus supplement.

 

See “The Trust Estates—Mortgage Loans—Pledged Asset Mortgage Loans” and “Description of the Certificates—Other Credit Enhancement.”

 

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PERIODIC ADVANCES ON DELINQUENT PAYMENTS

 

In the event that a payment on a mortgage loan is delinquent, the servicer of the mortgage loan will be obligated, to the extent specified in the servicing agreement, to make cash advances if the servicer determines that it will be able to recover such amounts from future payments and collections on the mortgage loan. A servicer who makes periodic advances will be reimbursed for these as described in this prospectus and in the applicable prospectus supplement. In certain circumstances, the master servicer or trustee will be required to make these advances upon a servicer default.

 

In addition, the master servicer may be required to make these advances if the underlying servicing agreement does not require the servicer to make advances while a mortgage loan is in the process of being liquidated.

 

See “Servicing of the Mortgage Loans—Periodic Advances and Limitations Thereon.”

 

FORMS OF CERTIFICATES

 

The certificates will be issued either:

 

Ÿ   in book-entry form through the facilities of DTC; or

 

Ÿ   in fully registered, certificated form.

 

If you own book-entry certificates, you will not receive a physical certificate representing your ownership interest in such book-entry certificates, except under extraordinary circumstances which are discussed in “Description of the Certificates—Definitive Form” in this prospectus. Instead, DTC will effect payments and transfers by means of its electronic record keeping services, acting through certain participating organizations. This may result in certain delays in your receipt of distributions and may restrict your ability to pledge your securities. Your rights with respect to book-entry certificates may generally only be exercised through DTC and its participating organizations.

 

See “Description of the Certificates—Book-Entry Form.”

 

OPTIONAL PURCHASE OF CERTAIN MORTGAGE LOANS

 

The seller may, to the extent specified in the related prospectus supplement and subject to the terms of the applicable pooling and servicing agreement, purchase from the related trust:

 

Ÿ   any defaulted mortgage loan during the periods specified in the pooling and servicing agreement; and

 

Ÿ   any mortgage loan as to which the originator of such Mortgage Loan breached a representation or warranty to Wells Fargo Bank, N.A. regarding the characteristics of such mortgage loan.

 

See “Pooling and Servicing Agreement—Optional Purchases.”

 

OPTIONAL PURCHASE OF ALL MORTGAGE LOANS AND TERMINATION OF THE TRUST

 

If so specified in the prospectus supplement with respect to a series, all, but not less than all, of the mortgage loans in the related trust and any property acquired with respect to such mortgage loans may be purchased by the seller, Wells Fargo Bank, N.A. or such other party as is specified in the applicable prospectus supplement. Any such purchase must be made in the manner and at the price specified in such prospectus supplement.

 

In the event that an election is made to treat the related trust estate or one or more segregated pools of assets in the trust estate as a REMIC, any such purchase will be effected only pursuant to a “qualified liquidation,” as defined under Section 860F(a)(4)(A) of the Internal Revenue Code of 1986, as amended.

 

Exercise of the right of purchase will effect the early retirement of the certificates of that series.

 

See “Prepayment and Yield Considerations.”

 

ERISA LIMITATIONS

 

If you are a fiduciary of any employee benefit plan subject to the fiduciary responsibility or prohibited transaction provisions of ERISA, you should carefully review with your own legal advisors whether the purchase or holding of certificates could give rise to a transaction prohibited or otherwise impermissible under ERISA or other similar rules or regulations.

 

See “ERISA Considerations.”

 

TAX STATUS

 

The treatment of the certificates for federal income tax purposes will depend on:

 

Ÿ   whether a REMIC election is made with respect to a series of certificates; and

 

Ÿ   if a REMIC election is made, whether the certificates are regular interests or residual interests.

 

See “Certain Federal Income Tax Consequences.”

 

 

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LEGAL INVESTMENT

 

The applicable prospectus supplement will specify whether the class or classes of certificates offered will constitute “mortgage related securities” for purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended. If your investment authority is subject to legal restrictions you should consult your own legal advisors to determine whether and to what extent such certificates constitute legal investments for you.

 

See “Legal Investment” in this prospectus and in the applicable prospectus supplement.

 

RATING

 

Certificates of any series will not be offered pursuant to this prospectus and a prospectus supplement unless each offered class is rated in one of the four highest rating categories by at least one nationally recognized statistical rating organization.

 

Ÿ   A security rating is not a recommendation to buy, sell or hold the certificates of any series and is subject to revision or withdrawal at any time by the assigning rating agency.

 

Ÿ   Ratings do not address the effect of prepayments on the yield you may anticipate when you purchase your certificates.

 

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RISK FACTORS

 

You should consider, among other things, the following factors in connection with the purchase of certificates.

 

Limited Liquidity for Certificates

 

The liquidity of your certificates may be limited. You should consider that:

 

  Ÿ   a secondary market for the certificates of any series may not develop, or if it does, it may not provide you with liquidity of investment, or it may not continue for the life of the certificates of any series;

 

  Ÿ   the prospectus supplement for any series of certificates may indicate that an underwriter intends to establish a secondary market in such certificates, but no underwriter will be obligated to do so; and

 

  Ÿ   unless specified in the applicable prospectus supplement, the certificates will not be listed on any securities exchange.

 

In addition to these considerations, the secondary market for mortgage-backed securities has experienced periods of illiquidity and may do so in the future. Illiquidity means that there may not be any purchasers for your class of certificates. Although any class of certificates may experience illiquidity, it is more likely that classes of certificates that are more sensitive to prepayment, credit or interest rate risk will experience illiquidity.

 

Limited Assets for Payment of Certificates

 

Except for any related insurance policies and any reserve fund or credit enhancement described in the applicable prospectus supplement:

 

  Ÿ   mortgage loans included in the related trust estate will be the sole source of payments on the certificates of a series;

 

  Ÿ   the certificates of any series will not represent an interest in or obligation of the seller, Wells Fargo Bank, N.A., the trustee or any of their affiliates, except for the seller’s limited obligations with respect to certain breaches of its representations and warranties, Wells Fargo Bank, N.A.’s obligations as servicer and master servicer; and

 

  Ÿ   neither the certificates of any series nor the related mortgage loans will be guaranteed or insured by any governmental agency or instrumentality, the seller, Wells Fargo Bank, N.A., the trustee, any of their affiliates or any other person.

 

Consequently, in the event that payments on the mortgage loans underlying your series of certificates are insufficient or otherwise unavailable to make all payments required on your certificates, there will be no recourse to the seller, Wells Fargo Bank, N.A., the trustee or, except as specified in the applicable prospectus supplement, any other entity.

 

Credit Enhancement is Limited in Amount and Coverage

 

With respect to each series of certificates, credit enhancement may be provided in limited amounts to cover certain types of losses on the underlying mortgage loans. Credit enhancement will be provided in one or more of the forms referred to in this prospectus, including, but not limited to: subordination of other classes of certificates of the same series; a limited guarantee; a financial guaranty insurance policy; a surety bond; a letter of credit; a pool insurance policy; a special hazard insurance policy; a mortgagor bankruptcy bond; a reserve fund; cross-support; and any combination of the preceding types of credit enhancement. See “Description of the Certificates—Other Credit Enhancement.”

 

Regardless of the form of credit enhancement provided:

 

  Ÿ   the amount of coverage will be limited in amount and in most cases will be subject to periodic reduction in accordance with a schedule or formula;

 

  Ÿ   may provide only very limited coverage as to certain types of losses, and may provide no coverage as to certain other types of losses; and

 

  Ÿ   all or a portion of the credit enhancement for any series of certificates will generally be permitted to be reduced, terminated or substituted for, in the sole discretion of the master servicer, if each applicable rating agency indicates that the then-current ratings will not be adversely affected.

 

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In the event losses exceed the amount of coverage provided by any credit enhancement or losses of a type not covered by any credit enhancement occur, such losses will be borne by the holders of the related certificates (or certain classes).

 

The rating of any series of certificates by any applicable rating agency may be lowered following the initial issuance thereof as a result of the downgrading of the obligations of any applicable credit support provider, or as a result of losses on the related mortgage loans in excess of the levels contemplated by such rating agency at the time of its initial rating analysis.

 

Neither the seller, Wells Fargo Bank, N.A., nor any of their affiliates will have any obligation to replace or supplement any credit enhancement, or to take any other action to maintain any rating of any class of certificates.

 

See “Description of the Certificates—Other Credit Enhancement.”

 

Real Estate Market Conditions Affect Mortgage Loan Performance

 

An investment in securities such as the certificates, which generally represent interests in pools of residential mortgage loans, may be affected by a decline in real estate values and changes in the mortgagor’s financial condition. There is no assurance that the values of the mortgaged properties securing the mortgage loans underlying any series of certificates 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 such that the outstanding balances of the mortgage loans contained in a particular trust estate and any secondary financing on the mortgaged properties, become equal to or greater than the value of the mortgaged properties, delinquencies, foreclosures and losses could be higher than those now generally experienced in the mortgage lending industry and those experienced in Wells Fargo Bank, N.A.’s or other servicers’ servicing portfolios.

 

To the extent that losses on mortgage loans underlying a series are not covered by credit enhancement, certificateholders of the series will bear all risk of loss resulting from default by mortgagors and will have to look primarily to the value of the mortgaged properties for recovery of the outstanding principal and unpaid interest on the defaulted mortgage loans. See “The Trusts Estates—Mortgage Loans” and “The Mortgage Loan Programs—Mortgage Loan Underwriting.”

 

Geographic Concentration May Increase Rates of Loss and Delinquency

 

In addition to risk factors related to the residential real estate market generally, certain geographic regions of the United States from time to time will experience weaker regional economic conditions and housing markets or be directly or indirectly affected by natural disasters or civil disturbances such as earthquakes, hurricanes, floods, eruptions or riots. Mortgage loans in such areas will experience higher rates of loss and delinquency than on mortgage loans generally. Although mortgaged properties located in certain identified flood zones will be required to be covered, to the maximum extent available, by flood insurance, as described under “Servicing of the Mortgage Loans—Insurance Policies,” no mortgaged properties will otherwise be required to be insured against earthquake damage or any other loss not covered by standard hazard insurance policies, as described under “Servicing of the Mortgage Loans—Insurance Policies.”

 

The ability of mortgagors to make payments on the mortgage loans may also be affected by factors which do not necessarily affect property values, such as adverse economic conditions generally, in particular geographic areas or industries, or affecting particular segments of the borrowing community (such as mortgagors relying on commission income and self-employed mortgagors). Such occurrences may accordingly affect the actual rates of delinquencies, foreclosures and losses with respect to any trust estate.

 

The mortgage loans underlying certain series of certificates may be concentrated in certain regions. Such concentration may present risk considerations in addition to those generally present for similar mortgage-backed securities without such concentration. See “The Mortgage Loan Programs—Mortgage Loan Underwriting” and “Prepayment and Yield Considerations—Weighted Average Life of Certificates.”

 

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Rate of Prepayment on Mortgage Loans May Adversely Affect Average Lives and Yields on Certificates

 

The yield of the certificates of each series will depend in part on the rate of principal payment on the mortgage loans (including prepayments, liquidations due to defaults and mortgage loan repurchases). Such yield may be adversely affected, depending upon whether a particular certificate is purchased at a premium or a discount, by a higher or lower than anticipated rate of prepayments on the related mortgage loans. In particular:

 

  Ÿ   the yield on classes of certificates entitling their holders primarily or exclusively to payments of interest or primarily or exclusively to payments of principal will be extremely sensitive to the rate of prepayments on the related mortgage loans; and

 

  Ÿ   the yield on certain classes of certificates may be relatively more sensitive to the rate of prepayment of specified mortgage loans than other classes of certificates.

 

The rate of prepayments on mortgage loans is influenced by a number of factors, including:

 

  Ÿ   prevailing mortgage market interest rates;

 

  Ÿ   local and national economic conditions;

 

  Ÿ   homeowner mobility; and

 

  Ÿ   the ability of the borrower to obtain refinancing.

 

In addition, your yield may be adversely affected by interest shortfalls which may result from the timing of the receipt of prepayments or liquidations to the extent that such interest shortfalls are not covered by aggregate servicing fees or other mechanisms specified in the applicable prospectus supplement. Your yield will be also adversely affected to the extent that losses on the mortgage loans in the related trust estate are allocated to your certificates and may be adversely affected to the extent of unadvanced delinquencies on the mortgage loans in the related trust. Classes of certificates identified in the applicable prospectus supplement as subordinated certificates are more likely to be affected by delinquencies and losses than other classes of certificates.

 

See “Prepayment and Yield Considerations.”

 

Book-Entry Certificates May Experience Decreased Liquidity and Payment Delay

 

Since transactions in the classes of book-entry certificates of any series generally can be effected only through DTC, DTC participants and indirect DTC participants:

 

  Ÿ   your ability to pledge book-entry certificates to someone who does not participate in the DTC system, or to otherwise act with respect to such book-entry certificates, may be limited due to the lack of a physical certificate;

 

  Ÿ   you may experience delays in your receipt of payments on book-entry certificates because distributions will be made by the master servicer, or a paying agent on behalf of the master servicer, to Cede, as nominee for DTC; and

 

  Ÿ   the liquidity of book-entry certificates in any secondary trading market that may develop may be limited because investors may be unwilling to purchase securities for which they cannot obtain delivery of physical certificates.

 

See “Description of the Certificates—Book-Entry Form.”

 

Cash Flow Agreements are Subject to Counterparty Risk

 

The assets of a trust estate may, if specified in the related prospectus supplement, include agreements, such as interest rate swap, cap, floor or similar agreements, which will require the provider of such instrument or counterparty to make payments to the trust estate under the circumstances described in the prospectus supplement. To the extent that payments on the certificates of the related series depend in part on payments to be received under this type of agreement, the ability of the trust estate to make payments on the certificates will be subject to the credit risk of the counterparty. The prospectus supplement for a series of certificates will describe any mechanism, such as the payment of “breakage fees,” which may exist to facilitate replacement of a this type of agreement upon the default or credit impairment of the related counterparty. However, there can be no assurance that any such mechanism will result in the ability of the master servicer to obtain a replacement agreement.

 

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Consumer Protection Laws May Limit Remedies

 

There are various federal and state laws, public policies and principles of equity that protect consumers. Among other things, these laws, policies and principles:

 

  Ÿ   regulate interest rates and other charges;

 

  Ÿ   require certain disclosures;

 

  Ÿ   require licensing of mortgage loan originators;

 

  Ÿ   require the lender to provide credit counseling and/or make affirmative determinations regarding the borrower’s ability to repay the mortgage loan;

 

  Ÿ   prohibit discriminatory lending practices;

 

  Ÿ   limit or prohibit certain mortgage loan features, such as prepayment penalties or balloon payments;

 

  Ÿ   regulate the use of consumer credit information; and

 

  Ÿ   regulate debt collection practices.

 

Violation of certain provisions of these laws, policies and principles:

 

  Ÿ   may limit a servicer’s ability to collect all or part of the principal of or interest on the mortgage loans;

 

  Ÿ   may entitle the borrower to a refund of amounts previously paid; and

 

  Ÿ   could subject a servicer to damages and administrative sanctions.

 

The seller will generally be required to repurchase any mortgage loan which, at the time of origination, did not comply with such federal and state laws or regulations, however that remedy may not be adequate to fully compensate the related trust estate. See “The Mortgage Loan Programs—Representations and Warranties.”

 

In addition, certain of the mortgage loans secured by mortgaged properties located in Texas may be subject to the provisions of Texas consumer protection laws which regulate loans other than purchase money loans. See “Certain Legal Aspects of the Mortgage Loans—Texas Home Equity Loans.”

 

See “Certain Legal Aspects of the Mortgage Loans.”

 

THE TRUST ESTATES

 

General

 

The assets underlying each Series of Certificates (each, a “Trust Estate”) will consist primarily of fixed or adjustable interest rate, conventional first mortgage loans (“Mortgage Loans”) evidenced by promissory notes (the “Mortgage Notes”) secured by mortgages, deeds of trust or other instruments creating first liens (the “Mortgages”) on some or all of the following six types of property (as so secured, the “Mortgaged Properties”), to the extent set forth in the applicable prospectus supplement: (i) one- to four-family detached residences, (ii) townhouses, (iii) condominium units, (iv) units within planned unit developments, (v) long-term leases with respect to any of the foregoing, and (vi) shares issued by private non-profit housing corporations (“cooperatives”) and the related proprietary leases or occupancy agreements granting exclusive rights to occupy specified units in such cooperatives’ buildings. In addition, a Trust Estate will also include (i) amounts held from time to time in the related Certificate Account, (ii) the Seller’s interest in any primary mortgage insurance, hazard insurance, title insurance or other insurance policies relating to a Mortgage Loan, (iii) any property which initially secured a Mortgage Loan and which has been acquired by foreclosure or trustee’s sale or deed in lieu of foreclosure or trustee’s sale, (iv) if applicable, and to the extent set forth in the applicable prospectus supplement, any reserve fund or funds, (v) if applicable, and to the extent set forth in the applicable prospectus supplement, contractual obligations of any person to make payments in respect of any form of credit enhancement or any interest subsidy agreement and (vi) such other assets as may be specified in the applicable prospectus supplement. The Trust Estate will not include the portion of interest on the Mortgage Loans which constitutes the Fixed Retained Yield, if any. See “Servicing of the Mortgage Loans—Fixed Retained Yield, Servicing Compensation and Payment of Expenses.”

 

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Mortgage Loans

 

The Mortgage Loans will have been acquired by the Seller from its affiliate, Wells Fargo Bank. The Mortgage Loans will have been originated by Wells Fargo Bank or will have been acquired by Wells Fargo Bank from other affiliated or unaffiliated mortgage loan originators. Each Mortgage Loan will have been underwritten either to Wells Fargo Bank’s standards, to the extent specified in the applicable prospectus supplement, to the standards of a pool insurer or to such other standards set forth in the applicable prospectus supplement. See “The Mortgage Loan Programs—Mortgage Loan Production Sources” and “—Mortgage Loan Underwriting.” The prospectus supplement for each Series will set forth the respective number and principal amounts of Mortgage Loans (i) originated by Wells Fargo Bank or its affiliates and (ii) purchased by Wells Fargo Bank or its affiliates from unaffiliated mortgage loan originators through Wells Fargo Bank’s mortgage loan purchase programs.

 

Each of the Mortgage Loans will be secured by a Mortgage on a Mortgaged Property located in any of the 50 states or the District of Columbia. Generally, the land underlying a Mortgaged Property will consist of five acres or less but may consist of greater acreage in Wells Fargo Bank’s discretion. The borrowers for each of the Mortgage Loans will be natural persons or, under certain conditions, borrowers may be inter vivos revocable trusts established by natural persons.

 

If specified in the applicable prospectus supplement, the Mortgage Loans may be secured by leases on real property under circumstances that Wells Fargo Bank determines in its discretion are commonly acceptable to institutional mortgage investors. A Mortgage Loan secured by a lease on real property is secured not by a fee simple interest in the Mortgaged Property but rather by a lease under which the mortgagor has the right, for a specified term, to use the related real estate and the residential dwelling located on the property. Generally, a Mortgage Loan will be secured by a lease only if (i) the use of leasehold estates as security for mortgage loans is customary in the area, (ii) the lease is not subject to any prior lien that could result in termination of the lease and (iii) the term of the lease ends at least five years beyond the maturity date of the related Mortgage Loan. The provisions of each lease securing a Mortgage Loan will expressly permit (i) mortgaging of the leasehold estate, (ii) assignment of the lease without the lessor’s consent and (iii) acquisition by the holder of the Mortgage, in its own or its nominee’s name, of the rights of the lessee upon foreclosure or assignment in lieu of foreclosure, unless alternative arrangements provide the holder of the Mortgage with substantially similar protections. No lease will contain provisions which (i) provide for termination upon the lessee’s default without the holder of the Mortgage being entitled to receive written notice of, and opportunity to cure, such default, (ii) provide for termination in the event of damage or destruction as long as the Mortgage is in existence or (iii) prohibit the holder of the Mortgage from being insured under the hazard insurance policy or policies related to the premises.

 

The prospectus supplement will set forth the geographic distribution of Mortgaged Properties and the number and aggregate unpaid principal balances of the Mortgage Loans by category of Mortgaged Property. The prospectus supplement for each Series will also set forth the range of original terms to maturity of the Mortgage Loans in the Trust Estate, the weighted average remaining term to stated maturity at the Cut-Off Date of such Mortgage Loans, the earliest and latest months of origination of such Mortgage Loans, the range of Mortgage Interest Rates borne by such Mortgage Loans, if such Mortgage Loans have varying Net Mortgage Interest Rates, the weighted average Net Mortgage Interest Rate at the Cut-Off Date of such Mortgage Loans, the range of Loan-to-Value Ratios at the time of origination of such Mortgage Loans and the range of principal balances at origination of such Mortgage Loans.

 

The information with respect to the Mortgage Loans and Mortgaged Properties described in the preceding two paragraphs may be presented in the prospectus supplement for a Series as ranges in which the actual characteristics of such Mortgage Loans and Mortgaged Properties are expected to fall. In all such cases, information as to the final characteristics of the Mortgage Loans and Mortgaged Properties will be available in a Current Report on Form 8-K which the Seller will file with the Commission within 15 days of the initial issuance of the related Series.

 

The Mortgage Loans in a Trust will generally have monthly payments due on the first of each month (each, a “Due Date”) but may, if so specified in the applicable prospectus supplement, have payments due on a different day of each month. Unless specified in the applicable prospectus supplement, monthly payments consisting of both principal and interest will be due on each Mortgage Loan in a Trust. Each Mortgage Loan will be of one of the following types of mortgage loans:

 

a.  Fixed Rate Loans.    If so specified in the applicable prospectus supplement, a Trust Estate may include fixed-rate, fully-amortizing Mortgage Loans providing for level monthly payments of principal and interest and terms at origination or modification of not more than 30 years. If specified in the applicable prospectus supplement, fixed rates on certain Mortgage Loans may be converted to adjustable rates after origination of such Mortgage Loans and upon the satisfaction of other conditions specified in the applicable prospectus supplement. If so specified in the applicable

 

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prospectus supplement, the Pooling and Servicing Agreement will require the Seller or another party to repurchase each such converted Mortgage Loan at the price set forth in the applicable prospectus supplement. A Trust Estate containing fixed rate Mortgage Loans may contain convertible Mortgage Loans which have converted from an adjustable interest rate prior to the formation of the Trust Estate and which are subject to no further conversions.

 

b.  Adjustable Rate Loans.    If so specified in the applicable prospectus supplement, a Trust Estate may include adjustable-rate, fully-amortizing Mortgage Loans having an original or modified term to maturity of not more than 30 years with a related Mortgage Interest Rate which generally adjusts initially either six months, one, three, five, seven or ten years subsequent to the initial Due Date, and thereafter at either six-month, one-year or other intervals over the term of the Mortgage Loan to equal the sum of a fixed margin set forth in the related Mortgage Note and an index. The applicable prospectus supplement will set forth the relevant index and the highest, lowest and weighted average margin with respect to the adjustable rate mortgage loans in the related Trust. The applicable prospectus supplement will also indicate any initial, periodic or lifetime limitations on changes in any per annum Mortgage Rate at the time of any adjustment.

 

If specified in the applicable prospectus supplement, adjustable rates on certain Mortgage Loans may be converted to fixed rates after origination of such Mortgage Loans and upon the satisfaction of the conditions specified in the applicable prospectus supplement. If specified in the applicable prospectus supplement, the Seller or another party will generally be required to repurchase each such converted Mortgage Loan at the price set forth in the applicable prospectus supplement. A Trust Estate containing adjustable-rate Mortgage Loans may contain convertible Mortgage Loans which have converted from a fixed interest rate prior to the formation of the Trust Estate.

 

The scheduled monthly payment for an adjustable rate Mortgage Loan will be adjusted as and when described in the applicable 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 certain limitations as specified in the applicable prospectus supplement. If the adjustments made to monthly payments for an adjustable rate Mortgage Loan are made at intervals different from the intervals at which the Mortgage Interest Rate is adjusted, “negative amortization” of principal may result with respect to such Mortgage Loan. Negative amortization will occur if an adjustment to the Mortgage Interest Rate on such a Mortgage Loan causes the amount of interest accrued thereon in any month to exceed the current scheduled monthly payment on such mortgage loan. The resulting amount of interest that has accrued but is not then payable (“Deferred Interest”) will be added to the principal balance of such Mortgage Loan.

 

c.  Graduated Payment Loans.    If so specified in the applicable prospectus supplement, a Trust Estate may contain fixed-rate, graduated payment Mortgage Loans having original or modified terms to maturity of not more than 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 such Mortgage Loan. Such monthly payments increase at the beginning of the second year by a specified percentage of the monthly payment during the preceding year and each year specified thereafter to the extent necessary to amortize the Mortgage Loan over the remainder of its term or other shorter period. Mortgage Loans incorporating such graduated payment features may include (i) “Graduated Pay Mortgage Loans,” pursuant to which amounts constituting Deferred Interest are added to the principal balances of such mortgage loans, (ii) “Tiered Payment Mortgage Loans,” pursuant to which, if the amount of interest accrued in any month exceeds the current scheduled payment for such month, such excess amounts are paid from a subsidy account (usually funded by a home builder or family member) established at closing and (iii) “Growing Equity Mortgage Loans,” for which the monthly payments increase at a rate which has the effect of amortizing the loan over a period shorter than the stated term.

 

d.  Subsidy Loans.    If so specified in the applicable prospectus supplement, a Trust Estate may contain Mortgage Loans subject to temporary interest subsidy agreements (“Subsidy Loans”) pursuant to which the monthly payments made by the related mortgagors will be less than the scheduled monthly payments on such Mortgage Loans with the present value of the resulting difference in payment (“Subsidy Payments”) being provided by the employer of the mortgagor, generally on an annual basis. Subsidy Payments will generally be placed in a custodial account (“Subsidy Account”) by the related Servicer. Despite the existence of a subsidy program, a mortgagor remains primarily liable for making all scheduled payments on a Subsidy Loan and for all other obligations provided for in the related Mortgage Note and Mortgage Loan.

 

The terms of the subsidy agreements relating to Subsidy Loans generally range from one to ten years. Subsidy Loans are offered by employers generally through either a “graduated” or “fixed” subsidy loan program, or programs that combine features of graduated and fixed subsidy loan programs. The subsidy agreements relating to Subsidy Loans made under a graduated program generally will provide for subsidy payments that result in effective subsidized interest

 

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rates between three percentage points (3%) and five percentage points (5%) below the Mortgage Interest Rates specified in the related Mortgage Notes during the term of the subsidy agreement. Generally, under a graduated program, the subsidized rate for a Mortgage Loan will increase approximately one percentage point per year until it equals the full Mortgage Interest Rate. For example, if the initial subsidized interest rate is five percentage points below the Mortgage Interest Rate in year one, the subsidized rate will increase to four percentage points below the Mortgage Interest Rate in year two, and likewise until year six, when the subsidized rate will equal the Mortgage Interest Rate. Where the subsidy agreements relating to Subsidy Loans are in effect for longer than five years, the subsidized interest rates generally increase at smaller percentage increments for each year. The subsidy agreements relating to Subsidy Loans made under a fixed program generally will provide for subsidized interest rates at fixed percentages (generally one percentage point to two percentage points) below the Mortgage Interest Rates for the term of the subsidy agreements. The subsidy agreements relating to Subsidy Loans pursuant to combination fixed/graduated programs generally will provide for an initial fixed subsidy of up to five percentage points below the related Mortgage Interest Rate for up to five years, and then a periodic reduction in the subsidy for up to five years, at an equal fixed percentage per year until the subsidized rate equals the Mortgage Interest Rate.

 

Generally, employers may terminate subsidy programs in the event of (i) the mortgagor’s death, retirement, resignation or termination of employment, (ii) the full prepayment of the Subsidy Loan by the mortgagor, (iii) the sale or transfer by the mortgagor of the related Mortgaged Property as a result of which the mortgagee is entitled to accelerate the Subsidy Loan pursuant to the “due-on-sale” clause contained in the Mortgage, or (iv) the commencement of foreclosure proceedings or the acceptance of a deed in lieu of foreclosure. In addition, some subsidy programs provide that if prevailing market rates of interest on mortgage loans similar to a Subsidy Loan are less than the Mortgage Interest Rate of such Subsidy Loan, the employer may request that the mortgagor refinance such Subsidy Loan and may terminate the related subsidy agreement if the mortgagor fails to do so. In the event the mortgagor refinances a Subsidy Loan, the new loan will not be included in the Trust Estate. See “Prepayment and Yield Considerations.” In the event a subsidy agreement is terminated, the amount remaining in the Subsidy Account will be returned to the employer, and the mortgagor will be obligated to make the full amount of all remaining scheduled payments, if any. The mortgagor’s reduced monthly housing expense as a consequence of payments under a subsidy agreement is used by Wells Fargo Bank in determining certain expense-to-income ratios utilized in underwriting a Subsidy Loan. See “The Mortgage Loan Programs—Mortgage Loan Underwriting.”

 

e.  Buy-Down Loans.    If so specified in the applicable prospectus supplement, a Trust Estate may contain Mortgage Loans subject to temporary buy-down plans (“Buy-Down Loans”) pursuant to which 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 in payment will be compensated for from an amount contributed by the seller of the related Mortgaged Property or another source, including the originator of the Mortgage Loan (generally on a present value basis) and, if so specified in the applicable prospectus supplement, placed in a custodial account (the “Buy-Down Fund”) by the related Servicer. If the mortgagor on a Buy-Down Loan prepays such Mortgage Loan in its entirety, or defaults on such Mortgage Loan and the Mortgaged Property is sold in liquidation thereof, during the period when the mortgagor is not obligated, on account of the buy-down plan, to pay the full monthly payment otherwise due on such loan, the unpaid principal balance of such Buy-Down Loan will be reduced by the amounts remaining in the Buy-Down Fund with respect to such Buy-Down Loan, and such amounts will be deposited in the Servicer Custodial Account or the Certificate Account, net of any amounts paid with respect to such Buy-Down Loan by any insurer, guarantor or other person pursuant to a credit enhancement arrangement described in the applicable prospectus supplement.

 

f.  Balloon Loans.    If so specified in the applicable prospectus supplement, a Trust Estate may contain Mortgage Loans which are amortized over a fixed period not exceeding 30 years but which have shorter terms to maturity (“Balloon Loans”) that causes the outstanding principal balance of the related Mortgage Loan to be due and payable at the end of a certain specified period (the “Balloon Period”). The borrower of such Balloon Loan will be obligated to pay the entire outstanding principal balance of the Balloon Loan at the end of the related Balloon Period. In the event the related mortgagor refinances a Balloon Loan at maturity, the new loan will not be included in the Trust Estate. See “Prepayment and Yield Considerations.”

 

g.  Pledged Asset Mortgage Loans.    As described below, a Trust Estate may contain fixed-rate mortgage loans having original terms to stated maturity of not more than 30 years which are either (i) secured by a security interest in additional collateral (normally securities) (“Additional Collateral”) owned by the borrower, (ii) supported by a third party guarantee (usually a parent of the borrower) which is in turn secured by a security interest in Additional Collateral (usually securities) owned by such guarantor or (iii) supported by a third party letter of credit (“LOC”) (any such loans supported by Additional Collateral, the “Additional Collateral Pledged Asset Mortgage Loans,” any such

 

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loans supported by LOCs, the “LOC Pledged Asset Mortgage Loans” and together with the Additional Collateral Pledged Asset Mortgage Loans, the “Pledged Asset Mortgage Loans”).

 

With respect to an Additional Collateral Pledged Asset Mortgage Loan, the amount of the Additional Collateral generally does not exceed 30% of the original principal balance of such Additional Collateral Pledged Asset Mortgage Loan. The requirement to maintain Additional Collateral terminates when the principal balance of an Additional Collateral Pledged Asset Mortgage Loan is paid down to a predetermined amount. The pledge agreement and the security interest in such Additional Collateral will be assigned to the Trustee. It is anticipated that, in the event of a loss upon the liquidation of an Additional Collateral Pledged Asset Mortgage Loan, Merrill Lynch Credit Corporation, which will administer the Additional Collateral, will attempt to realize on the related security interest. No assurance can be given as to the amount of proceeds, if any, that might be realized from such Additional Collateral. In no event will the Trust Estate be permitted to acquire ownership of the Additional Collateral. Ambac Assurance Corporation (the “Surety Bond Provider”) has previously issued a limited purpose surety bond (the “Limited Purpose Surety Bond”), to cover the Additional Collateral Pledged Asset Mortgage Loans, which is intended to guarantee payment to the Trust Estate of certain shortfalls in the net proceeds realized from the liquidation of any required Additional Collateral (such amount not to exceed 30% of the original principal amount of an Additional Collateral Pledged Asset Mortgage Loan) to the extent any such shortfall results in a loss of principal on an Additional Collateral Pledged Asset Mortgage Loan upon liquidation. The Limited Purpose Surety Bond will not cover any payments on the Certificates of the related Servicer that are recoverable or sought to be recovered as voidable preferences under applicable law. Although the Limited Purpose Surety Bond is limited in amount (the “Maximum Amount”), the Seller has been advised by the Surety Bond Provider that the Maximum Amount is, and will be, sufficient to cover all potential claims on behalf of the Trust Estate with respect to the Additional Collateral securing an Additional Collateral Pledged Asset Mortgage Loan and on behalf of other assignees of additional collateral securing similar mortgage loans covered by such Limited Purpose Surety Bond.

 

In connection with each LOC Pledged Asset Mortgage Loan, the borrower pledged securities it owns to UBS Financial Services Inc. as security for an LOC issued by UBS Financial Services Inc. in favor of Wells Fargo Bank, as originator of such Mortgage Loan. The amount of pledged securities which can be drawn under each LOC (the “Pledged Value”) is generally equal to at least 20% of the purchase price or appraised value of the Mortgaged Property (whichever is less). The Pledged Value may be reduced by the amount of the borrower’s equity in the property or any down payment made by such borrower. Pursuant to an agreement between the borrower and Wells Fargo Bank, in the event that the borrower becomes ninety days or more delinquent on an LOC Pledged Asset Mortgage Loan, Wells Fargo Bank will have the right, at its option, to draw on all or a portion of the LOC for an amount up to the LOC’s Pledged Value. Wells Fargo Bank, as Servicer, may then, at its discretion, either (i) immediately apply the proceeds from drawing on the LOC as a curtailment or partial prepayment of the unpaid principal balance of the LOC Pledged Asset Mortgage Loan or (ii) apply the proceeds from drawing on the LOC at a later date in accordance with Wells Fargo Bank’s default and servicing procedures. With respect to some of the LOC Pledged Asset Mortgage Loans, on the Closing Date, Wells Fargo Bank will assign its right to receive the proceeds of the LOCs to the Seller, which in turn, will assign such right to the Trust. However, Wells Fargo Bank will remain the beneficiary of the LOCs. Wells Fargo Bank will agree in the Underlying Servicing Agreement to make all draws on the LOCs in accordance with their terms on behalf of the Trust. This obligation will continue even if Wells Fargo Bank is no longer the Servicer of the LOC Pledged Asset Mortgage Loans. With respect to the remaining LOC Pledged Asset Mortgage Loans, on the Closing Date, Wells Fargo Bank will assign the LOCs to the Seller, which, in turn, will assign the LOCs to the Trust which will become the beneficiary thereunder. For these LOC Pledged Asset Mortgage Loans, Wells Fargo Bank (and any successor Servicer) will agree in the Underlying Servicing Agreement to make claims on the LOCs in accordance with their terms on behalf of the Trust. No assurance can be given as to the amount of proceeds, if any, that might be realized from an LOC related to an LOC Pledged Asset Mortgage Loan. The Trust will not have any interest in the securities which a borrower has pledged to UBS Financial Services Inc. in connection with any LOC Pledged Asset Mortgage Loan.

 

A Trust Estate may also include other types of first lien, residential Mortgage Loans to the extent set forth in the applicable prospectus supplement.

 

Cash Flow Agreements

 

If specified in the prospectus supplement, the Trust Estate may include guaranteed investment contracts pursuant to which moneys held in the funds and accounts established for the related Series of Certificates will be invested at a specified rate. The Trust Estate may also include certain other agreements, such as interest rate exchange or swap agreements, interest rate cap or floor agreements or similar agreements provided to reduce the effects of interest rate fluctuations on the assets or on one or more Classes of Certificates. The principal terms of any such guaranteed

 

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investment contract or other agreement (any such agreement, a “Cash Flow Agreement”), including, without limitation, provisions relating to the timing, manner and amount of payments thereunder and provisions relating to the termination thereof, will be described in the prospectus supplement for the related Series of Certificates. In addition, the related prospectus supplement will provide certain information with respect to the obligor under any such Cash Flow Agreement.

 

THE SELLER

 

Wells Fargo Asset Securities Corporation (the “Seller”) is a direct, wholly owned subsidiary of Wells Fargo Bank, N.A. and an indirect, wholly owned subsidiary of Wells Fargo & Company. The Seller was incorporated in the State of Delaware on March 28, 1996 as Norwest Asset Securities Corporation. On April 7, 2000, Norwest Integrated Structured Assets, Inc., an affiliate of the Seller, was merged into and with the Seller. On April 17, 2000, the Seller changed its name from Norwest Asset Securities Corporation to Wells Fargo Asset Securities Corporation.

 

The limited purposes of the Seller are, in general, to acquire, own and sell mortgage loans; to issue, acquire, own, hold and sell mortgage pass-through securities and mortgage asset-backed pass-through securities which represent ownership interests in mortgage loans, collections thereon and related properties; and to engage in any acts which are incidental to, or necessary, suitable or convenient to accomplish, the foregoing.

 

The Seller maintains its principal office at 7430 New Technology Way, Frederick, Maryland 21703. Its telephone number is (301) 846-8881.

 

At the time of the formation of any Trust Estate, the Seller will be the sole owner of all the related Mortgage Loans. The Seller will have acquired the Mortgage Loans included in any Trust Estate from Wells Fargo Bank, N.A. Except to the extent otherwise specified in the applicable prospectus supplement, the Seller’s only obligation with respect to the Certificates of any Series will be to repurchase or substitute for Mortgage Loans in a Trust Estate in the event of defective documentation or upon the breach of certain representations and warranties made by the Seller. See “The Pooling and Servicing Agreement—Assignment of Mortgage Loans to the Trustee.”

 

WELLS FARGO BANK

 

Wells Fargo Bank, N.A. (“Wells Fargo Bank”) will act as a Servicer and the Master Servicer with respect to each Series. Wells Fargo Bank is an indirect, wholly owned subsidiary of Wells Fargo & Company. Wells Fargo Bank is a national banking association and is engaged in a wide range of activities of a national bank. Prior to February 20, 2004, Wells Fargo Bank Minnesota, National Association acted as Master Servicer with respect to each Series. On February 20, 2004, Wells Fargo Bank Minnesota, National Association was merged into Wells Fargo Bank. Wells Fargo Bank Minnesota, National Association was formerly called Norwest Bank Minnesota, National Association. Norwest Bank Minnesota, National Association changed its name to Wells Fargo Bank Minnesota, National Association on July 8, 2000.

 

On May 8, 2004, Wells Fargo Home Mortgage, Inc., a wholly-owned subsidiary of Wells Fargo Bank, was merged into Wells Fargo Bank. Wells Fargo Home Mortgage, Inc. was originally incorporated on July 1, 1983 under the name Norwest Mortgage, Inc. On April 14, 2000, Norwest Mortgage, Inc. changed its name to Wells Fargo Home Mortgage, Inc. Wells Fargo Home Mortgage, Inc. was engaged principally in the business of (i) originating, purchasing and selling residential mortgage loans in its own name and through certain of its affiliates (the “Wells Fargo Affiliates”) and (ii) servicing residential mortgage loans for its own account or for the account of others. The origination and servicing activities formerly carried on by Wells Fargo Home Mortgage, Inc. are now performed by the Wells Fargo Home Mortgage division of Wells Fargo Bank. Wells Fargo Bank is an approved servicer of Fannie Mae, Freddie Mac and the Government National Mortgage Association.

 

Wells Fargo Bank’s principal office is located in Sioux Falls, South Dakota. Wells Fargo Bank conducts its master servicing and securities administration services at its offices in Columbia, Maryland. Its address there is 9062 Old Annapolis Road, Columbia, Maryland 21045-1951 and its telephone number is (410) 884-2000.

 

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THE MORTGAGE LOAN PROGRAMS

 

Mortgage Loan Production Sources

 

Wells Fargo Bank conducts a significant portion of its mortgage loan originations through loan production offices (the “Loan Stores”) located throughout all 50 states. Wells Fargo Bank also conducts a significant portion of its mortgage loan originations through centralized production offices located in Frederick, Maryland and Minneapolis, Minnesota. At the latter locations, Wells Fargo Bank receives applications for home mortgage loans on toll-free telephone numbers that can be called from anywhere in the United States. Wells Fargo Bank also provides information and accepts applications through the internet.

 

The following are Wells Fargo Bank’s primary sources of mortgage loan originations: (i) direct contact with prospective borrowers (including borrowers with mortgage loans currently serviced by Wells Fargo Bank or borrowers referred by borrowers with mortgage loans currently serviced by Wells Fargo Bank), (ii) referrals by realtors, other real estate professionals and prospective borrowers to the Loan Stores, (iii) referrals from selected corporate clients, (iv) originations by Wells Fargo Bank’s Private Mortgage Banking division (including referrals from the private banking group of Wells Fargo Bank and other affiliated banks), which specializes in providing services to individuals meeting certain earnings, liquidity or net worth parameters, (v) several joint ventures into which Wells Fargo Bank, through its wholly owned subsidiary, Wells Fargo Ventures, LLC, has entered with realtors and banking institutions (the “Joint Ventures”) and (vi) referrals from mortgage brokers and similar entities. In addition to its own mortgage loan originations, Wells Fargo Bank acquires qualifying mortgage loans from other unaffiliated originators (“Correspondents”). See “—Acquisition of Mortgage Loans from Correspondents” below. The relative contribution of each of these sources to Wells Fargo Bank’s origination business, measured by the volume of loans generated, tends to fluctuate over time.

 

Wells Fargo Ventures, LLC owns at least a 50% interest in each of the Joint Ventures, with the remaining ownership interest in each being owned by a realtor or a banking institution having significant contact with potential borrowers. Mortgage loans that are originated by Joint Ventures in which Wells Fargo Bank’s partners are realtors are generally made to finance the acquisition of properties marketed by such Joint Venture partners. Applications for mortgage loans originated through Joint Ventures are generally taken by Joint Venture employees and underwritten by Wells Fargo Bank in accordance with its standard underwriting criteria. Such mortgage loans are then closed by the Joint Ventures in their own names and subsequently purchased by Wells Fargo Bank or the Wells Fargo Affiliates.

 

Wells Fargo Bank may directly contact prospective borrowers (including borrowers with mortgage loans currently serviced by Wells Fargo Bank) through general and targeted solicitations. Such solicitations are made through direct mailings, mortgage loan statement inserts and television, radio and print advertisements and by telephone. Wells Fargo Bank’s targeted solicitations may be based on characteristics such as the borrower’s mortgage loan interest rate or payment history and the geographic location of the mortgaged property. See “Prepayment and Yield Considerations.”

 

A majority of Wells Fargo Bank’s corporate clients are companies that sponsor relocation programs for their employees and in connection with which Wells Fargo Bank provides mortgage financing. Eligibility for a relocation loan is based, in general, on an employer’s providing financial assistance to the relocating employee in connection with a job-required move. Although Subsidy Loans are typically generated through such corporate-sponsored programs, the assistance extended by the employer need not necessarily take the form of a loan subsidy. Not all relocation loans are generated by Wells Fargo Bank through referrals from its corporate clients; some relocation loans are generated as a result of referrals from mortgage brokers and similar entities and others are generated through Wells Fargo Bank’s acquisition of mortgage loans from other originators. Also among Wells Fargo Bank’s corporate clients are various professional associations. These associations, as well as the other corporate clients, promote the availability of a broad range of Wells Fargo Bank mortgage products to their members or employees, including refinance loans, second-home loans and investment-property loans.

 

Acquisition of Mortgage Loans from Correspondents

 

In order to qualify for participation in Wells Fargo Bank’s mortgage loan purchase programs, lending institutions must (i) meet and maintain certain net worth and other financial standards, (ii) demonstrate experience in originating residential mortgage loans, (iii) meet and maintain certain operational standards, (iv) evaluate each loan offered to Wells Fargo Bank for consistency with Wells Fargo Bank’s underwriting guidelines or the standards of a pool insurer and represent that each loan was underwritten in accordance with Wells Fargo Bank standards or the standards of a pool insurer and (v) utilize the services of qualified appraisers.

 

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The contractual arrangements with Correspondents may involve the commitment by Wells Fargo Bank to accept delivery of a certain dollar amount of mortgage loans over a period of time. This commitment may be satisfied either by delivery of mortgage loans one at a time or in multiples as aggregated by the Correspondent. The contractual arrangements with Correspondents may also involve the delegation of all underwriting functions to such Correspondents (“Delegated Underwriting”), which will result in Wells Fargo Bank not performing any underwriting functions prior to acquisition of the loan but instead relying on such originators’ representations and, in the case of bulk purchase acquisitions from such Correspondents, Wells Fargo Bank’s post-purchase reviews of samplings of mortgage loans acquired from such originators regarding the originators’ compliance with Wells Fargo Bank’s underwriting standards. In all instances, however, acceptance by Wells Fargo Bank is contingent upon the loans being found to satisfy Wells Fargo Bank’s program standards or the standards of a pool insurer. Wells Fargo Bank may also acquire portfolios of loans in negotiated transactions.

 

Mortgage Loan Underwriting

 

Wells Fargo Bank Underwriting

 

The following is a summary of Wells Fargo Bank’s “general” underwriting standards and the substantially less restrictive underwriting criteria applicable to Wells Fargo Bank’s “retention program.”

 

General Standards.    Wells Fargo Bank’s underwriting standards are applied by or on behalf of Wells Fargo Bank to evaluate the applicant’s credit standing and ability to repay the loan, as well as the value and adequacy of the mortgaged property as collateral. The underwriting standards that guide the determination represent a balancing of several factors that may affect the ultimate recovery of the loan amount, including, among others, the amount of the loan, the ratio of the loan amount to the property value (i.e., the lower of the appraised value of the mortgaged property and the purchase price), the borrower’s means of support and the borrower’s credit history. Wells Fargo Bank’s guidelines for underwriting may vary according to the nature of the borrower or the type of loan, since differing characteristics may be perceived as presenting different levels of risk. With respect to certain Mortgage Loans, the originators of such loans may have contracted with unaffiliated third parties to perform the underwriting process. Except as described below, the Mortgage Loans will be underwritten by or on behalf of Wells Fargo Bank generally in accordance with the standards and procedures described herein.

 

Wells Fargo Bank supplements the mortgage loan underwriting process with either its own proprietary scoring system or scoring systems developed by third parties such as Freddie Mac’s Loan Prospector, Fannie Mae’s Desktop Underwriter or scoring systems developed by private mortgage insurance companies. These scoring systems assist Wells Fargo Bank in the mortgage loan approval process by providing consistent, objective measures of borrower credit and certain loan attributes. Such objective measures are then used to evaluate loan applications and assign each application a “Mortgage Score.”

 

The portion of the Mortgage Score related to borrower credit history is generally based on computer models developed by a third party. These models evaluate information available from three major credit reporting bureaus regarding historical patterns of consumer credit behavior in relation to default experience for similar types of borrower profiles. A particular borrower’s credit patterns are then considered in order to derive a “FICO Score” which indicates a level of default probability over a two-year period.

 

The Mortgage Score is used to determine the type of underwriting process and which level of underwriter will review the loan file. For transactions which are determined to be low-risk transactions, based upon the Mortgage Score and other parameters (including the mortgage loan production source), the lowest underwriting authority is generally required. For moderate and higher risk transactions, higher level underwriters and a full review of the mortgage file are generally required. Borrowers who have a satisfactory Mortgage Score (based upon the mortgage loan production source) are generally subject to streamlined credit review (which relies on the scoring process for various elements of the underwriting assessments). Such borrowers may also be eligible for a reduced documentation program and are generally permitted a greater latitude in the application of borrower debt-to-income ratios.

 

With respect to all mortgage loans underwritten by Wells Fargo Bank, Wells Fargo Bank’s underwriting of a mortgage loan may be based on data obtained by parties other than Wells Fargo Bank that are involved at various stages in the mortgage origination or acquisition process. This typically occurs under circumstances in which loans are subject to an alternative approval process, as when correspondents, certain mortgage brokers or similar entities that have been approved by Wells Fargo Bank to process loans on its behalf, or independent contractors hired by Wells Fargo Bank to perform underwriting services on its behalf (“contract underwriters”) make initial determinations as to the consistency of loans with Wells Fargo Bank underwriting guidelines. Wells Fargo Bank may also permit these third

 

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parties to utilize scoring systems in connection with their underwriting process. The underwriting of mortgage loans acquired by Wells Fargo Bank pursuant to a Delegated Underwriting arrangement with a Correspondent is not reviewed prior to acquisition of the mortgage loan by Wells Fargo Bank although the mortgage loan file is reviewed by Wells Fargo Bank to confirm that certain documents are included in the file. In addition, in order to be eligible to sell mortgage loans to Wells Fargo Bank pursuant to a Delegated Underwriting arrangement, the originator must meet certain requirements including, among other things, certain quality, operational and financial guidelines. See “—Acquisition of Mortgage Loans from Correspondents” above.

 

A prospective borrower applying for a mortgage loan is required to complete a detailed application. The loan application elicits pertinent information about the applicant, with particular emphasis on the applicant’s financial health (assets, liabilities, income and expenses), the property being financed and the type of loan desired. A self-employed applicant may be required to submit his or her most recent signed federal income tax returns. With respect to every applicant, credit reports are obtained from commercial reporting services, summarizing the applicant’s credit history with merchants and lenders. Generally, significant unfavorable credit information reported by the applicant or a credit reporting agency must be explained by the applicant. The credit review process generally is streamlined for borrowers with a qualifying Mortgage Score.

 

Verifications of employment, income, assets or mortgages may be used to supplement the loan application and the credit report in reaching a determination as to the applicant’s ability to meet his or her monthly obligations on the proposed mortgage loan, as well as his or her other mortgage payments (if any), living expenses and financial obligations. A mortgage verification involves obtaining information regarding the borrower’s payment history with respect to any existing mortgage the applicant may have. This verification is accomplished by either having the present lender complete a verification of mortgage form, evaluating the information on the credit report concerning the applicant’s payment history for the existing mortgage, communicating, either verbally or in writing, with the applicant’s present lender or analyzing cancelled checks provided by the applicant. Verifications of income, assets or mortgages may be waived under certain programs offered by Wells Fargo Bank, but Wells Fargo Bank’s underwriting guidelines require, in most instances, a verbal or written verification of employment to be obtained. In some cases, employment histories may be obtained through V.I.E., Inc., an entity jointly owned by Wells Fargo Bank and an unaffiliated third party, that obtains employment data from state unemployment insurance departments or other state agencies. In addition, the loan applicant may be eligible for a loan approval process permitting reduced documentation. The above referenced reduced documentation options and waivers limit the amount of documentation required for an underwriting decision and have the effect of increasing the relative importance of the credit report and the appraisal. Documentation requirements vary based upon a number of factors, including the purpose of the loan, the amount of the loan, the ratio of the loan amount to the property value and the mortgage loan production source. Wells Fargo Bank accepts alternative methods of verification, in those instances where verifications are part of the underwriting decision; for example, salaried income may be substantiated either by means of a form independently prepared and signed by the applicant’s employer or by means of the applicant’s most recent paystub and/or W-2. Loans underwritten using alternative verification methods are considered by Wells Fargo Bank to have been underwritten with “full documentation.” In cases where two or more persons have jointly applied for a mortgage loan, the gross incomes and expenses of all of the applicants, including nonoccupant co-mortgagors, are combined and considered as a unit.

 

In general, borrowers applying for loans must demonstrate that the ratio of their total monthly debt to their monthly gross income does not exceed a certain maximum level. Such maximum level varies depending on a number of factors including Loan-to-Value Ratio, a borrower’s credit history, a borrower’s liquid net worth, the potential of a borrower for continued employment advancement or income growth, the ability of the borrower to accumulate assets or to devote a greater portion of income to basic needs such as housing expense, a borrower’s Mortgage Score and the type of loan for which the borrower is applying. These calculations are based on the amortization schedule and the interest rate of the related loan, with the ratio being computed on the basis of the proposed monthly mortgage payment. In the case of adjustable-rate mortgage loans, the interest rate used to determine a mortgagor’s total debt for purposes of such ratio may, in certain cases, be the initial mortgage interest rate or another interest rate, which, in either case, is lower than the sum of the index rate that would have been applicable at origination plus the applicable margin. In evaluating applications for Subsidy Loans and Buy-Down Loans, the ratio is determined by including in the applicant’s total monthly debt the proposed monthly mortgage payment reduced by the amount expected to be applied on a monthly basis under the related subsidy agreement or buy-down agreement or, in certain cases, the mortgage payment that would result from an interest rate lower than the Mortgage Interest Rate but higher than the effective rate to the mortgagor as a result of the subsidy agreement or the buy-down agreement. See “The Trust Estates—Mortgage Loans.” In the case of the mortgage loans of certain applicants referred by Wells Fargo Bank’s Private Mortgage Banking division, qualifying income may be based on an “asset dissipation” approach under which future income is projected

 

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from the assumed liquidation of a portion of the applicant’s specified assets. In evaluating an application with respect to a “non-owner-occupied” property, which Wells Fargo Bank defines as a property leased to a third party by its owner (as distinct from a “second home,” which Wells Fargo Bank defines as an owner-occupied, non-rental property that is not the owner’s principal residence), Wells Fargo Bank will include projected rental income net of certain mortgagor obligations and other assumed expenses or loss from such property to be included in the applicant’s monthly gross income or total monthly debt in calculating the foregoing ratio. A mortgage loan secured by a two- to four-family Mortgaged Property is considered to be an owner-occupied property if the borrower occupies one of the units; rental income on the other units is generally taken into account in evaluating the borrower’s ability to repay the mortgage loan.

 

Secondary financing may be provided by Wells Fargo Bank, any of its affiliates or other lenders simultaneously with the origination of the first lien mortgage loan. Wells Fargo Bank or one of its affiliates may provide such secondary financing in the form of a flexible home equity line of credit, the available balance under which may increase on a quarterly basis by one dollar for each dollar applied in payment of the principal balance of the first lien mortgage loan during the preceding quarter (any such loan, a “Home Asset ManagementSM Account Loan”). In addition, the available balance of such line of credit may be eligible for increase on an annual basis by one dollar for each dollar, if any, by which the value of the related Mortgaged Property has increased over the prior year, as determined pursuant to a statistically derived home price index. The payment obligations under both primary and secondary financing are included in the computation of the debt-to-income ratio, and the combined amount of primary and secondary loans will be used to calculate the combined loan-to-value ratio. Wells Fargo Bank does not restrict a borrower from obtaining secondary financing after origination of the first lien mortgage loan.

 

Mortgage Loans will not generally have had at origination a Loan-to-Value Ratio in excess of 95%. However, if so specified in the applicable prospectus supplement, Mortgage Loans that had Loan-to-Value Ratios at origination in excess of 95% may be included in the related Trust Estate. The “Loan-to-Value Ratio” is the ratio, expressed as a percentage, of the principal amount of the Mortgage Loan at origination to the lesser of (i) the appraised value of the related Mortgaged Property, as established by an appraisal obtained by the originator generally no more than four months prior to origination (or, with respect to newly constructed properties, no more than twelve months prior to origination), or (ii) the sale price for such property. In some instances, the Loan-to-Value Ratio may be based on an appraisal that was obtained by the originator more than four months prior to origination, provided that (i) an appraisal update is obtained and (ii) the original appraisal was obtained no more than twelve months prior to origination. For the purpose of calculating the Loan-to-Value Ratio of any Mortgage Loan that is the result of the refinancing (including a refinancing for “equity take out” purposes) of an existing mortgage loan, the appraised value of the related Mortgaged Property is generally determined by reference to an appraisal obtained in connection with the origination of the replacement loan. In connection with certain of its mortgage originations, Wells Fargo Bank currently obtains appraisals through Value Information Technology, Inc., an entity jointly owned by Wells Fargo Bank and an unaffiliated third party.

 

No assurance can be given that values of the Mortgaged Properties have remained or will remain at the levels which existed on the dates of appraisal (or, where applicable, on the dates of appraisal updates) of the related Mortgage Loans. The appraisal of any Mortgaged Property reflects the individual appraiser’s judgment as to value, based on the market values of comparable homes sold within the recent past in comparable nearby locations and on the estimated replacement cost. The appraisal relates both to the land and to the structure; in fact, a significant portion of the appraised value of a Mortgaged Property may be attributable to the value of the land rather than to the residence. Because of the unique locations and special features of certain Mortgaged Properties, identifying comparable properties in nearby locations may be difficult. The appraised values of such Mortgaged Properties will be based to a greater extent on adjustments made by the appraisers to the appraised values of reasonably similar properties rather than on objectively verifiable sales data. If residential real estate values generally or in particular geographic areas decline such that the outstanding balances of the Mortgage Loans and any secondary financing on the Mortgaged Properties in a particular Trust Estate become equal to or greater than the values of the related Mortgaged Properties, the actual rates of delinquencies, foreclosures and losses could be higher than those now generally experienced in the mortgage lending industry and those now experienced in Wells Fargo Bank’s servicing portfolios. In addition, adverse economic conditions generally, in particular geographic areas or industries, or affecting particular segments of the borrowing community (such as mortgagors relying on commission income and self-employed mortgagors) and other factors which may or may not affect real property values, including the purposes for which the Mortgage Loans were made and the uses of the Mortgaged Properties, may affect the timely payment by mortgagors of scheduled payments of principal and interest on the Mortgage Loans and, accordingly, the actual rates of delinquencies, foreclosures and losses with respect to any Trust Estate. See “Prepayment and Yield Considerations—Weighted Average Life of

 

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Certificates.” To the extent that such losses are not covered by the methods of credit support or the insurance policies described herein, they will be borne by holders of the Certificates of the Series evidencing interests in such Trust Estate.

 

Wells Fargo Bank originates mortgage loans with Loan-to-Value Ratios in excess of 80% either with or without the requirement to obtain primary mortgage insurance. In cases for which such primary mortgage insurance is obtained, the excess over 75% (or such lower percentage as Wells Fargo Bank may require at origination) will be covered by primary mortgage insurance (subject to certain standard policy exclusions for default arising from, among other things, fraud or negligence in the origination or servicing of a Mortgage Loan, including misrepresentation by the mortgagor or other persons involved in the origination thereof) from an approved primary mortgage insurance company until the unpaid principal balance of the Mortgage Loan is reduced to an amount that will result in a Loan-to-Value Ratio less than or equal to 80%. In cases for which such primary mortgage insurance is not obtained, loans having Loan-to-Value Ratios exceeding 80% are required to be secured by primary residences or second homes (excluding cooperatives). Generally, each loan originated without primary mortgage insurance will have been made at an interest rate that was higher than the rate would have been had the Loan-to-Value Ratios been 80% or less or had primary mortgage insurance been obtained. The prospectus supplement will specify the number and percentage of Mortgage Loans contained in the Trust Estate for a particular Series of Certificates with Loan-to-Value Ratios at origination in excess of 80% which are not covered by primary mortgage insurance.

 

Except as described below, Mortgage Loans will generally be covered by an appropriate standard form American Land Title Association (“ALTA”) title insurance policy, or a substantially similar policy or form of insurance acceptable to Fannie Mae or Freddie Mac. The Seller will represent and warrant to the Trustee of any Trust Estate that the Mortgaged Property related to each Mortgage Loan is free and clear of all encumbrances and liens having priority over the first lien of the related Mortgage, subject to certain limited exceptions as set forth below under “—Representations and Warranties.”

 

Retention Program Standards.    A borrower with at least one mortgage loan serviced by Wells Fargo Bank may be eligible for Wells Fargo Bank’s retention program. Provided such a borrower is current in his or her mortgage payment obligations, Wells Fargo Bank may permit a refinancing of one or more of the borrower’s mortgage loans that are serviced by Wells Fargo Bank or another servicer to a current market interest rate without applying any significant borrower credit or property underwriting standards. As a result, borrowers who qualify under the retention program may not need to demonstrate that their current total monthly debt obligation in relation to their monthly income level does not exceed a certain ratio; Wells Fargo Bank may not obtain a current credit report for the borrower or apply a new FICO Score to the refinanced loan; and 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 retention program. A borrower may participate in this retention 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 had been originated or purchased by Wells Fargo Bank, by executing a modification agreement under which the interest rate on the existing mortgage loan is reduced to a current market rate. Mortgage Loans initially included in the Trust Estate for a particular Series of Certificates may have been the subject of a refinancing under the retention program and, to the extent that borrowers become eligible for the retention program after their Mortgage Loans have been included in a particular Trust Estate, such Mortgage Loans may be refinanced under such program. See “Prepayment and Yield Considerations” in this prospectus and in the prospectus supplement for a description of the potential effects on Certificateholders resulting from such refinancings.

 

Wells Fargo Bank may also apply the retention program to its existing borrowers who obtain new purchase money mortgage loans secured by primary residences where the initial principal balance of the new loan would not exceed 150% of the original principal balance of the previous loan (up to a maximum new loan amount of $400,000). Borrowers may be pre-approved under this program if they have a satisfactory payment history with Wells Fargo Bank as well as a satisfactory FICO Score. Wells Fargo Bank may waive verifications of borrower income and assets under this program and may not impose any limitation on the ratio of a borrower’s current total debt obligation in relation to current monthly income. A new appraisal will be obtained with respect to the residence securing the new purchase money mortgage loan.

 

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Representations and Warranties

 

In connection with the transfer of the Mortgage Loans related to any Series by the Seller to the Trust Estate, the Seller will generally make certain representations and warranties regarding the Mortgage Loans. In certain cases where Wells Fargo Bank acquired some or all of the Mortgage Loans related to a Series from a Correspondent, if so indicated in the applicable prospectus supplement, the Seller may, rather than itself making representations and warranties, cause the representations and warranties made by the Correspondent in connection with its sale of Mortgage Loans to Wells Fargo Bank or the Wells Fargo Affiliates to be assigned to the Trust Estate. In such cases, the Correspondent’s representations and warranties may have been made as of a date prior to the date of execution of the Pooling and Servicing Agreement. Unless otherwise provided in the applicable prospectus supplement, such representations and warranties (whether made by the Seller or another party) will generally include the following with respect to the Mortgage Loans, or each Mortgage Loan, as the case may be:

 

  (i)   the schedule of Mortgage Loans appearing as an exhibit to such Pooling and Servicing Agreement is correct in all material respects at the date or dates respecting which such information is furnished as specified therein;

 

  (ii)   immediately prior to the transfer and assignment contemplated by the Pooling and Servicing Agreement, the Seller is the sole owner and holder of the Mortgage Loan, free and clear of any and all liens, pledges, charges or security interests of any nature and has full right and authority to sell and assign the same;

 

  (iii)    no Mortgage Note or Mortgage is subject to any right of rescission, set-off, counterclaim or defense;

 

  (iv)   the Mortgage Loan is covered by a title insurance policy (or in the case of any Mortgage Loan secured by a Mortgaged Property located in a jurisdiction where such policies are generally not available, an opinion of counsel of the type customarily rendered in such jurisdiction in lieu of title insurance is instead received);

 

  (v)   the Mortgage is a valid, subsisting and enforceable first lien on the related Mortgaged Property and the Mortgaged Property is free and clear of all encumbrances and liens having a priority over the first lien of the Mortgage except for those liens set forth in the Pooling and Servicing Agreement;

 

  (vi)   the Mortgaged Property is undamaged by water, fire, earthquake or earth movement, windstorm, flood, tornado or similar casualty (excluding casualty from the presence of hazardous wastes or hazardous substances, as to which no representation is made), so as to affect adversely the value of the Mortgaged Property as security for the Mortgage Loan or the use for which the premises were intended;

 

  (vii)   all payments required to be made up to the Due Date immediately preceding the Cut-Off Date for such Mortgage Loan under the terms of the related Mortgage Note have been made and no Mortgage Loan had more than one delinquency in the 12 months preceding the Cut-Off Date;

 

  (viii)    each Mortgage Loan at the time it was originated complied in all material respects with applicable federal, state and local laws including, without limitation, usury, truth-in-lending, real estate settlement procedures, consumer credit protection, equal credit opportunity, predatory and abusive lending laws and disclosure laws; and

 

  (ix)   no Mortgage Loan is a “high cost” loan as defined under any federal, state or local law applicable to such Mortgage Loan at the time of its origination.

 

No representations or warranties are made by the Seller or any other party as to the environmental condition of any Mortgaged Property including the absence, presence or effect of hazardous wastes or hazardous substances on such Mortgaged Property or any effect from the presence or effect of hazardous wastes or hazardous substances on, near or emanating from such Mortgaged Property. See “Certain Legal Aspects of the Mortgage Loans—Environmental Considerations” below.

 

In addition, no representations or warranties are made by the Seller or any other party with respect to the absence or effect of fraud in the origination of any Mortgage Loan, and any loss or liability resulting from the presence or effect of fraud will be borne solely by Certificateholders.

 

See “The Pooling and Servicing Agreement—Assignment of Mortgage Loans to the Trustee” for a description of the limited remedies available in connection with breaches of the foregoing representations and warranties. In addition to those remedies, in the case of a breach of the representation that a Mortgage Loan at the time of its origination complied with any applicable federal, state or local predatory or abusive lending laws, the Seller (or other party making such representation) will be required to pay any costs or damages incurred by the Trust as a result of the violation of such laws.

 

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DELINQUENCY AND FORECLOSURE EXPERIENCE

 

The following tables set forth certain information concerning recent delinquency and foreclosure experience as reported to the Master Servicer by the applicable Servicers of such mortgage loans on (i) the conventional fixed-rate mortgage loans included in various mortgage pools underlying all Series of the Seller’s Mortgage Pass-Through Certificates (the “Fixed-Rate Loans”), (ii) the Fixed-Rate Loans having original terms to maturity of approximately 20 years to approximately 30 years (the “30-Year Fixed-Rate Loans”), including, in clauses (i) and (ii) mortgage loans originated in connection with the purchases of residences of relocated employees of various corporate employers that participated in the relocation program of Wells Fargo Bank and of various non-participant employers (“Relocation Mortgage Loans”), (iii) the Fixed-Rate Loans which are not Relocation Mortgage Loans (“Fixed-Rate Non-Relocation Loans”), (iv) the Fixed-Rate Non-Relocation Loans having original terms to maturity of approximately 20 years to approximately 30 years (the “30-Year Fixed-Rate Non-Relocation Loans”), (v) the Fixed-Rate Loans having original terms to maturity of approximately 10 years to approximately 15 years (the “15-Year Fixed-Rate Loans”) and (vi) the conventional adjustable-rate mortgage loans included in various mortgage pools underlying all Series of the Seller’s Mortgage Pass-Through Certificates (the “Adjustable-Rate Loans”). The mortgage loans represented in the following tables have various terms to stated maturity, may or may not include Relocation Mortgage Loans, and include loans having a variety of payment characteristics such as Subsidy Loans and Buy-Down Loans. In addition, the Adjustable-Rate Loans include mortgage loans with various periods until the first interest rate adjustment date and different indices upon which the adjusted interest rate is based. Certain of the Adjustable-Rate Loans also provide for the payment of only interest until the first Due Date following the related first adjustment date. There can be no assurance that the delinquency and foreclosure experience set forth in any of the following tables will be representative of the results that may be experienced with respect to the Mortgage Loans included in the Trust Estate with respect to any Series.

 

Delinquencies and foreclosures generally are expected to occur more frequently after the first full year of the life of mortgage loans. Accordingly, because a large number of mortgage loans included in the mortgage pools underlying the Seller’s Mortgage Pass-Through Certificates have been recently originated, the current level of delinquencies and foreclosures may not be representative of the levels which may be experienced over the lives of such mortgage loans. In addition, a substantial number of the Adjustable-Rate Loans have not reached their first adjustment date. The effect of the interest rate adjustment on the level of delinquencies and foreclosures is generally expected to depend on whether the interest rate increases and by how much. Those Adjustable-Rate Loans only paying interest until the first Due Date following the related first adjustment date may be subject to an increased risk of default once the payments are recalculated to fully amortize the unpaid principal balance of such loans and the mortgagors are required to make payments of both principal and interest which may increase their burden. Furthermore, there has been a significant decrease in the number of 30-Year Fixed-Rate Loans included in the mortgage pools underlying the Seller’s Mortgage Pass-Through Certificates as evidenced by the following tables. Factors contributing to this decrease include, but are not limited to, the optional purchase of Mortgage Loans in connection with the termination of the related Trust Estate and non-securitization of mortgage loans. As a result of this decrease, the levels of delinquencies and foreclosures as percentages of the various categories of mortgage loans (which include 30-Year Fixed-Rate Loans) covered by the following tables may have fallen or risen significantly. A change in the number of mortgage loans of any category underlying the Seller’s Mortgage Pass-Through Certificates may cause the delinquency and foreclosure percentage levels to decline significantly below or rise significantly above the rates indicated in the related tables.

 

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FIXED-RATE LOANS

 

     By No.
of Loans


    By Dollar
Amount
of Loans


    By No.
of Loans


    By Dollar
Amount
of Loans


    By No.
of Loans


    By Dollar
Amount
of Loans


 
     As of
December 31, 2003


   

As of

December 31, 2004


   

As of

March 31, 2005


 
     (Dollar Amounts in Thousands)  

Fixed-Rate Loans

   27,529     $ 12,685,318     27,069     $ 12,321,323     29,282     $