The
depositor has filed a registration statement (including a prospectus) with
the
SEC for the offering to which this free writing prospectus relates. Before
you
invest, you should read the prospectus in that registration statement and other
documents the depositor has filed with the SEC for more complete information
about the issuer and this offering. You may get these documents for free by
visiting EDGAR on the SEC website at www.sec.gov. Alternatively, the depositor,
any underwriter or any dealer participating in the offering will arrange to
send
you the prospectus if you request it by calling toll-free
1-866-884-2071.
This
free writing prospectus is not required to contain all information that is
required to be included in the prospectus.
The
information in this free writing prospectus is preliminary and is subject to
completion or change.
The
information in this free writing prospectus, if conveyed prior to the time
of
your commitment to purchase, supersedes information contained in any prior
similar free writing prospectus relating to these
securities.
This
free writing prospectus is not an offer to sell or a solicitation of an offer
to
buy these securities in any state where such offer, solicitation or sale is
not
permitted.
This
free writing prospectus is being delivered to you solely to provide you with
information about the offering of the offered certificates referred to in this
free writing prospectus and to solicit an indication of your interest in
purchasing such offered certificates, when, as and if issued. Any such
indication of interest will not constitute a contractual commitment by you
to
purchase any of the offered certificates. You may withdraw your indication
of
interest at any time.
You
should consider carefully the risk factors beginning on page
13
in this free writing prospectus and page 1 in the
prospectus.
The
certificates will represent interests in the issuing entity, the assets of
which
consist primarily of a pool of one- to four-family adjustable-rate and
fixed-rate, first lien and second lien residential mortgage loans. The
certificates will not represent ownership interests in or obligations of any
other entity.
The
Class A and Mezzanine Certificates —
•
will
represent senior or mezzanine interests in the trust and will receive
distributions from the assets of the
trust;
• will
receive monthly distributions commencing in June 2006;
•
will
have credit enhancement in the form of excess interest, subordination,
overcollateralization and a primary mortgage insurance policy;
and
•
will
have the benefit of an interest rate swap
agreement.
Class(1)
Original
Certificate Principal Balance(2)
Price
to Public
Underwriting
Discount
Proceeds
to the Depositor(3)
Class(1)
Original
Certificate Principal Balance(2)
Price
to Public
Underwriting
Discount
Proceeds
to the Depositor(3)
Class
A-1
$
535,800,000
[___]%
[___]%
[___]%
Class
M-4
$
22,693,000
[___]%
[___]%
[___]%
Class
A-2A
$
246,000,000
[___]%
[___]%
[___]%
Class
M-5
$
23,381,000
[___]%
[___]%
[___]%
Class
A-2B
$
119,000,000
[___]%
[___]%
[___]%
Class
M-6
$
19,943,000
[___]%
[___]%
[___]%
Class
A-2C
$
145,000,000
[___]%
[___]%
[___]%
Class
M-7
$
18,567,000
[___]%
[___]%
[___]%
Class
A-2D
$
53,798,000
[___]%
[___]%
[___]%
Class
M-8
$
15,817,000
[___]%
[___]%
[___]%
Class
M-1
$
48,137,000
[___]%
[___]%
[___]%
Class
M-9
$
11,003,000
[___]%
[___]%
[___]%
Class
M-2
$
42,636,000
[___]%
[___]%
[___]%
Class
M-10
$
13,754,000
[___]%
[___]%
[___]%
Class
M-3
$
27,507,000
[___]%
[___]%
[___]%
________________
(1)
The
pass-through rates on such classes will be based on one-month LIBOR
plus
the applicable margin, subject to certain caps as described in this
free
writing prospectus.
(2)
Approximate.
(3)
Before
deducting expenses payable by the Depositor estimated to be approximately
$[
__
].
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of the Offered Certificates or determined that this
free
writing prospectus or the prospectus is truthful or complete. Any representation
to the contrary is a criminal offense. The Attorney General of the State of
New
York has not passed on or endorsed the merits of this offering. Any
representation to the contrary is unlawful.
RBS
Greenwich Capital
Barclays
Capital
Deutsche
Bank Securities
Merrill
Lynch & Co.
Important
Notice about Information presented in this Free Writing Prospectus and the
accompanying Prospectus
You
should rely only on the information contained in this document. We have not
authorized anyone to provide you with different information. You should not
assume that the information in this free writing prospectus or the prospectus
is
accurate as of any date other than the date on the front of this
document.
We
provide information to you about the Class A and Mezzanine Certificates in
two
separate documents that progressively provide more detail:
•
the
accompanying prospectus, which provides general information, some
of which
may not apply to this series of certificates;
and
•
this
free writing prospectus, which describes the specific terms of this
series
of certificates.
Argent
Securities Inc. is located at 1100 Town & Country Road, Suite 1100, Orange,
California92868, Attention: Capital Markets, and its phone number is (714)
541-9960.
Table
of Contents
Free
Writing Prospectus
SUMMARY
OF FREE WRITING PROSPECTUS
RISK
FACTORS
USE
OF
PROCEEDS
AFFILIATIONS,
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE
MORTGAGE POOL
THE
ISSUING ENTITY
THE
DEPOSITOR
THE
ORIGINATOR
THE
SELLER, SPONSOR AND MASTER SERVICER
THE
TRUSTEE
THE
INTEREST RATE SWAP PROVIDER
YIELD
ON
THE CERTIFICATES
DESCRIPTION
OF THE CERTIFICATES
POOLING
AND SERVICING AGREEMENT
FEDERAL
INCOME TAX CONSEQUENCES
SECONDARY
MARKET
LEGAL
OPINIONS
RATINGS
LEGAL
INVESTMENT
ERISA
CONSIDERATIONS
ANNEX
I GLOBAL CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION
PROCEDURESI-
ANNEX
II ASSUMED MORTGAGE LOAN CHARACTERISTICSII-
ANNEX
III COLLATERAL STATISTICSIII-
ANNEX
IV INTEREST RATE SWAP SCHEDULEIV-
SUMMARY
OF FREE
WRITING PROSPECTUS
The
following summary is a brief description of key aspects of the certificates
offered by this free writing prospectus and does not contain all of the
information that you should consider in making your investment decision. To
understand all of the terms of the Class A and Mezzanine Certificates, read
carefully this entire free writing prospectus and the entire accompanying
prospectus. Annex I, II, III and IV are incorporated as a part of this free
writing prospectus. Capitalized terms used but not defined in this free writing
prospectus have the meanings assigned to them in the prospectus. A glossary
is
included at the end of the prospectus.
Issuing
Entity
Argent
Securities Trust 2006-W5.
Title
of Series
Argent
Securities Inc., Asset-Backed Pass-Through Certificates, Series
2006-W5.
Argent
Securities Inc. (the “Depositor”), a direct wholly-owned subsidiary of
Argent Mortgage Company, L.L.C. The Depositor will deposit the mortgage
loans into the trust. See “The Depositor” in the prospectus.
Originator
Argent
Mortgage Company, L.L.C. See “The Originator” in this free writing
prospectus.
Seller,
Sponsor and
Master
Servicer
Ameriquest
Mortgage Company (the “Seller,” the “Sponsor” or the “Master Servicer,” as
applicable), a Delaware corporation. See “The Seller, Sponsor and Master
Servicer” in this free writing prospectus.
Trustee
and Custodian
Deutsche
Bank National Trust Company (the “Trustee”), a national banking
association, will be the Trustee of the trust, will perform administrative
functions with respect to the certificates and will act as the custodian,
initial paying agent and certificate registrar. See “The Trustee” in this
free writing prospectus.
PMI
Insurer
Mortgage
Guaranty Insurance Corporation, a Wisconsin stock insurance corporation
(the “PMI Insurer”). Certain of the mortgage loans are covered by primary
mortgage insurance provided by the PMI Insurer, which may provide
limited
protection to the trust in the event such mortgage loans default.
See
“Description of the Certificates—The PMI Policy” in this free writing
prospectus.
NIMS
Insurer
One
or more insurance companies (together, the “NIMS Insurer”) may issue a
financial guaranty insurance policy covering certain payments to
be made
on net interest margin securities to be issued by a separate trust
and
secured by, among other things, all or a portion of the Class CE,
Class P
and/or Residual Certificates.
Distribution
Dates
Distributions
on the Certificates will be made on the 25th
day of each month, or, if such day is not a business day, on the
next
succeeding business day, beginning in June 2006 (each, a “Distribution
Date”).
Certificates
The
classes of Certificates, their pass-through rates and initial certificate
principal balances are shown or described in the table
below.
Class
Initial
Certificate
Principal
Balance(1)
Pass-Through
Rate
Margin
(2)(%) (3)(%)
Ratings
Fitch
Moody’s
S&P
Offered
Certificates
A-1
$
535,800,000
Variable(4)
[___]
[___]
AAA
Aaa
AAA
A-2A
$
246,000,000
Variable(4)
[___]
[___]
AAA
Aaa
AAA
A-2B
$
119,000,000
Variable(4)
[___]
[___]
AAA
Aaa
AAA
A-2C
$
145,000,000
Variable(4)
[___]
[___]
AAA
Aaa
AAA
A-2D
$
53,798,000
Variable(4)
[___]
[___]
AAA
Aaa
AAA
M-1
$
48,137,000
Variable(4)
[___]
[___]
AA+
Aa1
AA+
M-2
$
42,636,000
Variable(4)
[___]
[___]
AA+
Aa2
AA+
M-3
$
27,507,000
Variable(4)
[___]
[___]
AA
Aa3
AA
M-4
$
22,693,000
Variable(4)
[___]
[___]
AA-
A1
AA
M-5
$
23,381,000
Variable(4)
[___]
[___]
A+
A2
AA-
M-6
$
19,943,000
Variable(4)
[___]
[___]
A
A3
A+
M-7
$
18,567,000
Variable(4)
[___]
[___]
BBB+
Baa1
A
M-8
$
15,817,000
Variable(4)
[___]
[___]
BBB
Baa2
A-
M-9
$
11,003,000
Variable(4)
[___]
[___]
BBB
Baa3
BBB+
M-10
$
13,754,000
Variable(4)
[___]
[___]
BB+
Ba1
BBB
Non-Offered
Certificates(6)
CE
$ 32,320,564
(5)
N/A
N/A
N/A
N/R
N/R
N/R
P
$ 100
N/A
N/A
N/A
N/R
N/R
N/R
R
N/A
N/A
N/A
N/A
N/R
N/R
N/R
R-X
N/A
N/A
N/A
N/A
N/R
N/R
N/R
_______________
(1) Approximate,
subject
to a variance of plus or minus 5%.
(2) For
the
Interest Accrual Period for each Distribution Date on or prior to the Optional
Termination Date.
(3) For
the
Interest Accrual Period for each Distribution Date after the Optional
Termination Date.
(4) The
pass-through rate on each class of Class A and Mezzanine Certificates will
be
based on one-month LIBOR plus the applicable margin set forth above, subject
to
the rate caps described in this free writing prospectus.
(5) Represents
approximately 2.35% of the aggregate principal balance of the Mortgage Loans
as
of the Cut-off Date and is approximately equal to the initial amount of
overcollateralization required to be provided by the mortgage pool under the
Pooling and Servicing Agreement.
(6) May
be
offered through one or more private placements.
The
Issuing
Entity
The
Depositor will establish a trust relating to the Series 2006-W5 certificates
(the “Trust” or “Issuing Entity”) pursuant to a pooling and servicing agreement,
dated as of the Cut-off Date (the “Pooling and Servicing Agreement”), among the
Depositor, the Master Servicer and the Trustee. The Issuing Entity will issue
nineteen classes of certificates. The certificates will represent in the
aggregate the entire beneficial ownership interest in the Trust. Distributions
of interest and/or principal on the Class A and Mezzanine Certificates will
be
made only from payments received in connection with the mortgage loans held
in
the Trust and from amounts deposited into the Swap Account.
Designations
In
this
free writing prospectus, the following designations are used to refer to the
specified classes of Certificates, all of which, are primarily backed by the
Mortgage Loans held by the Trust.
Class
A Certificates
Class
A-1, Class A-2A, Class A-2B, Class A-2C and Class A-2D
Certificates.
Mezzanine
Certificates
Class
M-1, Class M-2, Class M-3, Class M-4, Class M-5, Class M-6, Class M-7, Class
M-8, Class M-9 and Class M-10 Certificates.
Subordinate
Certificates
Mezzanine
and Class CE Certificates.
Offered
Certificates
Class
A
and Mezzanine Certificates.
Non-Offered
Certificates
Class
CE,
Class P and Residual Certificates.
Group
I Certificates
Class
A-1
Certificates. The Group I Certificates will receive distributions primarily
from
amounts received from the Group I Mortgage Loans. The Group I Certificates
may,
as further described in this free writing prospectus, receive distributions
from
amounts received from the Group II Mortgage Loans, but only after distribution
of such amounts are made to the Group II Certificates. See “Description
of the Certificates—Interest Distributions”
and
“—Principal Distributions” in this free writing prospectus.
Group
II Certificates
Class
A-2A, Class A-2B, Class A-2C and Class A-2D Certificates. The Group II
Certificates will receive distributions primarily from amounts received from
the
Group II Mortgage Loans. The Group II Certificates may, as further described
in
this free writing prospectus, receive distributions from amounts received from
the Group I Mortgage Loans, but
only
after distribution of such amounts are made to
the
Group I Certificates. See “Description of the Certificates—Interest
Distributions” and “—Principal Distributions” in this free writing
prospectus.
Residual
Certificates
Class
R
and Class R-X Certificates.
The
Mortgage Loans
On
the
Closing Date, the Issuing Entity will acquire a pool of mortgage loans
consisting of fixed-rate and adjustable-rate mortgage loans secured by first
and
second liens (the “Mortgage Loans”).
The
Mortgage Loans will have been originated by the Originator.
For
purposes of calculating interest and principal distributions on the
certificates, the Mortgage Loans will be divided into two loan groups,
designated as the “Group I Mortgage Loans” and the “Group II Mortgage Loans.”
The Group I Mortgage Loans will consist of adjustable-rate and fixed-rate
mortgage loans with principal balances at origination that conform to Freddie
Mac loan limits. The Group II Mortgage Loans will consist of adjustable-rate
and
fixed-rate mortgage loans with principal balances at origination that may or
may
not conform to Freddie Mac or Fannie Mae loan limits.
References
to percentages of the mortgage loans in this free writing prospectus are based
on the Mortgage Loans with the aggregate scheduled principal balance of such
mortgage loans as specified in the amortization schedule at the Cut-off Date
after application of all amounts allocable to unscheduled payments of principal
received prior to the Cut-off Date. In cases where the minimum mortgage rate
for
any adjustable-rate Mortgage Loan is lower than its applicable margin, the
applicable margin is used as its minimum mortgage rate. Prior to the issuance
of
the certificates, some of the Mortgage Loans may be removed from the mortgage
pool as a result of incomplete documentation or otherwise and any Mortgage
Loans
that prepay or default will be removed. Other mortgage loans may be included
in
the mortgage pool prior to the issuance of the Certificates. However, the
removal and inclusion of such mortgage loans will
not
alter the aggregate principal balance of the Mortgage Loans, any statistic
presented on a weighted average basis or any statistic based on a particular
loan group or all of the Mortgage Loans by more than plus or minus 5%,
although
the range of mortgage rates, maturities or certain other characteristics of
the
Mortgage Loans may vary.
The
Mortgage Loans included in Group I (the “Group I Mortgage Loans”) have the
following approximate characteristics as of the Cut-off Date:
Number
of Group I Mortgage Loans:
4,067
Aggregate
Scheduled Principal Balance:
$670,168,258
Group
I Mortgage Loans with prepayment charges:
55.93%
Fixed-rate
Group I Mortgage Loans:
18.71%
Adjustable-rate
Group I Mortgage Loans:
81.29%
Interest-only
Group I Mortgage Loans:
9.13%
Stepped-rate
Group I Mortgage Loans:
13.99%
First
lien Group I Mortgage Loans:
99.46%
Second
lien Group I Mortgage Loans:
0.54%
Range
of current mortgage rates:
6.200%-
13.250%
Weighted
average current mortgage rate:
8.569%
Weighted
average gross margin of the adjustable-rate Group I Mortgage
Loans:
5.920%
Weighted
average minimum mortgage rate of the adjustable-rate Group I Mortgage
Loans:
8.655%
Weighted
average maximum mortgage rate of the adjustable-rate Group I Mortgage
Loans:
14.655%
Weighted
average next adjustment date of the adjustable-rate Group I Mortgage
Loans:
July
2008
Weighted
average remaining term to maturity:
358
months
Range
of principal balances as of the Cut-off Date:
$19,989
- $798,921
Average
principal balance as of the Cut-off Date:
$164,782
Range
of original loan-to-value ratios:
17.39%
- 100.00%
Weighted
average original loan-to-value ratio:
80.03%
Geographic
concentrations in excess of 5%:
California
14.79
Illinois
12.12%
Florida
9.22%
Arizona
6.92%
The
Mortgage Loans included in Group II (the “Group II Mortgage Loans”) have the
following approximate characteristics as of the Cut-off Date:
Number
of Group II Mortgage Loans:
2,492
Aggregate
Scheduled Principal Balance:
$705,188,406
Group
II Mortgage Loans with prepayment charges:
63.69%
Fixed-rate
Group II Mortgage Loans:
7.74%
Adjustable-rate
Group II Mortgage Loans:
92.26%
Interest-only
Group II Mortgage Loans:
27.56%
Stepped-rate
Group II Mortgage Loans:
24.98%
First
lien Group II Mortgage Loans:
98.08%
Second
lien Group II Mortgage Loans:
1.92%
Range
of current mortgage rates:
6.150%-
13.250%
Weighted
average current mortgage rate:
8.326%
Weighted
average gross margin of the adjustable-rate Group II Mortgage
Loans:
5.981%
Weighted
average minimum mortgage rate of the adjustable-rate Group II Mortgage
Loans:
8.270%
Weighted
average maximum mortgage rate of the adjustable-rate Group II Mortgage
Loans:
14.270%
Weighted
average next adjustment date of the adjustable-rate Group II Mortgage
Loans:
June
2008
Weighted
average remaining term to maturity:
359
months
Range
of principal balances as of the Cut-off Date:
$19,982
- $998,584
Average
principal balance as of the Cut-off Date:
$282,981
Range
of original loan-to-value ratios:
24.60%
- 100.00%
Weighted
average original loan-to-value ratio:
82.48%
Geographic
concentrations in excess of 5%:
California
46.62%
Florida
11.83%
Arizona
6.23%
Illinois
5.48%
New
York
5.44%
The
mortgage rate on each adjustable-rate Mortgage Loan will adjust semi-annually
on
each adjustment date to equal the sum of six-month LIBOR and the related gross
margin, subject to periodic and lifetime limitations. With respect to the
adjustable-rate Mortgage Loans, the first adjustment date will occur only after
an initial period of two or three years after origination.
Approximately
9.13% of the Group I Mortgage Loans and approximately 27.56% of the Group II
Mortgage Loans, in each case by aggregate scheduled principal balance of the
related loan group as of the Cut-off Date, require the mortgagors to make
monthly payments only of accrued interest for the first two or five years
following origination. After such interest only period, the mortgagor’s monthly
payment will be recalculated to cover both interest and principal so that the
Mortgage Loan will amortize fully by its final payment date.
For
additional information regarding the Mortgage Loans, see “The Mortgage Pool” in
this free writing prospectus and Annex III.
The
Certificates
The
Offered Certificates will be sold by the Depositor to the Underwriters on the
Closing Date.
The
final
scheduled Distribution Date for the Class A and Mezzanine Certificates will
be
the Distribution Date in June 2036. The final scheduled Distribution Date for
the Class A and Mezzanine Certificates is one month following the maturity
date
for the latest maturing Mortgage Loan. The actual final Distribution Date for
the Class A Certificates and Mezzanine Certificates may be earlier or later,
and
could be substantially earlier, than the final scheduled Distribution
Date.
The
Offered Certificates will initially be represented by one or more global
certificates registered in the name of a nominee of The Depository Trust Company
in minimum denominations of $100,000 and integral multiples of $1.00 in excess
thereof. See “Description of the Securities—Book-Entry Certificates” in the
prospectus.
The
Class
CE, Class P and Residual Certificates, which are being issued simultaneously
with the Offered Certificates, are not offered by this free writing prospectus.
Such certificates may be delivered to the Seller as partial consideration for
the Mortgage Loans or alternatively, the Depositor may sell all or a portion
of
such certificates to one or more third-party investors in one or more private
transactions.
Credit
Enhancement
The
credit enhancement provided for the benefit of the holders of the Class A and
Mezzanine Certificates consists of excess interest, subordination,
overcollateralization and a primary mortgage insurance policy, each as described
below and under “Description of the Certificates—Credit Enhancement”,
“—Overcollateralization Provisions” and “—The PMI Policy” in this free writing
prospectus.
Excess
Interest.
The
Mortgage Loans bear interest each month in an amount that in the aggregate
is
expected to exceed the amount needed to distribute monthly interest on the
Class
A and Mezzanine Certificates and to pay certain fees and expenses of the Trust
(including any Net Swap Payment and any Swap Termination Payment owed to the
Interest Rate Swap Provider other than termination payments resulting from
a
Swap Provider Trigger Event). Any excess interest from the Mortgage Loans each
month will be available to absorb realized losses on the Mortgage Loans and
to
maintain or restore overcollateralization at required levels.
Subordination.
The
rights of the holders of the Mezzanine Certificates and the Class CE
Certificates to receive distributions will be subordinated, to the extent
described in this free writing prospectus, to the rights of the holders of
the
Class A Certificates.
In
addition, the rights of the holders of Mezzanine Certificates with higher
numerical class designations to receive distributions in respect of the Mortgage
Loans will be subordinated to the rights of holders of Mezzanine Certificates
with lower numerical class designations, and the rights of the holders of the
Class CE Certificates to receive distributions in respect of the Mortgage Loans
will be subordinated to the rights of the holders of the Mezzanine Certificates,
in each case to the extent described under “Description of the
Certificates—Allocation of Losses; Subordination” in this free writing
prospectus.
Subordination
is intended to enhance the likelihood of regular distributions on the more
senior certificates in respect of interest and principal and to afford such
certificates protection against realized losses on the Mortgage
Loans.
Overcollateralization.
The
aggregate principal balance of the Mortgage Loans as of the Cut-off Date is
expected to exceed the aggregate certificate principal balance of the Class
A,
Mezzanine and Class P Certificates on the Closing Date by an amount equal to
the
initial amount of overcollateralization required to be provided by the mortgage
pool under the Pooling and Servicing Agreement. The amount of
overcollateralization will be available to absorb realized losses on the
Mortgage Loans. See “Description of the Certificates—Overcollateralization
Provisions” in this free writing prospectus.
Primary
Mortgage Insurance.
Approximately 8.41% of the Group I Mortgage Loans and approximately 11.96%
of
the Group II Mortgage Loans, in each case by aggregate principal balance of
the
related loan group as of the Cut-off Date, will be insured by an insurance
policy issued by the PMI Insurer. However, such policy will provide only limited
protection against losses on defaulted mortgage loans which are covered by
such
policy. See “Description of the Certificates—The PMI Policy” in this free
writing prospectus.
Allocation
of Losses.
On any
Distribution Date, realized losses on the Mortgage Loans will first,
reducethe
excess interest and second, reduce the overcollateralization for such
Distribution Date. If on any Distribution Date, the amount of
overcollateralization is reduced to zero, any additional realized losses will
be
allocated to reduce the certificate principal balance of each class of Mezzanine
Certificates in reverse numerical order until the certificate principal balance
of each such class has been reduced to zero. The Pooling and Servicing Agreement
does not permit the allocation of realized losses on the Mortgage Loans to
the
Class A or Class P Certificates. However, investors in the Class A Certificates
should realize that under certain loss scenarios, there may not be enough
principal and interest on the Mortgage Loans to distribute to the Class A
Certificates all principal and interest amounts to which such certificates
are
then entitled. See “Description of the Certificates—Allocation of Losses;
Subordination” in this free writing prospectus.
Once
realized losses are allocated to the Mezzanine Certificates, such realized
losses will not be reinstated (except in the case of subsequent recoveries)
nor
will such certificates accrue interest on any allocated realized loss amounts.
However, the amount of any realized losses allocated to the Mezzanine
Certificates may be distributed to the holders of those certificates according
to the priorities set forth under “Description of the
Certificates—Overcollateralization Provisions” and “Description of the
Certificates—The Interest Rate Swap Agreement and the Swap Account” in this free
writing prospectus.
Interest
Rate Swap Agreement
The
Trustee, on behalf of the Trust, will enter into an interest rate swap agreement
(the “Interest Rate Swap Agreement”) with Deutsche Bank AG, New York Branch as
swap provider (the “Interest Rate Swap Provider”). Under
the
Interest Rate Swap Agreement, on each Distribution Date, the Issuing Entity
will
be obligated to make a payment equal to the product of (x) the fixed rate of
5.344%, (y) the Base Calculation Amount for that Distribution Date multiplied
by
250 and (z) a fraction, the numerator of which is 30 and the denominator of
which is 360 and the Interest Rate Swap Provider will be obligated to make
a
payment equal to the product of (x) the floating rate of one-month LIBOR (as
determined pursuant to the Interest Rate Swap Agreement), (y) the Base
Calculation Amount for that Distribution Date multiplied by 250, and (z) a
fraction, the numerator of which is the actual number of days elapsed from
the
previous Distribution Date to but excluding the current Distribution Date and
the denominator of which is 360.
To the
extent that the fixed rate payment exceeds the floating rate payment on any
Distribution Date, amounts otherwise available to Certificateholders will be
applied to make a net payment to the Interest Rate Swap Provider, and to the
extent that the floating rate payment exceeds the fixed rate payment on any
Distribution Date, the Interest Rate Swap Provider will make a net payment
to
the Trust (each, a “Net Swap Payment”) for deposit into a segregated trust
account established on the Closing Date (the “Swap Account”) pursuant to a swap
administration agreement, dated as of the Closing Date (the “Swap Administration
Agreement”), as more fully described in this free writing
prospectus.
Upon
early termination of the Interest Rate Swap Agreement, the Trust or the Interest
Rate Swap Provider may be liable to make a termination payment (the “Swap
Termination Payment”) to the other party (regardless of which party caused the
termination). The Swap Termination Payment will be computed in accordance with
the procedures set forth in the Interest Rate Swap Agreement. In the event
that
the Trust is required to make a Swap Termination Payment, that payment will
be
paid on the related Distribution Date, and on any subsequent Distribution Dates
until paid in full, generally prior to any distribution to Certificateholders.
See “Description of the Certificates—The Interest Rate Swap Agreement and the
Interest Rate Swap Provider” in this free writing prospectus.
Net
Swap
Payments and Swap Termination Payments (other than Swap Termination Payments
resulting from a Swap Provider Trigger Event) payable by the Issuing Entity
will
be deducted from Available Funds before distributions to Certificateholders
and
will first be deposited into the Swap Account before payment to the Interest
Rate Swap Provider.
Fees
and Expenses
Before
distributions are made on the Certificates, the following fees and expenses
will
be payable: (i) the Master Servicer will be paid a monthly fee (the “Servicing
Fee”) equal to one-twelfth of 0.500% (the “Servicing Fee Rate”) and (ii) the
Trustee will be paid a monthly fee (the “Trustee Fee”) equal to one-twelfth of
0.0016% (the “Trustee Fee Rate”), in each case multiplied by the aggregate
principal balance of the Mortgage Loans as of the first day of the related
Due
Period. The Servicing Fee will be payable from amounts on deposit in the
Collection Account and the Trustee Fee will be payable from amounts on deposit
in the Distribution Account. The PMI Insurer will be paid a monthly fee (the
“PMI Insurer Fee”) equal to one-twelfth of 0.95% (the “PMI Insurer Fee Rate”)
multiplied by the aggregate principal balance of the Mortgage Loans covered
by
the PMI Policy (the “PMI Mortgage Loans”) as of the first day of the related Due
Period. The PMI Insurer Fee will be payable from amounts on deposit in the
Distribution Account.
For
further information, see “Description of the Certificates—Fees and Expenses of
the Trust” in this free writing prospectus.
Advances
The
Master Servicer is required to advance delinquent payments of principal and
interest on the Mortgage Loans, subject to the limitations described in this
free writing prospectus. The Master Servicer is entitled to be reimbursed for
such advances, and therefore such advances are not a form of credit enhancement.
See “Description of the Certificates —Advances” in this free writing prospectus
and “Distributions on the Securities—Advances by Master Servicer in Respect of
Delinquencies on the Trust Fund Assets” in the prospectus.
Trigger
Events
The
occurrence of a Trigger Event, following the Stepdown Date, may have the effect
of accelerating or decelerating the amortization of certain classes of Class
A
Certificates and Mezzanine Certificates and affecting the weighted average
lives
of such certificates. The Stepdown Date is the earlier to occur of (1) the
first
Distribution Date on which the aggregate certificate principal balance of the
Class A Certificates has been reduced to zero and (2) the later of (x) the
Distribution Date occurring in June 2009 and (y) the first Distribution Date
on
which the subordination available to the Class A Certificates has doubled.
A
Trigger Event will be in effect if delinquencies or losses on the mortgage
loans
exceed the levels set forth in the definition thereof.
See
“Description of the Certificates—Principal Distributions,”“Definitions” and
“Yield on the Certificates—Yield
Sensitivity of the Mezzanine Certificates” in this free writing prospectus for
additional information.
Repurchase
or Substitution of Mortgage Loans for Breaches of Representations and
Warranties
The
Seller will make
certain representations and warranties with respect to each Mortgage Loan at
the
time of origination or as of the Closing Date. Upon discovery of a breach of
such representations and warranties that materially and adversely affects the
interests of the Certificateholders, the Seller will be obligated to cure such
breach, or otherwise repurchase or replace such Mortgage Loan. See “Pooling and
Servicing Agreement—Assignment
and Substitution of the Mortgage Loans” in this free writing prospectus and “The
Depositor’s Mortgage Loan Purchase Program Representations by or behalf of
Mortgage Loan Sellers; Remedies for Breach of Representation” in the
prospectus.
Optional
Termination
The
majority holders of the Class CE Certificates or the Master Servicer, in that
order, may purchase all of the Mortgage Loans, together with any properties
in
respect thereof acquired on behalf of the Trust, and thereby effect termination
and early retirement of the certificates, after the aggregate principal balance
of the Mortgage Loans (and properties acquired in respect thereof) remaining
in
the Trust has been reduced to an amount less than 10% of the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date. If the majority holders
of
the Class CE Certificates and the Master Servicer fail to exercise their option,
the NIMS Insurer, if any, may exercise that option. See “Pooling and Servicing
Agreement—Termination” in this free writing prospectus and “Distributions on the
Securities—Termination of the Trust Fund and Disposition of Trust Fund Assets”
in the prospectus.
Federal
Income Tax Consequences
One
or
more elections will be made to treat designated portions of the Trust (exclusive
of the Interest Rate Swap Agreement, the Swap Account and the Net WAC Rate
Carryover Reserve Account, as described more fully herein) as real estate
mortgage investment conduits for federal income tax purposes. See “Federal
Income Tax Consequences—REMICs” in the prospectus.
For
further information regarding the federal income tax consequences of investing
in the Class A and Mezzanine Certificates, see “Federal Income Tax Consequences”
in this free writing prospectus and in the prospectus.
Ratings
It
is a
condition to the issuance of the certificates that the Class A and Mezzanine
Certificates receive the ratings from Fitch Ratings (“Fitch”), Moody’s Investors
Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Services, a division
of The McGraw-Hill Companies, Inc. (“S&P”) set forth on the table on page
6.
A
security rating does not address the frequency of prepayments on the Mortgage
Loans, the receipt of any amounts from the Swap Account (with respect to Net
WAC
Rate Carryover Amounts), the Net WAC Rate Carryover Reserve Account or the
corresponding effect on yield to investors. See “Yield on the Certificates” and
“Ratings” in this free writing prospectus and “Yield and Maturity
Considerations” in the prospectus.
Legal
Investment
The
Class
A and Mezzanine Certificates will not constitute “mortgage related securities”
for purposes of the Secondary Mortgage Market Enhancement Act of 1984
(“SMMEA”).
ERISA
Considerations
The
Class
A and Mezzanine Certificates will not be eligible for purchase by an employee
benefit plan or other retirement arrangement subject to 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”). Each certificate owner
of a Class A or Mezzanine Certificate or any interest therein will (i) be deemed
to have represented, by virtue of its acquisition or holding of that certificate
or interest therein, that it is not a plan investor or (ii) provide the Trustee
with an opinion of counsel on which the Depositor, the Trustee and the Master
Servicer may rely, that the purchase of a Class A or Mezzanine Certificate
(a)
is permissible under applicable law, (b) will not constitute or result in a
non-exempt prohibited transaction under ERISA or Section 4975 of the Code and
(c) will not subject the Depositor, the Trustee or the Master Servicer to any
obligation or liability (including obligations or liabilities under ERISA or
Section 4975 of the Code) in addition to those undertaken in the Pooling and
Servicing Agreement, which opinion of counsel will not be an expense of the
Depositor, the Trustee or the Master Servicer. A fiduciary of such a plan or
arrangement also must determine that the purchase of a certificate is consistent
with its fiduciary duties under applicable law and does not result in a
nonexempt prohibited transaction under applicable law.
See
“ERISA Considerations” in this free writing prospectus and “Considerations for
Benefit Plan Investors” in the prospectus.
RISK
FACTORS
In
addition to the matters described elsewhere in this free writing prospectus
and
the prospectus, prospective investors should carefully consider the following
factors before deciding to invest in the Class A and Mezzanine
Certificates.
The
Originator’s Underwriting Standards Are Not as Stringent as Those of More
Traditional Lenders, Which May Result in Losses Allocated to Certain Offered
Certificates
The
Originator’s underwriting standards are primarily intended to assess the
applicant’s credit standing and ability to repay as well as the value and the
adequacy of the mortgaged property as collateral for the mortgage loan. The
Originator provides loans primarily to mortgagors who do not qualify for loans
conforming to the underwriting standards of more traditional lenders but who
generally have equity in their property and the apparent ability to repay.
While
the Originator’s primary considerations in underwriting a mortgage loan are the
applicant’s credit standing and repayment ability, as well as the value and
adequacy of the mortgaged property as collateral, the Originator also considers,
among other things, the applicant’s credit history and debt service-to-income
ratio, and the type and occupancy status of the mortgaged property. The
Originator’s underwriting standards do not prohibit a mortgagor from obtaining
secondary financing at the time of origination of the Originator’s first lien
mortgage loan (or at any time thereafter), which secondary financing would
reduce the equity the mortgagor would otherwise have in the related mortgaged
property as indicated in the Originator’s loan-to-value ratio
determination.
As
a
result of such underwriting standards, the Mortgage Loans are likely to
experience rates of delinquency, foreclosure and bankruptcy that are higher,
and
that may be substantially higher, than those experienced by mortgage loans
underwritten in a more traditional manner. To the extent the credit enhancement
features described in this free writing prospectus are insufficient to cover
such losses, holders of the related Certificates may suffer a loss on their
investment.
Furthermore,
changes in the values of mortgaged properties may have a greater effect on
the
delinquency, foreclosure, bankruptcy and loss experience of the Mortgage Loans
than on mortgage loans originated in a more traditional manner. No assurance
can
be given that the values of the related mortgaged properties have remained
or
will remain at the levels in effect on the dates of origination of the related
Mortgage Loans. See “The Mortgage Pool—Underwriting Standards of the Originator”
in this free writing prospectus.
Certain
Mortgage Loans Have High Loan-to-Value Ratios
(in the Case of First Liens) or Combined Loan-to-Value Ratios (in the Case
of
Second Liens) Which May Present a Greater Risk of Loss Relating to Such Mortgage
Loans
Mortgage
loans with a loan-to-value ratio or combined loan-to-value ratio of greater
than
80.00% may present a greater risk of loss than mortgage loans with loan-to-value
ratios or combined loan-to-value ratios of 80.00% or below. Approximately 36.44%
of the Group I Mortgage Loans and approximately 22.62% of the Group II Mortgage
Loans, in each case by aggregate scheduled principal balance of the related
loan
group as of the Cut-off Date, had a loan-to-value ratio or combined
loan-to-value ratio at origination in excess of 80.00% and are not covered
by
any borrower-paid primary mortgage insurance. No Mortgage Loan had a
loan-to-value ratio or combined loan-to-value ratio exceeding 100.00% at
origination. An overall decline in the residential real estate market, a rise
in
interest rates over a period of time and the general condition of a mortgaged
property, as well as other factors, may have the effect of reducing the value
of
such mortgaged property from the appraised value at the time the Mortgage Loan
was originated. If there is a reduction in value of the mortgaged property,
the
loan-to-value ratio or combined loan-to-value ratio may increase over what
it
was at the time of origination. Such an increase may reduce the likelihood
of
liquidation or other proceeds being sufficient to satisfy the Mortgage Loan.
There can be no assurance that the loan-to-value ratio or combined loan-to-value
ratio of any Mortgage Loan determined at any time after origination is less
than
or equal to its original loan-to-value ratio or combined loan-to-value ratio.
Additionally, the Originator’s determination of the value of a mortgaged
property used in the calculation of the loan-to-value ratios or combined
loan-to-value ratios of the Mortgage Loans may differ from the appraised value
of such mortgaged property or the actual value of such mortgaged property.
See
“The Mortgage Pool—General” in this free writing prospectus.
Most
of the Mortgage Loans Are Newly Originated and Have Little, if any, Payment
History
None
of
the Mortgage Loans are delinquent in their monthly payments as of the Cut-off
Date. Investors should note, however, that certain of the Mortgage Loans will
have a first payment date occurring after the Cut-off Date and, therefore,
such
Mortgage Loans could not have been delinquent in any monthly payment as of
the
Cut-off Date.
However,
certain of the Mortgage Loans have been delinquent in the past. See “Historical
Delinquency of the Mortgage Loans,”“Historical Delinquency of the Group I
Mortgage Loans,” and “Historical Delinquency of the Group II Mortgage Loans,” in
Annex III of this free writing prospectus.
Second
Lien Loans Have a Greater Risk of Loss
Approximately
0.54% of the Group I Mortgage Loans and approximately 1.92% of the Group II
Mortgage Loans, in each case by aggregate scheduled principal balance of the
related loan group as of the Cut-off Date, are secured by second liens on the
related mortgaged properties. The proceeds from any liquidation, insurance
or
condemnation proceedings will be available to satisfy the outstanding balance
of
such Mortgage Loans only to the extent that the claims of the related senior
mortgages have been satisfied in full, including any related foreclosure costs.
In circumstances when it has been determined to be uneconomical to foreclose
on
the mortgaged property, the Master Servicer may write off the entire balance
of
such Mortgage Loan as a bad debt. The foregoing considerations will be
particularly applicable to Mortgage Loans secured by second liens that have
high
combined loan-to-value ratios because it is comparatively more likely that
the
Master Servicer would determine foreclosure to be uneconomical in the case
of
such Mortgage Loans. In addition, the rate of default of second lien Mortgage
Loans may be greater than that of Mortgage Loans secured by first liens on
comparable properties.
Simultaneous
Second Lien Risk
With
respect to approximately 8.81% of the Group I Mortgage Loans and approximately
45.75% of the Group II Mortgage Loans, in each case by aggregate scheduled
principal balance of the related loan group as of the Cut-off Date, at the
time
of origination of the first lien Mortgage Loan, the Originator also originated
a
second lien mortgage loan which will not be included in the Trust. The weighted
average loan-to-value ratio at origination of the first-liens on such Mortgage
Loans is approximately 80.00% and the weighted average combined loan-to-value
ratio at origination of such Mortgage Loans (including the second lien) is
approximately 99.96%.
With
respect to any Mortgage Loans originated with a simultaneous second lien,
foreclosure frequency may be increased relative to Mortgage Loans that were
originated without a simultaneous second lien because the mortgagors on Mortgage
Loans with a simultaneous second lien have less equity in the mortgaged property
than is shown in the loan-to-value ratios set forth in this free writing
prospectus. Investors should also note that any mortgagor may obtain secondary
financing at any time subsequent to the date of origination of their mortgage
loan from the Originator or from any other lender.
Interest-Only
Mortgage Loans and Stepped-Rate Loans
Approximately
9.13% of the Group I Mortgage Loans and approximately 27.56% of the Group II
Mortgage Loans, in each case by aggregate scheduled principal balance of the
related loan group as of the Cut-off Date, require the mortgagors to make
monthly payments only of accrued interest for the first two or five years
following origination. After such interest only period, the mortgagor’s monthly
payment will be recalculated to cover both interest and principal so that the
Mortgage Loan will amortize fully prior to its final payment date (such mortgage
loans are also referred to herein as “interest-only mortgage
loans”).
Approximately
13.99% of the Group I Mortgage Loans and approximately 24.98% of the Group
II
Mortgage Loans, in each case by aggregate scheduled principal balance of the
related loan group as of the Cut-off Date, require the mortgagors to make
monthly payments based on a forty year amortization schedule during the first
ten years following origination. At the end of such period, the mortgagor’s
monthly payment will be recalculated so that the Mortgage Loan will amortize
fully prior to its final payment date, which is generally 240 months following
the end of the initial ten-year period (such mortgage loans are also referred
to
herein as “stepped-rate mortgage loans”).
Interest-only
mortgage loans and stepped-rate mortgage loans have been originated in
significant volume only recently. As a result, the long-term performance
characteristics of these loans are largely unknown. The interest-only feature
of
the interest-only mortgage loans and the amortization periods of the
stepped-rate mortgage loans may reduce the likelihood of prepayment during
the
interest-only period (with respect to the interest-only Mortgage Loans) or
during the initial ten year period (with respect to the stepped-rate Mortgage
Loans) due to the smaller monthly payments relative to a fully-amortizing
mortgage loan. If the monthly payment increases, the related mortgagor may
not
be able to pay the increased amount and may default or may refinance the related
mortgage loan to avoid the higher payment. In addition, due to the lack of
amortization the borrower may not be able to refinance because of insufficient
equity in the property. Because no principal payments may be made on
interest-only mortgage loans for an extended period following origination and
because smaller principal payments are made on stepped-rate mortgage loans
for
the initial ten year period, if the mortgagor defaults, the unpaid principal
balance of the related Mortgage Loan will be greater than otherwise would be
the
case, increasing the risk of loss in that situation. In addition, the Class
A
and Mezzanine Certificates will receive smaller principal payments during the
interest-only period (with respect to the interest-only Mortgage Loans) or
during the initial ten year period (with respect to the stepped-rate Mortgage
Loans) than they would have received if the related mortgagors were required
to
make monthly payments of interest and principal for the entire lives of such
Mortgage Loans over a standard 30 year period.
Investors
should consider the fact that such mortgage loans reduce the monthly payment
required by mortgagors during the interest-only period or initial ten-year
period, as applicable, and consequently, the monthly housing expense used to
qualify mortgagors. As a result, such mortgage loans may allow some mortgagors
to qualify for a mortgage loan who would not otherwise qualify for a fully
amortizing loan or may allow them to qualify for a larger mortgage loan than
otherwise would be the case.
Geographic
Concentration Risk
The
charts entitled “Geographic Distribution” for the Mortgage Loans presented in
Annex III list geographic concentrations of the Group I Mortgage Loans and
the
Group II Mortgage Loans, respectively, by state. Because of the relative
geographic concentration of the mortgaged properties within certain states,
losses on the Mortgage Loans may be higher than would be the case if the
mortgaged properties were more geographically diversified. For example, some
of
the mortgaged properties may be more susceptible to certain types of special
hazards, such as earthquakes, hurricanes, floods, mudslides, wildfires and
other
natural disasters and major civil disturbances, than residential properties
located in other parts of the country.
In
addition, the conditions below will have a disproportionate impact on the
Mortgage Loans in general:
·
Economic
conditions in states with high concentrations of Mortgage Loans may
affect
the ability of mortgagors to repay their loans on time even if such
conditions do not affect real property
values.
·
Declines
in the residential real estate markets in states with high concentrations
of Mortgage Loans may reduce the value of properties located in those
states, which would result in an increase in loan-to-value
ratios.
·
Any
increase in the market value of properties located in states with
high
concentrations of Mortgage Loans would reduce loan-to-value ratios
and
could, therefore, make alternative sources of financing available
to
mortgagors at lower interest rates, which could result in an increased
rate of prepayment of the Mortgage
Loans.
Hurricanes
May Pose Special Risks
At
the
end of August 2005 and September 2005, Hurricane Katrina and Hurricane Rita,
respectively, caused catastrophic damage to areas in the Gulf Coast region
of
the United States. The Seller will represent and warrant as of the Closing
Date
that each mortgaged property is free of material damage and in good repair
(including Mortgage Loans that are secured by properties in the states of Texas,
Louisiana, Mississippi and Alabama that are located in a FEMA Individual
Assistance designated area as a result of Hurricane Katrina or Hurricane Rita).
In the event of a breach of that representation and warranty that materially
and
adversely affects the value of such Mortgage Loan, the Seller will be obligated
to repurchase or substitute for the related Mortgage Loan. Any such repurchase
would have the effect of increasing the rate of principal payment on the Class
A
and Mezzanine Certificates. Any damage to a mortgaged property that secures
a
Mortgage Loan in the Trust occurring after the Closing Date as a result of
any
other casualty event (including, but not limited to, other hurricanes) will
not
cause a breach of this representation and warranty.
The
full
economic impact of Hurricane Katrina and Hurricane Rita is uncertain but may
affect the ability of borrowers to make payments on their mortgage loans. We
have no way to determine the particular nature of such economic effects, how
long any of these effects may last, or how these effects may impact the
performance of the Mortgage Loans. Any impact of these events on the performance
of the Mortgage Loans may increase the amount of losses borne by the holders
of
the Class A or Mezzanine Certificates or impact the weighted average lives
of
the Class A or Mezzanine Certificates.
Violation
of Various Federal and State Laws May Result in Losses on the Mortgage
Loans
Applicable
state laws generally regulate interest rates and other charges, require certain
disclosure, and require licensing of the Originator. In addition, other state
laws, public policy and general principles of equity relating to the protection
of consumers, unfair and deceptive practices and debt collection practices
may
apply to the origination, servicing and collection of the Mortgage
Loans.
The
Mortgage Loans are also subject to federal laws, including:
·
the
Federal Truth-in-Lending Act and Regulation Z promulgated thereunder,
which require certain disclosures to the mortgagors regarding the
terms of
the Mortgage Loans;
·
the
Equal Credit Opportunity Act and Regulation B promulgated thereunder,
which prohibit discrimination on the basis of age, race, color, sex,
religion, marital status, national origin, receipt of public assistance
or
the exercise of any right under the Consumer Credit Protection Act,
in the
extension of credit;
·
the
Fair Credit Reporting Act, which regulates the use and reporting
of
information related to the mortgagor’s credit
experience;
·
the
Depository Institutions Deregulation and Monetary Control Act of
1980,
which preempts certain state usury laws;
and
·
the
Alternative Mortgage Transaction Parity Act of 1982, which preempts
certain state lending laws which regulate alternative mortgage
transactions.
Violations
of certain provisions of these federal and state laws may limit the ability
of
the Master Servicer to collect all or part of the principal of or interest
on
the Mortgage Loans and in addition could subject the Trust to damages and
administrative enforcement and could result in the mortgagors rescinding such
Mortgage Loans whether held by the Trust or subsequent holders of the Mortgage
Loans.
The
Seller will represent that each Mortgage Loan at the time of origination, was
in
compliance with applicable federal, state and local laws and regulations. In
the
event of a breach of such representation, the Seller will be obligated to cure
such breach or repurchase or replace the affected Mortgage Loan in the manner
described in the prospectus. If the Seller is unable or otherwise fails to
satisfy such obligations, the yield on the Class A and Mezzanine Certificates
may be materially and adversely affected.
High
Cost Loans
The
Seller will represent that none of the Mortgage Loans will be “High Cost Loans”
within the meaning of the Home Ownership and Equity Protection Act of 1994
(the
“Homeownership Act”) and none of the Mortgage Loans will be high cost loans
under any state or local law, ordinance or regulation similar to the
Homeownership Act. See “Legal Aspects of Mortgage Assets—Anti-Deficiency
Legislation and Other Limitations on Lenders” in the prospectus.
In
addition to the Homeownership Act, a number of legislative proposals have been
introduced at the federal, state and municipal level that are designed to
discourage predatory lending practices. Some states have enacted, or may enact,
laws or regulations that prohibit inclusion of some provisions in mortgage
loans
that have mortgage rates or origination costs in excess of prescribed levels,
and require that mortgagors be given certain disclosures prior to the
consummation of such mortgage loans. In some cases, state law may impose
requirements and restrictions greater than those in the Homeownership Act.
The
Originator’s failure to comply with these laws could subject the Trust, and
other assignees of the Mortgage Loans, to monetary penalties and could result
in
the mortgagors rescinding such Mortgage Loans whether held by the Trust or
subsequent holders of the Mortgage Loans. Lawsuits have been brought in various
states making claims against assignees of high cost loans for violations of
state law. Named defendants in these cases include numerous participants within
the secondary mortgage market, including some securitization
trusts.
Under
the
anti-predatory lending laws of some states, the borrower is required to meet
a
net tangible benefits test in connection with the origination of the related
mortgage loan. This test may be highly subjective and open to interpretation.
As
a result, a court may determine that a mortgage loan does not meet the test
even
if an originator reasonably believed that the test was satisfied. Any
determination by a court that a Mortgage Loan does not meet the test will result
in a violation of the state anti-predatory lending law, in which case the Seller
will be required to purchase such Mortgage Loan from the Trust.
Delay
in Receipt of Liquidation Proceeds; Liquidation Proceeds May Be Less than
Mortgage Loan Balance
Substantial
delays could be encountered in connection with the liquidation of delinquent
Mortgage Loans. Further, reimbursement of advances made on a Mortgage Loan
and
liquidation expenses such as legal fees, real estate taxes and maintenance
and
preservation expenses may reduce the portion of liquidation proceeds
distributable to you. If a mortgaged property fails to provide adequate security
for the Mortgage Loan, you will incur a loss on your investment if the credit
enhancements are insufficient to cover the loss.
The
Difference Between the Pass-Through Rates on the Class A and Mezzanine
Certificates and the Mortgage Rates on the Mortgage Loans May Affect the Yields
on such Certificates
Each
class of Class A and Mezzanine Certificates accrues interest at a pass-through
rate based on a one-month LIBOR index plus a specified margin, but such
pass-through rate is subject to a limit. The limit on the pass-through rate
for
each class of Class A Certificates is based on the weighted average of the
mortgage rates of the Mortgage Loans in the related loan group, net of certain
fees and expenses of the Trust (including any Net Swap Payment and any Swap
Termination Payment owed to the Interest Rate Swap Provider other than
termination payments resulting from a Swap Provider Trigger Event). The limit
on
the pass-through rate for each class of Mezzanine Certificates is based on
the
weighted average (weighted on the basis of the results of subtracting from
the
aggregate principal balance of each loan group the current certificate principal
balance of the related Class A Certificates) of (i) the limit on the Group
I
Certificates and (ii) the limit on the Group II Certificates. The
adjustable-rate Mortgage Loans have mortgage rates that adjust based on a
six-month LIBOR index, have periodic and lifetime limitations on adjustments
to
their mortgage rates, and have the first adjustment to their mortgage rates
two
or three years after the origination thereof. The fixed-rate Mortgage Loans
have
mortgage rates that do not adjust. As a result of the limits on the pass-through
rates on the Class A and Mezzanine Certificates, such certificates may accrue
less interest than they would accrue if their pass-through rates were based
solely on the one-month LIBOR index plus the specified margin.
A
variety
of factors could limit the pass-through rates and adversely affect the yields
to
maturity on the Class A and Mezzanine Certificates. Some of these factors are
described below.
•
The
pass-through rates for the Class A and Mezzanine Certificates may
adjust
monthly while the mortgage rates on the adjustable-rate Mortgage
Loans
adjust less frequently and the mortgage rates on the fixed-rate Mortgage
Loans do not adjust at all. Furthermore, all of the adjustable-rate
Mortgage Loans will have the first adjustment to their mortgage rates
two
or three years after their origination. Consequently, the limits
on the
pass-through rates on the Class A and Mezzanine Certificates may
prevent
any increases in the pass-through rate on one or more classes of
such
certificates for extended periods in a rising interest rate
environment.
•
If
prepayments, defaults and liquidations occur more rapidly on the
applicable Mortgage Loans with relatively higher mortgage rates than
on
the Mortgage Loans with relatively lower mortgage rates, the pass-through
rate on one or more classes of Class A and Mezzanine Certificates
is more
likely to be limited.
•
The
mortgage rates on the adjustable-rate Mortgage Loans may respond
to
different economic and market factors than does one-month LIBOR.
It is
possible that the mortgage rates on the adjustable-rate Mortgage
Loans may
decline while the pass-through rates on the Class A and Mezzanine
Certificates are stable or rising. It is also possible that the mortgage
rates on the adjustable-rate Mortgage Loans and the pass-through
rates on
the Class A and Mezzanine Certificates may both decline or increase
during
the same period, but that the pass-through rates on the Class A and
Mezzanine Certificates may decline more slowly or increase more
rapidly.
If
the
pass-through rate on any class of Class A or Mezzanine Certificates is limited
for any Distribution Date, the resulting basis risk shortfalls may be recovered
by the holders of the certificates on the same Distribution Date or on future
Distribution Dates, to the extent that on such Distribution Date or future
Distribution Dates there are any available funds remaining after certain other
distributions on the Class A and Mezzanine Certificates and the payment of
certain fees and expenses of the Trust (including any Net Swap Payment and
any
Swap Termination Payment owed to the Interest Rate Swap Provider other than
termination payments resulting from a Swap Provider Trigger Event). The ratings
on the Class A and Mezzanine Certificates will not address the likelihood of
any
recovery of basis risk shortfalls by holders of the Class A and Mezzanine
Certificates.
Amounts
used to pay such shortfalls on the Class A and Mezzanine Certificates may be
supplemented by the Interest Rate Swap Agreement to the extent that the floating
rate payment by the Interest Rate Swap Provider exceeds the fixed rate payment
by the Trust on any Distribution Date and such amount is available in the
priority described in this free writing prospectus. However, the amount received
from the Interest Rate Swap Provider under the Interest Rate Swap Agreement
may
be insufficient to pay the holders of the applicable certificates the full
amount of interest which they would have received absent the limitations of
the
rate cap.
Risk
Relating to Distribution Priority of the Group
II Certificates
As
set
forth in this free writing prospectus under “Description of the
Certificates—Principal Distributions,” principal distributions on the classes of
Group II Certificates will be made in a sequential manner. The weighted average
lives of the classes of Group II Certificates receiving principal distributions
later will be longer than would be the case if distributions of principal were
to be allocated on a pro
rata
basis
among such classes of Group II Certificates. In addition, as a result of a
sequential allocation of principal, the holders of the classes of Group II
Certificates receiving principal distributions later will have a greater risk
of
losses on the related mortgage loans, adversely affecting the yields to maturity
on such certificates. See “Description of the Certificates— Principal
Distributions” for more information.
The
Rate and Timing of Principal Distributions on the Class A and Mezzanine
Certificates Will Be Affected by Prepayment Speeds
The
rate
and timing of distributions allocable to principal on the Class A and Mezzanine
Certificates will depend, in general, on the rate and timing of principal
payments (including prepayments and collections upon defaults, liquidations
and
repurchases) on the Mortgage Loans and the allocation thereof to distribute
principal on such certificates as described under “Description of the
Certificates—Principal Distributions” in this free writing prospectus. As is the
case with asset-backed pass-through certificates generally, the Class A and
Mezzanine Certificates are subject to substantial inherent cash-flow
uncertainties because the Mortgage Loans may be prepaid at any
time.
With
respect to approximately 55.93% of the Group I Mortgage Loans and approximately
63.69% of the Group II Mortgage Loans, in each case by aggregate scheduled
principal balance of the related loan group as of the Cut-off Date, a mortgagor
principal prepayment may subject the related mortgagor to a prepayment charge,
subject to certain limitations in the related mortgage note and limitations
upon
collection in the Pooling and Servicing Agreement. Generally, each such Mortgage
Loan provides for payment of a prepayment charge on certain prepayments made
within a defined period set forth in the related mortgage note (generally within
the first three years but possibly as short as one year from the date of
origination of such mortgage loan). A prepayment charge may or may not act
as a
deterrent to prepayment of the related Mortgage Loan.
The
rate
of prepayments on the Mortgage Loans will be sensitive to prevailing interest
rates. Generally, when prevailing interest rates are increasing, prepayment
rates on mortgage loans tend to decrease. A decrease in the prepayment rates
on
the Mortgage Loans will result in a reduced rate of principal distributions
to
investors in the Class A and Mezzanine Certificates at a time when reinvestment
at such higher prevailing rates would be desirable. Conversely, when prevailing
interest rates are declining, prepayment rates on mortgage loans tend to
increase. An increase in the prepayment rates on the Mortgage Loans will result
in a greater rate of principal distributions to investors in the Class A and
Mezzanine Certificates at a time when reinvestment at comparable yields may
not
be possible. Furthermore, because the mortgage rates for the adjustable-rate
Mortgage Loans are based on six-month LIBOR plus a fixed percentage amount,
such
rates could be higher than prevailing market interest rates at the time of
adjustment, and this may result in an increase in the rate of prepayments on
such Mortgage Loans after such adjustment.
The
Seller may be required to repurchase Mortgage Loans from the Trust in the event
certain breaches of representations and warranties have not been cured. In
addition, the NIMS Insurer, if any, or the Master Servicer may purchase Mortgage
Loans 90 days or more delinquent, subject to the conditions set forth in the
Pooling and Servicing Agreement. The Seller may sell all or a portion of the
Class CE, Class P or Residual Certificates to one or more unaffiliated parties
in one or more private transactions. As part of such sale, the Master Servicer,
if requested, will agree, upon the direction of such purchaser, to exercise
its
purchase right with respect to Mortgage Loans 90 days or more delinquent,
subject to the conditions set forth in the Pooling and Servicing Agreement.
These purchases will have the same effect on the holders of the Class A and
Mezzanine Certificates as a prepayment of those Mortgage Loans.
The
majority holders of the Class CE Certificates, the Master Servicer or the NIMS
Insurer, if any, may purchase all of the Mortgage Loans when the aggregate
principal balance of the Mortgage Loans (and properties acquired in respect
thereof) is less than 10% of the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date.
The
Yields to Maturity on the Class A and Mezzanine Certificates Will Depend on
a
Variety of Factors
The
yield
to maturity on each class of Class A and Mezzanine Certificates will depend,
in
general, on: (i) the applicable pass-through rate thereon from time to time;
(ii) the applicable purchase price; (iii) the rate and timing of principal
payments (including prepayments and collections upon defaults, liquidations
and
repurchases) and the allocation thereof to reduce the certificate principal
balance of such certificates; (iv) the rate, timing and severity of realized
losses on the Mortgage Loans; (v) adjustments to the mortgage rates on the
adjustable-rate Mortgage Loans; (vi) the amount of excess interest generated
by
the Mortgage Loans; (vii) the allocation to the Class A and Mezzanine
Certificates of some types of interest shortfalls; and (viii) payments due
from
the Trust in relationship to payments received from the Interest Rate Swap
Provider under the Interest Rate Swap Agreement.
In
general, if the Class A and Mezzanine Certificates are purchased at a premium
and principal distributions thereon occur at a rate faster than anticipated
at
the time of purchase, the investor’s actual yield to maturity will be lower than
that assumed at the time of purchase. Conversely, if the Class A and Mezzanine
Certificates are purchased at a discount and principal distributions thereon
occur at a rate slower than that anticipated at the time of purchase, the
investor’s actual yield to maturity will be lower than that originally
assumed.
As
a
result of the absorption of realized losses on the Mortgage Loans by excess
interest and overcollateralization, each as described in this free writing
prospectus, liquidations of defaulted Mortgage Loans, whether or not realized
losses are allocated to the Mezzanine Certificates upon such liquidations,
will
result in an earlier return of principal to the Class A and Mezzanine
Certificates and will influence the yields on such certificates in a manner
similar to the manner in which principal prepayments on the Mortgage Loans
will
influence the yields on the Class A and Mezzanine Certificates. The
overcollateralization provisions are intended to result in an accelerated rate
of principal distributions to holders of the Class A and Mezzanine Certificates
at any time that the overcollateralization provided by the mortgage pool falls
below the required level.
Potential
Inadequacy of Credit Enhancement for the Class A and Mezzanine
Certificates
The
credit enhancement features described in this free writing prospectus are
intended to increase the likelihood that holders of the Class A and Mezzanine
Certificates will receive regular distributions of interest and principal.
If
delinquencies or defaults occur on the Mortgage Loans, neither the Master
Servicer nor any other entity will advance scheduled monthly payments of
interest and principal on delinquent or defaulted Mortgage Loans if such
advances are deemed non-recoverable. If substantial losses occur as a result
of
defaults and delinquent payments on the Mortgage Loans, holders of the Offered
Certificates may suffer losses.
Furthermore,
although loan-level primary mortgage insurance coverage has been acquired on
behalf of the trust from the PMI Insurer with respect to approximately 8.41%
of
the Group I Mortgage Loans and approximately 11.96% of the Group II Mortgage
Loans, in each case by aggregate principal balance of the related loan group
as
of the Cut-off Date, such coverage will provide only limited protection against
losses on defaulted covered Mortgage Loans. Unlike a financial guaranty policy,
coverage under a mortgage insurance policy is subject to certain limitations
and
exclusions including, for example, losses resulting from fraud and physical
damage to the mortgaged property and to certain conditions precedent to payment,
such as notices and reports. As a result, coverage may be denied or limited
on
covered Mortgage Loans. In addition, since the amount of coverage depends on
the
loan-to-value ratio at the time of origination of the covered Mortgage Loan,
a
decline in the value of a mortgaged property will not result in increased
coverage, and the trust may still suffer a loss on a covered Mortgage Loan.
The
PMI Insurer also may affect the timing and conduct of foreclosure proceedings
and other servicing decisions regarding defaulted mortgage loans covered by
the
policy.
Under
the
PMI Policy, the amount of the claim generally will include interest to the
date
the claim is presented. However, the claim must be paid generally within 60
days
thereafter. To the extent the Master Servicer is required to continue making
monthly advances after the claim is presented but before the claim is paid,
reimbursement of these advances will reduce the amount of liquidation proceeds
available for distribution to certificateholders.
Interest
Generated by the Mortgage Loans May Be Insufficient to Maintain or Restore
Overcollateralization
The
Mortgage Loans are expected to generate more interest than is needed to
distribute interest owed on the Class A and Mezzanine Certificates and to pay
certain fees and expenses of the Trust (including any Net Swap Payment owed
to
the Interest Rate Swap Provider). Any remaining interest generated by the
Mortgage Loans will first be used to absorb losses that occur on the Mortgage
Loans and will then be used to maintain or restore overcollateralization. We
cannot assure you, however, that enough excess interest will be generated to
maintain or restore the required level of overcollateralization. The factors
described below will affect the amount of excess interest that the Mortgage
Loans will generate.
•
Each
time a Mortgage Loan is prepaid in full, liquidated, written off
or
repurchased, excess interest may be reduced because the Mortgage
Loan will
no longer be outstanding and generating interest or, in the case
of a
partial prepayment, will be generating less
interest.
•
If
the rates of delinquencies, defaults or losses on the Mortgage Loans
are
higher than expected, excess interest will be reduced by the amount
necessary to compensate for any shortfalls in cash available to make
required distributions on the Class A and Mezzanine
Certificates.
•
The
adjustable-rate Mortgage Loans have mortgage rates that adjust less
frequently than, and on the basis of an index that is different from,
the
index used to determine the pass-through rates on the Class A and
Mezzanine Certificates, and the fixed-rate Mortgage Loans have mortgage
rates that do not adjust. As a result, the pass-through rates on
the
related Class A and Mezzanine Certificates may increase relative
to
mortgage rates on the applicable Mortgage Loans, requiring that a
greater
portion of the interest generated by those Mortgage Loans be applied
to
cover interest on the related Class A and Mezzanine
Certificates.
There
are Various Risks Associated With the Mezzanine
Certificates
The
weighted average lives of, and the yields to maturity on, the Mezzanine
Certificates will be progressively more sensitive, in increasing order of their
numerical class designations, to the rate and timing of mortgagor defaults
and
the severity of ensuing losses on the Mortgage Loans. If the actual rate and
severity of losses on the Mortgage Loans is higher than those assumed by an
investor in such certificates, the actual yield to maturity of such certificate
may be lower than the yield anticipated by such holder. The timing of losses
on
the Mortgage Loans will also affect an investor’s yield to maturity, even if the
rate of defaults and severity of losses over the life of the mortgage pool
are
consistent with an investor’s expectations. In general, the earlier a loss
occurs, the greater the effect on an investor’s yield to maturity. Realized
losses on the Mortgage Loans, to the extent they exceed the amount of excess
interest and overcollateralization following distributions of principal on
the
related Distribution Date, will reduce the certificate principal balance of
the
class of Mezzanine Certificates then outstanding with the highest numerical
class designation. As a result of these reductions, less interest will accrue
on
these classes of certificates than would be the case if those losses were not
so
allocated. Once a realized loss is allocated to a Mezzanine Certificate, such
written down amount will not be reinstated (except in the case of subsequent
recoveries) and will not accrue interest. However, the amount of any realized
losses allocated to the Mezzanine Certificates may be distributed to the holders
of such certificates according to the priorities set forth under “Description of
the Certificates—Overcollateralization Provisions” and “Description of the
Certificates—The Interest Rate Swap Agreement and the Swap Account” in this free
writing prospectus.
Unless
the aggregate certificate principal balance of the Class A Certificates has
been
reduced to zero, the Mezzanine Certificates will not be entitled to any
principal distributions until at least the Distribution Date in June 2009 or
a
later date as provided in this free writing prospectus or during any period
in
which delinquencies or realized losses on the Mortgage Loans exceed certain
levels described under “Description of the Certificates—Principal Distributions”
in this free writing prospectus. As a result, the weighted average lives of
such
certificates will be longer than would be the case if distributions of principal
were allocated among all of the certificates at the same time. As a result
of
the longer weighted average lives of such certificates, the holders of such
certificates have a greater risk of suffering a loss on their investments.
Further, because such certificates might not receive any principal if certain
delinquency levels described under “Description of the Certificates—Principal
Distributions” in this free writing prospectus are exceeded, it is possible for
such certificates to receive no principal distributions on a particular
Distribution Date even if no losses have occurred on the mortgage
pool.
In
addition, the multiple class structure of the Mezzanine Certificates causes
the
yield of such classes to be particularly sensitive to changes in the rates
of
prepayment on the Mortgage Loans. Because distributions of principal will be
made to the holders of the Mezzanine Certificates according to the priorities
described in this free writing prospectus, the yield to maturity on such classes
of certificates will be sensitive to the rates of prepayment on the Mortgage
Loans experienced both before and after the commencement of principal
distributions on such classes. The yield to maturity on the Mezzanine
Certificates will also be extremely sensitive to losses due to defaults on
the
Mortgage Loans (and the timing thereof), to the extent such losses are not
covered by excess interest otherwise distributable to the Class CE Certificates
or a class of Mezzanine Certificates with a higher numerical class designation.
Furthermore, as described in this free writing prospectus, the timing of receipt
of principal and interest by the Mezzanine Certificates may be adversely
affected by losses even if such classes of certificates do not ultimately bear
such loss.
Prepayment
Interest Shortfalls and Relief Act Shortfalls
When
a
Mortgage Loan is prepaid, the mortgagor is charged interest on the amount
prepaid only up to (but not including) the date on which the prepayment is
made,
rather than for an entire month. This may result in a shortfall in interest
collections available for distribution 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, but only up to the amount of the Master
Servicer’s servicing fee for the related period. In addition, certain shortfalls
in interest collections arising from the application of the Servicemembers
Civil
Relief Act and similar state laws (the “Relief Act”) will not be covered by the
Master Servicer.
On
any
Distribution Date, any shortfalls resulting from the application of the Relief
Act and any prepayment interest shortfalls to the extent not covered by
compensating interest paid by the Master Servicer, in each case regardless
of
which loan group experienced the shortfall, will first, reduce the interest
accrued on the Class CE Certificates, and thereafter, will reduce the monthly
interest distributable amounts with respect to the Class A and Mezzanine
Certificates, on a pro
rata
basis
based on the respective amounts of interest accrued on such certificates for
such Distribution Date. The holders of the Class A and Mezzanine Certificates
will not be entitled to reimbursement for any such interest shortfalls. If
these
shortfalls are allocated to the Class A and Mezzanine Certificates, the amount
of interest distributed to those certificates will be reduced, adversely
affecting the yield on your investment.
Reimbursement
of Advances by the Master Servicer Could Delay Distributions on the
Certificates
Under
the
Pooling and Servicing Agreement, the Master Servicer will make cash advances
to
cover delinquent payments of principal and interest on the Mortgage Loans to
the
extent it reasonably believes that the cash advances are recoverable from future
payments on the Mortgage Loans. The Master Servicer may make such advances
from
amounts held for future distribution. In addition, the Master Servicer may
withdraw from the collection account funds that were not included in Available
Funds for the preceding Distribution Date to reimburse itself for advances
previously made. Any such amounts withdrawn by the Master Servicer in
reimbursement of advances previously made are generally required to be replaced
by the Master Servicer on or before the next Distribution Date, subject to
subsequent withdrawal. To the extent that the Master Servicer is unable to
replace any amounts withdrawn in reimbursement of advances previously made,
there could be a delay in distributions on the Class A and Mezzanine
Certificates. Furthermore, the Master Servicer’s right to reimburse itself for
advances previously made from funds held for future distribution could lead
to
amounts required to be restored to the collection account by the Master Servicer
that are higher, and potentially substantially higher, than one month’s advance
obligation.
The
Offered
Certificates are Obligations of the Trust Only
The
Offered Certificates will not represent an ownership interest in or obligation
of the Depositor, the Master Servicer, the Seller, the Originator, the Trustee
or any of their respective affiliates. Neither the Offered Certificates nor
the
underlying Mortgage Loans will be guaranteed or insured by any governmental
agency or instrumentality, or by the Depositor, the Master Servicer, the Seller,
the Originator, the Trustee or any of their respective affiliates. Proceeds
of
the assets included in the Trust will be the sole source of distributions on
the
Class A and Mezzanine Certificates, and there will be no recourse to the
Depositor, the Master Servicer, the Seller, the Originator, the Trustee or
any
other entity in the event that such proceeds are insufficient or otherwise
unavailable to make all distributions provided for under the Offered
Certificates.
The
Interest Rate Swap Agreement and the Interest
Rate Swap Provider
Any
amounts received from the Interest Rate Swap Provider under the Interest Rate
Swap Agreement will be applied as described in this free writing prospectus
to
pay interest shortfalls and basis risk shortfalls, maintain
overcollateralization and cover losses. However, no amounts will be payable
by
the Interest Rate Swap Provider unless the floating amount owed by the Interest
Rate Swap Provider on a Distribution Date exceeds the fixed amount owed to
the
Interest Rate Swap Provider on such Distribution Date. This will not occur
except in periods when one-month LIBOR (as determined pursuant to the Interest
Rate Swap Agreement) exceeds 5.344%. No assurance can be made that any amounts
will be received under the Interest Rate Swap Agreement, or that any such
amounts that are received will be sufficient to maintain required
overcollateralization or to cover interest shortfalls, basis risk shortfalls
and
losses on the Mortgage Loans. Any net payment payable to the Interest Rate
Swap
Provider under the terms of the Interest Rate Swap Agreement will reduce amounts
available for distribution to Certificateholders, and may reduce the
Pass-Through Rates of the certificates. If the rate of prepayments on the
Mortgage Loans is faster than anticipated, the schedule on which payments due
under the Interest Rate Swap Agreement are calculated may exceed the aggregate
principal balance of the Mortgage Loans, thereby increasing the relative
proportion of interest collections on the Mortgage Loans that must be applied
to
make net payments to the Interest Rate Swap Provider. The combination of a
rapid
rate of prepayment and low prevailing interest rates could adversely affect
the
yields on the Class A and Mezzanine Certificates. In addition, any termination
payment payable to the Interest Rate Swap Provider (other than Swap Termination
Payments resulting from a Swap Provider Trigger Event) will reduce amounts
available for distribution to Certificateholders.
Upon
early termination of the Interest Rate Swap Agreement, the Trust or the Interest
Rate Swap Provider may be liable to make a Swap Termination Payment to the
other
party (regardless of which party caused the termination). The Swap Termination
Payment will be computed in accordance with the procedures set forth in the
Interest Rate Swap Agreement. In the event that the Trust is required to make
a
Swap Termination Payment, that payment will be paid on the related Distribution
Date, and on any subsequent Distribution Dates until paid in full, generally
prior to distributions to Certificateholders. This feature may result in losses
on the Certificates. Due to the priority of the applications of the Available
Funds, the Mezzanine Certificates will bear the effects of any shortfalls
resulting from a Net Swap Payment or Swap Termination Payment by the Trust
before such effects are borne by the Class A Certificates and one or more
classes of Mezzanine Certificates may suffer a loss as a result of such payment.
Investors
should note that the level of one-month LIBOR as of May 11, 2006 is
approximately 5.081% which means the Issuing Entity will make a Net Swap Payment
to the Interest Rate Swap Provider unless and until one-month LIBOR equals
approximately 5.344%.
To
the
extent that distributions on the Class A and Mezzanine Certificates depend
in
part on payments to be received by the Trust under the Interest Rate Swap
Agreement, the ability of the Trustee to make such distributions on such
certificates will be subject to the credit risk of the Interest Rate Swap
Provider. The credit ratings of the Interest Rate Swap Provider as of the date
of this free writing prospectus are lower than the ratings assigned to the
Class
A Certificates. See “The Interest Rate Swap Provider” in this free writing
prospectus.
The
Liquidity of Your Certificates May Be Limited
None
of
Greenwich Capital Markets, Inc., Barclays Capital Inc., Deutsche Bank Securities
Inc; or Merrill Lynch, Pierce, Fenner & Smith Incorporated (collectively,
the “Underwriters”) has any obligation to make a secondary market in the classes
of Offered Certificates. There is therefore no assurance that a secondary market
will develop or, if it develops, that it will continue. Consequently, you may
not be able to sell your certificates readily or at prices that will enable
you
to realize your desired yield. The market values of the certificates are likely
to fluctuate; these fluctuations may be significant and could result in
significant losses to you.
The
secondary markets for asset-backed securities have experienced periods of
illiquidity and can be expected to do so in the future. Illiquidity can have
a
severely adverse effect on the prices of securities that are especially
sensitive to prepayment, credit or interest rate risk, or that have been
structured to meet the investment requirements of limited categories of
investors.
The
Ratings on the Certificates Could Be Reduced or Withdrawn
Each
rating agency rating the Class A and Mezzanine Certificates may change or
withdraw its initial ratings at any time in the future if, in its sole judgment,
circumstances warrant a change. A reduction in the claims paying ability of
the
PMI Insurer would likely result in a reduction in the ratings of the Class
A and
Mezzanine Certificates. No person is obligated to maintain the ratings at their
initial levels. If a rating agency reduces or withdraws its rating on one or
more classes of the Class A or Mezzanine Certificates, the liquidity and market
value of the affected certificates is likely to be reduced.
Rights
of the NIMS Insurer May Negatively Impact the Class A and Mezzanine
Certificates
One
or
more insurance companies (together, the “NIMS Insurer”) may issue a financial
guaranty insurance policy covering certain payments to be made on net interest
margin securities to be issued by a separate trust. Such net interest margin
securities will not be backed by any of the Mortgage Loans or other assets
of
the Trust but will be secured by, among other things, all or a portion of the
Class CE, Class P and/or Residual Certificates. The issuance of such net
interest margin securities will not affect distributions on the Certificates.
Pursuant to the terms of the Pooling and Servicing Agreement, unless there
exists a continuance of any failure by the NIMS Insurer, if any, to make a
required payment under the policy insuring the net interest margin securities
(such event, a “NIMS Insurer Default”), the NIMS Insurer, if any, will be
entitled to exercise, among others, the following rights of the holders of
the
Class A and Mezzanine Certificates, without the consent of such holders, and
the
holders of the Class A and Mezzanine Certificates may exercise such rights
only
with the prior written consent of the NIMS Insurer, if any: (i) the right to
provide notices of Master Servicer defaults and the right to direct the Trustee
to terminate the rights and obligations of the Master Servicer under the Pooling
and Servicing Agreement in the event of a default by the Master Servicer; (ii)
the right to remove the Trustee or any co-trustee or custodian pursuant to
the
Pooling and Servicing Agreement; and (iii) the right to direct the Trustee
to
make investigations and take actions pursuant to the Pooling and Servicing
Agreement. In addition, unless a NIMS Insurer Default exists, such NIMS
Insurer’s consent will be required prior to, among other things, (i) the removal
and replacement of the Master Servicer, any successor master servicer or the
Trustee, (ii) the appointment or termination of any subservicer or co-trustee
or
(iii) any amendment to the Pooling and Servicing Agreement. The NIMS Insurer,
if
any, will not have any claim against the Mortgage Loans.
Investors
in the Class A and Mezzanine Certificates should note
that:
•
any
insurance policy issued by the NIMS Insurer, if any, will not cover,
and
will not benefit, in any manner whatsoever, the Class A or Mezzanine
Certificates;
•
the
rights to be granted to the NIMS Insurer, if any, are
extensive;
•
the
interests of the NIMS Insurer, if any, may be inconsistent with,
and
adverse to, the interests of the holders of the Class A and Mezzanine
Certificates and the NIMS Insurer, if any, has no obligation or duty
to
consider the interests of the Class A and Mezzanine Certificates
in
connection with the exercise or non-exercise of such NIMS Insurer’s
rights;
•
such
NIMS Insurer’s, if any, exercise of the rights and consents set forth
above may negatively affect the Class A and Mezzanine Certificates
and the
existence of such NIMS Insurer’s, if any, rights, whether or not
exercised, may adversely affect the liquidity of the Class A and
Mezzanine
Certificates relative to other asset-backed certificates backed by
comparable mortgage loans and with comparable payment priorities
and
ratings; and
•
there
may be more than one series of notes insured by the NIMS Insurer
and the
NIMS Insurer will have the rights set forth herein so long as any
such
series of notes remain outstanding.
Environmental
Risks
Federal,
state and local laws and regulations impose a wide range of requirements on
activities that may affect the environment, health and safety. In certain
circumstances, these laws and regulations impose obligations on owners or
operators of residential properties such as those that secure the mortgage
loans. Failure to comply with these laws and regulations can result in fines
and
penalties that could be assessed against the Trust as owner of the related
property.
In
some
states, a lien on the property due to contamination has priority over the lien
of an existing mortgage. Further, a mortgage lender may be held liable as an
“owner” or “operator” for costs associated with the release of petroleum from an
underground storage tank under certain circumstances. If the Trust is considered
the owner or operator of a property, it may suffer losses as a result of any
liability imposed for environmental hazards on the property.
Terrorist
Attacks and Military Action Could Adversely Affect the Yield on your
Certificates
The
terrorist attacks in the United States on September 11, 2001 suggest that there
is an increased likelihood of future terrorist activity in the United States.
In
addition, current political and military tensions in the Middle East have
resulted in a significant deployment of United States military personnel in
the
region. Investors should consider the possible effects of past and possible
future terrorist attacks and any resulting military response by the United
States on the delinquency, default and prepayment experience of the Mortgage
Loans. In accordance with the servicing standard set forth in the Pooling and
Servicing Agreement, the Master Servicer may defer, reduce or forgive payments
and delay foreclosure proceedings in respect of Mortgage Loans to mortgagors
affected in some way by such past and possible future events.
In
addition, the current deployment of United States military personnel in the
Middle East and the activation of a substantial number of United States military
reservists and members of the National Guard may significantly increase the
proportion of Mortgage Loans whose mortgage rates are reduced by the application
of the Relief Act and similar state laws. See “Legal Aspects of Mortgage
Assets—Servicemembers Civil Relief Act” in the prospectus. Certain shortfalls in
interest collections arising from the application of the Relief Act or any
state
law providing for similar relief will not be covered by the Master Servicer,
any
subservicer or any bond guaranty insurance policy.
Legal
Actions and Regulatory Actions are Pending Against the
Sponsor
Because
the nature of the sub-prime mortgage lending and servicing business involves
the
collection of numerous accounts, the validity of liens and compliance with
state
and federal lending laws, sub-prime lenders and servicers, including the
Sponsor, are subject to numerous claims, legal actions and other matters
regarding regulatory compliance (collectively, “Actions”) in the ordinary course
of their businesses. These Actions may include lawsuits styled as class actions
alleging violations of various federal and state consumer protection laws.
While
it is impossible to estimate with certainty the ultimate legal and financial
liability with respect to such Actions, and an adverse judgment in one or more
Actions may have a significant adverse financial effect on the Sponsor, the
Sponsor believes that the aggregate amount of liabilities arising from such
Actions will not result in monetary damages which will have a material adverse
effect on the financial condition or results of the Sponsor. For further
information, please see “The Seller, Sponsor and Master Servicer—Legal Actions
are Pending Against the Sponsor” and “—Regulatory Matters Concerning the
Sponsor” in this free writing prospectus.
Suitability
of the Class A and Mezzanine Certificates as Investments
The
Class
A and Mezzanine Certificates are not suitable investments for any investor
that
requires a regular or predictable schedule of monthly payments or payment on
any
specific date. The Class A and Mezzanine Certificates are complex investments
that should be considered only by investors who, either alone or with their
financial, tax and legal advisors, have the expertise to analyze the prepayment,
reinvestment, default and market risk, the tax consequences of an investment
and
the interaction of these factors.
USE
OF PROCEEDS
The
Seller will sell the Mortgage Loans to the Depositor and the Depositor will
convey the Mortgage Loans to the Trust in exchange for and concurrently with
the
delivery of the Certificates. Net proceeds, after deduction of expenses, equal
to approximately $[_____] from the sale of the Offered Certificates will be
applied by the Depositor to the purchase of the Mortgage Loans from the Seller.
These net proceeds, together with delivery of the Class CE, Class P and Residual
Certificates (or the proceeds from the private placement thereof) will represent
the Purchase Price to be paid by the Depositor to the Seller for the Mortgage
Loans. The Seller will have acquired the Mortgage Loans prior to the sale of
the
Mortgage Loans to the Depositor.
AFFILIATIONS,
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Argent
Securities Inc. (the “Depositor”) is a Delaware corporation and is a direct
wholly-owned subsidiary of Argent Mortgage Company, L.L.C.
There
is
not currently, and there was not during the past two years, any material
business relationship agreement, arrangement, transaction or understanding
that
is or was entered into outside the ordinary course of business or is or was
on
terms other than would be obtained in an arm’s length transaction with an
unrelated third party and either the Sponsor and the Depositor.
The
Underwriters or their affiliates have ongoing banking relationships with
affiliates of the Depositor. Approximately [ _ ]% of the proceeds received
from
the sale of the Offered Certificates will be used by the Depositor to satisfy
obligations under financing facilities in place with affiliates of the
Underwriters with respect to some of the Mortgage Loans.
THE
MORTGAGE POOL
The
statistical information presented in this free writing prospectus relates to
the
Mortgage Loans as of the Cut-off Date. References to percentages of the Mortgage
Loans in this free writing prospectus are based on the aggregate scheduled
principal balance of such Mortgage Loans as specified in the amortization
schedule at the Cut-off Date after application of all amounts allocable to
unscheduled payments of principal received prior to the Cut-off Date. Prior
to
the issuance of the Certificates, some Mortgage Loans may be removed from the
mortgage pool as a result of incomplete documentation or otherwise and any
Mortgage Loans that prepay or default will be removed. Other mortgage loans
may
be included in the mortgage pool prior to the issuance of the Certificates.
However, the removal and inclusion of such mortgage loans will not alter the
aggregate principal balance of the Mortgage Loans, any statistic presented
on a
weighted average basis or any statistic based on a particular loan group or
all
of the Mortgage Loans by more than plus or minus 5%, although the range of
mortgage rates, maturities or certain other characteristics of the Mortgage
Loans may vary.
If
any
material pool characteristic of the Mortgage Loans on the Closing Date differs
by more than 5% from the description of the Mortgage Loans in this free writing
prospectus, the Depositor will file updated pool characteristics by Form 8-K
within four days following the Closing Date.
General
The
mortgage loans delivered to the Trust on the Closing Date (the “Mortgage Loans”)
will consist of conventional, one- to four- family, adjustable-rate and
fixed-rate mortgage loans. The Depositor will purchase the Mortgage Loans from
the Seller pursuant to the Mortgage Loan Purchase Agreement (the “Mortgage Loan
Purchase Agreement”), between the Seller and the Depositor. Pursuant to the
Pooling and Servicing Agreement, to be dated as of the Cut-off Date (the
“Pooling and Servicing Agreement”), among the Depositor, the Master Servicer and
the Trustee, the Depositor will cause the Mortgage Loans to be assigned to
the
Trustee for the benefit of the certificateholders.
The
Group
I Mortgage Loans and the Group II Mortgage Loans are expected to have an
aggregate principal balance as of the Cut-off Date of approximately $670,168,258
and $705,188,406, respectively.
The
Mortgage Loans will be secured by mortgages or deeds of trust or other similar
security instruments creating first or second liens on residential properties
(the “Mortgaged Properties”) which may consist of attached, detached or
semi-detached one-to four-family dwelling units, individual condominium units
or
individual units in planned unit developments and manufactured housing, as
further described herein. The Mortgage Loans will have original terms to
maturity of not greater than 30 years from the date on which the first payment
was due on each Mortgage Loan. Approximately 0.54% of the Group I Mortgage
Loans
and approximately 1.92% of the Group II Mortgage Loans, in each case by
aggregate scheduled principal balance of the related loan group as of the
Cut-off Date, are secured by second liens.
Each
adjustable-rate Mortgage Loan will accrue interest at the adjustable-rate
calculated as specified under the terms of the related mortgage note and each
fixed-rate Mortgage Loan will have a Mortgage Rate that is fixed for the life
of
such Mortgage (each such rate, a “Mortgage Rate”).
All
of
the Mortgage Loans were originated by Argent Mortgage Company, L.L.C. The
Mortgage Loans were selected by the Seller and the Depositor using criteria
established by the Seller and the Depositor in consultation with other
parties.
The
adjustable-rate Mortgage Loans will provide for semi-annual adjustment to the
Mortgage Rate thereon and for corresponding adjustments to the monthly payment
amount due thereon, in each case on each adjustment date applicable thereto
(each such date, an “Adjustment Date”); provided, that the first adjustment for
approximately
67.19% of the adjustable-rate Group I Mortgage Loans and approximately 78.83%
of
the adjustable-rate Group II Mortgage Loans, in each case by aggregate scheduled
principal balance of the adjustable-rate Mortgage Loans in the related loan
group as of the Cut-off Date, will occur after an initial period of two years
after origination, and
the
first adjustment for approximately 32.81% of the adjustable-rate Group I
Mortgage Loans and approximately 21.17% of the adjustable-rate Group II Mortgage
Loans, in each case by aggregate scheduled principal balance of the
adjustable-rate Mortgage Loans in the related loan group as of the Cut-off
Date,
will occur after an initial period of three years after origination. On each
Adjustment Date for each adjustable-rate Mortgage Loan, the Mortgage Rate
thereon will be adjusted (subject to rounding) to equal the sum of the
applicable Index (as defined below) and a fixed percentage amount (the “Gross
Margin”). The Mortgage Rate on each adjustable-rate Mortgage Loan will not
decrease on the first related Adjustment Date, will not increase by more than
2.000% per annum on the first related Adjustment Date (the “Initial Periodic
Rate Cap”) and will not increase or decrease by more than 1.000% per annum on
any Adjustment Date thereafter (the “Periodic Rate Cap”). Each Mortgage Rate on
each adjustable-rate Mortgage Loan will not exceed a specified maximum Mortgage
Rate over the life of such Mortgage Loan (the “Maximum Mortgage Rate”) or be
less than a specified minimum Mortgage Rate over the life of such Mortgage
Loan
(the “Minimum Mortgage Rate”). In cases where the minimum mortgage rate for any
adjustable-rate Mortgage Loan is lower than its applicable margin, the
applicable margin is used as its minimum mortgage rate. Effective with the
first
monthly payment due on each adjustable-rate Mortgage Loan after each related
Adjustment Date, the monthly payment amount will be adjusted to an amount that
will amortize fully the outstanding principal balance of the related Mortgage
Loan over its remaining term, and pay interest at the Mortgage Rate as so
adjusted. Due to the application of the Periodic Rate Caps and the Maximum
Mortgage Rates, the Mortgage Rate on each such adjustable-rate Mortgage Loan,
as
adjusted on any related Adjustment Date, may be less than the sum of the Index
and the related Gross Margin, rounded as described herein. None of the
adjustable-rate Mortgage Loans permits the related mortgagor to convert the
adjustable Mortgage Rate thereon to a fixed Mortgage Rate.
The
Mortgage Loans will have scheduled monthly payments due on the first day of
the
month (with respect to each Mortgage Loan, a “Due Date”). Each Mortgage Loan
will contain a customary “due-on-sale” clause which provides that (subject to
state and federal restrictions) the Mortgage Loan must be repaid at the time
of
sale of the related mortgaged property or with the consent of the holder of
the
mortgage note assumed by a creditworthy purchaser of the related mortgaged
property.
None
of
the Mortgage Loans will be buydown mortgage loans. A buydown mortgage loan
consists of monthly payments made by the mortgagor during the buy-down period
that will be less than the scheduled monthly payments on the mortgage loan,
the
resulting difference to be made up from: (i) funds contributed by the seller
of
the mortgaged property or another source and placed in the buy-down account;
(ii) if the funds are contributed on a present value basis, investment earnings
on the funds; or (iii) additional funds to be contributed over time by the
mortgagor’s employer or another source.
The
Originator provides loans primarily to borrowers who do not qualify for loans
conforming to the underwriting standards of more traditional lenders but who
generally have equity in their property and the apparent ability to repay.
While
the Originator’s primary consideration in underwriting a mortgage loan are the
applicant’s credit standing and repayment ability as well as the value and
adequacy of the mortgaged property as collateral, the Originator also considers,
among other things, the applicant’s credit history, debt service-to-income
ratio, and the type and occupancy status of the mortgaged property. As a result
of such underwriting standards, the Mortgage Loans are likely to experience
rates of delinquency, foreclosure and bankruptcy that are higher, and that
may
be substantially higher, than those experienced by mortgage loans underwritten
in a more traditional manner. See “Risk Factors”, “—Underwriting Standards of
the Originator” and Annex II of this free writing prospectus.
For
purposes of calculating interest and principal distributions on the Class A
Certificates, the Mortgage Loans will be divided into two loan groups,
designated as the “Group I Mortgage Loans” and the “Group II Mortgage Loans.”
The Group I Mortgage Loans will consist of adjustable-rate and fixed-rate
mortgage loans with principal balances at origination that conform to Freddie
Mac loan limits and the Group II Mortgage Loans will consist of adjustable-rate
and fixed-rate mortgage loans with principal balances at origination that may
or
may not conform to Freddie Mac or Fannie Mae loan limits. As of the Closing
Date, the loan limits of Freddie Mac and Fannie Mae are as follows:
Maximum
Original Loan Amount
Number
of Units
Continental
United States or Puerto
Rico
Alaska,
Guam, Hawaii or
Virgin
Islands
1
$417,000
$625,500
2
$533,850
$800,775
3
$645,300
$967,950
4
$801,950
$1,202,925
Approximately
55.93% of the Group I Mortgage Loans and approximately 63.69% of the Group
II
Mortgage Loans, in each case by aggregate scheduled principal balances of the
related loan group as of the Cut-off Date, provide for payment by the mortgagor
of a prepayment charge on certain principal prepayments, subject to certain
limitations in the related mortgage note and limitations upon collection in
the
Pooling and Servicing Agreement. Generally, each such Mortgage Loan provides
for
payment of a prepayment charge on certain prepayments made within a defined
period set forth in the related Mortgage Note (generally within the first three
years but possibly as short as one year from the date of origination of such
Mortgage Loan). The amount of the prepayment charge is as provided in the
related Mortgage Note. The holders of the Class P Certificates will be entitled
to all prepayment charges received on the Mortgage Loans in each loan group,
and
such amounts will not be available for distribution on the other classes of
Certificates. Under certain instances, as described under the terms of the
Pooling and Servicing Agreement, the Master Servicer may waive the payment
of
any otherwise applicable prepayment charge. Investors should conduct their
own
analysis of the effect, if any, that the prepayment charges, and decisions
by
the Master Servicer with respect to the waiver thereof, may have on the
prepayment performance of the Mortgage Loans. The Depositor makes no
representation as to the effect that the prepayment charges, and decisions
by
the Master Servicer with respect to the waiver thereof, may have on the
prepayment performance of the Mortgage Loans. As of July 1, 2003, the
Alternative Mortgage Parity Act of 1982 (the “Parity Act”), which regulates the
ability of the Originator to impose prepayment charges, was amended, and as
a
result, the Originator will be required to comply with state and local laws
in
originating mortgage loans with prepayment charge provisions with respect to
loans originated on or after July 1, 2003. However, the ruling of the Office
of
Thrift Supervision (the “OTS”) does not retroactively affect loans originated
before July 1, 2003. See “Legal Aspects of Mortgage Assets—Enforceability of
Certain Provisions—Prepayment Charges” in the prospectus.
Mortgage
Loan Statistics
The
Group
I Mortgage Loans consist of 4,067 adjustable-rate and fixed-rate Mortgage Loans
having an aggregate principal balance as of the Cut-off Date of approximately
$670,168,258, after application of scheduled payments due on or before the
Cut-off Date whether or not received and application of all unscheduled payments
of principal received prior to the Cut-off Date, and subject to a permitted
variance of plus or minus 5%. None of the Group I Mortgage Loans had a first
Due
Date prior to October 1, 2005 or after June 1, 2006, or will have a remaining
term to stated maturity of less than 178 months or greater than 360 months
as of
the Cut-off Date. The latest maturity date of any Group I Mortgage Loan is
May1, 2036. The Group I Mortgage Loans are expected to have the characteristics
set
forth in Annex III of this free writing prospectus as of the Cut-off Date (the
sum in any column may not equal the total indicated due to
rounding).
The
Group
II Mortgage Loans consist of 2,492 adjustable-rate and fixed-rate Mortgage
Loans
having an aggregate principal balance as of the Cut-off Date of approximately
$705,188,406, after application of scheduled payments due on or before the
Cut-off Date whether or not received and application of all unscheduled payments
of principal received prior to the Cut-off Date, and subject to a permitted
variance of plus or minus 5%. None of the Group II Mortgage Loans had a first
Due Date prior to November 1, 2005 or after June 1, 2006, or will have a
remaining term to stated maturity of less than 179 months or greater than 360
months as of the Cut-off Date. The latest maturity date of any Group II Mortgage
Loan is May 1, 2036. The Group II Mortgage Loans are expected to have the
characteristics set forth in Annex III of this free writing prospectus as of
the
Cut-off Date (the sum in any column may not equal the total indicated due to
rounding).
The
Depositor believes that the information set forth in this free writing
prospectus and in Annex III with respect to the Mortgage Loans will be
representative of the characteristics of the mortgage pool as it will be
constituted at the time the Certificates are issued, although the range of
mortgage rates and maturities and certain other characteristics of the Mortgage
Loans may vary. The characteristics of the final mortgage pool will not differ
materially from the information provided herein.
Unless
otherwise noted, all statistical percentages or weighted averages set forth
in
this free writing prospectus are measured as a percentage of the aggregate
scheduled principal balance of the Mortgage Loans in the related loan group
as
of the Cut-off Date.
FICO
Scores
“FICO
Scores” are statistical credit scores obtained by many mortgage lenders in
connection with the loan application to help assess a mortgagor’s
creditworthiness. 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 mortgagor’s probability of
default. The FICO Score is based on a mortgagor’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 250 to
approximately 900, 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
mortgagor represents to a lender, i.e., that a mortgagor with a higher score
is
statistically expected to be less likely to default in payment than a mortgagor
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 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 mortgagor. The FICO Scores set forth in the
tables in Annex III to this free writing prospectus were obtained at the time
of
origination of the Mortgage Loans. None of the Seller, the Originator, the
Master Servicer, the Trustee, the Underwriters or the Depositor 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 mortgagor will repay the Mortgage Loan according to its
terms.
The
Index
The
Index
for each adjustable-rate Mortgage Loan will be set forth in the related Mortgage
Note. The “Index” is the average of interbank offered rates for six-month U.S.
dollar deposits in the London market based on quotations of major banks, and
most recently available as of a day specified in the related mortgage note
as
published in the Western Edition of The
Wall Street Journal (“Six-Month
LIBOR”). If the Index becomes unpublished or is otherwise unavailable, the
Master Servicer will select an alternative index which is based upon comparable
information.
THE
ISSUING ENTITY
Argent
Securities Trust 2006-W5, the “Issuing Entity” or the “Trust”, will be a New
York common law trust established pursuant to the Pooling and Servicing
Agreement. The Trust will not own any assets other than the Mortgage Loans
and
the other assets described under “The Pooling and Servicing Agreement” in this
free writing prospectus. The Trust will not have any liabilities other than
those incurred in connection with the Pooling and Servicing Agreement and any
related agreement. The Trust will not have any directors, officers, or other
employees. No equity contribution will be made to the Trust by the Sponsor,
the
Depositor or any other party, and the Trust will not have any other capital.
The
fiscal year end of the Trust will be December 31. The Trust will act through
the
Trustee and the Master Servicer.
THE
DEPOSITOR
Argent
Securities Inc., the Depositor, is a Delaware corporation incorporated in May
2003 as a wholly-owned subsidiary of Argent Mortgage Company, L.L.C. The
Depositor was organized for the purpose of serving as a private secondary
mortgage market conduit. The Depositor maintains its principal office at 1100
Town & Country Road, Orange, California92868. Its telephone number is (714)
541-9960.
The
Depositor does not have, nor is it expected in the future to have, any
significant assets. There will be no further obligations of the Depositor
subsequent to the issuance of the Certificates.
THE
ORIGINATOR
All
of
the Mortgage Loans were originated by Argent Mortgage Company, L.L.C. (the
“Originator”), an affiliate of the Sponsor. The Originator provided the
information in the following paragraphs. The Originator has been originating
mortgage loans since January 2003. Prior to January 2003, wholesale mortgage
loans were originated through the Sponsor.
The
following table summarizes Argent’s wholesale originated one- to four-family
residential mortgage loan origination and whole loan sales and securitization
activity for the periods shown below. Sales activity may include sales of
mortgage loans purchased by Argent from other loan originators.
All
of
the Mortgage Loans acquired by the Seller were originated in accordance with
guidelines (the “Underwriting Guidelines”) established by the Originator as
described below and with one of the following income documentation types: “Full
Documentation,”“Limited Documentation” or “Stated Income.” The Underwriting
Guidelines are primarily intended to evaluate: (1) the applicant’s credit
standing and repayment ability and (2) the value and adequacy of the mortgaged
property as collateral. On a case-by-case basis, the Originator may determine
that, based upon compensating factors, a loan applicant, not strictly qualifying
under one of the Risk Categories described below, warrants an exception to
the
requirements set forth in the Underwriting Guidelines. Compensating factors
may
include, but are not limited to, loan-to-value ratio, debt-to-income ratio,
good
credit history, stable employment history, length at current employment and
time
in residence at the applicant’s current address. It is expected that a
substantial number of the Mortgage Loans to be included in the mortgage pool
will represent such underwriting exceptions.
The
Underwriting Guidelines are less stringent than the standards generally
acceptable to more traditional lenders with regard to: (1) the applicant’s
credit standing and repayment ability and (2) the property offered as
collateral. Applicants who qualify under the Underwriting Guidelines generally
have payment histories and debt ratios which would not satisfy the underwriting
guidelines of more traditional lenders and may have a record of major derogatory
credit items such as outstanding judgments or prior bankruptcies. The
Underwriting Guidelines establish the maximum permitted loan-to-value ratio
for
each loan type based upon these and other risk factors.
All
of
the Mortgage Loans originated by the Originator are based on loan application
packages submitted directly or indirectly by a loan applicant to the Originator.
Each loan application package has an application completed by the applicant
that
includes information with respect to the applicant’s liabilities, income, credit
history and employment history, as well as certain other personal information.
The Originator also obtains (or the broker submits) a credit report on each
applicant from a credit reporting company. The credit report typically contains
the reported information relating to such matters as credit history with local
and national merchants and lenders, installment debt payments and reported
records of default, bankruptcy, repossession and judgments. If applicable,
the
loan application package must also generally include a letter from the applicant
explaining all late payments on mortgage debt and, generally, consumer (i.e.
non-mortgage) debt.
During
the underwriting process, the Originator reviews and verifies the loan
applicant’s sources of income (except under the Stated Income and Limited
Documentation types, under which programs such information may not be
independently verified), calculates the amount of income from all such sources
indicated on the loan application, reviews the credit history of the applicant,
calculates the debt-to-income ratio to determine the applicant’s ability to
repay the loan, and reviews the mortgaged property for compliance with the
Underwriting Guidelines. The Underwriting Guidelines are applied in accordance
with a procedure which complies with applicable federal and state laws and
regulations and requires (i) an appraisal of the mortgaged property which
conforms to the Uniform Standards of Professional Appraisal Practice and are
generally on forms similar to those acceptable to Fannie Mae and Freddie Mac
and
(ii) a review of such appraisal, which review may be conducted by a
representative of the Originator or a fee appraiser and may include a desk
review of the original appraisal or a drive-by review appraisal of the mortgaged
property. The Underwriting Guidelines permit loans with combined loan-to-value
ratios at origination of up to 100%, subject to certain Risk Category
limitations (as further described in that section). The maximum allowable
loan-to-value ratio varies based upon the income documentation, property type,
creditworthiness, debt service-to-income ratio of the applicant and the overall
risks associated with the loan decision.
A.Income
Documentation Types
Approximately
52.51%, 8.79% and 38.70% of the Mortgage Loans were originated under the Full
Documentation, Limited Documentation and Stated Income documentation programs,
respectively, each as further described below.
Full
Documentation.
The
Full Documentation residential loan program is generally based upon current
year
to date income documentation as well as the previous year’s income documentation
(i.e., tax returns and/or W-2 forms and/or written verification of employment)
or bank statements for the previous twelve months. The documentation required
is
specific to the applicant’s sources of income. The applicant’s employment and/or
business licenses are generally verified.
Limited
Documentation.
The
Limited Documentation residential loan program is generally based on bank
statements from the past six months supported by additional documentation
provided by the applicant or current year to date documentation. The applicant’s
employment and/or business licenses are generally verified.
Stated
Income.
The
Stated Income residential loan program requires the applicant’s employment and
income sources to be stated on the application. The applicant’s income as stated
must be reasonable for the related occupation in the loan underwriter’s
discretion. However, the applicant’s income as stated on the application is not
independently verified.
B.Property
Requirements
Properties
that are to secure mortgage loans have a valuation obtained by an appraisal
performed by a qualified and licensed appraiser who is an independent appraiser
who is in good standing with the Originator’s in-house appraisal department.
Generally, properties below average standards in condition and repair are not
acceptable as security for mortgage loans under the Underwriting Guidelines.
Each appraisal includes a market data analysis based on recent sales of
comparable homes in the area and, where deemed appropriate, replacement cost
analysis based on the current cost of constructing a similar home. Every
independent appraisal is reviewed through an automated valuation model, by
a
representative of the Originator or a fee appraiser before the mortgage loan
is
funded. The Originator requires that all mortgage loans have title insurance.
The Originator also requires that fire and extended coverage casualty insurance
be maintained on the property in an amount equal to the lesser of the principal
balance of the mortgage loan or the replacement cost of the
property.
Any
dwelling unit built on a permanent chassis (including mobile homes) and attached
to a permanent foundation system is a “manufactured home” for purposes of the
Originator’s guidelines. Any of the following factors would make a manufactured
home ineligible under the Originator’s guidelines: manufactured homes located in
a mobile home park or on leasehold land; manufactured homes not built in
accordance with HUD guidelines; manufactured homes with additions; manufactured
homes not classified as real property; single wide mobile homes; and
manufactured homes located in the following states: Delaware, Hawaii, Iowa,
Maryland, New Jersey, New York, North Dakota, Oklahoma, Pennsylvania, Rhode
Island and Texas. Other factory-built housing, such as modular, prefabricated,
panelized, or sectional housing is not considered a “manufactured home” under
the Originator’s guidelines.
C.Risk
Categories
Under
the
Underwriting Guidelines, various Risk Categories are used to grade the
likelihood that the mortgagor will satisfy the repayment conditions of the
mortgage loan. These Risk Categories establish the maximum permitted
loan-to-value ratio and loan amount, given the occupancy status of the mortgaged
property and the mortgagor’s credit history and debt ratio. In general, higher
credit risk mortgage loans are graded in Risk Categories which permit higher
debt ratios and more (or more recent) major derogatory credit items such as
outstanding judgments or prior bankruptcies; however, the Underwriting
Guidelines establish lower maximum loan-to-value ratios and lower maximum loan
amounts for loans graded in such Risk Categories.
The
Underwriting Guidelines have the following Risk Categories and criteria for
grading the potential likelihood that an applicant will satisfy the repayment
obligations of a mortgage loan:
Loans
between $500,000 and $850,000 are available for all income documentation
types. In addition, the underwriting guidelines provide for lower
maximum
LTV’s depending on loan size; no bankruptcies in the last 36 months and
mortgaged properties that are owner occupied. Rural properties and
manufactured homes are excluded. Loans between $850,001 and $1,000,000
with a maximum LTV of 85% are available for borrowers who meet the
following conditions: (i) full and limited documentation types; (ii)
mortgaged properties that are owner occupied; (iii) a mortgage history
of
no worse than 3x30; and(iv) no bankruptcies in the last 24 months.
These
loans are not available in all
states.
(2)
Interest-only
loans are available for all income documentation types, with a maximum
LTV
ratio of 95%. Interest-only loans are available with interest-only
periods
of 2, 3 or 5 years. In addition to the program specific guidelines,
the
interest only guidelines require: a minimum FICO score of 600; a
mortgage
history of 3x30; no bankruptcies in the last 24 months; and mortgaged
properties that are owner occupied. Mortgaged properties that are
secured
by manufactured homes are excluded.
(3)
Stepped-rate
loans are available for all income documentation types. Stepped-rate
loans
require: a minimum FICO score of 550; a mortgage history of 3x30;
no
bankruptcies in the last 24 months; mortgaged properties that are
owner
occupied; no rural or 3-4 unit properties; no interest-only periods
and a
maximum loan amount of $850,000.
(4)
The
maximum LTV referenced is for mortgagors providing Full Documentation.
The
LTV may be reduced up to 5% for each of the following characteristics:
non-owner occupancy and second homes. LTV may be reduced up to 10%
for
each of the following characteristics: 3-4 unit properties, manufactured
homes, rural locations, and no mortgage or rental history.
(5)
LTV
if originated under the 100% Advantage Program (allows qualified
applicants the ability to borrow up to 100% LTV on a first-lien)
or CLTV
if originated under the 80/20 Combo Advantage Program (first lien
and
second lien mortgage loan closed simultaneously to allow applicants
to
borrow up to 100% combined CLTV). Also requires no bankruptcy or
foreclosure in the last 24 months.
(6)
Debt
ratios may be increased if the LTV ratio is decreased. LTV equal
to or
less than 75% may have a 55% debt ratio. LTV equal to or less than
100%
may have a 50% debt ratio.
(7) Open
major derogatory credit may be increased (up to a maximum of $5,000) if the
LTV
ratio is decreased.
THE
SELLER, SPONSOR AND MASTER SERVICER
Ameriquest
Mortgage Company provided the information set forth in the following
paragraphs.
Ameriquest
Mortgage Company (sometimes referred to herein as “Ameriquest,” the “Seller,”
the “Sponsor” or the “Master Servicer”), a Delaware corporation, is a specialty
finance company engaged in the business of originating, purchasing and selling
retail and wholesale sub-prime mortgage loans secured by one- to four-family
residences. Ameriquest’s mortgage business was begun in 1979 as a savings and
loan association and later as a federal savings bank. In 1994 Ameriquest ceased
depository operations to focus entirely on its mortgage banking business. In
May
1997, Ameriquest sold its wholesale operations and reorganized its retail
lending and servicing operations under the name of “Ameriquest Mortgage Company”
(the “Reorganization”). In January of 2000, Ameriquest recommenced wholesale
lending as a separate division (a.k.a. Argent Mortgage Company, L.L.C.) while
continuing its retail and servicing operations. As of January 1, 2003, the
wholesale lending division of Ameriquest reorganized its business as a wholly
owned subsidiary of Ameriquest under the name of Argent Mortgage Company, L.L.C.
Argent Mortgage Company, L.L.C. is currently an affiliate of Ameriquest but
is
no longer a subsidiary of Ameriquest. Effective as of the close of business
on
December 31, 2004, the loan servicing division of Ameriquest was transferred
to
an affiliate, AMC Mortgage Services, Inc. (formerly known as Bedford Home Loans,
Inc.). Currently, AMC Mortgage Services, Inc. acts as a sub-servicer for
Ameriquest and originates retail loans.
Securitization
of mortgage loans originated by the Sponsor or its affiliates is an integral
part of the Sponsor’s management of its capital. Since August 2003, the Sponsor
has engaged in securitizations of mortgage loans originated by the Sponsor
or
its affiliates through the Depositor. The Sponsor has been engaged in
securitizations of mortgage loans through other depositors since
1996.
The
following table shows, for each of the most recent three years, the aggregate
principal balance of all mortgage loans originated by the Sponsor and its
affiliates and the portion of those mortgage loans securitized during that
year.
Aggregate
Principal Balance of Mortgage Loans Originated by Sponsor and its
affiliates
$41,694,619
$82,757,745
$75,459,156
%
of Mortgage Loans Securitized
70.6%
59.6%
65.7%
With
respect to 13 of the 85 securitizations of the Depositor or its affiliate
Ameriquest Mortgage Securities Inc. (“AMSI”) from 2000 to December 2005, a
trigger event has occurred with respect to the loss and delinquency experience
of the mortgage loans included in the related trust, resulting in a sequential
distribution of principal to the related offered certificates, from the
certificate with the highest credit rating to the one with the lowest
rating.
Pursuant
to the Pooling and Servicing Agreement, Ameriquest will serve as the Master
Servicer for the Mortgage Loans. Ameriquest is approved as a seller/servicer
for
Fannie Mae and Freddie Mac and as a non-supervised mortgagee by the U.S.
Department of Housing and Urban Development. On May 2, 2006, ACC Capital
Holdings Corporation (“ACCCHC”) announced a new business model for its retail
mortgage affiliates which will centralize ACCCHC’s retail lending network of 229
branches into four regional production centers, as well as reducing its
workforce by approximately 3,800 employees.
Lending
Activities and Loan Sales. Ameriquest
Mortgage Company currently originates real estate loans through its four
regional production centers. Ameriquest also participates in secondary market
activities by originating and selling mortgage loans while continuing to service
the majority of the loans sold. In other cases Ameriquest’s whole loan sale
agreements provide for the transfer of servicing rights.
Ameriquest’s
primary lending activity is funding loans to enable mortgagors to purchase
or
refinance residential real property, which loans are secured by first or second
liens on the related real property. Ameriquest’s single-family real estate loans
are predominantly “conventional” mortgage loans, meaning that they are not
insured by the Federal Housing Administration or partially guaranteed by the
U.S. Department of Veterans Affairs.
Loan
Servicing.
Ameriquest services all of the mortgage loans it or any affiliate originates
which are portfolio retained and continues to service a majority of its and
its
affiliates loans that have been sold to investors. Servicing includes collecting
and remitting loan payments, accounting for principal and interest, contacting
delinquent mortgagors, and supervising foreclosure in the event of unremedied
defaults. Ameriquest’s servicing activities are audited periodically by
applicable regulatory authorities. Certain financial records of Ameriquest
relating to its loan servicing activities are reviewed annually as part of
the
audit of Ameriquest’s financial statements conducted by its independent
accountants.
Collection
Procedures; Delinquency and Loss Experience. When
a
mortgagor fails to make a required payment on a residential mortgage loan,
Ameriquest attempts to cause the deficiency to be cured by corresponding or
making telephone contact with the mortgagor. Pursuant to Ameriquest’s customary
procedures for residential mortgage loans serviced by it for its own account,
Ameriquest generally mails a notice of intent to foreclose to the mortgagor
within ten days after the loan has become 31 days past due (two payments due
but
not received) and upon expiration of the notice of intent to foreclose,
generally one month thereafter, if the loan remains delinquent, typically
institutes appropriate legal action to foreclose on the property securing the
loan. If foreclosed, the property is sold at a public or private sale.
Ameriquest, in its capacity as Master Servicer, typically enters a bid based
upon an analysis of the property value, estimated marketing and carrying costs
and presence of junior liens, which may be equal to or less than the full amount
owed. In the event the property is acquired at the foreclosure sale by
Ameriquest, as Master Servicer, it is placed on the market for sale through
local real estate brokers experienced in the sale of similar
properties.
The
following table sets forth the delinquency and loss experience at the dates
indicated for residential (one- to four-family) retail first lien mortgage
loans
serviced by Ameriquest that were originated or purchased by Ameriquest’s retail
division (including loans originated or purchased by Ameriquest prior to the
Reorganization) either directly, or through Ameriquest’s affiliates, Town &
Country Credit Corporation and AMC Mortgage Services, Inc. (in its former
capacity as Bedford Home Loans, Inc.):
Delinquency
as a Percentage of Total Outstanding Principal Balance
1.41%
1.51%
2.03%
Delinquency
as a Percentage
of
Number of Loans
1.68%
1.87%
2.34%
61-90
Days
Principal
Balance
$183,342
$331,491
$466,017
Number
of Loans
1,714
2,757
3,688
Delinquency
as a Percentage of Total Outstanding Principal Balance
0.70%
0.83%
1.09%
Delinquency
as a Percentage
of
Number of Loans
0.86%
1.03%
1.28%
91
Days or More
Principal
Balance
$1,013,144
$1,464,824
$1,810,826
Number
of Loans
9,869
12,919
15,214
Delinquency
as a Percentage of Total Outstanding Principal Balance
3.87%
3.69%
4.25%
Delinquency
as a Percentage
of
Number of Loans
4.96%
4.83%
5.28%
Total
Delinquencies:
Principal
Balance
$1,564,713
$2,392,587
$3,142,868
Number
of Loans
14,931
20,670
25,651
Delinquency
as a Percentage of Total Outstanding Principal Balance
5.98%
6.02%
7.38%
Delinquency
as a Percentage
of
Number of Loans
7.51%
7.72%
8.91%
FORECLOSURES
PENDING(1)
Principal
Balance
$661,027
$1,122,392
$1,159,814
Number
of Loans
6,474
9,804
9,610
Foreclosures
Pending as a Percentage of Total Outstanding Principal
Balance
2.53%
2.83%
2.72%
Foreclosures
Pending as a Percentage of Number of Loans
3.25%
3.66%
3.34%
NET
LOAN LOSSES for the
Period
(2)
$105,463
$151,988
$$193,490
NET
LOAN LOSSES as a Percentage of Total
Outstanding
Principal Balance
0.52%
0.43%
0.46%
(1) Includes
mortgage loans which are in foreclosure but as to which title to the mortgaged
property has not been acquired, at the end of the period indicated. Foreclosures
pending are included in the delinquencies set forth above.
(2) The
net
loan loss for any such loan is equal to the difference between (a) the principal
balance plus accrued interest through the date of liquidation plus all
liquidation expenses related to such loan and (b) all amounts received in
connection with the liquidation of such loan.
The
following table sets forth the delinquency and loss experience at the dates
indicated for residential (one- to four-family) wholesale first lien mortgage
loans serviced by Ameriquest that were originated or purchased by Ameriquest,
either directly, or through Argent Mortgage Company, L.L.C. and Olympus Mortgage
Company:
Delinquency
as a Percentage of Total Outstanding Principal Balance
0.85%
1.26%
1.93%
Delinquency
as a Percentage
of
Number of Loans
0.92%
1.43%
2.20%
61-90
Days
Principal
Balance
$88,940
$272,164
$341,549
Number
of Loans
556
1,789
2,297
Delinquency
as a Percentage of Total Outstanding Principal Balance
0.38%
0.67%
1.05%
Delinquency
as a Percentage
of
Number of Loans
0.41%
0.75%
1.24%
91
Days or More
Principal
Balance
$290,745
$1,011,432
$1,122,948
Number
of Loans
1,775
7,032
8,235
Delinquency
as a Percentage of Total Outstanding Principal Balance
1.24%
2.49%
3.45%
Delinquency
as a Percentage
of
Number of Loans
1.30%
2.95%
4.45%
Total
Delinquencies:
Principal
Balance
$580,272
$1,796,668
$2,093,162
Number
of Loans
3,584
12,233
14,604
Delinquency
as a Percentage of Total Outstanding Principal Balance
2.47%
4.42%
6.43%
Delinquency
as a Percentage
of
Number of Loans
2.62%
5.13%
7.90%
FORECLOSURES
PENDING(1)
Principal
Balance
$161,615
$788,469
$749,763
Number
of Loans
1,006
5,453
5,390
Foreclosures
Pending as a Percentage of Total Outstanding Principal
Balance
0.69%
1.94%
2.30%
Foreclosures
Pending as a Percentage of Number of Loans
0.74%
2.29%
2.92%
NET
LOAN LOSSES for the
Period
(2)
$7,935
$47,076
$$130,511
NET
LOAN LOSSES as a Percentage of Total Outstanding Principal
Balance
0.06%
0.14%
0.37%
(1) Includes
mortgage loans which are in foreclosure but as to which title to the mortgaged
property has not been acquired. Foreclosures pending are included in the
delinquencies set forth above.
(2) The
net
loan loss for any such loan is equal to the difference between (a) the principal
balance plus accrued interest through the date of liquidation plus all
liquidation expenses related to such loan and (b) all amounts received in
connection with the liquidation of such loan.
As
of
December 31, 2005, 3,112 one- to four-family residential properties relating
to
loans in Ameriquest’s retail servicing portfolio and 1,975 one- to four-family
residential property relating to loans in Ameriquest’s wholesale servicing
portfolio had been acquired through foreclosure or deed in lieu of foreclosure
and were not liquidated.
The
delinquency and loss experience percentages set forth above in the immediately
preceding tables are calculated on the basis of the total mortgage loans
serviced as of the end of the periods indicated. However, because the total
outstanding principal balance of retail residential loans serviced by Ameriquest
has increased from $26,163,720,681 at December 31, 2003 to approximately
$42,605,628,831 at December 31, 2005 and the total outstanding principal balance
of wholesale residential loans serviced by Ameriquest has increased from
$23,468,318,527 at December 31, 2003 to approximately $32,535,569,069 at
December 31, 2005, the total outstanding principal balance of all loans serviced
as of the end of any indicated period includes many loans that will not have
been outstanding long enough to give rise to some or all of the indicated
periods of delinquency. In the absence of such substantial and continual
additions of newly originated loans to the total amount of loans serviced,
the
percentages indicated above would be higher and could be substantially higher.
The actual delinquency percentages with respect to the Mortgage Loans may be
expected to be substantially higher than the delinquency percentages indicated
above because the composition of the Mortgage Loans will not
change.
There
can
be no assurance that the delinquency and loss experience of the Mortgage Loans
will correspond to the loss experience of Ameriquest’s servicing portfolio set
forth in the foregoing tables. The statistics shown above represent the
delinquency and loss experience for Ameriquest’s total servicing portfolio only
for the periods presented, whereas the aggregate delinquency and loss experience
on the Mortgage Loans will depend on the results obtained over the life of
the
Trust. Ameriquest’s servicing portfolio includes mortgage loans with payment and
other characteristics that are not representative of the payment and other
characteristics of the Mortgage Loans. A substantial number of the Mortgage
Loans may also have been originated based on underwriting guidelines that are
less stringent than those generally applicable to the servicing portfolio
reflected in the foregoing table due to changes in the underwriting standards
used by the Sponsor or its affiliates from time to time. If the residential
real
estate market should experience an overall decline in property values, the
actual rates of delinquencies, foreclosures and losses could be higher than
those previously experienced by Ameriquest. In addition, adverse economic
conditions (which may or may not affect real property values) 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 the Mortgage Loans.
Ameriquest
Loan Servicing Portfolio—Static Pool Information
Static
pool information regarding delinquencies, cumulative losses and prepayments
for
securitized pools serviced by Ameriquest for the last five years can be obtained
from the following website: http://www.amcinvestors.com/arsi. With respect
to
information regarding prior securitized pools of the Sponsor that do not include
the currently offered pool, information regarding prior securitized pools that
were established before January 1, 2006 and with respect to information
regarding the currently offered pool, information about the pool for period
before January 1, 2006, is not deemed to be a part of this free writing
prospectus or the Depositor’s registration statement.
Ameriquest
Loan Servicing Portfolio—Advances
Ameriquest,
in its capacity as master servicer in connection with securitizations of the
Depositor or its affiliate Ameriquest Mortgage Securities Inc., where it has
substantially identical advancing obligations for this transaction, has complied
with and fulfilled all of its advancing obligations for all such transactions
for the past three years.
Regulatory
Matters Concerning the Sponsor
On
January 23, 2006, ACC Capital Holdings Corporation (“ACCCHC”), the parent
company of the Sponsor and its retail lending affiliates AMC Mortgage Services,
Inc. (formerly known as Bedford Home Loans, Inc.) and Town and Country Credit
Corp. (collectively, the “Affiliates”), announced that it had entered into a
settlement agreement with forty-nine states and the District of Columbia (the
“States”). The settlement was reached after representatives of the financial
regulatory agencies and/or attorney general’s offices of many of the States
raised concerns relating to the lending policies of the Affiliates; for the
appropriateness of discount points charged prior to February 2003; the accuracy
of appraisal valuations; stated income loans and oral statements to borrowers
relating to loan terms and disclosures. ACCCHC has agreed on behalf of itself
and the Affiliates to supplement several of its business practices and to submit
itself to independent monitoring. Under the terms of the settlement agreement,
ACCCHC agreed to pay $295 million toward restitution to borrowers and $30
million to cover the States’ legal costs and other expenses. In June 2005,
ACCCHC recorded a provision of $325 million in its financial statements to
reflect the expected settlement.
THE
TRUSTEE
General
Deutsche
Bank National Trust Company (“DBNTC”) will act as Trustee. DBNTC is a national
banking association which has an office in Santa Ana, California. DBNTC has
previously been appointed to the role of trustee for numerous mortgage-backed
transactions in which residential mortgages comprised the asset pool and has
significant experience in this area. As Trustee, DBNTC will be calculating
certain items and reporting as set forth in the Pooling and Servicing Agreement.
DBNTC has acted as calculation agent in numerous mortgage-backed transactions
since 1991. DBNTC also will act as a custodian of the mortgage files pursuant
to
the Pooling and Servicing Agreement. DBNTC has performed this custodial role
in
numerous mortgage-backed transactions since 1991. DBNTC will maintain the
mortgage files in secure, fire-resistant facilities. DBNTC will not physically
segregate the mortgage files from other mortgage files in DBNTC’s custody but
they will be kept in shared facilities. However, DBNTC’s proprietary document
tracking system will show the location within DBNTC’s facilities of each
mortgage file and will show that the mortgage loan documents are held by the
Trustee on behalf of the trust. DBNTC has no pending legal proceedings that
would materially affect its ability to perform its duties as Trustee on behalf
of the holders
of the Certificates
or as
custodian. DBNTC may perform certain of its obligations through one or more
third party vendors. However, DBNTC shall remain liable for the duties and
obligations required of it under the Pooling and Servicing
Agreement.
DBNTC
is
providing the information in the foregoing paragraph at the depositor’s request
in order to assist the depositor with the preparation of its disclosure
documents to be filed with the SEC pursuant to Regulation AB. Otherwise, DBNTC
has not participated in the preparation of such disclosure documents and assumes
no responsibility or liability for their contents.
The
Trustee will have the following duties under the Pooling and Servicing
Agreement: (i) to authenticate and deliver the Certificates; (ii) to maintain
a
certificate register; (iii) to calculate and make the required distributions
to
certificateholders on each Distribution Date; (iv) to prepare and make available
to certificateholders the monthly distribution reports and any other reports
required to be delivered by the Trustee under the Pooling and Servicing
Agreement; (v) to act as successor master servicer, or to appoint a successor
master servicer; (vi) to perform tax administration services for the Trust
as
specified in the Pooling and Servicing Agreement; and (vii) to communicate
with
investors and Rating Agencies with respect to the Certificates as specified
in
the Pooling and Servicing Agreement.
In
addition, the Trustee will act as custodian for the Trust pursuant to the
Pooling and Servicing Agreement. The Trustee will hold the mortgage notes,
mortgages and other legal documents in the mortgage files for the benefit of
the
certificateholders. The Trustee will review each mortgage file and deliver
a
certification that each such mortgage file has been received in accordance
with
the criteria specified in the Pooling and Servicing Agreement.
The
principal compensation to be paid to the Trustee in respect of its obligations
under the Pooling and Servicing Agreement will be equal to any interest or
other
income earned on funds held in the distribution account as provided in the
Pooling and Servicing Agreement and the Trustee Fee. The Trustee Fee is payable
monthly and accrues at the Trustee Fee Rate of 0.0016% per annum on the
aggregate principal balance of the Mortgage Loans.
THE
INTEREST RATE SWAP PROVIDER
Deutsche
Bank AG, New York Branch (the “Branch”) was established in 1978 and is licensed
by the New York Superintendent of Banks. Its office is currently located at
60
Wall Street, New York, NY10005-2858. The Branch is examined by the New York
State Banking Department and is subject to the banking laws and regulations
applicable to a foreign bank that operates a New York branch. The Branch is
also
examined by the Federal Reserve Bank of New York. The long-term senior debt
of
the Branch has been assigned a rating of “AA-” (outlook stable) by Standard
& Poor’s, “Aa3” (outlook stable) by Moody’s Investors Services and “AA-”
(outlook stable) by Fitch Ratings.
YIELD
ON THE CERTIFICATES
Certain
Shortfalls in Collections of Interest
When
a
principal prepayment in full is made on a Mortgage Loan, the mortgagor is
charged interest only for the period from the Due Date of the preceding monthly
payment up to (but not including) the date of such prepayment, instead of for
a
full month. When a partial principal prepayment is made on a Mortgage Loan,
the
mortgagor is not charged interest on the amount of such prepayment for the
month
in which such prepayment is made. With respect to any Determination Date and
each Mortgage Loan as to which a voluntary principal prepayment in full was
applied during the portion of the related Prepayment Period occurring in the
month preceding the month of such Determination Date, the “Prepayment Interest
Shortfall” is an amount equal to the interest at the applicable Mortgage Rate
(net of the Servicing Fee) on the amount of such principal prepayment for the
number of days from the day after the last date on which interest was collected
from the related mortgagor through the last day of such preceding calendar
month. In addition, the application of the Relief Act to any Mortgage Loan
will
adversely affect, for an indeterminate period of time, the ability of the Master
Servicer to collect full amounts of interest on such Mortgage Loan. See “Legal
Aspects of Mortgage Assets—Servicemembers Civil Relief Act” in the
prospectus.
The
Master Servicer is obligated to pay from its own funds Prepayment Interest
Shortfalls, but only to the extent of its aggregate Servicing Fee for the
related Due Period. See “Pooling and Servicing Agreement—Servicing and Other
Compensation and Payment of Expenses” herein. Accordingly, the effect of (i) any
Prepayment Interest Shortfall that exceeds any payments made by the Master
Servicer from its own funds in respect thereof or (ii) any shortfalls resulting
from the application of the Relief Act, will be to reduce the aggregate amount
of interest that is distributed to certificateholders. Any such shortfalls
will
be allocated among the Certificates as provided under “Description of the
Certificates—Interest Distributions” and “—Overcollateralization Provisions”
herein. If these shortfalls are allocated to the Class A and Mezzanine
Certificates the amount of interest distributed to those Certificates will
be
reduced, adversely affecting the yield on your investment. The holders of the
Class A and Mezzanine Certificates will not be entitled to reimbursement for
any
such interest shortfalls.
General
Prepayment and Default Considerations
The
yield
to maturity on the Class A and Mezzanine Certificates will be sensitive to
defaults on the Mortgage Loans. If a purchaser of a Class A or Mezzanine
Certificate calculates its anticipated yield based on an assumed rate of default
and amount of losses that is lower than the default rate and amount of losses
actually incurred, its actual yield to maturity may be lower than that so
calculated. In general, the earlier a loss occurs, the greater the effect on
an
investor’s yield to maturity. There can be no assurance as to the delinquency,
foreclosure or loss experience with respect to the Mortgage Loans. Because
the
Mortgage Loans were underwritten in accordance with standards less stringent
than those of more traditional lenders with regard to a mortgagor’s credit
standing and repayment ability, the risk of delinquencies with respect to,
and
losses on, the Mortgage Loans will be greater than that of mortgage loans
underwritten in accordance with the underwriting standards of more traditional
lenders.
The
rate
of principal distributions on the Class A and Mezzanine Certificates, the
aggregate amount of distributions on the Class A and Mezzanine Certificates
and
the yield to maturity on the Class A and Mezzanine Certificates will be related
to the rate and timing of payments of principal on the applicable Mortgage
Loans. The rate of principal payments on the adjustable-rate Mortgage Loans
will
in turn be affected by the amortization schedules for such Mortgage Loans as
they change from time to time to accommodate changes in the Mortgage Rates
and
by the rate of principal prepayments thereon (including for this purpose,
payments resulting from refinancings, liquidations of the Mortgage Loans due
to
defaults, casualties, condemnations and repurchases, whether optional or
required, by the Seller or the Master Servicer, as the case may be). The
Mortgage Loans generally may be prepaid by the mortgagors at any time; however,
a mortgagor principal prepayment may subject that mortgagor to a prepayment
charge as described under “The Mortgage Pool—General” herein. Furthermore,
the interest only feature of the interest-only Mortgage Loans may reduce the
perceived benefits of refinancing to take advantage of lower market interest
rates or to avoid adjustments in the related Mortgage Rates. However, as a
Mortgage Loan with such a feature nears the end of its interest only period,
the
mortgagor may be more likely to refinance the Mortgage Loan, even if market
interest rates are only slightly less than the related Mortgage Rate in order
to
avoid the increase in the monthly payments to amortize the Mortgage Loan over
its remaining life.
Prepayments,
liquidations and repurchases of the Mortgage Loans will result in distributions
in respect of principal to the holders of the class or classes of Class A and
Mezzanine Certificates then entitled to receive such distributions that
otherwise would be distributed over the remaining terms of the Mortgage Loans.
See “Yield and Maturity Considerations” in the prospectus. Since the rates of
payment of principal on the Mortgage Loans will depend on future events and
a
variety of factors (as described more fully herein and in the prospectus under
“Yield and Maturity Considerations”), no assurance can be given as to the rate
of principal prepayments on the Mortgage Loans. The extent to which the yield
to
maturity on any class of Class A or Mezzanine Certificates may vary from the
anticipated yield will depend upon the degree to which such Certificates are
purchased at a discount or premium and the degree to which the timing of
distributions thereon is sensitive to prepayments on the Mortgage Loans.
Further, an investor should consider, in the case of any Class A or Mezzanine
Certificate purchased at a discount, the risk that a slower than anticipated
rate of principal payments on the Mortgage Loans could result in an actual
yield
to such investor that is lower than the anticipated yield and, in the case
of
any Class A or Mezzanine Certificate purchased at a premium, the risk that
a
faster than anticipated rate of principal payments could result in an actual
yield to such investor that is lower than the anticipated yield.
The
rate
of payments (including prepayments) on pools of mortgage loans is influenced
by
a variety of economic, geographic, social and other factors, including changes
in mortgagors’ housing needs, job transfers, unemployment, mortgagors’ net
equity in the mortgaged properties and servicing decisions. If prevailing
mortgage rates fall significantly below the Mortgage Rates on the Mortgage
Loans, the rate of prepayment (and refinancing) would be expected to increase.
Conversely, if prevailing mortgage rates rise significantly above the Mortgage
Rates on the Mortgage Loans, the rate of prepayment on the Mortgage Loans would
be expected to decrease. The adjustable-rate Mortgage Loans may be subject
to
greater rates of prepayment as they approach their initial Adjustment Dates
even
if market interest rates are only slightly higher or lower than their Mortgage
Rates as mortgagors seek to avoid changes in their monthly payments. In
addition, the existence of the applicable Periodic Rate Cap, Maximum Mortgage
Rate and Minimum Mortgage Rate on the adjustable-rate Mortgage Loans may affect
the likelihood of prepayments resulting from refinancings. Moreover, the Group
I
Mortgage Loans (which have principal balances at origination that conform to
Freddie Mac loan limits) may experience prepayment behavior that differs from
that experienced by the Group II Mortgage Loans (which have principal balances
at origination that may or may not conform to Freddie Mac and Fannie Mae loan
limits). There can be no certainty as to the rate of prepayments on the Mortgage
Loans during any period or over the life of the Certificates. See “Yield and
Maturity Considerations” in the prospectus.
The
prepayment experience of any Mortgage Loans secured by second liens will likely
differ from that on Mortgage Loans secured by first liens. The smaller principal
balances of second lien mortgage loans relative to the principal balances of
first lien mortgage loans may reduce the perceived benefits of refinancing.
In
addition, the reduced equity in the related mortgaged property due to the
existence of a second lien mortgage loan may reduce the opportunities for
refinancing. The reduced opportunity for refinancing may result in a greater
rate of default and will likely result in a greater severity of loss following
default. On the other hand, many borrowers do not view second lien mortgage
loans as permanent financing and may be more inclined to prepay those mortgage
loans as a result. We cannot assure you as to the prepayment experience of
any
of the Mortgage Loans, including those secured by second liens.
Because
principal distributions are made to certain classes of Class A and Mezzanine
Certificates before other such classes, holders of classes of Class A and
Mezzanine Certificates having a later priority of payment bear a greater risk
of
losses (because such Certificates will represent an increasing percentage
interest in the Trust during the period prior to the commencement of
distributions of principal thereon) than holders of classes having earlier
priorities for distribution of principal. As described under “Description of the
Certificates—Principal Distributions” herein, prior to the Stepdown Date, all
principal payments on the Mortgage Loans will be allocated to the Class A
Certificates. Thereafter, as further described herein, during certain periods,
subject to certain delinquency and loss triggers described herein, all principal
payments on the Mortgage Loans will be allocated to the Class A and Mezzanine
Certificates in the priorities described under “Description of the
Certificates—Principal Distributions” in this free writing
prospectus.
In
general, defaults on mortgage loans may occur with greater frequency in their
early years. In addition, default rates may be higher for mortgage loans used
to
refinance an existing mortgage loan. In the event of a mortgagor’s default on a
Mortgage Loan, there can be no assurance that recourse will be available beyond
the specific mortgaged property pledged as security for repayment. See “The
Originator—Underwriting Standards of the Originator” herein.
Special
Yield Considerations
The
Mortgage Rates on the adjustable-rate Mortgage Loans adjust semi-annually based
upon the Index after an initial period of two or three years after origination
and the fixed-rate Mortgage Loans do not adjust at all. The Pass-Through Rates
on the Class A and Mezzanine Certificates may adjust monthly based upon
One-Month LIBOR as described under “Description of the Certificates—Calculation
of One-Month LIBOR” herein, subject to the related Net WAC Pass-Through Rate. As
a result, increases in the Pass-Through Rates on the Class A and Mezzanine
Certificates may be limited for extended periods in a rising interest rate
environment. The interest due on the related Mortgage Loans during any Due
Period, net of the expenses of the Trust (including any Net Swap Payment and
any
Swap Termination Payment owed to the Interest Rate Swap Provider other than
termination payments resulting from a Swap Provider Trigger Event), may not
equal the amount of interest that would accrue at One-Month LIBOR plus the
applicable margin on the Class A and Mezzanine Certificates during the related
Interest Accrual Period. In addition, the Index and One-Month LIBOR may respond
differently to economic and market factors. Thus, it is possible, for example,
that if both One-Month LIBOR and the Index rise during the same period,
One-Month LIBOR may rise more rapidly than the Index or may rise higher than
the
Index, potentially resulting in the application of the related Net WAC
Pass-Through Rate on one or more classes of the Class A and Mezzanine
Certificates which would adversely affect the yield to maturity on such
Certificates. In addition, the Net WAC Pass-Through Rate for a class of
Certificates will be reduced by the prepayment of the related Mortgage Loans
with relatively higher Mortgage Rates.
If
the
pass-through rate on any class of Class A or Mezzanine Certificates is limited
by the Net WAC Pass-Through Rate for any Distribution Date, the resulting basis
risk shortfalls may be recovered by the holders of such Certificates on such
Distribution Date or on future Distribution Dates, to the extent that on such
Distribution Date or future Distribution Dates there are any available funds
remaining after certain other distributions on the Class A and Mezzanine
Certificates and the payment of certain fees and expenses of the Trust
(including any Net Swap Payments or Swap Termination Payments owed to the
Interest Rate Swap Provider other than termination payments resulting from
a
Swap Provider Trigger Event). The ratings on the Class A and Mezzanine
Certificates do not address the likelihood of the recovery of any basis risk
shortfalls by holders of the Class A or Mezzanine Certificates.
As
described under “Description of the Certificates—Allocation of Losses;
Subordination” herein, amounts otherwise distributable to holders of the
Mezzanine Certificates may be made available to protect the holders of the
Class
A Certificates against interruptions in distributions due to certain mortgagor
delinquencies, to the extent not covered by Advances. Such delinquencies may
affect the yield to investors on the Mezzanine Certificates and, even if
subsequently cured, will affect the timing of the receipt of distributions
by
the holders of the Mezzanine Certificates. In addition, the rate of
delinquencies or losses will affect the rate of principal payments on each
class
of Mezzanine Certificates. See “Description of the Certificates—Principal
Distributions” herein.
Weighted
Average Lives
Weighted
average life refers to the average amount of time that will elapse from the
date
of issuance of a security until each dollar of principal of such security will
be repaid to the investor. The weighted average lives of the Class A and
Mezzanine Certificates will be influenced by the rate at which principal on
the
Mortgage Loans is paid, which may be in the form of scheduled payments or
prepayments (including repurchases by the Seller, or purchases by the Master
Servicer and prepayments of principal by the mortgagor as well as amounts
received by virtue of condemnation, insurance or foreclosure with respect to
the
Mortgage Loans), and the timing thereof.
Prepayments
of mortgage loans are commonly measured relative to a prepayment standard or
model. The models used with respect to the Mortgage Loans (the “Prepayment
Assumption”) assume:
(i)
In
the case of the fixed-rate Mortgage Loans, 100% of the Fixed-Rate
Vector.
The “Fixed-Rate Vector” means a constant prepayment rate (“CPR”) of 2% per
annum of the then unpaid principal balance of such Mortgage Loans
in the
first month of the life of such Mortgage Loans and an additional
2% per
annum in each month thereafter until the 10th
month, and then beginning in the 10th
month and in each month thereafter during the life of such Mortgage
Loans,
a CPR of 20% per annum.
(ii)
In
the case of the adjustable-rate Mortgage Loans, 100% of the
Adjustable-Rate Vector. The “Adjustable-Rate Vector” means (a) a constant
prepayment rate (“CPR”) of 5% per annum of the then unpaid principal
balance of such Mortgage Loans in the first month of the life of
such
Mortgage Loans and an additional 2% per annum in each month thereafter
until the 12th
month, and then beginning in the 12th
month and in each month thereafter until the 23rd
month, a CPR of 27% per annum, (b) beginning in the 24th
month and in each month thereafter until the 27th
month, a CPR of 60% per annum and (c) beginning in the 28th
month and in each month thereafter during the life of such Mortgage
Loans,
a CPR of 30% per annum. However, the prepayment rate will not exceed
85%
CPR per annum in any period for any percentage of the Adjustable-Rate
Vector.
CPR
is a
prepayment assumption that represents a constant assumed rate of prepayment
each
month relative to the then outstanding principal balance of a pool of mortgage
loans for the life of such mortgage loans. The model does not purport to be
either an historical description of the prepayment experience of any pool of
mortgage loans or a prediction of the anticipated rate of prepayment of any
mortgage loans, including the Mortgage Loans to be included in the Trust. Each
of the Prepayment Scenarios in the table below assumes the respective
percentages of the applicable prepayment vector indicated for such
scenario.
The
tables entitled “Percent of Original Certificate Principal Balance Outstanding”
were prepared on the basis of the following assumptions (the “Modeling
Assumptions”):
(i) the
Mortgage Loans have the characteristics set forth in the table entitled “Assumed
Mortgage Loan Characteristics” in Annex II of this free writing
prospectus;
(ii) distributions
on the Class A and Mezzanine Certificates are made on the 25th
day of
each month, commencing in the month after the month of the Cut-off Date and
the
pass-through rates for the Class A and Mezzanine Certificates are determined
as
set forth herein;
(iii) the
prepayment rates are the percentages of the respective Prepayment Assumption
set
forth in the table entitled “Prepayment Scenarios”;
(iv) no
defaults or delinquencies occur in the payment by mortgagors of principal and
interest on the Mortgage Loans and no shortfalls in collection of interest
are
incurred;
(v) none
of
the Seller, the Originator, the Master Servicer, the NIMS Insurer, if any,
or
any other person purchases from the Trust any Mortgage Loan pursuant to any
obligation or option under the Pooling and Servicing Agreement, except as
indicated in the footnotes in the tables below;
(vi) scheduled
monthly payments on the Mortgage Loans are received on the first day of each
month commencing in the month after the month of the Cut-off Date, and are
computed prior to giving effect to any prepayments received in the prior month
(except for the interest-only Mortgage Loans during the initial interest only
period);
(vii) voluntary
principal prepayments representing payment in full of individual Mortgage Loans
are received on the last day of each month commencing in the month of the
Cut-off Date, and include 30 days’ interest thereon;
(viii) the
scheduled monthly payment for each Mortgage Loan is calculated based on its
principal balance, Mortgage Rate and remaining amortization term such that
the
Mortgage Loan will amortize in amounts sufficient to repay the remaining
principal balance of such Mortgage Loan by its remaining term to stated
maturity;
(ix) the
Certificates are purchased on May 25, 2006;
(x) with
respect to the adjustable-rate Mortgage Loans, the Index remains constant at
5.272% per annum and the Mortgage Rate on each such Mortgage Loan is adjusted
on
the next Adjustment Date (and on subsequent Adjustment Dates if necessary)
to
equal the Index plus the applicable Gross Margin, subject to the applicable
Initial Periodic Rate Cap, Periodic Rate Cap, Maximum Mortgage Rate and Minimum
Mortgage Rate and in cases where the minimum mortgage rate for any
adjustable-rate Mortgage Loan is lower than its applicable margin, the
applicable margin is used as its minimum mortgage rate;
(xi) One-Month
LIBOR remains constant at 5.080% per annum;
(xii) the
monthly payment on each adjustable-rate Mortgage Loan (and for each
interest-only Mortgage Loan following its initial interest only period) is
adjusted on the Due Date immediately following the next Adjustment Date (and
on
subsequent Adjustment Dates if necessary) to equal a fully amortizing monthly
payment as described in clause (viii) above;
(xiii) the
Mortgage Rate for each adjustable-rate Mortgage Loan adjusts every six months
following its first Adjustment Date;
(xiv) the
initial Certificate Principal Balance of the Class P Certificates is
$0.00;
(xv) the
Servicing Fee Rate is equal to 0.500% per annum, the Trustee Fee Rate is equal
to 0.0016% per annum and the PMI Insurer Fee Rate (together with the Servicing
Fee Rate and the Trustee Fee Rate, the “Administrative Fee Rate”) with respect
to the Mortgage Loans covered by the PMI Policy is equal to 0.95% per annum;
the
weighted average Administrative Fee Rate for each Mortgage Loan is equal to
.5988% per annum; and
(xvi) the
Fixed
Swap Payment is calculated based on a schedule, a copy of which is attached
hereto as Annex IV and no Swap Termination Payment to the Interest Rate Swap
Provider is made.
Prepayment
Scenarios(1)
I
II
III
IV
V
VI
Fixed-rate
Mortgage Loans:
0%
50%
75%
100%
125%
150%
Adjustable-rate
Mortgage Loans:
0%
50%
75%
100%
125%
150%
_______________
(1) Percentages
of the Fixed-Rate Vector for the fixed-rate Mortgage Loans and percentages
of
the Adjustable-Rate Vector for the adjustable-rate Mortgage Loans.
There
will be discrepancies between the characteristics of the actual Mortgage Loans
and the characteristics included in the Modeling Assumptions. Any such
discrepancy may have an effect upon the percentages of the original Certificate
Principal Balances outstanding (and the corresponding weighted average lives)
of
the Class A and Mezzanine Certificates set forth in the tables. In addition,
since it is not likely the level of the Index or One-Month LIBOR will remain
constant as assumed, the Class A and Mezzanine Certificates may mature earlier
or later than indicated by the table. As described under “Description of the
Certificates—Principal Distributions” herein, the occurrence of the Stepdown
Date or a Trigger Event will have the effect of accelerating or decelerating
the
amortization of the Class A and Mezzanine Certificates and affecting the
weighted average lives of such Certificates. Neither the prepayment model used
herein nor any other prepayment model or assumption purports to be an historical
description of prepayment experience or a prediction of the anticipated rate
of
prepayment of any pool of mortgage loans, including the Mortgage Loans included
in the mortgage pool. Variations in the prepayment experience and the balance
of
the Mortgage Loans that prepay may increase or decrease the percentages of
original Certificate Principal Balances (and the corresponding weighted average
lives) shown in the following tables. Such variations may occur even if the
average prepayment experience of all the Mortgage Loans equals any of the
Prepayment Scenarios shown in the immediately following tables.
Percent
of Original Certificate Principal Balance Outstanding(1)
Weighted
Average Life (years) to Optional Termination(2)(3)
20.42
4.97
3.38
2.49
1.84
1.44
_________________________
(1) Rounded
to the nearest whole percentage except where otherwise indicated. If applicable,
an * represents less than one-half of one percent but greater than zero
percent.
(2) The
weighted average life of any class of Class A and Mezzanine Certificates is
determined by (i) multiplying the assumed net reduction, if any, in the
Certificate Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the assumed net reductions
in
Certificate Principal Balance of such class of Certificates.
(3) Assumes
an optional purchase of the Mortgage Loans on the earliest Distribution Date
on
which it is permitted.
Percent
of Original Certificate Principal Balance Outstanding(1)
Weighted
Average Life (years) to Optional Termination(2)(3)
14.83
1.58
1.22
1.00
0.85
0.75
_________________________
(1) Rounded
to the nearest whole percentage except where otherwise indicated. If applicable,
an * represents less than one-half of one percent but greater than zero
percent.
(2) The
weighted average life of any class of Class A and Mezzanine Certificates is
determined by (i) multiplying the assumed net reduction, if any, in the
Certificate Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the assumed net reductions
in
Certificate Principal Balance of such class of Certificates.
(3) Assumes
an optional purchase of the Mortgage Loans on the earliest Distribution Date
on
which it is permitted.
Percent
of Original Certificate Principal Balance Outstanding(1)
Weighted
Average Life (years) to Optional Termination(2)(3)
22.93
3.70
2.44
2.00
1.77
1.54
_________________________
(1) Rounded
to the nearest whole percentage except where otherwise indicated. If applicable,
an * represents less than one-half of one percent but greater than zero
percent.
(2) The
weighted average life of any class of Class A and Mezzanine Certificates is
determined by (i) multiplying the assumed net reduction, if any, in the
Certificate Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the assumed net reductions
in
Certificate Principal Balance of such class of Certificates.
(3) Assumes
an optional purchase of the Mortgage Loans on the earliest Distribution Date
on
which it is permitted.
Percent
of Original Certificate Principal Balance Outstanding(1)
Weighted
Average Life (years) to Optional Termination(2)(3)
26.85
7.95
5.19
3.46
2.25
2.01
_________________________
(1) Rounded
to the nearest whole percentage except where otherwise indicated. If applicable,
an * represents less than one-half of one percent but greater than zero
percent.
(2) The
weighted average life of any class of Class A and Mezzanine Certificates is
determined by (i) multiplying the assumed net reduction, if any, in the
Certificate Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the assumed net reductions
in
Certificate Principal Balance of such class of Certificates.
(3) Assumes
an optional purchase of the Mortgage Loans on the earliest Distribution Date
on
which it is permitted.
Percent
of Original Certificate Principal Balance Outstanding(1)
Weighted
Average Life (years) to Optional Termination(2)(3)
28.98
14.04
9.41
6.80
4.35
2.42
_________________________
(1) Rounded
to the nearest whole percentage except where otherwise indicated. If applicable,
an * represents less than one-half of one percent but greater than zero
percent.
(2) The
weighted average life of any class of Class A and Mezzanine Certificates is
determined by (i) multiplying the assumed net reduction, if any, in the
Certificate Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the assumed net reductions
in
Certificate Principal Balance of such class of Certificates.
(3) Assumes
an optional purchase of the Mortgage Loans on the earliest Distribution Date
on
which it is permitted.
Percent
of Original Certificate Principal Balance Outstanding(1)
Weighted
Average Life (years) to Optional Termination(2)(3)
27.18
9.41
6.24
4.89
4.95
3.99
_________________________
(1) Rounded
to the nearest whole percentage except where otherwise indicated. If applicable,
an * represents less than one-half of one percent but greater than zero
percent.
(2) The
weighted average life of any class of Class A and Mezzanine Certificates is
determined by (i) multiplying the assumed net reduction, if any, in the
Certificate Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the assumed net reductions
in
Certificate Principal Balance of such class of Certificates.
(3) Assumes
an optional purchase of the Mortgage Loans on the earliest Distribution Date
on
which it is permitted.
Percent
of Original Certificate Principal Balance Outstanding(1)
Weighted
Average Life (years) to Optional Termination(2)(3)
27.18
9.41
6.24
4.80
4.49
4.17
_________________________
(1) Rounded
to the nearest whole percentage except where otherwise indicated. If applicable,
an * represents less than one-half of one percent but greater than zero
percent.
(2) The
weighted average life of any class of Class A and Mezzanine Certificates is
determined by (i) multiplying the assumed net reduction, if any, in the
Certificate Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the assumed net reductions
in
Certificate Principal Balance of such class of Certificates.
(3) Assumes
an optional purchase of the Mortgage Loans on the earliest Distribution Date
on
which it is permitted.
Percent
of Original Certificate Principal Balance Outstanding(1)
Weighted
Average Life (years) to Optional Termination(2)(3)
27.18
9.41
6.24
4.75
4.27
4.15
_________________________
(1) Rounded
to the nearest whole percentage except where otherwise indicated. If applicable,
an * represents less than one-half of one percent but greater than zero
percent.
(2) The
weighted average life of any class of Class A and Mezzanine Certificates is
determined by (i) multiplying the assumed net reduction, if any, in the
Certificate Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the assumed net reductions
in
Certificate Principal Balance of such class of Certificates.
(3) Assumes
an optional purchase of the Mortgage Loans on the earliest Distribution Date
on
which it is permitted.
Percent
of Original Certificate Principal Balance Outstanding(1)
Weighted
Average Life (years) to Optional Termination(2)(3)
27.18
9.41
6.24
4.72
4.15
3.95
_________________________
(1) Rounded
to the nearest whole percentage except where otherwise indicated. If applicable,
an * represents less than one-half of one percent but greater than zero
percent.
(2) The
weighted average life of any class of Class A and Mezzanine Certificates is
determined by (i) multiplying the assumed net reduction, if any, in the
Certificate Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the assumed net reductions
in
Certificate Principal Balance of such class of Certificates.
(3) Assumes
an optional purchase of the Mortgage Loans on the earliest Distribution Date
on
which it is permitted.
Percent
of Original Certificate Principal Balance Outstanding(1)
Weighted
Average Life (years) to Optional Termination(2)(3)
27.18
9.41
6.24
4.70
4.06
3.77
_________________________
(1) Rounded
to the nearest whole percentage except where otherwise indicated. If applicable,
an * represents less than one-half of one percent but greater than zero
percent.
(2) The
weighted average life of any class of Class A and Mezzanine Certificates is
determined by (i) multiplying the assumed net reduction, if any, in the
Certificate Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the assumed net reductions
in
Certificate Principal Balance of such class of Certificates.
(3) Assumes
an optional purchase of the Mortgage Loans on the earliest Distribution Date
on
which it is permitted.
Percent
of Original Certificate Principal Balance Outstanding(1)
Weighted
Average Life (years) to Optional Termination(2)(3)
27.18
9.41
6.24
4.69
3.99
3.63
_________________________
(1) Rounded
to the nearest whole percentage except where otherwise indicated. If applicable,
an * represents less than one-half of one percent but greater than zero
percent.
(2) The
weighted average life of any class of Class A and Mezzanine Certificates is
determined by (i) multiplying the assumed net reduction, if any, in the
Certificate Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the assumed net reductions
in
Certificate Principal Balance of such class of Certificates.
(3) Assumes
an optional purchase of the Mortgage Loans on the earliest Distribution Date
on
which it is permitted.
Percent
of Original Certificate Principal Balance Outstanding(1)
Weighted
Average Life (years) to Optional Termination(2)(3)
27.18
9.41
6.24
4.67
3.94
3.52
_________________________
(1) Rounded
to the nearest whole percentage except where otherwise indicated. If applicable,
an * represents less than one-half of one percent but greater than zero
percent.
(2) The
weighted average life of any class of Class A and Mezzanine Certificates is
determined by (i) multiplying the assumed net reduction, if any, in the
Certificate Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the assumed net reductions
in
Certificate Principal Balance of such class of Certificates.
(3) Assumes
an optional purchase of the Mortgage Loans on the earliest Distribution Date
on
which it is permitted.
Percent
of Original Certificate Principal Balance Outstanding(1)
Weighted
Average Life (years) to Optional Termination(2)(3)
27.18
9.41
6.24
4.67
3.90
3.45
_________________________
(1) Rounded
to the nearest whole percentage except where otherwise indicated. If applicable,
an * represents less than one-half of one percent but greater than zero
percent.
(2) The
weighted average life of any class of Class A and Mezzanine Certificates is
determined by (i) multiplying the assumed net reduction, if any, in the
Certificate Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the assumed net reductions
in
Certificate Principal Balance of such class of Certificates.
(3) Assumes
an optional purchase of the Mortgage Loans on the earliest Distribution Date
on
which it is permitted.
Percent
of Original Certificate Principal Balance Outstanding(1)
Weighted
Average Life (years) to Optional Termination(2)(3)
27.18
9.41
6.24
4.66
3.88
3.40
_________________________
(1) Rounded
to the nearest whole percentage except where otherwise indicated. If applicable,
an * represents less than one-half of one percent but greater than zero
percent.
(2) The
weighted average life of any class of Class A and Mezzanine Certificates is
determined by (i) multiplying the assumed net reduction, if any, in the
Certificate Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the assumed net reductions
in
Certificate Principal Balance of such class of Certificates.
(3) Assumes
an optional purchase of the Mortgage Loans on the earliest Distribution Date
on
which it is permitted.
Percent
of Original Certificate Principal Balance Outstanding(1)
Weighted
Average Life (years) to Optional Termination(2)(3)
27.18
9.41
6.23
4.64
3.84
3.35
_________________________
(1) Rounded
to the nearest whole percentage except where otherwise indicated. If applicable,
an * represents less than one-half of one percent but greater than zero
percent.
(2) The
weighted average life of any class of Class A and Mezzanine Certificates is
determined by (i) multiplying the assumed net reduction, if any, in the
Certificate Principal Balance on each Distribution Date of such class of
Certificates by the number of years from the date of issuance of the
Certificates to the related Distribution Date, (ii) summing the results and
(iii) dividing the sum by the aggregate amount of the assumed net reductions
in
Certificate Principal Balance of such class of Certificates.
(3) Assumes
an optional purchase of the Mortgage Loans on the earliest Distribution Date
on
which it is permitted.
There
is
no assurance that prepayments of the Mortgage Loans will conform to any of
the
levels of CPR reflected in the Prepayment Scenarios indicated in the tables
above, or to any other level, or that the actual weighted average lives of
the
Class A and Mezzanine Certificates will conform to any of the weighted average
lives set forth in the tables above. Furthermore, the information contained
in
the tables with respect to the weighted average lives of the Class A and
Mezzanine Certificates is not necessarily indicative of the weighted average
lives that might be calculated or projected under different or varying
prepayment, Index or One-Month LIBOR level assumptions.
The
characteristics of the Mortgage Loans will differ from those assumed in
preparing the tables above. In addition, it is unlikely that any Mortgage Loan
will prepay at any constant percentage until maturity, that all of the Mortgage
Loans will prepay at the same rate or that the level of the Index or One-Month
LIBOR will remain constant or at any level for any period of time. The timing
of
changes in the rate of prepayments may significantly affect the actual yield
to
maturity to investors, even if the average rate of principal prepayments and
the
level of the Index or One-Month LIBOR is consistent with the expectations of
investors.
Yield
Sensitivity of the Mezzanine Certificates
If
the
Overcollateralized Amount and each class of Mezzanine Certificates with a lower
distribution priority have been reduced to zero, the yield to maturity on the
class of Mezzanine Certificates with the lowest distribution priority will
become extremely sensitive to losses on the Mortgage Loans (and the timing
thereof), because the entire amount of any Realized Losses (to the extent not
covered by Net Monthly Excess Cashflow or by amounts paid under the Interest
Rate Swap Agreement and available for that purpose) will be allocated to that
class of Certificates. Investors in the Mezzanine 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 investments. Once a Realized
Loss is allocated to a Mezzanine Certificate, such written down amount will
not
bear interest and will not be reinstated (except in the case of Subsequent
Recoveries). However, the amount of any Realized Losses allocated to the
Mezzanine Certificates may be distributed to the holders of such Certificates
according to the priorities set forth under “Description of the
Certificates—Overcollateralization Provisions” and “Description of the
Certificates—The Interest Rate Swap Agreement and the Swap Account” in this free
writing prospectus.
The
Mezzanine Certificates will not be entitled to any principal distributions
until
the Stepdown Date or on any Distribution Date on which a Trigger Event is in
effect (unless the aggregate Certificate Principal Balance of the Class A
Certificates has been reduced to zero).
As
a
result, the weighted average lives of the Mezzanine Certificates will be longer
than would otherwise be the case if distributions of principal were allocated
on
a pro
rata
basis
among the Class A and Mezzanine Certificates. As a result of the longer weighted
average lives of the Mezzanine Certificates, the holders of such Certificates
have a greater risk of suffering a loss on their investments. Further, because
a
Trigger Event may be based on delinquencies, it is possible for the Mezzanine
Certificates to receive no principal distributions (unless the aggregate
Certificate Principal Balance of the Class A Certificates has been reduced
to
zero) on and after the Stepdown Date even if no losses have occurred on the
mortgage pool. For additional considerations relating to the yield on the
Mezzanine Certificates, see “Yield and Maturity Considerations” in the
prospectus.
DESCRIPTION
OF THE CERTIFICATES
General
The
Argent Securities Inc., Asset-Backed Pass-Through Certificates, Series 2006-W5
(the “Certificates”) will consist of nineteen classes of certificates,
designated as: (i) the Class A-1 Certificates (the “Group I Certificates”); (ii)
Class A-2A, Class A-2B, Class A-2C and Class A-2D Certificates (collectively,
the “Group II Certificates,” and together with the Group I Certificates, the
“Class A Certificates”); (iii) the Class M-1, Class M-2, Class M-3, Class M-4,
Class M-5, Class M-6, Class M-7, Class M-8, Class M-9 and Class M-10
Certificates (collectively, the “Mezzanine Certificates”); (iv) the Class CE
Certificates (together with the Mezzanine Certificates, the “Subordinate
Certificates”); (v) the Class P Certificates; and (vi) the Class R and Class R-X
Certificates (together, the “Residual Certificates”). Only the Class A and
Mezzanine Certificates are offered hereby (the “Offered Certificates”). The
Class CE, Class P and Residual Certificates are not offered by this free writing
prospectus. Such certificates may be delivered to the Seller as partial
consideration for the Mortgage Loans or alternatively, the Depositor may sell
all or a portion of such certificates to one or more third-party investors.
Statistical information presented in this free writing prospectus which is
based
on the characteristics of the mortgage loans may change due to the permitted
variance with respect to such characteristics.
Distributions
on the Class A and Mezzanine Certificates will be made on the 25th
day of
each month, or, if such day is not a business day, on the next succeeding
business day, beginning in June 2006 (each, a “Distribution Date”).
The
Certificates will represent in the aggregate the entire beneficial ownership
interest in the issuing entity (the “Trust”), the assets of which consist
primarily of the mortgage pool. Each class of Class A and Mezzanine Certificates
will have the approximate original Certificate Principal Balances as set forth
in the table under “Summary of Free Writing Prospectus—The Certificates” in this
free writing prospectus. The Pass-Through Rates on the Class A and Mezzanine
Certificates will be calculated for each Distribution Date as described under
“—Pass-Through Rates” below.
The
Class
A, Mezzanine and Class CE Certificates evidence the following initial undivided
interests in the Trust:
Class
Percentage
Interest (1)
A
79.95%
M-1
3.50%
M-2
3.10%
M-3
2.00%
M-4
1.65%
M-5
1.70%
M-6
1.45%
M-7
1.35%
M-8
1.15%
M-9
0.80%
M-10
1.00%
CE
2.35%
_________________
(1) Approximate,
subject to a variance of plus or minus 5%.
The
Offered Certificates will be issued, maintained and transferred on the
book-entry records of The Depository Trust Company (“DTC”) and its participants
in minimum denominations of $100,000 and integral multiples of $1.00 in excess
thereof. If the use of book-entry facilities for the Class A and Mezzanine
Certificates is terminated, then any definitive certificates issued in respect
of the Class A and Mezzanine Certificates will be transferable and exchangeable
at the offices of the Trustee designated for such purposes. No service charge
will be imposed for any registration of transfer or exchange, but the Trustee
may require payment of a sum sufficient to cover any tax or other governmental
charge imposed in connection therewith.
All
distributions to holders of the Certificates will be made by the Trustee to
the
persons in whose names such Certificates are registered at the close of business
on each Record Date, which will be DTC or its nominee unless definitive
certificates are issued. The “Record Date” for each Distribution Date (i) with
respect to any book-entry certificate will be the close of business on the
business day immediately preceding such Distribution Date or (ii) with respect
to any definitive certificates, will be the close of business on the last
business day of the month preceding the month in which such Distribution Date
occurs. Such distributions will be made by wire transfer in immediately
available funds to the account of each certificateholder specified in writing
to
the Trustee at least five business days prior to the relevant Record Date by
such holder of Certificates or, if such instructions are not received, then
by
check mailed to the address of each such certificateholder as it appears in
the
Certificate Register. The final distribution on any class of Certificates will
be made in like manner, but only upon presentment and surrender of such
Certificates at the offices of the Trustee designated for such purposes or
such
other location specified in the notice to certificateholders of such final
distribution. As of the Closing Date, the Trustee designates the office of
its
agent located at c/o DB Services Tennessee, 648 Grassmere Park Road, Nashville,
Tennessee37211-3658, Attn: Transfer Unit, for such purposes.
Fees
and Expenses of the Trust
The
following fees and expenses will be paid from amounts received on the Mortgage
Loans prior to distributions to certificateholders:
Fee
or Amount Payable to:
Frequency
of Payment:
Amount
of Fee:
How
and When Fee Is Payable:
Master
Servicer
Monthly
For
each Mortgage Loan, a monthly fee paid to the Master Servicer. The
monthly
fee is calculated as one-twelfth of the Servicing Fee Rate on the
unpaid
Principal Balance of the Mortgage Loan at the end of the applicable
Due
Period.
Withdrawn
from amounts on deposit in the Collection Account, before distributions
to
Certificateholders.(1)
Trustee
Monthly
For
each Mortgage Loan, a monthly fee payable to the Trustee.
The monthly fee is calculated as one-twelfth of the Trustee Fee Rate
on
the unpaid Principal Balance of the Mortgage Loan at the beginning
of the
applicable Due Period.
Withdrawn
from amounts on deposit in the Distribution Account, before distributions
to Certificateholders.
Interest
Rate Swap Provider
Monthly
The
Interest Rate Swap Provider is entitled to a monthly payment from
amounts
on deposit in the Distribution Account equal to one-twelfth of 5.344%
on
the Base Calculation Amount (as defined herein) for such Distribution
Date
multiplied by 250. Simultaneously, the Issuing Entity is entitled
to an
amount equal to one-month LIBOR (as set forth in the Interest Rate
Swap
Agreement and calculated on an actual/360 basis) on the Base Calculation
Amount for such Distribution Date multiplied by 250.
Only
the positive net payment of the two obligations will be paid by the
applicable party. If a net payment is owed to the Interest Rate Swap
Provider, the Trustee will pay such amount from the Distribution
Account
before distributions are made on the Certificates.
PMI
Insurer
Monthly
For
each PMI Mortgage Loan, a monthly fee payable to the PMI Insurer.
The
monthly fee is calculated as one-twelfth of the PMI Insurer Fee Rate
on
the unpaid Principal Balance of the PMI Mortgage Loan at the beginning
of
the applicable Due Period.
Withdrawn
from amounts on deposit in the Distribution Account, before distributions
to Certificateholders.
_________________________
(1) See
“The
Pooling and Servicing Agreement—Servicing and Other Compensation and Payment of
Expenses” in this free writing prospectus for a description of additional
compensation that the Master Servicer may receive.
Book-Entry
Certificates
The
Class
A and Mezzanine Certificates will be book-entry certificates. Persons acquiring
beneficial ownership interests in the Class A and Mezzanine Certificates, or
certificate owners, will hold the Class A and Mezzanine Certificates through
DTC
in the United States, or Clearstream Banking Luxembourg, or Clearstream,
formerly known as Cedelbank SA, or Euroclear in Europe, if they are participants
of these systems, or indirectly through organizations which are participants
in
these systems. See “Description of the Securities—Book Entry Certificates” in
the prospectus.
Pass-Through
Rates
The
“Pass-Through Rate” on any Distribution Date with respect to each class of the
Class A and Mezzanine Certificates will equal the lesser of (a) the related
Formula Rate and (b) the related Net WAC Pass-Through Rate for such Distribution
Date. With respect to the Class A and Mezzanine Certificates, interest in
respect of any Distribution Date will accrue during the related Interest Accrual
Period on the basis of a 360-day year and the actual number of days
elapsed.
The
“Formula Rate” for each class of Class A and Mezzanine Certificates will be the
lesser of (a) One-Month LIBOR determined as described under “—Calculation of
One-Month LIBOR” in this free writing prospectus plus the related Certificate
Margin and (b) the related Maximum Cap Rate.
The
“Certificate Margin” with respect to each class of Class A and Mezzanine
Certificates will be the percentages set forth below.
Certificate
Margin
Class
(1)
(%)
(2)
(%)
A-1
[___]
[___]
A-2A
[___]
[___]
A-2B
[___]
[___]
A-2C
[___]
[___]
A-2D
[___]
[___]
M-1
[___]
[___]
M-2
[___]
[___]
M-3
[___]
[___]
M-4
[___]
[___]
M-5
[___]
[___]
M-6
[___]
[___]
M-7
[___]
[___]
M-8
[___]
[___]
M-9
[___]
[___]
M-10
[___]
[___]
__________
(1) For
the
Interest Accrual Period for each Distribution Date on or prior to the Optional
Termination Date.
(2) For
each
other Interest Accrual Period.
The
“Net
WAC Pass-Through Rate” for any Distribution Date with respect to
(a) the
Group
I Certificates, will be a per annum rate (subject to adjustment based on the
actual number of days elapsed in the related Interest Accrual Period) equal
to
the weighted average of the Expense Adjusted Net Mortgage Rates of the Group
I
Mortgage Loans minus the sum of (x) an amount, expressed as a per annum rate,
equal to any Net Swap Payment owed to the Interest Rate Swap Provider divided
by
the outstanding principal balance of the Mortgage Loans, multiplied by 12 and
(y) an amount, expressed as a per annum rate, equal to the Swap Termination
Payment, if any, payable by the Trust (other than termination payments resulting
from a Swap Provider Trigger Event), multiplied by 12, divided by the
outstanding principal balance of the Mortgage Loans;
(b) each
class of Group II Certificates, will be a per annum rate (subject to adjustment
based on the actual number of days elapsed in the related Interest Accrual
Period) equal to the weighted average of the Expense Adjusted Net Mortgage
Rates
of the Group II Mortgage Loans minus the sum of (x) an amount, expressed as
a
per annum rate, equal to any Net Swap Payment owed to the Interest Rate Swap
Provider divided by the outstanding principal balance of the Mortgage Loans,
multiplied by 12 and (y) an amount, expressed as a per annum rate, equal to
the
Swap Termination Payment, if any, payable by the Trust (other than termination
payments resulting from a Swap Provider Trigger Event), multiplied by 12,
divided by the outstanding principal balance of the Mortgage Loans;
and
(c) each
class of Mezzanine Certificates, will be a per annum rate equal to the weighted
average (weighted on the basis of the results of subtracting from the aggregate
principal balance of each loan group the current aggregate Certificate Principal
Balance of the related Class A Certificates) of the Net WAC Pass-Through Rate
for the Group I Certificates and the Net WAC Pass-Through Rate for the Group
II
Certificates.
The
“Expense Adjusted Net Mortgage Rate” for any Mortgage Loan for any Distribution
Date will be a per annum rate equal to the applicable Mortgage Rate for such
Mortgage Loan as of the first day of the month preceding the month in which
such
Distribution Date occurs minus the sum of (i) the Servicing Fee Rate, (ii)
the
Trustee Fee Rate and
(iii)
the PMI Insurer Fee Rate, if applicable.
The
“Maximum Cap Rate” for any Distribution Date and each class of Class A and
Mezzanine Certificates is calculated in the same manner as the related Net
WAC
Pass-Through Rate, but based on the Expense Adjusted Net Maximum Mortgage Rates
of the applicable Mortgage Loans rather than the Expense Adjusted Net Mortgage
Rates plus an amount, expressed as a per annum rate, equal to the Net Swap
Payment made by the Interest Rate Swap Provider divided by the outstanding
principal balance of the Mortgage Loans, multiplied by 12.
The
“Expense Adjusted Net Maximum Mortgage Rate” for any Mortgage Loan for any
Distribution Date will be a per annum rate equal to the applicable Maximum
Mortgage Rate (or the Mortgage Rate for such Mortgage Loan in the case of any
fixed-rate Mortgage Loans) as of the first day of the month preceding the month
in which the Distribution Date occurs minus the sum of (i) the Servicing Fee
Rate, (ii) the Trustee Fee Rate and (iii) the PMI Insurer Fee Rate, if
applicable.
The
Pass-Through Rates on the Class A and Mezzanine Certificates for the Interest
Accrual Period beginning on a Distribution Date, to the extent they have been
determined, and for the immediately preceding Interest Accrual Period will
be
made available via the Trustee’s internet website, together with the monthly
statements required by the Pooling and Servicing Agreement. Parties that are
unable to use the above distribution method are entitled to have a paper copy
mailed to them via first class mail by calling the investor relations desk
and
indicating such.
Net
WAC Rate Carryover Amounts
On
the
Closing Date, the Trustee will establish a segregated trust account (the “Net
WAC Rate Carryover Reserve Account”) from which distributions in respect of Net
WAC Rate Carryover Amounts on the Class A and Mezzanine Certificates will be
made. The Net WAC Rate Carryover Reserve Account will be an asset of the Trust
but not of any REMIC. On each Distribution Date, to the extent required
following the distribution of the Available Funds as described under
“—Overcollateralization Provisions” in this free writing prospectus, the Trustee
will withdraw from amounts in the Net WAC Rate Carryover Reserve Account to
distribute to the Class A and Mezzanine Certificates any Net WAC Rate Carryover
Amounts in the following order of priority, in each case to the extent of
amounts remaining in the Net WAC Rate Carryover Reserve Account:
first,
concurrently, to each class of Class A Certificates, the related Net WAC Rate
Carryover Amount on a pro
rata
basis
based on such respective Net WAC Rate Carryover Amounts; and
second,
sequentially, to the Class M-1, Class M-2, Class M-3, Class M-4, Class M-5,
Class M-6, Class M-7, Class M-8, Class M-9 and Class M-10 Certificates, in
that
order, the related Net WAC Rate Carryover Amount.
Interest
Rate Swap Agreement and the Swap Account
The
Interest Rate Swap Agreement
On
or
before the Closing Date, the Trustee on behalf of the Issuing Entity will enter
into an interest rate swap agreement (the “Interest Rate Swap Agreement”) with
the Interest Rate Swap Provider. On each Distribution Date, the Trustee, as
Swap
Administrator pursuant to a Swap Administration Agreement (as further described
below), will deposit into a segregated trust account (the “Swap Account”)
certain amounts, if any, received from the Interest Rate Swap Provider from
which distributions in respect of Interest Carry Forward Amounts, Net WAC Rate
Carryover Amounts, amounts necessary to maintain the applicable
Overcollateralization Target Amount and Allocated Realized Loss Amounts on
the
Mezzanine Certificates will be made. The Interest Rate Swap Agreement and the
Swap Account will be assets of the Trust but not of any REMIC.
Under
the
Interest Rate Swap Agreement, on each Distribution Date, the Issuing Entity
will
be obligated to pay to the Interest Rate Swap Provider from amounts available
therefor pursuant to the Pooling and Servicing Agreement, an amount equal to
the
product of (x) the fixed rate of 5.344%, (y) the Base Calculation Amount for
that Distribution Date multiplied by 250 and (z) a fraction, the numerator
of
which is 30 and the denominator of which is 360 (the “Fixed Swap Payment”) and
the Interest Rate Swap Provider will be obligated to make a payment equal to
the
product of (x) the floating rate of one-month LIBOR (as determined pursuant
to
the Interest Rate Swap Agreement), (y) the Base Calculation Amount for that
Distribution Date multiplied by 250, and (z) a fraction, the numerator of which
is the actual number of days in the related calculation period, as provided
in
the Interest Rate Swap Agreement, and the denominator of which is 360. A net
payment will be required to be made on each Distribution Date (each such net
payment, a “Net Swap Payment”) (a) by the Trust to the Interest Rate Swap
Provider to the extent that the fixed rate amount exceeds the corresponding
floating rate amount, or (b) by the Interest Rate Swap Provider to the Trust
to
the extent that the floating rate amount exceeds the corresponding fixed rate
amount.
The
“Base
Calculation Amount” is set forth with respect to each Distribution Date on Annex
IV (which will be substantially the same schedule attached to the Interest
Rate
Swap Agreement). The initial Base Calculation Amount will be approximately
$5,111,376. The Interest Rate Swap Agreement will terminate immediately
following the Distribution Date in July 2010 unless terminated earlier upon
the
occurrence of a Swap Default, a Termination Event or an Additional Termination
Event (each as defined below).
The
respective obligations of the Interest Rate Swap Provider and the Trust to
pay
specified amounts due under the Interest Rate Swap Agreement will be subject
to
the following conditions precedent: (1) no Swap Default or event that with
the
giving of notice or lapse of time or both would become a Swap Default, in each
case, in respect of the other party, shall have occurred and be continuing
with
respect to the Interest Rate Swap Agreement and (2) no “Early Termination Date”
(as defined in the ISDA Master Agreement) has occurred or been effectively
designated with respect to the Interest Rate Swap Agreement.
“Events
of Default” under the Interest Rate Swap Agreement (each a “Swap Default”)
include the following standard events of default under the ISDA Master
Agreement:
•
“Failure
to Pay or Deliver,”
•
“Bankruptcy”
and
•
“Merger
without Assumption” (which generally relates to the Interest Rate Swap
Provider),
as
described in the Interest Rate Swap Agreement.
“Termination
Events” under the Interest Rate Swap Agreement (each a “Termination Event”)
consist of the following standard events under the ISDA Master
Agreement:
•
“Illegality”
(which generally relates to changes in law causing it to become unlawful
for either party to perform its obligations under the Interest Rate
Swap
Agreement),
•
“Tax
Event” (which generally relates to either party to the Interest Rate Swap
Agreement receiving a payment under the Interest Rate Swap Agreement
from
which an amount has been deducted or withheld for or on account of
taxes
or paying an additional amount on account of an indemnifiable tax)
and
•
“Tax
Event Upon Merger” (which generally relates to either party to the
Interest Rate Swap Agreement receiving a payment under the Interest
Rate
Swap Agreement from which an amount has been deducted or withheld
for or
on account of taxes or paying an additional amount on account of
an
indemnifiable tax in either case as a result of a
merger),
as
described in Sections 5(b)(i), 5(b)(ii) and 5(b)(iii) of the Interest Rate
Swap
Agreement. In addition, there are “Additional Termination Events” (as defined in
the Interest Rate Swap Agreement), including (i) if the Interest Rate Swap
Provider fails to comply with the Regulation AB provisions of the Interest
Rate
Swap Agreement, (ii) if the Pooling and Servicing Agreement is amended in a
manner contrary to the requirements of the Interest Rate Swap Agreement, (iii)
if the Trust is unable to pay its senior certificates as they become due, (iv)
if an optional termination occurs pursuant to the terms of the Pooling and
Servicing Agreement or (v) if the Interest Rate Swap Provider fails to comply
with the Downgrade Provisions (as defined below).
Upon
the
occurrence of any Swap Default under the Interest Rate Swap Agreement, the
non-defaulting party will have the right to designate an Early Termination
Date.
With respect to Termination Events (including Additional Termination Events),
an
Early Termination Date may be designated by one of the parties (as specified
in
the Interest Rate Swap Agreement) and will occur only after notice has been
given of the Termination Event, all as set forth in the Interest Rate Swap
Agreement. The occurrence of an Early Termination Date under the Interest Rate
Swap Agreement will constitute a “Swap Early Termination.”
Upon
any
Swap Early Termination, the Trust or the Interest Rate Swap Provider may be
liable to make a termination payment (the “Swap Termination Payment”)
(regardless, if applicable, of which of the parties has caused the termination).
The Swap Termination Payment will be based on the value of the Interest Rate
Swap Agreement computed in accordance with the procedures set forth in the
Interest Rate Swap Agreement taking into account the present value of the unpaid
amounts that would have been owed to and by the Interest Rate Swap Provider
under the remaining scheduled term of the Interest Rate Swap Agreement. In
the
event that the Trust is required to make a Swap Termination Payment, that
payment will be paid from the Trust on the related Distribution Date, and on
any
subsequent Distribution Dates until paid in full, generally prior to
distributions to Certificateholders.
Upon
a
Swap Early Termination, the Trustee, at the direction of the Depositor and
with
the consent of the NIMS Insurer, will seek a replacement swap provider to enter
into a replacement interest rate swap agreement or similar agreement. To the
extent the Trust receives a Swap Termination Payment from the Interest Rate
Swap
Provider, the Trust will apply, as set forth in the Swap Administration
Agreement, all or such portion of such Swap Termination Payment as may be
required to the payment of amounts due to a replacement swap provider under
a
replacement interest rate swap agreement or similar agreement. Furthermore,
to
the extent the Trust is required to pay a Swap Termination Payment to the
Interest Rate Swap Provider, the Trust will apply all or a portion of such
amount received from a replacement swap provider upon entering into a
replacement interest rate swap agreement or similar agreement to the Swap
Termination Payment amount owing to the Interest Rate Swap
Provider.
A
Swap
Termination Payment that is triggered upon: (i) an Event of Default under the
Interest Rate Swap Agreement with respect to which the Interest Rate Swap
Provider is a Defaulting Party (as defined in the Interest Rate Swap Agreement),
(ii) a Termination Event under the Interest Rate Swap Agreement with respect
to
which the Interest Rate Swap Provider is the sole Affected Party (as defined
in
the Interest Rate Swap Agreement) or (iii) an Additional Termination Event
under
the Interest Rate Swap Agreement with respect to which the Interest Rate Swap
Provider is the sole Affected Party, will be a “Swap Provider Trigger
Event.”
If
the
Interest Rate Swap Provider’s credit ratings fall below the levels specified in
the Interest Rate Swap Agreement, the Interest Rate Swap Provider will be
required, subject to the Rating Agency Condition (as defined in the Interest
Rate Swap Agreement) to (1) post collateral securing its obligations under
the
Interest Rate Swap Agreement, (2) obtain a substitute Interest Rate Swap
Provider with credit ratings at least equal to the specified levels that will
assume the obligations of the Interest Rate Swap Provider under the Interest
Rate Swap Agreement, (3) obtain a guaranty or contingent agreement of the
Interest Rate Swap Provider’s obligations under the Interest Rate Swap Agreement
from another person with credit ratings at least equal to the specified levels
or (4) establish any other arrangement sufficient to restore the credit rating
of the Class A and Mezzanine Certificates and any notes insured by the NIMS
Insurer, all as provided in the Interest Rate Swap Agreement, provided, however,
that if the Interest Rate Swap Provider’s credit ratings are withdrawn or fall
below a lower level, as specified in the Interest Rate Swap Agreement, the
Interest Rate Swap Provider will be required to act in accordance with clause
(2) or (3) above (such provisions, the “Downgrade Provisions”).
The
Trust
will not be subject to any gross-up on its payments to the Interest Rate Swap
Provider on account of any tax withholding.
The
aggregate significance percentage (as calculated in accordance with Regulation
AB Item 1115) of the Interest Rate Swap Agreement is less than 10%. The Swap
Provider may be replaced in certain circumstances, including if the aggregate
significance percentage of the Interest Rate Swap Agreement is equal to or
greater than 10%.
The
Swap Administration Agreement and the
Swap Account
The
Interest Rate Swap Agreement will be administered by Deutsche Bank National
Trust Company as Swap Administrator pursuant to a swap administration agreement
(the “Swap Administration Agreement”). Any Net Swap Payments made by the
Interest Rate Swap Provider will be distributed in accordance with the Swap
Administration Agreement. The Swap Administrator will be required to deposit
into the Swap Account an amount equal to any remaining and unpaid Interest
Carry
Forward Amounts, Net WAC Rate Carryover Amounts, Allocated Realized Loss Amounts
and amounts necessary to maintain the Overcollateralization Target Amount on
the
Class A and Mezzanine Certificates, up to the Net Swap Payment received by
the
Swap Administrator from the Interest Rate Swap Provider. Any excess amounts
received by the Swap Administrator will be paid to Ameriquest Mortgage Company
or its designee.
Net
Swap
Payments and Swap Termination Payments payable by the Trust (other than
termination payments resulting from a Swap Provider Trigger Event) will be
deducted from Available Funds before distributions to Certificateholders and
will first be deposited into the Swap Account before payment to the Interest
Rate Swap Provider.
On
each
Distribution Date, to the extent required, following the distribution of the
Net
Monthly Excess Cashflow as described in “—Overcollateralization Provisions” in
this free writing prospectus and withdrawals from the Net WAC Rate Carryover
Reserve Account as described in “—Net WAC Rate Carryover Amounts”, the Trustee
will withdraw from amounts in the Swap Account to distribute to the Class A
and
Mezzanine Certificates in the following order of priority:
first,
to the
Interest Rate Swap Provider, any Net Swap Payment owed to the Interest Rate
Swap
Provider pursuant to the Interest Rate Swap Agreement for such Distribution
Date;
second,
to the
Interest Rate Swap Provider, any Swap Termination Payment owed to the Interest
Rate Swap Provider not due to a Swap Provider Trigger Event pursuant to the
Interest Rate Swap Agreement;
third,
concurrently, to each class of Class A Certificates, the related Senior Interest
Distribution Amount remaining undistributed after the distributions of the
Group
I Interest Remittance Amount and the Group II Interest Remittance Amount, on
a
pro
rata
basis
based on such respective remaining Senior Interest Distribution
Amounts,
fourth,
sequentially, to the Class M-1, Class M-2, Class M-3, Class M-4, Class M-5,
Class M-6, Class M-7, Class M-8, Class M-9 and Class M-10 Certificates, in
that
order, the related Interest Distribution Amount and Interest Carry Forward
Amount, to the extent remaining undistributed after the distributions of the
Group I Interest Remittance Amount, the Group II Interest Remittance Amount
and
the Net Monthly Excess Cashflow;
fifth,
concurrently, to each class of Class A Certificates, the related Net WAC Rate
Carryover Amount, to the extent remaining undistributed after distributions
are
made from the Net WAC Rate Carryover Reserve Account, on a pro
rata
basis
based on such respective Net WAC Rate Carryover Amounts remaining;
sixth,
sequentially, to the Class M-1, Class M-2, Class M-3, Class M-4, Class M-5,
Class M-6, Class M-7, Class M-8, Class M-9 and Class M-10 Certificates, in
that
order, the related Net WAC Rate Carryover Amount, to the extent remaining
undistributed after distributions are made from the Net WAC Rate Carryover
Reserve Account;
seventh,
to the
holders of the class or classes of Certificates then entitled to receive
distributions in respect of principal, in an amount necessary to maintain the
Overcollateralization Target Amount after taking into account distributions
made
pursuant to clause first
under
“—Overcollateralization Provisions;” and
eighth,
sequentially to the Class M-1, Class M-2, Class M-3, Class M-4, Class M-5,
Class
M-6, Class M-7, Class M-8, Class M-9 and Class M-10 Certificates, in that order,
in each case up to the related Allocated Realized Loss Amount related to such
Certificates for such Distribution Date remaining undistributed after
distribution of the Net Monthly Excess Cashflow.
In
the
event that the Trust receives a Swap Termination Payment, and a successor
Interest Rate Swap Provider cannot be obtained, then such Swap Termination
Payment will be deposited into a reserve account and the Swap Administrator,
on
each subsequent Distribution Date (until the termination date of the original
Interest Rate Swap Agreement), will withdraw the amount of any Net Swap Payment
due to the Trust (calculated in accordance with the terms of the original
Interest Rate Swap Agreement) and administer such Net Swap Payment in accordance
with the terms of the Pooling and Servicing Agreement and the Swap
Administration Agreement.
Calculation
of One-Month LIBOR
With
respect to each Interest Accrual Period (other than the first Interest Accrual
Period) and the Class A and Mezzanine Certificates, on the second business
day
preceding such Interest Accrual Period (each such date, an “Interest
Determination Date”), the Trustee will determine one-month LIBOR for the next
Interest Accrual Period. With respect to the first Interest Accrual Period,
on
the Closing Date, the Trustee will determine one-month LIBOR for such Interest
Accrual Period based on the information available on the second business day
preceding the Closing Date. “One-Month LIBOR” means, as of any Interest
Determination Date, the London interbank offered rate for one-month U.S. dollar
deposits which appears on Telerate Page 3750 (as defined herein) as of 11:00
a.m. (London time) on such date. If such rate does not appear on Telerate Page
3750, the rate for that day will be determined on the basis of the offered
rates
of the Reference Banks for one-month U.S. dollar deposits, as of 11:00 a.m.
(London time) on such Interest Determination Date. The Trustee will request
the
principal London office of each of the Reference Banks to provide a quotation
of
its rate. If on such Interest Determination Date two or more Reference Banks
provide such offered quotations, One-Month LIBOR for the related Interest
Accrual Period will be the arithmetic mean of such offered quotations (rounded
upwards if necessary to the nearest whole multiple of 0.0625%). If on such
Interest Determination Date fewer than two Reference Banks provide such offered
quotations, One-Month LIBOR for the related Interest Accrual Period will be
the
higher of (x) One-Month LIBOR as determined on the previous Interest
Determination Date and (y) the Reserve Interest Rate.
As
used
in this section, “business day” means a day on which banks are open for dealing
in foreign currency and exchange in London and New York City; “Telerate Page
3750” means the display page currently so designated on Moneyline Telerate (or
such other page as may replace that page on that service for the purpose of
displaying comparable rates or prices); “Reference Banks” means leading banks
selected by the Trustee (after consultation with the Depositor) and engaged
in
transactions in Eurodollar deposits in the international Eurocurrency market
(i)
with an established place of business in London, (ii) which have been designated
as such by the Trustee and (iii) not controlling, controlled by, or under common
control with, the Depositor or the Seller; and “Reserve Interest Rate” will be
the rate per annum that the Trustee determines to be either (i) the arithmetic
mean (rounded upwards if necessary to the nearest whole multiple of 0.0625%)
of
the one-month U.S. dollar lending rates which New York City banks selected
by
the Trustee (after consultation with the Depositor) are quoting on the relevant
Interest Determination Date to the principal London offices of leading banks
in
the London interbank market or, (ii) in the event that the Trustee can determine
no such arithmetic mean, the lowest one-month U.S. dollar lending rate which
New
York City banks selected by the Trustee (after consultation with the Depositor)
are quoting on such Interest Determination Date to leading European
banks.
The
establishment of One-Month LIBOR on each Interest Determination Date by the
Trustee and the Trustee’s calculation of the rate of interest applicable to the
Class A and Mezzanine Certificates for the related Interest Accrual Period
will
(in the absence of manifest error) be final and binding.
Interest
Distributions
Holders
of the Class A and Mezzanine Certificates will be entitled to receive on each
Distribution Date, the applicable Interest Distribution Amount, in the
priorities set forth below.
I. On
each
Distribution Date, the Group I Interest Remittance Amount will be distributed
in
the following order of priority:
(i) to
the
holders of the Group I Certificates, the Senior Interest Distribution Amount
related to such Certificates; and
(ii) concurrently,
to the holders of each class of Group II Certificates, on a pro
rata
basis
based on the entitlement of each such class, the Senior Interest Distribution
Amount related to such Certificates, to the extent remaining undistributed
after
the distribution of the Group II Interest Remittance Amount as set forth in
clause II below.
II. On
each
Distribution Date, the Group II Interest Remittance Amount will be distributed
in the following order of priority:
(i) concurrently,
to the holders of each class of Group II Certificates, on a pro
rata
basis
based on the entitlement of each such class, the Senior Interest Distribution
Amount related to such Certificates; and
(ii) to
the
holders of the Group I Certificates, the Senior Interest Distribution Amount
related to such Certificates, to the extent remaining undistributed after the
distribution of the Group I Interest Remittance Amount as set forth in clause
I
above.
III. On
each
Distribution Date, following the distributions of interest to the holders of
each class of the Class A Certificates, to the extent of the sum of the Group
I
Interest Remittance Amount and the Group II Interest Remittance Amount remaining
will be distributed sequentially to the Class M-1, Class M-2, Class M-3, Class
M-4, Class M-5, Class M-6, Class M-7, Class M-8, Class M-9 and Class M-10
Certificates, in that order, in an amount equal to the Interest Distribution
Amount for each such class.
On
any
Distribution Date, any shortfalls resulting from application of the Relief
Act
and any Prepayment Interest Shortfalls to the extent not covered by Compensating
Interest paid by the Master Servicer, in each case regardless of which loan
group experienced the shortfall, will be allocated first, to reduce the interest
accrued on the Class CE Certificates, and thereafter, to reduce the Interest
Distribution Amounts with respect to the Class A and Mezzanine Certificates
on a
pro
rata
basis
based on the respective amounts of interest accrued on such Certificates for
such Distribution Date. The holders of the Class A and Mezzanine Certificates
will not be entitled to reimbursement for any such interest
shortfalls.
Principal
Distributions
I. On
each
Distribution Date (a) prior to the Stepdown Date or (b) on which a Trigger
Event
is in effect, distributions in respect of principal to the extent of the Group
I
Principal Distribution Amount will be made in the following amounts and order
of
priority:
(i) to
the
holders of the Group I Certificates, until the Certificate Principal Balance
thereof has been reduced to zero; and
(ii) to
the
holders of the Group II Certificates (allocated among the classes of Group
II
Certificates in the priority described below), after taking into account the
distribution of the Group II Principal Distribution Amount already distributed,
as described herein, until the Certificate Principal Balances thereof have
been
reduced to zero.
II. On
each
Distribution Date (a) prior to the Stepdown Date or (b) on which a Trigger
Event
is in effect, distributions in respect of principal to the extent of the Group
II Principal Distribution Amount will be made in the following amounts and
order
of priority:
(i) to
the
holders of the Group II Certificates (allocated among the classes of Group
II
Certificates in the priority described below), until the Certificate Principal
Balances thereof have been reduced to zero; and
(ii) to
the
holders of the Group I Certificates, after taking into account the distribution
of the Group I Principal Distribution Amount already distributed, as described
herein, until the Certificate Principal Balance thereof has been reduced to
zero.
III. On
each
Distribution Date (a) prior to the Stepdown Date or (b) on which a Trigger
Event
is in effect, distributions in respect of principal to the extent of the sum
of
the Group I Principal Distribution Amount and the Group II Principal
Distribution Amount remaining undistributed for such Distribution Date will
be
made sequentially to the Class M-1, Class M-2, Class M-3, Class M-4, Class
M-5,
Class M-6, Class M-7, Class M-8, Class M-9 and Class M-10 Certificates, in
that
order, in each case, until the Certificate Principal Balance of each such class
has been reduced to zero.
IV. On
each
Distribution Date (a) on or after the Stepdown Date and (b) on which a Trigger
Event is not in effect, distributions in respect of principal to the extent
of
the Group I Principal Distribution Amount will be made in the following amounts
and order of priority:
(i) to
the
holders of the Group I Certificates, the Senior Group I Principal Distribution
Amount, until the Certificate Principal Balance thereof has been reduced to
zero; and
(ii) to
the
holders of the Group II Certificates (allocated among the classes of Group
II
Certificates in the priority described below), after taking into account the
distribution of the Group II Principal Distribution Amount as described herein,
up to an amount equal to the Senior Group II Principal Distribution Amount
remaining undistributed, until the Certificate Principal Balances thereof have
been reduced to zero.
V. On
each
Distribution Date (a) on or after the Stepdown Date and (b) on which a Trigger
Event is not in effect, distributions in respect of principal to the extent
of
the Group II Principal Distribution Amount will be made in the following amounts
and order of priority:
(i) to
the
holders of the Group II Certificates, the Senior Group II Principal Distribution
Amount (allocated among the classes of Group II Certificates in the priority
described below), until the Certificate Principal Balances thereof have been
reduced to zero; and
(ii) to
the
holders of the Group I Certificates, after taking into account the distribution
of the Group I Principal Distribution Amount as described herein, up to an
amount equal to the Senior Group I Principal Distribution Amount remaining
undistributed, until the Certificate Principal Balance thereof has been reduced
to zero.
VI. On
each
Distribution Date (a) on or after the Stepdown Date and (b) on which a Trigger
Event is not in effect, distributions in respect of principal to the extent
of
the sum of the Group I Principal Distribution Amount and the Group II Principal
Distribution Amount remaining undistributed for such Distribution Date will
be
made in the following amounts and order of priority:
(i) to
the
holders of the Class M-1 Certificates, the Class M-1 Principal Distribution
Amount, until the Certificate Principal Balance thereof has been reduced to
zero;
(ii) to
the
holders of the Class M-2 Certificates, the Class M-2 Principal Distribution
Amount, until the Certificate Principal Balance thereof has been reduced to
zero;
(iii) to
the
holders of the Class M-3 Certificates, the Class M-3 Principal Distribution
Amount, until the Certificate Principal Balance thereof has been reduced to
zero;
(iv) to
the
holders of the Class M-4 Certificates, the Class M-4 Principal Distribution
Amount, until the Certificate Principal Balance thereof has been reduced to
zero;
(v) to
the
holders of the Class M-5 Certificates, the Class M-5 Principal Distribution
Amount, until the Certificate Principal Balance thereof has been reduced to
zero;
(vi) to
the
holders of the Class M-6 Certificates, the Class M-6 Principal Distribution
Amount, until the Certificate Principal Balance thereof has been reduced to
zero;
(vii) to
the
holders of the Class M-7 Certificates, the Class M-7 Principal Distribution
Amount, until the Certificate Principal Balance thereof has been reduced to
zero;
(viii) to
the
holders of the Class M-8 Certificates, the Class M-8 Principal Distribution
Amount, until the Certificate Principal Balance thereof has been reduced to
zero;
(ix) to
the
holders of the Class M-9 Certificates, the Class M-9 Principal Distribution
Amount, until the Certificate Principal Balance thereof has been reduced to
zero; and
(x) to
the
holders of the Class M-10 Certificates, the Class M-10 Principal Distribution
Amount, until the Certificate Principal Balance thereof has been reduced to
zero.
With
respect to the Group II Certificates, all principal distributions will be
distributed sequentially, to the Class A-2A, Class A-2B, Class A-2C and Class
A-2D Certificates, in that order, until their respective Certificate Principal
Balances have been reduced to zero.
Notwithstanding
the foregoing, if the aggregate Certificate Principal Balance of the Group
II
Certificates exceeds the aggregate principal balance of the Group II Mortgage
Loans, principal distributions to the classes of Group II Certificates will
be
allocated concurrently, on a pro
rata
basis.
Credit
Enhancement
The
credit enhancement provided for the benefit of the holders of the Class A and
Mezzanine Certificates consists of subordination, as described below, excess
interest and overcollateralization, as described under “—Overcollateralization
Provisions” herein and the PMI Policy, as described under “—The PMI Policy”
herein. The holders of the Class A and Mezzanine Certificates will have the
benefit of certain proceeds received pursuant to the Interest Rate Swap
Agreement and the Swap Administration Agreement.
The
rights of the holders of the Subordinate Certificates to receive distributions
will be subordinated, to the extent described herein, to the rights of the
holders of the Class A Certificates. This subordination is intended to enhance
the likelihood of regular receipt by the holders of the Class A Certificates
of
the full amount of their scheduled monthly distributions of interest and
principal and to afford such holders protection against Realized
Losses.
The
protection afforded to the holders of the Class A Certificates by means of
the
subordination of the Subordinate Certificates will be accomplished by the
preferential right of the holders of the Class A Certificates to receive on
any
Distribution Date, prior to distributions of interest on the Subordinate
Certificates, distributions in respect of interest and prior to distributions
of
principal on the Subordinate Certificates, distributions in respect of
principal, subject to available funds.
The
allocation of distributions in respect of principal to the Class A Certificates
on each Distribution Date (a) prior to the Stepdown Date or (b) on which a
Trigger Event is in effect, will have the effect of accelerating the
amortization of the Class A Certificates while, in the absence of Realized
Losses, increasing the respective percentage interest in the principal balance
of the Mortgage Loans evidenced by the Subordinate Certificates. Increasing
the
respective percentage interest in the Trust of the Subordinate Certificates
relative to that of the Class A Certificates is intended to preserve the
availability of the subordination provided by the Subordinate
Certificates.
In
addition, the rights of the holders of Mezzanine Certificates with lower
numerical class designations will be senior to the rights of holders of
Mezzanine Certificates with higher numerical class designations, and the rights
of the holders of the Mezzanine Certificates to receive distributions in respect
of the Mortgage Loans will be senior to the rights of the holders of the Class
CE Certificates, in each case to the extent described herein. This subordination
is intended to enhance the likelihood of regular receipt by the holders of
more
senior Certificates of distributions in respect of interest and principal and
to
afford such holders protection against Realized Losses.
Overcollateralization
Provisions
The
weighted average Expense Adjusted Net Mortgage Rate for the Mortgage Loans
is
generally expected to be higher than the weighted average of the Pass-Through
Rates on the Class A and Mezzanine Certificates, thus generating excess interest
collections which, in the absence of Realized Losses, will not be necessary
to
fund interest distributions on the Class A and Mezzanine Certificates. The
Pooling and Servicing Agreement will require that, on each Distribution Date,
the Net Monthly Excess Cashflow, if any, be distributed as follows:
first,
to
the
holders of the class or classes of Certificates then entitled to receive
distributions in respect of principal, in an amount equal to the
Overcollateralization Increase Amount, distributable as part of the Group I
Principal Distribution Amount or the Group II Principal Distribution Amount
as
described under “—Principal Distributions”;
second,
sequentially, to the Class M-1, Class M-2, Class M-3, Class M-4, Class M-5,
Class M-6, Class M-7, Class M-8, Class M-9 and Class M-10 Certificates, in
that
order, in each case up to the Interest Carry Forward Amount for each such class
of Mezzanine Certificates for such Distribution Date;
third,
sequentially, to the Class M-1, Class M-2, Class M-3, Class M-4, Class M-5,
Class M-6, Class M-7, Class M-8, Class M-9 and Class M-10 Certificates, in
that
order, in each case up to the Allocated Realized Loss Amount for each such
class
of Mezzanine Certificates for such Distribution Date;
fourth,
to make
payments to the Net WAC Rate Carryover Reserve Account, to the extent required
to distribute to the holders of the Class A and Mezzanine Certificates any
Net
WAC Rate Carryover Amounts for such classes, without taking into account
amounts, if any, received under the Interest Rate Swap Agreement;
fifth,
to the
Interest Rate Swap Provider, any Swap Termination Payment owed to the Interest
Rate Swap Provider, triggered by a Swap Provider Trigger Event pursuant to
the
Interest Rate Swap Agreement;
sixth,
to the
holders of the Class CE Certificates as provided in the Pooling and Servicing
Agreement; and
seventh,
to the
holders of the Residual Certificates, any remaining amounts; provided that
if
such Distribution Date is the Distribution Date immediately following the
expiration of the latest prepayment charge term or any Distribution Date
thereafter, then any such remaining amounts will be distributed first,
to the
holders of the Class P Certificates, until the Certificate Principal Balance
thereof has been reduced to zero, and second,
to the
holders of the Residual Certificates.
On
each
Distribution Date, after making the distributions of the remainder of the Net
Monthly Excess Cashflow as described above, the Trustee will withdraw from
the
Net WAC Rate Carryover Reserve Account the amounts on deposit therein and will
distribute these amounts to the holders of the Class A and Mezzanine
Certificates in the order and priority set forth under “—Net WAC Rate Carryover
Amounts” herein.
On
each
Distribution Date, the Trustee will withdraw from the distribution account
all
amounts representing prepayment charges in respect of the Mortgage Loans
received during the related Prepayment Period and will distribute these amounts
to the holders of the Class P Certificates.
In
the
event that Realized Losses are incurred on the Mortgage Loans, such Realized
Losses could result in an overcollateralization deficiency since such Realized
Losses would reduce the principal balance of the Mortgage Loans without a
corresponding reduction to the aggregate Certificate Principal Balances of
the
Class A and Mezzanine Certificates. In such event, the Pooling and Servicing
Agreement will require the distribution from Net Monthly Excess Cashflow, if
any
on such Distribution Date, of an amount equal to the Overcollateralization
Increase Amount, which will constitute a principal distribution on the Class
A
and Mezzanine Certificates in reduction of the Certificate Principal Balances
thereof in order to eliminate such overcollateralization deficiency. This will
have the effect of accelerating the amortization of the Class A and Mezzanine
Certificates relative to the amortization of the Mortgage Loans, and of
increasing the Overcollateralized Amount.
In
the
event that the Overcollateralization Target Amount is permitted to step down
on
any Distribution Date, the Pooling and Servicing Agreement provides that a
portion of the principal which would otherwise be distributed to the holders
of
the Class A and Mezzanine Certificates on such Distribution Date will be
distributed to the holders of the Class CE Certificates pursuant to the
priorities set forth above. This will have the effect of decelerating the
amortization of the Class A and Mezzanine Certificates relative to the
amortization of the Mortgage Loans, and of reducing the Overcollateralized
Amount. However, if on any Distribution Date a Trigger Event is in effect,
the
Overcollateralization Target Amount will not be permitted to step down on such
Distribution Date.
The
PMI Insurer
Mortgage
Guaranty Insurance Corporation (“MGIC”), a wholly owned subsidiary of MGIC
Investment Corporation, is a Wisconsin corporation, founded in 1985, that is
a
private mortgage insurance company with its administrative offices located
in
Milwaukee, Wisconsin. As of the date of this free writing prospectus, MGIC
had
insurer financial strength ratings of “AA” from S&P, “AA+” from Fitch and
“Aa2” from Moody’s. The rating agencies issuing the insurer financial strength
rating with respect to MGIC can withdraw or change its rating at any
time.
The
PMI Policy
Approximately
8.41% of the Group I Mortgage Loans and approximately 11.96% of the Group II
Mortgage Loans, in each case by aggregate principal balance of the related
loan
group as of the Cut-off Date, are covered by a primary mortgage insurance policy
issued by MGIC (the “PMI Policy,” and the Mortgage Loans covered by such policy,
the “PMI Mortgage Loans”).
The
PMI
Policy does not cover any mortgage loans 60 days or more delinquent in payment
as of the Cut-off Date. Each mortgage loan covered by the PMI Policy is covered
for losses up to the policy limits; provided,
however,
that
the PMI Policy will not cover special hazard, bankruptcy or fraud losses or
certain other types of losses as provided in the PMI Policy. Claims on an
insured mortgage loan generally will reduce uninsured exposure to an amount
equal to 60% of the lesser of the appraised value as of the origination date
or
the purchase price, as the case may be, of the related mortgaged property,
subject to conditions, exceptions and exclusions and assuming that any
pre-existing primary mortgage insurance policy covering the mortgage loan
remains in effect and a full claim settlement is made thereunder.
The
PMI
Policy is required to remain in force with respect to each mortgage loan covered
thereunder until : (i) the principal balance of the mortgage loan is paid in
full; or (ii) the principal balance of the mortgage loan has amortized down
to a
level that results in a loan-to-value ratio for the mortgage loan of 55% or
less
(provided,
however,
that no
coverage of any mortgage loan under such PMI Policy is required where prohibited
by applicable law); or (iii) any event specified in the PMI Policy occurs that
allows for the termination of the PMI Policy by MGIC or cancellation of the
PMI
Policy by the insured.
The
PMI
Policy may not be assigned or transferred without the prior written consent
of
MGIC; provided,
however,
that
MGIC has previously provided written consent to (i) the assignment of coverage
on individual mortgage loans from the Trustee to the Seller in connection with
any mortgage loan repurchased or substituted for by the Seller and (ii) the
assignment of coverage on all mortgage loans from the Trustee to any successor
Trustee, provided that in each case, prompt notice of such assignment is
provided to MGIC.
The
PMI
Policy generally requires that delinquencies on any mortgage loan insured
thereunder must be reported to MGIC within four months of default, that reports
regarding the delinquency of the mortgage loan must be submitted to MGIC on
a
monthly basis thereafter, and that appropriate proceedings to obtain title
to
the property securing such mortgage loan must be commenced within six months
of
default. As a condition to submitting a claim under the PMI Policy, the insured
must have (i) acquired, and tendered to MGIC, good and merchantable title to
the
property securing the mortgage loan, free and clear of all liens and
encumbrances, including, but not limited to, any right of redemption by the
mortgagor unless such acquisition of good and merchantable title is excused
under the terms of such PMI Policy, and (ii) if the mortgage loan is covered
by
a pre-existing primary mortgage insurance policy, a claim must be submitted
and
settled under such pre-existing primary mortgage insurance policy within the
time frames specified in the PMI Policy.
The
claim
amount generally includes unpaid principal, accrued interest to the date of
such
tender to MGIC by the insured, and certain expenses (less the amount of a full
claim settlement under any pre-existing primary mortgage insurance policy
covering the mortgage loan). When a claim is presented, MGIC will have the
option of either (i) paying the claim amount and taking title to the property
securing the mortgage loan, (ii) paying the insured a percentage of the claim
amount (without deduction for a claim settlement under any pre-existing primary
mortgage insurance policy covering the mortgage loan) and with the insured
retaining title to the property securing such mortgage loan, or (iii) if the
property securing the mortgage loan has been sold to a third party with the
prior approval of MGIC, paying the claim amount reduced by the net sale proceeds
as described in the PMI Policy to reflect the actual loss.
Claims
generally must be filed within 60 days after the insured has acquired good
and
merchantable title to the property securing the mortgage loan or such property
has been sold to a third party with the prior approval of MGIC. A claim
generally must be paid within 60 days after the claim is filed by the insured.
No payment for a loss will be made under the PMI Policy unless the property
securing the mortgage loan is in the same physical condition as when such
mortgage loan was originally insured, except for reasonable wear and tear,
and
unless premiums on the standard homeowners’ insurance policy, real estate taxes
and foreclosure protection and preservation expenses have been advanced by
or on
behalf of the insured.
If
a
claim submitted under the PMI Policy is incomplete, MGIC is required to provide
notification of all information and documentation required to perfect the claim
within 20 days of MGIC's receipt of such incomplete claim. In such case, payment
of the claim will be suspended until such information and documentation are
provided to MGIC, provided that MGIC is not required to pay the claim if it
is
not perfected within 180 days after its initial filing.
Unless
approved in writing by MGIC, no changes may be made to the terms of the mortgage
loan, including the borrowed amount, interest rate, term or amortization
schedule, except as specifically permitted by the terms of the mortgage loan;
nor may the lender make any change in the property or other collateral securing
the mortgage loan, nor may any mortgagor be released under the mortgage loan
from liability. If a mortgage loan is assumed with the insured’s approval,
MGIC’s liability for coverage of the mortgage loan under the PMI Policy
generally will terminate as of the date of such assumption unless MGIC approves
the assumption in writing. In addition, with respect to any mortgage loan
covered by the PMI Policy, the applicable servicer must obtain the prior
approval of MGIC in connection with any acceptance of a deed in lieu of
foreclosure or of any sale of the property securing the mortgage
loan.
The
PMI
Policy excludes coverage of: (i) any claim where the insurer under any
pre-existing primary mortgage insurance policy has acquired the property
securing the mortgage loan, (ii) any claim resulting from a default occurring
after lapse or cancellation of coverage, (iii) certain claims resulting from
a
default existing at the inception of coverage; (iv) certain claims where there
is an environmental condition which existed on the property securing the
mortgage loan (whether or not known by the person or persons submitting an
application for coverage of the mortgage loan) as of the effective date of
coverage; (v) any claim, if the mortgage, deed of trust or other similar
instrument did not provide the insured at origination with a first lien on
the
property securing the mortgage loan; (vi) certain claims involving or arising
out of any breach by the insured of its obligations under, or its failure to
comply with, the terms of the PMI Policy or of its obligations as imposed by
operation of law; (vii) certain claims resulting from physical damage to a
property securing a mortgage loan; (viii) any claim arising from the failure
of
the borrower under a covered mortgage loan to make any balloon payment, if
applicable, under such mortgage loan; and (ix) any claim submitted in connection
with a mortgage loan if the mortgage loan did not meet MGIC’s requirements
applicable to the origination of the mortgage loan.
In
issuing the PMI Policy, MGIC has relied upon certain information and data
regarding the mortgage loans furnished to it by the Seller or Originator. The
PMI Policy will not insure against certain losses sustained by reason of a
default arising from or involving certain matters, including (i)
misrepresentation made, or knowingly participated in, by the lender, other
persons involved in the origination of the mortgage loan or the application
for
insurance, or made by any appraiser or other person providing valuation
information regarding the property securing the mortgage loan; (ii) negligence
or fraud by the applicable servicer of the mortgage loan, and (iii) failure
to
construct a property securing a mortgage loan in accordance with specified
plans. The PMI Policy permits MGIC to cancel coverage of a mortgage loan under
the PMI Policy or deny any claim submitted under the PMI Policy in connection
with a mortgage loan if the insured fails to furnish MGIC with copies of all
documents in connection with the origination or servicing of a covered mortgage
loan.
The
PMI
Policy provides less than 10% of the cash flow used to support the Offered
Certificates, and the PMI Insurer is not a significant enhancement provider
as
described under Regulation AB Item 1114. The PMI Insurer may be replaced in
certain circumstances, including if the PMI Policy provides 10% or more of
the
cash flow used to support the Offered Certificates and the PMI Insurer fails
to
comply with the reporting requirements as set forth in the PMI
Policy.
The
preceding description of the PMI Policy is only a brief outline and does not
purport to summarize or describe the provisions, terms and conditions of the
PMI
Policy. For a more complete description of these provisions, terms and
conditions, reference is made to the PMI Policy, a copy of which is available
upon request from the Trustee.
Allocation
of Losses; Subordination
Any
Realized Losses on the Mortgage Loans incurred during a Due Period will first,
reduce the Net Monthly Excess Cashflow for the related Distribution Date and
second, reduce the Overcollateralized Amount, if any, for such Distribution
Date. If after all distributions are made by the Trustee on a Distribution
Date,
the aggregate Certificate Principal Balance of the Class A, Mezzanine and Class
P Certificates exceeds the aggregate principal balance of the Mortgage Loans
as
of the last day of the related Due Period (after giving effect to scheduled
payments of principal due during the related Due Period, to the extent received
or advanced, and unscheduled collections of principal received during the
related Prepayment Period), the amount of such excess will be allocated to
reduce the Certificate Principal Balances of the Mezzanine Certificates in
reverse numerical order, beginning with the class of Mezzanine Certificates
then
outstanding with the highest numerical class designation, until the Certificate
Principal Balance of each such class has been reduced to zero. The Pooling
and
Servicing Agreement does not permit the allocation of any Realized Losses to
the
Class A or Class P Certificates. Investors in the Class A Certificates should
note, however, that although Realized Losses cannot be allocated to such
Certificates, under certain loss scenarios, there may not be enough principal
and interest on the Mortgage Loans to distribute to the holders of the Class
A
Certificates all principal and interest amounts to which they are then
entitled.
Once
Realized Losses have been allocated to the Mezzanine Certificates, such amounts
with respect to such Certificates will no longer accrue interest and such
amounts will not be reinstated thereafter (except in the case of Subsequent
Recoveries). However, Allocated Realized Loss Amounts may be distributed to
the
holders of the Mezzanine Certificates from Net Monthly Excess Cashflow,
according to the priorities set forth under “—Overcollateralization Provisions”
above or from the Swap Account, according to the priorities set forth under
“—The Swap Administration Agreement and the Swap Account” above.
Any
allocation of a Realized Loss to a Mezzanine Certificate will be made by
reducing the Certificate Principal Balance thereof by the amount so allocated
as
of the Distribution Date in the month following the calendar month in which
such
Realized Loss was incurred. Notwithstanding anything to the contrary described
herein, in no event will the Certificate Principal Balance of any Mezzanine
Certificate be reduced more than once in respect of any particular amount both
(i) allocable to such Certificate in respect of Realized Losses and (ii)
distributable as principal to the holder of such Certificate from Net Monthly
Excess Cashflow.
“Subsequent
Recoveries” are unanticipated amounts received on a liquidated Mortgage Loan
that resulted in a Realized Loss in a prior month, net of amounts reimbursable
to the Master Servicer therefrom. If Subsequent Recoveries are received, they
will be included as part of the Principal Remittance Amount for the following
Distribution Date and distributed in accordance with the priorities described
in
this free writing prospectus. In addition, after giving effect to all
distributions on a Distribution Date, if any Allocated Realized Loss Amounts
are
outstanding, the Allocated Realized Loss Amount for the class of Mezzanine
Certificates then outstanding with the highest distribution priority will be
decreased by the amount of such Subsequent Recoveries until reduced to zero
(with any remaining Subsequent Recoveries applied to reduce the Allocated
Realized Loss Amount of the class with the next highest distribution priority),
and the Certificate Principal Balance of such class or classes of Mezzanine
Certificates will be increased by the same amount. Thereafter, such class or
classes of Mezzanine Certificates will accrue interest on the increased
Certificate Principal Balance.
Definitions
An
“Allocated Realized Loss Amount” with respect to any class of the Mezzanine
Certificates and any Distribution Date will be an amount equal to (x) the sum
of
any Realized Loss allocated to that class of Certificates on the Distribution
Date as described above in “—Allocation of Losses; Subordination” and any
Allocated Realized Loss Amount for that class remaining undistributed from
the
previous Distribution Date minus (y) the amount of the increase in the related
Certificate Principal Balance due to the receipt of Subsequent
Recoveries.
The
“Available Funds” for any Distribution Date will be equal to the sum, net of
amounts reimbursable or payable therefrom to the Master Servicer, the Trustee
or
the Interest Rate Swap Provider (including any Net Swap Payment or Swap
Termination Payment owed to the Interest Rate Swap Provider other than
termination payments resulting from a Swap Provider Trigger Event), of (i)
the
aggregate amount of scheduled monthly payments on the Mortgage Loans due on
the
related Due Date and received on or prior to the related Determination Date,
after deduction of the Servicing Fee, the Trustee Fee and the PMI Insurer Fee,
if applicable, for such Distribution Date, (ii) unscheduled payments in respect
of the Mortgage Loans, including prepayments, insurance proceeds, liquidation
proceeds, Subsequent Recoveries and proceeds from repurchases or purchases
of
and substitutions for the Mortgage Loans occurring during the related Prepayment
Period, (iii) proceeds from the purchase of the Mortgage Loans due to the
optional termination of the Trust, (iv) all Advances with respect to the
Mortgage Loans received for such Distribution Date and (v) any Compensating
Interest paid by the Master Servicer. The holders of the Class P Certificates
will be entitled to all prepayment charges received on the Mortgage Loans and
such amounts will not be available for distribution to the Class A and Mezzanine
Certificates.
A
“Bankruptcy Loss” is a Deficient Valuation or a Debt Service
Reduction.
The
“Certificate Principal Balance” of the Class A, Mezzanine and Class P
Certificates as of any date of determination will be equal to the initial
Certificate Principal Balance thereof reduced by the aggregate of (a) all
amounts allocable to principal previously distributed with respect to such
Certificate and (b) with respect to any Mezzanine Certificate, any reductions
in
the Certificate Principal Balance thereof deemed to have occurred in connection
with allocations of Realized Losses in the manner described herein (taking
into
account any increases in the Certificate Principal Balance thereof due to the
receipt of Subsequent Recoveries). The “Certificate Principal Balance” of the
Class CE Certificates as of any date of determination will be equal to the
excess, if any, of (a) the then aggregate principal balance of the Mortgage
Loans over (b) the then aggregate Certificate Principal Balance of the Class
A,
Mezzanine and Class P Certificates.
The
“Class A Principal Distribution Amount” will be an amount equal to the sum of
(i) the Senior Group I Principal Distribution Amount and (ii) the Senior Group
II Principal Distribution Amount.
The
“Class M-1 Principal Distribution Amount” for any Distribution Date will be an
amount, not less than zero, equal to the lesser of (I) the Certificate Principal
Balance of the Class M-1 Certificates immediately prior to such Distribution
Date and (II) the excess of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after taking into account the
distribution of the Class A Principal Distribution Amount on such Distribution
Date) and (ii) the Certificate Principal Balance of the Class M-1 Certificates
immediately prior to such Distribution Date over (y) the lesser of (A) the
product of (i) approximately 66.90% and (ii) the aggregate principal balance
of
the Mortgage Loans as of the last day of the related Due Period (after giving
effect to scheduled payments of principal due during the related Due Period,
to
the extent received or advanced, and unscheduled collections of principal
received during the related Prepayment Period) and (B) the aggregate principal
balance of the Mortgage Loans as of the last day of the related Due Period
(after giving effect to scheduled payments of principal due during the related
Due Period, to the extent received or advanced, and unscheduled collections
of
principal received during the related Prepayment Period) minus approximately
$6,876,783.
The
“Class M-2 Principal Distribution Amount” for any Distribution Date will be an
amount, not less than zero, equal to the lesser of (I) the Certificate Principal
Balance of the Class M-2 Certificates immediately prior to such Distribution
Date and (II) the excess of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after taking into account the
distribution of the Class A Principal Distribution Amount on such Distribution
Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates
(after taking into account the distribution of the Class M-1 Principal
Distribution Amount on such Distribution Date) and (iii) the Certificate
Principal Balance of the Class M-2 Certificates immediately prior to such
Distribution Date over (y) the lesser of (A) the product of (i) approximately
73.10% and (ii) the aggregate principal balance of the Mortgage Loans as of
the
last day of the related Due Period (after giving effect to scheduled payments
of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) and (B) the aggregate principal balance of the Mortgage Loans as of
the
last day of the related Due Period (after giving effect to scheduled payments
of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) minus approximately $6,876,783.
The
“Class M-3 Principal Distribution Amount” for any Distribution Date will be an
amount, not less than zero, equal to the lesser of (I) the Certificate Principal
Balance of the Class M-3 Certificates immediately prior to such Distribution
Date and (II) the excess of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after taking into account the
distribution of the Class A Principal Distribution Amount on such Distribution
Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates
(after taking into account the distribution of the Class M-1 Principal
Distribution Amount on such Distribution Date), (iii) the Certificate Principal
Balance of the Class M-2 Certificates (after taking into account the
distribution of the Class M-2 Principal Distribution Amount on such Distribution
Date) and (iv) the Certificate Principal Balance of the Class M-3 Certificates
immediately prior to such Distribution Date over (y) the lesser of (A) the
product of (i) approximately 77.10% and (ii) the aggregate principal balance
of
the Mortgage Loans as of the last day of the related Due Period (after giving
effect to scheduled payments of principal due during the related Due Period,
to
the extent received or advanced, and unscheduled collections of principal
received during the related Prepayment Period) and (B) the aggregate principal
balance of the Mortgage Loans as of the last day of the related Due Period
(after giving effect to scheduled payments of principal due during the related
Due Period, to the extent received or advanced, and unscheduled collections
of
principal received during the related Prepayment Period) minus approximately
$6,876,783.
The
“Class M-4 Principal Distribution Amount” for any Distribution Date will be an
amount, not less than zero, equal to the lesser of (I) the Certificate Principal
Balance of the Class M-4 Certificates immediately prior to such Distribution
Date and (II) the excess of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after taking into account the
distribution of the Class A Principal Distribution Amount on such Distribution
Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates
(after taking into account the distribution of the Class M-1 Principal
Distribution Amount on such Distribution Date), (iii) the Certificate Principal
Balance of the Class M-2 Certificates (after taking into account the
distribution of the Class M-2 Principal Distribution Amount on such Distribution
Date), (iv) the Certificate Principal Balance of the Class M-3 Certificates
(after taking into account the distribution of the Class M-3 Principal
Distribution Amount on such Distribution Date) and (v) the Certificate Principal
Balance of the Class M-4 Certificates immediately prior to such Distribution
Date over (y) the lesser of (A) the product of (i) approximately 80.40% and
(ii)
the aggregate principal balance of the Mortgage Loans as of the last day of
the
related Due Period (after giving effect to scheduled payments of principal
due
during the related Due Period, to the extent received or advanced, and
unscheduled collections of principal received during the related Prepayment
Period) and (B) the aggregate principal balance of the Mortgage Loans as of
the
last day of the related Due Period (after giving effect to scheduled payments
of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) minus approximately $6,876,783.
The
“Class M-5 Principal Distribution Amount” for any Distribution Date will be an
amount, not less than zero, equal to the lesser of (I) the Certificate Principal
Balance of the Class M-5 Certificates immediately prior to such Distribution
Date and (II) the excess of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after taking into account the
distribution of the Class A Principal Distribution Amount on such Distribution
Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates
(after taking into account the distribution of the Class M-1 Principal
Distribution Amount on such Distribution Date), (iii) the Certificate Principal
Balance of the Class M-2 Certificates (after taking into account the
distribution of the Class M-2 Principal Distribution Amount on such Distribution
Date), (iv) the Certificate Principal Balance of the Class M-3 Certificates
(after taking into account the distribution of the Class M-3 Principal
Distribution Amount on such Distribution Date), (v) the Certificate Principal
Balance of the Class M-4 Certificates (after taking into account the
distribution of the Class M-4 Principal Distribution Amount on such Distribution
Date) and (vi) the Certificate Principal Balance of the Class M-5 Certificates
immediately prior to such Distribution Date over (y) the lesser of (A) the
product of (i) approximately 83.80% and (ii) the aggregate principal balance
of
the Mortgage Loans as of the last day of the related Due Period (after giving
effect to scheduled payments of principal due during the related Due Period,
to
the extent received or advanced, and unscheduled collections of principal
received during the related Prepayment Period) and (B) the aggregate principal
balance of the Mortgage Loans as of the last day of the related Due Period
(after giving effect to scheduled payments of principal due during the related
Due Period, to the extent received or advanced, and unscheduled collections
of
principal received during the related Prepayment Period) minus approximately
$6,876,783.
The
“Class M-6 Principal Distribution Amount” for any Distribution Date will be an
amount, not less than zero, equal to the lesser of (I) the Certificate Principal
Balance of the Class M-6 Certificates immediately prior to such Distribution
Date and (II) the excess of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after taking into account the
distribution of the Class A Principal Distribution Amount on such Distribution
Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates
(after taking into account the distribution of the Class M-1 Principal
Distribution Amount on such Distribution Date), (iii) the Certificate Principal
Balance of the Class M-2 Certificates (after taking into account the
distribution of the Class M-2 Principal Distribution Amount on such Distribution
Date), (iv) the Certificate Principal Balance of the Class M-3 Certificates
(after taking into account the distribution of the Class M-3 Principal
Distribution Amount on such Distribution Date), (v) the Certificate Principal
Balance of the Class M-4 Certificates (after taking into account the
distribution of the Class M-4 Principal Distribution Amount on such Distribution
Date), (vi) the Certificate Principal Balance of the Class M-5 Certificates
(after taking into account the distribution of the Class M-5 Principal
Distribution Amount on such Distribution Date) and (vii) the Certificate
Principal Balance of the Class M-6 Certificates immediately prior to such
Distribution Date over (y) the lesser of (A) the product of (i) approximately
86.70% and (ii) the aggregate principal balance of the Mortgage Loans as of
the
last day of the related Due Period (after giving effect to scheduled payments
of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) and (B) the aggregate principal balance of the Mortgage Loans as of
the
last day of the related Due Period (after giving effect to scheduled payments
of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) minus approximately $6,876,783.
The
“Class M-7 Principal Distribution Amount” for any Distribution Date will be an
amount, not less than zero, equal to the lesser of (I) the Certificate Principal
Balance of the Class M-7 Certificates immediately prior to such Distribution
Date and (II) the excess of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after taking into account the
distribution of the Class A Principal Distribution Amount on such Distribution
Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates
(after taking into account the distribution of the Class M-1 Principal
Distribution Amount on such Distribution Date), (iii) the Certificate Principal
Balance of the Class M-2 Certificates (after taking into account the
distribution of the Class M-2 Principal Distribution Amount on such Distribution
Date), (iv) the Certificate Principal Balance of the Class M-3 Certificates
(after taking into account the distribution of the Class M-3 Principal
Distribution Amount on such Distribution Date), (v) the Certificate Principal
Balance of the Class M-4 Certificates (after taking into account the
distribution of the Class M-4 Principal Distribution Amount on such Distribution
Date), (vi) the Certificate Principal Balance of the Class M-5 Certificates
(after taking into account the distribution of the Class M-5 Principal
Distribution Amount on such Distribution Date), (vii) the Certificate Principal
Balance of the Class M-6 Certificates (after taking into account the
distribution of the Class M-6 Principal Distribution Amount on such Distribution
Date) and (viii) the Certificate Principal Balance of the Class M-7 Certificates
immediately prior to such Distribution Date over (y) the lesser of (A) the
product of (i) approximately 89.40% and (ii) the aggregate principal balance
of
the Mortgage Loans as of the last day of the related Due Period (after giving
effect to scheduled payments of principal due during the related Due Period,
to
the extent received or advanced, and unscheduled collections of principal
received during the related Prepayment Period) and (B) the aggregate principal
balance of the Mortgage Loans as of the last day of the related Due Period
(after giving effect to scheduled payments of principal due during the related
Due Period, to the extent received or advanced, and unscheduled collections
of
principal received during the related Prepayment Period) minus approximately
$6,876,783.
The
“Class M-8 Principal Distribution Amount” for any Distribution Date will be an
amount, not less than zero, equal to the lesser of (I) the Certificate Principal
Balance of the Class M-8 Certificates immediately prior to such Distribution
Date and (II) the excess of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after taking into account the
distribution of the Class A Principal Distribution Amount on such Distribution
Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates
(after taking into account the distribution of the Class M-1 Principal
Distribution Amount on such date), (iii) the Certificate Principal Balance
of
the Class M-2 Certificates (after taking into account the distribution of the
Class M-2 Principal Distribution Amount on such date), (iv) the Certificate
Principal Balance of the Class M-3 Certificates (after taking into account
the
distribution of the Class M-3 Principal Distribution Amount on such date),
(v)
the Certificate Principal Balance of the Class M-4 Certificates (after taking
into account the distribution of the Class M-4 Principal Distribution Amount
on
such date), (vi) the Certificate Principal Balance of the Class M-5 Certificates
(after taking into account the distribution of the Class M-5 Principal
Distribution Amount on such date), (vii) the Certificate Principal Balance
of
the Class M-6 Certificates (after taking into account the distribution of the
Class M-6 Principal Distribution Amount on such date), (viii) the Certificate
Principal Balance of the Class M-7 Certificates (after taking into account
the
distribution of the Class M-7 Principal Distribution Amount on such date) and
(ix) the Certificate Principal Balance of the Class M-8 Certificates immediately
prior to such Distribution Date over (y) the lesser of (A) the product of (i)
approximately 91.70% and (ii) the aggregate principal balance of the Mortgage
Loans as of the last day of the related Due Period (after giving effect to
scheduled payments of principal due during the related Due Period, to the extent
received or advanced, and unscheduled collections of principal received during
the related Prepayment Period) and (B) the aggregate principal balance of the
Mortgage Loans as of the last day of the related Due Period (after giving effect
to scheduled payments of principal due during the related Due Period, to the
extent received or advanced, and unscheduled collections of principal received
during the related Prepayment Period) minus approximately
$6,876,783.
The
“Class M-9 Principal Distribution Amount” for any Distribution Date will be an
amount, not less than zero, equal to the lesser of (I) the Certificate Principal
Balance of the Class M-9 Certificates immediately prior to such Distribution
Date and (II) the excess of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after taking into account the
distribution of the Class A Principal Distribution Amount on such Distribution
Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates
(after taking into account the distribution of the Class M-1 Principal
Distribution Amount on such date), (iii) the Certificate Principal Balance
of
the Class M-2 Certificates (after taking into account the distribution of the
Class M-2 Principal Distribution Amount on such date), (iv) the Certificate
Principal Balance of the Class M-3 Certificates (after taking into account
the
distribution of the Class M-3 Principal Distribution Amount on such date),
(v)
the Certificate Principal Balance of the Class M-4 Certificates (after taking
into account the distribution of the Class M-4 Principal Distribution Amount
on
such date), (vi) the Certificate Principal Balance of the Class M-5 Certificates
(after taking into account the distribution of the Class M-5 Principal
Distribution Amount on such date), (vii) the Certificate Principal Balance
of
the Class M-6 Certificates (after taking into account the distribution of the
Class M-6 Principal Distribution Amount on such date), (viii) the Certificate
Principal Balance of the Class M-7 Certificates (after taking into account
the
distribution of the Class M-7 Principal Distribution Amount on such date),
(ix)
the Certificate Principal Balance of the Class M-8 Certificates (after taking
into account the distribution of the Class M-8 Principal Distribution Amount
on
such date) and (x) the Certificate Principal Balance of the Class M-9
Certificates immediately prior to such Distribution Date over (y) the lesser
of
(A) the product of (i) approximately 93.30% and (ii) the aggregate principal
balance of the Mortgage Loans as of the last day of the related Due Period
(after giving effect to scheduled payments of principal due during the related
Due Period, to the extent received or advanced, and unscheduled collections
of
principal received during the related Prepayment Period) and (B) the aggregate
principal balance of the Mortgage Loans as of the last day of the related Due
Period (after giving effect to scheduled payments of principal due during the
related Due Period, to the extent received or advanced, and unscheduled
collections of principal received during the related Prepayment Period) minus
approximately $6,876,783.
The
“Class M-10 Principal Distribution Amount” for any Distribution Date will be an
amount, not less than zero, equal to the lesser of (I) the Certificate Principal
Balance of the Class M-10 Certificates immediately prior to such Distribution
Date and (II) the excess of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after taking into account the
distribution of the Class A Principal Distribution Amount on such Distribution
Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates
(after taking into account the distribution of the Class M-1 Principal
Distribution Amount on such date), (iii) the Certificate Principal Balance
of
the Class M-2 Certificates (after taking into account the distribution of the
Class M-2 Principal Distribution Amount on such date), (iv) the Certificate
Principal Balance of the Class M-3 Certificates (after taking into account
the
distribution of the Class M-3 Principal Distribution Amount on such date),
(v)
the Certificate Principal Balance of the Class M-4 Certificates (after taking
into account the distribution of the Class M-4 Principal Distribution Amount
on
such date), (vi) the Certificate Principal Balance of the Class M-5 Certificates
(after taking into account the distribution of the Class M-5 Principal
Distribution Amount on such date), (vii) the Certificate Principal Balance
of
the Class M-6 Certificates (after taking into account the distribution of the
Class M-6 Principal Distribution Amount on such date), (viii) the Certificate
Principal Balance of the Class M-7 Certificates (after taking into account
the
distribution of the Class M-7 Principal Distribution Amount on such date),
(ix)
the Certificate Principal Balance of the Class M-8 Certificates (after taking
into account the distribution of the Class M-8 Principal Distribution Amount
on
such date), (x) the Certificate Principal Balance of the Class M-9 Certificates
(after taking into account the distribution of the Class M-9 Principal
Distribution Amount on such date) and (xi) the Certificate Principal Balance
of
the Class M-10 Certificates immediately prior to such Distribution Date over
(y)
the lesser of (A) the product of (i) approximately 95.30% and (ii) the aggregate
principal balance of the Mortgage Loans as of the last day of the related Due
Period (after giving effect to scheduled payments of principal due during the
related Due Period, to the extent received or advanced, and unscheduled
collections of principal received during the related Prepayment Period) and (B)
the aggregate principal balance of the Mortgage Loans as of the last day of
the
related Due Period (after giving effect to scheduled payments of principal
due
during the related Due Period, to the extent received or advanced, and
unscheduled collections of principal received during the related Prepayment
Period) minus approximately $6,876,783.
The
“Credit Enhancement Percentage” for any Distribution Date and for any class of
Certificates will be the percentage obtained by dividing (x) the aggregate
Certificate Principal Balance of the classes of Certificates with a lower
distribution priority than such class, in each case calculated after
distribution of the Group I Principal Distribution Amount and the Group II
Principal Distribution Amount to the holders of the Certificates then entitled
to distributions of principal on such Distribution Date by (y) the aggregate
principal balance of the Mortgage Loans, calculated after taking into account
distributions of principal on the Mortgage Loans during the related Due Period
(after giving effect to scheduled payments of principal due during the related
Due Period, to the extent received or advanced and unscheduled collections
of
principal received during the related Prepayment Period).
A
“Debt
Service Reduction” is any reduction in the amount which a mortgagor is obligated
to pay on a monthly basis with respect to a Mortgage Loan as a result of any
proceeding initiated under the United States Bankruptcy Code, other than a
reduction attributable to a Deficient Valuation.
A
“Deficient Valuation” with respect to any Mortgage Loan is a valuation by a
court of competent jurisdiction of the mortgaged property in an amount less
than
the then outstanding indebtedness under the Mortgage Loan, which valuation
results from a proceeding initiated under the United States Bankruptcy
Code.
The
“Delinquency Percentage” with respect to any Distribution Date is the percentage
obtained by dividing (x) the principal amount of Mortgage Loans delinquent
60
days or more (including Mortgage Loans in foreclosure, Mortgage Loans with
respect to which the related Mortgaged Properties have been acquired by the
Trust and Mortgage Loans discharged due to bankruptcy) by (y) the aggregate
principal balance of the Mortgage Loans, in each case, as of the last day of
the
previous calendar month.
The
“Determination Date” with
respect to any Distribution Date will be the 10th
day of
the calendar month in which such Distribution Date occurs or, if such
10th
day is
not a business day, the business day immediately preceding such 10th
day.
The
“Due
Period” with respect to any Distribution Date commences on the second day of the
month immediately preceding the month in which such Distribution Date occurs
and
ends on the first day of the month in which such Distribution Date
occurs.
The
“Group I Allocation Percentage” for any Distribution Date will be the percentage
equivalent of a fraction, the numerator of which will be (x) the Group I
Principal Remittance Amount for such Distribution Date and the denominator
of
which will be (y) the Principal Remittance Amount for such Distribution
Date.
The
“Group I Interest Remittance Amount” for any Distribution Date will be that
portion of the Available Funds for such Distribution Date that represents
interest received or advanced on the Group I Mortgage Loans, minus an
amount
equal to the Group I Net WAC Allocation Percentage of any Net
Swap
Payment or Swap Termination Payment (other than termination payments resulting
from a Swap Provider Trigger Event) paid to the Interest Rate Swap
Provider.
The
“Group I Net WAC Allocation Percentage” for any Distribution Date will be the
percentage equivalent of a fraction, the numerator of which will be (x) the
aggregate principal balance of the Group I Mortgage Loans as of the first day
of
the related Due Period (after giving effect to scheduled payments of principal
due during the related Due Period, to the extent received or advanced, and
unscheduled collections of principal received during the related Prepayment
Period) and the denominator of which will be (y) the aggregate principal balance
of the Mortgage Loans as of the first day of the related Due Period (after
giving effect to scheduled payments of principal due during the related Due
Period, to the extent received or advanced, and unscheduled collections of
principal received during the related Prepayment Period).
The
“Group I Principal Distribution Amount” for any Distribution Date will be the
sum of (i) the principal portion of all scheduled monthly payments on the Group
I Mortgage Loans due during the related Due Period, to the extent received
on or
prior to the related Determination Date or advanced prior to such Distribution
Date; (ii) the principal portion of all proceeds received in respect of the
repurchase of a Group I Mortgage Loan (or, in the case of a substitution,
certain amounts representing a principal adjustment) as required by the Pooling
and Servicing Agreement during the related Prepayment Period; (iii) the
principal portion of all other unscheduled collections, including insurance
proceeds, liquidation proceeds, Subsequent Recoveries and all full and partial
principal prepayments, received during the related Prepayment Period, to the
extent applied as recoveries of principal on the Group I Mortgage Loans; and
(iv) the Group I Allocation Percentage of the amount of any
Overcollateralization Increase Amount for such Distribution Date; minus
(v) the
Group I Allocation Percentage of the amount of any Overcollateralization
Reduction Amount for such Distribution Date. In no event will the Group I
Principal Distribution Amount with respect to any Distribution Date be (x)
less
than zero or (y) greater than the then outstanding aggregate Certificate
Principal Balance of the Class A and Mezzanine Certificates.
The
“Group I Principal Remittance Amount” for any Distribution Date will be the sum
of the amounts described in clauses (i) through (iii) of the definition of
Group
I Principal Distribution Amount.
The
“Group II Allocation Percentage” for any Distribution Date will be the
percentage equivalent of a fraction, the numerator of which will be (x) the
Group II Principal Remittance Amount for such Distribution Date and the
denominator of which will be (y) the Principal Remittance Amount for such
Distribution Date.
The
“Group II Interest Remittance Amount” for any Distribution Date will be that
portion of the Available Funds for such Distribution Date that represents
interest received or advanced on the Group II Mortgage Loans, minus an
amount
equal to the Group II Net WAC Allocation Percentage of any Net
Swap
Payment or Swap Termination Payment (other than termination payments resulting
from a Swap Provider Trigger Event) paid to the Interest Rate Swap
Provider.
The
“Group II Net WAC Allocation Percentage” for any Distribution Date will be the
percentage equivalent of a fraction, the numerator of which will be (x) the
aggregate principal balance of the Group II Mortgage Loans as of the first
day
of the related Due Period (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) and the denominator of which will be (y) the aggregate principal balance
of the Mortgage Loans as of the first day of the related Due Period (after
giving effect to scheduled payments of principal due during the related Due
Period, to the extent received or advanced, and unscheduled collections of
principal received during the related Prepayment Period).
The
“Group II Principal Distribution Amount” for any Distribution Date will be the
sum of (i) the principal portion of all scheduled monthly payments on the Group
II Mortgage Loans due during the related Due Period, to the extent received
on
or prior to the related Determination Date or advanced prior to such
Distribution Date; (ii) the principal portion of all proceeds received in
respect of the repurchase of a Group II Mortgage Loan (or, in the case of a
substitution, certain amounts representing a principal adjustment) as required
by the Pooling and Servicing Agreement during the related Prepayment Period;
(iii) the principal portion of all other unscheduled collections, including
insurance proceeds, liquidation proceeds, Subsequent Recoveries and all full
and
partial principal prepayments, received during the related Prepayment Period,
to
the extent applied as recoveries of principal on the Group II Mortgage Loans;
and (iv) the Group II Allocation Percentage of the amount of any
Overcollateralization Increase Amount for such Distribution Date; minus
(v) the
Group II Allocation Percentage of the amount of any Overcollateralization
Reduction Amount for such Distribution Date. In no event will the Group II
Principal Distribution Amount with respect to any Distribution Date be (x)
less
than zero or (y) greater than the then outstanding aggregate Certificate
Principal Balance of the Class A and Mezzanine Certificates.
The
“Group II Principal Remittance Amount” for any Distribution Date will be the sum
of the amounts described in clauses (i) through (iii) of the definition of
Group
II Principal Distribution Amount.
The
“Interest Accrual Period” for any Distribution Date and the Class A and
Mezzanine Certificates will be the period commencing on the Distribution Date
in
the month immediately preceding the month in which such Distribution Date occurs
(or, in the case of the first period, commencing on the Closing Date) and ending
on the day preceding such Distribution Date, and all distributions of interest
on the Class A and Mezzanine Certificates will be based on a 360-day year and
the actual number of days in the applicable Interest Accrual
Period.
The
“Interest Carry Forward Amount” with respect to any class of Class A and
Mezzanine Certificates and any Distribution Date will be equal to the amount,
if
any, by which the Interest Distribution Amount for such class of Certificates
for the immediately preceding Distribution Date exceeded the actual amount
distributed on such Certificates in respect of interest on such immediately
preceding Distribution Date, together with any Interest Carry Forward Amount
with respect to such Certificates remaining undistributed from the previous
Distribution Date plus interest accrued thereon at the related Pass-Through
Rate
on such Certificates for the most recently ended Interest Accrual Period. The
Interest Carry Forward Amount with respect to the Class A Certificates, if
any,
will be distributed as part of the Senior Interest Distribution Amount on each
Distribution Date. The Interest Carry Forward Amount with respect to the
Mezzanine Certificates, to the extent not distributed from Net Monthly Excess
Cashflow or the Interest Rate Swap Agreement on such Distribution Date, will
be
carried forward to succeeding Distribution Dates and, subject to available
funds, will be distributed in the manner set forth in “—Overcollateralization
Provisions” herein.
The
“Interest Distribution Amount” for the Class A and Mezzanine Certificates of any
class on any Distribution Date will be equal to interest accrued during the
related Interest Accrual Period on the Certificate Principal Balance of that
class immediately prior to such Distribution Date at the then applicable
Pass-Through Rate for such class and reduced (to not less than zero), in the
case of each such class, by the allocable share, if any, for such class of
Prepayment Interest Shortfalls not covered by Compensating Interest and
shortfalls resulting from the application of the Relief Act, in each case to
the
extent not allocated to interest accrued on the Class CE
Certificates.
The
“Net
Monthly Excess Cashflow” for any Distribution Date will be equal to the sum of
(a) any Overcollateralization Reduction Amount and (b) the excess of (x) the
Available Funds for such Distribution Date over (y) the sum for such
Distribution Date of (i) the Senior Interest Distribution Amount distributable
to the Class A Certificates, (ii) the Interest Distribution Amounts
distributable to the holders of the Mezzanine Certificates and (iii) the
Principal Remittance Amount.
The
“Net
WAC Rate Carryover Amount” for any Distribution Date and for any class of Class
A and Mezzanine Certificates is an amount equal to the sum of (i) the excess,
if
any, of (x) the amount of interest such class of Certificates would have accrued
for such Distribution Date had the applicable Pass-Through Rate been the related
Formula Rate, over (y) the amount of interest such class of Certificates accrued
for such Distribution Date at the related Net WAC Pass-Through Rate and (ii)
the
undistributed portion of any related Net WAC Rate Carryover Amount from the
prior Distribution Date together with interest accrued on such undistributed
portion for the most recently ended Interest Accrual Period at the related
Formula Rate.
The
“Overcollateralization Increase Amount” with respect to any Distribution Date
equals the lesser of (i) the amount, if any, by which the Overcollateralization
Target Amount exceeds the Overcollateralized Amount on such Distribution Date
(calculated for this purpose only after assuming that 100% of the Principal
Remittance Amount on such Distribution Date has been distributed) and (ii)
the
Net Monthly Excess Cashflow for such Distribution Date.
The
“Overcollateralization Reduction Amount” with respect to any Distribution Date
will be the lesser of (A) the Principal Remittance Amount on such Distribution
Date or (B) the excess, if any, of (i) the Overcollateralized Amount for such
Distribution Date (calculated for this purpose only after assuming that 100%
of
the Principal Remittance Amount on such Distribution Date has been distributed)
over (ii) the Overcollateralization Target Amount for such Distribution
Date.
The
“Overcollateralization Target Amount” means, with respect to any Distribution
Date, (i) prior to the Stepdown Date, an amount equal to approximately 2.35%
(subject to a variance of plus 5%) of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date, (ii) on or after the Stepdown Date,
provided a Trigger Event is not in effect, the greater of (x) approximately
4.70% (subject to a variance of plus 5%) of the aggregate outstanding principal
balance of the Mortgage Loans as of the last day of the related Due Period
(after giving effect to scheduled payments of principal due during the related
Due Period, to the extent received or advanced, and unscheduled collections
of
principal received during the related Prepayment Period) and (y) approximately
$6,876,783 or (iii) on or after the Stepdown Date and if a Trigger Event is
in
effect, the Overcollateralization Target Amount for the immediately preceding
Distribution Date.
The
“Overcollateralized Amount” with respect to any Distribution Date will be the
excess, if any, of (a) the aggregate principal balance of the Mortgage Loans
as
of the last day of the related Due Period (after giving effect to scheduled
payments of principal due during the related Due Period, to the extent received
or advanced, and unscheduled collections of principal received during the
related Prepayment Period) over (b) the sum of the aggregate Certificate
Principal Balance of the Class A, Mezzanine and Class P Certificates, after
giving effect to distributions to be made on such Distribution
Date.
The
“PMI
Insurer Fee” for any Distribution Date is the premium for each PMI Policy
payable by the Trustee from amounts on deposit in the Trust on the aggregate
principal balance of the applicable PMI Mortgage loans as of the first day
of
the related Due Period (after giving effect to scheduled payments of principal
due during the Due Period relating to the previous Distribution Date, to the
extent received or advanced) plus any applicable taxes on premiums for PMI
Mortgage Loans located in West Virginia and Kentucky.
The
“PMI
Insurer Fee Rate” for any Distribution Date is equal to a rate of 0.95% per
annum.
The
“Prepayment Period” with respect to any Distribution Date will be the period
commencing on the day after the Determination Date in the month preceding the
month in which such Distribution Date falls (or, in the case of the first
Distribution Date, commencing on May 1, 2006) and ending on the Determination
Date in the calendar month in which such Distribution Date occurs.
The
“Principal Remittance Amount” for any Distribution Date will be the sum of (i)
the Group I Principal Remittance Amount and (ii) the Group II Principal
Remittance Amount.
A
“Realized Loss” is (a) the amount of any Bankruptcy Loss or (b) with respect to
any defaulted Mortgage Loan that is liquidated through foreclosure sale,
disposition of the related mortgaged property (if acquired on behalf of the
certificateholders by foreclosure or deed in lieu of foreclosure) or otherwise,
is the amount of loss realized, if any, equal to the portion of the unpaid
principal balance remaining, if any, plus interest thereon through the last
day
of the month in which such Mortgage Loan was finally liquidated, after
application of all amounts recovered (net of amounts reimbursable to the Master
Servicer for Advances, servicing advances and other related expenses, including
attorney’s fees) towards interest and principal owing on the Mortgage
Loan.
The
“Senior Group I Principal Distribution Amount” for any Distribution Date will be
an amount, not less than zero, equal to the excess of (x) the Certificate
Principal Balance of the Group I Certificates immediately prior to such
Distribution Date over (y) the lesser of (A) the product of (i) approximately
59.90% and (ii) the aggregate principal balance of the Group I Mortgage Loans
as
of the last day of the related Due Period (after giving effect to scheduled
payments of principal due during the related Due Period, to the extent received
or advanced, and unscheduled collections of principal received during the
related Prepayment Period) and (B) the aggregate principal balance of the Group
I Mortgage Loans as of the last day of the related Due Period (after giving
effect to scheduled payments of principal due during the related Due Period,
to
the extent received or advanced, and unscheduled collections of principal
received during the related Prepayment Period) minus approximately
$3,350,841.
The
“Senior Group II Principal Distribution Amount” for any Distribution Date will
be an amount, not less than zero, equal to the excess of (x) the aggregate
Certificate Principal Balance of the Group II Certificates immediately prior
to
such Distribution Date over (y) the lesser of (A) the product of (i)
approximately 59.90% and (ii) the aggregate principal balance of the Group
II
Mortgage Loans as of the last day of the related Due Period (after giving effect
to scheduled payments of principal due during the related Due Period, to the
extent received or advanced, and unscheduled collections of principal received
during the related Prepayment Period) and (B) the aggregate principal balance
of
the Group II Mortgage Loans as of the last day of the related Due Period (after
giving effect to scheduled payments of principal due during the related Due
Period, to the extent received or advanced, and unscheduled collections of
principal received during the related Prepayment Period) minus approximately
$3,525,942.
The
“Senior Interest Distribution Amount” on any Distribution Date will be equal to
the sum of the Interest Distribution Amount for such Distribution Date for
the
Class A Certificates and the Interest Carry Forward Amount, if any, for that
Distribution Date for the Class A Certificates.
The
“Stepdown Date” will be the earlier of (i) the first Distribution Date on which
the aggregate Certificate Principal Balance of the Class A Certificates has
been
reduced to zero and (ii) the later to occur of (x) the Distribution Date
occurring in June 2009 and (y) the first Distribution Date on which the Credit
Enhancement Percentage for the Class A Certificates (calculated for this purpose
only after taking into account distributions of principal on the Mortgage Loans,
but prior to any distribution of the Group I Principal Distribution Amount
and
the Group II Principal Distribution Amount to the holders of the Certificates
then entitled to distributions of principal on such Distribution Date) is
greater than or equal to approximately 40.10%.
A
“Trigger Event” is in effect with respect to any Distribution Date on and after
the Stepdown Date if:
(a) the
Delinquency Percentage exceeds the applicable percentages of the Credit
Enhancement Percentage for the prior Distribution Date as set forth below for
the most senior class of Class A and Mezzanine Certificates then
outstanding:
Class
Percentage
Class
A Certificates
39.90%
Class
M-1 Certificates
48.34%
Class
M-2 Certificates
59.48%
Class
M-3 Certificates
69.87%
Class
M-4 Certificates
81.63%
Class
M-5 Certificates
98.77%
Class
M-6 Certificates
120.30%
Class
M-7 Certificates
150.94%
Class
M-8 Certificates
192.77%
Class
M-9 Certificates
238.81%
Class
M-10 Certificates
340.43%
or
(b) the
aggregate amount of Realized Losses incurred since the Cut-off Date through
the
last day of the related Due Period (reduced by the aggregate amount of
Subsequent Recoveries received since the Cut-off Date through the last day
of
the related Due Period) divided by the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date exceeds the applicable percentages set
forth below with respect to such Distribution Date:
Distribution
Date Occurring In
Percentage
June
2008 through May 2009
1.35%
for the first month plus an additional 1/12th
of
1.65% for each month thereafter
June
2009 through May 2010
3.00%
for the first month plus an additional 1/12th
of
1.70% for each month thereafter
June
2010 through May 2011
4.70%
for the first month plus an additional 1/12th
of
1.35 % for each month thereafter
June
2011 through May 2012
6.05%
for the first month plus an additional 1/12th
of
0.45% for each month thereafter
June
2012 and thereafter
6.50%
Advances
Subject
to the following limitations, the Master Servicer will be obligated to advance
or cause to be advanced on or before each Distribution Date from its own funds
(or from funds in the distribution account that are not included in the
Available Funds for such Distribution Date or a combination of both) an amount
equal to the aggregate of all payments of principal and interest (net of the
Servicing Fee) that were due during the related Due Period on the Mortgage
Loans
and that were delinquent on the related Determination Date, plus certain amounts
representing assumed payments not covered by any current net income on the
Mortgaged Properties acquired by foreclosure or deed in lieu of foreclosure
(any
such advance, an “Advance” and together, the “Advances”). Advances are required
to be made only to the extent they are deemed by the Master Servicer to be
recoverable from related late collections, insurance proceeds, condemnation
proceeds and liquidation proceeds. The purpose of making such Advances is to
maintain a regular cash flow to the Certificateholders, rather than to guarantee
or insure against losses. The Master Servicer will not be required, however,
to
make any Advances with respect to reductions in the amount of the monthly
payments on the Mortgage Loans due to bankruptcy proceedings or the application
of the Relief Act. Subject to the recoverability standard above, the Master
Servicer’s obligation to make Advances as to any Mortgage Loan will continue
until the Mortgage Loan is paid in full or until the recovery of all Liquidation
Proceeds thereon.
All
Advances will be reimbursable to the Master Servicer from late collections,
insurance proceeds, condemnation proceeds and liquidation proceeds from the
Mortgage Loan as to which such unreimbursed Advance was made. The Master
Servicer may recover at any time from amounts in the collection account the
amount of any Advance that the Master Servicer deems nonrecoverable or that
remains unreimbursed to the Master Servicer from the related liquidation
proceeds after the final liquidation of the related Mortgage Loan. In addition,
the Master Servicer may, at any time, withdraw from the collection account
funds
that were not included in the Available Funds for the preceding Distribution
Date to reimburse itself for Advances previously made by the Master Servicer.
In
the event the Master Servicer fails in its obligation to make any required
Advance, the Trustee, in its capacity as successor Master Servicer, will be
obligated to make any such Advance, to the extent required in the Pooling and
Servicing Agreement.
In
the
course of performing its servicing obligations, the Master Servicer will pay
all
reasonable and customary “out-of-pocket” costs and expenses incurred in the
performance of its servicing obligations, including, but not limited to, the
cost of (i) the preservation, restoration, inspection and protection of the
Mortgaged Properties, (ii) any environmental audit, (iii) any enforcement or
judicial proceedings, including foreclosures and (iv) the management and
liquidation of Mortgaged Properties acquired in satisfaction of the related
mortgage. Each such expenditure will constitute a “Servicing
Advance.”
The
Master Servicer’s right to reimbursement for Servicing Advances is limited to
late collections on the related Mortgage Loan, including liquidation proceeds,
released mortgaged property proceeds, insurance proceeds, condemnation proceeds
and such other amounts as may be collected by the Master Servicer from the
related mortgagor or otherwise relating to the Mortgage Loan in respect of
which
such unreimbursed amounts are owed. The Master Servicer may recover at any
time
from amounts in the collection account the amount of any Servicing Advance
that
the Master Servicer deems nonrecoverable or that remains unreimbursed to the
Master Servicer from the related liquidation proceeds after the final
liquidation of the related Mortgage Loan. See “Description of the
Certificates—Allocation of Available Funds.”
The
Pooling and Servicing Agreement provides that the Master Servicer or the
Trustee, on behalf of the Trust, may enter into a facility with any person
which
provides that such person (an “Advancing Person”) may directly or indirectly
fund Advances and/or Servicing Advances, although no such facility will reduce
or otherwise affect the Master Servicer’s obligation to fund such Advances
and/or Servicing Advances. Such facility will not require the consent of the
certificateholders. Any Advances and/or Servicing Advances made by an Advancing
Person would be reimbursed to the Advancing Person in the same manner as
reimbursements would be made to the Master Servicer if such advances were funded
by the Master Servicer.
POOLING
AND SERVICING AGREEMENT
General
The
Certificates will be issued pursuant to the Pooling and Servicing Agreement,
a
form of which is filed as an exhibit to the Registration Statement. A Current
Report on Form 8-K relating to the Certificates containing a copy of the Pooling
and Servicing Agreement as executed will be filed by the Depositor with the
Securities and Exchange Commission following the initial issuance of the
Certificates. The Trust created under the Pooling and Servicing Agreement will
consist of (i) all of the Depositor’s right, title and interest in the Mortgage
Loans, the related Mortgage Notes, Mortgages and other related documents, (ii)
all payments on or collections in respect of the Mortgage Loans due after the
Cut-off Date, together with any proceeds thereof, (iii) any Mortgaged Properties
acquired on behalf of certificateholders by foreclosure or by deed in lieu
of
foreclosure, and any revenues received thereon, (iv) the rights of the Trustee
under all insurance policies required to be maintained pursuant to the Pooling
and Servicing Agreement, (v) the Net WAC Rate Carryover Reserve Account, (vi)
the rights of the Depositor under the Mortgage Loan Purchase Agreement and
(vii)
the right to any Net Swap Payment and any Swap Termination Payment made by
the
Interest Rate Swap Provider and deposited into the Swap Account.
The
Interest Rate Swap Provider and the NIMS Insurer, if any, will each be a
third-party beneficiary of the Pooling and Servicing Agreement to the extent
set
forth in the Pooling and Servicing Agreement. In addition, the NIMS Insurer,
if
any, will have several rights under the Pooling and Servicing Agreement
including, but not limited to, the rights set forth under “Risk Factors—Rights
of the NIMS Insurer May Negatively Impact the Class A and Mezzanine
Certificates” in this free writing prospectus.
Reference
is made to the prospectus for important information in addition to that set
forth herein regarding the Trust, the terms and conditions of the Pooling and
Servicing Agreement and the Class A and Mezzanine Certificates. The Depositor
will provide to a prospective or actual certificateholder without charge, on
written request, a copy (without exhibits) of the Pooling and Servicing
Agreement. Requests should be addressed to Argent Securities Inc., 1100 Town
& Country Road, Suite 1100, Orange, California92868, Attention: Capital
Markets.
Assignment
of the Mortgage Loans
The
Depositor will deliver to the Trustee (or to a custodian on the Trustee’s
behalf) with respect to each Mortgage Loan (i) the mortgage note endorsed
without recourse in blank to reflect the transfer of the Mortgage Loan, (ii)
the
original mortgage with evidence of recording indicated thereon and (iii) an
assignment of the mortgage in recordable form endorsed in blank without
recourse, reflecting the transfer of the Mortgage Loan. The Depositor will
not
cause to be recorded any assignment of mortgage which relates to a Mortgage
Loan
in any jurisdiction (except with respect to any Mortgage Loan located in the
State of Maryland) unless such failure to record would result in a withdrawal
or
a downgrading by any Rating Agency of the rating on any class of Certificates;
provided, however, upon the occurrence of certain events set forth in the
Pooling and Servicing Agreement, each such assignment of mortgage will be
recorded, or submitted for recording by the Seller, at the Seller’s expense (or,
if the Seller is unable to pay the cost of recording the assignments of
mortgage, such expense will be paid by the Trustee, which expense will be
reimbursed by the Trust) as set forth in the Pooling and Servicing
Agreement.
The
Seller will make certain representations and warranties as of the Closing Date
as to the accuracy in all material respects of certain information furnished
to
the Trustee with respect to each Mortgage Loan (e.g., the Principal Balance
and
the Mortgage Rate). In addition, the Seller will represent and warrant, among
other things that at the time of transfer to the Depositor: (i) the Seller
has
transferred or assigned all of its right, title and interest in each Mortgage
Loan and the related documents, free of any lien; (ii) each Mortgage Loan
complied, at the time of origination, in all material respects with applicable
local, state and/or federal laws and (iii) the Mortgage Loans are not subject
to
the requirements of the Homeownership Act and no Mortgage Loan is subject to,
or
in violation of, any applicable state or local law, ordinance or regulation
similar to the Homeownership Act. Upon discovery of a breach of any such
representation and warranty which materially and adversely affects the interests
of the Certificateholders in the related Mortgage Loan and related documents,
the Seller will have a period of 90 days after the earlier of discovery or
receipt of written notice of the breach to effect a cure. If the breach cannot
be cured within the 90 day period, the Seller will be obligated to repurchase
or
replace the affected Mortgage Loan in the manner described in the prospectus,
the Pooling and Servicing Agreement and the Mortgage Loan Purchase Agreement.
The same procedure and limitations that are set forth above for the substitution
or repurchase of Deleted Mortgage Loans as a result of deficient documentation
relating thereto will apply to the substitution or repurchase of a Deleted
Mortgage Loan as a result of a breach of a representation or warranty in the
Mortgage Loan Purchase Agreement that materially and adversely affects the
interests of the Certificateholders.
Mortgage
Loans required to be transferred to the Seller as described in the preceding
paragraphs are referred to as “Deleted Mortgage Loans.”
Servicing
and Other Compensation and Payment of Expenses
The
principal compensation to be paid to the Master Servicer in respect of its
servicing activities for the Certificates will be equal to accrued interest
at
the Servicing Fee Rate of 0.500% per annum with respect to each Mortgage Loan
for each calendar month on the same principal balance on which interest on
such
Mortgage Loan accrues for such calendar month (the “Servicing Fee”). As
additional servicing compensation, the Master Servicer is entitled to retain
all
ancillary income, including late charges, NSF fees, reconveyance fees and
assumption fees (with the exception of prepayment charges, which will be
distributed to the holders of the Class P Certificates) to the extent collected
from mortgagors, together with any interest or other income earned on funds
held
in the collection account and any escrow accounts.
The
Master Servicer is obligated to offset any Prepayment Interest Shortfall on
any
Distribution Date to the extent of its aggregate Servicing Fee for such
Distribution Date (such amount is referred to herein as “Compensating
Interest”). The Master Servicer is obligated to pay certain insurance premiums
and certain ongoing expenses associated with the mortgage pool and incurred
by
the Master Servicer in connection with its responsibilities under the Pooling
and Servicing Agreement and is entitled to reimbursement therefor as provided
in
the Pooling and Servicing Agreement. See “Description of the Securities—Retained
Interest; Servicing or Administration Compensation and Payment of Expenses” in
the prospectus for information regarding expenses payable by the Master Servicer
and “Federal Income Tax Consequences” herein regarding certain taxes payable by
the Master Servicer.
Events
of Default and Removal of Servicer or Master Servicer
The
circumstances under which the Master Servicer may be removed are set forth
under
“Description of the Securities—Events of Default” in the prospectus. In addition
to those events, the Master Servicer may be removed if cumulative losses on
the
Mortgage Loans exceed the level specified below for the applicable
period:
In
the
event of an Event of Default regarding the Master Servicer, the Trustee will
become the successor master servicer under the Pooling and Servicing Agreement
(or, the Trustee may, if it shall be unwilling to continue to so act, or shall,
if it is unable to so act, petition a court of competent jurisdiction to appoint
any established housing and home finance institution servicer, master servicer,
servicing or mortgage servicing institution having a net worth of not less
than
$15,000,000 and meeting such other standards for a successor master servicer
as
are set forth in the Pooling and Servicing Agreement) and will assume all future
responsibilities and liabilities of the Master Servicer as successor master
servicer.
The
Trustee will be required to notify certificateholders and the rating agencies
of
any event of a default by the Master Servicer actually known to a responsible
officer of the Trustee and of the appointment of any successor master
servicer.
All
reasonable out-of-pocket servicing transfer costs will be paid by the
predecessor master servicer, as applicable, upon presentation of reasonable
documentation of such costs, and if such predecessor master servicer defaults
in
its obligation to pay such costs, such costs shall be paid by the successor
master servicer (in which case the successor master servicer shall be entitled
to reimbursement therefor from the assets of the Trust).
The
Pooling and Servicing Agreement provides that the Master Servicer may pledge
its
servicing rights under the Pooling and Servicing Agreement to one or more
lenders. No such pledge will reduce or otherwise affect the Master Servicer’s
servicing obligations under the Pooling and Servicing Agreement. Upon an event
of default by the Master Servicer under the Pooling and Servicing Agreement,
the
Trustee may remove the Master Servicer as the Master Servicer and the Trustee
will, or under certain circumstances, the Master Servicer or its designee may
appoint a successor master servicer. In any event, the successor master servicer
must meet the requirements for successor master servicers under the Pooling
and
Servicing Agreement.
Master
Servicer’s Limitations on Liability
The
Master Servicer will not be liable to the Trust or the Certificateholder for
any
action taken, or for refraining from the taking of any action, in good faith
or
for errors in judgment. This limitation on liability does not protect the Master
Servicer and any director, officer, employee or agent of the Master Servicer
from liability in connection with willful misfeasance, bad faith or negligence
in the performance of duties or by reason of reckless disregard of obligations
and duties. The terms of the Pooling and Servicing Agreement will provide that
the Master Servicer will be indemnified and held harmless by the Trust against
any loss, liability, or expense incurred by the Master Servicer in connection
with any legal action relating to the Pooling and Servicing Agreement or the
Certificates other than any loss, liability or expense (i) incurred by the
Master’s Servicer’s willful misfeasance, bad faith or negligence in the
performance of the Master Servicer’s duties under the Pooling and Servicing
Agreement or (ii) by reason of reckless disregard, of the Master Servicer’s
obligations and duties under the Pooling and Servicing Agreement. The Master
Servicer will not be under any obligation to appear in, prosecute or defend
any
legal action unless: (i) such action relates to the Master Servicer’s duties
under the Pooling and Servicing Agreement; or (ii) the Master Servicer deems
such action necessary or desirable. In the event that the Master Servicer
appears in, prosecutes or defends any legal action, the Pooling and Servicing
Agreement will provide that the Master Servicer and any director, officer,
employee or agent of the Master Servicer will be reimbursed from the Trust
for
all costs.
See
“Description of the Securities—Matters Regarding the Master Servicer and the
Depositor” in the prospectus.
Certain
Matters Regarding the Master Servicer
The
Master Servicer may delegate its duties and obligations under the Pooling and
Servicing Agreement to a sub-servicer, with the consent of the NIMS Insurer,
as
long as such delegation would not result in a withdrawal or a downgrade by
any
Rating Agency of the ratings on any Class of Certificates.
See
“Description of the Securities—Description of Sub-Servicing” in the
prospectus.
As
set
forth in the Pooling and Servicing Agreement, the Master Servicer is permitted
to resign from its obligations and duties only upon determination that its
duties are no longer permissible under applicable law, or with the written
consent of the Trustee, the NIMS Insurer and written confirmation from each
Rating Agency (which confirmation will be furnished to the Depositor, the NIMS
Insurer and the Trustee) that its resignation will not cause the Rating Agency
to reduce the then current rating of the Class A Certificates or the Mezzanine
Certificates. See “Description of the Securities—Matters Regarding the Master
Servicer and Depositor.”
Servicing
of Delinquent Mortgage Loans
The
Master Servicer will be required to act with respect to delinquent Mortgage
Loans in accordance with procedures set forth in the Pooling and Servicing
Agreement. These procedures, as followed with respect to any delinquent Mortgage
Loan, may, among other things, result in (i) foreclosing on such Mortgage Loan,
(ii) accepting the deed to the related mortgaged property in lieu of
foreclosure, (iii) granting the mortgagor under such Mortgage Loan a
modification or forbearance or (iv) accepting payment from the mortgagor under
such Mortgage Loan of an amount less than the principal balance of such Mortgage
Loan in final satisfaction of such Mortgage Loan. However,
following these procedures may not lead to the alternative that would result
in
the recovery by the Trust of the highest net present value of proceeds on such
Mortgage Loan or otherwise to the alternative that is in the best interests
of
the certificateholders.
Optional
Purchase of Delinquent Mortgage Loans
As
to any
Mortgage Loan which is delinquent in payment by 90 days or more, the NIMS
Insurer, if any, may, at its option and in accordance with the terms of the
Pooling and Servicing Agreement, purchase such Mortgage Loan from the Trust
at a
purchase price for such Mortgage Loan generally equal to par plus accrued
interest. In addition, the Master Servicer will have the option to purchase
from
the Trust Mortgage Loans that are delinquent in payment 90 days or more at
a
purchase price for such Mortgage Loan generally equal to par plus accrued
interest, under certain circumstances set forth in the Pooling and Servicing
Agreement and, with respect to each such delinquent Mortgage Loan, during
certain prescribed time periods relating to the length of time such Mortgage
Loan has been delinquent, in each case as set forth in the Pooling and Servicing
Agreement. The Seller may sell all or a portion of the Class CE, Class P or
Residual Certificates to one or more unaffiliated parties in one or more private
transactions. As part of such sale, the Master Servicer, if requested, will
agree, upon the direction of such purchaser, to exercise its purchase right
with
respect to Mortgage Loans 90 days or more delinquent, subject to the conditions
set forth in the Pooling and Servicing Agreement.
Trustee’s
Limitations of Liability and Indemnification
The
Pooling and Servicing Agreement will provide that the Trustee and any director,
officer, employee or agent of the Trustee will be indemnified by the Trust
and
will be held harmless against any loss, liability or expense (not including
expenses, disbursements and advances incurred or made by the Trustee, including
the compensation and the expenses and disbursements of its agents and counsel,
in the ordinary course of the Trustee’s performance in accordance with the
provisions of the Pooling and Servicing Agreement) incurred by the Trustee
in
connection with any pending or threatened claim or legal action arising out
of
or in connection with the acceptance or administration of its obligations and
duties under the Pooling and Servicing Agreement, other than any loss, liability
or expense (i) resulting from a breach of the Master Servicer’s obligations and
duties under the Pooling and Servicing Agreement (for which the Trustee receives
indemnity from the Master Servicer), (ii) that constitutes a specific liability
of the Trustee under the Pooling and Servicing Agreement or (iii) incurred
by
reason of willful misfeasance, bad faith or negligence in the performance of
the
Trustee’s duties under the Pooling and Servicing Agreement or as a result of a
breach, or by reason of reckless disregard, of the Trustee’s obligations and
duties under the Pooling and Servicing Agreement. In addition, the Pooling
and
Servicing Agreement will provide that the Trustee and any director, officer,
employee or agent of the Trustee will be reimbursed from the Trust for all
costs
associated with the transfer of servicing in the event of a Master Servicer
Event of Default (as defined in the Pooling and Servicing
Agreement).
Removal
and Termination of Trustee
If
at any
time the Trustee becomes ineligible in accordance with the provisions of the
Pooling and Servicing Agreement and fails to resign after written request by
the
Depositor or the NIMS Insurer, or if at any time the Trustee becomes incapable
of acting, or is adjudged bankrupt or insolvent, or a receiver of the Trustee
or
of its respective property is appointed, or any public officer takes charge
or
control of the Trustee or of its respective property or affairs for the purpose
of rehabilitation, conservation or liquidation, then the Depositor or the NIMS
Insurer may remove the Trustee and appoint a successor trustee acceptable to
the
NIMS Insurer by written instrument, in duplicate, which instrument will be
delivered to the removed Trustee and to the successor trustee. A copy of such
instrument will be delivered to the Certificateholders and the Master Servicer
by the Depositor.
The
Certificateholders entitled to at least 51% of the voting rights or the NIMS
Insurer upon failure of the Trustee to perform its obligations may at any time
remove the Trustee and appoint a successor trustee acceptable to the NIMS
Insurer by written instrument or instruments, in triplicate, signed by such
holders or their attorneys-in-fact duly authorized, one complete set of which
instruments will be delivered to the Depositor, one complete set to the removed
Trustee and one complete set to the appointed successor. A copy of such
instrument will be delivered to the Certificateholders and the Master Servicer
by the Depositor.
Upon
satisfaction of certain conditions as specified in the Pooling and Servicing
Agreement, the Trustee may resign from its duties under the Pooling and
Servicing Agreement. Any resignation or removal of the Trustee and appointment
of a successor trustee will not become effective until acceptance of appointment
by the successor trustee.
Reports
to Certificateholders
On
each
Distribution Date, the Trustee will prepare and make available to each holder
of
a Certificate, a statement based upon information received from the Master
Servicer, if applicable, generally setting forth, among other
things:
(1) all
amounts received on the Mortgage Loans during the related Due Period and the
related Prepayment Period and any amounts received from any other source used
to
make distributions on the Certificates, separately identifying the source
thereof;
(2) the
amount of the distribution made on such Distribution Date to the holders of
the
Certificates allocable to principal and the amount of the distribution made
to
the holders of the Class P Certificates allocable to Prepayment
Charges;
(3) the
amount of the distribution made on such Distribution Date to the holders of
the
certificates allocable to interest and the
aggregate unpaid accrued interest, if any, on each class of Certificates as
of
such Distribution Date after giving effect to all distributions and allocations
made on such Distribution Date;
(4) the
fees
and expenses (including extraordinary expenses) of the Trust accrued and paid
on
such Distribution Date and to whom such fees and expenses were
paid;
(5) the
aggregate amount of Advances for the related Due Period (including the general
purpose of such Advance so long as such information is provided to the Trustee
by the Master Servicer) and the aggregate amount of unreimbursed Advances and
the aggregate amount of Advances reimbursed to the Master Servicer from amounts
on deposit in the Collection Account;
(6) the
amount on deposit in the Collection Account, Distribution Account, and any
other
account maintained for the benefit of the certificateholders as of the previous
Distribution Date and of the related Distribution Date, and any material account
activity during the period;
(7) the
aggregate principal balance of the Mortgage Loans as of the close of business
at
the end of the related Due Period and as of the close of business at the end
of
the prior Due Period;
(8) the
number, aggregate principal balance, weighted average remaining term to maturity
and weighted average Mortgage Rate of the Mortgage Loans as of the related
Determination Date;
(9) the
number and aggregate principal balance of Mortgage Loans (a) delinquent 30-59
days, (b) delinquent 60-89 days, (c) delinquent 90 days or more, (d) as to
which
foreclosure proceedings have been commenced and (e) with respect to which the
related mortgagor has filed for bankruptcy;
(10) with
respect to any mortgaged property acquired on behalf of certificateholders
through foreclosure or deed in lieu of foreclosure during the preceding calendar
month, the principal balance of the related Mortgage Loan as the related
Distribution Date;
(11) the
aggregate principal balance of each class of Certificates (including any class
of Certificates not offered hereby) issued by the issuing entity as of such
Distribution Date after giving effect to all distributions and allocations
made
on such Distribution Date, separately identifying any reduction in the principal
balance due to the allocation of any Realized Loss or Relief Act
shortfalls;
(12) the
aggregate amount any Prepayment Interest Shortfall to the extent not covered
by
Compensating Interest;
(13) the
Net
Monthly Excess Cashflow, the Overcollateralized Amount, the
Overcollateralization Target Amount as of such Distribution Date and the Credit
Enhancement Percentage for such Distribution Date;
(14) with
respect to Mortgage Loans as to which a final liquidation has occurred, the
number of Mortgage Loans, the aggregate unpaid principal balance of such
Mortgage Loans and the aggregate amount of proceeds (including liquidation
proceeds and insurance proceeds) collected in respect of such Mortgage
Loans;
(15) the
respective Pass-Through Rates applicable to each class of Class A Certificates,
each class of Mezzanine Certificates and the Class CE Certificates for such
Distribution Date and the Pass-Through Rate applicable to each class of Class
A
Certificates and each class of Mezzanine Certificates for the immediately
succeeding Distribution Date;
(16) the
amount on deposit in the Net WAC Carryover Reserve Account;
(17) whether
a
Trigger Event is in effect;
(18) the
Net
WAC Rate Carryover Amount for the Class A Certificates and the Mezzanine
Certificates, if any, for such Distribution Date, the amount remaining unpaid
after reimbursements therefor on such Distribution Date;
(19) the
amount of any Net Swap Payments or Swap Termination Payments;
(20) (i)
the
amount of payments received from the Master Servicer related to claims under
the
PMI Policy during the related Prepayment Period (and the number of Mortgage
Loans to which such payments related) and (ii) the cumulative amount of payments
received related to claims under the PMI Policy since the Closing Date (and
the
number of Mortgage Loans to which such payments related); and
(21) (i)
the
dollar amount of claims made under the PMI Policy that were denied (as
identified by the Master Servicer) during the Prepayment Period (and the number
of Mortgage Loans to which such denials related) and (ii) the dollar amount
of
the cumulative claims made under the PMI Policy that were denied since the
Closing Date (and the number of Mortgage Loans to which such denials
related).
The
Trustee will make available to certificateholders the statement as described
above (and, at its option, any additional files containing the same information
in an alternative format) each month via the Trustee’s internet website.
Assistance in using the website can be obtained by calling the Trustee’s
investor relations desk at 1-800-735-7777. Parties that are unable to use the
above distribution options are entitled to have a paper copy mailed to them
via
first class mail by calling the investor relations desk and indicating such.
The
Trustee will have the right to change the way statements are distributed in
order to make such distribution more convenient and/or more accessible to the
above parties and the Trustee will provide timely and adequate notification
to
all above parties regarding any such changes.
The
Trustee also will be entitled to rely on, but will not be responsible for,
the
content or accuracy of any information provided by third parties for purposes
of
preparing the monthly statements and may affix to that statement any disclaimer
it deems appropriate in its reasonable discretion (without suggesting liability
on the part of any other party to the pooling and servicing
agreement).
The
primary source of information available to investors concerning the Class A
Certificates and Mezzanine Certificates will be the monthly statements made
available via the Trustee’s internet website, which will include information as
to the outstanding Certificate Principal Balance of the Class A Certificates
and
Mezzanine Certificates. Also, investors may read and copy any Form 10-D, Form
10-K or Form 8-K at the SEC’s Public Reference Room at 450 Fifth Street, NW,
Washington, D.C. 20549. Investors may obtain information on the operation of
the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also makes
any such materials filed electronically available at the following website:
http://www.sec.gov.
Any
Form
10-D, Form 10-K or Form 8-K will be filed on behalf of the Issuing Entity will
be signed by the Depositor. In addition Form
10-D
will include, among other things, any material breaches of representations
and
warranties regarding the Mortgage Loans, any modifications or waivers of a
Trigger Event and status
of
the applicable form of credit enhancement.
Copies
of
the Trust’s Annual Reports on Form 10-K, Distribution Reports on Form 10-D and
Current Reports on Form 8-K, and any amendments to those reports, will be made
available to investors by calling the investor relations desk as soon as
reasonably practicable after such material is electronically filed with, or
furnished to the Securities and Exchange Commission.
In
addition, within a reasonable period of time after the end of each calendar
year, the Trustee will prepare and deliver to each holder of a certificate
of
record during the previous calendar year and the NIMS Insurer a statement
containing information necessary to enable holders of the certificates to
prepare their tax returns. Such statements will not have been examined and
reported upon by an independent public accountant.
Voting
Rights
At
all
times, 98% of all voting rights will be allocated among the holders of the
Class
A, Mezzanine and Class CE Certificates in proportion to the then outstanding
Certificate Principal Balances of their respective Certificates, 1% of all
voting rights will be allocated among the holders of the Class P Certificates
and 1% of all voting rights will be allocated among the holders of the Residual
Certificates in proportion to the percentage interests in such classes evidenced
by their respective Certificates.
Modifications
to the Pooling and Servicing Agreement
The
Pooling
and Servicing Agreement may be amended from time to time by the Depositor,
the
Master Servicer and the Trustee with the consent of the NIMS Insurer, if any,
and without the consent of the Certificateholders in order to: (i) cure any
ambiguity or defect, (ii) correct, modify or supplement any provisions
(including to give effect to the expectations of Certificateholders) or (iii)
make any other provisions with respect to matters or questions arising under
the
Pooling and Servicing Agreement, provided that such action will not adversely
affect the interests of the Certificateholders evidenced by an opinion of
counsel or confirmation from the rating agencies that such amendment will not
result in the reduction or withdrawal of the rating of any outstanding Class
of
Certificates.
The
Pooling and Servicing Agreement may also be amended from time to time by the
Depositor, the Master Servicer, the NIMS Insurer and the Trustee with the
consent of the NIMS Insurer and the Certificateholders entitled to at least
66%
of the Voting Rights for the purpose of either adding, changing, or eliminating
any provisions of the Pooling and Servicing Agreement or of modifying the rights
of the Certificateholders; however, no such amendment may: (i) reduce the amount
of, or delay the timing of, payments received on Mortgage Loans or (ii)
adversely affect in any material respect the interests of the
Certificateholders.
None
of
the Depositor, the Master Servicer nor the Trustee may enter into an amendment
of the Pooling and Servicing Agreement that would: (i) significantly change
the
permitted activities of the Trust fund without the consent of the NIMS Insurer
and the Certificateholders that represent more than 50% of the aggregate
Certificate Principal Balance of all Certificates or (ii) have a material
adverse affect on the Interest Rate Swap Provider without the prior written
consent of the Interest Rate Swap Provider. The Trustee will make available
a
copy of any such amendment to each Certificateholder.
Evidence
as to Compliance
The
Master Servicer is required to deliver to the Depositor and the Rating Agencies
by not later than March 1st
of each
year, starting in March 2007, an officer’s certificate stating that (i) a review
of the activities of the Master Servicer during the preceding calendar year
and
of performance under the Pooling and Servicing Agreement has been made under
such officer’s supervision and (ii) to the best of such officer’s knowledge,
based on such review, the Master Servicer has fulfilled all of its obligations
under the Pooling and Servicing Agreement for such year, or, if there has been
a
default in the fulfillment of any such obligation, specifying each such default
known to such officer and the nature and status of such default.
In
addition, notwithstanding anything in the prospectus to the contrary, the
Pooling and Servicing Agreement will generally provide that on or before March1, 2007, each party participating in the servicing function will provide to
the
Depositor and the Trustee a report on an assessment of compliance with the
applicable minimum servicing criteria established in Item 1122(d) of Regulation
AB (the “AB Servicing Criteria”) and each such party will provide such reports
annually for so long as the Issuing Entity is required to file such reports.
The
AB Servicing Criteria include specific criteria relating to the following areas:
general servicing considerations, cash collection and administration, investor
remittances and reporting, and pool asset administration. Such report will
indicate that the AB Servicing Criteria were used to test compliance on a
platform level basis and will set out any material instances of
noncompliance.
The
Pooling and Servicing Agreement will also provide that each party responsible
for the servicing function will deliver along with its report on assessment
of
compliance, an attestation report from a firm of independent public accountants
on the assessment of compliance with the AB Servicing Criteria.
Termination
The
circumstances under which the obligations created by the Pooling and Servicing
Agreement will terminate in respect of the Certificates are described in
“Description of the Securities—Termination of the Trust Fund and Disposition of
Trust Fund Assets” in the prospectus. The majority holders of the Class CE
Certificates, the Master Servicer or the NIMS Insurer, if any, will have the
right to purchase all remaining Mortgage Loans and any properties acquired
in
respect thereof and thereby effect early retirement of the Certificates on
any
Distribution Date following the Due Period during which the aggregate principal
balance of the Mortgage Loans (and properties acquired in respect thereof)
remaining in the Trust at the time of purchase is reduced to an amount less
than
10% of the aggregate principal balance of the Mortgage Loans as of the Cut-off
Date (the “Optional Termination Date”). In the event the majority holders of the
Class CE Certificates, the Master Servicer or the NIMS Insurer, if any, exercise
such option, the purchase price payable in connection therewith generally will
be equal to the sum of (x) the fair market value of the Mortgage Loans and
such
properties, plus accrued interest for each Mortgage Loan at the related Mortgage
Rate to but not including the first day of the month in which such repurchase
price is distributed, together with any amounts due to the Master Servicer
for
servicing compensation at the Servicing Fee Rate and any unreimbursed Advances
and servicing advances and (y) any Swap Termination Payment owed to the Interest
Rate Swap Provider not due to a Swap Provider Trigger Event pursuant to the
Interest Rate Swap Agreement. However, this option may be exercised only if
(i)
the fair market value of the Mortgage Loans and REO Properties is at least
equal
to the aggregate principal balance of the Mortgage Loans and the appraised
value
of the REO Properties and (ii) the termination price is sufficient to pay all
interest accrued on, as well as amounts necessary to retire the principal
balance of, the notes guaranteed by the NIMS Insurer and any amounts owed to
the
NIMS Insurer at the time the option is exercised. Proceeds from such repurchase
will be included in Available Funds and will be distributed to the holders
of
the Certificates in accordance with the Pooling and Servicing Agreement.
In
the
event that such option is exercised, the portion of the purchase price allocable
to the Class A and Mezzanine Certificates of each class will be, to the extent
of available funds:
(i)
100%
of the then outstanding Certificate Principal Balance of the Class
A and
Mezzanine Certificates, plus
(ii)
one
month’s interest on the then outstanding Certificate Principal Balance
thereof at the then applicable Pass-Through Rate for such class,
plus
(iii)
any
previously accrued but undistributed interest thereon to which the
holders
of such Certificates are entitled, together with the amount of any
Net WAC
Rate Carryover Amounts (payable to and from the Net WAC Rate Carryover
Reserve Account or the Swap Account);
plus
(iv)
in
the case of the Mezzanine Certificates, any previously undistributed
Allocated Realized Loss Amount.
The
holders of the Residual Certificates will pledge any amount received by such
holders in a termination in excess of par to the holders of the Class CE
Certificates. In no event will the Trust created by the Pooling and Servicing
Agreement continue beyond the expiration of 21 years from the death of the
survivor of the persons named in the Pooling and Servicing Agreement. See
“Description of the Securities—Termination of the Trust Fund and Disposition of
Trust Fund Assets” in the prospectus.
FEDERAL
INCOME TAX CONSEQUENCES
One
or
more elections will be made to treat designated portions of the Trust (exclusive
of the Net WAC Rate Carryover Reserve Account, the Swap Account and the Interest
Rate Swap Agreement) as a real estate mortgage investment conduit (a “REMIC”)
for federal income tax purposes. Upon the issuance of the Class A and Mezzanine
Certificates, Thacher Proffitt & Wood LLP, counsel to the Depositor, will
deliver its opinion generally to the effect that, assuming compliance with
all
provisions of the Pooling and Servicing Agreement, for federal income tax
purposes, each REMIC elected by the Issuing Entity will qualify as a REMIC
under
Sections 860A through 860G of the Internal Revenue Code of 1986 (the
“Code”).
For
federal income tax purposes, (i) the Residual Certificates will consist of
components, each of which will represent the sole class of “residual interests”
in each REMIC elected by the Trust and (ii) the Class A and Mezzanine
Certificates (exclusive of any right of the holder of the Class A and Mezzanine
Certificates to receive payments from the Net WAC Rate Carryover Reserve Account
or the Swap Account in respect of the Net WAC Rate Carryover Amount or the
obligation to make payments to the Swap Account), the Class CE and Class P
Certificates will represent the “regular interests” in, and generally will be
treated as debt instruments of, a REMIC. See “Federal Income Tax
Consequences—REMICs” in the prospectus.
For
federal income tax reporting purposes, the Offered Certificates may be treated
as having been issued with original issue discount. The prepayment assumption
that will be used in determining the rate of accrual of original issue discount,
premium and market discount, if any, for federal income tax purposes will be
based on the assumption that subsequent to the date of any determination the
Mortgage Loans will prepay at the Prepayment Assumption. No representation
is
made that the Mortgage Loans will prepay at such rate or at any other rate.
See
“Federal Income Tax Consequences—REMICs” in the prospectus.
The
Internal Revenue Service (the “IRS”) has issued regulations (the “OID
Regulations”) under Sections 1271 to 1275 of the Code generally addressing the
treatment of debt instruments issued with original issue discount. See “Federal
Income Tax Consequences—REMICs” in the prospectus.
Each
holder of a Class A or Mezzanine Certificate is deemed to own an undivided
beneficial ownership interest in a REMIC regular interest and the right to
receive payments from either the Net WAC Rate Carryover Reserve Account or
the
Swap Account in respect of the related Net WAC Rate Carryover Amount or the
obligation to make payments to the Swap Account. The Net WAC Rate Carryover
Reserve Account, the Interest Rate Swap Agreement and the Swap Account are
not
assets of any REMIC. The REMIC regular interest corresponding to a Class A
or
Mezzanine Certificate will be entitled to receive interest and principal
payments at the times and in the amounts equal to those made on the certificate
to which it corresponds, except that (i) the maximum interest rate of that
REMIC
regular interest will equal the Net WAC Pass-Through Rate computed for this
purpose by limiting the Base Calculation Amount (multiplied by 250) of the
Interest Rate Swap Agreement to the aggregate principal balance of the Mortgage
Loans and (ii) any Swap Termination Payment will be treated as being payable
solely from Net Monthly Excess Cashflow. As a result of the foregoing, the
amount of distributions on the REMIC regular interest corresponding to a Class
A
or Mezzanine Certificate may exceed the actual amount of distributions on the
Class A or Mezzanine Certificate.
The
treatment of amounts received by a holder of a Class A or Mezzanine Certificate
under such holder’s right to receive the Net WAC Rate Carryover Amount, will
depend on the portion, if any, of such holder’s purchase price allocable
thereto. Under the REMIC Regulations, each holder of a Class A or Mezzanine
Certificate must allocate its purchase price for the Class A or Mezzanine
Certificate among its undivided interest in the regular interest of the related
REMIC and its undivided interest in the right to receive payments from the
Net
WAC Rate Carryover Reserve Account and the Swap Account in respect of the Net
WAC Rate Carryover Amount in accordance with the relative fair market values
of
each property right. The Trustee will, as required, treat payments made to
the
holders of the Class A and Mezzanine Certificates with respect to the Net WAC
Rate Carryover Amount, as includible in income based on the regulations relating
to notional principal contracts (the “Notional Principal Contract Regulations”).
The OID Regulations provide that the Trust’s allocation of the issue price is
binding on all holders unless the holder explicitly discloses on its tax return
that its allocation is different from the Trust’s allocation. For tax reporting
purposes, the Trustee may, as required, treat the right to receive payments
from
the Net WAC Rate Carryover Reserve Account and the Swap Account in respect
of
Net WAC Rate Carryover Amounts with respect to the Class A and Mezzanine
Certificates as having more than a de
minimis
value.
Upon
request, the Trustee will make available information regarding such amounts
as
has been provided to it. Under
the
REMIC Regulations, the Trustee is required to account for the REMIC regular
interest and the right to receive payments from the Net WAC Rate Carryover
Reserve Account and the Swap Account in respect of the related Net WAC Rate
Carryover Amount as discrete property rights. Holders of the Class A and
Mezzanine Certificates are advised to consult their own tax advisors regarding
the allocation of issue price, timing, character and source of income and
deductions resulting from the ownership of such Certificates. Treasury
regulations have been promulgated under Section 1275 of the Code generally
providing for the integration of a “qualifying debt instrument” with a hedge if
the combined cash flows of the components are substantially equivalent to the
cash flows on a variable rate debt instrument. However, such regulations
specifically disallow integration of debt instruments subject to Section
1272(a)(6) of the Code. Therefore, holders of the Class A and Mezzanine
Certificates will be unable to use the integration method provided for under
such regulations with respect to those Certificates. If the Trustee’s treatment
of payments of the Net WAC Rate Carryover Amount is respected, ownership of
the
right to the Net WAC Rate Carryover Amount will entitle the owner to amortize
the separate price paid for the right to the related Net WAC Rate Carryover
Amount under the Notional Principal Contract Regulations.
Any
payments made to a beneficial owner of a Class A or Mezzanine Certificate in
excess of the amounts payable on the corresponding REMIC regular interest will
be treated as having been received as a payment on a notional principal
contract. To the extent the sum of such periodic payments for any year exceeds
that year’s amortized cost of any Net WAC Rate Carryover Amounts, such excess
represents net income for that year. Conversely, to the extent that the amount
of that year’s amortized cost exceeds the sum of the periodic payments, such
excess will represent a net deduction for that year. In addition, any amounts
payable on such REMIC regular interest in excess of the amount of payments
on
the Class A or Mezzanine Certificate to which it relates will be treated as
having been received by the beneficial owners of such Certificates and then
paid
by such owners to the Swap Account pursuant to the Swap Administration
Agreement, and such excess should be treated as a periodic payment on a notional
principal contract that is made by the beneficial owner during the applicable
taxable year and that is taken into account in determining the beneficial
owner’s net income or net deduction with respect to any Net WAC Rate Carryover
Amounts for such taxable year. Although not clear, net income or a net deduction
with respect to the Net WAC Rate Carryover Amount should be treated as ordinary
income or as an ordinary deduction. Holders of the Class A and Mezzanine
Certificates are advised to consult their own tax advisors regarding the tax
characterization and timing issues relating to a Swap Termination
Payment.
Because
a
beneficial owner of any Net WAC Rate Carryover Amounts will be required to
include in income the amount deemed to have been paid by such owner, but may
not
be able to deduct that amount from income, a beneficial owner of a Class A
or
Mezzanine Certificate may have income that exceeds cash distributions on the
Class A or Mezzanine Certificate, in any period and over the term of the Class
A
or Mezzanine Certificate. As a result, the Class A or Mezzanine Certificates
may
not be a suitable investment for any taxpayer whose net deduction with respect
to any Net WAC Rate Carryover Amounts would be subject to the limitations
described above.
Upon
the
sale of a Class A or Mezzanine Certificate, the amount of the sale allocated
to
the selling certificateholder’s right to receive payments from the Net WAC Rate
Carryover Reserve Account and the Swap Account in respect of the Net WAC Rate
Carryover Amount would be considered a “termination payment” under the Notional
Principal Contract Regulations allocable to the related Class A or Mezzanine
Certificate, as the case may be. A holder of a Class A or Mezzanine Certificate
will have gain or loss from such a termination of the right to receive payments
from the Net WAC Rate Carryover Reserve Account and the Swap Account in respect
of the Net WAC Rate Carryover Amount equal to (i) any termination payment it
received or is deemed to have received minus (ii) the unamortized portion of
any
amount paid (or deemed paid) by the certificateholder upon entering into or
acquiring its interest in the right to receive payments from the Net WAC Rate
Carryover Reserve Account and the Swap Account in respect of the Net WAC Rate
Carryover Amount.
Gain
or
loss realized upon the termination of the right to receive payments from the
Net
WAC Rate Carryover Reserve Account and the Swap Account in respect of the Net
WAC Rate Carryover Amount will generally be treated as capital gain or loss.
Moreover, in the case of a bank or thrift institution, Code Section 582(c)
would
likely not apply to treat such gain or loss as ordinary.
It
is
possible that the right to receive payments in respect of the Net WAC Rate
Carryover Amounts could be treated as a partnership among the holders of all
of
the Certificates, in which case holders of such Certificates potentially would
be subject to different timing of income and foreign holders of such
Certificates could be subject to withholding in respect of any related Net
WAC
Rate Carryover Amount. Holders of the Class A and Mezzanine Certificates are
advised to consult their own tax advisors regarding the allocation of issue
price, timing, character and source of income and deductions resulting from
the
ownership of their Certificates.
The
REMIC
regular interest component of each Class A and Mezzanine Certificate will be
treated as assets described in Section 7701(a)(19)(C) of the Code, and as “real
estate assets” under Section 856(c)(5)(B) of the Code, generally, in the same
proportion that the assets of the Trust, exclusive of the assets not included
in
any REMIC, would be so treated. In addition, the interest derived from the
REMIC
regular interest component of each Class A and Mezzanine Certificate will be
interest on obligations secured by interests in real property for purposes
of
section 856(c)(3) of the Code, subject to the same limitation in the preceding
sentence. The Notional Principal Contract component of each Class A and
Mezzanine Certificate will not qualify, however, as an asset described in
Section 7701(a)(19)(C) of the Code, as a real estate asset under Section
856(c)(5)(B) of the Code or as a “qualified mortgage” within the meaning of
Section 860G(a)(3) of the Code. As a result, the Class A and Mezzanine
Certificates generally may not be a suitable investment for a real estate
investment trust or an entity intending to qualify under Section 7701(a)(19)(C)
of the Code.
Because
the Net WAC Rate Carryover Amount is treated as separate rights of the Class
A
and Mezzanine Certificates not payable by any REMIC elected by the Trust, such
rights will not be treated as qualifying assets for any certificateholder that
is a mutual savings bank, domestic building and loan association, real estate
investment trust, or REMIC. In addition, any amounts received from the Net
WAC
Rate Carryover Reserve Account and the Swap Account will not be qualifying
real
estate income for real estate investment trusts or qualifying income for
REMICs.
It
is not
anticipated that any REMIC elected by the Issuing Entity will engage in any
transactions that would subject it to the prohibited transactions tax as defined
in Section 860F(a)(2) of the Code, the contributions tax as defined in Section
860G(d) of the Code or the tax on net income from foreclosure property as
defined in Section 860G(c) of the Code. However, in the event that any such
tax
is imposed on any REMIC elected by the Trust, such tax will be borne (i) by
the
Trustee, if the Trustee has breached its obligations with respect to REMIC
compliance under the Pooling and Servicing Agreement, (ii) by the Master
Servicer, if the Master Servicer has breached its obligations with respect
to
REMIC compliance under the Pooling and Servicing Agreement and (iii) otherwise
by the Trust, with a resulting reduction in amounts otherwise distributable
to
holders of the Class A and Mezzanine Certificates. See “Description of the
Securities” and “Federal Income Tax Consequences REMICs” in the prospectus. The
responsibility for filing annual federal information returns and other reports
will be borne by the Trustee. See “Federal Income Tax Consequences—REMICs” in
the prospectus.
For
further information regarding the federal income tax consequences of investing
in the Class A and Mezzanine Certificates, see “Federal Income Tax
Consequences—REMICs” in the prospectus.
SECONDARY
MARKET
There
is
currently no secondary market for the Class A and Mezzanine Certificates and
there can be no assurance that a secondary market for the Class A and Mezzanine
Certificates will develop or, if it does develop, that it will continue. Each
Underwriter intends to establish a market in the classes of Offered Certificates
purchased by it, but no Underwriter has any obligation to do so. The primary
source of information available to investors concerning the Class A and
Mezzanine Certificates will be the monthly reports made available via the
Trustee’s internet website, which will include information as to the outstanding
Certificate Principal Balance of the Class A and Mezzanine Certificates. There
can be no assurance that any additional information regarding the Class A and
Mezzanine Certificates will be available through any other source. In addition,
the Depositor is not aware of any source through which price information about
the Class A and Mezzanine Certificates will be generally available on an ongoing
basis. The limited nature of such information regarding the Class A and
Mezzanine Certificates may adversely affect the liquidity of the Class A and
Mezzanine Certificates, even if a secondary market for the Offered Certificates
becomes available.
LEGAL
OPINIONS
Certain
legal matters relating to the Class A and Mezzanine Certificates will be passed
upon for the Depositor by Thacher Proffitt & Wood llp,
New
York, New York and for the Underwriters by McKee Nelson LLP.
RATINGS
It
is a
condition to the issuance of the Certificates that the Offered Certificates
receive the following ratings from Fitch Ratings (“Fitch”), Moody’s Investors
Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Services, a division
of the McGraw-Hill Companies, Inc. (“S&P”; and together with Fitch and
Moody’s, the “Rating Agencies”):
Offered
Certificates
Fitch
Moody’s
S&P
A-1
AAA
Aaa
AAA
A-2A
AAA
Aaa
AAA
A-2B
AAA
Aaa
AAA
A-2C
AAA
Aaa
AAA
A-2D
AAA
Aaa
AAA
M-1
AA+
Aa1
AA+
M-2
AA+
Aa2
AA+
M-3
AA
Aa3
AA
M-4
AA-
A1
AA
M-5
A+
A2
AA-
M-6
A
A3
A+
M-7
BBB+
Baa1
A
M-8
BBB
Baa2
A-
M-9
BBB
Baa3
BBB+
M-10
BB+
Ba1
BBB
The
ratings of the Rating Agencies assigned to asset-backed pass-through
certificates address the likelihood of the receipt by certificateholders of
all
distributions to which such certificateholders are entitled. The rating process
addresses structural and legal aspects associated with the Certificates,
including the nature of the underlying Mortgage Loans. The ratings on the
Offered Certificates do not, however, constitute statements regarding the
likelihood or frequency of prepayments on the Mortgage Loans, the distribution
of the Net WAC Rate Carryover Amount or the possibility that a holder of an
Offered Certificate might realize a lower than anticipated yield. The ratings
do
not address the possibility that certificateholders might suffer a lower than
anticipated yield due to non-credit events.
A
security rating is not a recommendation to buy, sell or hold securities and
may
be subject to revision or withdrawal at any time by the assigning rating
organization. Each security rating should be evaluated independently of any
other security rating. In the event that the ratings initially assigned to
the
Offered Certificates are subsequently lowered for any reason, no person or
entity is obligated to provide any additional credit support or credit
enhancement with respect to the Offered Certificates.
The
Depositor has not requested that any rating agency rate the Offered Certificates
other than as stated above. However, there can be no assurance as to whether
any
other rating agency will rate the Offered Certificates, or, if it does, what
rating would be assigned by any such other rating agency. A rating on the
Offered Certificates by another rating agency, if assigned at all, may be lower
than the ratings assigned to the Offered Certificates as stated
above.
LEGAL
INVESTMENT
The
Class
A and Mezzanine Certificates will not constitute “mortgage related securities”
for purposes of the Secondary Mortgage Market Enhancement Act of 1984
(“SMMEA”).
The
Depositor makes no representations as to the proper characterization of any
class of Class A and Mezzanine Certificates for legal investment or other
purposes, or as to the ability of particular investors to purchase any class
of
Class A and Mezzanine Certificates under applicable legal investment
restrictions. These uncertainties may adversely affect the liquidity of any
class of Class A and Mezzanine Certificates. Accordingly, all institutions
whose
investment activities are subject to legal investment laws and regulations,
regulatory capital requirements or review by regulatory authorities should
consult with their legal advisors in determining whether and to what extent
any
class of Class A and Mezzanine Certificates constitutes a legal investment
or is
subject to investment, capital or other restrictions. See “Legal Investment” in
the prospectus.
ERISA
CONSIDERATIONS
A
fiduciary of any ERISA plan, IRA, Keogh plan or government plan, collectively
referred to here as “benefit plans,” or any insurance company, whether through
its general or separate accounts, or any other person investing benefit plan
assets of any benefit plan, should carefully review with its legal advisors
whether the purchase or holding of offered certificates could give rise to
a
transaction prohibited or not otherwise permissible under ERISA or Section
4975
of the Code. Each certificate owner of a Class A or Mezzanine Certificate or
any
interest therein will (i) be deemed to have represented, by virtue of its
acquisition or holding of that certificate or interest therein, that it is
not a
plan investor or (ii) provide the Trustee with an Opinion of Counsel on which
the Depositor, the Trustee and the Master Servicer may rely, that the purchase
of a Class A or Mezzanine Certificate (a) is permissible under applicable law,
(b) will not constitute or result in a non-exempt prohibited transaction under
ERISA or Section 4975 of the Code and (c) will not subject the Depositor, the
Trustee or the Master Servicer to any obligation or liability (including
obligations or liabilities under ERISA or Section 4975 of the Code) in addition
to those undertaken in the Pooling and Servicing Agreement, which Opinion of
Counsel will not be an expense of the Depositor, the Trustee or the Master
Servicer.
If
any
Offered Certificate or any interest therein is acquired or held in violation
of
the conditions described in the preceding paragraph, the next preceding
permitted certificate owner will be treated as the certificate owner of that
Class A or Mezzanine Certificate, retroactive to the date of transfer to the
purported certificate owner. Any purported certificate owner whose acquisition
or holding of any such certificate or interest therein was effected in violation
of the conditions described in the preceding paragraph will indemnify and hold
harmless the Depositor, the Trustee, the Master Servicer, any subservicer,
and
the Trust from and against any and all liabilities, claims, costs or expenses
incurred by those parties as a result of that acquisition or
holding.
Any
benefit plan fiduciary that proposes to cause a benefit plan to purchase a
Certificate should consult with its counsel with respect to the potential
applicability to such investment of the fiduciary responsibility and prohibited
transaction provisions of ERISA and the Code to the proposed investment. For
further information regarding the ERISA considerations of investing in the
Certificates, see “Considerations for Benefit Plan Investors” in the
prospectus.
ANNEX
I
GLOBAL
CLEARANCE, SETTLEMENT AND TAX DOCUMENTATION PROCEDURES
Except
in
certain limited circumstances, the Offered Certificates will be available only
in book-entry form. Investors in the Offered Certificates may hold such Offered
Certificates through any of DTC, Clearstream or Euroclear. The Offered
Certificates will be traceable as home market instruments in both the European
and U.S. domestic markets. Initial settlement and all secondary trades will
settle in same-day funds.
Secondary
market trading between investors through Clearstream and Euroclear will be
conducted in the ordinary way in accordance with the normal rules and operating
procedures of Clearstream and Euroclear and in accordance with conventional
eurobond practice (i.e., seven calendar day settlement).
Secondary
market trading between investors through DTC will be conducted according to
DTC’s rules and procedures applicable to U.S. corporate debt
obligations.
Secondary
cross-market trading between Clearstream or Euroclear and DTC Participants
holding Certificates will be effected on a delivery-against-payment basis
through the respective Depositories of Clearstream and Euroclear (in such
capacity) and as DTC Participants.
Non-U.S.
holders (as described below) of Offered Certificates will be subject to U.S.
withholding taxes unless such holders meet certain requirements and deliver
appropriate U.S. tax documents to the securities clearing organizations or
their
participants.
Initial
Settlement
All
Offered Certificates will be held in book-entry form by DTC in the name of
Cede
& Co. as nominee of DTC. Investors’ interests in the Offered Certificates
will be represented through financial institutions acting on their behalf as
direct and indirect Participants in DTC. As a result, Clearstream and Euroclear
will hold positions on behalf of their participants through their Relevant
Depositary which in turn will hold such positions in their accounts as DTC
Participants.
Investors
electing to hold their Offered Certificates through DTC will follow DTC
settlement practices. Investor securities custody accounts will be credited
with
their holdings against payment in same-day funds on the settlement
date.
Investors
electing to hold their Offered Certificates through Clearstream or Euroclear
accounts will follow the settlement procedures applicable to conventional
eurobonds, except that there will be no temporary global security and no
“lock-up” or restricted period. Offered Certificates will be credited to the
securities custody accounts on the settlement date against payment in same-day
funds.
Secondary
Market Trading
Since
the
purchaser determines the place of delivery, it is important to establish at
the
time of the trade where both the purchaser’s and seller’s accounts are located
to ensure that settlement can be made on the desired value date.
Trading
between DTC Participants. Secondary
market trading between DTC Participants will be settled using the procedures
applicable to prior mortgage loan asset-backed certificates issues in same-day
funds.
Trading
between Clearstream and/or Euroclear Participants.
Secondary market trading between Clearstream Participants or Euroclear
Participants will be settled using the procedures applicable to conventional
eurobonds in same-day funds.
Trading
between DTC Seller and Clearstream or Euroclear Participants. When
Offered Certificates are to be transferred from the account of a DTC Participant
to the account of a Clearstream Participant or a Euroclear Participant, the
purchaser will send instructions to Clearstream or Euroclear through a
Clearstream Participant or Euroclear Participant at least one business day
prior
to settlement. Clearstream or Euroclear will instruct the Relevant Depositary,
as the case may be, to receive the Offered Certificates against payment. Payment
will include interest accrued on the Offered Certificates from and including
the
last coupon payment date to and excluding the settlement date, on the basis
of
either the actual number of days in such accrual period, and a year assumed
to
consist of 360 days. For transactions settling on the 31st of the month, payment
will include interest accrued to and excluding the first day of the following
month. Payment will then be made by the Relevant Depositary to the DTC
Participant’s account against delivery of the Offered Certificates. After
settlement has been completed, the Offered Certificates will be credited to
the
respective clearing system and by the clearing system, in accordance with its
usual procedures, to the Clearstream Participant’s or Euroclear Participant’s
account. The securities credit will appear the next day (European time) and
the
cash debt will be back-valued to, and the interest on the Offered Certificates
will accrue from, the value date (which would be the preceding day when
settlement occurred in New York). If settlement is not completed on the intended
value date (i.e.,
the
trade fails), the Clearstream or Euroclear cash debt will be valued instead
as
of the actual settlement date.
Clearstream
Participants and Euroclear Participants will need to make available to the
respective clearing systems the funds necessary to process same-day funds
settlement. The most direct means of doing so is to preposition funds for
settlement, either from cash on hand or existing lines of credit, as they would
for any settlement occurring within Clearstream or Euroclear. Under this
approach, they may take on credit exposure to Clearstream or Euroclear until
the
Offered Certificates are credited to their account one day later. As an
alternative, if Clearstream or Euroclear has extended a line of credit to them,
Clearstream Participants or Euroclear Participants can elect not to preposition
funds and allow that credit line to be drawn upon to finance settlement. Under
this procedure, Clearstream Participants or Euroclear Participants purchasing
Offered Certificates would incur overdraft charges for one day, assuming they
cleared the overdraft when the Offered Certificates were credited to their
accounts. However, interest on the Offered Certificates would accrue from the
value date. Therefore, in many cases the investment income on the Offered
Certificates earned during that one-day period may substantially reduce or
offset the amount of such overdraft charges, although the result will depend
on
each Clearstream Participant’s or Euroclear Participant’s particular cost of
funds. Since the settlement is taking place during New York business hours,
DTC
Participants can employ their usual procedures for crediting Offered
Certificates to the respective European Depositary for the benefit of
Clearstream Participants or Euroclear Participants. The sale proceeds will
be
available to the DTC seller on the settlement date. Thus, to the DTC
Participants a cross-market transaction will settle no differently than a trade
between two DTC Participants.
Trading
between Clearstream or Euroclear Seller and DTC Purchaser. Due
to
time zone differences in their favor, Clearstream Participants and Euroclear
Participants may employ their customary procedures for transactions in which
Offered Certificates are to be transferred by the respective clearing system,
through the respective Depositary, to a DTC Participant. The seller will send
instructions to Clearstream or Euroclear through a Clearstream Participant
or
Euroclear Participant at least one business day prior to settlement. In these
cases Clearstream or Euroclear will instruct the respective Depositary, as
appropriate, to credit the Offered Certificates to the DTC Participant’s account
against payment. Payment will include interest accrued on the Offered
Certificates from and including the last coupon payment to and excluding the
settlement date on the basis of the actual number of days in such accrual period
and a year assumed to consist of 360 days. For transactions settling on the
31st
of the month, payment will include interest accrued to and excluding the first
day of the following month. The payment will then be reflected in the account
of
Clearstream Participant or Euroclear Participant the following day, and receipt
of the cash proceeds in the Clearstream Participant’s or Euroclear Participant’s
account would be back-valued to the value date (which would be the preceding
day, when settlement occurred in New York). Should the Clearstream Participant
or Euroclear Participant have a line of credit with its respective clearing
system and elect to be in debt in anticipation of receipt of the sale proceeds
in its account, the back-valuation will extinguish any overdraft incurred over
that one-day period. If settlement is not completed on the intended value date
(i.e., the trade fails), receipt of the cash proceeds in the Clearstream
Participant’s or Euroclear Participant’s account would instead be valued as of
the actual settlement date.
Finally,
day traders that use Clearstream or Euroclear and that purchase Offered
Certificates from DTC Participants for delivery to Clearstream Participants
or
Euroclear Participants should note that these trades would automatically fail
on
the sale side unless affirmative action is taken. At least three techniques
should be readily available to eliminate this potential problem:
(a) borrowing
through Clearstream or Euroclear for one day (until the purchase side of the
trade is reflected in their Clearstream or Euroclear accounts) in accordance
with the clearing system’s customary procedures;
(b) borrowing
the Offered Certificates in the U.S. from a DTC Participant no later than one
day prior to settlement, which would give the Offered Certificates sufficient
time to be reflected in their Clearstream or Euroclear account in order to
settle the sale side of the trade; or
(c) staggering
the value dates for the buy and sell sides of the trade so that the value date
for the purchase from the DTC Participant is at least one day prior to the
value
date for the sale to the Clearstream Participant or Euroclear
Participant.
Certain
U.S. Federal Income Tax Documentation Requirements
A
beneficial owner of Offered Certificates holding securities through Clearstream
or Euroclear (or through DTC if the holder has an address outside the U.S.)
will
be subject to the 30% U.S. withholding tax that generally applies to payments
of
interest (including original issue discount) on registered debt issued by U.S.
Persons, unless (i) each clearing system, bank or other financial institution
that holds customers’ securities in the ordinary course of its trade or business
in the chain of intermediaries between such beneficial owner and the U.S. entity
required to withhold tax complies with applicable certification requirements
and
(ii) such beneficial owner takes one of the following steps to obtain an
exemption or reduced tax rate:
Exemption
for non-U.S. Persons (Form W-8BEN). Beneficial
owners of Global Securities that are non-U.S. Persons can obtain a complete
exemption from the withholding tax by filing a signed Form W-8BEN (Certificate
of Foreign Status of Beneficial Owner for United States Tax Withholding). If
the
information shown on Form W-8BEN changes, a new Form W-8BEN must be filed within
30 days of such change.
Exemption
for non-U.S. Persons with effectively connected income (Form W-8ECI).
A
non-U.S. Person, including a non-U.S. corporation or bank with a U.S. branch,
for which the interest income is effectively connected with its conduct of
a
trade or business in the United States, can obtain an exemption from the
withholding tax by filing Form W-8ECI (Certificate of Foreign Person’s Claim for
Exemption from Withholding on Income Effectively Connected with the Conduct
of a
Trade or Business in the United States).
Exemption
or reduced rate for non-U.S. Persons resident in treaty countries (Form W-8BEN).
Non-U.S.
Persons that are Certificate Owners residing in a country that has a tax treaty
with the United States can obtain an exemption or reduced tax rate (depending
on
the treaty terms) by filing Form W-8BEN (Certificate of Foreign Status of
Beneficial Owner for United States Tax Withholding). Form W-8BEN may be filed
by
the Certificate Owners or his agent.
Exemption
for U.S. Persons (Form W-9). U.S.
Persons can obtain a complete exemption from the withholding tax by filing
Form
W-9 (Payer’s Request for Taxpayer Identification Number and
Certification).
U.S.
Federal Income Tax Reporting Procedure.
The
Certificate Owner of a Global Security or, in the case of a Form W-8BEN or
a
Form W-8ECI filer, his agent, files by submitting the appropriate form to the
person through whom it holds (the clearing agency, in the case of persons
holding directly on the books of the clearing agency). Form W-8BEN and Form
W-8ECI are effective until the third succeeding calendar year from the date
such
form is signed.
The
term
“U.S. Person” means (i) a citizen or resident of the United States, (ii) a
corporation, partnership or other entity treated as a corporation or partnership
for United States federal income tax purposes organized in or under the laws
of
the United States or any state thereof or the District of Columbia (unless,
in
the case of a partnership, Treasury regulations provide otherwise) or (iii)
an
estate the income of which is includible in gross income for United States
tax
purposes, regardless of its source, or (iv) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
Trust and one or more United States persons have authority to control all
substantial decisions of the Trust. Notwithstanding the preceding sentence,
to
the extent provided in Treasury regulations, certain trusts in existence on
August 20, 1996, and treated as United States persons prior to such date, that
elect to continue to be treated as United States persons will also be a U.S.
Person. This summary does not deal with all aspects of U.S. Federal income
tax
withholding that may be relevant to foreign holders of the Offered Certificates.
Investors are advised to consult their own tax advisors for specific tax advice
concerning their holding and disposing of the Offered Certificates.
Statistics
given below are for the Mortgage Loans in the pool as of the
Cut-off Date.
Balances and percentages are based on the Cut-off Date scheduled
balances
of such Mortgage Loans (except in the case of Debt-to-Income
and FICO,
which are determined at origination).
Summary
Statistics
Range
(if applicable)
Number
of Mortgage Loans
6,559
Aggregate
Current Principal Balance
$1,375,356,664
Average
Current Principal Balance
$209,690
$19,982
to $998,584
Aggregate
Original Principal Balance
$1,376,110,189
Average
Original Principal Balance
$209,805
$20,000
to $1,000,000
Fully
Amortizing Mortgage Loans
100.00%
1st
Lien
98.75%
Weighted
Avg. Gross Coupon
8.444%
6.150%
to 13.250%
Weighted
Avg. Original Term (months)
359
180
to 360
Weighted
Avg. Remaining Term (months)
358
178
to 360
Weighted
Avg. Margin (ARM Loans Only)
5.953%
3.750%
to 7.125%
Weighted
Avg. Maximum Rate (ARM Loans Only)
14.446%
12.150%
to 18.600%
Weighted
Avg. Minimum Rate (ARM Loans Only)
8.446%
6.150%
to 12.600%
Weighted
Avg. Original LTV (1)
81.29%
17.39%
to 100.00%
Weighted
Avg. Borrower FICO
616
500
to 811
Geographic
Distribution (Top 5)
CA
(31.11%)
FL
(10.56%)
IL
(8.71%)
AZ
(6.57%)
NY
(5.01%)
(1)The
loan-to-value(“OLTV”) of a first-lien mortgage at any given time is a fraction,
expressed as a percentage, the numerator of which is the principal balance
of
the mortgage loan at the date of origination and the denominator of which
is the
lesser of the sales price of the related mortgage property and its appraised
value determined in an appraisal obtained by the originator at origination
of
the mortgage loan. The OLTV of a second lien mortgage loan at any given
time is
a fraction, expressed as a percentage the numerator of which is (i) the
sum of
(a) the principal balance of such mortgage loan at the date of origination
plus
(b) the outstanding balance of the senior mortgage loan at the date of
origination of such mortgage loan and the denominator of which is (ii)
the
lesser of the sales price of the related mortgage property and its appraised
value determined in an appraisal obtained by the originator at origination
of
the mortgage loan.
DESCRIPTION
OF THE TOTAL COLLATERAL
Collateral
Type
COLLATERAL
TYPE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS
OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
2/6
MONTH LIBOR
2,518
488,009,332.03
35.48
359
40.20
8.799
599
81.26
2/6
MONTH LIBOR -2 YR IO
1
248,000.00
0.02
353
40.00
7.850
644
80.00
2/6
MONTH LIBOR - 5 YR IO
600
198,832,398.34
14.46
359
39.66
7.760
657
82.08
2/6
MONTH LIBOR - 40YR
677
191,768,667.11
13.94
359
42.48
8.226
630
81.11
3/6
MONTH LIBOR
1,069
210,978,219.92
15.34
359
40.84
8.627
598
81.37
3/6
MONTH LIBOR - 40 YR
215
57,498,316.85
4.18
359
42.58
8.313
621
82.79
3/6
MONTH LIBOR - 5 YR IO
152
48,028,112.23
3.49
359
40.68
7.932
650
83.33
FIXED
RATE
1,203
150,863,909.41
10.97
353
39.57
8.572
609
79.89
FIXED
RATE - 40 YR
91
20,661,603.21
1.50
359
40.89
7.747
614
77.92
FIXED
RATE - 5YR IO
33
8,468,104.68
0.62
359
38.02
7.653
649
77.79
Total:
6,559
1,375,356,663.78
100.00
358
40.58
8.444
616
81.29
1
Original
LTV if first lien, combined LTV if second lien.
Principal
Balances at Origination*
RANGE
OF
PRINCIPAL
BALANCES
AT
ORIGINATION ($)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF
ORIGINATION
($)
%
OF PRINCIPAL
BALANCE
AS
OF
ORIGINATION
REMAINING
TERM
TO
MATURITY
(months)*
DEBT-TO-INCOME
(%)*
GROSS
COUPON (%)*
FICO*
OLTV1
(%)*
0.01
- 25,000.00
31
682,605.00
0.05
358
41.41
12.200
619
99.87
25,000.01
- 50,000.00
132
4,906,161.00
0.36
358
43.07
12.524
640
99.99
50,000.01
- 100,000.00
1,462
115,101,399.00
8.36
355
38.74
9.275
597
84.30
100,000.01
- 150,000.00
1,321
165,003,940.00
11.99
358
39.89
8.786
602
80.74
150,000.01
- 200,000.00
1,030
179,865,105.00
13.07
358
40.35
8.579
608
79.96
200,000.01
- 250,000.00
675
151,669,190.00
11.02
358
40.67
8.354
610
79.77
250,000.01
- 300,000.00
492
134,649,745.00
9.78
358
40.59
8.240
621
80.12
300,000.01
- 350,000.00
359
116,431,737.00
8.46
358
41.16
8.304
621
80.79
350,000.01
- 400,000.00
306
114,540,408.00
8.32
359
41.50
8.140
620
80.88
400,000.01
- 450,000.00
223
95,135,143.00
6.91
359
41.52
8.198
630
82.24
450,000.01
- 500,000.00
204
97,337,193.00
7.07
359
41.12
8.202
631
82.94
500,000.01
- 550,000.00
104
54,564,984.00
3.97
359
41.02
8.050
636
82.07
550,000.01
- 600,000.00
82
47,212,820.00
3.43
359
41.40
8.329
630
84.12
600,000.01
- 650,000.00
48
30,148,600.00
2.19
359
40.22
8.226
624
83.86
650,000.01
- 700,000.00
26
17,445,391.00
1.27
359
42.50
8.227
626
82.51
700,000.01
- 750,000.00
17
12,349,845.00
0.90
358
36.57
7.908
620
79.13
750,000.01
>=
47
39,065,923.00
2.84
359
40.40
8.039
613
77.97
Total:
6,559
1,376,110,189.00
100.00
358
40.58
8.444
616
81.29
1
Original
LTV if first lien, combined LTV if second lien.
*Based
on
the original balances of the Mortgage Loans.
DESCRIPTION
OF THE TOTAL COLLATERAL
Principal
Balance as of the Cut-Off Date
RANGE
OF PRINCIPAL BALANCES AS OF THE
CUT-OFF
DATE ($)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS
OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
0.01
- 25,000.00
31
682,255.50
0.05
358
41.41
12.200
619
99.87
25,000.01
- 50,000.00
132
4,903,949.35
0.36
358
43.07
12.524
640
99.99
50,000.01
- 100,000.00
1,462
114,997,513.81
8.36
355
38.74
9.276
597
84.30
100,000.01
- 150,000.00
1,321
164,890,610.34
11.99
358
39.89
8.786
602
80.74
150,000.01
- 200,000.00
1,030
179,760,654.84
13.07
358
40.35
8.579
608
79.96
200,000.01
- 250,000.00
675
151,585,452.68
11.02
358
40.67
8.354
610
79.77
250,000.01
- 300,000.00
492
134,581,109.44
9.79
358
40.59
8.240
621
80.12
300,000.01
- 350,000.00
359
116,376,082.77
8.46
358
41.16
8.304
621
80.79
350,000.01
- 400,000.00
306
114,480,171.11
8.32
359
41.50
8.140
620
80.88
400,000.01
- 450,000.00
223
95,099,459.27
6.91
359
41.52
8.198
630
82.25
450,000.01
- 500,000.00
204
97,301,228.89
7.07
359
41.12
8.202
631
82.94
500,000.01
- 550,000.00
104
54,538,657.05
3.97
359
41.02
8.050
636
82.07
550,000.01
- 600,000.00
82
47,195,971.07
3.43
359
41.40
8.329
630
84.12
600,000.01
- 650,000.00
48
30,138,931.24
2.19
359
40.22
8.226
625
83.86
650,000.01
- 700,000.00
26
17,439,214.84
1.27
359
42.50
8.227
626
82.51
700,000.01
- 750,000.00
17
12,341,065.37
0.90
358
36.57
7.908
620
79.14
750,000.01
>=
47
39,044,336.21
2.84
359
40.40
8.039
613
77.97
Total:
6,559
1,375,356,663.78
100.00
358
40.58
8.444
616
81.29
1
Original
LTV if first lien, combined LTV if second lien.
Remaining
Term to Maturity
RANGE
OF MONTHS REMAINING
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS
OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
121
to 180
32
3,123,465.48
0.23
179
35.52
8.321
608
70.52
181
to 240
25
3,078,087.41
0.22
239
34.44
7.897
618
74.36
301
to 360
6,502
1,369,155,110.89
99.55
359
40.61
8.446
616
81.33
Total:
6,559
1,375,356,663.78
100.00
358
40.58
8.444
616
81.29
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE TOTAL COLLATERAL
Mortgage
Rates
RANGE
OF CURRENT
MORTGAGE
RATES
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
6.000
- 6.499
34
10,911,257.71
0.79
358
42.79
6.355
625
76.82
6.500
- 6.999
358
102,524,391.18
7.45
358
39.06
6.823
632
77.18
7.000
- 7.499
676
180,725,797.99
13.14
358
39.44
7.247
630
77.43
7.500
- 7.999
1,082
267,258,452.00
19.43
358
41.42
7.758
632
78.43
8.000
- 8.499
952
207,098,040.12
15.06
358
41.13
8.243
615
80.33
8.500
- 8.999
1,080
226,178,379.74
16.45
358
41.08
8.722
608
82.13
9.000
- 9.499
708
135,181,874.92
9.83
358
40.39
9.217
603
84.71
9.500
- 9.999
688
117,454,105.38
8.54
358
40.15
9.746
595
85.93
10.000
- 10.499
338
53,436,736.61
3.89
358
40.11
10.197
598
87.36
10.500
- 10.999
208
34,497,683.69
2.51
359
39.43
10.714
595
87.29
11.000
- 11.499
93
14,336,633.09
1.04
357
38.62
11.227
588
87.55
11.500
- 11.999
82
10,045,246.26
0.73
359
40.45
11.780
610
87.32
12.000
- 12.499
64
5,283,895.30
0.38
358
41.63
12.178
609
91.56
12.500
- 12.999
172
9,481,230.86
0.69
359
45.74
12.729
630
99.99
13.000
- 13.499
24
942,938.93
0.07
359
45.79
13.089
599
100.00
Total:
6,559
1,375,356,663.78
100.00
358
40.58
8.444
616
81.29
1
Original
LTV if first lien, combined LTV if second lien.
Original
Loan-to-Value Ratios(1)
RANGE
OF ORIGINAL
LOAN-TO-VALUE
RATIOS
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV2
(%)
0.01
to 25.00
6
449,004.91
0.03
313
44.73
7.996
605
20.77
25.01
to 30.00
4
387,291.44
0.03
358
46.37
8.687
600
28.66
30.01
to 35.00
15
2,057,878.23
0.15
346
40.39
8.303
593
32.08
35.01
to 40.00
22
2,956,334.22
0.21
350
38.92
8.007
581
37.52
40.01
to 45.00
31
5,708,662.27
0.42
356
40.74
7.690
587
42.38
45.01
to 50.00
41
7,182,487.27
0.52
355
37.93
7.958
604
47.83
50.01
to 55.00
79
15,927,984.29
1.16
355
41.53
7.747
576
53.13
55.01
to 60.00
121
24,684,202.99
1.79
359
40.55
8.073
583
58.16
60.01
to 65.00
198
37,227,052.47
2.71
356
39.66
8.275
580
63.40
65.01
to 70.00
268
61,125,778.32
4.44
358
40.37
8.136
583
68.71
70.01
to 75.00
451
98,282,037.27
7.15
358
41.96
8.232
575
74.09
75.01
to 80.00
2,403
585,522,423.05
42.57
358
41.07
8.029
634
79.80
80.01
to 85.00
551
112,982,653.09
8.21
358
39.95
8.463
595
84.52
85.01
to 90.00
1,462
281,610,738.93
20.48
358
39.24
8.911
611
89.78
90.01
to 95.00
543
113,749,126.99
8.27
358
40.91
9.329
631
94.84
95.01
to 100.00
364
25,503,008.04
1.85
358
42.32
11.762
648
99.96
Total:
6,559
1,375,356,663.78
100.00
358
40.58
8.444
616
81.29
(1)The
loan-to-value(“OLTV”) of a first-lien mortgage at any given time is a fraction,
expressed as a percentage, the numerator of which is the principal balance
of
the mortgage loan at the date of origination and the denominator of which
is the
lesser of the sales price of the related mortgage property and its appraised
value determined in an appraisal obtained by the originator at origination
of
the mortgage loan. The OLTV of a second lien mortgage loan at any given
time is
a fraction, expressed as a percentage the numerator of which is (i) the
sum of
(a) the principal balance of such mortgage loan at the date of origination
plus
(b) the outstanding balance of the senior mortgage loan at the date of
origination of such mortgage loan and the denominator of which is (ii)
the
lesser of the sales price of the related mortgage property and its appraised
value determined in an appraisal obtained by the originator at origination of
the mortgage loan.
2
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE TOTAL COLLATERAL
FICO
Score at Origination
RANGE
OF FICO SCORES
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
500
to 519
396
68,925,546.68
5.01
358
41.98
9.150
510
75.93
520
to 539
526
94,355,933.48
6.86
358
41.92
8.983
530
77.56
540
to 559
611
113,437,176.71
8.25
358
40.51
8.697
550
79.67
560
to 579
523
100,004,874.87
7.27
358
40.27
8.670
569
79.73
580
to 599
710
133,024,434.50
9.67
358
40.92
8.484
589
81.65
600
to 619
888
187,382,229.67
13.62
358
40.19
8.319
609
82.54
620
to 639
970
224,071,295.54
16.29
358
40.86
8.255
629
81.94
640
to 659
677
154,344,516.45
11.22
358
40.19
8.220
650
82.12
660
to 679
454
106,526,689.73
7.75
358
40.11
8.233
668
82.75
680
to 699
320
76,458,627.98
5.56
358
39.81
8.225
688
82.48
700
to 719
198
49,796,140.85
3.62
358
41.49
8.198
709
83.45
720
to 739
116
28,563,541.59
2.08
359
39.05
8.293
728
83.71
740
to 759
95
23,524,401.44
1.71
359
39.10
8.322
749
82.47
760
to 779
52
10,685,247.96
0.78
359
40.86
8.459
769
83.44
780
to 799
18
3,313,107.20
0.24
359
35.17
9.243
786
88.70
800
or greater
5
942,899.13
0.07
359
42.71
8.748
804
85.34
Total:
6,559
1,375,356,663.78
100.00
358
40.58
8.444
616
81.29
1
Original
LTV if first lien, combined LTV if second lien.
Debt-to-Income
Ratio
RANGE
OF DEBT-TO-INCOME RATIOS (%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
0.01
- 20.00
304
62,842,926.16
4.57
357
13.93
8.403
620
81.16
20.01
- 25.00
290
54,166,489.44
3.94
357
23.12
8.457
613
81.12
25.01
- 30.00
432
79,572,047.55
5.79
357
27.98
8.492
615
80.99
30.01
- 35.00
654
128,806,532.32
9.37
358
33.20
8.390
622
81.01
35.01
- 40.00
1,018
206,081,991.16
14.98
358
38.22
8.410
616
81.48
40.01
- 45.00
1,476
320,445,920.35
23.30
358
43.23
8.397
621
81.44
45.01
- 50.00
2,169
474,364,637.61
34.49
358
48.16
8.512
615
82.72
50.01
- 55.00
216
49,076,119.19
3.57
358
53.20
8.344
571
67.22
Total:
6,559
1,375,356,663.78
100.00
358
40.58
8.444
616
81.29
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE TOTAL COLLATERAL
Geographic
Distribution
STATE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
Alabama
15
1,383,851.14
0.10
358
43.32
9.622
563
84.89
Alaska
10
2,545,367.45
0.19
359
39.72
7.858
604
82.26
Arizona
525
90,357,332.46
6.57
358
40.68
8.531
617
80.25
Arkansas
12
1,664,541.33
0.12
359
38.00
9.666
625
83.66
California
1,180
427,846,169.58
31.11
359
41.28
8.152
629
80.54
Colorado
70
14,760,882.78
1.07
358
40.37
8.456
610
82.18
Connecticut
56
11,436,707.20
0.83
359
40.67
8.677
613
79.75
Delaware
10
2,352,119.34
0.17
359
43.28
8.589
622
78.03
Florida
716
145,224,235.48
10.56
358
39.62
8.456
621
79.28
Georgia
26
3,755,574.36
0.27
359
41.57
8.602
584
85.19
Hawaii
32
12,336,592.63
0.90
359
38.87
7.640
650
77.18
Idaho
9
951,441.33
0.07
359
37.24
8.593
616
77.75
Illinois
598
119,821,511.62
8.71
359
41.63
8.664
613
82.82
Indiana
159
14,648,757.55
1.07
357
37.40
9.180
616
87.60
Iowa
34
3,164,010.57
0.23
359
35.98
9.322
593
84.25
Kansas
29
3,795,915.03
0.28
359
38.16
9.411
597
85.30
Kentucky
37
4,438,212.19
0.32
358
41.31
8.661
598
87.18
Louisiana
72
8,298,907.43
0.60
356
39.70
9.163
593
84.85
Maine
13
2,972,334.75
0.22
359
42.94
8.706
554
66.34
Maryland
213
47,966,129.23
3.49
358
41.35
8.098
592
78.74
Massachusetts
95
25,808,057.08
1.88
358
41.99
8.319
604
79.33
Michigan
253
29,434,175.79
2.14
358
40.31
9.089
594
85.39
Minnesota
46
8,695,534.38
0.63
359
41.74
9.021
594
84.33
Mississippi
22
2,256,302.17
0.16
359
39.74
8.647
615
83.91
Missouri
194
22,489,692.23
1.64
359
38.56
9.230
601
87.47
Montana
1
173,841.16
0.01
359
32.00
6.450
674
85.29
Nebraska
35
4,350,258.59
0.32
358
37.20
8.830
609
86.64
Nevada
128
32,299,169.87
2.35
359
37.40
8.320
626
81.62
New
Hampshire
6
1,023,490.50
0.07
359
39.97
8.453
635
74.50
New
Jersey
196
50,905,762.80
3.70
357
41.07
8.508
598
79.09
New
Mexico
47
7,292,981.30
0.53
359
38.76
8.778
608
83.32
New
York
205
68,958,198.02
5.01
357
41.39
8.161
626
79.92
North
Carolina
45
6,025,532.64
0.44
359
39.26
8.962
586
85.45
North
Dakota
3
263,328.20
0.02
358
47.00
10.969
563
81.96
Ohio
330
32,277,558.59
2.35
356
38.19
8.753
584
86.87
Oklahoma
43
4,479,743.94
0.33
355
35.81
9.026
586
82.93
Oregon
35
6,247,090.96
0.45
359
42.01
8.419
586
79.45
Pennsylvania
137
18,899,816.31
1.37
354
37.79
8.663
586
82.71
Rhode
Island
24
4,975,982.59
0.36
359
38.66
8.077
622
80.27
South
Carolina
29
3,188,309.24
0.23
359
42.67
8.795
588
86.99
Tennessee
44
5,191,052.29
0.38
353
39.72
9.508
559
88.92
Texas
414
49,254,818.89
3.58
355
39.49
8.826
605
82.32
Utah
139
25,533,910.63
1.86
359
40.58
8.547
643
82.89
Vermont
1
156,434.50
0.01
359
46.00
9.000
552
65.00
Washington
115
25,132,053.36
1.83
359
39.74
8.342
609
82.14
Wisconsin
147
19,162,324.48
1.39
358
43.08
9.404
595
85.72
Wyoming
9
1,160,649.82
0.08
359
40.18
8.136
639
82.80
Total:
6,559
1,375,356,663.78
100.00
358
40.58
8.444
616
81.29
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE TOTAL COLLATERAL
Occupancy
Status
OCCUPANCY
STATUS*
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
Primary
5,757
1,247,219,293.88
90.68
358
41.22
8.362
613
80.90
Investor
742
115,084,564.41
8.37
358
33.77
9.301
646
85.33
Second
Home
60
13,052,805.49
0.95
359
39.99
8.762
647
82.89
Total:
6,559
1,375,356,663.78
100.00
358
40.58
8.444
616
81.29
1
Original
LTV if first lien, combined LTV if second lien.
*Based
on
mortgagor representation at origination.
Documentation
Type
INCOME
DOCUMENTATION
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
Full
Documentation
3,751
722,205,673.18
52.51
358
39.87
8.142
596
80.27
Stated
Documentation
2,308
532,320,649.88
38.70
358
42.02
8.870
645
82.60
Limited
Documentation
500
120,830,340.72
8.79
358
38.51
8.369
607
81.59
Total:
6,559
1,375,356,663.78
100.00
358
40.58
8.444
616
81.29
1
Original
LTV if first lien, combined LTV if second lien.
Loan
Purpose
PURPOSE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
Purchase
3,283
676,101,729.19
49.16
359
40.56
8.544
641
84.16
Refinance-Debt
Consolidation No Cash Out**
334
62,087,856.53
4.51
358
40.12
8.199
613
81.43
Refinance-Debt
Consolidation Cash Out***
2,942
637,167,078.06
46.33
357
40.65
8.362
589
78.23
Total:
6,559
1,375,356,663.78
100.00
358
40.58
8.444
616
81.29
1
Original
LTV if first lien, combined LTV if second lien.
**
Cash
proceeds to the borrower inclusive of debt consolidation payments do not
exceed
2% or $2,000 of the original principal balance of the related loan. Excludes
home equity loans originated in Texas with any cash proceeds.
***
Cash
proceeds to the borrower inclusive of debt consolidation payments exceed
2% or
$2,000 of the original principal balance of the related loan. Also includes
all
home equity loans originated in Texas with any cash proceeds.
DESCRIPTION
OF THE TOTAL COLLATERAL
Credit
Grade
RISK
CATEGORY
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
I
5,041
1,052,704,803.55
76.54
358
40.56
8.333
630
82.24
II
942
200,734,343.39
14.60
357
40.13
8.574
581
80.77
III
287
62,973,142.59
4.58
358
40.08
8.986
562
78.11
IV
235
47,333,163.70
3.44
358
42.67
9.025
550
70.33
V
54
11,611,210.55
0.84
358
44.80
10.926
552
65.55
Total:
6,559
1,375,356,663.78
100.00
358
40.58
8.444
616
81.29
1
Original
LTV if first lien, combined LTV if second lien.
Property
Type
PROPERTY
TYPE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
Single
Family
4,927
1,013,612,518.24
73.70
358
40.43
8.425
613
81.19
PUD
659
157,756,562.25
11.47
358
40.97
8.341
616
80.88
Two-to-Four
Family
467
108,309,779.98
7.88
358
41.74
8.619
629
81.65
Condo
478
90,218,106.43
6.56
359
40.22
8.631
638
82.65
PUD
Attached
23
4,584,754.76
0.33
357
40.83
8.376
621
82.15
Single
Family Attached
5
874,942.12
0.06
359
37.44
8.100
642
77.72
Total:
6,559
1,375,356,663.78
100.00
358
40.58
8.444
616
81.29
1
Original
LTV if first lien, combined LTV if second lien.
Prepayment
Charge Term
PREPAYMENT
CHARGE
TERM
AT ORIGINATION
(MONTHS)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
No
Prepayment Penalty
2,672
551,403,255.84
40.09
358
40.92
8.804
615
82.41
12
Months
283
82,658,132.24
6.01
358
40.76
8.378
630
81.30
24
Months
2,697
588,762,465.18
42.81
359
40.57
8.208
616
80.60
36
Months
907
152,532,810.52
11.09
356
39.32
8.092
612
79.88
Total:
6,559
1,375,356,663.78
100.00
358
40.58
8.444
616
81.29
1
Original
LTV if first lien, combined LTV if second lien.
Conforming
Balances
CONFORMING
BALANCE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
Conforming
5,897
1,036,016,300.34
75.33
358
40.41
8.514
612
80.94
Non-Conforming
662
339,340,363.44
24.67
359
41.10
8.229
627
82.35
Total:
6,559
1,375,356,663.78
100.00
358
40.58
8.444
616
81.29
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE TOTAL COLLATERAL
Maximum
Mortgage Rates of the Adjustable-Rate Loans
RANGE
OF MAXIMUM
MORTGAGE
RATES (%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
12.000
- 12.499
33
10,813,414.50
0.90
359
42.73
6.355
625
76.84
12.500
- 12.999
263
81,090,175.84
6.78
358
39.15
6.813
634
77.75
13.000
- 13.499
498
142,832,100.61
11.95
359
39.83
7.244
631
78.05
13.500
- 13.999
888
233,156,947.11
19.51
359
41.75
7.759
634
78.82
14.000
- 14.499
762
182,263,433.34
15.25
359
41.36
8.243
618
80.66
14.500
- 14.999
938
207,090,020.11
17.32
359
41.23
8.725
610
82.43
15.000
- 15.499
630
126,287,358.83
10.56
358
40.33
9.218
605
84.87
15.500
- 15.999
620
109,910,044.75
9.19
359
40.15
9.746
595
86.09
16.000
- 16.499
275
46,539,632.54
3.89
359
40.10
10.197
598
87.56
16.500
- 16.999
183
32,282,411.23
2.70
359
39.35
10.710
595
87.23
17.000
- 17.499
81
13,132,448.86
1.10
358
38.40
11.223
586
87.26
17.500
- 17.999
46
7,708,128.42
0.64
359
40.18
11.771
582
84.14
18.000
- 18.499
14
2,113,966.13
0.18
358
39.59
12.158
568
78.93
18.500
- 18.999
1
142,964.21
0.01
359
18.00
12.600
600
100.00
Total:
5,232
1,195,363,046.48
100.00
359
40.72
8.446
617
81.55
First,1Original
LTV if first lien, combined LTV if second lien
Minimum
Mortgage Rates of the Adjustable-Rate Loans
RANGE
OF MINIMUM
MORTGAGE
RATES (%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
6.000
- 6.499
33
10,813,414.50
0.90
359
42.73
6.355
625
76.84
6.500
- 6.999
263
81,090,175.84
6.78
358
39.15
6.813
634
77.75
7.000
- 7.499
498
142,832,100.61
11.95
359
39.83
7.244
631
78.05
7.500
- 7.999
888
233,156,947.11
19.51
359
41.75
7.759
634
78.82
8.000
- 8.499
762
182,263,433.34
15.25
359
41.36
8.243
618
80.66
8.500
- 8.999
938
207,090,020.11
17.32
359
41.23
8.725
610
82.43
9.000
- 9.499
630
126,287,358.83
10.56
358
40.33
9.218
605
84.87
9.500
- 9.999
620
109,910,044.75
9.19
359
40.15
9.746
595
86.09
10.000
- 10.499
275
46,539,632.54
3.89
359
40.10
10.197
598
87.56
10.500
- 10.999
183
32,282,411.23
2.70
359
39.35
10.710
595
87.23
11.000
- 11.499
81
13,132,448.86
1.10
358
38.40
11.223
586
87.26
11.500
- 11.999
46
7,708,128.42
0.64
359
40.18
11.771
582
84.14
12.000
- 12.499
14
2,113,966.13
0.18
358
39.59
12.158
568
78.93
12.500
- 12.999
1
142,964.21
0.01
359
18.00
12.600
600
100.00
Total:
5,232
1,195,363,046.48
100.00
359
40.72
8.446
617
81.55
Second,1Original
LTV if first lien, combined LTV if second lien
Third,
Gross
Margins of the Adjustable-Rate Loans
RANGE
OF GROSS
MARGINS
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
3.500
- 3.999
1
156,845.80
0.01
354
48.00
10.250
570
85.00
4.000
- 4.499
2
331,587.71
0.03
355
44.72
9.619
545
91.14
4.500
- 4.999
165
37,227,111.42
3.11
359
41.42
8.713
599
82.16
6.000
- 6.499
5,062
1,156,850,418.22
96.78
359
40.70
8.437
617
81.52
7.000
- 7.499
2
797,083.33
0.07
359
40.58
8.228
636
85.29
Total:
5,232
1,195,363,046.48
100.00
359
40.72
8.446
617
81.55
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE TOTAL COLLATERAL
Next
Rate Adjustment Date of the Adjustable-Rate
Loans
Statistics
given below are for the Mortgage Loans in the pool as of the
Cut-off Date.
Balances and percentages are based on the Cut-off Date scheduled
balances
of such Mortgage Loans (except in the case of Debt-to-Income
and FICO,
which are determined at origination).
Summary
Statistics
Range
(if applicable)
Number
of Mortgage Loans
4,067
Aggregate
Current Principal Balance
$670,168,258
Average
Current Principal Balance
$164,782
$19,989
to $798,921
Aggregate
Original Principal Balance
$670,623,296
Average
Original Principal Balance
$164,894
$20,000
to $800,000
Fully
Amortizing Mortgage Loans
100.00%
1st
Lien
99.46%
Weighted
Avg. Gross Coupon
8.569%
6.200%
to 13.250%
Weighted
Avg. Original Term (months)
359
180
to 360
Weighted
Avg. Remaining Term (months)
358
178
to 360
Weighted
Avg. Margin (ARM Loans Only)
5.920%
3.750%
to 7.125%
Weighted
Avg. Maximum Rate (ARM Loans Only)
14.655%
12.200%
to 18.325%
Weighted
Avg. Minimum Rate (ARM Loans Only)
8.655%
6.200%
to 12.325%
Weighted
Avg. Original LTV (1)
80.03%
17.39%
to 100.00%
Weighted
Avg. Borrower FICO
600
500
to 811
Geographic
Distribution (Top 5)
CA
(14.79%)
IL
(12.12%)
FL
(9.22%)
AZ
(6.92%)
NJ
(4.83%)
(1)The
loan-to-value(“OLTV”) of a first-lien mortgage at any given time is a fraction,
expressed as a percentage, the numerator of which is the principal balance
of
the mortgage loan at the date of origination and the denominator of which
is the
lesser of the sales price of the related mortgage property and its appraised
value determined in an appraisal obtained by the originator at origination
of
the mortgage loan. The OLTV of a second lien mortgage loan at any given
time is
a fraction, expressed as a percentage the numerator of which is (i) the
sum of
(a) the principal balance of such mortgage loan at the date of origination
plus
(b) the outstanding balance of the senior mortgage loan at the date of
origination of such mortgage loan and the denominator of which is (ii)
the
lesser of the sales price of the related mortgage property and its appraised
value determined in an appraisal obtained by the originator at origination
of
the mortgage loan.
DESCRIPTION
OF THE GROUP I COLLATERAL
Collateral
Type
COLLATERAL
TYPE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS
OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
2/6
MONTH LIBOR
1,716
271,022,559.38
40.44
358
39.82
8.982
590
80.50
2/6
MONTH LIBOR -2 YR IO
1
248,000.00
0.04
353
40.00
7.850
644
80.00
2/6
MONTH LIBOR - 5 YR IO
164
39,897,384.65
5.95
359
37.84
7.756
646
81.84
2/6
MONTH LIBOR - 40YR
271
54,848,094.22
8.18
359
41.95
8.182
611
78.73
3/6
MONTH LIBOR
800
137,836,912.97
20.57
358
40.86
8.679
593
81.01
3/6
MONTH LIBOR - 40 YR
122
25,111,215.25
3.75
359
43.45
8.166
613
81.42
3/6
MONTH LIBOR - 5 YR IO
70
15,795,588.23
2.36
359
40.55
7.545
647
81.58
FIXED
RATE
833
106,358,555.22
15.87
352
39.78
8.280
600
77.57
FIXED
RATE - 40 YR
67
13,784,945.43
2.06
359
41.24
7.763
609
76.95
FIXED
RATE - 5YR IO
23
5,265,002.68
0.79
359
38.08
7.516
640
77.08
Total:
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
1
Original
LTV if first lien, combined LTV if second lien.
Principal
Balances at Origination*
RANGE
OF
PRINCIPAL
BALANCES
AT
ORIGINATION ($)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF
ORIGINATION
($)
%
OF PRINCIPAL
BALANCE
AS
OF
ORIGINATION
REMAINING
TERM
TO
MATURITY
(months)*
DEBT-TO-INCOME
(%)*
GROSS
COUPON (%)*
FICO*
OLTV1
(%)*
0.01
- 25,000.00
26
571,625.00
0.09
358
42.88
12.506
620
99.85
25,000.01
- 50,000.00
64
2,216,136.00
0.33
358
44.90
12.529
638
99.98
50,000.01
- 100,000.00
1,091
86,977,659.00
12.97
355
38.65
9.133
593
83.44
100,000.01
- 150,000.00
1,034
128,729,545.00
19.20
357
40.32
8.717
597
80.18
150,000.01
- 200,000.00
725
126,298,493.00
18.83
358
40.36
8.580
599
79.18
200,000.01
- 250,000.00
433
97,191,476.00
14.49
358
40.70
8.387
599
78.45
250,000.01
- 300,000.00
278
75,964,666.00
11.33
358
40.83
8.308
603
78.65
300,000.01
- 350,000.00
183
59,473,901.00
8.87
358
39.56
8.447
602
79.61
350,000.01
- 400,000.00
160
59,963,857.00
8.94
359
41.13
8.213
600
79.68
400,000.01
- 450,000.00
46
19,137,988.00
2.85
359
38.75
8.111
613
79.95
450,000.01
- 500,000.00
16
7,667,650.00
1.14
359
41.04
8.185
627
83.85
500,000.01
- 550,000.00
6
3,091,150.00
0.46
359
43.01
7.883
688
81.72
550,000.01
- 600,000.00
1
585,000.00
0.09
359
50.00
8.000
649
90.00
600,000.01
- 650,000.00
2
1,216,000.00
0.18
359
44.01
8.667
605
79.48
700,000.01
- 750,000.00
1
738,150.00
0.11
359
46.00
8.300
713
85.93
750,000.01
>=
1
800,000.00
0.12
358
48.00
7.990
675
80.00
Total:
4,067
670,623,296.00
100.00
358
40.25
8.568
600
80.03
1
Original
LTV if first lien, combined LTV if second lien.
*Based
on
the original balances of the Mortgage Loans.
DESCRIPTION
OF THE GROUP I COLLATERAL
Principal
Balance as of the Cut-Off Date
RANGE
OF PRINCIPAL BALANCES AS OF THE
CUT-OFF
DATE ($)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS
OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
0.01
- 25,000.00
26
571,373.22
0.09
358
42.88
12.506
620
99.85
25,000.01
- 50,000.00
64
2,215,049.09
0.33
358
44.90
12.529
638
99.98
50,000.01
- 100,000.00
1,091
86,894,988.86
12.97
355
38.65
9.133
593
83.44
100,000.01
- 150,000.00
1,034
128,635,690.04
19.19
357
40.32
8.717
597
80.18
150,000.01
- 200,000.00
725
126,217,269.21
18.83
358
40.36
8.580
599
79.18
200,000.01
- 250,000.00
433
97,132,178.80
14.49
358
40.70
8.387
599
78.45
250,000.01
- 300,000.00
278
75,917,847.37
11.33
358
40.83
8.308
603
78.65
300,000.01
- 350,000.00
183
59,438,710.45
8.87
358
39.56
8.447
602
79.62
350,000.01
- 400,000.00
160
59,925,466.17
8.94
359
41.13
8.213
600
79.68
400,000.01
- 450,000.00
46
19,128,774.80
2.85
359
38.75
8.111
613
79.95
450,000.01
- 500,000.00
16
7,663,444.50
1.14
359
41.04
8.185
627
83.85
500,000.01
- 550,000.00
6
3,090,523.36
0.46
359
43.01
7.883
688
81.72
550,000.01
- 600,000.00
1
584,607.47
0.09
359
50.00
8.000
649
90.00
600,000.01
- 650,000.00
2
1,215,729.94
0.18
359
44.01
8.666
605
79.48
700,000.01
- 750,000.00
1
737,684.09
0.11
359
46.00
8.300
713
85.93
750,000.01
>=
1
798,920.66
0.12
358
48.00
7.990
675
80.00
Total:
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
1
Original
LTV if first lien, combined LTV if second lien.
Remaining
Term to Maturity
RANGE
OF MONTHS REMAINING
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS
OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
121
to 180
25
2,480,292.98
0.37
179
37.21
8.296
614
69.71
181
to 240
22
2,808,040.12
0.42
239
34.87
7.947
617
74.41
301
to 360
4,020
664,879,924.93
99.21
359
40.29
8.572
600
80.10
Total:
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE GROUP I COLLATERAL
Mortgage
Rates
RANGE
OF CURRENT
MORTGAGE
RATES
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
6.000
- 6.499
24
5,911,290.97
0.88
359
39.28
6.365
634
72.55
6.500
- 6.999
219
49,540,879.64
7.39
358
39.88
6.816
616
73.93
7.000
- 7.499
384
79,844,669.73
11.91
356
39.66
7.246
619
76.18
7.500
- 7.999
570
104,574,257.08
15.60
357
41.14
7.761
609
75.18
8.000
- 8.499
563
91,643,853.01
13.67
358
40.84
8.248
595
78.85
8.500
- 8.999
681
112,182,670.79
16.74
358
40.45
8.729
591
80.59
9.000
- 9.499
505
77,173,725.67
11.52
358
39.67
9.219
590
84.05
9.500
- 9.999
496
71,288,791.92
10.64
357
39.77
9.738
591
85.77
10.000
- 10.499
256
35,901,475.11
5.36
359
40.04
10.210
598
86.23
10.500
- 10.999
164
23,826,039.32
3.56
359
39.78
10.718
595
85.65
11.000
- 11.499
62
8,203,753.37
1.22
356
38.88
11.221
585
86.06
11.500
- 11.999
41
4,995,295.46
0.75
359
39.48
11.746
597
85.43
12.000
- 12.499
30
2,612,334.63
0.39
358
40.53
12.180
572
82.94
12.500
- 12.999
60
2,146,831.18
0.32
358
46.73
12.782
627
99.95
13.000
- 13.499
12
322,390.15
0.05
359
45.63
13.098
621
100.00
Total:
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
1
Original
LTV if first lien, combined LTV if second lien.
Original
Loan-to-Value Ratios(1)
RANGE
OF ORIGINAL
LOAN-TO-VALUE
RATIOS
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV2
(%)
0.01
to 25.00
5
387,052.33
0.06
306
43.25
8.100
592
20.15
25.01
to 30.00
4
387,291.44
0.06
358
46.37
8.687
600
28.66
30.01
to 35.00
15
2,057,878.23
0.31
346
40.39
8.303
593
32.08
35.01
to 40.00
17
2,567,531.73
0.38
359
38.29
8.019
584
37.52
40.01
to 45.00
28
4,744,309.54
0.71
355
38.46
7.625
597
42.41
45.01
to 50.00
37
5,752,445.91
0.86
354
38.78
8.064
597
47.63
50.01
to 55.00
67
12,293,180.64
1.83
354
40.27
7.730
582
53.14
55.01
to 60.00
99
19,856,125.76
2.96
358
40.20
8.054
577
58.21
60.01
to 65.00
171
30,139,997.24
4.50
356
40.08
8.235
574
63.29
65.01
to 70.00
215
41,537,766.53
6.20
358
40.66
8.169
576
68.78
70.01
to 75.00
359
66,983,482.60
10.00
358
41.22
8.297
576
74.07
75.01
to 80.00
1,071
189,575,090.06
28.29
357
40.55
8.163
608
79.56
80.01
to 85.00
411
68,718,467.72
10.25
358
40.20
8.563
592
84.56
85.01
to 90.00
1,094
166,391,667.87
24.83
358
39.27
9.105
609
89.77
90.01
to 95.00
338
50,804,845.37
7.58
358
40.86
9.376
626
94.84
95.01
to 100.00
136
7,971,125.06
1.19
359
43.06
11.314
651
99.98
Total:
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
(1)The
loan-to-value(“OLTV”) of a first-lien mortgage at any given time is a fraction,
expressed as a percentage, the numerator of which is the principal balance
of
the mortgage loan at the date of origination and the denominator of which
is the
lesser of the sales price of the related mortgage property and its appraised
value determined in an appraisal obtained by the originator at origination of
the mortgage loan. The OLTV of a second lien mortgage loan at any given
time is
a fraction, expressed as a percentage the numerator of which is (i) the
sum of
(a) the principal balance of such mortgage loan at the date of origination
plus
(b) the outstanding balance of the senior mortgage loan at the date of
origination of such mortgage loan and the denominator of which is (ii)
the
lesser of the sales price of the related mortgage property and its appraised
value determined in an appraisal obtained by the originator at origination
of
the mortgage loan.
2
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE GROUP I COLLATERAL
FICO
Score at Origination
RANGE
OF FICO SCORES
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
500
to 519
327
52,537,993.24
7.84
358
41.70
9.106
510
75.55
520
to 539
433
69,384,813.51
10.35
358
42.63
8.968
530
77.03
540
to 559
474
74,261,627.80
11.08
358
40.85
8.760
550
78.63
560
to 579
387
63,244,966.94
9.44
358
40.35
8.523
569
78.17
580
to 599
437
66,284,258.33
9.89
357
40.41
8.408
589
79.39
600
to 619
576
99,115,148.97
14.79
358
39.61
8.396
609
81.41
620
to 639
499
83,278,992.58
12.43
356
40.36
8.308
629
80.55
640
to 659
321
56,279,792.02
8.40
358
39.57
8.344
649
81.82
660
to 679
233
41,465,229.10
6.19
357
38.62
8.431
668
83.70
680
to 699
148
24,969,877.56
3.73
357
38.51
8.504
688
84.09
700
to 719
103
18,389,328.50
2.74
358
40.17
8.427
709
85.07
720
to 739
52
8,665,622.61
1.29
359
35.35
8.602
729
84.62
740
to 759
44
7,418,527.07
1.11
359
35.69
8.923
749
82.23
760
to 779
23
3,034,840.18
0.45
359
38.37
8.652
770
85.33
780
to 799
8
1,606,007.35
0.24
359
33.13
9.358
785
84.52
800
or greater
2
231,232.27
0.03
359
33.83
9.460
805
97.02
Total:
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
1
Original
LTV if first lien, combined LTV if second lien.
Debt-to-Income
Ratio
RANGE
OF DEBT-TO-INCOME RATIOS (%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
0.01
- 20.00
199
32,137,297.10
4.80
356
13.74
8.597
622
79.17
20.01
- 25.00
192
30,970,396.73
4.62
356
23.23
8.622
609
80.08
25.01
- 30.00
267
40,898,706.77
6.10
356
28.02
8.664
603
79.95
30.01
- 35.00
428
69,468,613.03
10.37
357
33.17
8.507
606
79.25
35.01
- 40.00
635
99,218,755.80
14.81
358
38.19
8.561
602
80.14
40.01
- 45.00
887
146,566,998.64
21.87
358
43.19
8.534
601
80.39
45.01
- 50.00
1,289
218,211,347.02
32.56
358
48.14
8.614
597
82.21
50.01
- 55.00
170
32,696,142.94
4.88
357
53.23
8.371
569
66.16
Total:
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE GROUP I COLLATERAL
Geographic
Distribution
STATE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
Alabama
13
1,116,692.96
0.17
359
42.44
9.650
565
83.67
Alaska
4
1,131,558.85
0.17
359
46.60
7.737
591
80.78
Arizona
300
46,392,258.68
6.92
357
41.24
8.571
609
78.24
Arkansas
10
1,489,675.49
0.22
359
37.09
9.534
635
83.83
California
353
99,099,689.86
14.79
358
39.62
8.147
600
74.66
Colorado
49
8,367,258.11
1.25
357
41.21
8.637
595
82.15
Connecticut
46
7,702,642.95
1.15
359
40.49
8.635
610
76.38
Delaware
7
1,295,018.90
0.19
359
43.13
8.302
598
79.60
Florida
344
61,805,045.07
9.22
358
38.72
8.568
604
76.69
Georgia
21
2,922,288.68
0.44
359
40.85
8.644
584
85.87
Hawaii
20
6,880,333.20
1.03
359
38.10
7.767
637
77.05
Idaho
9
951,441.33
0.14
359
37.24
8.593
616
77.75
Illinois
469
81,198,504.31
12.12
359
41.92
8.649
605
81.65
Indiana
139
12,701,520.93
1.90
357
38.06
9.173
620
87.40
Iowa
29
2,684,052.80
0.40
359
35.59
9.517
594
84.82
Kansas
23
2,591,116.88
0.39
359
39.50
9.409
579
84.20
Kentucky
28
2,666,328.72
0.40
358
42.07
9.361
575
88.11
Louisiana
47
5,130,596.71
0.77
357
40.27
9.087
586
85.13
Maine
8
1,204,190.06
0.18
359
42.94
8.035
571
71.02
Maryland
155
30,911,537.43
4.61
358
40.94
8.092
587
76.99
Massachusetts
64
15,167,133.44
2.26
357
42.45
8.210
592
76.11
Michigan
189
21,824,393.07
3.26
358
40.81
9.137
596
86.25
Minnesota
40
7,209,334.23
1.08
359
41.49
9.066
601
84.00
Mississippi
16
1,476,137.71
0.22
359
39.04
9.018
622
85.50
Missouri
154
17,243,772.83
2.57
359
38.86
9.358
604
87.88
Montana
1
173,841.16
0.03
359
32.00
6.450
674
85.29
Nebraska
29
3,235,567.48
0.48
358
39.05
8.944
609
87.49
Nevada
50
10,374,140.63
1.55
359
38.75
8.362
613
80.27
New
Hampshire
6
1,023,490.50
0.15
359
39.97
8.453
635
74.50
New
Jersey
144
32,342,868.73
4.83
357
42.15
8.485
585
76.42
New
Mexico
34
5,024,957.44
0.75
359
38.13
8.804
589
83.43
New
York
109
30,586,549.44
4.56
355
39.25
7.997
618
78.65
North
Carolina
38
4,912,087.54
0.73
359
38.26
9.017
576
84.96
North
Dakota
3
263,328.20
0.04
358
47.00
10.969
563
81.96
Ohio
253
25,278,763.81
3.77
357
38.84
8.775
582
86.89
Oklahoma
33
3,337,771.36
0.50
354
34.37
9.038
578
83.13
Oregon
27
4,900,574.87
0.73
359
43.18
8.416
568
78.98
Pennsylvania
105
14,366,006.91
2.14
352
37.38
8.700
589
82.25
Rhode
Island
19
3,383,128.76
0.50
359
41.12
8.378
602
79.71
South
Carolina
23
2,447,873.45
0.37
359
43.44
8.700
587
87.10
Tennessee
30
3,573,773.24
0.53
355
38.65
9.464
558
88.20
Texas
298
31,584,898.38
4.71
353
39.37
8.780
594
81.36
Utah
97
15,465,976.40
2.31
359
40.94
8.688
641
84.02
Vermont
1
156,434.50
0.02
359
46.00
9.000
552
65.00
Washington
94
19,611,197.04
2.93
359
40.74
8.340
606
81.97
Wisconsin
130
16,401,710.10
2.45
358
43.49
9.419
590
85.35
Wyoming
6
560,794.89
0.08
359
38.26
8.559
580
85.80
Total:
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE GROUP I COLLATERAL
Occupancy
Status
OCCUPANCY
STATUS*
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
Primary
3,357
559,396,760.61
83.47
358
41.46
8.426
591
79.06
Investor
655
99,854,320.80
14.90
358
33.68
9.351
647
85.13
Second
Home
55
10,917,176.62
1.63
359
38.76
8.690
644
83.23
Total:
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
1
Original
LTV if first lien, combined LTV if second lien.
*Based
on
mortgagor representation at origination.
Documentation
Type
INCOME
DOCUMENTATION
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
Full
Documentation
2,602
412,192,434.24
61.51
357
40.35
8.287
583
78.95
Stated
Documentation
1,222
214,990,436.49
32.08
358
40.43
9.078
635
81.97
Limited
Documentation
243
42,985,387.30
6.41
357
38.40
8.718
589
80.80
Total:
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
1
Original
LTV if first lien, combined LTV if second lien.
Loan
Purpose
PURPOSE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
Purchase
1,316
166,108,954.05
24.79
359
39.68
9.136
636
87.00
Refinance-Debt
Consolidation No Cash Out**
292
45,880,463.70
6.85
357
39.82
8.281
604
81.13
Refinance-Debt
Consolidation Cash Out***
2,459
458,178,840.28
68.37
357
40.50
8.391
587
77.40
Total:
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
1
Original
LTV if first lien, combined LTV if second lien.
**
Cash
proceeds to the borrower inclusive of debt consolidation payments do not
exceed
2% or $2,000 of the original principal balance of the related loan. Excludes
home equity loans originated in Texas with any cash proceeds.
***
Cash
proceeds to the borrower inclusive of debt consolidation payments exceed 2% or
$2,000 of the original principal balance of the related loan. Also includes
all
home equity loans originated in Texas with any cash proceeds.
DESCRIPTION
OF THE GROUP I COLLATERAL
Credit
Grade
RISK
CATEGORY
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
I
2,857
453,119,211.00
67.61
358
40.06
8.445
615
81.57
II
738
130,227,393.49
19.43
357
40.19
8.568
578
79.35
III
237
45,233,096.31
6.75
359
40.43
9.020
561
77.19
IV
194
33,912,398.71
5.06
357
41.90
9.096
548
69.25
V
41
7,676,158.52
1.15
359
44.52
10.889
551
65.15
Total:
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
1
Original
LTV if first lien, combined LTV if second lien.
Property
Type
PROPERTY
TYPE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
Single
Family
3,191
510,442,306.65
76.17
357
40.22
8.553
597
79.95
Two-to-Four
Family
321
63,940,972.56
9.54
359
40.58
8.688
618
79.65
PUD
295
55,764,681.96
8.32
357
41.25
8.430
596
79.46
Condo
244
37,324,615.74
5.57
359
38.71
8.807
627
82.84
PUD
Attached
12
2,084,638.13
0.31
354
41.16
8.239
606
79.04
Single
Family Attached
4
611,042.99
0.09
359
37.19
8.579
610
76.74
Total:
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
1
Original
LTV if first lien, combined LTV if second lien.
Prepayment
Charge Term
PREPAYMENT
CHARGE
TERM
AT ORIGINATION
(MONTHS)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
No
Prepayment Penalty
1,751
295,351,931.85
44.07
358
40.70
8.741
601
81.02
12
Months
153
32,879,470.92
4.91
357
39.92
8.498
620
78.77
24
Months
1,522
247,627,008.83
36.95
359
40.15
8.516
594
79.30
36
Months
641
94,309,846.43
14.07
355
39.24
8.189
606
79.30
Total:
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
1
Original
LTV if first lien, combined LTV if second lien.
Conforming
Balances
CONFORMING
BALANCE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
Conforming
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
Total:
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE GROUP I COLLATERAL
Maximum
Mortgage Rates of the Adjustable-Rate Loans
RANGE
OF MAXIMUM
MORTGAGE
RATES (%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
12.000
- 12.499
24
5,911,290.97
1.09
359
39.28
6.365
634
72.55
12.500
- 12.999
139
32,746,659.67
6.01
358
40.24
6.800
612
73.63
13.000
- 13.499
252
55,040,667.60
10.10
358
39.44
7.246
620
76.74
13.500
- 13.999
416
80,188,591.34
14.72
359
41.85
7.765
609
75.51
14.000
- 14.499
406
71,468,901.33
13.12
359
41.10
8.251
597
79.32
14.500
- 14.999
566
97,155,741.51
17.83
359
40.65
8.734
592
81.03
15.000
- 15.499
440
69,635,500.87
12.78
358
39.45
9.219
591
84.25
15.500
- 15.999
447
65,710,959.48
12.06
359
39.75
9.739
592
85.99
16.000
- 16.499
209
30,599,096.43
5.62
359
39.83
10.212
599
86.59
16.500
- 16.999
143
21,894,523.13
4.02
359
39.72
10.714
595
85.53
17.000
- 17.499
57
7,779,252.54
1.43
358
38.97
11.221
588
86.33
17.500
- 17.999
32
4,633,570.02
0.85
359
39.11
11.752
591
84.81
18.000
- 18.499
13
1,994,999.81
0.37
358
40.41
12.164
558
77.68
Total:
3,144
544,759,754.70
100.00
359
40.34
8.655
600
80.62
Fourth,1Original
LTV if first lien, combined LTV if second
lien
Minimum
Mortgage Rates of the Adjustable-Rate Loans
RANGE
OF MINIMUM
MORTGAGE
RATES (%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
6.000
- 6.499
24
5,911,290.97
1.09
359
39.28
6.365
634
72.55
6.500
- 6.999
139
32,746,659.67
6.01
358
40.24
6.800
612
73.63
7.000
- 7.499
252
55,040,667.60
10.10
358
39.44
7.246
620
76.74
7.500
- 7.999
416
80,188,591.34
14.72
359
41.85
7.765
609
75.51
8.000
- 8.499
406
71,468,901.33
13.12
359
41.10
8.251
597
79.32
8.500
- 8.999
566
97,155,741.51
17.83
359
40.65
8.734
592
81.03
9.000
- 9.499
440
69,635,500.87
12.78
358
39.45
9.219
591
84.25
9.500
- 9.999
447
65,710,959.48
12.06
359
39.75
9.739
592
85.99
10.000
- 10.499
209
30,599,096.43
5.62
359
39.83
10.212
599
86.59
10.500
- 10.999
143
21,894,523.13
4.02
359
39.72
10.714
595
85.53
11.000
- 11.499
57
7,779,252.54
1.43
358
38.97
11.221
588
86.33
11.500
- 11.999
32
4,633,570.02
0.85
359
39.11
11.752
591
84.81
12.000
- 12.499
13
1,994,999.81
0.37
358
40.41
12.164
558
77.68
Total:
3,144
544,759,754.70
100.00
359
40.34
8.655
600
80.62
Fifth,1Original
LTV if first lien, combined LTV if second lien
Sixth,
Gross
Margins of the Adjustable-Rate Loans
RANGE
OF GROSS
MARGINS
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
3.500
- 3.999
1
156,845.80
0.03
354
48.00
10.250
570
85.00
4.000
- 4.499
2
331,587.71
0.06
355
44.72
9.619
545
91.14
4.500
- 4.999
146
28,668,049.53
5.26
359
42.44
8.720
594
81.49
6.000
- 6.499
2,994
515,322,188.33
94.60
359
40.22
8.650
600
80.56
7.000
- 7.499
1
281,083.33
0.05
359
49.00
10.300
602
95.00
Total:
3,144
544,759,754.70
100.00
359
40.34
8.655
600
80.62
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE GROUP I COLLATERAL
Next
Rate Adjustment Date of the Adjustable-Rate
Loans
1
Original
LTV if first lien, combined LTV if second lien.
Initial
Periodic Rate Cap of the Adjustable-Rate Loans
INITIAL
PERIODIC
CAP
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
2.000
3,144
544,759,754.70
100.00
359
40.34
8.655
600
80.62
Total:
3,144
544,759,754.70
100.00
359
40.34
8.655
600
80.62
1
Original
LTV if first lien, combined LTV if second lien.
Periodic
Rate Cap of the Adjustable-Rate Loans
PERIODIC
CAP
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
1.000
3,144
544,759,754.70
100.00
359
40.34
8.655
600
80.62
Total:
3,144
544,759,754.70
100.00
359
40.34
8.655
600
80.62
1
Original
LTV if first lien, combined LTV if second lien.
Historical
Delinquency of the Mortgage Loans Since
Origination
STATUS
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
1
x
30
40
6,036,392.34
0.90
355
42.90
8.802
573
83.81
Never
Delinquent
4,027
664,131,865.69
99.10
358
40.23
8.566
601
80.00
Total:
4,067
670,168,258.03
100.00
358
40.25
8.569
600
80.03
DESCRIPTION
OF THE GROUP II COLLATERAL
Collateral
Summary
Statistics
given below are for the Mortgage Loans in the pool as of the
Cut-off Date.
Balances and percentages are based on the Cut-off Date scheduled
balances
of such Mortgage Loans (except in the case of Debt-to-Income
and FICO,
which are determined at origination).
Summary
Statistics
Range
(if applicable)
Number
of Mortgage Loans
2,492
Aggregate
Current Principal Balance
$705,188,406
Average
Current Principal Balance
$282,981
$19,982
to $998,584
Aggregate
Original Principal Balance
$705,486,893
Average
Original Principal Balance
$283,101
$20,000
to $1,000,000
Fully
Amortizing Mortgage Loans
100.00%
1st
Lien
98.08%
Weighted
Avg. Gross Coupon
8.326%
6.150%
to
13.250%
Weighted
Avg. Original Term (months)
360
180
to 360
Weighted
Avg. Remaining Term (months)
359
179
to 360
Weighted
Avg. Margin (ARM Loans Only)
5.981%
4.500%
to 7.125%
Weighted
Avg. Maximum Rate (ARM Loans Only)
14.270%
12.150%
to 18.600%
Weighted
Avg. Minimum Rate (ARM Loans Only)
8.270%
6.150%
to 12.600%
Weighted
Avg. Original LTV (1)
82.48%
24.60%
to 100.00%
Weighted
Avg. Borrower FICO
631
500
to 811
Geographic
Distribution (Top 5)
CA
(46.62%)
FL
(11.83%)
AZ
(6.23%)
IL
(5.48%)
NY
(5.44%)
(1)The
loan-to-value(“OLTV”) of a first-lien mortgage at any given time is a fraction,
expressed as a percentage, the numerator of which is the principal balance
of
the mortgage loan at the date of origination and the denominator of which
is the
lesser of the sales price of the related mortgage property and its appraised
value determined in an appraisal obtained by the originator at origination
of
the mortgage loan. The OLTV of a second lien mortgage loan at any given
time is
a fraction, expressed as a percentage the numerator of which is (i) the
sum of
(a) the principal balance of such mortgage loan at the date of origination
plus
(b) the outstanding balance of the senior mortgage loan at the date of
origination of such mortgage loan and the denominator of which is (ii)
the
lesser of the sales price of the related mortgage property and its appraised
value determined in an appraisal obtained by the originator at origination
of
the mortgage loan.
DESCRIPTION
OF THE GROUP II COLLATERAL
Collateral
Type
COLLATERAL
TYPE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS
OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
2/6
MONTH LIBOR
802
216,986,772.65
30.77
359
40.67
8.570
611
82.20
2/6
MONTH LIBOR - 5 YR IO
436
158,935,013.69
22.54
359
40.11
7.761
660
82.14
2/6
MONTH LIBOR - 40YR
406
136,920,572.89
19.42
359
42.70
8.244
638
82.07
3/6
MONTH LIBOR
269
73,141,306.95
10.37
359
40.81
8.529
607
82.06
3/6
MONTH LIBOR - 40 YR
93
32,387,101.60
4.59
359
41.90
8.427
627
83.85
3/6
MONTH LIBOR - 5 YR IO
82
32,232,524.00
4.57
359
40.74
8.122
652
84.19
FIXED
RATE
370
44,505,354.19
6.31
356
39.05
9.270
631
85.42
FIXED
RATE - 40 YR
24
6,876,657.78
0.98
359
40.19
7.714
623
79.86
FIXED
RATE - 5YR IO
10
3,203,102.00
0.45
358
37.92
7.878
665
78.95
Total:
2,492
705,188,405.75
100.00
359
40.89
8.326
631
82.48
1
Original
LTV if first lien, combined LTV if second lien.
Principal
Balances at Origination*
RANGE
OF
PRINCIPAL
BALANCES
AT
ORIGINATION ($)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF
ORIGINATION
($)
%
OF PRINCIPAL
BALANCE
AS
OF
ORIGINATION
REMAINING
TERM
TO
MATURITY
(months)*
DEBT-TO-INCOME
(%)*
GROSS
COUPON (%)*
FICO*
OLTV1
(%)*
0.01
- 25,000.00
5
110,980.00
0.02
358
33.84
10.621
617
100.00
25,000.01
- 50,000.00
68
2,690,025.00
0.38
358
41.57
12.519
642
100.00
50,000.01
- 100,000.00
371
28,123,740.00
3.99
355
39.03
9.714
609
86.96
100,000.01
- 150,000.00
287
36,274,395.00
5.14
358
38.35
9.030
619
82.71
150,000.01
- 200,000.00
305
53,566,612.00
7.59
359
40.30
8.577
629
81.82
200,000.01
- 250,000.00
242
54,477,714.00
7.72
358
40.62
8.295
630
82.12
250,000.01
- 300,000.00
214
58,685,079.00
8.32
359
40.28
8.152
644
82.02
300,000.01
- 350,000.00
176
56,957,836.00
8.07
359
42.83
8.155
641
82.01
350,000.01
- 400,000.00
146
54,576,551.00
7.74
359
41.90
8.061
642
82.19
400,000.01
- 450,000.00
177
75,997,155.00
10.77
359
42.21
8.220
635
82.82
450,000.01
- 500,000.00
188
89,669,543.00
12.71
359
41.12
8.204
632
82.86
500,000.01
- 550,000.00
98
51,473,834.00
7.30
359
40.90
8.060
633
82.09
550,000.01
- 600,000.00
81
46,627,820.00
6.61
359
41.29
8.334
630
84.04
600,000.01
- 650,000.00
46
28,932,600.00
4.10
359
40.06
8.207
625
84.04
650,000.01
- 700,000.00
26
17,445,391.00
2.47
359
42.50
8.227
626
82.51
700,000.01
- 750,000.00
16
11,611,695.00
1.65
358
35.97
7.883
614
78.70
750,000.01
>=
46
38,265,923.00
5.42
359
40.24
8.040
612
77.92
Total:
2,492
705,486,893.00
100.00
359
40.89
8.326
631
82.48
1
Original
LTV if first lien, combined LTV if second lien.
*Based
on
the original balances of the Mortgage Loans.
DESCRIPTION
OF THE GROUP II COLLATERAL
Principal
Balance as of the Cut-Off Date
RANGE
OF PRINCIPAL BALANCES AS OF THE
CUT-OFF
DATE ($)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS
OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
0.01
- 25,000.00
5
110,882.28
0.02
358
33.84
10.621
617
100.00
25,000.01
- 50,000.00
68
2,688,900.26
0.38
358
41.57
12.519
642
100.00
50,000.01
- 100,000.00
371
28,102,524.95
3.99
355
39.03
9.715
609
86.97
100,000.01
- 150,000.00
287
36,254,920.30
5.14
358
38.35
9.030
619
82.71
150,000.01
- 200,000.00
305
53,543,385.63
7.59
359
40.30
8.577
629
81.82
200,000.01
- 250,000.00
242
54,453,273.88
7.72
358
40.62
8.295
630
82.12
250,000.01
- 300,000.00
214
58,663,262.07
8.32
359
40.28
8.152
644
82.02
300,000.01
- 350,000.00
176
56,937,372.32
8.07
359
42.83
8.155
641
82.01
350,000.01
- 400,000.00
146
54,554,704.94
7.74
359
41.90
8.061
642
82.19
400,000.01
- 450,000.00
177
75,970,684.47
10.77
359
42.21
8.220
635
82.82
450,000.01
- 500,000.00
188
89,637,784.39
12.71
359
41.12
8.204
632
82.86
500,000.01
- 550,000.00
98
51,448,133.69
7.30
359
40.90
8.060
633
82.09
550,000.01
- 600,000.00
81
46,611,363.60
6.61
359
41.29
8.334
630
84.04
600,000.01
- 650,000.00
46
28,923,201.30
4.10
359
40.06
8.207
625
84.04
650,000.01
- 700,000.00
26
17,439,214.84
2.47
359
42.50
8.227
626
82.51
700,000.01
- 750,000.00
16
11,603,381.28
1.65
358
35.97
7.883
614
78.70
750,000.01
>=
46
38,245,415.55
5.42
359
40.24
8.040
612
77.92
Total:
2,492
705,188,405.75
100.00
359
40.89
8.326
631
82.48
1
Original
LTV if first lien, combined LTV if second lien.
Remaining
Term to Maturity
RANGE
OF MONTHS REMAINING
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS
OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
121
to 180
7
643,172.50
0.09
179
28.99
8.420
586
73.64
181
to 240
3
270,047.29
0.04
239
30.03
7.378
628
73.82
301
to 360
2,482
704,275,185.96
99.87
359
40.91
8.326
631
82.49
Total:
2,492
705,188,405.75
100.00
359
40.89
8.326
631
82.48
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE GROUP II COLLATERAL
Mortgage
Rates
RANGE
OF CURRENT
MORTGAGE
RATES
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
6.000
- 6.499
10
4,999,966.74
0.71
358
46.95
6.344
614
81.88
6.500
- 6.999
139
52,983,511.54
7.51
358
38.29
6.830
646
80.22
7.000
- 7.499
292
100,881,128.26
14.31
358
39.27
7.247
638
78.42
7.500
- 7.999
512
162,684,194.92
23.07
359
41.60
7.756
646
80.52
8.000
- 8.499
389
115,454,187.11
16.37
359
41.37
8.239
630
81.50
8.500
- 8.999
399
113,995,708.95
16.17
359
41.70
8.715
625
83.65
9.000
- 9.499
203
58,008,149.25
8.23
359
41.34
9.215
620
85.58
9.500
- 9.999
192
46,165,313.46
6.55
359
40.72
9.759
601
86.19
10.000
- 10.499
82
17,535,261.50
2.49
358
40.25
10.168
597
89.67
10.500
- 10.999
44
10,671,644.37
1.51
359
38.64
10.703
594
90.94
11.000
- 11.499
31
6,132,879.72
0.87
358
38.28
11.235
591
89.53
11.500
- 11.999
41
5,049,950.80
0.72
358
41.41
11.814
622
89.18
12.000
- 12.499
34
2,671,560.67
0.38
358
42.72
12.176
644
100.00
12.500
- 12.999
112
7,334,399.68
1.04
359
45.45
12.714
630
100.00
13.000
- 13.499
12
620,548.78
0.09
359
45.88
13.085
588
100.00
Total:
2,492
705,188,405.75
100.00
359
40.89
8.326
631
82.48
1
Original
LTV if first lien, combined LTV if second lien.
Original
Loan-to-Value Ratios(1)
RANGE
OF ORIGINAL
LOAN-TO-VALUE
RATIOS
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV2
(%)
0.01
to 25.00
1
61,952.58
0.01
359
54.00
7.350
689
24.60
35.01
to 40.00
5
388,802.49
0.06
295
43.06
7.930
562
37.51
40.01
to 45.00
3
964,352.73
0.14
359
51.98
8.010
537
42.22
45.01
to 50.00
4
1,430,041.36
0.20
359
34.48
7.530
631
48.64
50.01
to 55.00
12
3,634,803.65
0.52
359
45.77
7.803
555
53.11
55.01
to 60.00
22
4,828,077.23
0.68
359
41.99
8.150
608
57.94
60.01
to 65.00
27
7,087,055.23
1.00
357
37.87
8.449
603
63.84
65.01
to 70.00
53
19,588,011.79
2.78
358
39.75
8.067
598
68.58
70.01
to 75.00
92
31,298,554.67
4.44
358
43.55
8.090
573
74.14
75.01
to 80.00
1,332
395,947,332.99
56.15
359
41.32
7.965
647
79.92
80.01
to 85.00
140
44,264,185.37
6.28
358
39.57
8.308
599
84.46
85.01
to 90.00
368
115,219,071.06
16.34
359
39.18
8.631
613
89.79
90.01
to 95.00
205
62,944,281.62
8.93
358
40.95
9.290
634
94.84
95.01
to 100.00
228
17,531,882.98
2.49
358
41.99
11.966
647
99.95
Total:
2,492
705,188,405.75
100.00
359
40.89
8.326
631
82.48
(1)The
loan-to-value(“OLTV”) of a first-lien mortgage at any given time is a fraction,
expressed as a percentage, the numerator of which is the principal balance
of
the mortgage loan at the date of origination and the denominator of which
is the
lesser of the sales price of the related mortgage property and its appraised
value determined in an appraisal obtained by the originator at origination
of
the mortgage loan. The OLTV of a second lien mortgage loan at any given
time is
a fraction, expressed as a percentage the numerator of which is (i) the
sum of
(a) the principal balance of such mortgage loan at the date of origination
plus
(b) the outstanding balance of the senior mortgage loan at the date of
origination of such mortgage loan and the denominator of which is (ii)
the
lesser of the sales price of the related mortgage property and its appraised
value determined in an appraisal obtained by the originator at origination
of
the mortgage loan.
2
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE GROUP II COLLATERAL
FICO
Score at Origination
RANGE
OF FICO SCORES
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
500
to 519
69
16,387,553.44
2.32
358
42.90
9.291
510
77.14
520
to 539
93
24,971,119.97
3.54
358
39.95
9.023
531
79.01
540
to 559
137
39,175,548.91
5.56
359
39.87
8.577
550
81.65
560
to 579
136
36,759,907.93
5.21
358
40.13
8.922
570
82.42
580
to 599
273
66,740,176.17
9.46
358
41.43
8.559
589
83.91
600
to 619
312
88,267,080.70
12.52
358
40.84
8.232
609
83.81
620
to 639
471
140,792,302.96
19.97
359
41.16
8.224
629
82.76
640
to 659
356
98,064,724.43
13.91
359
40.54
8.149
650
82.30
660
to 679
221
65,061,460.63
9.23
359
41.06
8.106
668
82.15
680
to 699
172
51,488,750.42
7.30
359
40.44
8.090
688
81.70
700
to 719
95
31,406,812.35
4.45
359
42.26
8.064
710
82.50
720
to 739
64
19,897,918.98
2.82
359
40.65
8.159
728
83.31
740
to 759
51
16,105,874.37
2.28
359
40.67
8.046
748
82.58
760
to 779
29
7,650,407.78
1.08
359
41.85
8.383
769
82.69
780
to 799
10
1,707,099.85
0.24
359
37.10
9.134
786
92.64
800
or greater
3
711,666.86
0.10
359
45.59
8.516
804
81.54
Total:
2,492
705,188,405.75
100.00
359
40.89
8.326
631
82.48
1
Original
LTV if first lien, combined LTV if second lien.
Debt-to-Income
Ratio
RANGE
OF DEBT-TO-INCOME RATIOS (%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
0.01
- 20.00
105
30,705,629.06
4.35
358
14.12
8.200
618
83.24
20.01
- 25.00
98
23,196,092.71
3.29
358
22.98
8.237
620
82.51
25.01
- 30.00
165
38,673,340.78
5.48
357
27.94
8.309
628
82.10
30.01
- 35.00
226
59,337,919.29
8.41
359
33.23
8.252
641
83.06
35.01
- 40.00
383
106,863,235.36
15.15
359
38.24
8.268
630
82.72
40.01
- 45.00
589
173,878,921.71
24.66
359
43.27
8.281
638
82.33
45.01
- 50.00
880
256,153,290.59
36.32
359
48.17
8.426
631
83.15
50.01
- 55.00
46
16,379,976.25
2.32
358
53.14
8.288
574
69.34
Total:
2,492
705,188,405.75
100.00
359
40.89
8.326
631
82.48
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE GROUP II COLLATERAL
Geographic
Distribution
STATE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
Alabama
2
267,158.18
0.04
356
47.00
9.508
554
90.00
Alaska
6
1,413,808.60
0.20
359
34.22
7.954
615
83.45
Arizona
225
43,965,073.78
6.23
359
40.10
8.488
626
82.37
Arkansas
2
174,865.84
0.02
356
45.72
10.789
536
82.17
California
827
328,746,479.72
46.62
359
41.78
8.153
638
82.31
Colorado
21
6,393,624.67
0.91
359
39.29
8.218
629
82.22
Connecticut
10
3,734,064.25
0.53
359
41.02
8.763
620
86.70
Delaware
3
1,057,100.44
0.15
358
43.47
8.941
652
76.09
Florida
372
83,419,190.41
11.83
358
40.29
8.374
634
81.19
Georgia
5
833,285.68
0.12
359
44.08
8.455
583
82.81
Hawaii
12
5,456,259.43
0.77
359
39.83
7.481
666
77.34
Illinois
129
38,623,007.31
5.48
359
41.03
8.694
631
85.29
Indiana
20
1,947,236.62
0.28
359
33.14
9.231
586
88.90
Iowa
5
479,957.77
0.07
359
38.14
8.232
587
81.08
Kansas
6
1,204,798.15
0.17
359
35.30
9.416
637
87.68
Kentucky
9
1,771,883.47
0.25
359
40.15
7.606
634
85.77
Louisiana
25
3,168,310.72
0.45
355
38.77
9.286
603
84.40
Maine
5
1,768,144.69
0.25
358
42.93
9.162
543
63.15
Maryland
58
17,054,591.80
2.42
359
42.07
8.108
602
81.92
Massachusetts
31
10,640,923.64
1.51
359
41.33
8.473
622
83.91
Michigan
64
7,609,782.72
1.08
359
38.87
8.951
587
82.92
Minnesota
6
1,486,200.15
0.21
359
42.91
8.803
559
85.95
Mississippi
6
780,164.46
0.11
359
41.06
7.944
600
80.91
Missouri
40
5,245,919.40
0.74
359
37.59
8.812
593
86.11
Nebraska
6
1,114,691.11
0.16
358
31.83
8.499
610
84.18
Nevada
78
21,925,029.24
3.11
359
36.76
8.299
632
82.27
New
Jersey
52
18,562,894.07
2.63
359
39.18
8.548
620
83.74
New
Mexico
13
2,268,023.86
0.32
359
40.13
8.720
649
83.09
New
York
96
38,371,648.58
5.44
359
43.10
8.292
632
80.94
North
Carolina
7
1,113,445.10
0.16
359
43.69
8.718
628
87.61
Ohio
77
6,998,794.78
0.99
354
35.85
8.675
593
86.80
Oklahoma
10
1,141,972.58
0.16
359
40.02
8.991
609
82.33
Oregon
8
1,346,516.09
0.19
359
37.75
8.429
653
81.14
Pennsylvania
32
4,533,809.40
0.64
359
39.08
8.545
576
84.16
Rhode
Island
5
1,592,853.83
0.23
359
33.44
7.435
664
81.47
South
Carolina
6
740,435.79
0.10
359
40.13
9.108
590
86.61
Tennessee
14
1,617,279.05
0.23
349
42.09
9.607
562
90.50
Texas
116
17,669,920.51
2.51
359
39.69
8.910
625
84.04
Utah
42
10,067,934.23
1.43
359
40.03
8.331
647
81.16
Washington
21
5,520,856.32
0.78
359
36.22
8.349
619
82.74
Wisconsin
17
2,760,614.38
0.39
359
40.61
9.314
620
87.91
Wyoming
3
599,854.93
0.09
359
41.98
7.740
693
80.00
Total:
2,492
705,188,405.75
100.00
359
40.89
8.326
631
82.48
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE GROUP II COLLATERAL
Occupancy
Status
OCCUPANCY
STATUS*
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
Primary
2,400
687,822,533.27
97.54
359
41.02
8.309
631
82.39
Investor
87
15,230,243.61
2.16
359
34.35
8.970
641
86.64
Second
Home
5
2,135,628.87
0.30
359
46.30
9.131
662
81.18
Total:
2,492
705,188,405.75
100.00
359
40.89
8.326
631
82.48
1
Original
LTV if first lien, combined LTV if second lien.
*Based
on
mortgagor representation at origination.
Documentation
Type
INCOME
DOCUMENTATION
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
Full
Documentation
1,149
310,013,238.94
43.96
358
39.23
7.950
613
82.03
Stated
Documentation
1,086
317,330,213.39
45.00
359
43.09
8.730
651
83.03
Limited
Documentation
257
77,844,953.42
11.04
359
38.57
8.176
617
82.03
Total:
2,492
705,188,405.75
100.00
359
40.89
8.326
631
82.48
1
Original
LTV if first lien, combined LTV if second lien.
Loan
Purpose
PURPOSE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
Purchase
1,967
509,992,775.14
72.32
359
40.85
8.351
643
83.23
Refinance-Debt
Consolidation No Cash Out**
42
16,207,392.83
2.30
359
40.98
7.967
639
82.29
Refinance-Debt
Consolidation Cash Out***
483
178,988,237.78
25.38
358
41.03
8.286
595
80.35
Total:
2,492
705,188,405.75
100.00
359
40.89
8.326
631
82.48
1
Original
LTV if first lien, combined LTV if second lien.
**
Cash
proceeds to the borrower inclusive of debt consolidation payments do not
exceed
2% or $2,000 of the original principal balance of the related loan. Excludes
home equity loans originated in Texas with any cash proceeds.
***
Cash
proceeds to the borrower inclusive of debt consolidation payments exceed
2% or
$2,000 of the original principal balance of the related loan. Also includes
all
home equity loans originated in Texas with any cash proceeds.
DESCRIPTION
OF THE GROUP II COLLATERAL
Credit
Grade
RISK
CATEGORY
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
I
2,184
599,585,592.55
85.02
359
40.93
8.249
640
82.75
II
204
70,506,949.90
10.00
358
40.03
8.584
588
83.39
III
50
17,740,046.28
2.52
358
39.20
8.900
566
80.45
IV
41
13,420,764.99
1.90
359
44.62
8.845
554
73.05
V
13
3,935,052.03
0.56
358
45.35
10.998
552
66.32
Total:
2,492
705,188,405.75
100.00
359
40.89
8.326
631
82.48
1
Original
LTV if first lien, combined LTV if second lien.
Property
Type
PROPERTY
TYPE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
Single
Family
1,736
503,170,211.59
71.35
359
40.65
8.296
629
82.46
PUD
364
101,991,880.29
14.46
359
40.81
8.293
626
81.65
Condo
234
52,893,490.69
7.50
359
41.28
8.507
645
82.51
Two-to-Four
Family
146
44,368,807.42
6.29
358
43.42
8.520
646
84.52
PUD
Attached
11
2,500,116.63
0.35
359
40.55
8.490
634
84.75
Single
Family Attached
1
263,899.13
0.04
359
38.00
6.990
716
80.00
Total:
2,492
705,188,405.75
100.00
359
40.89
8.326
631
82.48
1
Original
LTV if first lien, combined LTV if second lien.
Prepayment
Charge Term
PREPAYMENT
CHARGE
TERM
AT ORIGINATION
(MONTHS)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
No
Prepayment Penalty
921
256,051,323.99
36.31
359
41.18
8.876
631
84.01
12
Months
130
49,778,661.32
7.06
359
41.31
8.299
636
82.96
24
Months
1,175
341,135,456.35
48.38
359
40.87
7.983
632
81.54
36
Months
266
58,222,964.09
8.26
357
39.44
7.934
622
80.83
Total:
2,492
705,188,405.75
100.00
359
40.89
8.326
631
82.48
1
Original
LTV if first lien, combined LTV if second lien.
Conforming
Balances
CONFORMING
BALANCE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
Conforming
1,830
365,848,042.31
51.88
358
40.70
8.415
635
82.60
Non-Conforming
662
339,340,363.44
48.12
359
41.10
8.229
627
82.35
Total:
2,492
705,188,405.75
100.00
359
40.89
8.326
631
82.48
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE GROUP II COLLATERAL
Maximum
Mortgage Rates of the Adjustable-Rate Loans
RANGE
OF MAXIMUM
MORTGAGE
RATES (%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
12.000
- 12.499
9
4,902,123.53
0.75
358
46.89
6.344
614
82.02
12.500
- 12.999
124
48,343,516.17
7.43
358
38.41
6.822
650
80.53
13.000
- 13.499
246
87,791,433.01
13.49
359
40.08
7.243
637
78.87
13.500
- 13.999
472
152,968,355.77
23.51
359
41.70
7.755
647
80.55
14.000
- 14.499
356
110,794,532.01
17.03
359
41.53
8.238
631
81.52
14.500
- 14.999
372
109,934,278.60
16.90
359
41.74
8.717
625
83.68
15.000
- 15.499
190
56,651,857.96
8.71
359
41.40
9.216
621
85.64
15.500
- 15.999
173
44,199,085.27
6.79
359
40.74
9.758
601
86.24
16.000
- 16.499
66
15,940,536.11
2.45
359
40.62
10.167
595
89.43
16.500
- 16.999
40
10,387,888.10
1.60
359
38.56
10.702
594
90.81
17.000
- 17.499
24
5,353,196.32
0.82
359
37.57
11.227
583
88.62
17.500
- 17.999
14
3,074,558.40
0.47
358
41.79
11.799
569
83.14
18.000
- 18.499
1
118,966.32
0.02
359
26.00
12.050
730
100.00
18.500
- 18.999
1
142,964.21
0.02
359
18.00
12.600
600
100.00
Total:
2,088
650,603,291.78
100.00
359
41.04
8.270
631
82.32
Seventh,1Original
LTV if first lien, combined LTV if second lien
Minimum
Mortgage Rates of the Adjustable-Rate Loans
RANGE
OF MINIMUM
MORTGAGE
RATES (%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
6.000
- 6.499
9
4,902,123.53
0.75
358
46.89
6.344
614
82.02
6.500
- 6.999
124
48,343,516.17
7.43
358
38.41
6.822
650
80.53
7.000
- 7.499
246
87,791,433.01
13.49
359
40.08
7.243
637
78.87
7.500
- 7.999
472
152,968,355.77
23.51
359
41.70
7.755
647
80.55
8.000
- 8.499
356
110,794,532.01
17.03
359
41.53
8.238
631
81.52
8.500
- 8.999
372
109,934,278.60
16.90
359
41.74
8.717
625
83.68
9.000
- 9.499
190
56,651,857.96
8.71
359
41.40
9.216
621
85.64
9.500
- 9.999
173
44,199,085.27
6.79
359
40.74
9.758
601
86.24
10.000
- 10.499
66
15,940,536.11
2.45
359
40.62
10.167
595
89.43
10.500
- 10.999
40
10,387,888.10
1.60
359
38.56
10.702
594
90.81
11.000
- 11.499
24
5,353,196.32
0.82
359
37.57
11.227
583
88.62
11.500
- 11.999
14
3,074,558.40
0.47
358
41.79
11.799
569
83.14
12.000
- 12.499
1
118,966.32
0.02
359
26.00
12.050
730
100.00
12.500
- 12.999
1
142,964.21
0.02
359
18.00
12.600
600
100.00
Total:
2,088
650,603,291.78
100.00
359
41.04
8.270
631
82.32
Eighth,1Original
LTV if first lien, combined LTV if second lien
Ninth,
Gross
Margins of the Adjustable-Rate Loans
RANGE
OF GROSS
MARGINS
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
4.500
- 4.999
19
8,559,061.89
1.32
359
37.98
8.688
616
84.43
6.000
- 6.499
2,068
641,528,229.89
98.61
359
41.09
8.265
631
82.30
7.000
- 7.499
1
516,000.00
0.08
359
36.00
7.100
655
80.00
Total:
2,088
650,603,291.78
100.00
359
41.04
8.270
631
82.32
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE GROUP II COLLATERAL
Next
Rate Adjustment Date of the Adjustable-Rate
Loans
1
Original
LTV if first lien, combined LTV if second lien.
Initial
Periodic Rate Cap of the Adjustable-Rate Loans
INITIAL
PERIODIC
CAP
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
2.000
2,088
650,603,291.78
100.00
359
41.04
8.270
631
82.32
Total:
2,088
650,603,291.78
100.00
359
41.04
8.270
631
82.32
1
Original
LTV if first lien, combined LTV if second lien.
Periodic
Rate Cap of the Adjustable-Rate Loans
PERIODIC
CAP
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
1.000
2,088
650,603,291.78
100.00
359
41.04
8.270
631
82.32
Total:
2,088
650,603,291.78
100.00
359
41.04
8.270
631
82.32
1
Original
LTV if first lien, combined LTV if second lien.
Historical
Delinquency of the Mortgage Loans Since
Origination
STATUS
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
1
x
30
15
3,852,035.82
0.55
355
41.94
8.493
610
83.04
Never
Delinquent
2,477
701,336,369.93
99.45
359
40.89
8.325
631
82.48
Total:
2,492
705,188,405.75
100.00
359
40.89
8.326
631
82.48
DESCRIPTION
OF THE INTEREST ONLY
COLLATERAL
Collateral
Summary
Statistics
given below are for the Mortgage Loans in the pool as of the
Cut-off Date.
Balances and percentages are based on the Cut-off Date scheduled
balances
of such Mortgage Loans (except in the case of Debt-to-Income
and FICO,
which are determined at origination).
Summary
Statistics
Range
(if applicable)
Number
of Mortgage Loans
786
Aggregate
Current Principal Balance
$255,576,615
Average
Current Principal Balance
$325,161
$65,000
to $820,000
Aggregate
Original Principal Balance
$255,577,793
Average
Original Principal Balance
$325,163
$65,000
to $820,000
Fully
Amortizing Mortgage Loans
100.00%
1st
Lien
100.00%
Weighted
Avg. Gross Coupon
7.789%
6.150%
to 11.487%
Weighted
Avg. Original Term (months)
360
240
to 360
Weighted
Avg. Remaining Term (months)
359
239
to 360
Weighted
Avg. Margin (ARM Loans Only)
5.984%
4.500%
to 7.125%
Weighted
Avg. Maximum Rate (ARM Loans Only)
13.794%
12.150%
to 17.487%
Weighted
Avg. Minimum Rate (ARM Loans Only)
7.794%
6.150%
to 11.487%
Weighted
Avg. Original LTV (1)
82.17%
35.14%
to 95.00%
Weighted
Avg. Borrower FICO
655
600
to 804
Geographic
Distribution (Top 5)
CA
(57.37%)
FL
(9.11%)
AZ
(6.80%)
NY
(4.06%)
IL
(3.88%)
(1)The
loan-to-value(“OLTV”) of a first-lien mortgage at any given time is a fraction,
expressed as a percentage, the numerator of which is the principal balance
of
the mortgage loan at the date of origination and the denominator of which
is the
lesser of the sales price of the related mortgage property and its appraised
value determined in an appraisal obtained by the originator at origination
of
the mortgage loan. The OLTV of a second lien mortgage loan at any given
time is
a fraction, expressed as a percentage the numerator of which is (i) the
sum of
(a) the principal balance of such mortgage loan at the date of origination
plus
(b) the outstanding balance of the senior mortgage loan at the date of
origination of such mortgage loan and the denominator of which is (ii)
the
lesser of the sales price of the related mortgage property and its appraised
value determined in an appraisal obtained by the originator at origination
of
the mortgage loan.
DESCRIPTION
OF THE INTEREST ONLY
COLLATERAL
Collateral
Type
COLLATERAL
TYPE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS
OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
2/6
MONTH LIBOR -2 YR IO
1
248,000.00
0.10
353
40.00
7.850
644
80.00
2/6
MONTH LIBOR - 5 YR IO
600
198,832,398.34
77.80
359
39.66
7.760
657
82.08
3/6
MONTH LIBOR - 5 YR IO
152
48,028,112.23
18.79
359
40.68
7.932
650
83.33
FIXED
RATE - 5YR IO
33
8,468,104.68
3.31
359
38.02
7.653
649
77.79
Total:
786
255,576,615.25
100.00
359
39.79
7.789
655
82.17
1
Original
LTV if first lien, combined LTV if second
lien.
Principal
Balances at Origination*
RANGE
OF
PRINCIPAL
BALANCES
AT
ORIGINATION ($)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF
ORIGINATION
($)
%
OF PRINCIPAL
BALANCE
AS
OF
ORIGINATION
REMAINING
TERM
TO
MATURITY
(months)*
DEBT-TO-INCOME
(%)*
GROSS
COUPON (%)*
FICO*
OLTV1
(%)*
50,000.01
- 100,000.00
16
1,389,650.00
0.54
358
33.61
8.664
651
83.43
100,000.01
- 150,000.00
78
9,975,276.00
3.90
358
39.04
8.016
657
78.57
150,000.01
- 200,000.00
109
19,107,259.00
7.48
359
40.05
7.952
658
81.80
200,000.01
- 250,000.00
99
22,477,457.00
8.79
359
39.49
7.796
649
80.79
250,000.01
- 300,000.00
95
26,389,171.00
10.33
359
39.06
7.673
655
81.73
300,000.01
- 350,000.00
71
22,907,643.00
8.96
359
38.67
7.824
657
81.96
350,000.01
- 400,000.00
70
26,250,084.00
10.27
359
40.43
7.545
651
80.95
400,000.01
- 450,000.00
75
32,109,494.00
12.56
359
41.31
7.719
650
82.63
450,000.01
- 500,000.00
70
33,145,129.00
12.97
359
40.54
7.707
663
82.69
500,000.01
- 550,000.00
30
15,728,820.00
6.15
359
39.63
7.803
663
82.84
550,000.01
- 600,000.00
35
20,149,710.00
7.88
359
40.47
8.087
653
84.91
600,000.01
- 650,000.00
18
11,202,100.00
4.38
359
38.32
7.583
663
83.50
650,000.01
- 700,000.00
6
4,024,050.00
1.57
358
45.37
8.229
657
80.27
700,000.01
- 750,000.00
5
3,621,500.00
1.42
358
28.78
7.897
658
85.03
750,000.01
>=
9
7,100,450.00
2.78
359
39.25
7.904
651
82.96
Total:
786
255,577,793.00
100.00
359
39.79
7.789
655
82.17
1
Original
LTV if first lien, combined LTV if second lien.
*Based
on
the original balances of the Mortgage Loans.
DESCRIPTION
OF THE INTEREST ONLY
COLLATERAL
Principal
Balance as of the Cut-Off Date
RANGE
OF PRINCIPAL BALANCES AS OF THE
CUT-OFF
DATE ($)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS
OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
50,000.01
- 100,000.00
16
1,389,125.23
0.54
358
33.60
8.664
651
83.43
100,000.01
- 150,000.00
78
9,975,276.00
3.90
358
39.04
8.016
657
78.57
150,000.01
- 200,000.00
109
19,107,210.30
7.48
359
40.05
7.952
658
81.80
200,000.01
- 250,000.00
99
22,477,457.00
8.79
359
39.49
7.796
649
80.79
250,000.01
- 300,000.00
95
26,389,170.99
10.33
359
39.06
7.673
655
81.73
300,000.01
- 350,000.00
71
22,907,639.03
8.96
359
38.67
7.824
657
81.96
350,000.01
- 400,000.00
70
26,249,984.00
10.27
359
40.43
7.545
651
80.95
400,000.01
- 450,000.00
75
32,108,994.00
12.56
359
41.31
7.719
650
82.63
450,000.01
- 500,000.00
70
33,145,128.76
12.97
359
40.54
7.707
663
82.69
500,000.01
- 550,000.00
30
15,728,820.00
6.15
359
39.63
7.803
663
82.84
550,000.01
- 600,000.00
35
20,149,709.95
7.88
359
40.47
8.087
653
84.91
600,000.01
- 650,000.00
18
11,202,099.99
4.38
359
38.32
7.583
663
83.50
650,000.01
- 700,000.00
6
4,024,050.00
1.57
358
45.37
8.229
657
80.27
700,000.01
- 750,000.00
5
3,621,500.00
1.42
358
28.78
7.897
658
85.03
750,000.01
>=
9
7,100,450.00
2.78
359
39.25
7.904
651
82.96
Total:
786
255,576,615.25
100.00
359
39.79
7.789
655
82.17
1
Original
LTV if first lien, combined LTV if second lien.
Remaining
Term to Maturity
RANGE
OF MONTHS REMAINING
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS
OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
181
to 240
1
115,050.00
0.05
239
25.00
6.550
659
65.00
301
to 360
785
255,461,565.25
99.95
359
39.80
7.790
655
82.18
Total:
786
255,576,615.25
100.00
359
39.79
7.789
655
82.17
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE INTEREST ONLY
COLLATERAL
Mortgage
Rates
RANGE
OF CURRENT
MORTGAGE
RATES
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
6.000
- 6.499
12
4,124,000.00
1.61
359
40.55
6.345
663
78.54
6.500
- 6.999
112
41,060,689.46
16.07
358
38.01
6.811
653
80.11
7.000
- 7.499
178
57,290,572.94
22.42
359
39.16
7.224
653
80.71
7.500
- 7.999
221
71,288,015.00
27.89
359
41.09
7.752
657
80.91
8.000
- 8.499
103
31,764,684.23
12.43
359
39.86
8.255
660
83.71
8.500
- 8.999
94
28,301,161.62
11.07
359
40.14
8.735
662
85.24
9.000
- 9.499
30
10,702,513.00
4.19
358
40.91
9.230
648
88.10
9.500
- 9.999
24
7,466,785.00
2.92
359
38.36
9.692
641
87.12
10.000
- 10.499
5
1,374,182.00
0.54
359
34.79
10.082
670
92.19
10.500
- 10.999
4
1,535,725.00
0.60
359
42.91
10.711
619
92.53
11.000
- 11.499
3
668,287.00
0.26
359
44.29
11.283
613
92.41
Total:
786
255,576,615.25
100.00
359
39.79
7.789
655
82.17
1
Original
LTV if first lien, combined LTV if second lien.
Original
Loan-to-Value Ratios(1)
RANGE
OF ORIGINAL
LOAN-TO-VALUE
RATIOS
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV2
(%)
35.01
to 40.00
3
562,000.00
0.22
359
35.74
7.651
648
36.85
40.01
to 45.00
1
230,000.00
0.09
359
28.00
6.300
638
41.07
45.01
to 50.00
3
325,000.00
0.13
359
41.12
7.686
614
45.49
50.01
to 55.00
3
570,250.00
0.22
359
35.03
7.738
638
52.71
55.01
to 60.00
7
2,542,500.00
0.99
359
38.15
7.283
656
58.34
60.01
to 65.00
13
3,244,177.68
1.27
355
36.50
7.251
628
62.85
65.01
to 70.00
10
2,894,250.00
1.13
359
29.13
7.077
640
68.83
70.01
to 75.00
20
6,911,906.00
2.70
359
39.02
7.348
633
74.17
75.01
to 80.00
507
161,141,531.93
63.05
359
40.53
7.678
661
79.92
80.01
to 85.00
39
13,969,650.00
5.47
358
37.73
7.624
643
84.32
85.01
to 90.00
97
35,625,856.00
13.94
359
38.49
7.859
648
89.63
90.01
to 95.00
83
27,559,493.64
10.78
358
40.33
8.745
651
94.78
Total
786
255,576,615.25
100.00
359
39.79
7.789
655
82.17
(1)The
loan-to-value(“OLTV”) of a first-lien mortgage at any given time is a fraction,
expressed as a percentage, the numerator of which is the principal balance
of
the mortgage loan at the date of origination and the denominator of which
is the
lesser of the sales price of the related mortgage property and its appraised
value determined in an appraisal obtained by the originator at origination
of
the mortgage loan. The OLTV of a second lien mortgage loan at any given
time is
a fraction, expressed as a percentage the numerator of which is (i) the
sum of
(a) the principal balance of such mortgage loan at the date of origination
plus
(b) the outstanding balance of the senior mortgage loan at the date of
origination of such mortgage loan and the denominator of which is (ii)
the
lesser of the sales price of the related mortgage property and its appraised
value determined in an appraisal obtained by the originator at origination
of
the mortgage loan.
2
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE INTEREST ONLY
COLLATERAL
FICO
Score at Origination
RANGE
OF FICO SCORES
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
600
to 619
103
32,254,975.29
12.62
359
39.68
7.966
609
83.52
620
to 639
232
75,236,739.25
29.44
359
39.80
7.700
629
81.89
640
to 659
163
54,929,824.71
21.49
358
39.75
7.842
650
82.15
660
to 679
119
36,215,405.00
14.17
359
40.06
7.760
668
81.35
680
to 699
70
23,874,812.00
9.34
359
40.27
7.750
689
81.67
700
to 719
37
12,576,698.00
4.92
359
41.00
7.773
710
82.55
720
to 739
25
9,330,400.00
3.65
359
37.32
7.796
728
83.39
740
to 759
26
7,133,341.00
2.79
359
39.12
7.687
748
82.31
760
to 779
6
2,038,820.00
0.80
359
41.29
7.507
769
80.73
780
to 799
3
1,351,850.00
0.53
359
32.80
8.566
783
85.72
800
or greater
2
633,750.00
0.25
359
45.87
8.483
803
83.26
Total:
786
255,576,615.25
100.00
359
39.79
7.789
655
82.17
1
Original
LTV if first lien, combined LTV if second lien.
Debt-to-Income
Ratio
RANGE
OF DEBT-TO-INCOME RATIOS (%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
0.01
- 20.00
36
12,523,195.00
4.90
359
13.11
7.744
654
82.12
20.01
- 25.00
24
7,088,349.94
2.77
357
22.74
7.346
648
78.61
25.01
- 30.00
57
15,101,975.62
5.91
359
28.04
7.756
657
81.70
30.01
- 35.00
78
26,417,415.00
10.34
359
33.03
7.836
660
83.10
35.01
- 40.00
152
47,165,010.99
18.45
359
38.22
7.761
656
81.56
40.01
- 45.00
210
71,891,573.68
28.13
359
43.19
7.765
656
82.30
45.01
- 50.00
226
74,258,189.26
29.06
359
48.25
7.867
653
82.37
50.01
- 55.00
3
1,130,905.76
0.44
356
51.98
7.967
633
93.78
Total:
786
255,576,615.25
100.00
359
39.79
7.789
655
82.17
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE INTEREST ONLY
COLLATERAL
Geographic
Distribution
STATE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
Alaska
2
858,764.00
0.34
359
45.14
7.285
637
80.00
Arizona
87
17,383,505.99
6.80
358
40.33
7.750
652
80.38
California
361
146,631,876.74
57.37
359
40.32
7.723
655
82.24
Colorado
7
2,021,438.00
0.79
358
38.20
8.469
688
86.55
Connecticut
3
644,400.00
0.25
359
34.05
7.998
680
74.49
Florida
93
23,278,564.99
9.11
359
38.09
7.870
658
79.64
Georgia
4
746,361.00
0.29
359
46.74
8.433
629
91.18
Hawaii
12
5,513,450.00
2.16
359
36.61
7.626
684
80.26
Illinois
36
9,922,607.00
3.88
359
41.92
8.328
653
86.91
Indiana
2
441,500.00
0.17
359
26.17
8.553
685
73.90
Iowa
1
216,000.00
0.08
359
40.00
7.750
629
80.00
Kentucky
3
917,197.00
0.36
359
45.55
7.084
652
86.09
Maryland
22
5,609,052.68
2.19
359
41.34
7.686
639
81.49
Massachusetts
6
1,986,705.00
0.78
359
40.80
7.967
638
86.28
Michigan
11
2,078,062.00
0.81
359
40.02
7.886
662
78.67
Minnesota
3
601,500.00
0.24
358
38.03
8.551
663
91.61
Missouri
6
1,076,117.00
0.42
359
34.86
8.572
633
87.49
Nebraska
2
368,000.00
0.14
356
37.77
7.634
682
80.00
Nevada
25
7,881,754.00
3.08
359
32.69
7.754
660
81.63
New
Jersey
6
1,636,675.00
0.64
358
41.55
8.269
623
88.24
New
Mexico
3
366,320.00
0.14
359
36.76
8.264
651
80.00
New
York
25
10,366,705.00
4.06
358
41.19
7.714
656
82.71
North
Carolina
1
113,400.00
0.04
359
19.00
8.500
630
90.00
Ohio
3
431,155.23
0.17
358
35.13
8.281
654
94.19
Oregon
2
328,000.00
0.13
359
35.42
7.313
631
84.17
Pennsylvania
1
144,000.00
0.06
359
37.00
8.700
706
90.00
Rhode
Island
2
1,011,920.00
0.40
359
31.58
6.711
672
80.00
South
Carolina
1
189,600.00
0.07
359
46.00
6.990
631
80.00
Texas
10
2,082,116.00
0.81
359
39.06
8.145
683
88.10
Utah
25
5,847,318.62
2.29
359
40.21
8.210
664
82.49
Washington
18
4,343,750.00
1.70
359
39.33
7.629
640
81.54
Wisconsin
1
220,000.00
0.09
359
45.00
8.650
631
78.57
Wyoming
2
318,800.00
0.12
359
30.57
7.837
626
84.84
Total:
786
255,576,615.25
100.00
359
39.79
7.789
655
82.17
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE INTEREST ONLY
COLLATERAL
Occupancy
Status
OCCUPANCY
STATUS*
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
Primary
773
252,161,425.25
98.66
359
39.86
7.777
655
82.18
Second
Home
13
3,415,190.00
1.34
359
35.23
8.711
687
81.72
Total:
786
255,576,615.25
100.00
359
39.79
7.789
655
82.17
1
Original
LTV if first lien, combined LTV if second lien.
*Based
on
mortgagor representation at origination.
Documentation
Type
INCOME
DOCUMENTATION
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
Full
Documentation
453
142,011,619.41
55.57
359
38.78
7.399
653
81.58
Stated
Documentation
261
90,707,136.00
35.49
359
41.95
8.417
660
82.66
Limited
Documentation
72
22,857,859.84
8.94
359
37.53
7.717
653
83.89
Total:
786
255,576,615.25
100.00
359
39.79
7.789
655
82.17
1
Original
LTV if first lien, combined LTV if second lien.
Loan
Purpose
PURPOSE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON (%)
FICO
OLTV1
(%)
Purchase
503
162,401,821.94
63.54
359
40.05
7.845
664
81.96
Refinance-Debt
Consolidation Cash Out***
246
80,922,693.31
31.66
358
39.16
7.705
639
82.55
Refinance-Debt
Consolidation No Cash Out**
37
12,252,100.00
4.79
359
40.52
7.607
654
82.48
Total:
786
255,576,615.25
100.00
359
39.79
7.789
655
82.17
1
Original
LTV if first lien, combined LTV if second lien.
**
Cash
proceeds to the borrower inclusive of debt consolidation payments do not
exceed
2% or $2,000 of the original principal balance of the related loan. Excludes
home equity loans originated in Texas with any cash proceeds.
***
Cash
proceeds to the borrower inclusive of debt consolidation payments exceed
2% or
$2,000 of the original principal balance of the related loan. Also includes
all
home equity loans originated in Texas with any cash proceeds.
DESCRIPTION
OF THE INTEREST ONLY
COLLATERAL
Credit
Grade
RISK
CATEGORY
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
I
723
233,640,996.25
91.42
359
39.85
7.757
657
81.92
II
63
21,935,619.00
8.58
359
39.21
8.136
641
84.80
Total:
786
255,576,615.25
100.00
359
39.79
7.789
655
82.17
1
Original
LTV if first lien, combined LTV if second lien.
Property
Type
PROPERTY
TYPE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
Single
Family
588
197,542,626.26
77.29
359
39.80
7.786
655
82.44
PUD
97
28,053,070.00
10.98
359
39.24
7.741
656
80.48
Condo
66
16,683,961.00
6.53
359
40.94
7.932
661
81.64
Two-to-Four
Family
31
12,233,057.99
4.79
358
39.87
7.751
658
82.98
PUD
Attached
3
823,900.00
0.32
359
38.64
7.772
653
76.73
Single
Family Attached
1
240,000.00
0.09
359
22.00
8.300
667
75.00
Total:
786
255,576,615.25
100.00
359
39.79
7.789
655
82.17
1
Original
LTV if first lien, combined LTV if second lien.
Prepayment
Charge Term
PREPAYMENT
CHARGE
TERM
AT ORIGINATION
(MONTHS)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
No
Prepayment Penalty
209
71,692,244.68
28.05
359
40.62
8.353
654
83.62
12
Months
54
20,154,266.00
7.89
359
40.45
7.770
666
81.89
24
Months
454
144,056,146.34
56.37
359
39.24
7.563
655
81.80
36
Months
69
19,673,958.23
7.70
359
40.17
7.412
651
79.92
Total:
786
255,576,615.25
100.00
359
39.79
7.789
655
82.17
1
Original
LTV if first lien, combined LTV if second lien.
Conforming
Balances
CONFORMING
BALANCE
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
Conforming
574
144,649,979.55
56.60
359
39.45
7.761
654
81.46
Non-Conforming
212
110,926,635.70
43.40
359
40.24
7.826
657
83.10
Total:
786
255,576,615.25
100.00
359
39.79
7.789
655
82.17
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE INTEREST ONLY
COLLATERAL
Maximum
Mortgage Rates of the Adjustable-Rate Loans
RANGE
OF MAXIMUM
MORTGAGE
RATES (%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
12.000
- 12.499
12
4,124,000.00
1.67
359
40.55
6.345
663
78.54
12.500
- 12.999
108
39,911,236.78
16.15
358
38.02
6.808
654
80.28
13.000
- 13.499
166
54,348,662.94
21.99
359
39.20
7.221
654
80.68
13.500
- 13.999
213
68,581,615.00
27.75
359
41.30
7.750
656
81.25
14.000
- 14.499
98
30,847,134.23
12.48
359
39.82
8.258
661
83.65
14.500
- 14.999
92
27,895,561.62
11.29
359
40.18
8.737
662
85.32
15.000
- 15.499
29
10,470,513.00
4.24
358
40.80
9.233
649
88.28
15.500
- 15.999
24
7,466,785.00
3.02
359
38.36
9.692
641
87.12
16.000
- 16.499
5
1,374,182.00
0.56
359
34.79
10.082
670
92.19
16.500
- 16.999
4
1,535,725.00
0.62
359
42.91
10.711
619
92.53
17.000
- 17.499
2
553,095.00
0.22
359
43.93
11.311
609
95.00
Total:
753
247,108,510.57
100.00
359
39.85
7.794
656
82.32
Tenth,1Original
LTV if first lien, combined LTV if second lien
Minimum
Mortgage Rates of the Adjustable-Rate Loans
RANGE
OF MINIMUM
MORTGAGE
RATES (%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
6.000
- 6.499
12
4,124,000.00
1.67
359
40.55
6.345
663
78.54
6.500
- 6.999
108
39,911,236.78
16.15
358
38.02
6.808
654
80.28
7.000
- 7.499
166
54,348,662.94
21.99
359
39.20
7.221
654
80.68
7.500
- 7.999
213
68,581,615.00
27.75
359
41.30
7.750
656
81.25
8.000
- 8.499
98
30,847,134.23
12.48
359
39.82
8.258
661
83.65
8.500
- 8.999
92
27,895,561.62
11.29
359
40.18
8.737
662
85.32
9.000
- 9.499
29
10,470,513.00
4.24
358
40.80
9.233
649
88.28
9.500
- 9.999
24
7,466,785.00
3.02
359
38.36
9.692
641
87.12
10.000
- 10.499
5
1,374,182.00
0.56
359
34.79
10.082
670
92.19
10.500
- 10.999
4
1,535,725.00
0.62
359
42.91
10.711
619
92.53
11.000
- 11.499
2
553,095.00
0.22
359
43.93
11.311
609
95.00
Total:
753
247,108,510.57
100.00
359
39.85
7.794
656
82.32
Eleventh,1Original
LTV if first lien, combined LTV if second lien
Twelfth,
Gross
Margins of the Adjustable-Rate Loans
RANGE
OF GROSS
MARGINS
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
4.500
- 4.999
11
3,062,425.00
1.24
359
38.48
8.382
653
83.47
6.000
- 6.499
741
243,530,085.57
98.55
359
39.88
7.788
656
82.31
7.000
- 7.499
1
516,000.00
0.21
359
36.00
7.100
655
80.00
Total:
753
247,108,510.57
100.00
359
39.85
7.794
656
82.32
1
Original
LTV if first lien, combined LTV if second lien.
DESCRIPTION
OF THE INTEREST ONLY
COLLATERAL
Next
Rate Adjustment Date of the Adjustable-Rate
Loans
1
Original
LTV if first lien, combined LTV if second lien.
Initial
Periodic Rate Cap of the Adjustable-Rate Loans
INITIAL
PERIODIC
CAP
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
2.000
753
247,108,510.57
100.00
359
39.85
7.794
656
82.32
Total:
753
247,108,510.57
100.00
359
39.85
7.794
656
82.32
1
Original
LTV if first lien, combined LTV if second lien.
Periodic
Rate Cap of the Adjustable-Rate Loans
PERIODIC
CAP
(%)
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
1.000
753
247,108,510.57
100.00
359
39.85
7.794
656
82.32
Total:
753
247,108,510.57
100.00
359
39.85
7.794
656
82.32
1
Original
LTV if first lien, combined LTV if second lien.
Historical
Delinquency of the Mortgage Loans Since
Origination
STATUS
NUMBER
OF MORTGAGE LOANS
PRINCIPAL
BALANCE
AS
OF THE
CUT-OFF
DATE ($)
%
OF PRINCIPAL
BALANCE
AS OF
THE
CUT-OFF DATE
REMAINING
TERM
TO
MATURITY
(months)
DEBT-TO-INCOME
(%)
GROSS
COUPON
(%)
FICO
OLTV1
(%)
1
x
30
5
2,021,465.00
0.79
355
42.50
7.543
633
85.71
Never
Delinquent
781
253,555,150.25
99.21
359
39.77
7.791
656
82.14
Total:
786
255,576,615.25
100.00
359
39.79
7.789
655
82.17
ANNEX
IV
INTEREST
RATE SWAP SCHEDULE
Distribution
Date
Base
Calculation Amount ($)
Distribution
Date
Base
Calculation Amount ($)
6/25/06
5,111,375.51
5/25/09
952,185.03
7/25/06
5,078,013.53
6/25/09
922,025.93
8/25/06
5,042,623.15
7/25/09
892,995.28
9/25/06
4,978,039.33
8/25/09
865,038.44
10/25/06
4,913,041.39
9/25/09
837,998.76
11/25/06
4,846,623.41
10/25/09
811,851.50
12/25/06
4,750,423.89
11/25/09
786,382.88
1/25/07
4,655,004.11
12/25/09
761,498.84
2/25/07
4,558,244.91
1/25/10
737,091.62
3/25/07
4,405,459.51
2/25/10
713,167.52
4/25/07
4,256,561.99
3/25/10
690,013.38
5/25/07
4,109,983.08
4/25/10
667,564.07
6/25/07
3,922,196.34
5/25/10
645,885.60
7/25/07
3,743,120.98
6/25/10
624,870.91
8/25/07
3,572,379.07
7/25/10
604,558.86
9/25/07
3,409,531.70
8/25/10
and
0.00
10/25/07
3,254,215.78
thereafter
11/25/07
3,103,395.74
12/25/07
2,888,908.20
1/25/08
2,689,677.70
2/25/08
2,502,885.22
3/25/08
2,283,574.46
4/25/08
2,084,498.65
5/25/08
1,456,932.38
6/25/08
1,423,133.20
7/25/08
1,389,334.02
8/25/08
1,355,534.84
9/25/08
1,321,735.65
10/25/08
1,287,936.47
11/25/08
1,254,137.29
12/25/08
1,079,917.09
1/25/09
1,054,370.68
2/25/09
1,028,824.27
3/25/09
1,003,277.86
4/25/09
977,731.45
ASSET-BACKED
PASS-THROUGH CERTIFICATES
ASSET-BACKED
NOTES
(ISSUABLE
IN SERIES)
ARGENT
SECURITIES INC.
Depositor
YOU
SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 1 OF THIS
PROSPECTUS AND IN THE PROSPECTUS SUPPLEMENT.
THE
PROSPECTUS TOGETHER WITH THE ACCOMPANYING PROSPECTUS SUPPLEMENT WILL CONSTITUTE
THE FULL PROSPECTUS.
THE
SECURITIES:
Argent
Securities Inc., as depositor, will sell the securities, which may be in
the
form of asset-backed pass-through certificates or mortgage-backed notes.
Each
issue of securities will have its own series designation and will evidence
either:
·
the
ownership of trust fund assets, or
·
debt
obligations secured by trust fund assets.
THE
TRUST FUND AND ITS ASSETS:
The
assets of a trust fund will primarily include any combination of various
types
of one- to four-family residential first and junior lien mortgage loans,
multifamily first and junior mortgage loans, commercial first and junior
mortgage loans, mixed-use residential and commercial first and junior mortgage
loans, home equity lines of credit, cooperative apartment loans, manufactured
housing conditional sales contracts and installment loan agreements or home
improvement installment sales contracts and installment loan
agreements.
CREDIT
ENHANCEMENT
The
assets of the trust fund for a series of securities may also include a financial
guaranty insurance policy, pool insurance policies, letters of credit, reserve
funds or currency or interest rate exchange agreements or any combination
of
credit support. Credit enhancement may also be provided by means of
subordination of one or more classes of securities, cross-collateralization
or
by overcollateralization.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE
OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Offers
of
the securities may be made through one or more different methods, including
through underwriters as described in “Methods of Distribution” in this
prospectus and in the related prospectus supplement.
Description
of the Mortgage Assets to Be Included in a Trust Fund
Description
of the Pre-funding Account for the Purchase of Additional Mortgage
Loans
THE
DEPOSITOR
USE
OF PROCEEDS
YIELD
AND MATURITY CONSIDERATIONS
Maturity
and Weighted Average Life
Foreclosures
and Payment Plans
THE
DEPOSITOR’S MORTGAGE LOAN PURCHASE PROGRAM
Underwriting
Standards
Qualifications
of Originators and Mortgage Loan Sellers
Representations
by or on Behalf of Mortgage Loan Sellers; Remedies for Breach of
Representation
DESCRIPTION
OF THE SECURITIES
Assignment
of Trust Fund Assets; Review of Files by Trustee
Representations
and Warranties; Repurchases
Establishment
of Collection Account; Deposits to Collection Account in Respect
of Trust
Fund Assets
Deposits
to Distribution Account
Book-Entry
Certificates
Distributions
on the Securities
Advances
by Master Servicer in Respect of Delinquencies on the Trust Fund
Assets
Form
of Reports to Securityholders
Collection
and Other Servicing Procedures Employed by the Master
Servicer
Description
of Sub-Servicing
Procedures
for Realization upon Defaulted Mortgage Assets
Retained
Interest; Servicing or Administration Compensation and Payment
of
Expenses
Annual
Evidence as to the Compliance of the Master Servicer
Matters
Regarding the Master Servicer and the Depositor
Events
of Default under the Governing Agreement and Rights upon Events
of
Default
Amendment
of the Governing Agreements
Termination
of the Trust Fund and Disposition of Trust Fund Assets
Optional
Purchase by the Master Servicer of Defaulted Mortgage
Loans
Duties
of the Trustee
Description
of the Trustee
DESCRIPTION
OF CREDIT SUPPORT
Subordination
Letter
of Credit
Mortgage
Pool Insurance Policy
Special
Hazard Insurance Policy
Bankruptcy
Bond
Financial
Guarantee Insurance
Reserve
Fund
Overcollateralization
Cross-Support
Features
OTHER
FINANCIAL OBLIGATIONS RELATED TO THE SECURITIES
Swaps
and Yield Supplement Agreements
Purchase
Obligations
DESCRIPTION
OF PRIMARY INSURANCE POLICIES
Primary
Mortgage Insurance Policies
Primary
Hazard Insurance Policies
FHA
Insurance
VA
Guarantees
LEGAL
ASPECTS OF MORTGAGE ASSETS
Mortgage
Loans
Cooperative
Loans
Manufactured
Housing Contracts
Home
Improvement Contracts
Foreclosure
on Mortgages
Foreclosure
on Mortgaged Properties Located in the Commonwealth of Puerto
Rico
Foreclosure
on Cooperative Shares
Repossession
with Respect to Manufactured Housing Contracts
Rights
of Redemption with Respect to Mortgage Loans
Notice
of Sale; Redemption Rights with Respect to Manufactured Housing
Contracts
Anti-Deficiency
Legislation and Other Limitations on Lenders
Junior
Mortgages
Home
Equity Line of Credit Loans
Consumer
Protection Laws with Respect to Manufactured Housing Contracts
and Home
Improvement Contracts
Prepayment
Charges
Other
Limitations
Enforceability
of Provisions
Leases
and Rents
Subordinate
Financing
Applicability
of Usury Laws
Alternative
Mortgage Instruments
Formaldehyde
Litigation with Respect to Manufactured Homes
Servicemembers
Civil Relief Act
Environmental
Legislation
Forfeitures
in Drug and RICO Proceedings
Negative
Amortization Loans
Installment
Contracts
FEDERAL
INCOME TAX CONSEQUENCES
General
REMICs
Notes
Grantor
Trust Funds
Partnership
Trust Funds
STATE
AND OTHER TAX CONSEQUENCES
CONSIDERATIONS
FOR BENEFIT PLAN INVESTORS
Investors
Affected
Fiduciary
Standards for ERISA Plans and Related Investment
Vehicles
Prohibited
Transaction Issues for ERISA Plans, Keogh Plans, IRAs and Related
Investment Vehicles
Possible
Exemptive Relief
Consultation
with Counsel
Government
Plans
Required
Deemed Representations of Investors
LEGAL
INVESTMENT
METHODS
OF DISTRIBUTION
LEGAL
MATTERS
FINANCIAL
INFORMATION
RATING
AVAILABLE
INFORMATION
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
GLOSSARY
RISK
FACTORS
The
offered securities are not suitable investments for all investors. In
particular, you should not purchase the offered securities unless you understand
and are able to bear the prepayment, credit, liquidity and market risks
associated with the securities.
You
should carefully consider the following factors in connection with the purchase
of the securities offered hereby as well as any additional risk factors that
are
set forth in the prospectus supplement related to your security:
The
Securities Will Have Limited Liquidity So Investors May Be Unable to Sell
Their
Securities or May Be Forced to Sell Them at a Discount from Their Initial
Offering Price
There
can
be no assurance that a resale market for the securities of any series will
develop following the issuance and sale of any series of securities. Even
if a
resale market does develop, it may not provide securityholders with liquidity
of
investment or continue for the life of the securities of any series. The
prospectus supplement for any series of securities may indicate that an
underwriter specified in the prospectus supplement intends to establish a
secondary market in the securities, however no underwriter will be obligated
to
do so. As a result, any resale prices that may be available for any offered
security in any market that may develop may be at a discount from the initial
offering price. The securities offered hereby will not be listed on any
securities exchange.
Credit
Support May Be Limited; the Failure of Credit Support to Cover Losses on
the
Trust Fund Assets Will Result in Losses Allocated to the Related
Securities
Credit
support is intended to reduce the effect of delinquent payments or losses
on the
underlying trust fund assets on those classes of securities that have the
benefit of the credit support. With respect to each series of securities,
credit
support will be provided in one or more of the forms referred to in this
prospectus and the related prospectus supplement. Regardless of the form
of
credit support provided, the amount of coverage will usually be limited in
amount and in some cases will be subject to periodic reduction in accordance
with a schedule or formula, as further described in the prospectus supplement.
Furthermore, credit support may provide only very limited coverage as to
particular types of losses or risks, and may provide no coverage as to other
types of losses or risks. If losses on the trust fund assets exceed the amount
of coverage provided by any credit support or the losses are of a type not
covered by any credit support, these losses will be borne by the holders
of the
related securities or specific classes of the related securities. SEE
“DESCRIPTION OF CREDIT SUPPORT” in this Prospectus.
The
Types of Mortgage Loans Included in the Trust Fund Related to Your Securities
May Be Especially Prone to Defaults Which May Expose Your Securities to Greater
Losses
The
securities will be directly or indirectly backed by mortgage loans, manufactured
housing conditional sales contracts and installment loan agreements. The
mortgage loans included in the trust fund will primarily be made to borrowers
who do not qualify for loans conforming to underwriting standards of more
traditional lenders and as a result of the credit quality of such borrowers,
such mortgage loans may have a greater likelihood of delinquency and
foreclosure, and a greater likelihood of loss in the event of delinquency
and
foreclosure. You should be aware that if the mortgaged properties fail to
provide adequate security for the mortgage loans included in a trust fund,
any
resulting losses, to the extent not covered by credit support, will be allocated
to the related securities in the manner described in the related prospectus
supplement and consequently would adversely affect the yield to maturity
on
those securities. The depositor cannot assure you that the values of the
mortgaged properties have remained or will remain at the appraised values
on the
dates of origination of the related mortgage loans. The prospectus supplement
for each series of securities will describe the mortgage loans which are
to be
included in the trust fund related to your security and risks associated
with
those mortgage loans which you should carefully consider in connection with
the
purchase of your security.
Nonperfection
of Security Interests in Manufactured Homes May Result in Losses on the Related
Manufactured Housing Contracts and the Securities Backed by the Manufactured
Housing Contracts
Any
conditional sales contracts and installment loan agreements with respect
to
manufactured homes included in a trust fund will be secured by a security
interest in a manufactured home. Perfection of security interests in
manufactured homes and enforcement of rights to realize upon the value of
the
manufactured homes as collateral for the manufactured housing contracts are
subject to a number of federal and state laws, including the Uniform Commercial
Code as adopted in each state and each state’s certificate of title statutes.
The steps necessary to perfect the security interest in a manufactured home
will
vary from state to state. If the master servicer fails, due to clerical errors
or otherwise, to take the appropriate steps to perfect the security interest,
the trustee may not have a first priority security interest in the manufactured
home securing a manufactured housing contract. Additionally, courts in many
states have held that manufactured homes may become subject to real estate
title
and recording laws. As a result, a security interest in a manufactured home
could be rendered subordinate to the interests of other parties claiming
an
interest in the home under applicable state real estate law. The failure
to
properly perfect a valid, first priority security interest in a manufactured
home securing a manufactured housing contract could lead to losses that,
to the
extent not covered by credit support, may adversely affect the yield to maturity
of the related securities.
Foreclosure
of Mortgage Loans May Result in Limitations or Delays in Recovery and Losses
Allocated to the Related Securities
Even
assuming that the mortgaged properties provide adequate security for the
mortgage loans, substantial delays can be encountered in connection with
the
liquidation of defaulted mortgage loans and corresponding delays in the receipt
of related proceeds by the securityholders could occur. An action to foreclose
on a mortgaged property securing a mortgage loan is regulated by state statutes,
rules and judicial decisions and is subject to many of the delays and expenses
of other lawsuits if defenses or counterclaims are interposed, sometimes
requiring several years to complete. In several states an action to obtain
a
deficiency judgment is not permitted following a nonjudicial sale of a mortgaged
property. In the event of a default by a mortgagor, these restrictions may
impede the ability of the master servicer to foreclose on or sell the mortgaged
property or to obtain liquidation proceeds sufficient to repay all amounts
due
on the related mortgage loan. The master servicer will be entitled to deduct
from liquidation proceeds all expenses incurred in attempting to recover
amounts
due on the related liquidated mortgage loan and not yet repaid, including
payments to prior lienholders, accrued servicing fees, ancillary fees, legal
fees and costs of legal action, real estate taxes, maintenance and preservation
expenses, monthly advances and servicing advances. If any mortgaged properties
fail to provide adequate security for the mortgage loans in the trust fund
related to your security and insufficient funds are available from any
applicable credit support, you could experience a loss on your
investment.
Liquidation
expenses with respect to defaulted mortgage loans do not vary directly with
the
outstanding principal balance of the loan at the time of default. Therefore,
assuming that a servicer takes the same steps in realizing upon a defaulted
mortgage loan having a small remaining principal balance as it would in the
case
of a defaulted mortgage loan having a larger principal balance, the amount
realized after expenses of liquidation would be less as a percentage of the
outstanding principal balance of the smaller principal balance mortgage loan
than would be the case with a larger principal balance loan.
Mortgaged
Properties Are Subject to Environmental Risks and the Cost of Environmental
Clean-up May Increase Losses on the Related Mortgage Loans
Under
various federal, state and local environmental laws, ordinances and regulations,
a current or previous owner of real property may be liable for the costs
of
removal or remediation of hazardous or toxic substances on, under or in the
property. These laws often impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of the hazardous or toxic
substances. A lender also risks liability on foreclosure of the mortgage
on the
property. In addition, the presence of hazardous or toxic substances, or
the
failure to properly remediate the property, may adversely affect the owner’s or
operator’s ability to sell the property. Failure to comply with these laws and
regulations can result in fines and penalties that could be assessed against
the
related trust fund as owner of the related property.
In
some
states, a lien on the property due to contamination has priority over the
lien
of an existing mortgage. Further, a mortgage lender may be held liable as
an
“owner” or “operator” for costs associated with the release of petroleum from an
underground storage tank under certain circumstances. If the trust is considered
the owner or operator of a property, it may suffer losses as a result of
any
liability imposed for environmental hazards on the property.
Although
the incidence of environmental contamination of residential properties is
less
common than that for commercial properties, mortgage loans contained in a
trust
fund may be secured by mortgaged properties in violation of environmental
laws,
ordinances or regulations. The master servicer is generally prohibited from
foreclosing on a mortgaged property unless it has taken adequate steps to
ensure
environmental compliance with respect to the mortgaged property. However,
to the
extent the master servicer errs and forecloses on mortgaged property that
is
subject to environmental law violations, and to the extent a mortgage loan
seller does not provide adequate representations and warranties against
environmental law violations, or is unable to honor its obligations, including
the obligation to repurchase a mortgage loan upon the breach of a representation
or warranty, a trust fund could experience losses which, to the extent not
covered by credit support, could adversely affect the yield to maturity on
the
related securities.
The
Ratings of Your Securities May Be Lowered or Withdrawn Which May Adversely
Affect the Liquidity or Market Value of Your Security
It
is a
condition to the issuance of the securities that each series of securities
be
rated in one of the four highest rating categories by a nationally recognized
statistical rating agency. A security rating is not a recommendation to buy,
sell or hold securities and may be subject to revision or withdrawal at any
time. No person is obligated to maintain the rating on any security, and
accordingly, there can be no assurance to you that the ratings assigned to
any
security on the date on which the security is originally issued will not
be
lowered or withdrawn by a rating agency at any time thereafter. The rating(s)
of
any series of securities by any applicable rating agency may be lowered
following the initial issuance of the securities 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 the
rating agency at the time of its initial rating analysis. Neither the depositor,
the master servicer nor any of their respective affiliates will have any
obligation to replace or supplement any credit support, or to take any other
action to maintain any rating(s) of any series of securities. If any rating
is
revised or withdrawn, the liquidity or the market value of your security
may be
adversely affected.
Failure
of the Mortgage Loan Seller to Repurchase or Replace a Mortgage Loan May
Result
in Losses Allocated to the Related Securities
Each
mortgage loan seller will have made representations and warranties in respect
of
the mortgage loans sold by the mortgage loan seller and evidenced by a series
of
securities. In the event of a breach of a mortgage loan seller’s representation
or warranty that materially adversely affects the interests of the
securityholders in a mortgage loan, the related mortgage loan seller will
be
obligated to cure the breach or repurchase or, if permitted, replace the
mortgage loan as described under “Mortgage Loan Program-Representations as to
Mortgage Loans to be made by or on Behalf of Mortgage Loan Sellers; Remedies
for
Breach of Representation.” However, there can be no assurance that a mortgage
loan seller will honor its obligation to cure, repurchase or, if permitted,
replace any mortgage loan as to which a breach of a representation or warranty
arises. A mortgage loan seller’s failure or refusal to honor its repurchase
obligation could lead to losses that, to the extent not covered by credit
support, may adversely affect the yield to maturity of the related
securities.
In
instances where a mortgage loan seller is unable, or disputes its obligation,
to
repurchase affected mortgage loans, the master servicer may negotiate and
enter
into one or more settlement agreements with the mortgage loan seller that
could
provide for the purchase of only a portion of the affected mortgage loans.
Any
settlement could lead to losses on the mortgage loans which would be borne
by
the related securities. Neither the depositor nor the master servicer will
be
obligated to purchase a mortgage loan if a mortgage loan seller defaults
on its
obligation to do so, and no assurance can be given that the mortgage loan
sellers will carry out their repurchase obligations. A default by a mortgage
loan seller is not a default by the depositor or by the master servicer.
Any
mortgage loan not so repurchased or substituted for shall remain in the related
trust fund and any related losses shall be allocated to the related credit
support, to the extent available, and otherwise to one or more classes of
the
related series of securities.
All
of
the representations and warranties of a mortgage loan seller in respect of
a
mortgage loan will have been made as of the date on which the mortgage loan
was
purchased from the mortgage loan seller by or on behalf of the depositor
which
will be a date prior to the date of initial issuance of the related series
of
securities. A substantial period of time may have elapsed between the date
as of
which the representations and warranties were made and the later date of
initial
issuance of the related series of securities. Accordingly, the mortgage loan
seller’s repurchase obligation, or, if specified in the related prospectus
supplement, limited replacement option, will not arise if, during the period
after the date of sale by the mortgage loan seller, an event occurs that
would
have given rise to a repurchase obligation had the event occurred prior to
sale
of the affected mortgage loan. The occurrence of events during this period
that
are not covered by a mortgage loan seller’s repurchase obligation could lead to
losses that, to the extent not covered by credit support, may adversely affect
the yield to maturity of the related securities.
The
Yield to Maturity on Your Securities Will Depend on a Variety of Factors
Including Prepayments
The
timing of principal payments on the securities of a series will be affected
by a
number of factors, including the following:
·
the
extent of prepayments on the underlying assets in the trust fund
or;
·
how
payments of principal are allocated among the classes of securities
of
that series as specified in the related prospectus
supplement;
·
if
any party has an option to terminate the related trust fund early,
the
effect of the exercise of the
option;
·
the
rate and timing of defaults and losses on the assets in the related
trust
fund; and
·
repurchases
of assets in the related trust fund as a result of material breaches
of
representations and warranties made by the depositor, master servicer
or
mortgage loan seller.
Prepayments
on mortgage loans are influenced by a number of factors, including prevailing
mortgage market interest rates, local and regional economic conditions and
homeowner mobility. The rate of prepayment of the mortgage loans included
in or
underlying the assets in each trust fund may affect the yield to maturity
of the
securities. In general, if you purchase a class of offered securities at
a price
higher than its outstanding principal balance and principal distributions
on
your class occur faster than you anticipate at the time of purchase, the
yield
will be lower than you anticipate. Conversely, if you purchase a class of
offered securities at a price lower than its outstanding principal balance
and
principal distributions on that class occur more slowly than you anticipate
at
the time of purchase, the yield will be lower than you anticipate.
To
the
extent amounts in any pre-funding account have not been used to purchase
additional mortgage loans, holders of the related securities may receive
an
additional prepayment.
The
yield
to maturity on the types of classes of securities, including securities that
are
entitled to principal distributions only or interest distributions only,
securities as to which accrued interest or a portion thereof will not be
distributed but rather added to the principal balance of the security, and
securities with an interest rate which fluctuates inversely with an index,
may
be relatively more sensitive to the rate of prepayment on the related mortgage
loans than other classes of securities and, if applicable, to the occurrence
of
an early retirement of the securities. The prospectus supplement for a series
will set forth the related classes of securities that may be more sensitive
to
prepayment rates. See “Yield and Maturity Considerations” in this
Prospectus.
The
Exercise of an Optional Termination Right Will Affect the Yield to Maturity
on
the Related Securities
The
prospectus supplement for each series of securities will set forth the party
that may, at its option, purchase the assets of the related trust fund if
the
aggregate principal balance of the mortgage loans and other trust fund assets
in
the trust fund for that series is less than the percentage specified in the
related prospectus supplement of the aggregate principal balance of the
outstanding mortgage loans and other trust fund assets at the cut-off date
for
that series. The percentage will be between 25% and 0%. The exercise of the
termination right will effect the early retirement of the securities of that
series. The prospectus supplement for each series of securities will set
forth
the price to be paid by the terminating party and the amounts that the holders
of the securities will be entitled to receive upon early
retirement.
In
addition to the repurchase of the assets in the related trust fund as described
in the paragraph above, the related prospectus supplement may permit that,
a
holder of a non-offered class of securities will have the right, solely at
its
discretion, to terminate the related trust fund on any distribution date
after
the 12th distribution date following the date of initial issuance of the
related
series of securities and until the date as the option to terminate as described
in the paragraph above becomes exercisable and thereby effect early retirement
of the securities of the series. Any call of this type will be of the entire
trust fund at one time; multiple calls with respect to any series of securities
will not be permitted. In this case, the call class must remit to the trustee
for distribution to the holders of the related securities offered hereby
a price
equal to 100% of the principal balance of their securities offered hereby
as of
the day of the purchase plus accrued interest thereon at the applicable interest
rate during the related period on which interest accrues on their securities.
If
funds equal to the call price are not deposited with the related trustee,
the
securities will remain outstanding. There will not be any additional remedies
available to securityholders. In addition, in the case of a trust fund for
which
a REMIC election or elections have been made, the termination will constitute
a
“qualified liquidation” under Section 860F of the Internal Revenue Code. In
connection with a call by the call class, the final payment to the
securityholders will be made upon surrender of the related securities to
the
trustee. Once the securities have been surrendered and paid in full, there
will
not be any continuing liability from the securityholders or from the trust
fund
to securityholders.
A
trust
fund may also be terminated and the certificates retired upon the master
servicer’s determination, if applicable and based upon an opinion of Thacher
Proffitt & Wood, LLP, that the REMIC status of the trust fund has been lost
or that a substantial risk exists that the REMIC status will be lost for
the
then current taxable year.
The
termination of a trust fund and the early retirement of securities by any
party
would decrease the average life of the securities and may adversely affect
the
yield to holders of some or all classes of the related securities.
Events
of Default Under the Related Governing Documents May Result in Losses to
the
Related Securities.
Upon
an
event of default under a pooling and servicing agreement, the depositor or
the
trustee may, unless otherwise provided in the related prospectus supplement,
and
at the direction of holders of certificates evidencing not less than 51%
of the
voting rights, the trustee shall, terminate all of the rights and obligations
of
the master servicer under the pooling and servicing agreement relating to
the
trust fund and in and to the mortgage assets. Upon an event of default under
a
servicing agreement, either the depositor or the trustee may, by written
notification to the master servicer and to the issuer or the trustee or trust
fund, as applicable, terminate all of the rights and obligations of the master
servicer under the servicing agreement. Upon an event of default with respect
to
any series of notes issued under an indenture, the notes of the series have
been
declared to be due and payable, the trustee may, in its discretion
(notwithstanding an acceleration of the related securities pursuant to the
indenture), elect to maintain possession of the collateral securing the notes
of
the series and to continue to apply payments on the collateral as if there
had
been no declaration of acceleration if the collateral continues to provide
sufficient funds for the payment of principal of and interest on the notes
of
the series as they would have become due if there had not been a declaration.
Any of the foregoing actions taken under the related governing documents
pursuant to an event of default may result in losses to the related securities
due to delays in the transfer of servicing from one entity to another or
due to
the liquidation of trust fund assets pursuant to an acceleration of the related
securities. See “Description of the Securities-Events of Default under the
Governing Agreement and Rights Upon Events of Default.”
Violations
of Consumer Protection Laws May Result in Losses on the Mortgage Loans and
the
Securities Backed by Those Mortgage Loans
Federal
and state laws, public policy and general principles of equity relating to
the
protection of consumers, unfair and deceptive practices and debt collection
practices:
·
regulate
interest rates and other charges on mortgage
loans;
·
require
specific disclosures to borrowers;
·
require
licensing of originators; and
·
regulate
generally the origination, servicing and collection process for
the
mortgage loans.
Depending
on the specific facts and circumstances involved, violations may limit the
ability of a trust fund to collect all or a part of the principal of or interest
on the mortgage loans, may entitle the borrower to a refund of amounts
previously paid and could result in liability for damages and administrative
enforcement against the originator or an assignee of the originator, like
a
trust fund, or the initial servicer or a subsequent servicer, as the case
may
be. In particular, it is possible that mortgage loans included in a trust
fund
will be subject to the Home Ownership and Equity Protection Act of 1994.
The
Homeownership Act adds additional provisions to Regulation Z, the implementing
regulation of the Federal Truth-In-Lending Act. These provisions impose
additional disclosure and other requirements on creditors with respect to
non-purchase money mortgage loans with interest rates or origination costs
in
excess of prescribed levels. The provisions of the Homeownership Act apply
on a
mandatory basis to all mortgage loans originated on or after October 1, 1995.
These provisions can impose specific statutory liabilities upon creditors
who
fail to comply with their provisions and may affect the enforceability of
the
related loans. In addition, any assignee of the creditor, like a trust fund,
would generally be subject to all claims and defenses that the consumer could
assert against the creditor, including the right to rescind the mortgage
loan.
Recently, class action lawsuits under the Homeownership Act have been brought
naming as a defendant securitization trusts like the trust funds described
in
this prospectus with respect to the mortgage loans.
In
addition, amendments to the federal bankruptcy laws have been proposed that
could result in (1) the treatment of a claim secured by a junior lien in
a
borrower’s principal residence as protected only to the extent that the claim
was secured when the security interest was made and (2) the disallowance
of
claims based on secured debt if the creditor failed to comply with specific
provisions of the Truth in Lending Act (15 U.S.C. ss.1639). These amendments
could apply retroactively to secured debt incurred by the debtor prior to
the
date of effectiveness of the amendments.
In
addition, the mortgage loans are subject to other federal laws, including
the
Equal Credit Opportunity Act and Regulation B promulgated thereunder, which
prohibit discrimination on the basis of age, race, color, sex, religion,
marital
status, national origin, receipt of public assistance or the exercise of
any
right under the Consumer Credit Protection Act, in the extension of credit;
the
Fair Credit Reporting Act, which regulates the use and reporting of information
related to the borrower’s credit experience; the Depository Institutions
Deregulation and Monetary Control Act of 1980, which preempts certain state
usury laws; and the Alternative Mortgage Transaction Parity Act of 1982,
which
preempts certain state lending laws which regulate alternative mortgage
transactions.
In
addition to federal law, some states have enacted, or may enact, laws or
regulations that prohibit inclusion of some provisions in mortgage loans
that
have interest rates or origination costs in excess of prescribed levels,
and
require that borrowers be given certain disclosures prior to the consummation
of
the mortgage loans. The originator’s failure to comply with these laws could
subject the related trust fund (and other assignees of the mortgage loans)
to
monetary penalties and could result in the borrowers rescinding the mortgage
loans against the related trust fund.
Violations
of certain provisions of these federal and state laws may limit the ability
of
the master servicer to collect all or part of the principal of or interest
on
the mortgage loans and in addition could subject the related trust fund to
damages and administrative enforcement and could result in the mortgagors
rescinding such mortgage loans whether held by the related trust fund or
subsequent holders of the mortgage loans.
The
depositor will represent that all applicable federal and state laws were
complied with in connection with the origination of the mortgage loans. If
there
is a material and adverse breach of a representation, the depositor will
be
obligated to repurchase any affected mortgage loan or to substitute a new
mortgage loan into the related trust fund. If the depositor fails to repurchase
or substitute, a trust fund could experience losses which, to the extent
not
covered by credit support, could adversely affect the yield to maturity on
the
related securities. See “Legal Aspects of Mortgage Assets.”
Several
capitalized terms are used in this prospectus to assist you in understanding
the
terms of the securities. All of the capitalized terms used in this prospectus
are defined in the glossary beginning on page 152 in this
prospectus.
DESCRIPTION
OF THE TRUST FUNDS
The
trust
fund for each series will be held by the trustee for the benefit of the related
securityholders. Each trust fund will consist of:
·
a
segregated pool of various types of first and junior lien mortgage
loans,
cooperative apartment loans, manufactured housing conditional sales
contracts and installment loan agreements or home improvement installment
sales contracts and installment loan agreements as are subject
to the
related agreement governing the trust
fund;
·
amounts
on deposit in the distribution account, pre-funding account, if
applicable, or any other account maintained for the benefit of
the
securityholders;
·
property
acquired on behalf of securityholders by foreclosure, deed in lieu
of
foreclosure or repossession and any revenues received on the
property;
·
the
rights of the depositor under any hazard insurance policies, FHA
insurance
policies, VA guarantees and primary mortgage insurance policies
to be
included in the trust fund, each as described under “Description of
Primary Insurance Policies”;
·
the
rights of the depositor under the agreement or agreements under
which it
acquired the mortgage loans to be included in the trust
fund;
·
the
rights of the trustee in any cash advance reserve fund or surety
bond to
be included in the trust fund, each as described under “Advances by Master
Servicer in Respect of Delinquencies on the Trust Fund Assets”;
and
·
any
letter of credit, mortgage pool insurance policy, special hazard
insurance
policy, bankruptcy bond, financial guarantee insurance policy,
reserve
fund, currency or interest rate exchange agreement or guarantee,
each as
described under “Description of Credit
Support.”
To
the
extent specified in the related prospectus supplement, a portion of the interest
received on a mortgage loan may not be included in the trust for that series.
Instead, the retained interest will be retained by or payable to the originator,
servicer or seller (or a designee of one of the foregoing) of the loan, free
and
clear of the interest of securityholders under the related
agreement.
Description
of the Mortgage Assets to Be Included in a Trust Fund
Each
mortgage asset will be originated by a person other than the depositor. Each
mortgage asset will be selected by the depositor for inclusion in a trust
fund
from among those purchased by the depositor, either directly or through its
affiliates, from Ameriquest Mortgage Company, the indirect parent of the
depositor, and its affiliates or from banks, savings and loan associations,
mortgage bankers, mortgage brokers, investment banking firms, the Federal
Deposit Insurance Corporation and other mortgage loan originators or sellers
not
affiliated with the depositor. Each seller of mortgage assets will be referred
to in this prospectus and the related prospectus supplement as a mortgage
loan
seller. The mortgage assets acquired by the depositor will have been originated
in accordance with the underlying criteria described in this prospectus under
“The Depositor’s Mortgage Loan Purchase Program-Underwriting Standards” and in
the prospectus supplement. All mortgage assets to be included in a trust
fund as
of the closing date will have been purchased by the depositor on or before
the
date of initial issuance of the related securities.
The
mortgage assets included in a trust fund will be evidenced by a promissory
note
or contract, referred to in this prospectus as a mortgage note, and may be
secured by any of the following:
·
first
or junior liens on one- to four-family residential properties including
detached and attached dwellings, townhouses, rowhouses, individual
condominium units, individual units in planned-unit developments
and
individual units in de
minimis
planned-unit developments. Loans secured by this type of property
are
referred to in this prospectus as single-family loans and may be
conventional loans, FHA-insured loans or VA-guaranteed loans as
specified
in the related prospectus
supplement;
·
first
or junior liens secured by shares in a private cooperative housing
corporation that give the owner of the shares the right to occupy
a
particular dwelling unit in the
cooperative;
·
rental
apartments or projects, including apartment buildings owned by
cooperative
housing corporations, containing five or more dwelling units. The
multifamily properties may include high-rise, mid-rise or garden
apartments. Loans secured by this type of property may be conventional
loans or FHA-insured loans as specified in the related prospectus
supplement;
·
commercial
properties including office buildings, retail buildings and a variety
of
other commercial properties as may be described in the related
prospectus
supplement;
·
properties
consisting of mixed residential and commercial
structures;
·
leasehold
interests in residential properties, the title of which is held
by third
party lessors;
·
manufactured
homes that, in the case of mortgage loans, are permanently affixed
to
their site or, in the case of manufactured home conditional sales
contracts and installment loan agreements, may be relocated;
or
·
real
property acquired upon foreclosure or comparable conversion of
the
mortgage loans included in a trust
fund.
No
more
than 10% of the assets of a trust fund, by original principal balance of
the
pool, will be secured by commercial properties. The term of any leasehold
will
exceed the term of the mortgage note by at least five years.
The
manufactured homes securing the mortgage loans or manufactured housing contracts
will consist of manufactured homes within the meaning of 42 United States
Code,
Section 5402(6), which defines a manufactured home as “a structure,
transportable in one or more sections, which in the traveling mode, is eight
body feet or more in width or forty body feet or more in length, or, when
erected on site, is three hundred twenty or more square feet, and which is
built
on a permanent chassis and designed to be used as a dwelling with or without
a
permanent foundation when connected to the required utilities, and includes
the
plumbing, heating, air conditioning, and electrical systems contained therein;
except that such term shall include any structure which meets all the
requirements of this paragraph except the size requirements and with respect
to
which the manufacturer voluntarily files a certification required by the
Secretary of Housing and Urban Development and complies with the standards
established under this chapter.”
The
home
improvement contracts will be secured primarily by mortgages on single family
properties that are generally subordinate to other mortgages on the same
mortgaged property or by purchase money security interests in the home
improvements financed thereby.
The
mortgaged properties may be located in any one of the fifty states, the District
of Columbia, Guam, Puerto Rico or any other territory of the United States.
The
mortgaged properties may include vacation, second and non-owner occupied
homes.
The
mortgage assets to be included in a trust fund will be any one of the following
types of mortgage assets:
·
Fully
amortizing mortgage assets with a fixed rate of interest and level
monthly
payments to maturity;
·
Fully
amortizing mortgage assets with an interest rate that adjusts
periodically, with corresponding adjustments in the amount of monthly
payments, to equal the sum, which may be rounded, of a fixed percentage
amount and an index, such as a one-month LIBOR index or six-month
LIBOR
index;
·
ARM
Loans that provide for an election, at the borrower’s option, to convert
the adjustable interest rate to a fixed interest rate, which will
be
described in the related prospectus
supplement;
·
ARM
Loans that provide for negative amortization or accelerated amortization
resulting from delays in or limitations on the payment adjustments
necessary to amortize fully the outstanding principal balance of
the loan
at its then applicable interest rate over its remaining
term;
·
Fully
amortizing mortgage assets with a fixed interest rate and level
monthly
payments, or payments of interest only, during the early years
of the
term, followed by periodically increasing monthly payments of principal
and interest for the duration of the term or for a specified number
of
years, which will be described in the related prospectus
supplement;
·
Fixed
interest rate mortgage assets providing for level payment of principal
and
interest on the basis of an assumed amortization schedule and a
balloon
payment at the end of a specified
term;
·
Mortgage
assets that provide for a line of credit under which amounts may
be
advanced to the borrower from time to
time;
·
Fixed
interest rate mortgage assets that provide that the interest may
increase
upon default, which increased rate may be subject to adjustment
and may or
may not convert back to the original fixed interest rate upon cure
of the
default; and
·
Fixed
interest rate mortgage assets that provide for reductions in the
interest
rate, and corresponding monthly payment due thereon during the
first 36
months of the term thereof.
Each
single-family loan having a loan-to-value ratio at origination in excess
of 80%,
may be required to be covered by a primary mortgage guaranty insurance policy
insuring against default on the mortgage loan as to at least the principal
amount thereof exceeding 75% of the value of the mortgaged property at
origination of the mortgage loan. This type of insurance will remain in force
at
least until the mortgage loan amortizes to a level that would produce a
loan-to-value ratio lower than 80%. See “Description of Primary Insurance
Policies—Primary Mortgage Insurance Policies.”
A
mortgaged property may have been subject to secondary financing at origination
of the mortgage loan, but, unless otherwise specified in the related prospectus
supplement, the total amount of primary and secondary financing at the time
of
origination of the mortgage loan did not, to the mortgage loan seller’s
knowledge, produce a combined loan-to-value ratio in excess of 150%. The
trust
fund may contain mortgage loans secured by junior liens, and the related
senior
lien may not be included in the trust fund. The primary risk to holders of
mortgage loans secured by junior liens is the possibility that adequate funds
will not be received in connection with a foreclosure of the related senior
liens to satisfy fully both the senior liens and the junior mortgage loan.
In
addition, some or all of the single family loans secured by junior liens
may be
High LTV Loans. See “Legal Aspects of Mortgage Assets—Foreclosure on
Mortgages.”
The
loan-to-value ratio of a mortgage loan at any given time is the ratio, expressed
as a percentage, of the then outstanding principal balance of the mortgage
loan,
or, in the case of a home equity line of credit loan, the maximum principal
amount which may be advanced over the term of the loan, plus, in the case
of a
mortgage loan secured by a junior lien, the outstanding principal balance
of the
related senior liens, to the value of the related mortgaged property. The
value
of a single-family property or cooperative unit, is the lesser of (a) the
appraised value determined in an appraisal obtained by the originator at
origination of the loan and (b) if the mortgaged property is being purchased
in
conjunction with the origination of the mortgage loan the sales price for
the
property. For purposes of calculating the loan-to-value ratio of a manufactured
housing contract relating to a new manufactured home, the value is no greater
than the sum of a fixed percentage of the list price of the unit actually
billed
by the manufacturer to the dealer, exclusive of freight to the dealer site,
including accessories identified in the invoice, plus the actual cost of
any
accessories purchased from the dealer, a delivery and set-up allowance,
depending on the size of the unit, and the cost of state and local taxes,
filing
fees and up to three years prepaid hazard insurance premiums. With respect
to a
used manufactured home, the value is generally the least of the sale price,
the
appraised value, and the National Automobile Dealer’s Association book value
plus prepaid taxes and hazard insurance premiums. The appraised value of
a
manufactured home is based upon the age and condition of the manufactured
housing unit and the quality and condition of the mobile home park in which
it
is situated, if applicable. Manufactured homes are less likely than other
types
of housing to experience appreciation in value and are more likely to experience
depreciation in value.
The
underwriting standards of the mortgage loan originator or mortgage loan seller
may require an internal review of the appraisal (a “review appraisal”) used to
determine the loan-to-value of a mortgage loan which may be performed by
underwriters rather than a licensed appraiser. Where the review appraisal
results in a valuation of the mortgaged property that is less than a specified
percentage of the original appraisal, the loan-to-value ratio of the related
mortgage loan will be based on the review appraisal. The prospectus supplement
of each series will describe the percentage variance used by the related
mortgage loan originator or mortgage loan seller in determining whether the
review appraisal will apply.
As
of the
cut-off date specified in the related prospectus supplement, the aggregate
principal balance of mortgage loans secured by condominium units will not
exceed
30% of the aggregate principal balance of the mortgage loans in the related
mortgage pool. A mortgage loan secured by a condominium unit will not be
included in a mortgage pool unless, at the time of sale of the mortgage loan
by
the mortgage loan seller, representations and warranties as to the condominium
project are made by the mortgage loan seller or an affiliate of the mortgage
loan seller or by another person acceptable to the depositor having knowledge
regarding the subject matter of those representations and warranties. The
mortgage loan seller, or another party on its behalf, will have made the
following representations and warranties:
·
If
a condominium project is subject to developer control or to incomplete
phasing or add-ons, at least 50% of the units have been sold to
bona fide
purchasers to be occupied as primary residences or vacation or
second
homes.
·
If
a condominium project has been controlled by the unit owners, other
than
the developer, and is not subject to incomplete phasing or add-ons,
at
least 50% of the units been are occupied as primary residences
or vacation
or second homes.
See
“The
Depositor’s Mortgage Loan Purchase Program—Representations by or on Behalf of
Mortgage Loan Sellers; Remedies for Breach of Representation” in this Prospectus
for a description of other representations made by or on behalf of mortgage
loan
sellers at the time mortgage loans are sold.
The
trust
fund may include mortgage loans subject to temporary buydown plans which
provide
that the monthly payments made by the borrower in the early years of the
mortgage loan will be less than the scheduled monthly payments on the mortgage
loan, the resulting difference to be made up from (a) an amount contributed
by
the borrower, the seller of the mortgaged property, or another source and
placed
in a custodial account and (b) unless otherwise specified in the prospectus
supplement, investment earnings on the buydown funds. The borrower under
a
buydown mortgage loan is usually qualified at the lower monthly payment taking
into account the funds on deposit in the custodial account. Accordingly,
the
repayment of a buydown mortgage loan is dependent on the ability of the borrower
to make larger level monthly payments after the funds in the custodial account
have been depleted. See “The Depositor’s Mortgage Loan Purchase
Program—Underwriting Standards” for a discussion of loss and delinquency
considerations relating to buydown mortgage loans.
The
trust
fund may include mortgage loans that provide for a line of credit under which
amounts may be advanced to the borrower from time to time. Interest on each
home
equity line of credit loan, excluding introductory rates offered from time
to
time during promotional periods, is computed and payable monthly on the average
daily outstanding balance of the mortgage loan. Principal on a home equity
line
of credit loan may be drawn down, up to a maximum amount as set forth in
the
related prospectus supplement, or repaid under each mortgage loan from time
to
time, but may be subject to a minimum periodic payment. Each home equity
line of
credit loan included in a trust fund will be secured by a lien on a one-to-four
family property or a manufactured home. A trust fund will not include any
amounts borrowed under a home equity line of credit loan after the cut-off
date
specified in the related prospectus supplement.
The
trust
fund may include mortgage loans with respect to which a portion of the loan
proceeds are held back from the mortgagor until required repairs or improvements
on the mortgaged property are completed, in accordance with the mortgage
loan
seller’s underwriting standards.
The
trust
fund may include mortgage loans that are delinquent as of the date the related
series of securities is issued. In that case, the related prospectus supplement
will set forth, as to each mortgage loan, available information as to the
period
of delinquency and any other information relevant for a prospective purchaser
to
make an investment decision. No mortgage loan in a trust fund will be 90
or more
days delinquent and no trust fund will include a concentration of mortgage
loans
which are more than 30 and less than 90 days delinquent of greater than 20%.
Delinquency as used in this paragraph is determined using the OTS Delinquency
Method which considers mortgage loans delinquent if the borrower does not
pay
his/her monthly payment by the contractual due date of the following
month.
If
so
specified in the related prospectus supplement, a mortgage loan may contain
a
prohibition on prepayment or a Lockout Period or require payment of a prepayment
charge. A multifamily, commercial or mixed-use loan may also contain a provision
that entitles the lender to a share of profits realized from the operation
or
disposition of the related mortgaged property. If the holders of any class
or
classes of offered securities of a series will be entitled to all or a portion
of this type of equity participation, the related prospectus supplement will
describe the equity participation and the method or methods by which
distributions in respect thereof will be made to such holders.
Mortgage
Loan Information in Prospectus Supplement.
Each
prospectus supplement will contain specific information with respect to the
mortgage assets contained in the related trust fund, as of the cut-off date
specified in the prospectus supplement, which will usually be close of business
on the first day of the month of formation of the related trust fund, to
the
extent specifically known to the depositor as of the date of the prospectus
supplement, including the following:
·
the
aggregate outstanding principal balance, the largest, smallest
and average
outstanding principal balance of the mortgage
assets,
·
the
type of property securing the mortgage assets and the percentage
of
mortgage assets in the related mortgage pool which are secured
by that
type of property,
·
the
original terms to maturity of the mortgage
assets,
·
the
earliest origination date and latest maturity
date,
·
the
aggregate principal balance of mortgage loans having loan-to-value
ratios
at origination exceeding 80%, or, with respect to mortgage loans
secured
by a junior lien, the aggregate principal balance of mortgage loans
having
combined loan-to-value ratios exceeding
80%,
·
the
interest rates or range of interest rates borne by the mortgage
loans,
·
the
geographical distribution of the mortgaged properties on a state-by-state
basis,
·
the
number and aggregate principal balance of buydown mortgage loans,
if
any,
·
a
description of the retained interest, if
any,
·
with
respect to ARM Loans, the index, the adjustment dates, the highest,
lowest
and weighted average gross margin, and the maximum interest rate
variation
at the time of any adjustment and over the life of the ARM
Loan,
·
the
range of debt service coverage ratios for mortgage loans secured
by
multifamily properties or commercial properties,
and
·
whether
the mortgage loans provide for payments of interest only for any
period
and the frequency and amount by which, and the term during which,
monthly
payments adjust.
If
specific information respecting the trust fund assets is not known to the
depositor at the time securities are initially offered, more general information
of the nature described in the bullet points above will be provided in the
prospectus supplement, and specific information as to the trust fund assets
to
be included in the trust fund on the date of issuance of the securities will
be
filed, together with the related pooling and servicing agreement, with respect
to each series of certificates, or the related servicing agreement, trust
agreement and indenture, with respect to each series of notes, as part of
a
report on Form 8-K with the Securities and Exchange Commission within fifteen
days after the initial issuance. If mortgage loans are added to or deleted
from
the trust fund after the date of the related prospectus supplement, the addition
or deletion will be noted on the Current Report or Form 8-K. In no event,
however, will more than 5%, by principal balance at the cut-off date, of
the
mortgage loans deviate from the characteristics of the mortgage loans set
forth
in the related prospectus supplement. In addition, a report on Form 8-K will
be
filed within 15 days after the end of any pre-funding period containing
information respecting the trust fund assets transferred to a trust fund
after
the date of issuance of the related securities as described in the following
paragraph.
Description
of the Pre-funding Account for the Purchase of Additional Mortgage
Loans
The
agreement governing the trust fund may provide for the transfer by the mortgage
loan seller of additional mortgage assets to the related trust fund after
the
date of initial issuance of the securities. In that case, the trust fund
will
include a pre-funding account, into which all or a portion of the proceeds
of
the sale of one or more classes of securities of the related series will
be
deposited to be released as additional mortgage assets are transferred.
Additional mortgage assets will be required to conform to the requirements
set
forth in the related agreement or other agreement providing for the transfer,
and will be underwritten to the same standards as the mortgage assets initially
included in the trust fund. A pre-funding account will be required to be
maintained as an eligible account under the related agreement and the amount
held in the pre-funding account shall at no time exceed 50% of the aggregate
outstanding principal balance of the securities. The related agreement providing
for the transfer of additional mortgage assets will provide that all transfers
must be made within 3 months, if a REMIC election has been made with respect
to
the trust, or within 6 months after the date on which the related securities
were issued, and that amounts set aside to fund the transfers, whether in
a
pre-funding account or otherwise, and not so applied within the required
period
of time will be deemed to be principal prepayments and applied in the manner
set
forth in the related prospectus supplement.
The
depositor will be required to provide data regarding the additional mortgage
assets to the rating agencies and the security insurer, if any, sufficiently
in
advance of the scheduled transfer to permit review by the rating agencies
and
the security insurer. Transfer of the additional mortgage assets will be
further
conditioned upon confirmation by the rating agencies that the addition of
mortgage assets to the trust fund will not result in the downgrading of the
securities or, in the case of a series guaranteed or supported by a security
insurer, will not adversely affect the capital requirements of the security
insurer. Finally, a legal opinion to the effect that the conditions to the
transfer of the additional mortgage assets have been satisfied will be
required.
THE
DEPOSITOR
Argent
Securities Inc., the Depositor, is a Delaware corporation incorporated in
May
2003 as a wholly-owned subsidiary of Argent Mortgage Company, L.L.C. The
depositor was organized for the purpose of serving as a private secondary
mortgage market conduit. The depositor maintains its principal office at
1100
Town & Country Road, Orange, California92868. Its telephone number is (714)
541-9960.
The
depositor does not have, nor is it expected in the future to have, any
significant assets. The prospectus supplement for each series of securities
will
disclose if the depositor is a party to any legal proceedings that could
have a
material impact on the related trust fund and the interests of the potential
investors.
USE
OF PROCEEDS
The
net
proceeds to be received from the sale of the securities will be applied by
the
depositor to the purchase of trust fund assets or will be used by the depositor
for general corporate purposes. The depositor expects that it will make
additional sales of securities similar to the securities from time to time,
but
the timing and amount of offerings of securities will depend on a number
of
factors, including the volume of mortgage assets acquired by the depositor,
prevailing interest rates, availability of funds and general market
conditions.
YIELD
AND MATURITY CONSIDERATIONS
The
yield
on any offered security will depend on the following:
·
the
price paid by the securityholder,
·
the
rate at which interest accrued on the
security,
·
the
receipt and timing of receipt of distributions on the
security,
·
the
weighted average life of the mortgage assets in the related trust
fund,
·
liquidations
of mortgage assets following mortgagor
defaults,
·
purchases
of mortgage assets in the event of optional termination of the
trust fund
or breaches of representations made in respect of such mortgage
assets by
the depositor, the master servicer and others,
and
·
in
the case of securities evidencing interests in ARM Loans, by changes
in
the interest rates or the conversions of ARM Loans to a fixed interest
rate.
Security
Interest Rate.
Securities of any class within a series may have fixed, variable or adjustable
security interest rates, which may or may not be based upon the interest
rates
borne by the mortgage assets in the related trust fund. The prospectus
supplement with respect to any series of securities will specify the security
interest rate for each class of securities or, in the case of a variable
or
adjustable security interest rate, the method of determining the security
interest rate. Holders of Stripped Interest Securities or a class of securities
having a security interest rate that varies based on the weighted average
interest rate of the underlying mortgage assets will be affected by
disproportionate prepayments and repurchases of mortgage assets having higher
interest rates than the average interest rate.
Timing
of Payment of Interest And Principal.
The
effective yield to securityholders entitled to payments of interest will
be
slightly lower than the yield otherwise produced by the applicable security
interest rate because, while interest on the mortgage assets may accrue from
the
first day of each month, the distributions of such interest will not be made
until the distribution date which may be as late as the 25th day of the month
following the month in which interest accrues on the mortgage assets. On
each
distribution date, a payment of interest on the securities, or addition to
the
principal balance of a class of Accrual Securities, will include interest
accrued during the interest accrual period described in the related prospectus
supplement for that remittance date. If the interest accrual period ends
on a
date other than a remittance date for the related series, the yield realized
by
the holders of the securities may be lower than the yield that would result
if
the interest accrual period ended on the remittance date. In addition, if
so
specified in the related prospectus supplement, interest accrued for an interest
accrual period for one or more classes of securities may be calculated on
the
assumption that distributions of principal, and additions to the principal
balance of Accrual Securities, and allocations of losses on the mortgage
assets
may be made on the first day of the interest accrual period for a remittance
date and not on the remittance date. This method would produce a lower effective
yield than if interest were calculated on the basis of the actual principal
amount outstanding during an interest accrual period.
When
a
principal prepayment in full is made on a mortgage loan, the borrower is
charged
interest only for the period from the due date of the preceding monthly payment
up to the date of the prepayment, instead of for a full month. When a partial
prepayment is made on a mortgage loan, the mortgagor is not charged interest
on
the amount of the prepayment for the month in which the prepayment is made.
Accordingly, the effect of principal prepayments in full during any month
will
be to reduce the aggregate amount of interest collected that is available
for
distribution to securityholders. The mortgage loans in a trust fund may contain
provisions limiting prepayments or requiring the payment of a prepayment
charge
upon prepayment in full or in part. If so specified in the related prospectus
supplement, a prepayment charge collected may be applied to offset the
above-described shortfalls in interest collections on the related distribution
date. Otherwise, prepayment charges collected may be available for distribution
only to a specific class of securities or may not be a part of the related
trust
at all, and, therefore not available for distribution to any class of
securities. Full and partial principal prepayments collected during the
prepayment period set forth in a prospectus supplement will be available
for
distribution to securityholders on the related distribution date. Neither
the
trustee nor the depositor will be obligated to fund shortfalls in interest
collections resulting from prepayments. The prospectus supplement for a series
of securities may specify that the master servicer will be obligated to pay
from
its own funds, without reimbursement, those interest shortfalls attributable
to
full and partial prepayments by mortgagors but only up to an amount equal
to its
servicing fee for the related due period. See “Description of the
Securities.”
In
addition, if so specified in the related prospectus supplement, a holder
of a
non-offered class of securities will have the right, solely at its discretion,
to terminate the related trust fund on any distribution date after the 12th
distribution date following the date of initial issuance of the related series
of securities and until the date as the Clean-up Call becomes exercisable
and
thereby effect early retirement of the securities of the series. Any call
of
this type will be of the entire trust fund at one time; multiple calls with
respect to any series of securities will not be permitted. Early termination
would result in the concurrent retirement of all outstanding securities of
the
related series and would decrease the average lives of the terminated
securities, perhaps significantly. The earlier after the date of the initial
issuance of the securities that the termination occurs, the greater would
be the
effect.
Principal
Prepayments.
The
yield to maturity on the securities will be affected by the rate of principal
payments on the mortgage assets, including principal prepayments, curtailments,
defaults and liquidations. The rate at which principal prepayments occur
on the
mortgage assets will be affected by a variety of factors, including, without
limitation, the following:
·
the
terms of the mortgage assets,
·
the
level of prevailing interest rates,
·
the
availability of mortgage credit,
·
in
the case of multifamily loans and commercial loans, the quality
of
management of the mortgaged properties,
and
·
economic,
demographic, geographic, tax, legal and other
factors.
In
general, however, if prevailing interest rates fall significantly below the
interest rates on the mortgage assets included in a particular trust fund,
those
mortgage assets are likely to be the subject of higher principal prepayments
than if prevailing rates remain at the rates borne by those mortgage assets.
Conversely, if prevailing interest rates rise significantly above the interest
rates on the mortgage assets included in a particular trust fund, those mortgage
assets are likely to be the subject of lower principal prepayments than if
prevailing rates remain at the rates borne by those mortgage assets. The rate of
principal payments on some or all of the classes of securities of a series
will
correspond to the rate of principal payments on the mortgage assets included
in
the related trust fund and is likely to be affected by the existence of
prepayment premium provisions of the mortgage assets in a mortgage pool,
and by
the extent to which the servicer of any such mortgage asset is able to enforce
such provisions. There can be no certainty as to the rate of prepayments
on the
mortgage assets during any period or over the life of the related
securities.
If
the
purchaser of a security offered at a discount calculates its anticipated
yield
to maturity based on an assumed rate of distributions of principal that is
faster than that actually experienced on the mortgage assets, the actual
yield
to maturity will be lower than that so calculated. Conversely, if the purchaser
of a security offered at a premium calculates its anticipated yield to maturity
based on an assumed rate of distributions of principal that is slower than
that
actually experienced on the mortgage assets, the actual yield to maturity
will
be lower than that so calculated. In either case, the effect on yield of
prepayments on one or more classes of securities of a series may be mitigated
or
exacerbated by the priority of distributions of principal to those classes
as
provided in the related prospectus supplement.
The
timing of changes in the rate of principal payments on the mortgage assets
may
significantly affect an investor’s actual yield to maturity, even if the average
rate of distributions of principal is consistent with an investor’s expectation.
In general, the earlier a principal payment is received on the mortgage assets
and distributed in respect of a security, the greater the effect on such
investor’s yield to maturity. The effect on an investor’s yield of principal
payments occurring at a rate higher or lower than the rate anticipated by
the
investor during a given period may not be offset by a subsequent like decrease
or increase in the rate of principal payments.
Defaults.
The
rate of defaults on the mortgage assets will also affect the rate and timing
of
principal payments on the mortgage assets and thus the yield on the securities.
In general, defaults on single family loans are expected to occur with greater
frequency in their early years. However, mortgage assets that require balloon
payments, including multifamily loans, risk default at maturity, or that
the
maturity of the balloon loan may be extended in connection with a workout.
The
rate of default on mortgage loans which are refinance or limited documentation
mortgage loans, mortgage assets with high loan-to-value ratios, and ARM Loans
may be higher than for other types of mortgage assets. Furthermore, the rate
and
timing of defaults and liquidations on the mortgage assets will be affected
by
the general economic condition of the region of the country in which the
related
mortgaged properties are located. The risk of delinquencies and loss is greater
and prepayments are less likely in regions where a weak or deteriorating
economy
exists, as may be evidenced by, among other factors, increasing unemployment
or
falling property values.
Maturity
and Weighted Average Life
Prepayments.
The
rates at which principal payments are received on the mortgage assets included
in a trust fund and the rate at which payments are made from any credit support
for the related series of securities may affect the ultimate maturity and
the
weighted average life of each class of the series. Weighted average life
refers
to the average amount of time that will elapse from the date of issue of
a
security until each dollar of principal of that security will be repaid to
the
investor. The weighted average life of a class of securities of a series
will be
influenced by, among other factors, the rate at which principal on the related
mortgage assets is paid to that class, which may be in the form of scheduled
amortization or prepayments. For this purpose, the term prepayment includes
prepayments, in whole or in part, and liquidations due to default. Prepayments
on the mortgage assets in a trust fund will generally accelerate the rate
at
which principal is paid on some or all of the classes of the securities of
the
related series.
If
so
provided in the prospectus supplement for a series of securities, one or
more
classes of securities may have a final scheduled remittance date, which is
the
date on or prior to which the principal balance thereof is scheduled to be
reduced to zero, calculated on the basis of the assumptions applicable to
such
series set forth therein.
In
addition, the weighted average life of the securities may be affected by
the
varying maturities of the related mortgage assets. If any mortgage assets
in a
trust fund have actual terms to maturity of less than those assumed in
calculating the final scheduled remittance dates for the classes of securities
of the related series, one or more classes of the securities may be fully
paid
prior to their respective final scheduled remittance dates, even in the absence
of prepayments. Accordingly, the prepayment experience of the mortgage pool
will, to some extent, be a function of the mix of interest rates and maturities
of the mortgage assets in that mortgage pool. See “Description of the Trust
Funds.”
Prepayments
on loans are also commonly measured relative to a prepayment standard or
model,
such as the Constant Prepayment Rate prepayment model or the Standard Prepayment
Assumption prepayment model, each as described below. CPR represents a constant
assumed rate of prepayment each month relative to the then outstanding principal
balance of a pool of loans for the life of those loans. SPA represents an
assumed rate of prepayment each month relative to the then outstanding principal
balance of a pool of loans. A prepayment assumption of 100% of SPA assumes
prepayment rates of 0.2% per annum of the then outstanding principal balance
of
the loans in the first month of the life of the loans and an additional 0.2%
per
annum in each month thereafter until the thirtieth month. Beginning in the
thirtieth month and in each month thereafter during the life of the loans,
100%
of SPA assumes a constant prepayment rate of 6% per annum each
month.
Neither
CPR nor SPA nor any other prepayment model or assumption purports to be an
historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans. Moreover, CPR and SPA
were
developed based upon historical prepayment experience for single family loans.
Thus, it is likely that prepayment of any mortgage assets will not conform
to
any particular level of CPR or SPA.
The
prospectus supplement with respect to each series of securities may contain
tables, if applicable, setting forth the projected weighted average life
of one
or more classes of offered securities of the series and the percentage of
the
initial principal balance of each class that would be outstanding on specified
remittance dates based on the assumptions stated in that prospectus supplement,
including assumptions that prepayments on the related mortgage assets are
made
at rates corresponding to various percentages of CPR, SPA or at other rates
specified in the prospectus supplement. Tables and assumptions are intended
to
illustrate the sensitivity of the weighted average life of the securities
to
various prepayment rates and are not intended to predict or to provide
information that will enable investors to predict the actual weighted average
life of the securities. It is unlikely that prepayment of any mortgage assets
for any series will conform to any particular level of CPR, SPA or any other
rate specified in the related prospectus supplement.
There
can
be no assurance as to the rate of prepayment of the mortgage loans underlying
or
comprising the trust fund assets in any trust fund. The depositor is not
aware
of any publicly available statistics relating to the principal prepayment
experience of diverse portfolios of mortgage loans over an extended period
of
time. All statistics known to the depositor that have been compiled with
respect
to prepayment experience on mortgage loans indicates that while some mortgage
loans may remain outstanding until their stated maturities, a substantial
number
will be paid prior to their respective stated maturities. The depositor is
not
aware of any historical prepayment experience with respect to mortgage loans
secured by properties located in Puerto Rico or Guam and, accordingly,
prepayments on loans secured by properties in Puerto Rico or Guam may not
occur
at the same rate or be affected by the same factors as other mortgage loans.
No
more than 10% of the mortgage loans included in any trust may be comprised
of
mortgage loans originated in Puerto Rico or Guam.
Type
of Mortgage Asset.
The
type of mortgage assets included in a trust fund may affect the weighted
average
life of the related securities. A number of mortgage assets may have balloon
payments due at maturity, and because the ability of a mortgagor to make
a
balloon payment typically will depend upon its ability either to refinance
the
loan or to sell the related mortgaged property, there is a risk that mortgage
assets having balloon payments may default at maturity, or that the servicer
may
extend the maturity of the mortgage asset in connection with a workout. In
addition, a number of mortgage assets may be junior mortgage loans. The rate
of
default on junior mortgage loans may be greater than that of mortgage loans
secured by first liens on comparable properties. In the case of defaults,
recovery of proceeds may be delayed by, among other things, bankruptcy of
the
mortgagor or adverse conditions in the market where the property is located.
In
order to minimize losses on defaulted mortgage assets, the servicer may,
to the
extent and under the circumstances set forth in this prospectus and in the
related servicing agreement, be permitted to modify mortgage assets that
are in
default or as to which a payment default appears imminent. Any defaulted
balloon
payment or modification that extends the maturity of a mortgage asset will
tend
to extend the weighted average life of the securities, thereby lengthening
the
period of time elapsed from the date of issuance of a security until it is
retired.
Although
the interest rates on ARM Loans will be subject to periodic adjustments,
adjustments generally will, unless otherwise specified in the related prospectus
supplement, (1) not increase or decrease the interest rate by more than a
fixed
percentage amount on each adjustment date, (2) not increase the interest
rate
over a fixed percentage amount during the life of any ARM Loan and (3) be
based
on an index, which may not rise and fall consistently with the mortgage interest
rate, plus the related fixed percentage set forth in the related mortgage
note,
which may be different from margins being used at the time for newly originated
adjustable rate mortgage loans. As a result, the interest rates on the ARM
Loans
in a mortgage pool at any time may not equal the prevailing rates for similar,
newly originated adjustable rate mortgage loans. In certain rate environments,
the prevailing rates on fixed rate mortgage loans may be sufficiently low
in
relation to the then-current mortgage rates on ARM Loans with the result
that
the rate of prepayments may increase as a result of refinancings. There can
be
no certainty as to the rate of prepayments on the mortgage assets during
any
period or over the life of any series of securities.
The
interest rates on ARM Loans subject to negative amortization generally adjust
monthly and their amortization schedules adjust less frequently. During a
period
of rising interest rates, as well as immediately after origination when initial
interest rates are generally lower than the sum of the indices applicable
at
origination and the related margins, the amount of interest accruing on the
principal balance of these types of mortgage assets may exceed the amount
of the
minimum scheduled monthly payment thereon. As a result, a portion of the
accrued
interest on negatively amortizing mortgage assets may become deferred interest
which will be added to the principal balance thereof and will bear interest
at
the applicable interest rate. The addition of any deferred interest to the
principal balance of any related class or classes of securities of a series
will
lengthen the weighted average life thereof and may adversely affect yield
to
holders thereof, depending upon the price at which the securities were
purchased. In addition, with respect to certain ARM Loans subject to negative
amortization, during a period of declining interest rates, it might be expected
that each minimum scheduled monthly payment on the ARM Loan would exceed
the
amount of scheduled principal and accrued interest on the principal balance
thereof, and since such excess will be applied to reduce the principal balance
of the related class or classes of securities, the weighted average life
of the
securities will be reduced which may adversely affect yield to holders thereof,
depending upon the price at which such securities were purchased.
Foreclosures
and Payment Plans
The
number of foreclosures and the principal amount of the mortgage assets that
are
foreclosed in relation to the number of mortgage assets that are repaid in
accordance with their terms will affect the weighted average life of those
mortgage assets and that of the related series of securities. Servicing
decisions made with respect to the mortgage assets, including the use of
payment
plans prior to a demand for acceleration and the restructuring of mortgage
assets in bankruptcy proceedings, may also have an effect upon the payment
patterns of particular mortgage assets and thus the
weighted
average life of the securities.
Due-on-sale
Clauses.
Acceleration of mortgage payments as a result of certain transfers of or
the
creation of encumbrances upon underlying mortgaged property is another factor
affecting prepayment rates that may not be reflected in the prepayment standards
or models used in the relevant prospectus supplement. In most cases the mortgage
assets will include “due-on-sale” clauses that permit the lender in certain
instances to accelerate the maturity of the loan if the borrower sells,
transfers or conveys the property. The master servicer, on behalf of the
trust
fund, will employ its usual practices in determining whether to exercise
any
right that the trustee may have as mortgagee to accelerate payment of the
mortgage asset. An ARM Loan may be assumable under some conditions if the
proposed transferee of the related mortgaged property establishes its ability
to
repay the mortgage asset and, in the reasonable judgment of the servicer
or the
related sub-servicer, the security for the ARM Loan would not be impaired
by the
assumption. The extent to which ARM Loans are assumed by purchasers of the
mortgaged properties rather than prepaid by the related mortgagors in connection
with the sales of the mortgaged properties will affect the weighted average
life
of the related series of securities. See “Legal Aspects of Mortgage
Assets—Enforceability of Certain Provisions.”
THE
DEPOSITOR’S
MORTGAGE LOAN PURCHASE PROGRAM
The
mortgage loans to be included in a trust fund will be purchased by the
depositor, either directly or indirectly, from the mortgage loan
sellers.
Underwriting
Standards
All
mortgage loans to be included in a trust fund will have been subject to
underwriting standards acceptable to the depositor and applied as described
in
the following paragraph. Each mortgage loan seller, or another party on its
behalf, will represent and warrant that mortgage loans purchased by or on
behalf
of the depositor from it have been originated by the related originators
in
accordance with these underwriting guidelines.
The
underwriting standards are applied by the originators to evaluate the value
of
the mortgaged property and to evaluate the adequacy of the mortgaged property
as
collateral for the mortgage loan. While the originator’s primary consideration
in underwriting a mortgage loan is the value of the mortgaged property, the
originator also considers the borrower’s credit history and repayment ability as
well as the type and use of the mortgaged property. As a result of this
underwriting criteria, changes in the values of mortgage properties may have
a
greater effect on the delinquency, foreclosure and loss experience on the
mortgage loans in a trust fund than these changes would be expected to have
on
mortgage loans that are originated in a more traditional manner. No assurance
can be given by the depositor that the values of the related mortgaged
properties have remained or will remain at the levels in effect on the dates
of
origination of the related mortgage loans.
High
LTV
Loans are underwritten with an emphasis on the creditworthiness of the related
mortgagor. High LTV are underwritten with a limited expectation of recovering
any amounts from the foreclosure of the related property.
In
the
case of the multifamily loans, commercial loans or mixed-use loans, lenders
typically look to the debt service coverage ratio of a loan as an important
measure of the risk of default on that loan. Unless otherwise defined in
the
related prospectus supplement, the debt service coverage ratio of a multifamily
loan or commercial loan at any given time is the ratio of (1) the net operating
income of the related mortgaged property for a twelve-month period to (2)
the
annualized scheduled payments on the mortgage loan and on any other loan
that is
secured by a lien on the mortgaged property prior to the lien of the related
mortgage. Net operating incomes is: the total operating revenues derived
from a
multifamily, commercial or mixed-use property, as applicable, during that
period, minus the total operating expenses incurred in respect of that property
during that period other than (a) non-cash items such as depreciation and
amortization, (b) capital expenditures and (c) debt service on loans (including
the related mortgage loan) secured by liens on that property. The net operating
income of a multifamily, commercial or mixed-use property, as applicable,
will
fluctuate over time and may or may not be sufficient to cover debt service
on
the related mortgage loan at any given time. As the primary source of the
operating revenues of a multifamily, commercial or mixed- use property, as
applicable, rental income (and maintenance payments from tenant-stockholders
of
a cooperatively owned multifamily property) may be affected by the condition
of
the applicable real estate market and/or area economy. Increases in operating
expenses due to the general economic climate or economic conditions in a
locality or industry segment, such as increases in interest rates, real estate
tax rates, energy costs, labor costs and other operating expenses, and/or
to
changes in governmental rules, regulations and fiscal policies, may also
affect
the risk of default on a multifamily, commercial or mixed-use loan. Lenders
also
look to the loan-to-value ratio of a multifamily, commercial or mixed-use
loan
as a measure of risk of loss if a property must be liquidated following a
default.
Typically,
the underwriting process used by an originator is as described in this and
the
next two following paragraphs. The prospectus supplement for a series will
describe any variations to this process as it applies to the related mortgage
assets. Initially, a prospective borrower is required to complete an application
with respect to the applicant’s liabilities, income and credit history and
personal information, as well as an authorization to apply for a credit report
that summarizes the borrower’s reported credit history with local merchants and
lenders and any record of bankruptcy. In addition, an employment verification
is
obtained that reports the borrower’s current salary and may contain information
regarding length of employment. If a prospective borrower is self- employed,
the
borrower is required to submit copies of signed tax returns or other proof
of
business income. The borrower may also be required to authorize verification
of
deposits at financial institutions where the borrower has demand or savings
accounts. In the case of a multifamily loan, commercial loan or mixed-use
loan,
the mortgagor will also be required to provide certain information regarding
the
related mortgaged property, including a current rent roll and operating income
statements which may be pro forma and unaudited. In addition, the originator
will generally also consider the location of the mortgaged property, the
availability of competitive lease space and rental income of comparable
properties in the relevant market area, the overall economy and demographic
features of the geographic area and the mortgagor’s prior experience in owning
and operating properties similar to the multifamily properties or commercial
properties, as the case may be.
In
determining the adequacy of the property as collateral, an appraisal is made
of
each property considered for financing, except in the case of new manufactured
homes whose appraised value is determined using the list price of the unit
and
accessories as described above under “Description of the Trust Funds.” Each
appraiser is selected in accordance with predetermined guidelines established
for appraisers. The appraiser is required to inspect the property and verify
that it is in good condition and that construction, if new, has been completed.
The appraisal is based on the market value of comparable homes, the estimated
rental income, if considered applicable by the appraiser, and, when deemed
appropriate, the cost of replacing the home. With respect to multifamily
properties, commercial properties and mixed-use properties, the appraisal
must
specify whether an income analysis, a market analysis or a cost analysis
was
used. An appraisal employing the income approach to value analyzes a property’s
projected net cash flow, capitalization and other operational information
in
determining the property’s value. The market approach to value analyzes the
prices paid for the purchase of similar properties in the property’s area, with
adjustments made for variations between those other properties and the property
being appraised. The cost approach to value requires the appraiser to make
an
estimate of land value and then determine the current cost of reproducing
the
improvements less any accrued depreciation. The value of the property being
financed, as indicated by the appraisal, must be high enough so that it
currently supports, and is anticipated to support in the future, the outstanding
loan balance.
In
the
case of single family loans and contracts, once all applicable employment,
credit and property information is received, the originator reviews the
applicant’s source of income, calculates the amount of income from sources
indicated on the loan application or similar documentation, reviews the credit
history of the applicant, calculates the debt service-to-income ratio to
determine the applicant’s ability to repay the loan, reviews the type of
property being financed and reviews the property. In evaluating the credit
quality of borrowers, the originator may utilize the FICO score supplied
by the
credit bureau with the credit report (a statistical ranking of likely future
credit performance developed by Fair, Isaac & Company and three national
credit data repositories - Equifax, TransUnion and Experian).
In
the
case of a mortgage loan secured by a leasehold interest in a residential
property, the title to which is held by a third party lessor, the mortgage
loan
seller, or another party on its behalf, will be required to warrant, among
other
things, that the remaining term of the lease and any sublease be at least
five
years longer than the remaining term of the mortgage loan.
With
respect to any loan insured by the FHA, the mortgage loan seller is required
to
represent that the FHA loan complies with the applicable underwriting policies
of the FHA. See “Description of Primary Insurance Policies—FHA
Insurance.”
With
respect to any loan guaranteed by the VA, the mortgage loan seller will be
required to represent that the VA loan complies with the applicable underwriting
policies of the VA. See “Description of Primary Insurance Policies—VA
Guarantees.”
The
recent foreclosure or repossession and delinquency experience with respect
to
loans serviced by the master servicer or, if applicable, a significant
sub-servicer will be provided in the related prospectus supplement.
Qualifications
of Originators and Mortgage Loan Sellers
Each
originator will be required to satisfy the qualifications set forth in this
paragraph. Each originator must be an institution experienced in originating
conventional mortgage loans in accordance with customary and reasonable
practices and the mortgage loan seller’s or the depositor’s guidelines, and must
maintain satisfactory facilities to originate those loans. Each originator
must
be a HUD-approved mortgagee or an institution the deposit accounts in which
are
insured by the Bank Insurance Fund or Savings Association Insurance Fund
of the
FDIC. In addition, with respect to FHA loans or VA loans, each originator
must
be approved to originate the mortgage loans by the FHA or VA, as applicable.
Each originator and mortgage loan seller must also satisfy criteria as to
financial stability evaluated on a case by case basis by the
depositor.
Representations
by or on Behalf of Mortgage Loan Sellers; Remedies for Breach of
Representation
Each
mortgage loan seller, or a party on its behalf, will have made representations
and warranties in respect of the mortgage loans sold by that mortgage loan
seller. The following material representations and warranties as to the mortgage
loans will be made by or on behalf of each mortgage loan seller:
·
that
any required hazard insurance was effective at the origination
of each
mortgage loan, and that each required policy remained in effect
on the
date of purchase of the mortgage loan from the mortgage loan seller
by or
on behalf of the depositor;
·
that
either (A) title insurance insuring, subject only to permissible
title
insurance exceptions, the lien status of the Mortgage was effective
at the
origination of each mortgage loan and the policy remained in effect
on the
date of purchase of the mortgage loan from the mortgage loan seller
by or
on behalf of the depositor or (B) if the mortgaged property securing
any
mortgage loan is located in an area where title insurance policies
are
generally not available, there is in the related mortgage file
an
attorney’s certificate of title indicating, subject to permissible
exceptions set forth therein, the lien status of the
mortgage;
·
that
the mortgage loan seller had good title to each mortgage loan and
each
mortgage loan was subject to no valid offsets, defenses, counterclaims
or
rights of rescission except to the extent that any buydown agreement
described herein may forgive some indebtedness of a
borrower;
·
that
each Mortgage constituted a valid lien on, or security interest
in, the
mortgaged property, subject only to permissible title insurance
exceptions
and senior liens, if any, and that the mortgaged property was free
from
material damage and was in good
repair;
·
that
there were no delinquent tax or assessment liens against the mortgaged
property;
·
that
each mortgage loan was not currently more than 90 days delinquent
as to
required monthly payments of principal and interest;
and
·
that
each mortgage loan was made in compliance with, and is enforceable
under,
all applicable local, state and federal laws and regulations in
all
material respects.
If
a
person other than a mortgage loan seller makes any of the foregoing
representations and warranties on behalf of the mortgage loan seller, the
identity of the person will be specified in the related prospectus supplement.
Any person making representations and warranties on behalf of a mortgage
loan
seller shall be an affiliate of the mortgage loan seller or a person acceptable
to the depositor having knowledge regarding the subject matter of those
representations and warranties.
All
of
the representations and warranties made by or on behalf of a mortgage loan
seller in respect of a mortgage loan will have been made as of the date on
which
the mortgage loan seller sold the mortgage loan to or on behalf of the
depositor. A substantial period of time may have elapsed between the date
the
representation or warranty was made to or on behalf of the depositor and
the
date of initial issuance of the series of securities evidencing an interest
in
the related mortgage loan. In the event of a breach of any representation
or
warranty made by a mortgage loan seller, the mortgage loan seller will be
obligated to cure the breach or repurchase or replace the affected mortgage
loan
as described in the second following paragraph. Since the representations
and
warranties made by or on behalf of a mortgage loan seller do not address
events
that may occur following the sale of a mortgage loan by that mortgage loan
seller, it will have a cure, repurchase or substitution obligation in connection
with a breach of a representation and warranty only if the relevant event
that
causes the breach occurs prior to the date of the sale to or on behalf of
the
depositor. A mortgage loan seller would have no repurchase or substitution
obligations if the relevant event that causes the breach occurs after the
date
of the sale to or on behalf of the depositor. However, the depositor will
not
include any mortgage loan in the trust fund for any series of securities
if
anything has come to the depositor’s attention that would cause it to believe
that the representations and warranties made in respect of a mortgage loan
will
not be accurate and complete in all material respects as of the date of initial
issuance of the related series of securities.
The
only
representations and warranties to be made for the benefit of holders of
securities in respect of any mortgage loan relating to the period commencing
on
the date of sale of a mortgage loan by the mortgage loan seller to or on
behalf
of the depositor will be the limited representations of the depositor and
of the
master servicer described below under “Description of the Securities—Assignment
of Trust Fund Assets; Review of Files by Trustee.” If the master servicer is
also a mortgage loan seller with respect to a particular series, the
representations will be in addition to the representations and warranties
made
by the master servicer in its capacity as a mortgage loan seller.
The
master servicer and the trustee, or the trustee, will promptly notify the
relevant mortgage loan seller of any breach of any representation or warranty
made by or on behalf of it in respect of a mortgage loan that materially
and
adversely affects the value of that mortgage loan or the interests in the
mortgage loan of the securityholders. If the mortgage loan seller cannot
cure a
breach within a specified time period from the date on which the mortgage
loan
seller was notified of the breach, then the mortgage loan seller will be
obligated to repurchase the affected mortgage loan from the trustee within
a
specified time period from the date on which the mortgage loan seller was
notified of the breach, at the purchase price therefor. A mortgage loan seller,
rather than repurchase a mortgage loan as to which a breach has occurred,
may
have the option, within a specified period after initial issuance of the
related
series of securities, to cause the removal of the mortgage loan from the
trust
fund and substitute in its place one or more other mortgage loans, in accordance
with the standards described below under “Description of the
Securities—Assignment of the Mortgage Loans.” The master servicer will be
required under the applicable servicing agreement to use its best efforts
to
enforce the repurchase or substitution obligations of the mortgage loan seller
for the benefit of the trustee and the holders of the securities, following
the
practices it would employ in its good faith business judgment were it the
owner
of the mortgage loan. This repurchase or substitution obligation will constitute
the sole remedy available to holders of securities or the trustee for a breach
of representation by a mortgage loan seller. See “Description of the
Securities.”
Neither
the depositor nor the master servicer will be obligated to purchase or
substitute for a mortgage loan if a mortgage loan seller defaults on its
obligation to do so, and no assurance can be given that mortgage loan sellers
will carry out their repurchase or substitution obligations with respect
to
mortgage loans. To the extent that a breach of the representations and
warranties of a mortgage loan seller may also constitute a breach of a
representation made by the depositor, the depositor may have a repurchase
or
substitution obligation as described below under “Description of the
Securities—Assignment of Trust Fund Assets; Review of Files by
Trustee.”
DESCRIPTION
OF THE SECURITIES
The
securities will be issued in series. Each series of certificates evidencing
interests in a trust fund consisting of mortgage loans will be issued in
accordance with a pooling and servicing agreement among the depositor, the
master servicer and the trustee named in the prospectus supplement. Each
series
of notes evidencing indebtedness of a trust fund consisting of mortgage loans
will be issued in accordance with an indenture between the related issuer
and
the trustee named in the prospectus supplement. The issuer of notes will
be the
depositor or an owner trust established under an owner trust agreement between
the depositor and the owner trustee for the purpose of issuing a series of
notes. Where the issuer is an owner trust, the ownership of the trust fund
will
be evidenced by equity certificates issued under the owner trust agreement,
which may or may not be offered publicly. The provisions of each agreement
will
vary depending upon the nature of the securities to be issued thereunder
and the
nature of the related trust fund. Various forms of pooling and servicing
agreement, servicing agreement, owner trust agreement, trust agreement and
indenture have been filed as exhibits to the registration statement of which
this prospectus is a part. The following summaries describe specific provisions
which will appear in each agreement. The prospectus supplement for a series
of
securities will describe additional provisions of the agreement relating
to a
series. This prospectus together with the prospectus supplement will describe
the material terms of the agreement governing the trust fund related to a
series
of securities. As used in this prospectus supplement with respect to any
series,
the term certificate or the term note refers to all of the certificates or
notes
of that series, whether or not offered by this prospectus and by the related
prospectus supplement, unless the context otherwise requires.
The
certificates of each series, including any class of certificates not offered
hereby, will be issued in fully registered form only and will represent the
entire beneficial ownership interest in the trust fund created by the related
pooling and servicing agreement. The notes of each series, including any
class
of notes not offered hereby, will be issued in fully registered form only
and
will represent indebtedness of the trust fund created by the related indenture.
If so provided in the prospectus supplement, any class of securities of any
series may be represented by a certificate or note registered in the name
of a
nominee of The Depository Trust Company. The interests of beneficial owners
of
securities registered in the name of DTC will be represented by entries on
the
records of participating members of DTC. Definitive certificates or notes
will
be available for securities registered in the name of DTC only under the
limited
circumstances. The securities will be transferable and exchangeable for like
securities of the same class and series in authorized denominations at the
corporate trust office of the trustee as specified in the related prospectus
supplement. The prospectus supplement for each series of securities will
describe any limitations on transferability. No service charge will be made
for
any registration of exchange or transfer of securities, but the depositor
or the
trustee or any agent of the trustee may require payment of a sum sufficient
to
cover any tax or other governmental charge.
Each
series of securities may consist of either:
·
a
single class of securities evidencing the entire beneficial ownership
of
or indebtedness of the related trust
fund;
·
two
or more classes of securities evidencing the entire beneficial
ownership
of or indebtedness of the related trust fund, one or more classes
of which
will be senior in right of payment to one or more of the other
classes;
·
two
or more classes of securities, one or more classes of which are
entitled
to (a) principal distributions, with disproportionate, nominal
or no
interest distributions or (b) interest distributions, with
disproportionate, nominal or no principal distributions;
and
·
two
or more classes of securities which differ as to timing, sequential
order,
priority of payment, security interest rate or amount of distributions
of
principal or interest or both, or as to which distributions of
principal
or interest or both on any class may be made upon the occurrence
of
specified events, in accordance with a schedule or formula, or
on the
basis of collections from designated portions of the mortgage pool,
which
series may include one or more classes of securities, as to which
accrued
interest or a portion thereof will not be distributed but rather
will be
added to the principal balance of the security on each distribution
date
in the manner described in the related prospectus
supplement.
With
respect to any series of notes, the equity certificates, insofar as they
represent the beneficial ownership interest in the issuer, will be subordinate
to the related notes.
Each
class of securities, other than interest only Strip Securities, will have
a
stated principal amount and, unless otherwise provided in the related prospectus
supplement, will be entitled to payments of interest on the stated principal
amount based on a fixed, variable or adjustable interest rate. The security
interest rate of each security offered hereby will be stated in the related
prospectus supplement as the pass-through rate with respect to a certificate
and
the note interest rate with respect to a note. See “—Distribution of Interest on
the Securities” and “—Distribution of Principal of the Securities”
below.
The
specific percentage ownership interest of each class of securities and the
minimum denomination for each security will be set forth in the related
prospectus supplement.
As
to
each series of certificates with respect to which a REMIC election is to
be
made, the master servicer or the trustee will be obligated to take all actions
required in order to comply with applicable laws and regulations, and will
be
obligated to pay any Prohibited Transaction Taxes or Contribution Taxes arising
out of a breach of its obligations with respect to its compliance without
any
right of reimbursement therefor from the trust fund or from any securityholder.
A Prohibited Transaction Tax or Contribution Tax resulting from any other
cause
will be charged against the related trust fund, resulting in a reduction
in
amounts otherwise distributable to securityholders. See “Federal Income Tax
Consequences.”
Assignment
of Trust Fund Assets; Review of Files by Trustee
At
the
time of issuance of any series of securities, the depositor will cause the
pool
of mortgage assets to be included in the related trust fund to be assigned
to
the trustee, together with all principal and interest received by or on behalf
of the depositor on or with respect to the mortgage assets after the related
cut-off date, other than principal and interest due on or before the cut-off
date and other than any retained interest. The trustee will, concurrently
with
the assignment of mortgage assets, deliver the securities to the depositor
in
exchange for the trust fund assets. Each mortgage asset will be identified
in a
schedule appearing as an exhibit to the related agreement. The schedule of
mortgage assets will include detailed information as to the mortgage asset
included in the related trust fund, including the outstanding principal balance
of each mortgage asset after application of payments due on the cut-off date,
information regarding the interest rate on the mortgage asset, the interest
rate
net of the sum of the rates at which the servicing fees and the retained
interest, if any, are calculated, the retained interest, if any, the current
scheduled monthly payment of principal and interest, the maturity of the
mortgage note, the value of the mortgaged property, the loan-to-value ratio
at
origination and other information with respect to the mortgage
assets.
If
so
specified in the related prospectus supplement, and in accordance with the
rules
of membership of Merscorp, Inc. and/or Mortgage Electronic Registration Systems,
Inc. or, MERS, assignments of the mortgages for the mortgage loans in the
related trust will be registered electronically through Mortgage Electronic
Registration Systems, Inc., or MERS(R)
System.
With respect to mortgage loans registered through the MERS(R)
System,
MERS shall serve as mortgagee of record solely as a nominee in an administrative
capacity on behalf of the trustee and shall not have any interest in any
of
those mortgage loans.
The
depositor will, with respect to each mortgage asset, deliver or cause to
be
delivered to the trustee, or to the custodian hereinafter referred
to:
·
With
respect to each mortgage loan, (1) the mortgage note endorsed,
without
recourse, to the order of the trustee or in blank, (2) the original
Mortgage with evidence of recording indicated thereon and an assignment
of
the Mortgage to the trustee or in blank, in recordable form. If,
however,
a mortgage loan has not yet been returned from the public recording
office, the depositor will deliver or cause to be delivered a copy
of the
Mortgage together with its certificate that the original of the
Mortgage
was delivered to the recording office. The depositor will promptly
cause
the assignment of each related mortgage loan to be recorded in
the
appropriate public office for real property records, except for
Mortgages
held under the MERS(R)
System and except in the State of California or in other states
where, in
the opinion of counsel acceptable to the trustee, recording of
the
assignment is not required to protect the trustee’s interest in the
mortgage loan against the claim of any subsequent transferee or
any
successor to or creditor of the depositor, the master servicer,
the
relevant mortgage loan seller or any other prior holder of the
mortgage
loan. If the depositor uses the MERS(R)
System, it will deliver evidence that the Mortgage is held for
the trustee
through the MERS(R)
System instead of an assignment of the Mortgage in recordable
form.
·
With
respect to each cooperative loan, (1) the cooperative note, (2)
the
original security agreement, (3) the proprietary lease or occupancy
agreement, (4) the related stock certificate and related stock
powers
endorsed in blank, and (5) a copy of the original filed financing
statement together with an assignment thereof to the trustee in
a form
sufficient for filing. The depositor will promptly cause the assignment
and financing statement of each related cooperative loan to be
filed in
the appropriate public office, except in states where in the opinion
of
counsel acceptable to the trustee, filing of the assignment and
financing
statement is not required to protect the trustee’s interest in the
cooperative loan against the claim of any subsequent transferee
or any
successor to or creditor of the depositor, the master servicer,
the
relevant mortgage loan seller or any prior holder of the cooperative
loan.
·
With
respect to each manufactured housing contract or home improvement
contract, (1) the original contract endorsed, without recourse,
to the
order of the trustee and copies of documents and (2) instruments
related
to the contract and the security interest in the property securing
the
contract, and (3) a blanket assignment to the trustee of all contracts
in
the related trust fund and the documents and instruments. In order
to give
notice of the right, title and interest of the securityholders
to the
contracts, the depositor will cause to be executed and delivered
to the
trustee a UCC-1 financing statement identifying the trustee as
the secured
party and identifying all contracts as
collateral.
With
respect to any mortgage loan secured by a mortgaged property located in Puerto
Rico, the Mortgages with respect to these mortgage loans either (a) secure
a
specific obligation for the benefit of a specified person or (b) secure an
instrument transferable by endorsement. Endorsable Puerto Rico Mortgages
do not
require an assignment to transfer the related lien. Rather, transfer of
endorsable mortgages follows an effective endorsement of the related mortgage
note and, therefore, delivery of the assignment referred to in the first
bullet
point above would be inapplicable. Puerto Rico Mortgages that secure a specific
obligation for the benefit of a specified person, however, require an assignment
to be recorded with respect to any transfer of the related lien and the
assignment for that purpose would be delivered to the trustee.
The
trustee, or the custodian, will review the mortgage loan documents within
a
specified period after receipt, and the trustee, or the custodian, will hold
the
mortgage loan documents in trust for the benefit of the securityholders.
If any
mortgage loan document is found to be missing or defective in any material
respect, the trustee, or the custodian, shall notify the master servicer
and the
depositor, and the master servicer shall immediately notify the relevant
mortgage loan seller. If the mortgage loan seller cannot cure the omission
or
defect within a specified number of days after receipt of notice, the mortgage
loan seller will be obligated to repurchase the related mortgage asset from
the
trustee at the repurchase price or substitute for the mortgage asset. There
can
be no assurance that a mortgage loan seller will fulfill this repurchase
or
substitution obligation. Although the master servicer is obligated to use
its
best efforts to enforce the repurchase or substitution obligation to the
extent
described above under “The Depositor’s Mortgage Loan Purchase
Program-Representations by or on behalf of Mortgage Loan Sellers; Remedies
for
Breach of Representation”, neither the master servicer nor the depositor will be
obligated to repurchase or substitute for that mortgage asset if the mortgage
loan seller defaults on its obligation. The assignment of the mortgage assets
to
the trustee will be without recourse to the depositor and this repurchase
or
substitution obligation constitutes the sole remedy available to the
securityholders or the trustee for omission of, or a material defect in,
a
constituent document.
Representations
and Warranties; Repurchases
With
respect to the mortgage assets included in a trust fund, the depositor will
make
representations and warranties as of a specified date, covering by way of
example, the following matters:
·
the
type of mortgaged property;
·
the
geographical concentration of the mortgage
assets;
·
the
original loan-to-value ratio;
·
the
principal balance as of the cut-off
date;
·
the
interest rate and maturity; and
·
the
payment status of the mortgage asset; and the accuracy of the information
set forth for each mortgage asset on the related mortgage loan
schedule.
Upon
a
breach of any representation of the depositor that materially and adversely
affects the value of a mortgage asset or the interests of the securityholders
in
the mortgage asset, the depositor will be obligated either to cure the breach
in
all material respects, repurchase the mortgage asset at the repurchase price
or
substitute for that mortgage asset as described in the paragraph
below.
If
the
depositor discovers or receives notice of any breach of its representations
or
warranties with respect to a mortgage asset, the depositor may be permitted
under the agreement governing the trust fund to remove the mortgage asset
from
the trust fund, rather than repurchase the mortgage asset, and substitute
in its
place one or more mortgage assets, but only if (a) with respect to a trust
fund
for which a REMIC election is to be made, the substitution is effected within
two years of the date of initial issuance of the certificates, plus permissible
extensions, or (b) with respect to a trust fund for which no REMIC election
is
to be made, the substitution is effected within 180 days of the date of initial
issuance of the securities. Each substitute mortgage asset will, on the date
of
substitution, comply with the following requirements:
(1)
have
an outstanding principal balance, after deduction of all scheduled
payments due in the month of substitution, not in excess of, and
not more
than $10,000 less than, the outstanding principal balance, after
deduction
of all unpaid scheduled payments due as of the date of substitution,
of
the deleted mortgage asset,
(2)
have
an interest rate not less than, and not more than 1% greater than,
the
interest rate of the deleted mortgage
asset,
(3)
have
a remaining term to maturity not greater than, and not more than
one year
less than, that of the deleted mortgage
asset,
(4)
have
a Lockout Date, if applicable, not earlier than the Lockout Date
on the
deleted mortgage loan, and
(5)
comply
with all of the representations and warranties set forth in the
pooling
and servicing agreement or indenture as of the date of
substitution.
In
connection with any substitution, an amount equal to the difference between
the
purchase price of the deleted mortgage asset and the outstanding principal
balance of the substitute mortgage asset, after deduction of all scheduled
payments due in the month of substitution, together with one month’s interest at
the applicable rate at which interest accrued on the deleted mortgage loan,
less
the servicing fee rate and the retained interest, if any, on the difference,
will be deposited in the distribution account and distributed to securityholders
on the first distribution date following the prepayment period in which the
substitution occurred. In the event that one mortgage asset is substituted
for
more than one deleted mortgage asset, or more than one mortgage asset is
substituted for one or more deleted mortgage assets, then the amount described
in (1) above will be determined on the basis of aggregate principal balances,
the rate described in (2) above with respect to deleted mortgage assets will
be
determined on the basis of weighted average interest rates, and the terms
described in (3) above will be determined on the basis of weighted average
remaining terms to maturity and the Lockout Dates described in (4) above
will be
determined on the basis of weighted average Lockout Dates.
With
respect to any series as to which credit support is provided by means of
a
mortgage pool insurance policy, in addition to making the representations
and
warranties described above, the depositor or the related mortgage loan seller,
or another party on behalf of the related mortgage loan seller, as specified
in
the related prospectus supplement, will represent and warrant to the trustee
that no action has been taken or failed to be taken, no event has occurred
and
no state of facts exists or has existed on or prior to the date of the initial
issuance of the securities which has resulted or will result in the exclusion
from, denial of or defense to coverage under any applicable primary mortgage
insurance policy, FHA insurance policy, mortgage pool insurance policy, special
hazard insurance policy or bankruptcy bond, irrespective of the cause of
the
failure of coverage but excluding any failure of an insurer to pay by reason
of
the insurer’s own breach of its insurance policy or its financial inability to
pay. This representation is referred to in this prospectus and the related
prospectus supplement as the insurability representation. Upon a breach of
the
insurability representation which materially and adversely affects the interests
of the securityholders in a mortgage loan, the depositor or the mortgage
loan
seller, as the case may be, will be obligated either to cure the breach in
all
material respects or to purchase the affected mortgage asset at the purchase
price. The related prospectus supplement may provide that the performance
of an
obligation to repurchase mortgage assets following a breach of an insurability
representation will be ensured in the manner specified in the prospectus
supplement. See “Description of Primary Insurance Policies” and “Description of
Credit Support” in this Prospectus and in the related prospectus supplement for
information regarding the extent of coverage under the aforementioned insurance
policies.
The
obligation to repurchase or, other than with respect to the insurability
representation if applicable, to substitute mortgage loans constitutes the
sole
remedy available to the securityholders or the trustee for any breach of
the
representations.
The
master servicer will make representations and warranties regarding its authority
to enter into, and its ability to perform its obligations under, the servicing
agreement. Upon a breach of any representation of the master servicer which
materially and adversely affects the interests of the securityholders, the
master servicer will be obligated to cure the breach in all material
respects.
Establishment
of Collection Account; Deposits to Collection Account in Respect of Trust
Fund
Assets
The
master servicer or the trustee will, as to each trust fund, establish and
maintain or cause to be established and maintained one or more separate accounts
for the collection of payments on the related trust fund assets. These accounts
are collectively referred to in this prospectus and the related prospectus
supplement as the collection account. The collection account must be
either
·
maintained
with a bank or trust company, and in a manner, satisfactory to
the rating
agency or agencies rating any class of securities of the series
or
·
an
account or accounts the deposits in which are insured by the BIF
or the
SAIF, to the limits established by the FDIC, and the uninsured
deposits in
which are otherwise secured so that the securityholders have a
claim with
respect to the funds in the collection account or a perfected first
priority security interest against any collateral securing the
funds that
is superior to the claims of any other depositors or general creditors
of
the institution with which the collection account is
maintained.
The
collateral eligible to secure amounts in the collection account is limited
to
United States government securities and other high-quality investments specified
in the related servicing agreement as permitted investments. A collection
account may be maintained as an interest bearing or a non-interest bearing
account, or the funds held in the collection account may be invested pending
each succeeding distribution date in permitted investments. Any interest
or
other income earned on funds in the collection account will be paid to the
master servicer or the trustee or their designee as additional compensation.
The
collection account may be maintained with an institution that is an affiliate
of
the master servicer or the trustee, provided that the institution meets the
standards set forth in the bullet points above. If permitted by the rating
agency or agencies and so specified in the related prospectus supplement,
a
collection account may contain funds relating to more than one series of
pass-through certificates and may, if applicable, contain other funds respecting
payments on mortgage loans belonging to the master servicer or serviced or
master serviced by it on behalf of others.
Each
sub-servicer servicing a trust fund asset under a sub-servicing agreement
will
establish and maintain one or more separate accounts which may be interest
bearing and which will comply with the standards with respect to collection
accounts or other standards as may be acceptable to the master servicer.
The
sub-servicer is required to credit to the related sub-servicing account on
a
daily basis the amount of all proceeds of mortgage assets received by the
sub-servicer, less its servicing compensation. The sub-servicer will remit
to
the master servicer by wire transfer of immediately available funds all funds
held in the sub-servicing account with respect to each mortgage asset on
the
monthly remittance date or dates specified in the related servicing
agreement.
The
master servicer will deposit or cause to be deposited in the collection account
for each trust fund including mortgage loans, the following payments and
collections received, or advances made, by the master servicer or on its
behalf
subsequent to the cut-off date, other than payments due on or before the
cut-off
date and exclusive of any retained interest, unless otherwise specified in
the
related prospectus supplement:
(1)
all
payments on account of principal, including principal prepayments,
on the
mortgage assets;
(2)
all
payments on account of interest on the mortgage assets, net of
any portion
retained by the master servicer or by a sub-servicer as its servicing
compensation and net of any retained
interest;
(3)
all
proceeds of the hazard insurance policies and any special hazard
insurance
policy, other than amounts to be not applied to the restoration
or repair
of the property or released to the mortgagor in accordance with
the normal
servicing procedures of the master servicer or the related sub-servicer,
subject to the terms and conditions of the related Mortgage and
mortgage
note, any primary mortgage insurance policy, any FHA insurance
policy, any
VA guarantee, any bankruptcy bond and any mortgage pool insurance
policy
and all other amounts received and retained in connection with
the
liquidation of defaulted mortgage loans, by foreclosure or otherwise,
together with the net proceeds on a monthly basis with respect
to any
mortgaged properties acquired for the benefit of securityholders
by
foreclosure or by deed in lieu of foreclosure or
otherwise;
(4)
any
amounts required to be paid under any letter of credit, as described
below
under “Description of Credit Support—Letter of
Credit”;
(5)
any
advances made as described below under “Advances by the Master Servicer in
respect of Delinquencies on the Trust Funds
Assets”;
(6)
if
applicable, all amounts required to be transferred to the collection
account from a reserve fund, as described below under “Description of
Credit Support—Reserve Funds”;
(7)
any
buydown funds, and, if applicable, investment earnings thereon,
required
to be deposited in the collection account as described in the first
paragraph below;
(8)
all
proceeds of any mortgage loan or property in respect of the mortgage
asset
purchased by the master servicer, the depositor, any sub-servicer
or any
mortgage loan seller as described under “The Depositor’s Mortgage Loan
Purchase Program-Representations by or on behalf of Mortgage Loan
Sellers;
Remedies for Breach of Representations” or “—Assignment of Trust Fund
Assets; Review of Files by Trustee” above, exclusive of the retained
interest, if any, in respect of the mortgage
asset;
(9)
all
proceeds of any mortgage loan repurchased as described under
“—Termination” below;
(10)
all
payments required to be deposited in the collection account with
respect
to any deductible clause in any blanket insurance policy described
under
“Description of Primary Insurance Policies—Primary Hazard Insurance
Policies”; and
(11)
any
amount required to be deposited by the master servicer in connection
with
net losses realized on investments for the benefit of the master
servicer
of funds held in the collection
account.
With
respect to each buydown mortgage loan, the master servicer, or a sub-servicer,
will deposit related buydown funds in a custodial account, which may be interest
bearing, and that otherwise meets the standards for collection accounts.
This
account is referred to in this prospectus and the related prospectus supplement
as a buydown account. The terms of all buydown mortgage loans provide for
the
contribution of buydown funds in an amount not less than either (a) the total
payments to be made from the buydown funds under the related buydown plan
or (b)
if the buydown funds are present valued, that amount that, together with
investment earnings thereon at a specified rate, compounded monthly, will
support the scheduled level of payments due under the buydown mortgage loan.
Neither the master servicer, the sub-servicer nor the depositor will be
obligated to add to the buydown funds any of its own funds should investment
earnings prove insufficient to maintain the scheduled level of payments.
To the
extent that any insufficiency in buydown funds is not recoverable from the
borrower, distributions to securityholders will be affected. With respect
to
each buydown mortgage loan, the master servicer will deposit in the collection
account the amount, if any, of the buydown funds, and, if applicable, investment
earnings thereon, for each buydown mortgage loan that, when added to the
amount
due from the borrower on the buydown mortgage loan, equals the full monthly
payment which would be due on the buydown mortgage loan if it were not subject
to the buydown plan.
If
a
buydown mortgage loan is prepaid in full or liquidated, the related buydown
funds will be applied as follows. If the mortgagor on a buydown mortgage
loan
prepays the loan in its entirety during the buydown period, the master servicer
will withdraw from the buydown account and remit to the mortgagor in accordance
with the related buydown plan any buydown funds remaining in the buydown
account. If a prepayment by a mortgagor during the buydown period together
with
buydown funds will result in a prepayment in full, the master servicer will
withdraw from the buydown account for deposit in the collection account the
buydown funds and investment earnings thereon, if any, which together with
the
prepayment will result in a prepayment in full. If the mortgagor defaults
during
the buydown period with respect to a buydown mortgage loan and the mortgaged
property is sold in liquidation, either by the master servicer or the insurer
under any related insurance policy, the master servicer will withdraw from
the
buydown account the buydown funds and all investment earnings thereon, if
any,
for deposit in the collection account or remit the same to the insurer if
the
mortgaged property is transferred to the insurer and the insurer pays all
of the
loss incurred in respect of the default. In the case of any prepaid or defaulted
buydown mortgage loan the buydown funds in respect of which were supplemented
by
investment earnings, the master servicer will withdraw from the buydown account
and either deposit in the collection account or remit to the borrower, depending
upon the terms of the buydown plan, any investment earnings remaining in
the
related buydown account.
Any
buydown funds, and any investment earnings thereon, deposited in the collection
account in connection with a full prepayment of the related buydown mortgage
loan will be deemed to reduce the amount that would be required to be paid
by
the borrower to repay fully the related mortgage loan if the mortgage loan
were
not subject to the buydown plan.
Withdrawals.
With
respect to each series of securities, the master servicer, trustee or special
servicer may make withdrawals from the collection account for the related
trust
fund for any of the following purposes, unless otherwise provided in the
related
agreement and described in the related prospectus supplement:
(1)
to
make distributions to the related securityholders on each distribution
date;
(2)
to
reimburse the master servicer or any other specified person for
unreimbursed amounts advanced by it in respect of mortgage loans
in the
trust fund as described under “Advances by Master Servicer in Respect of
Delinquencies on the Trust Fund Assets” above, these reimbursement to be
made out of amounts received which were identified and applied
by the
master servicer as late collections of interest (net of related
servicing
fees) on and principal of the particular mortgage assets with respect
to
which the advances were made or out of amounts drawn under any
form of
credit enhancement with respect to the mortgage
assets;
(3)
to
reimburse the master servicer or a special servicer for unpaid
servicing
fees earned by it and some unreimbursed servicing expenses incurred
by it
with respect to mortgage assets in the trust fund and properties
acquired
in respect thereof, these reimbursement to be made out of amounts
that
represent Liquidation Proceeds and Insurance Proceeds collected
on the
particular mortgage assets and properties, and net income collected
on the
particular properties, with respect to which the fees were earned
or the
expenses were incurred or out of amounts drawn under any form of
credit
enhancement with respect to the mortgage assets and
properties;
(4)
to
reimburse the master servicer or any other specified person for
any
advances described in clause (2) above made by it and any servicing
expenses referred to in clause (3) above incurred by it which,
in the good
faith judgment of the master servicer or the other person, will
not be
recoverable from the amounts described in clauses (2) and (3),
respectively, the reimbursement to be made from amounts collected
on other
mortgage assets in the trust fund or, if and to the extent so provided
by
the related servicing agreement or indenture and described in the
related
prospectus supplement, only from that portion of amounts collected
on the
other mortgage assets that is otherwise distributable on one or
more
classes of subordinate securities of the related
series;
(5)
if
and to the extent described in the related prospectus supplement,
to pay
the master servicer, a special servicer or another specified entity
(including a provider of credit enhancement) interest accrued on
the
advances described in clause (2) above made by it and the servicing
expenses described in clause (3) above incurred by it while these
remain
outstanding and unreimbursed;
(6)
to
reimburse the master servicer, the company, or any of their respective
directors, officers, employees and agents, as the case may be,
for
expenses, costs and liabilities incurred thereby, as and to the
extent
described under “Matters Regarding the Master Servicer and the
Depositor”;
(7)
if
and to the extent described in the related prospectus supplement
to pay
the fees of the trustee and to the extent described in the related
prospectus supplement, the trustee may, as part of its compensation,
withdraw investment income of funds held in deposit for the
trust;
(8)
to
reimburse the trustee or any of its directors, officers, employees
and
agents, as the case may be, for expenses, costs and liabilities
incurred
thereby, as and to the extent described under “Description of the
Trustee”;
(9)
to
pay the master servicer or the trustee, as additional compensation,
interest and investment income earned in respect of amounts held
in the
collection account;
(10)
to
pay, generally from related income, the master servicer or a special
servicer for costs incurred in connection with the operation, management
and maintenance of any mortgaged property acquired by the trust
fund by
foreclosure or by deed in lieu of
foreclosure;
(11)
if
one or more elections have been made to treat the trust fund or
designated
portions thereof as a REMIC, to pay any federal, state or local
taxes
imposed on the trust fund or its assets or transactions, as and
to the
extent described under “Federal Income Tax Consequences—REMICS—Prohibited
Transactions and Other Possible REMIC
Taxes”;
(12)
to
pay for the cost of an independent appraiser or other expert in
real
estate matters retained to determine a fair sale price for a defaulted
mortgage loan or a property acquired in respect thereof in connection
with
the liquidation of the mortgage loan or
property;
(13)
to
pay for the cost of various opinions of counsel obtained pursuant
to the
related servicing agreement or indenture for the benefit of the
related
securityholders;
(14)
to
pay to itself, the depositor, a mortgage loan seller or any other
appropriate person all amounts received with respect to each mortgage
loan
purchased, repurchased or removed from the trust fund pursuant
to the
terms of the related servicing agreement and not required to be
distributed as of the date on which the related purchase price
is
determined;
(15)
to
make any other withdrawals permitted by the related pooling and
servicing
agreement or the related servicing agreement and indenture and
described
in the related prospectus
supplement;
(16)
to
pay for costs and expenses incurred by the trust fund for environmental
site assessments performed with respect to multifamily or commercial
properties that constitute security for defaulted mortgage loans,
and for
any containment, clean-up or remediation of hazardous wastes and
materials
present on that mortgaged properties, as described under “Procedures for
Realization Upon Defaulted Mortgage Loans”;
and
(17)
to
clear and terminate the collection account upon the termination
of the
trust fund.
Deposits
to Distribution Account
The
trustee will, as to each trust fund, establish and maintain a distribution
account which must be an eligible account. The trustee will deposit or cause
to
be deposited in the distribution account for each trust fund amounts received
from the master servicer or otherwise in respect of the related
securities.
Book-Entry
Certificates
The
offered securities will be book-entry certificates. Persons acquiring beneficial
ownership interests in the offered securities, or certificate owners, will
hold
the certificates through The Depository Trust Company or DTC in the United
States, or Clearstream Banking Luxembourg, or Clearstream, formerly known
as
Cedelbank SA, or Euroclear in Europe, if they are participants of these systems,
or indirectly through organizations which are participants in these systems.
The
book-entry certificates will be issued in one or more certificates which
equal
the aggregate Certificate Principal Balance of the certificates and will
initially be registered in the name of Cede & Co., the nominee of DTC.
Clearstream and Euroclear will hold omnibus positions on behalf of their
participants through customers’ securities accounts in Clearstream’s and
Euroclear’s names on the books of their respective depositories which in turn
will hold positions in customers’ securities accounts in the depositories’ names
on the books of DTC. Citibank will act as depositary for Clearstream and
JPMorgan Chase Bank will act as depositary for Euroclear. Citibank and JPMorgan
Chase Bank will be referred to individually in this prospectus supplement
as the
“Relevant Depositary” and will be referred to collectively in this prospectus
supplement as the “European Depositories”. Except as described in this section,
no person acquiring a book-entry certificate will be entitled to receive
a
physical or definitive certificate representing that certificate. Unless
and
until definitive certificates are issued, it is anticipated that the only
“certificateholder” of the offered securities will be Cede & Co., as nominee
of DTC. Certificate owners will not be certificateholders as that term is
used
in the Pooling and Servicing Agreement. Certificate owners are only permitted
to
exercise their rights indirectly through participants and DTC.
The
certificate owner’s ownership of a book-entry certificate will be recorded on
the records of the brokerage firm, bank, thrift institution or other financial
intermediary that maintains the certificate owner’s account for that purpose. In
turn, the financial intermediary’s ownership of the book-entry certificate will
be recorded on the records of DTC or of a participating firm that acts as
agent
for the financial intermediary, whose interest will in turn be recorded on
the
records of DTC, if the certificate owner’s financial intermediary is not a DTC
participant and on the records of Clearstream or Euroclear, as
appropriate.
Certificate
owners will receive all distributions of principal of and interest on the
book-entry certificates from the Trustee through DTC and DTC participants.
While
the book-entry certificates are outstanding, under the rules, regulations
and
procedures creating and affecting DTC and its operations, DTC is required
to
make book-entry transfers among participants on whose behalf it acts with
respect to the book-entry certificates and is required to receive and transmit
distributions of principal of, and interest on, the book-entry certificates.
Participants and indirect participants with whom certificate owners have
accounts with respect to book-entry certificates are similarly required to
make
book-entry transfers and receive and transmit distributions on behalf of
their
respective certificate owners. Accordingly, although certificate owners will
not
possess certificates representing their respective interests in the book-entry
certificates, the DTC rules provide a mechanism by which certificate owners
will
receive distributions and will be able to transfer their interest.
Certificate
owners will not receive or be entitled to receive certificates representing
their respective interests in the book-entry certificates, except under the
limited circumstances described under this section. Unless and until definitive
certificates are issued, certificateholders who are not participants may
transfer ownership of book-entry certificates only through participants and
indirect participants by instructing these participants and indirect
participants to transfer book-entry certificates, by book-entry transfer,
through DTC for the account of the purchasers of the book-entry certificates,
which account is maintained with their
respective
participants. Under the DTC rules and in accordance with DTC’s normal
procedures, transfers of ownership of book-entry certificates will be executed
through DTC and the accounts of the respective participants at DTC will be
debited and credited. Similarly, the participants and indirect participants
will
make debits or credits, as the case may be, on their records on behalf of
the
selling and purchasing certificateholders.
Because
of time zone differences, credits of securities received in Clearstream or
Euroclear as a result of a transaction with a participant will be made during
subsequent securities settlement processing and dated the business day following
the DTC settlement date. These credits or any transactions in these securities
settled during this processing will be reported to the relevant Euroclear
or
Clearstream participants on the business day following the DTC settlement
date.
Cash received in Clearstream or Euroclear as a result of sales of securities
by
or through a Clearstream participant or Euroclear participant to a DTC
participant will be received with value on the DTC settlement date but will
be
available in the relevant Clearstream or Euroclear cash account only as of
the
business day following settlement in DTC. For information with respect to
tax
documentation procedures relating to the certificates, see “Federal Income Tax
Considerations—REMICs—Backup Withholding With Respect to REMIC Certificates” and
“—Foreign Investors in REMIC Certificates” in the prospectus and “Global
Clearance and Settlement and Tax Documentation Procedures—Certain U.S. Federal
Income Tax Documentation Requirements” in Annex I of this prospectus supplement.
Transfers between participants will occur in accordance with DTC
rules.
Transfers
between Clearstream participants and Euroclear participants will occur in
accordance with their respective rules and operating procedures.
Cross-market
transfers between persons holding directly or indirectly through DTC, on
the one
hand, and directly or indirectly through Clearstream participants or Euroclear
participants, on the other, will be effected in DTC in accordance with DTC
rules
on behalf of the relevant European international clearing system by the Relevant
Depositary; however, these types of cross market transactions will require
delivery of instructions to the relevant European international clearing
system
by the counterparty in that system in accordance with its rules and procedures
and within its established deadlines, based on European time. The relevant
European international clearing system will, if the transaction meets its
settlement requirements, deliver instructions to the Relevant Depositary
to take
action to effect final settlement on its behalf by delivering or receiving
securities in DTC, and making or receiving payment in accordance with normal
procedures for same day funds settlement applicable to DTC. Clearstream
participants and Euroclear participants may not deliver instructions directly
to
the European Depositories.
DTC
which
is a New York-chartered limited purpose trust company, performs services
for its
participants, some of which directly or indirectly own DTC. In accordance
with
its normal procedures, DTC is expected to record the positions held by each
DTC
participant in the book- entry certificates, whether held for its own account
or
as a nominee for another person. In general, beneficial ownership of book-entry
certificates will be subject to the DTC rules, as in effect from time to
time.
Clearstream,
67 Bd Grande-Duchesse Charlotte, L-1331 Luxembourg, was incorporated in 1970
as
a limited company under Luxembourg law. Clearstream is owned by banks,
securities dealers and financial institutions, and currently has about 100
shareholders, including U.S. financial institutions or their subsidiaries.
No
single entity may own more than five percent of Clearstream’s
stock.
Clearstream
is registered as a bank in Luxembourg, and therefore is subject to regulation
by
the Institute Monetaire Luxembourgeois or “IML”, the Luxembourg Monetary
Authority, which supervises Luxembourg banks.
Clearstream
holds securities for its customers, which are referred to in this prospectus
supplements as Clearstream participants, and facilitates the clearance and
settlement of securities transactions by electronic book-entry transfers
between
their accounts. Clearstream provides various services, including safekeeping,
administration, clearance and settlement of internationally traded securities
and securities lending and borrowing. Clearstream also deals with domestic
securities markets in several countries through established depository and
custodial relationships. Clearstream has established an electronic bridge
with
Euroclear Bank SA/NV as the Euroclear operator in Brussels to facilitate
settlement of trades between systems. Clearstream currently accepts over
70,000
securities issues on its books.
Clearstream’s
customers are world-wide financial institutions including underwriters,
securities brokers and dealers, banks, trust companies and clearing
corporations. Clearstream’s United States customers are limited to securities
brokers and dealers and banks. Currently, Clearstream has approximately 3,000
customers located in over 60 countries, including all major European countries,
Canada, and the United States. Indirect access to Clearstream is available
to
other institutions which clear through or maintain a custodial relationship
with
an account holder of Clearstream.
The
Euroclear system was created in 1968 to hold securities for its participants
which are referred to in this prospectus supplement as Euroclear participants
and to clear and settle transactions between Euroclear participants through
simultaneous electronic book-entry delivery against payment, thereby eliminating
the need for physical movement of certificates and any risk from lack of
simultaneous transfers of securities and cash. Transactions may be settled
in
any of 29 currencies, including United States dollars. Euroclear includes
various other services, including securities lending and borrowing and
interfaces with domestic markets in several countries similar to the
arrangements for cross-market transfers with DTC described above. Euroclear
is
operated by Euroclear Bank SA/NV, which is referred to in this prospectus
supplement as the Euroclear operator, under contract with Euroclear Clearance
Systems S.C., a Belgian cooperative corporation, or simply, the Cooperative.
All
operations are conducted by the Euroclear operator, and all Euroclear securities
clearance accounts and Euroclear cash accounts are accounts with the Euroclear
operator, not the Cooperative. The Cooperative establishes policy for Euroclear
on behalf of Euroclear participants. Euroclear participants include banks,
central banks, securities brokers and dealers and other professional financial
intermediaries. Indirect access to Euroclear is also available to other firms
that clear through or maintain a custodial relationship with a Euroclear
participant, either directly or indirectly.
Securities
clearance accounts and cash accounts with the Euroclear operator are governed
by
the Terms and Conditions Governing Use of Euroclear and the related operating
procedures of the Euroclear system and applicable Belgian law, which are
referred to in this prospectus supplement as the “terms and conditions”. The
terms and conditions govern transfers of securities and cash within Euroclear,
withdrawals of securities and cash from Euroclear, and receipts of payments
with
respect to securities in Euroclear. All securities in Euroclear are held
on a
fungible basis without attribution of specific certificates to specific
securities clearance accounts. The Euroclear operator acts under the terms
and
conditions only on behalf of Euroclear participants, and has no record of
or
relationship with persons holding through Euroclear participants.
Distributions
on the book-entry certificates will be made on each distribution date by
the
Trustee to DTC. DTC will be responsible for crediting the amount of these
payments to the accounts of the applicable DTC participants in accordance
with
DTC’s normal procedures. Each DTC participant will be responsible for disbursing
these payments to the certificate owners that it represents and to each
financial intermediary for which it acts as agent. Each financial intermediary
will be responsible for disbursing funds to the certificate owners of the
book-entry certificates that it represents.
Under
a
book-entry format, certificate owners of the book-entry certificates may
experience some delay in their receipt of payments, since these payments
will be
forwarded by the Trustee to Cede & Co. Distributions with respect to
certificates held through Clearstream or Euroclear will be credited to the
cash
accounts of Clearstream participants or Euroclear participants in accordance
with the relevant system’s rules and procedures, to the extent received by the
Relevant Depositary. These distributions will be subject to tax reporting
in
accordance with relevant United States tax laws and regulations. See “Federal
Income Tax Considerations—REMICs Backup Withholding With Respect to REMIC
Certificates” and “—Foreign Investors in REMIC Certificates” in the prospectus.
Because DTC can only act on behalf of financial intermediaries, the ability
of a
certificate owner to pledge book-entry certificates to persons or entities
that
do not participate in the depository system, or otherwise take actions in
respect of the book-entry certificates, may be limited due to the lack of
physical certificates for the book-entry certificates. In addition, issuance
of
the book-entry certificates in book-entry form may reduce the liquidity of
the
certificates in the secondary market since potential investors may be unwilling
to purchase certificates for which they cannot obtain physical
certificates.
Monthly
and annual reports on the trust will be provided to Cede & Co., as nominee
of DTC, and may be made available by Cede & Co. to certificate owners upon
request, in accordance with the rules, regulations and procedures creating
and
affecting the depository, and to the financial intermediaries to whose DTC
accounts the book-entry certificates of the certificate owners are
credited.
DTC
has
advised the Depositor that, unless and until definitive certificates are
issued,
DTC will take any action permitted to be taken by the holders of the book-entry
certificates under the Pooling and Servicing Agreement only at the direction
of
one or more financial intermediaries to whose DTC accounts the book-entry
certificates are credited, to the extent that actions are taken on behalf
of
financial intermediaries whose holdings include the book-entry certificates.
Clearstream or the Euroclear operator, as the case may be, will take any
other
action permitted to be taken by a certificateholder under the Pooling and
Servicing Agreement on behalf of a Clearstream participant or Euroclear
participant only in accordance with its relevant rules and procedures and
subject to the ability of the Relevant Depositary to effect actions on its
behalf through DTC. DTC may take actions, at the direction of the related
participants, with respect to some book-entry certificates which conflict
with
actions taken with respect to other book-entry certificates.
Definitive
certificates will be issued to certificate owners, or their nominees, rather
than to DTC, only if:
·
DTC
or the Depositor advises the Trustee in writing that DTC is no
longer
willing, qualified or able to discharge properly its responsibilities
as
nominee and depository with respect to the book- entry certificates
and
the Depositor or the Trustee is unable to locate a qualified
successor;
·
the
Depositor, at its sole option, with the consent of the Trustee,
elects to
terminate a book-entry system through DTC
or
·
after
the occurrence of an event of default, certificate owners having
percentage interests aggregating not less than 51% of the book-entry
certificates advise the Trustee and DTC through the financial
intermediaries and the DTC participants in writing that the continuation
of a book-entry system through DTC, or a successor to DTC, is no
longer in
the best interests of certificate
owners.
Upon
the
occurrence of any of the events described above, the Trustee will be required
to
notify all certificate owners of the occurrence of the event and the
availability through DTC of definitive certificates. Upon surrender by DTC
of
the global certificate or certificates representing the book-entry certificates
and instructions for re-registration, the Trustee will issue definitive
certificates, and thereafter the Trustee will recognize the holders of the
definitive certificates as certificateholders under the Pooling and Servicing
Agreement.
Although
DTC, Clearstream and Euroclear have agreed to the foregoing procedures in
order
to facilitate transfers of book-entry certificates among participants of
DTC,
Clearstream and Euroclear, they are under no obligation to perform or continue
to perform these procedures and these procedures may be discontinued at any
time.
None
of
the Depositor, the Master Servicer or the Trustee believe, so long as such
party
performs its obligations in accordance with the Pooling and Servicing Agreement,
that it will have any responsibility for any aspect of the records relating
to
or payments made on account of beneficial ownership interests of the book-entry
certificates held by Cede & Co., as nominee for DTC, or for maintaining,
supervising or reviewing any records relating to those beneficial ownership
interests.
Distributions
on the
Securities
Distributions
allocable to principal and interest on the securities of each series will
be
made by or on behalf of the trustee each month on each date as specified
in the
related prospectus supplement and referred to as a distribution date, commencing
with the month following the month in which the applicable cut-off date occurs.
Distributions will be made to the persons in whose names the securities are
registered at the close of business on the Record Date, and the amount of
each
distribution will be determined as of the close of business on the date
specified in the related prospectus supplement and referred to as the
determination date. All distributions with respect to each class of securities
on each distribution date will be allocated pro
rata
among
the outstanding securities in that class. Payments to the holders of securities
of any class on each distribution date will be made to the securityholders
of
the respective class of record on the next preceding Record Date, other than
in
respect of the final distribution, based on the aggregate fractional undivided
interests in that class represented by their respective securities. Payments
will be made by wire transfer in immediately available funds to the account
of a
securityholder, if the securityholder holds securities in the requisite amount
specified in the related prospectus supplement and if the securityholder
has so
notified the depositor or its designee no later than the date specified in
the
related prospectus supplement. Otherwise, payments will be made by check
mailed
to the address of the person entitled to payment as it appears on the security
register maintained by the depositor or its agent. The final distribution
in
retirement of the securities will be made only upon presentation and surrender
of the securities at the office or agency of the depositor or its agent
specified in the notice to securityholders of the final distribution. With
respect to each series of certificates or notes, the security register will
be
referred to as the certificate register or note register,
respectively.
All
distributions on the securities of each series on each distribution date
will be
made from the available distribution amount described in the next sentence,
in
accordance with the terms described in the related prospectus supplement.
The
available distribution amount for each series of securities will be described
in
the related prospectus supplement and will generally include the following
amounts for each distribution date:
(1)
the
total amount of all cash on deposit in the related distribution
account as
of the corresponding determination date, exclusive
of:
(a)all
scheduled payments of principal and interest collected but due
on a date
subsequent to the related Due
Period,
(b)all
prepayments, together with related payments of the interest thereon,
Liquidation Proceeds, Insurance Proceeds and other unscheduled
recoveries
received subsequent to the related Prepayment Period,
and
(c)all
amounts in the distribution account that are due or reimbursable
to the
depositor, the trustee, a mortgage loan seller, a sub-servicer
or the
master servicer or that are payable in respect of specified expenses
of
the related trust fund;
(2)
if
the related prospectus supplement so provides, interest or investment
income on amounts on deposit in the distribution
account;
(3)
all
advances with respect to the distribution
date;
(4)
if
the related prospectus supplement so provides, amounts paid with
respect
to interest shortfalls resulting from prepayments during the related
Prepayment Period;
(5)
to
the extent not on deposit in the related distribution account as
of the
corresponding determination date, any amounts collected under,
from or in
respect of any credit support with respect to the distribution
date;
and
(6)
any
other amounts described in the related prospectus
supplement.
The
entire available distribution amount will be distributed among the related
securities, including any securities not offered hereby, on each distribution
date, and accordingly will be released from the trust fund and will not be
available for any future distributions.
Distributions
of Interest on the Securities.
Each
class of securities may earn interest at a different rate, which may be a
fixed,
variable or adjustable security interest rate. The related prospectus supplement
will specify the security interest rate for each class, or, in the case of
a
variable or adjustable security interest rate, the method for determining
the
security interest rate. Unless otherwise specified in the related prospectus
supplement, interest on the securities will be calculated on the basis of
a
360-day year consisting of twelve 30-day months.
With
respect to each series of securities and each distribution date, the
distribution in respect of interest on each security, other than principal
only
Strip Securities, will be equal to one month’s interest on the outstanding
principal balance of the security immediately prior to the distribution date,
at
the applicable security interest rate, subject to the following. As to each
Strip Security with no or a nominal principal balance, the distributions
in
respect of interest on any distribution date will be on the basis of a notional
amount and equal one month’s Stripped Interest. Prior to the time interest is
distributable on any class of Accrual Securities, interest accrued on that
class
will be added to the principal balance thereof on each distribution date.
Interest distributions on each security of a series will be reduced in the
event
of shortfalls in collections of interest resulting from prepayments on mortgage
loans, with that shortfall allocated among all of the securities of that
series
if specified in the related prospectus supplement unless the master servicer
is
obligated to cover the shortfalls from its own funds up to its servicing
fee for
the related due period. With respect to each series of certificates or notes,
the interest distributions payable will be referred to in the applicable
prospectus supplement as the accrued certificate interest or accrued note
interest, respectively. See “Yield and Maturity Considerations” in this
prospectus.
Distributions
of Principal of the Securities.
The
principal balance of a security, at any time, will equal the maximum amount
that
the holder will be entitled to receive in respect of principal out of the
future
cash flow on the mortgage assets and other assets included in the related
trust
fund. The principal balance of each security offered hereby will be stated
in
the related prospectus supplement as the certificate principal balance with
respect to a certificate and the note balance with respect to a note. With
respect to each security, distributions generally will be applied to
undistributed accrued interest thereon, and thereafter to principal. The
outstanding principal balance of a security will be reduced to the extent
of
distributions of principal on that security, and, if and to the extent so
provided on the related prospectus supplement, by the amount of any realized
losses, allocated to that security. The outstanding principal balance of
a
security may be increased by any deferred interest if so specified in the
related prospectus supplement. The initial aggregate principal balance of
a
series and each class of securities related to a series will be specified
in the
related prospectus supplement. Distributions of principal will be made on
each
distribution date to the class or classes of securities entitled to principal
until the principal balance of that class has been reduced to zero. With
respect
to a Senior/Subordinate Series, distributions allocable to principal of a
class
of securities will be based on the percentage interest in the related trust
fund
evidenced by the class, which in turn will be based on the principal balance
of
that class as compared to the principal balance of all classes of securities
of
the series. Distributions of principal of any class of securities will be
made
on a pro
rata
basis
among all of the securities of the class. Strip Securities with no principal
balance will not receive distributions of principal.
Allocation
to Securityholders of Losses on The Trust Fund Assets.
With
respect to any defaulted mortgage loan that is finally liquidated, through
foreclosure sale or otherwise, the amount of the realized loss incurred in
connection with liquidation will equal the excess, if any, of the unpaid
principal balance of the liquidated loan immediately prior to liquidation,
over
the aggregate amount of Liquidation Proceeds derived from liquidation remaining
after application of the proceeds to unpaid accrued interest on the liquidated
loan and to reimburse the master servicer or any sub- servicer for related
unreimbursed servicing expenses. With respect to mortgage loans the principal
balances of which have been reduced in connection with bankruptcy proceedings,
the amount of that reduction also will be treated as a realized loss. As
to any
series of securities, other than a Senior/Subordinate Series, any realized
loss
not covered as described under “Description of Credit Support” will be allocated
among all of the securities on a pro
rata
basis.
As to any Senior/Subordinate Series, realizes losses will be allocated first
to
the most subordinate class of securities as described below under “Description
of Credit Support—Subordination.”
Advances
by Master Servicer in Respect of Delinquencies on the Trust Fund
Assets
With
respect to any series of securities, the master servicer will advance on
or
before each distribution date its own funds or funds held in the distribution
account that are not included in the available distribution amount for that
distribution date unless the master servicer, in good faith, determines that
any
advances made will not be reimbursable from proceeds subsequently recovered
on
the mortgage asset related to the advance. The amount of each advance will
be
equal to the aggregate of payments of interest, net of related servicing
fees
and retained interest, that were due during the related Due Period and were
delinquent on the related determination date. The prospectus supplement for
a
series may also provide that the master servicer will advance, together with
delinquent interest, the aggregate amount of principal payments that were
due
during the related Due Period and delinquent as of the determination date,
subject to the same reimbursement determination, except that, with respect
to
balloon loans, the master servicer will not have to advance a delinquent
balloon
payment.
Advances
are intended to maintain a regular flow of scheduled interest payments to
holders of the class or classes of securities entitled to payments, rather
than
to guarantee or insure against losses. Advances of the master servicer’s funds
will be reimbursable only out of related recoveries on the mortgage assets
respecting which advances were made, including amounts received under any
form
of credit support; provided, however, that any advance will be reimbursable
from
any amounts in the distribution account to the extent that the master servicer
shall determine that the advance is not ultimately recoverable from Related
Proceeds. If advances have been made by the master servicer from excess funds
in
the distribution account, the master servicer will replace those funds in
the
distribution account on any future distribution date to the extent that funds
in
the distribution account on that distribution date are less than payments
required to be made to securityholders on that date. If so specified in the
related prospectus supplement, the obligations of the master servicer to
make
advances may be secured by a cash advance reserve fund or a surety bond.
If
applicable, information regarding the characteristics of, and the identity
of
any obligor on, any surety bond, will be set forth in the related prospectus
supplement.
Form
of Reports to Securityholders
With
each
distribution to holders of any class of securities of a series, the depositor,
the master servicer or the trustee, will forward or cause to be forwarded
to
each securityholder and to those other parties as may be specified in the
related servicing agreement, a statement setting forth the following as of
the
distribution date as part of a monthly statement to securityholders or as
part
of Form 10-D signed by the depositor:
(1)
all
amounts received on the mortgage loans during the related due period
and
the related prepayment period (separately identifying scheduled
payments
and prepayments) and any amounts received from any other source
used to
make distributions on the securities (separately identifying the
source of
such funds);
(2)
the
amount of the distribution to holders of securities of that class
applied
to reduce the principal balance of the
securities;
(3)
the
amount of the distribution to holders of securities of that class
allocable to interest;
(4)
the
amount of related administration or servicing compensation received
by the
trustee or the master servicer or any sub-servicer and the amount
of any
fees and expenses (including extraordinary expenses) of the trust
fund and
to whom such fees and expenses were
paid;
(5)
if
applicable, the aggregate amount of advances included in the distribution
and the aggregate amount of unreimbursed advances and the aggregate
amount
of advances reimbursed to the master servicer from amounts on deposit
in
the an account established for the benefit of the
trust;
(6)
the
amount on deposit in any collection account, distribution account,
and any
other account maintained for the benefit of the holders of the
securities
as of the previous distribution date and of the related distribution
date,
and any material account activity during the
period;
(7)
the
aggregate principal balance of the mortgage loans as of such distribution
date and of the previous distribution date and the weighted remaining
term
to maturity and weighted average mortgage rate of the mortgage
loans;
(8)
the
number and aggregate principal balance of mortgage loans (a) delinquent
30-59 days, (b) delinquent 60-89 days, (c) delinquent 90 days or
more and
(d) as to which foreclosure proceedings have been
commenced;
(9)
with
respect to any mortgaged property acquired on behalf of securityholders
through foreclosure or deed in lieu of foreclosure during the preceding
calendar month, the principal balance of the related mortgage loan
as the
related distribution date;
(10)
the
aggregate principal balance of each class of securities (including
any
class of securities not offered hereby) issued by the issuing entity
as of
such distribution date after giving effect to all distributions
and
allocations made on such distribution date, separately identifying
any
reduction in the principal balance due to the allocation of any
realized
loss;
(11)
the
amount of any realized losses allocated to the subordinate securities,
if
any, at the close of business on that distribution
date;
(12)
the
amount on deposit in any reserve fund as of the distribution date
after
giving effect to all distributions and allocations made on such
distribution date;
(13)
if
applicable, any tests or calculations to determine whether any
trigger
events were met or not, as well as any material modifications or
waivers
of trigger events;
(14)
the
aggregate unpaid accrued interest, if any, on each class of securities
at
the close of business on that distribution
date;
(15)
in
the case of securities that accrue interest at a variable rate,
the
security interest rate applicable to that distribution date, as
calculated
in accordance with the method specified in the related prospectus
supplement;
(16)
as
to any series which includes credit support, the amount of coverage
of
each instrument of credit support included in the trust fund as
of the
close of business on that distribution date as well any amounts
drawn on
such credit support to the extent applicable;
(17)
material
breaches of representations and warranties or covenants, as well
as any
material modifications, extensions or waivers to pool asset terms,
fees,
penalties or payments during the distribution period or that cumulatively
become material over time; and
(18)
if
the related prospectus supplement provides for pre-funding, the
aggregate
principal balance of all subsequent mortgage loans added to the
mortgage
pool and the balance remaining in the pre-funding
account.
In
the
case of information furnished under subclauses (2) through (4) above, the
amounts shall be expressed as a dollar amount per minimum denomination of
securities or for other specified portion thereof. With respect to each series
of certificates or notes, securityholders will be referred to as the
certificateholders or the noteholders, respectively.
Within
a
reasonable period of time after the end of each calendar year, the master
servicer or the trustee, as provided in the related prospectus supplement,
shall
furnish to each person who at any time during the calendar year was a holder
of
a security a statement containing the information set forth in subclauses
(2)
through (4) above, aggregated for that calendar year or the applicable portion
thereof during which that person was a securityholder. The obligation of
the
master servicer or the trustee shall be deemed to have been satisfied to
the
extent that substantially comparable information shall be provided by the
master
servicer or the trustee in accordance with any requirements of the Code as
are
from time to time in force.
Collection
and Other Servicing Procedures Employed by the Master
Servicer
The
master servicer, directly or through sub-servicers, will make reasonable
efforts
to collect all scheduled payments under the mortgage loans and will follow
or
cause to be followed the collection procedures as it would follow with respect
to mortgage assets that are comparable to the mortgage assets and held for
its
own account, provided these procedures are consistent with the related servicing
agreement and any related insurance policy, bankruptcy bond, letter of credit
or
other insurance instrument described under “Description of Primary Insurance
Policies” or “Description of Credit Support.” Consistent with this servicing
standard, the master servicer may, in its discretion, waive any late payment
charge in respect of a late mortgage loan payment and, only upon determining
that the coverage under any related insurance instrument will not be affected,
extend or cause to be extended the due dates for payments due on a mortgage
note
for a period not greater than 180 days.
The
master servicer will segregate and hold all funds that are collected and
received pursuant to each mortgage loan separate and apart from any of its
own
funds and general assets. The master servicer will also establish and maintain
in the name of the trustee one or more collection accounts held in trust
for the
benefit of the trustee and the securityholders.
With
respect to either affiliated sub-servicers or sub-servicers that service
20% of
the mortgage loans, such sub-servicer will deposit into a clearing account
all
payments, collections and proceeds, less its servicing compensation, received
on
mortgage loans in connection with its mortgage loan servicing activities.
The
sub-servicer will establish and maintain one or more sub-servicer accounts
for
the purpose of holding such amounts, and in no more than two business days
after
the deposit of such funds into the clearing account, the sub-servicer will
deposit these funds into the sub-servicer account. Within two business days
after the sub-servicer deposits the funds into the sub-servicer account,
the
sub-servicer will either deposit the funds into a collection account or remit
the funds to the master servicer for deposit into the collection
account.
In
instances in which a mortgage asset is in default, or if default is reasonably
foreseeable, and if determined by the master servicer to be in the best
interests of the related securityholders, the master servicer may permit
modifications of the mortgage asset rather than proceeding with foreclosure.
In
making that determination, the estimated realized loss that might result
if the
mortgage asset were liquidated would be taken into account. Modifications
may
have the effect of reducing the interest rate on the mortgage asset, forgiving
the payment of principal or interest or extending the final maturity date
of the
mortgage asset. Any modified mortgage asset may remain in the related trust
fund, and the reduction in collections resulting from the modification may
result in reduced distributions of interest, or other amounts, on, or may
extend
the final maturity of, one or more classes of the related
securities.
In
connection with any significant partial prepayment of a mortgage asset, the
master servicer, to the extent not inconsistent with the terms of the mortgage
note and local law and practice, may permit the mortgage asset to be reamortized
so that the monthly payment is recalculated as an amount that will fully
amortize the remaining principal amount of the mortgage asset by the original
maturity date based on the original interest rate. Reamortization will not
be
permitted if it would constitute a modification of the mortgage asset for
federal income tax purposes.
In
any
case in which property securing a mortgage asset, other than an ARM Loan,
multifamily loan or commercial loan, has been, or is about to be, conveyed
by
the borrower, or in any case in which property securing a multifamily loan
or
commercial loan has been, or is about to be, encumbered by the borrower,
the
master servicer will exercise or cause to be exercised on behalf of the related
trust fund the lender’s rights to accelerate the maturity of the mortgage asset
under any due-on-sale or due-on-encumbrance clause applicable to that mortgage
asset. The master servicer will only exercise these rights only if the exercise
of any these rights is permitted by applicable law and will not impair or
threaten to impair any recovery under any related insurance instrument. If
these
conditions are not met or if the master servicer reasonably believes it is
unable under applicable law to enforce a due-on-sale or due-on-encumbrance
clause, the master servicer will enter into or cause to be entered into an
assumption and modification agreement with the person to whom the property
has
been or is about to be conveyed or encumbered, under which that person becomes
liable under the mortgage note, cooperative note, manufactured housing contract
or home improvement contract and, to the extent permitted by applicable law,
the
borrower remains liable thereon. The original mortgagor may be released from
liability on a mortgage asset if the master servicer shall have determined
in
good faith that a release will not adversely affect the collectability of
the
mortgage asset. An ARM Loan may be assumed if the ARM Loan is by its terms
assumable and if, in the reasonable judgment of the master servicer, the
proposed transferee of the related mortgaged property establishes its ability
to
repay the loan and the security for the ARM Loan would not be impaired by
the
assumption. If a mortgagor transfers the mortgaged property subject to an
ARM
Loan without consent, that ARM Loan may be declared due and payable. Any
fee
collected by or on behalf of the master servicer for entering into an assumption
agreement will be retained by or on behalf of the master servicer as additional
servicing compensation. In connection with any assumption, the terms of the
related mortgage asset may not be changed except in the instance where an
assumption is related to a defaulted cure. See “Legal Aspects of
Assets—Enforceability of Provisions.”
In
the
case of multifamily loans, commercial loans or mixed-use loans, a mortgagor’s
failure to make scheduled payments may mean that operating income is
insufficient to service the mortgage debt, or may reflect the diversion of
that
income from the servicing of the mortgage debt. In addition, a mortgagor
under a
multifamily loan, commercial loan or mixed-use loan that is unable to make
scheduled payments may also be unable to make timely payment of all required
taxes and otherwise to maintain and insure the related mortgaged property.
In
general, the master servicer will be required to monitor any multifamily
loan,
commercial loan or mixed-use loan that is in default, evaluate whether the
causes of the default can be corrected over a reasonable period without
significant impairment of the value of the related mortgaged property, initiate
corrective action in cooperation with the mortgagor if cure is likely, inspect
the related mortgaged property and take such other actions as are consistent
with the related servicing agreement. A significant period of time may elapse
before the servicer is able to assess the success of any such corrective
action
or the need for additional initiatives. The time within which the master
servicer can make the initial determination of appropriate action, evaluate
the
success of corrective action, develop additional initiatives, institute
foreclosure proceedings and actually foreclose (or accept a deed to a mortgaged
property in lieu of foreclosure) on behalf of the securityholders of the
related
series may vary considerably depending on the particular multifamily loan,
commercial loan or mixed-use loan, the mortgaged property, the mortgagor,
the
presence of an acceptable party to assume the multifamily loan, commercial
loan
or mixed-use loan and the laws of the jurisdiction in which the mortgaged
property is located.
If
a
mortgagor files a bankruptcy petition, the servicer may not be permitted
to
accelerate the maturity of the related mortgage asset or to foreclose on
the
mortgaged property for a considerable period of time. See “Legal Aspects of
Mortgage Assets.”
The
Master Servicer will provide static pool information through its internet
website as set forth in the prospectus supplement.
Description
of Sub-Servicing
Any
master servicer may delegate its servicing obligations in respect of the
mortgage assets to third-party servicers, but the master servicer will remain
obligated under the related servicing agreement. Each sub-servicer will be
required to perform the customary functions of a servicer of comparable assets,
including:
·
collecting
payments from borrowers and remitting the collections to the master
servicer,
·
maintaining
primary hazard insurance as described in this prospectus and in
any
related prospectus supplement,
·
filing
and settling claims under primary hazard insurance policies, which
may be
subject to the right of the master servicer to approve in advance
any
settlement,
·
maintaining
escrow or impoundment accounts of borrowers for payment of taxes,
insurance and other items required to be paid by any borrower in
accordance with the mortgage asset,
·
processing
assumptions or substitutions where a due-on-sale clause is not
exercised,
·
attempting
to cure delinquencies,
·
supervising
foreclosures or repossessions,
·
inspecting
and managing mortgaged properties, if applicable,
and
·
maintaining
accounting records relating to the mortgage
assets.
The
master servicer will be responsible for filing and settling claims in respect
of
mortgage assets in a particular mortgage pool under any applicable mortgage
pool
insurance policy, bankruptcy bond, special hazard insurance policy or letter
of
credit. See “Description of Credit Support.”
The
sub-servicing agreement between any master servicer and a sub-servicer will
be
consistent with the terms of the related servicing agreement and will not
result
in a withdrawal or downgrading of any class of securities issued in accordance
with the related agreement. With respect to those mortgage assets serviced
by
the master servicer through a sub-servicer, the master servicer will remain
liable for its servicing obligations under the related policy and servicing
agreement or servicing agreement as if the master servicer alone were servicing
those mortgage assets. Although each sub-servicing agreement will be a contract
solely between the master servicer and the sub- servicer, the agreement under
which a series of securities is issued will provide that, if for any reason
the
master servicer for the series of securities is no longer acting in a servicing
capacity, the trustee or any successor master servicer must recognize the
sub-servicer’s rights and obligations under the sub-servicing
agreement.
The
master servicer will be solely liable for all fees owed by it to any
sub-servicer, irrespective of whether the master servicer’s compensation under
the related agreement is sufficient to pay the fees. However, a sub-servicer
may
be entitled to a retained interest in mortgage assets. Each sub- servicer
will
be reimbursed by the master servicer for expenditures which it makes, generally
to the same extent the master servicer would be reimbursed under the related
servicing agreement. See “Description of the Securities—Retained Interest,
Servicing or Administration Compensation and Payment of Expenses.”
The
master servicer may require any sub-servicer to agree to indemnify the master
servicer for any liability or obligation sustained by the master servicer
in
connection with any act or failure to act by the sub-servicer in its servicing
capacity. Each sub-servicer is required to maintain a fidelity bond and an
errors and omissions policy with respect to its officers, employees and other
persons acting on its behalf or on behalf of the master servicer.
Procedures
for Realization upon Defaulted Mortgage Assets
The
master servicer will be required to foreclose upon or otherwise take title
in
the name of the trustee, on behalf of the securityholders, of mortgaged
properties relating to defaulted mortgage assets to which no satisfactory
arrangements can be made for collection of delinquent payments, but the master
servicer will not be required to foreclose if it determines that foreclosure
would not be in the best interests of the securityholders or the provider
of
credit support, if any.
In
addition, unless otherwise specified in the related prospectus supplement,
the
master servicer may not acquire title to any multifamily property or commercial
property securing a mortgage loan or take any other action that would cause
the
related trustee, for the benefit of securityholders of the related series,
or
any other specified person to be considered to hold title to, to be a
“mortgagee-in- possession” of, or to be an “owner” or an “operator” of such
mortgaged property within the meaning of federal environmental laws, unless
the
master servicer has previously determined, based on a report prepared by
a
person who regularly conducts environmental audits (which report will be
an
expense of the trust fund), that either:
(1)
the
mortgaged property is in compliance with applicable environmental
laws and
regulations or, if not, that taking actions as are necessary to
bring the
mortgaged property into compliance with these laws is reasonably
likely to
produce a greater recovery on a present value basis than not taking
those
actions; and
(2)
there
are no circumstances or conditions present at the mortgaged property
that
have resulted in any contamination for which investigation, testing,
monitoring, containment, clean-up or remediation could be required
under
any applicable environmental laws and regulations or, if those
circumstances or conditions are present for which any such action
could be
required, taking those actions with respect to the mortgaged property
is
reasonably likely to produce a greater recovery on a present value
basis
than not taking those actions. See “Legal Aspects of Mortgage
Assets—Environmental Legislation.”
As
servicer of the mortgage loans, the master servicer, on behalf of itself,
the
trustee and the securityholders, will present claims to the insurer under
each
insurance instrument, and will take reasonable steps as are necessary to
receive
payment or to permit recovery thereunder with respect to defaulted mortgage
assets. As set forth above under “-Collection and Other Servicing Procedures
Employed by the Master Servicer”, all collections by or on behalf of the master
servicer under any insurance instrument, other than amounts to be applied
to the
restoration of a mortgaged property or released to the mortgagor, are to
be
deposited in the distribution account for the related trust fund, subject
to
withdrawal as previously described. The master servicer or its designee will
not
receive payment under any letter of credit included as an insurance instrument
with respect to a defaulted mortgage asset unless all Liquidation Proceeds
and
Insurance Proceeds which it deems to be finally recoverable have been realized;
however, the master servicer will be entitled to reimbursement for any
unreimbursed advances and reimbursable expenses thereunder.
If
any
property securing a defaulted mortgage asset is damaged and proceeds, if
any,
from the related hazard insurance policy or special hazard insurance policy
are
insufficient to restore the damaged property to a condition sufficient to
permit
recovery under the related credit insurance instrument, if any, the master
servicer is not required to expend its own funds to restore the damaged property
unless it determines (a) that the restoration will increase the proceeds
to
securityholders on liquidation of the mortgage loan after reimbursement of
the
master servicer for its expenses and (b) that its expenses will be recoverable
by it from related Insurance Proceeds or Liquidation Proceeds.
If
recovery on a defaulted mortgage asset under any related credit insurance
instrument is not available for the reasons set forth in the preceding
paragraph, the master servicer nevertheless will be obligated to follow or
cause
to be followed the normal practices and procedures as it deems necessary
or
advisable to realize upon the defaulted mortgage asset. If the proceeds of
any
liquidation of the property securing the defaulted mortgage loan are less
than
the outstanding principal balance of the defaulted mortgage loan plus interest
accrued thereon at the interest rate plus the aggregate amount of expenses
incurred by the master servicer in connection with those proceedings and
which
are reimbursable under the servicing agreement, the trust fund will realize
a
loss in the amount of the difference. The master servicer will be entitled
to
withdraw or cause to be withdrawn from the collection or distribution account
out of the Liquidation Proceeds recovered on any defaulted mortgage asset,
prior
to the distribution of any Liquidation Proceeds to securityholders, amounts
representing its normal servicing compensation on the mortgage loan,
unreimbursed servicing expenses incurred with respect to the mortgage asset
and
any unreimbursed advances of delinquent monthly payments made with respect
to
the mortgage loan.
If
the
master servicer or its designee recovers Insurance Proceeds with respect
to any
defaulted mortgage loan, the master servicer will be entitled to withdraw
or
cause to be withdrawn from the collection account or distribution account
out of
Insurance Proceeds, prior to distribution of that amount to securityholders,
amounts representing its normal servicing compensation on that mortgage loan,
unreimbursed servicing expenses incurred with respect to the mortgage loan
and
any unreimbursed advances of delinquent monthly payments made with respect
to
the mortgage loan. In the event that the master servicer has expended its
own
funds to restore damaged property and those funds have not been reimbursed
under
any insurance instrument, it will be entitled to withdraw from the collection
account out of related Liquidation Proceeds or Insurance Proceeds an amount
equal to the expenses incurred by it, in which event the trust fund may realize
a loss up to the amount so charged. Because Insurance Proceeds cannot exceed
deficiency claims and expenses incurred by the master servicer, no payment
or
recovery will result in a recovery to the trust fund which exceeds the principal
balance of the defaulted mortgage asset together with accrued interest thereon
at the interest rate net of servicing fees and the retained interest, if
any. In
addition, when property securing a defaulted mortgage asset can be resold
for an
amount exceeding the outstanding principal balance of the related mortgage
asset
together with accrued interest and expenses, it may be expected that, if
retention of any amount is legally permissible, the insurer will exercise
its
right under any related mortgage pool insurance policy to purchase the property
and realize for itself any excess proceeds. See “Description of Primary
Insurance Policies” and “Description of Credit Support.”
With
respect to collateral securing a cooperative loan, any prospective purchaser
will generally have to obtain the approval of the board of directors of the
relevant cooperative before purchasing the shares and acquiring rights under
the
proprietary lease or occupancy agreement securing the cooperative loan. This
approval is usually based on the purchaser’s income and net worth and numerous
other factors. The necessity of acquiring board approval could limit the
number
of potential purchasers for those shares and otherwise limit the master
servicer’s ability to sell, and realize the value of, those shares. See “Legal
Aspects of Mortgage Assets—foreclosure on Cooperatives.”
Realization
on defaulted contracts may be accomplished through repossession and subsequent
resale of the underlying manufactured home or home improvement. With respect
to
a defaulted home improvement contract, the master servicer will decide whether
to foreclose upon the mortgaged property or write off the principal balance
of
such home improvement contract as a bad debt or take an unsecured note. In
doing
so, the master servicer will estimate the expected proceeds and expenses
to
determine whether a foreclosure proceeding or a repossession and resale is
appropriate. If a home improvement contract secured by a lien on a mortgaged
property is junior to another lien on the related mortgaged property, following
any default thereon, unless foreclosure proceeds for such home improvement
contract are expected to at least satisfy the related senior mortgage loan
in
full and to pay foreclosure costs, it is likely that such home improvement
contract will be written off as bad debt with no foreclosure
proceeding.
Retained
Interest; Servicing or Administration Compensation and Payment of
Expenses
The
prospectus supplement for a series of securities will specify whether there
will
be any retained interest from the trust fund assets, and, if so, the owner
of
the retained interest. If so, the retained interest will be established on
a
loan-by-loan basis and will be specified on an exhibit to the related agreement.
A retained interest in a trust fund asset represents a specified portion
of the
interest payable thereon. The retained interest will be deducted from borrower
payments as received and will not be part of the related trust fund. Any
partial
recovery of interest on a mortgage asset, after deduction of all applicable
servicing fees, will be allocated between retained interest, if any, and
interest at the interest rate on the mortgage loan, net of the rates at which
the servicing fees and the retained interest are calculated, on a pari passu
basis.
The
master servicer’s primary compensation with respect to a series of securities
will come from the monthly payment to it, with respect to each interest payment
on a trust fund asset, of an amount equal to one-twelfth of the servicing
fee
rate specified in the related prospectus supplement times the scheduled
principal balance of the trust fund asset. Since any retained interest and
the
master servicer’s primary compensation are percentages of the scheduled
principal balance of each trust fund asset, these amounts will decrease in
accordance with the amortization schedule of the trust fund assets. As
additional compensation in connection with a series of securities relating
to
mortgage loans, the master servicer or the sub-servicers will retain all
fees
related to assignment or assumption agreements, late payment charges and
,
unless otherwise stated in the prospectus supplement, prepayment charges,
to the
extent collected from mortgagors. Any interest or other income which may
be
earned on funds held in the collection account, distribution account,
sub-servicing account or any other account created under the related servicing
agreement may be paid as additional compensation to the master servicer or
the
sub-servicers, as the case may be. Any sub-servicer will receive a portion
of
the master servicer’s primary compensation as its sub-servicing
compensation.
In
addition to amounts payable to any sub-servicer, the master servicer may
pay
from its servicing compensation expenses incurred in connection with its
servicing of the mortgage loans, including, without limitation, payment of
the
fees and disbursements of the trustee and independent accountants, payment
of
expenses incurred in connection with distributions and reports to
securityholders, and other expenses, as described in the related prospectus
supplement.
The
master servicer is entitled to reimbursement for expenses incurred by it
in
connection with the liquidation of defaulted mortgage assets, including
expenditures incurred by it in connection with the restoration of mortgaged
properties, the right of reimbursement being prior to the rights of
securityholders to receive any related Liquidation Proceeds. The master servicer
is also entitled to reimbursement from the collection account for
advances.
Annual
Evidence as to the Compliance of the Master Servicer
Each
servicing agreement with respect to a series of securities will provide that
each party responsible for servicing will, on or before March 31st
of each
calendar year (beginning in March of the calendar year following the closing
date), from a registered public accounting firm, furnish to the trustee,
for
inclusion as an exhibit to the Form 10-K of the issuing entity, a report
on an
assessment of compliance with the servicing criteria set forth in Section
1122(d) of Regulation AB of the Exchange Act.
Each
servicing agreement will also provide for delivery to the trustee, on or
before
a specified date in each year, of an annual statement signed by an officer
of
the master servicer to the effect that a review was conducted of the master
servicer’s activities and performance during the applicable reporting period
under such officer’s supervision and that based on such review, the master
servicer has fulfilled its obligations under the related agreement throughout
the preceding year, or if there has been a failure to fulfill any such
obligation in any material respect, specifying each such failure known to
the
officer and the nature and status thereof. To the extent that there are any
affiliated sub-servicers or sub-servicers that service 10% or more of the
mortgage loans, a separate servicer compliance statement will be provided
to the
trustee. Such annual statement will be included as an exhibit to the Form
10-K
of the issuing entity.
Copies
of
the annual accountants’ statement and the officer’s statement of the master
servicer may be obtained by securityholders without charge upon written request
to the master servicer at the address set forth in the related prospectus
supplement.
Matters
Regarding the Master Servicer and the Depositor
The
master servicer under each servicing agreement will be named in the related
prospectus supplement. The entity serving as master servicer may be an affiliate
of the depositor and may have other normal business relationships with the
depositor or the depositor’s affiliates.
Each
servicing agreement will provide that the master servicer may resign from
its
obligations and duties under the related agreement only if its resignation,
and
the appointment of a successor, will not result in a downgrading of any class
of
securities or upon a determination that its duties under the related agreement
are no longer permissible under applicable law. No resignation will become
effective until the trustee or a successor servicer has assumed the master
servicer’s obligations and duties under the related agreement. If the master
servicer resigns and transfers its duties to a successor master servicer,
the
entire amount of the servicing fee and other compensation payable to the
master
servicer will thereafter be payable to such successor master servicer.
Each
servicing agreement will further provide that neither the master servicer,
the
depositor nor any director, officer, employee, or agent of the master servicer
or the depositor will be under any liability to the related trust fund or
securityholders for any action taken, or for refraining from the taking of
any
action, in good faith under the related agreement, or for errors in judgment;
provided, however, that neither the master servicer, the depositor nor any
such
person will be protected against any liability which would otherwise be imposed
by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties thereunder or by reason of reckless disregard of
obligations and duties thereunder. Each servicing agreement will further
provide
that the master servicer, the depositor and any director, officer, employee
or
agent of the master servicer or the depositor will be entitled to
indemnification by the related trust fund and will be held harmless against
any
loss, liability or expense incurred in connection with any legal action relating
to the related agreement, the securities or a breach of any representation
or
warranty regarding the mortgage loans, other than any loss, liability or
expense
that is related to any specific mortgage loan or mortgage loans, unless that
loss, liability or expense is otherwise reimbursable under the related
agreement, and other than any loss, liability or expense incurred by reason
of
willful misfeasance, bad faith or gross negligence in the performance of
duties
thereunder or by reason of reckless disregard of obligations and duties
thereunder. In addition, each servicing agreement will provide that neither
the
master servicer nor the depositor will be under any obligation to appear
in,
prosecute or defend any legal action which is not incidental to its respective
responsibilities under the related agreement and which in its opinion may
involve it in any expense or liability. The master servicer or the depositor
may, however, in its discretion undertake any action which it may deem necessary
or desirable with respect to the related agreement and the rights and duties
of
the parties and the interests of the securityholders. In that event, the
legal
expenses and costs of the action and any resulting liability will be expenses,
costs and liabilities of the securityholders, and the master servicer or
the
depositor, as the case may be, will be entitled to be reimbursed and to charge
the trust fund for the reimbursement. Distributions to securityholders will
be
reduced to pay for the reimbursement as set forth in the related prospectus
supplement and servicing agreement.
Any
person into which the master servicer may be merged or consolidated, or any
person resulting from any merger or consolidation to which the master servicer
is a party, or any person succeeding to the business of the master servicer,
will be the successor of the master servicer under each agreement, so long
as
that person is qualified to sell mortgage loans to, and service mortgage
loans
on behalf of, Fannie Mae or Freddie Mac.
Events
of Default under the Governing Agreement and Rights upon Events of
Default
Pooling
and Servicing Agreement
Events
of
default under each pooling and servicing agreement will include each of the
following unless otherwise stated in the related prospectus
supplement:
·
any
failure by the master servicer to distribute or cause to be distributed
to
securityholders, or to remit to the trustee for distribution to
securityholders, any required payment that continues unremedied
for a
specified number of business days after the giving of written notice
of
the failure to the master servicer by the trustee or the depositor,
or to
the master servicer, the depositor and the trustee by the holders
of
certificates evidencing not less than 25% of the voting
rights;
·
any
failure by the master servicer duly to observe or perform in any
material
respect any of its other covenants or obligations under the agreement
which continues unremedied for a specified number of days after
the giving
of written notice of the failure to the master servicer by the
trustee or
the depositor, or to the master servicer, the depositor and the
trustee by
the holders of certificates evidencing not less than 25% of the
voting
rights; and
·
events
of insolvency, readjustment of debt, marshalling of assets and
liabilities
or similar proceedings and actions by or on behalf of the master
servicer
indicating its insolvency or inability to pay its
obligations.
So
long
as an event of default under a pooling and servicing agreement remains
unremedied, the depositor or the trustee may, unless otherwise provided in
the
related prospectus supplement, and at the direction of holders of certificates
evidencing not less than 51% of the voting rights, the trustee shall, terminate
all of the rights and obligations of the master servicer under the pooling
and
servicing agreement relating to the trust fund and in and to the mortgage
assets, other than any retained interest of the master servicer, whereupon
the
trustee will succeed to all of the responsibilities, duties and liabilities
of
the master servicer under the agreement and will be entitled to similar
compensation arrangements. If the trustee is prohibited by law from obligating
itself to make advances regarding delinquent mortgage assets, then the trustee
will not be so obligated.
If
the
trustee is unwilling or unable so to act, it may or, at the written request
of
the holders of certificates entitled to at least 51% of the voting rights,
it
shall appoint, or petition a court of competent jurisdiction for the appointment
of, a loan servicing institution acceptable to the rating agency with a net
worth at the time of the appointment of at least $1,000,000 to act as successor
to the master servicer under the agreement. Pending the appointment of a
successor, the trustee is obligated to act in the capacity of master servicer.
The trustee and any successor master servicer may agree upon the servicing
compensation to be paid, which in no event may be greater than the compensation
payable to the master servicer under the related agreement.
No
certificateholder will have the right under any pooling and servicing agreement
to institute any proceeding under the agreement unless:
·
the
certificateholder previously has given to the trustee written notice
of
default,
·
the
holders of certificates evidencing not less than 25% of the voting
rights
have made written request upon the trustee to institute the proceeding
in
its own name as trustee thereunder,
·
have
offered to the trustee reasonable indemnity,
and
·
the
trustee for fifteen days has neglected or refused to institute
a
proceeding. The trustee, however, is under no obligation to exercise
any
of the trusts or powers vested in it by any pooling and servicing
agreement or to make any investigation of matters arising thereunder
or to
institute, conduct or defend any litigation at the request, order
or
direction of any of the holders of certificates covered by the
agreement,
unless the certificateholders have offered to the trustee reasonable
security or indemnity against the costs, expenses and liabilities
which
may be incurred.
Servicing
Agreement
A
servicing default under the related servicing agreement will include each
of the
following unless otherwise provided in the related prospectus
supplement:
·
any
failure by the master servicer to make a required deposit to the
collection account or, if the master servicer is so required, to
distribute to the holders of any class of notes or equity certificates
of
the series any required payment which continues unremedied for
a specified
number of business days after the giving of written notice of the
failure
to the master servicer by the trustee or the
issuer;
·
any
failure by the master servicer duly to observe or perform in any
material
respect any other of its covenants or agreements in the servicing
agreement with respect to the series of notes which continues unremedied
for a specified number of days after the giving of written notice
of the
failure to the master servicer by the trustee or the
issuer;
·
events
of insolvency, readjustment of debt, marshalling of assets and
liabilities
or similar proceedings regarding the master servicer and actions
by the
master servicer indicating its insolvency or inability to pay its
obligations and
·
any
other servicing default as set forth in the servicing
agreement.
So
long
as a servicing default remains unremedied, either the depositor or the trustee
may, by written notification to the master servicer and to the issuer or
the
trustee or trust fund, as applicable, terminate all of the rights and
obligations of the master servicer under the servicing agreement, other than
any
right of the master servicer as noteholder or as holder of the equity
certificates and other than the right to receive servicing compensation and
expenses for servicing the mortgage loans during any period prior to the
date of
the termination. Upon termination of the master servicer the trustee will
succeed to all responsibilities, duties and liabilities of the master servicer
under the servicing agreement, other than the obligation to repurchase mortgage
loans, and will be entitled to similar compensation arrangements. If the
trustee
would be obligated to succeed the master servicer but is unwilling to so
act, it
may appoint, or if it is unable to so act, it shall appoint, or petition
a court
of competent jurisdiction for the appointment of an approved mortgage servicing
institution with a net worth of at least $1,000,000 to act as successor to
the
master servicer under the servicing agreement. Pending the appointment of
a
successor, the trustee is obligated to act in the capacity of master servicer.
The trustee and the successor may agree upon the servicing compensation to
be
paid, which in no event may be greater than the compensation to the initial
master servicer under the servicing agreement.
Indenture
An
event
of default under the indenture will include each of the following unless
otherwise provided in the related prospectus supplement:
·
a
default for a specified number of days or more in the payment of
any
principal of or interest on any note of the
series;
·
failure
to perform any other covenant of the depositor or the trust fund
in the
indenture which continues for a specified number of days after
notice of
failure is given in accordance with the procedures described in
the
related prospectus supplement;
·
any
representation or warranty made by the depositor or the trust fund
in the
indenture or in any related certificate or other writing having
been
incorrect in a material respect as of the time made, and the breach
is not
cured within a specified number of days after notice of breach
is given in
accordance with the procedures described in the related prospectus
supplement;
·
events
of bankruptcy, insolvency, receivership or liquidation of the depositor
or
the issuer; or
·
any
other event of default provided with respect to notes of that
series.
If
an
event of default with respect to the notes of any series occurs and is
continuing, the trustee or the holders of a majority of the then aggregate
outstanding amount of the notes of the series may declare the principal amount,
or, if the notes of that series are Accrual Securities, the portion of the
principal amount as may be specified in the terms of that series, as provided
in
the related prospectus supplement, of all the notes of the series to be due
and
payable immediately. That declaration may, under the circumstances set forth
in
the indenture, be rescinded and annulled by the holders of a majority in
aggregate outstanding amount of the related notes.
If
following an event of default with respect to any series of notes, the notes
of
the series have been declared to be due and payable, the trustee may, in
its
discretion, notwithstanding the acceleration, elect to maintain possession
of
the collateral securing the notes of the series and to continue to apply
payments on the collateral as if there had been no declaration of acceleration
if the collateral continues to provide sufficient funds for the payment of
principal of and interest on the notes of the series as they would have become
due if there had not been a declaration. In addition, the trustee may not
sell
or otherwise liquidate the collateral securing the notes of a series following
an event of default, unless
·
the
holders of 100% of the then aggregate outstanding amount of the
notes of
the series consent to the sale,
·
accrued
interest, due and unpaid, on the outstanding notes of the series
at the
date of the sale, or
·
the
trustee determines that the collateral would not be sufficient
on an
ongoing basis to make all payments on the notes as the payments
would have
become due if the notes had not been declared due and payable,
and the
trustee obtains the consent of the holders of 66 2/3% of the then
aggregate outstanding amount of the notes of the
series.
If
the
trustee liquidates the collateral in connection with an event of default,
the
indenture may provide that the trustee will have a prior lien on the proceeds
of
any liquidation for unpaid fees and expenses. As a result, upon the occurrence
of an event of default, the amount available for payments to the noteholders
would be less than would otherwise be the case. However, the trustee may
not
institute a proceeding for the enforcement of its lien except in connection
with
a proceeding for the enforcement of the lien of the indenture for the benefit
of
the noteholders after the occurrence of an event of default.
If
the
principal of the notes of a series is declared due and payable, the holders
of
those notes issued at a discount from par may be entitled to receive no more
than an amount equal to the unpaid principal amount of the note less the
amount
of the discount that is unamortized.
No
noteholder or holder of an equity certificate generally will have any right
under an owner trust agreement or indenture to institute any proceeding with
respect to the agreement unless:
·
the
holder previously has given to the trustee written notice of default
and
the default is continuing,
·
the
holders of notes or equity certificates of any class evidencing
not less
than 25% of the aggregate percentage interests constituting the
class (1)
have made written request upon the trustee to institute a proceeding
in
its own name as trustee thereunder and (2) have offered to the
trustee
reasonable indemnity,
·
the
trustee has neglected or refused to institute a proceeding for
60 days
after receipt of the request and indemnity,
and
·
no
direction inconsistent with the written request has been given
to the
trustee during the 60 day period by the holders of a majority of
the note
balances of the class. However, the trustee will be under no obligation
to
exercise any of the trusts or powers vested in it by the applicable
agreement or to institute, conduct or defend any litigation at
the
request, order or direction of any of the holders of notes or equity
certificates covered by the agreement, unless the holders have
offered to
the trustee reasonable security or indemnity against the costs,
expenses
and liabilities which may be incurred therein or
thereby.
Amendment
of the Governing Agreements
With
respect to each series of certificates, each related pooling and servicing
agreement or trust agreement may be amended by the depositor, the master
servicer, and the trustee, upon consent of any credit support provider, without
the consent of any of the holders of certificates covered by the agreement,
to
cure any ambiguity, to correct, modify or supplement any provision in the
agreement, or to make any other provisions with respect to matters or questions
arising under the agreement which are not inconsistent with the provisions
of
the agreement, provided that the action will not adversely affect in any
material respect the interests of any holder of certificates covered by the
agreement, as evidenced by either an opinion of counsel or a confirmation
by the
rating agencies that such amendment will not result in the downgrading of
the
securities. No amendment shall be deemed to adversely affect in any material
respect the interests of any certificateholder who shall have consented thereto,
and no opinion of counsel or written notice from the rating agencies shall
be
required to address the effect of any such amendment on any such consenting
certificateholder.
Each
agreement may also be amended by the depositor, the master servicer, if any,
and
the trustee, with the consent of the holders of certificates evidencing not
less
than 66% of the voting rights, for any purpose, but that no amendment
may
·
reduce
in any manner the amount of or delay the timing of, payments received
on
trust fund assets which are required to be distributed on any certificate
without the consent of the holder of the
certificate,
·
adversely
affect in any material respect the interests of the holders of
any class
of certificates in a manner other than as described in the preceding
bullet point (as evidenced by either an opinion of counsel or a
confirmation by the rating agencies that such amendment will not
result in
the downgrading of the securities),
or
·
reduce
the percentage of voting rights required by the preceding bullet
point for
the consent to any amendment without the consent of the holders
of all
certificates covered by the agreement then
outstanding.
However,
with respect to any series of certificates as to which a REMIC election is
to be
made, the trustee will not consent to any amendment of the agreement unless
it
shall first have received an opinion of counsel to the effect that the amendment
will not cause the trust fund to fail to qualify as a REMIC at any time that
the
related certificates are outstanding. The voting rights evidenced by any
certificate will be the portion of the voting rights of all of the certificates
in the related series allocated in the manner described in the related
prospectus supplement.
With
respect to each series of notes, each related servicing agreement or indenture
may be amended by the parties to the agreement without the consent of any
of the
holders of the notes covered by the agreement, to cure any ambiguity, to
correct, modify or supplement any provision in the agreement, or to make
any
other provisions with respect to matters or questions arising under the
agreement which are not inconsistent with the provisions of the agreement,
provided that the action will not adversely affect in any material respect
the
interests of any holder of notes covered by the agreement as evidenced by
either
an opinion of counsel or a confirmation by the rating agencies that such
amendment will not result in the downgrading of the notes. Each agreement
may
also be amended by the parties to the agreement with the consent of the holders
of notes evidencing not less than 66% of the voting rights, for any purpose,
but
that no amendment may
·
reduce
in any manner the amount of or delay the timing of, payments received
on
trust fund assets which are required to be distributed on any note
without
the consent of the holder of that
note,
·
adversely
affect in any material respect the interests of the holders of
any class
of notes in a manner other than as described in the preceding bullet
point
(as evidenced by either an opinion of counsel or a confirmation
by the
rating agencies that such amendment will not result in the downgrading
of
the notes), without the consent of the holders of notes of that
class
evidencing not less than 66% of the aggregate voting rights of
that class,
or
·
reduce
the percentage of voting rights required by the preceding bullet
point for
the consent to any amendment without the consent of the holders
of all
notes covered by the agreement then outstanding. The voting rights
evidenced by any note will be the portion of the voting rights
of all of
the notes in the related series allocated in the manner described
in the
related prospectus supplement.
Termination
of the Trust Fund and Disposition of Trust Fund Assets
The
obligations created by the related agreements for each series of securities
will
terminate upon the payment to securityholders of that series of all amounts
held
in the distribution account or by the master servicer and required to be
paid to
them under the agreements following the earlier of
·
the
final payment or other liquidation of the last asset included in
the
related trust fund or the disposition of all underlying property
subject
to the trust fund assets acquired upon foreclosure of the trust
fund
assets, and
·
the
purchase of all of the assets of the trust fund by the party entitled
to
effect the termination, under the circumstances and in the manner
set
forth in the related prospectus
supplement.
In
no
event, however, will the trust created by the related agreements continue
beyond
the date specified in the related agreement. Written notice of termination
of
the related agreements will be given to each securityholder, and the final
distribution will be made only upon surrender and cancellation of the securities
at an office or agency appointed by the trustee which will be specified in
the
notice of termination.
Any
purchase of assets of the trust fund in connection with a termination, shall
be
made at the price set forth in the related prospectus supplement which in
most
cases will be equal to the greater of:
·
the
sum of (a) 100% of the stated principal balance of each mortgage
asset as
of the day of the purchase plus accrued interest thereon at the
applicable
interest rate net of the rates at which the servicing fees and
the
retained interest, if any, are calculated to the first day of the
month
following the purchase plus (b) the appraised value of any underlying
property subject to the mortgage assets acquired for the benefit
of
securityholders, and
·
the
aggregate fair market value of all of the assets in the trust fund,
as
determined by the trustee, the master servicer, and, if different
than
both such persons, the person entitled to effect the termination,
in each
case taking into account accrued interest at the applicable interest
rate
net of the rates at which the servicing fees and the retained interest,
if
any, are calculated to the first day of the month following the
purchase.
The
exercise of an optimal termination right will effect early retirement of
the
securities of that series, but the right of the person entitled to effect
the
termination is subject to the aggregate principal balance of the outstanding
trust fund assets for the series at the time of purchase being less than
the
percentage of the aggregate principal balance of the trust fund assets at
the
cut-off date for that series specified in the related prospectus supplement,
which percentage will be between 25% and 0%.
In
addition to the repurchase of the assets in the related trust fund at the
Clean-up Call, if so specified in the related prospectus supplement, a holder
of
a non-offered class of securities described in the preceding paragraph will
have
the right, solely at its discretion, to terminate the related trust fund
on any
distribution date after the 12th distribution date following the date of
initial
issuance of the related series of securities and until the date as the Clean-up
Call becomes exercisable and thereby effect early retirement of the securities
of the series. Any call of this type will be of the entire trust fund at
one
time; multiple calls with respect to any series of securities will not be
permitted. If the call option is exercised, the Call Class must remit to
the
trustee a price equal to 100% of the principal balance of the securities
offered
hereby as of the day of the purchase plus accrued interest thereon at the
applicable security interest rate during the related period on which interest
accrues on the securities which the trustee will distribute to securityholders.
If funds to terminate are not deposited with the related trustee, the securities
will remain outstanding. There will not be any additional remedies available
to
securityholders. In addition, in the case of a trust fund for which a REMIC
election or elections have been made, an early termination will constitute
a
“qualified liquidation” under Section 860F of the Code. In connection with a
call by the Call Class, the final payment to the securityholders will be
made
upon surrender of the related securities to the trustee. Once the securities
have been surrendered and paid in full, there will not be any continuing
liability from the securityholders or from the trust fund to
securityholders.
Optional
Purchase by the Master Servicer of Defaulted Mortgage
Loans
The
master servicer under the related servicing agreement will have the option
to
purchase from the trust fund any mortgage asset 90 days or more delinquent
at a
purchase price generally equal to the outstanding principal balance of the
delinquent mortgage asset as of the date of purchase, plus all accrued and
unpaid interest on that principal balance.
Duties
of the Trustee
The
trustee makes no representations as to the validity or sufficiency of any
agreement, the securities or any mortgage loan or related document and is
not
accountable for the use or application by or on behalf of the master servicer
of
any funds paid to the master servicer or its designee in respect of the
securities or the mortgage loans, or deposited into or withdrawn from the
collection account or any other account by or on behalf of the master servicer.
If no event of default has occurred and is continuing, the trustee is required
to perform only those duties specifically required under the related agreement.
However, upon receipt of the various certificates, reports or other instruments
required to be furnished to it, the trustee is required to examine the documents
and to determine whether they conform to the requirements of the related
agreement.
Description
of the Trustee
The
trustee or indenture trustee, each referred to as the trustee, under each
pooling and servicing agreement, trust agreement or indenture will be named
in
the related prospectus supplement. The owner trustee for each series of notes
will be named in the related prospectus supplement. The commercial bank,
national banking association or trust company serving as trustee or owner
trustee may have normal banking relationships with the depositor and its
affiliates and with the master servicer and its affiliates.
DESCRIPTION
OF CREDIT SUPPORT
For
any
series of securities, credit support may be provided with respect to one
or more
classes thereof or the related mortgage assets. Credit support may be in
the
form of the subordination of one or more classes to other classes in a series
of
securities, letters of credit, insurance policies, surety bonds, guarantees,
the
establishment of one or more reserve funds, cross-collateralization,
overcollateralization or any combination of the foregoing.
The
credit support provided for a series of securities will in most cases not
provide protection against all risks of loss and will not guarantee repayment
of
the entire principal balance of the securities and interest thereon. If losses
or shortfalls occur that exceed the amount covered by credit support or that
are
not covered by credit support, securityholders will bear their allocable
share
of deficiencies. Also, if a form of credit support covers more than one pool
of
mortgage assets in a trust fund or more than one series of securities, holders
of securities evidencing interests in any of the covered pools or covered
trusts
will be subject to the risk that the credit support will be exhausted by
the
claims of other covered pools or covered trusts prior to that covered pool
or
covered trust receiving any of its intended share of the coverage.
If
credit
support is provided with respect to one or more classes of securities of
a
series, or the related mortgage assets, the related prospectus supplement
will
include a description of:
·
the
nature and amount of coverage under such credit
support,
·
any
conditions to payment thereunder not otherwise described in this
prospectus,
·
the
conditions under which the amount of coverage under the credit
support may
be reduced, terminated or replaced,
and
·
the
material provisions relating to the credit
support.
·
Additionally,
the related prospectus supplement will set forth certain information
with
respect to the credit support provider,
including:
·
a
brief description of its principal business
activities,
·
its
principal place of business, place of incorporation and the jurisdiction
under which it is chartered or licensed to do
business,
·
if
applicable, the identity of regulatory agencies that exercise primary
jurisdiction over the conduct of its business,
and
·
its
total assets and its stockholders’ or policyholders’ surplus, if
applicable, as of the date specified in the prospectus
supplement.
A
copy of
the policy or agreement, as applicable, governing the applicable credit support
will be filed with the Commission as an exhibit to a Current Report on Form
8-K
to be filed within 15 days of issuance of the related series.
Subordination
One
or
more classes of securities may be subordinate securities. In the event of
any
realized losses on mortgage assets not in excess of the limitations described
in
the following paragraph, the rights of the subordinate securityholders to
receive distributions with respect to the mortgage loans will be subordinate
to
the rights of the senior securityholders to the extent described in the related
prospectus supplement.
All
realized losses will be allocated to the subordinate securities of the related
series, or, if the series includes more than one class of subordinate
securities, to the outstanding class of subordinate securities having the
first
priority for allocation of realized losses and then to additional outstanding
classes of subordinate securities, if any, until the principal balance of
the
applicable subordinate securities has been reduced to zero. Any additional
realized losses will be allocated to the senior securities or, if the series
includes more than one class of senior securities, either on a pro
rata
basis
among all of the senior securities in proportion to their respective outstanding
principal balances or as otherwise provided in the related prospectus
supplement. However, with respect to realized losses that are attributable
to
physical damage to mortgaged properties of a type that is not covered by
standard hazard insurance policies, the amount thereof that may be allocated
to
the subordinate securities of the related series may be limited to an amount
specified in the related prospectus supplement. If so, any realized losses
of
this type in excess of the amount allocable to the subordinate securities
will
be allocated among all outstanding classes of securities of the related series,
on a pro
rata
basis in
proportion to their respective outstanding principal balances, regardless
of
whether any subordinate securities remain outstanding, or as otherwise provided
in the related prospectus supplement. Any allocation of a realized loss to
a
security will be made by reducing the principal balance thereof as of the
distribution date following the Prepayment Period in which the realized loss
was
incurred.
As
set
forth under “Description of the Securities—Distributions of Principal of the
Securities”, the rights of holders of the various classes of securities of any
series to receive distributions of principal and interest is determined by
the
aggregate principal balance of each class. The principal balance of any security
will be reduced by all amounts previously distributed on that security in
respect of principal, and by any realized losses allocated to that security.
If
there were no realized losses or prepayments of principal on any of the mortgage
loans, the respective rights of the holders of securities of any series to
future distributions would not change. However, to the extent so provided
in the
related prospectus supplement, holders of senior securities may be entitled
to
receive a disproportionately larger amount of prepayments received, which
will
have the effect of accelerating the amortization of the senior securities
and
increasing the respective percentage interest in future distributions evidenced
by the subordinate securities in the related trust fund, with a corresponding
decrease in the senior percentage, as well as preserving the availability
of the
subordination provided by the subordinate securities. In addition, as set
forth
in the paragraph above, realized losses will be first allocated to subordinate
securities by reduction of the principal balance thereof, which will have
the
effect of increasing the respective interest in future distributions evidenced
by the senior securities in the related trust fund.
If
so
provided in the related prospectus supplement, amounts otherwise payable
on any
distribution date to holders of subordinate securities may be deposited into
a
reserve fund. Amounts held in any reserve fund may be applied as described
below
under “—Reserve Funds” and in the related prospectus supplement.
With
respect to any Senior/Subordinate Series, the terms and provisions of the
subordination may vary from those described in the preceding paragraphs and
any
variation will be described in the related prospectus supplement.
If
so
provided in the related prospectus supplement, the credit support for the
senior
securities of a Senior/Subordinate Series may include, in addition to the
subordination of the subordinate securities of the series and the establishment
of a reserve fund, any of the other forms of credit support described in
this
prospectus supplement. If any of the other forms of credit support described
below is maintained solely for the benefit of the senior securities of a
Senior/Subordinate Series, then that coverage described may be limited to
the
extent necessary to make required distributions on the senior securities
or as
otherwise specified in the related prospectus supplement. If so provided
in the
related prospectus supplement, the obligor on any other forms of credit support
maintained for the benefit of the senior securities of a Senior/Subordinate
Series may be reimbursed for amounts paid thereunder out of amounts otherwise
payable on the subordinate securities.
Letter
of Credit
As
to any
series of securities to be covered by a letter of credit, a bank will deliver
to
the trustee an irrevocable letter of credit. The master servicer or trustee
will
exercise its best reasonable efforts to keep or cause to be kept the letter
of
credit in full force and effect, unless coverage thereunder has been exhausted
through payment of claims. The master servicer will agree to pay the fees
for
the letter of credit on a timely basis unless, as described in the related
prospectus supplement, the payment of those fees is otherwise provided
for.
The
master servicer or the trustee will make or cause to be made draws on the
letter
of credit bank under each letter of credit. Subject to any differences as
will
be described in the related prospectus supplement, letters of credit may
cover
all or any of the following amounts, in each case up to a maximum amount
set
forth in the letter of credit:
(1)
For
any mortgage asset that became a liquidated asset during the related
Prepayment Period, other than mortgage assets as to which amounts
paid or
payable under any related hazard insurance instrument, including
the
letter of credit as described in (2) below, are not sufficient
either to
restore the mortgaged property or to pay the outstanding principal
balance
of the mortgage asset plus accrued interest, an amount which, together
with all Liquidation Proceeds, Insurance Proceeds, and other collections
on the liquidated loan, net of amounts payable or reimbursable
therefrom
to the master servicer for related unpaid servicing fees and unreimbursed
servicing expenses, will equal the sum of (A) the unpaid principal
balance
of the liquidated asset, plus accrued interest at the applicable
interest
rate net of the rates at which the servicing fee and retained interest
are
calculated, plus (B) the amount of related servicing expenses,
if any, not
reimbursed to the master servicer from Liquidation Proceeds, Insurance
Proceeds and other collections on the liquidation asset, which
shall be
paid to the master servicer;
(2)
For
each mortgage asset that is delinquent and as to which the mortgaged
property has suffered damage, other than physical damage caused
by hostile
or warlike action in time of war or peace, by any weapons of war,
by any
insurrection or rebellion, or by any nuclear reaction or nuclear
radiation
or nuclear contamination whether controlled or uncontrolled, or
by any
action taken by any governmental authority in response to any of
the
foregoing, and for which any amounts paid or payable under the related
primary hazard insurance policy or any special hazard insurance
policy are
not sufficient to pay either of the following amounts, an amount
which,
together with all Insurance Proceeds paid or payable under the
related
primary hazard insurance policy or any special hazard insurance
policy,
net, if the proceeds are not to be applied to restore the mortgaged
property, of all amounts payable or reimbursable therefrom to the
master
servicer for related unpaid servicing fees and unreimbursed servicing
expenses, will be equal to the lesser of (A) the amount required
to
restore the mortgaged property and (B) the sum of (1) the unpaid
principal
balance of the mortgage asset plus accrued interest at the applicable
interest rate net of the rates at which the servicing fees and
retained
interest, if any, are calculated, plus (2) the amount of related
servicing
expenses, if any, not reimbursed to the master servicer from Insurance
Proceeds paid under the related primary hazard insurance policy
or any
special hazard insurance policy;
and
(3)
For
any mortgage asset that has been subject to bankruptcy proceedings
as
described above, the amount of any debt service reduction or the
amount by
which the principal balance of the mortgage asset has been reduced
by the
bankruptcy court.
If
the
related prospectus supplement so provides, upon payment by the letter of
credit
bank with respect to a liquidated asset, or a payment of the full amount
owing
on a mortgage asset as to which the mortgaged property has been damaged,
as
described in (2)(B) above, the liquidated asset will be removed from the
related
trust fund in accordance with the terms set forth in the related prospectus
supplement and will no longer be subject to the agreement. Unless otherwise
provided in the related prospectus supplement, mortgage assets that have
been
subject to bankruptcy proceedings, or as to which payment under the letter
of
credit has been made for the purpose of restoring the related mortgaged
property, as described in (2)(A) above, will remain part of the related trust
fund. The maximum dollar coverages provided under any letter of credit will
each
be reduced to the extent of related unreimbursed draws thereunder.
In
the
event that the bank that has issued a letter of credit ceases to be a duly
organized commercial bank, or its debt obligations are rated lower than the
highest rating on any class of the securities on the date of issuance by
the
rating agency or agencies, the master servicer or trustee will use its best
reasonable efforts to obtain or cause to be obtained, as to each letter of
credit, a substitute letter of credit issued by a commercial bank that meets
these requirements and providing the same coverage; provided, however, that,
if
the fees charged or collateral required by the successor bank shall be more
than
the fees charged or collateral required by the predecessor bank, each component
of coverage thereunder may be reduced proportionately to a level as results
in
the fees and collateral being not more than the fees then charged and collateral
then required by the predecessor bank.
Mortgage
Pool Insurance Policy
As
to any
series of securities to be covered by a mortgage pool insurance policy with
respect to any realized losses on liquidated loans, the master servicer will
exercise its best reasonable efforts to maintain or cause to be maintained
the
mortgage pool insurance policy in full force and effect, unless coverage
thereunder has been exhausted through payment of claims. The master servicer
will agree to pay the premiums for each mortgage pool insurance policy on
a
timely basis unless, as described in the related prospectus supplement, the
payment of those fees is otherwise provided.
The
master servicer will present or cause to be presented claims to the insurer
under each mortgage pool insurance policy. Mortgage pool insurance policies,
however, are not blanket policies against loss, since claims thereunder may
be
made only upon satisfaction of certain conditions, as described in the next
paragraph and, if applicable, in the related prospectus supplement.
Mortgage
pool insurance policies do not cover losses arising out of the matters excluded
from coverage under the primary mortgage insurance policy, or losses due
to a
failure to pay or denial of a claim under a primary mortgage insurance policy,
irrespective of the reason therefor.
Mortgage
pool insurance policies in general provide that no claim may validly be
presented thereunder with respect to a mortgage loan unless:
·
an
acceptable primary mortgage insurance policy, if the initial loan-to-value
ratio of the mortgage loan exceeded 80%, has been kept in force
until the
loan-to-value ratio is reduced to
80%;
·
premiums
on the primary hazard insurance policy have been paid by the insured
and
real estate taxes and foreclosure, protection and preservation
expenses
have been advanced by or on behalf of the insured, as approved
by the
insurer;
·
if
there has been physical loss or damage to the mortgaged property,
it has
been restored to its physical condition at the time the mortgage
loan
became insured under the mortgage pool insurance policy, subject
to
reasonable wear and tear; and
·
the
insured has acquired good and merchantable title to the mortgaged
property, free and clear of all liens and encumbrances, except
permitted
encumbrances, including any right of redemption by or on behalf
of the
mortgagor, and if required by the insurer, has sold the property
with the
approval of the insurer.
Assuming
the satisfaction of these conditions, the insurer has the option to either
(a)
acquire the property securing the defaulted mortgage loan for a payment equal
to
the principal balance of the defaulted mortgage loan plus accrued and unpaid
interest at the interest rate on the mortgage loan to the date of acquisition
and expenses described above advanced by or on behalf of the insured, on
condition that the insurer must be provided with good and merchantable title
to
the mortgaged property, unless the property has been conveyed under the terms
of
the applicable primary mortgage insurance policy, or (b) pay the amount by
which
the sum of the principal balance of the defaulted mortgage loan and accrued
and
unpaid interest at the interest rate to the date of the payment of the claim
and
the expenses exceed the proceeds received from a sale of the mortgaged property
which the insurer has approved. In both (a) and (b), the amount of payment
under
a mortgage pool insurance policy will be reduced by the amount of the loss
paid
under the primary mortgage insurance policy.
Unless
earlier directed by the insurer, a claim under a mortgage pool insurance
policy
must be filed (a) in the case when a primary mortgage insurance policy is
in
force, within a specified number of days (typically, 60 days) after the claim
for loss has been settled or paid thereunder, or after acquisition by the
insured or a sale of the property approved by the insurer, whichever is later,
or (b) in the case when a primary mortgage insurance policy is not in force,
within a specified number of days (typically, 60 days) after acquisition
by the
insured or a sale of the property approved by the insurer. A claim must be
paid
within a specified period (typically, 30 days) after the claim is made by
the
insured.
The
amount of coverage under each mortgage pool insurance policy will generally
be
reduced over the life of the securities of any series by the aggregate dollar
amount of claims paid less the aggregate of the net amounts realized by the
insurer upon disposition of all acquired properties. The amount of claims
paid
includes certain expenses incurred by the master servicer as well as accrued
interest on delinquent mortgage loans to the date of payment of the claim.
Accordingly, if aggregate net claims paid under a mortgage pool insurance
policy
reach the applicable policy limit, coverage thereunder will be exhausted
and any
further losses will be borne by securityholders of the related series. See
“Legal Aspects of Mortgage Assets—Foreclosure on Mortgages” and “—Repossession
with Respect to Manufactured Housing Contracts.”
If
an
insurer under a mortgage pool insurance policy ceases to be a private mortgage
guaranty insurance company duly qualified as such under applicable laws and
approved as an insurer by Freddie Mac or Fannie Mae and having a claims-paying
ability acceptable to the rating agency or agencies, the master servicer
will
use its best reasonable efforts to obtain or cause to be obtained from another
qualified insurer a replacement insurance policy comparable to the mortgage
pool
insurance policy with a total coverage equal to the then outstanding coverage
of
the mortgage pool insurance policy; provided, however, that if the cost of
the
replacement policy is greater than the cost of the original mortgage pool
insurance policy, the coverage of the replacement policy may be reduced to
the
level that its premium rate does not exceed the premium rate on the original
mortgage pool insurance policy. However, if the insurer ceases to be a qualified
insurer solely because it ceases to be approved as an insurer by Freddie
Mac or
Fannie Mae, the master servicer will review, or cause to be reviewed, the
financial condition of the insurer with a view towards determining whether
recoveries under the mortgage pool insurance policy are jeopardized for reasons
related to the financial condition of the insurer. If the master servicer
determines that recoveries are so jeopardized, it will exercise its best
reasonable efforts to obtain from another qualified insurer a replacement
policy, subject to the same cost limitation.
Because
each mortgage pool insurance policy will require that the property subject
to a
defaulted mortgage loan be restored to its original condition prior to claiming
against the insurer, the policy will not provide coverage against hazard
losses.
As set forth in the immediately following paragraph, the primary hazard
insurance policies covering the mortgage loans typically exclude from coverage
physical damage resulting from a number of causes and, even when the damage
is
covered, may afford recoveries that are significantly less than the full
replacement cost of the losses. Further, a special hazard insurance policy,
or a
letter of credit that covers special hazard realized losses, will not cover
all
risks, and the coverage thereunder will be limited in amount. These hazard
risks
will, as a result, be uninsured and will therefore be borne by
securityholders.
Special
Hazard Insurance Policy
As
to any
series of securities to be covered by an insurance instrument that does not
cover losses that are attributable to physical damage to the mortgaged
properties of a type that is not covered by standard hazard insurance policies,
in other words, special hazard realized losses, the related prospectus
supplement may provide that the master servicer will exercise its best
reasonable efforts to maintain or cause to be maintained a special hazard
insurance policy in full force and effect covering the special hazard amount,
unless coverage thereunder has been exhausted through payment of claims;
provided, however, that the master servicer will be under no obligation to
maintain the policy if any insurance instrument covering the series as to
any
realized losses on liquidated loans is no longer in effect. The master servicer
will agree to pay the premiums on each special hazard insurance policy on
a
timely basis unless, as described in the related prospectus supplement, payment
of those premiums is otherwise provided for.
Each
special hazard insurance policy will, subject to the limitations described
in
the next paragraph, protect holders of securities of the related series
from
·
loss
by reason of damage to mortgaged properties caused by certain hazards,
including earthquakes and mudflows, not insured against under the
primary
hazard insurance policies or a flood insurance policy if the property
is
in a designated flood area, and
·
loss
from partial damage caused by reason of the application of the
co-insurance clause contained in the primary hazard insurance
policies.
Special
hazard insurance policies usually will not cover losses occasioned by normal
wear and tear, war, civil insurrection, governmental actions, errors in design,
nuclear or chemical reaction or contamination, faulty workmanship or materials,
flood, if the property is located in a designated flood area, and other
risks.
Subject
to the foregoing limitations, each special hazard insurance policy will provide
that, when there has been damage to property securing a defaulted mortgage
asset
acquired by the insured and to the extent the damage is not covered by the
related primary hazard insurance policy or flood insurance policy, the insurer
will pay the lesser of:
(1)
the
cost of repair to the property and
(2)
upon
transfer of the property to the insurer, the unpaid principal balance
of
the mortgage asset at the time of acquisition of the property by
foreclosure, deed in lieu of foreclosure or repossession, plus
accrued
interest to the date of claim settlement and expenses incurred
by or on
behalf of the master servicer with respect to the
property.
The
amount of coverage under the special hazard insurance policy will be reduced
by
the sum of (a) the unpaid principal balance plus accrued interest and certain
expenses paid by the insurer, less any net proceeds realized by the insurer
from
the sale of the property, plus (b) any amount paid as the cost of repair
of the
property.
Restoration
of the property with the proceeds described under clause (1) of the immediately
preceding paragraph will satisfy the condition under an insurance instrument
providing coverage as to credit, or other non-hazard risks, that the property
be
restored before a claim thereunder may be validly presented with respect
to the
defaulted mortgage asset secured by the property. The payment described under
clause (2) of the immediately preceding paragraph will render unnecessary
presentation of a claim in respect of the mortgage loan under an insurance
instrument providing coverage as to credit, or other non-hazard risks, as
to any
realized losses on a liquidated loan. Therefore, so long as the insurance
instrument providing coverage as to credit, or other non-hazard risks, remains
in effect, the payment by the insurer of either of the above alternative
amounts
will not affect the total insurance proceeds paid to securityholders, but
will
affect the relative amounts of coverage remaining under any special hazard
insurance policy and any credit insurance instrument.
The
sale
of a mortgaged property must be approved by the insurer under any special
hazard
insurance policy and funds received by the insured in excess of the unpaid
principal balance of the mortgage asset plus interest thereon to the date
of
sale plus expenses incurred by or on behalf of the master servicer with respect
to the property, not to exceed the amount actually paid by the insurer, must
be
refunded to the insurer and, to that extent, coverage under the special hazard
insurance policy will be restored. If aggregate claim payments under a special
hazard insurance policy reach the policy limit, coverage thereunder will
be
exhausted and any further losses will be borne by securityholders.
A
claim
under a special hazard insurance policy generally must be filed within a
specified number of days, typically 60 days, after the insured has acquired
good
and merchantable title to the property, and a claim payment is payable within
a
specified number of days, typically 30 days, after a claim is accepted by
the
insurer. Special hazard insurance policies provide that no claim may be paid
unless primary hazard insurance policy premiums, flood insurance premiums,
if
the property is located in a federally designated flood area, and, as approved
by the insurer, real estate property taxes, property protection and preservation
expenses and foreclosure or repossession costs have been paid by or on behalf
of
the insured, and unless the insured has maintained the primary hazard insurance
policy and, if the property is located in a federally designated flood area,
flood insurance, as required by the special hazard insurance
policy.
If
a
special hazard insurance policy is canceled or terminated for any reason,
other
than the exhaustion of total policy coverage, the master servicer will use
its
best reasonable efforts to obtain or cause to be obtained from another insurer
a
replacement policy comparable to that special hazard insurance policy with
a
total coverage that is equal to the then existing coverage of the replaced
special hazard insurance policy; provided, however, that if the cost of the
replacement policy is greater than the cost of that special hazard insurance
policy, the coverage of the replacement policy may be reduced to a level
so that
its premium rate does not exceed the premium rate on that special hazard
insurance policy.
Since
each special hazard insurance policy is designed to permit full recoveries
as to
any realized losses on liquidated loans under a credit insurance instrument
in
circumstances in which recoveries would otherwise be unavailable because
property has been damaged by a cause not insured against by a primary hazard
insurance policy and thus would not be restored, each agreement governing
the
trust fund will provide that, if the related credit insurance instrument
shall
have lapsed or terminated or been exhausted through payment of claims, the
master servicer will be under no further obligation to maintain the special
hazard insurance policy.
Bankruptcy
Bond
As
to any
series of securities to be covered by a bankruptcy bond with respect to actions
that may be taken by a bankruptcy court in connection with a mortgage asset,
the
master servicer will exercise its best reasonable efforts to maintain or
cause
to be maintained the bankruptcy bond in full force and effect, unless coverage
thereunder has been exhausted through payment of claims. The master servicer
will pay or cause to be paid the premiums for each bankruptcy bond on a timely
basis, unless, as described in the related prospectus supplement, payment
of
those premiums is otherwise provided for. Subject to the limit of the dollar
amount of coverage provided, each bankruptcy bond will cover certain losses
resulting from an extension of the maturity of a mortgage asset, or a reduction
by the bankruptcy court of the principal balance of or the interest rate
on a
mortgage asset, and the unpaid interest on the amount of a principal reduction
during the pendency of a proceeding under the Bankruptcy Code. See “Legal
Aspects of Mortgage Assets—Foreclosure on Mortgages” and “—Repossession with
Respect to Manufactured Housing Contracts.”
Financial
Guarantee Insurance
Financial
guarantee insurance, if any, with respect to a series of securities will
be
provided by one or more insurance companies. The financial guarantee insurance
will guarantee, with respect to one or more classes of securities of a series,
timely distributions of interest only, timely distributions of interest and
ultimate distribution of principal or timely distributions of interest and
distributions of principal on the basis of a schedule of principal distributions
set forth in or determined in the manner specified in the related prospectus
supplement. If so specified in the related prospectus supplement, the financial
guarantee insurance will also guarantee against any payment made to a
securityholder that is subsequently recovered as a voidable preference payment
under federal bankruptcy law. A copy of the financial guarantee insurance
policy
for a series, if any, will be filed with the Commission as an exhibit to
a
Current Report on Form 8-K to be filed with the Commission within 15 days
of
issuance of the securities of the related series.
Reserve
Fund
If
so
provided in the related prospectus supplement, the depositor will deposit
or
cause to be deposited in an account, a reserve fund, any combination of cash,
one or more irrevocable letters of credit or one or more permitted investments
in specified amounts, or any other instrument satisfactory to the rating
agency
or agencies, which will be applied and maintained in the manner and under
the
conditions specified in the prospectus supplement. In the alternative or
in
addition to a deposit, the prospectus supplement for a Senior/Subordinate
Series
may provide that, a reserve fund be funded through application of all or
a
portion of amounts otherwise payable on the subordinate securities. Amounts
in a
reserve fund may be distributed to securityholders, or applied to reimburse
the
master servicer for outstanding advances, or may be used for other purposes,
in
the manner specified in the related prospectus supplement. A reserve fund
will
typically not be deemed to be part of the related trust fund.
Amounts
deposited in any reserve fund for a series will be invested in permitted
investments by, or at the direction of, the master servicer or any other
person
named in the related prospectus supplement.
Overcollateralization
If
so
specified in the related prospectus supplement, interest collections on the
mortgage assets may exceed interest payments on the securities for the related
distribution date. The excess interest may be deposited into a reserve fund
or
applied as an additional payment of principal on one or more classes of the
securities of the related series. If excess interest is applied as principal
payments on the securities, the effect will be to reduce the principal balance
of the securities relative to the outstanding balance of the mortgage loans,
thereby creating overcollateralization and additional protection to the
securityholders, as specified in the related prospectus supplement. If so
provided in the related prospectus supplement, overcollateralization may
also be
provided on the date of issuance of the securities by the issuance of securities
in an initial aggregate principal amount which is less than the aggregate
principal amount of the mortgage assets in the related trust fund.
Cross-Support
Features
If
the
trust fund assets for a series are divided into separate asset groups, the
beneficial ownership of which is evidenced by a separate class or classes
of a
series, credit support may be provided by a cross-support feature which requires
that distributions be made on senior securities evidencing the beneficial
ownership of one asset group prior to distributions on subordinate securities
evidencing the beneficial ownership interest in another asset group within
the
trust fund. The related prospectus supplement for a series which includes
a
cross-support feature will describe the manner and conditions for applying
that
cross-support feature. As to any trust fund that includes a cross-support
feature, only assets of the trust fund will be used to provide cross-support,
and cross- support will be provided only to securities issued by the trust
fund.
A trust fund will not provide a cross-support feature that benefits securities
issued by any other trust fund, and a trust fund will not receive cross-support
from any other trust fund.
OTHER
FINANCIAL OBLIGATIONS RELATED TO THE SECURITIES
Swaps
and Yield Supplement Agreements
The
trustee on behalf of a trust fund may enter into interest rate swaps and
related
caps, floors and collars to minimize the risk of securityholders from adverse
changes in interest rates, which are collectively referred to as swaps, and
other yield supplement agreements or similar yield maintenance arrangements
that
do not involve swap agreements or other notional principal contracts, which
are
collectively referred to as yield supplement agreements.
An
interest rate swap is an agreement between two parties to exchange a stream
of
interest payments on an agreed hypothetical or “notional” principal amount. No
principal amount is exchanged between the counterparties to an interest rate
swap. In the typical swap, one party agrees to pay a fixed rate on a notional
principal amount, while the counterparty pays a floating rate based on one
or
more reference interest rates including the London Interbank Offered Rate,
or
LIBOR, a specified bank’s prime rate or U.S. Treasury Bill rates. Interest rate
swaps also permit counterparties to exchange a floating rate obligation based
upon one reference interest rate, such as LIBOR, for a floating rate obligation
based upon another referenced interest rate, such as U.S. Treasury Bill
rates.
Yield
supplement agreements may be entered into to supplement available cashflow
on
one or more classes of the securities of any series. The specific terms of
any
derivative product agreement and any counterparties will be described in
the
accompanying prospectus supplement.
There
can
be no assurance that the trustee will be able to enter into or offset swaps
or
enter into yield supplement agreements or derivative product agreements at
any
specific time or at prices or on other terms that are advantageous. In addition,
although the terms of the swaps and yield supplement agreements may provide
for
termination under various circumstances, there can be no assurance that the
trustee will be able to terminate a swap or yield supplement agreement when
it
would be economically advantageous to the trust fund to do so.
Purchase
Obligations
Some
types of trust assets and some classes of securities of any series, as specified
in the accompanying prospectus supplement, may be subject to a purchase
obligation that would become applicable on one or more specified dates or
upon
the occurrence of one or more specified events. Such purchase obligation
would
be an additional form of credit enhancement intended to guarantee the maturity
of a class or classes of securities. For instance, in a transaction where
the
mortgage loans include adjustable rate mortgage loans that are fixed for
a
certain period following origination, the transaction documents may require
a
mandatory auction of certain classes at the end of such fixed period. In
order
to guarantee that holders of such securities receive the full amount of the
remaining principal balance of such security, the transaction would require
that
a derivative be obtained where the derivative provider would agree to pay
the
full outstanding principal balance of the related securities in exchange
for any
amounts received in excess at the auction. The terms and conditions of each
purchase obligation, including the purchase price, timing and payment procedure,
will be described in the accompanying prospectus supplement. Such purchase
obligation may be a secured or unsecured obligation of the provider thereof,
which may include a bank or other financial institution or an insurance company.
Each purchase obligation will be evidenced by an instrument delivered to
the
trustee for the benefit of the applicable securityholders of the related
series.
As specified in the accompanying prospectus supplement, each purchase obligation
relating to trust assets will be payable solely to the trustee for the benefit
of the securityholders of the related series.
DESCRIPTION
OF PRIMARY INSURANCE POLICIES
Each
mortgage loan will be covered by a primary hazard insurance policy and, if
so
specified in the prospectus supplement, a primary mortgage insurance
policy.
Primary
Mortgage Insurance Policies
Although
the terms and conditions of primary mortgage insurance policies differ, each
primary mortgage insurance policy will generally cover losses up to an amount
equal to the excess of the unpaid principal amount of a defaulted mortgage
loan,
plus accrued and unpaid interest thereon and approved expenses, over a specified
percentage of the value of the related mortgaged property.
As
conditions to the filing or payment of a claim under a primary mortgage
insurance policy, the insured will typically be required, in the event of
default by the borrower, to:
·
advance
or discharge (1) hazard insurance premiums and (2) as necessary
and
approved in advance by the insurer, real estate taxes, property
protection
and preservation expenses and foreclosure and related
costs,
·
in
the event of any physical loss or damage to the mortgaged property,
have
the mortgaged property restored to at least its condition at the
effective
date of the primary mortgage insurance policy, ordinary wear and
tear
excepted, and
·
tender
to the insurer good and merchantable title to, and possession of,
the
mortgaged property.
Multifamily
loans, commercial loans and mixed-use loans will not be covered by primary
mortgage insurance policies, regardless of the related loan-to-value
ratio.
Primary
Hazard Insurance Policies
Each
servicing agreement will require the master servicer to cause the borrower
on
each mortgage loan to maintain a primary hazard insurance policy providing
for
coverage of the standard form of fire insurance policy with extended coverage
customary in the state in which the mortgaged property is located. The primary
hazard coverage will be in general in an amount equal to the lesser of the
principal balance owing on the mortgage loan and the amount necessary to
fully
compensate for any damage or loss to the improvements on the mortgaged property
on a replacement cost basis, but in either case not less than the amount
necessary to avoid the application of any co-insurance clause contained in
the
hazard insurance policy. The ability of the master servicer to assure that
hazard insurance proceeds are appropriately applied may be dependent upon
its
being named as an additional insured under any primary hazard insurance policy
and under any flood insurance policy referred to in the paragraph below,
and
upon the borrower furnishing information to the master servicer in respect
of a
claim. All amounts collected by the master servicer under any primary hazard
insurance policy, except for amounts to be applied to the restoration or
repair
of the mortgaged property or released to the borrower in accordance with
the
master servicer’s normal servicing procedures, and subject to the terms and
conditions of the related Mortgage and mortgage note, will be deposited in
the
collection account. The agreement will provide that the master servicer may
satisfy its obligation to cause each borrower to maintain a hazard insurance
policy by the master servicer’s maintaining a blanket policy insuring against
hazard losses on the mortgage loans. If the blanket policy contains a deductible
clause, the master servicer will deposit in the collection account all sums
that
would have been deposited in the collection account but for that clause.
The
master servicer also is required to maintain a fidelity bond and errors and
omissions policy with respect to its officers and employees that provides
coverage against losses that may be sustained as a result of an officer’s or
employee’s misappropriation of funds or errors and omissions in failing to
maintain insurance, subject to limitations as to amount of coverage, deductible
amounts, conditions, exclusions and exceptions.
In
general, the standard form of fire and extended coverage policy covers physical
damage to or destruction of the improvements of the property by fire, lightning,
explosion, smoke, windstorm and hail, and riot, strike and civil commotion,
subject to the conditions and exclusions specified in each policy. Although
the
policies relating to the mortgage loans will be underwritten by different
insurers under different state laws in accordance with different applicable
state forms, and therefore will not contain identical terms and conditions,
the
basic terms thereof are dictated by respective state laws, and most hazard
insurance policies typically do not cover any physical damage resulting from
the
following: war, revolution, governmental actions, floods and other water-related
causes, earth movement, including earthquakes, landslides and mudflows, nuclear
reactions, wet or dry rot, vermin, rodents, insects or domestic animals,
theft
and, in some cases, vandalism. This list is merely indicative of the kinds
of
uninsured risks and is not intended to be all-inclusive. When a mortgaged
property is located at origination in a federally designated flood area and
flood insurance is available, each agreement will require the master servicer
to
cause the borrower to acquire and maintain flood insurance in an amount equal
in
general to the lesser of (1) the amount necessary to fully compensate for
any
damage or loss to the improvements which are part of the mortgaged property
on a
replacement cost basis and (2) the maximum amount of insurance available
under
the federal flood insurance program, whether or not the area is participating
in
the program.
The
hazard insurance policies covering the mortgaged properties typically contain
a
co- insurance clause that in effect requires the insured at all times to
carry
insurance of a specified percentage, generally 80% to 90%, of the full
replacement value of the improvements on the property in order to recover
the
full amount of any partial loss. If the insured’s coverage falls below this
specified percentage, the co-insurance clause generally provides that the
insurer’s liability in the event of partial loss does not exceed the lesser of
(1) the replacement cost of the improvements less physical depreciation and
(2)
the proportion of the loss as the amount of insurance carried bears to the
specified percentage of the full replacement cost of the
improvements.
The
master servicer will not require that a hazard or flood insurance policy
be
maintained for any cooperative loan. Generally, the cooperative is responsible
for maintenance of hazard insurance for the property owned by the cooperative,
and the tenant-stockholders of that cooperative do not maintain individual
hazard insurance policies. However, if a cooperative and the related borrower
on
a cooperative note do not maintain hazard insurance or do not maintain adequate
coverage or any insurance proceeds are not applied to the restoration of
the
damaged property, damage to the related borrower’s cooperative apartment or the
cooperative’s building could significantly reduce the value of the collateral
securing the cooperative note.
Since
the
amount of hazard insurance the master servicer will cause to be maintained
on
the improvements securing the mortgage loans declines as the principal balances
owing thereon decrease, and since residential properties have historically
appreciated in value over time, hazard insurance proceeds collected in
connection with a partial loss may be insufficient to restore fully the damaged
property. The terms of the mortgage loans provide that borrowers are required
to
present claims to insurers under hazard insurance policies maintained on
the
mortgaged properties. The master servicer, on behalf of the trustee and
securityholders, is obligated to present or cause to be presented claims
under
any blanket insurance policy insuring against hazard losses on mortgaged
properties. However, the ability of the master servicer to present or cause
to
be presented these claims is dependent upon the extent to which information
in
this regard is furnished to the master servicer by borrowers.
FHA
Insurance
The
Federal Housing Administration is responsible for administering various federal
programs, including mortgage insurance, authorized under The Housing Act
and the
United States Housing Act of 1937, as amended. If so provided in the related
prospectus supplement, a number of the mortgage loans will be insured by
the
FHA.
There
are
two primary FHA insurance programs that are available for multifamily mortgage
loans. Sections 221(d)(3) and (d)(4) of the Housing Act allow HUD to insure
mortgage loans that are secured by newly constructed and substantially
rehabilitated multifamily rental projects. Section 244 of the Housing Act
provides for co-insurance of such mortgage loans made under Sections 221
(d)(3)
and (d)(4) by HUD/FHA and a HUD-approved co-insurer. Generally the term of
such
a mortgage loan may be up to 40 years and the ratio of the loan amount to
property replacement cost can be up to 90%.
Section
223(f) of the Housing Act allows HUD to insure mortgage loans made for the
purchase or refinancing of existing apartment projects which are at least
three
years old. Section 244 also provides for co-insurance of mortgage loans made
under Section 223(f). Under Section 223(f), the loan proceeds cannot be used
for
substantial rehabilitation work, but repairs may be made for up to, in general,
the greater of 15% of the value of the project or a dollar amount per apartment
unit established from time to time by HUD. In general the loan term may not
exceed 35 years and a loan to value ratio of no more than 85% is required
for
the purchase of a project and 70% for the refinancing of a project.
HUD
has
the option, in most cases, to pay insurance claims in cash or in debentures
issued by HUD. Presently, claims are being paid in cash, and claims have
not
been paid in debentures since 1965. HUD debentures issued in satisfaction
of FHA
insurance claims bear interest at the applicable HUD debenture interest rate.
The master servicer will be obligated to purchase any debenture issued in
satisfaction of a defaulted FHA insured mortgage loan serviced by it for
an
amount equal to the principal amount of that debenture.
The
master servicer will be required to take steps as are reasonably necessary
to
keep FHA insurance in full force and effect.
Some
of
the mortgage loans contained in a trust fund may be Title I loans as described
below and in the related prospectus supplement. The regulations, rules and
procedures promulgated by the FHA under Title I contain the requirements
under
which lenders approved for participation in the Title I Program may obtain
insurance against a portion of losses incurred with respect to eligible loans
that have been originated and serviced in accordance with FHA regulations,
subject to the amount of insurance coverage available in such Title I lender’s
FHA reserve, as described below and in the related prospectus supplement.
In
general, an insurance claim against the FHA may be denied or surcharged if
the
Title I loan to which it relates does not strictly satisfy the requirements
of
the National Housing Act and FHA regulations but FHA regulations permit the
Secretary of the Department of Housing and Urban Development, subject to
statutory limitations, to waive a Title I Lender’s noncompliance with FHA
regulations if enforcement would impose an injustice on the lender.
Unless
otherwise specified in the related prospectus supplement, the master servicer
will either serve as or contract with the person specified in the prospectus
supplement to serve as the administrator for FHA claims pursuant to an FHA
claims administration agreement. The FHA claims administrator will be
responsible for administering, processing and submitting FHA claims with
respect
to the Title I loans. The securityholders will be dependent on the FHA claims
administrator to (1) make claims on the Title I loans in accordance with
FHA
regulations and (2) remit all FHA insurance proceeds received from the FHA
in
accordance with the related agreement. The securityholders’ rights relating to
the receipt of payment from and the administration, processing and submission
of
FHA claims by any FHA claims administrator is limited and governed by the
related agreement and the FHA claims administration agreement and these
functions are obligations of the FHA claims administrator, but not the
FHA.
Under
Title I, the FHA maintains an FHA insurance coverage reserve account for
each
Title I lender. The amount in each Title I lender’s FHA reserve is a maximum of
10% of the amounts disbursed, advanced or expended by a Title I lender in
originating or purchasing eligible loans registered with the FHA for Title
I
insurance, with certain adjustments permitted or required by FHA regulations.
The balance of such FHA reserve is the maximum amount of insurance claims
the
FHA is required to pay to the related Title I lender. Mortgage loans to be
insured under Title I will be registered for insurance by the FHA. Following
either the origination or transfer of loans eligible under Title I, the Title
I
lender will submit such loans for FHA insurance coverage within its FHA reserve
by delivering a transfer of note report or by an electronic submission to
the
FHA in the form prescribed under the FHA regulations. The increase in the
FHA
insurance coverage for such loans in the Title I lender’s FHA reserve will occur
on the date following the receipt and acknowledgment by the FHA of the transfer
of note report for such loans. The insurance available to any trust fund
will be
subject to the availability, from time to time, of amounts in each Title
I
lender’s FHA reserve, which will initially be limited to the amount specified in
the related prospectus supplement.
If
so
provided in the related prospectus supplement the trustee or FHA claims
administrator may accept an assignment of the FHA reserve for the related Title
I loans, notify FHA of such assignment and request that the portion of the
depositor’s FHA reserves allocable to the Title I loans be transferred to the
trustee or the FHA claims administrator on the closing date. Alternatively,
in
the absence of such provision, the FHA reserves may be retained by the depositor
and, upon an insolvency and receivership of the depositor, the related trustee
will notify FHA and request that the portion of the depositor’s FHA reserves
allocable to the Title I loans be transferred to the trustee or the FHA claims
administrator. Although each trustee will request such a transfer of reserves,
FHA is not obligated to comply with such a request, and may determine that
it is
not in FHA’s interest to permit a transfer of reserves. In addition, FHA has not
specified how insurance reserves would be allocated in a transfer, and there
can
be no assurance that any reserve amount, if transferred to the trustee or
the
FHA claims administrator, as the case may be, would not be substantially
less
than 10% of the outstanding principal amount of the related Title I loans.
It is
likely that the depositor, the trustee or the FHA claims administrator would
be
the lender of record on other Title I loans, so that any FHA reserves that
are
retained, or permitted to be transferred, would become commingled with FHA
reserves available for other Title I loans. FHA also reserves the right to
transfer reserves with “earmarking” (segregating reserves so that they will not
be commingled with the reserves of the transferee) if it is in FHA’s interest to
do so.
Under
Title I, the FHA will reduce the insurance coverage available in a Title
I
lender’s FHA reserve with respect to loans insured under that Title I lender’s
contract of insurance by (1) the amount of FHA insurance claims approved
for
payment related to those loans and (2) the amount of reduction of the Title
I
lender’s FHA reserve by reason of the sale, assignment or transfer of loans
registered under the Title I lender’s contract of insurance. The FHA insurance
coverage also may be reduced for any FHA insurance claims previously disbursed
to the Title I lender that are subsequently rejected by the FHA.
Unlike
certain other government loan insurance programs, loans under Title I (other
than loans in excess of $25,000) are not subject to prior review by the FHA.
The
FHA disburses insurance proceeds with respect to defaulted loans for which
insurance claims have been filed by a Title I lender prior to any review
of
those loans. A Title I lender is required to repurchase a Title I loan from
the
FHA that is determined to be ineligible for insurance after insurance claim
payments for such loan have been paid to the lender. Under the FHA regulations,
if the Title I lender’s obligation to repurchase the Title I loan is
unsatisfied, the FHA is permitted to offset the unsatisfied obligation against
future insurance claim payments owed by the FHA to such lender. FHA regulations
permit the FHA to disallow an insurance claim with respect to any loan that
does
not qualify for insurance for a period of up to two years after the claim
is
made and to require the Title I lender that has submitted the insurance claim
to
repurchase the loan.
The
proceeds of loans under the Title I Program may be used only for permitted
purposes, including the alteration, repair or improvement of residential
property, the purchase of a manufactured home or lot (or cooperative interest
therein) on which to place the home or the purchase of both a manufactured
home
and the lot (or cooperative interest therein) on which the home is
placed.
Subject
to certain limitations described below, eligible Title I loans are generally
insured by the FHA for 90% of an amount equal to the sum of
·
the
net unpaid principal amount and the uncollected interest earned
to the
date of default,
·
interest
on the unpaid loan obligation from the date of default to the date
of the
initial submission of the insurance claim, plus 15 calendar days
(the
total period not to exceed nine months) at a rate of 7% per
annum,
·
uncollected
court costs,
·
title
examination costs,
·
fees
for required inspections by the lenders or its agents, up to $75,
and
·
origination
fees up to a maximum of 5% of the loan
amount.
Accordingly
if sufficient insurance coverage is available in such FHA reserve, then the
Title I lender bears the risk of losses on a Title I loan for which a claim
for
reimbursement is paid by the FHA of at least 10% of the unpaid principal,
uncollected interest earned to the date of default, interest from the date
of
default to the date of the initial claim submission and certain
expenses.
In
general, the FHA will insure home improvement contracts up to $25,000 for
a
single family property, with a maximum term of 20 years. The FHA will insure
loans of up to $17,500 for manufactured homes which qualify as real estate
under
applicable state law and loans of up to $12,000 per unit for a $48,000 limit
for
four units for owner-occupied multifamily homes. If the loan amount is $15,000
or more, the FHA requires a drive-by appraisal, the current tax assessment
value, or a full Uniform Residential Appraisal Report dated within 12 months
of
the closing to verify the property’s value. The maximum loan amount on
transactions requiring an appraisal is the amount of equity in the property
shown by the market value determination of the property.
With
respect to Title I loans, the FHA regulations do not require that a borrower
obtain title or fire and casualty insurance. However, if the related mortgaged
property is located in a flood hazard area, flood insurance in an amount
at
least equal to the loan amount is required. In addition, the FHA regulations
do
not require that the borrower obtain insurance against physical damage arising
from earth movement (including earthquakes, landslides and mudflows).
Accordingly, if a mortgaged property that secures a Title I loan suffers
any
uninsured hazard or casualty losses, holders of the related series of securities
that are secured in whole or in part by such Title I loan may bear the risk
of
loss to the extent that such losses are not recovered by foreclosure on the
defaulted loans or from any FHA insurance proceeds. Such loss may be otherwise
covered by amounts available from the credit enhancement provided for the
related series of securities, if specified in the related prospectus
supplement.
Following
a default on a Title I loan insured by the FHA, the master servicer may,
subject
to certain conditions and mandatory loss mitigation procedures, either commence
foreclosure proceedings against the improved property securing the loan,
if
applicable, or submit a claim to FHA, but may submit a claim to FHA after
proceeding against the improved property only with the prior approval of
the
Secretary of HUD. The availability of FHA Insurance following a default on
a
Title I loan is subject to a number of conditions, including strict compliance
with FHA regulations in originating and servicing the Title I loan. Failure
to
comply with FHA regulations may result in a denial of or surcharge on the
FHA
insurance claim. Prior to declaring a Title I loan in default and submitting
a
claim to FHA, the master servicer must take certain steps to attempt to cure
the
default, including personal contact with the borrower either by telephone
or in
a meeting and providing the borrower with 30 days’ written notice prior to
declaration of default. FHA may deny insurance coverage if the borrower’s
nonpayment is related to a valid objection to faulty contractor performance.
In
such event, the master servicer or other entity as specified in the related
prospectus supplement will seek to obtain payment by or a judgment against
the
borrower, and may resubmit the claim to FHA following such a
judgment.
VA
Guarantees
The
United States Department of Veterans Affairs is an Executive Branch Department
of the United States, headed by the Secretary of Veterans Affairs. The VA
currently administers a variety of federal assistance programs on behalf
of
eligible veterans and their dependents and beneficiaries. The VA administers
a
loan guaranty program under which the VA guarantees a portion of loans made
to
eligible veterans. If so provided in the prospectus supplement, a number
of the
mortgage loans will be guaranteed by the VA.
Under
the
VA loan guaranty program, a VA loan may be made to any eligible veteran by
an
approved private sector mortgage lender. The VA guarantees payment to the
holder
of that loan of a fixed percentage of the loan indebtedness, up to a maximum
dollar amount, in the event of default by the veteran borrower. When a
delinquency is reported to the VA and no realistic alternative to foreclosure
is
developed by the loan holder or through the VA’s supplemental servicing of the
loan, the VA determines, through an economic analysis, whether the VA will
(a)
authorize the holder to convey the property securing the VA loan to the
Secretary of Veterans Affairs following termination or (b) pay the loan guaranty
amount to the holder. The decision as to disposition of properties securing
defaulted VA loans is made on a case-by-case basis using the procedures set
forth in 38 U.S.C. Section 3732(c), as amended.
The
master servicer will be required to take steps as are reasonably necessary
to
keep the VA guarantees in full force and effect.
LEGAL
ASPECTS OF MORTGAGE ASSETS
The
following discussion contains general summaries of legal aspects of loans
secured by residential and commercial properties. Because these legal aspects
are governed in part by applicable state law, which laws may differ
substantially from state to state, the summaries do not purport to be complete
nor to reflect the laws of any particular state, nor to encompass the laws
of
all states in which the security for the mortgage assets is situated. If
there
is a concentration of the mortgage assets included in a trust fund in a
particular state, the prospectus supplement for the related series of securities
will discuss any laws of that state that could materially impact the interest
of
the securityholders.
Mortgage
Loans
The
single-family loans, multifamily loans, commercial loans and mixed-use loans
will be secured by either mortgages, deeds of trust, security deeds or deeds
to
secure debt depending upon the type of security instrument customary to grant
a
security interest according to the prevailing practice in the state in which
the
property subject to that mortgage loan is located. The filing of a mortgage
or a
deed of trust creates a lien upon or conveys title to the real property
encumbered by that instrument and represents the security for the repayment
of
an obligation that is customarily evidenced by a promissory note. It is not
prior to the lien for real estate taxes and assessments. Priority with respect
to mortgages and deeds of trust depends on their terms and generally on the
order of recording with the applicable state, county or municipal office.
There
are two parties to a mortgage, the mortgagor, who is the borrower/homeowner
or
the land trustee, and the mortgagee, who is the lender. Under the mortgage
instrument, the mortgagor delivers to the mortgagee a note or bond and the
mortgage. In the case of a land trust, title to the property is held by a
land
trustee under a land trust agreement, while the borrower/homeowner is the
beneficiary of the land trust; at origination of a mortgage loan, the borrower
executes a separate undertaking to make payments on the mortgage note. Although
a deed of trust is similar to a mortgage, a deed of trust normally has three
parties, the trustor, similar to a mortgagor, who may or may not be the
borrower, the beneficiary, similar to a mortgagee, who is the lender, and
the
trustee, a third-party grantee. Under a deed of trust, the trustor grants
the
property, irrevocably until the debt is paid, in trust, generally with a
power
of sale, to the trustee to secure payment of the obligation. A security deed
and
a deed to secure debt are special types of deeds which indicate on their
face
that they are granted to secure an underlying debt. By executing a security
deed
or deed to secure debt, the grantor conveys title to, as opposed to merely
creating a lien upon, the subject property to the grantee until the time
as the
underlying debt is repaid. The mortgagee’s authority under a mortgage and the
trustee’s authority under a deed of trust, security deed or deed to secure debt
are governed by the law of the state in which the real property is located,
the
express provisions of the mortgage, deed of trust, security deed or deed
to
secure debt and, sometimes, the directions of the beneficiary.
Cooperative
Loans
The
cooperative owns or has a leasehold interest in all the real property and
owns
in fee or leases the building and all separate dwelling units therein. The
cooperative is directly responsible for project management and, in most cases,
payment of real estate taxes, other governmental impositions and hazard and
liability insurance. If there is a blanket mortgage on the cooperative apartment
building and underlying land, or one or the other, the cooperative, as project
mortgagor, is also responsible for meeting these blanket mortgage obligations.
A
blanket mortgage is ordinarily incurred by the cooperative in connection
with
either the construction or purchase of the cooperative’s apartment building or
the obtaining of capital by the cooperative. There may be a lease on the
underlying land and the cooperative, as lessee, is also responsible for meeting
the rental obligation. The interests of the occupants under proprietary leases
or occupancy agreements as to which the cooperative is the landlord are
generally subordinate to the interests of the holder of the blanket mortgage
and
to the interest of the holder of a land lease. If the cooperative is unable
to
meet the payment obligations (a) arising under its blanket mortgage, the
mortgagee holding the blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or
(b)
arising under its land lease, the holder of the landlord’s interest under the
land lease could terminate it and all subordinate proprietary leases and
occupancy agreements. Also, the blanket mortgage on a cooperative may provide
financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one final payment at final
maturity. The inability of the cooperative to refinance this mortgage and
its
consequent inability to make the final payment could lead to foreclosure
by the
mortgagee. Similarly, a land lease has an expiration date and the inability
of
the cooperative to extend its term or, in the alternative, to purchase the
land
could lead to termination of the cooperative’s interest in the property and
termination of all proprietary leases and occupancy agreements. In either
event,
foreclosure by the holder of the blanket mortgage or the termination of the
underlying lease could eliminate or significantly diminish the value of any
collateral held by the lender that financed the purchase by an individual
tenant-stockholder of cooperative shares or, in the case of the trust fund,
the
collateral securing the cooperative loans.
The
cooperative is owned by tenant-stockholders who, through ownership of stock,
shares or membership certificates in the corporation, receive proprietary
leases
or occupancy agreements which confer exclusive rights to occupy specific
units.
Generally, a tenant-stockholder of a cooperative must make a monthly payment
to
the cooperative representing the tenant-stockholder’s pro
rata
share of
the cooperative’s payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights is financed through
a cooperative share loan evidenced by a promissory note and secured by an
assignment of and a security interest in the occupancy agreement or proprietary
lease and a security interest in the related cooperative shares. The lender
generally takes possession of the share certificate and a counterpart of
the
proprietary lease or occupancy agreement and a financing statement covering
the
proprietary lease or occupancy agreement and the cooperative shares is filed
in
the appropriate state and local offices to perfect the lender’s interest in its
collateral. Upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares as described under “Foreclosure on Cooperative Shares”
below.
Manufactured
Housing Contracts
Under
the
laws of most states, manufactured housing that is not permanently affixed
to its
site constitutes personal property and is subject to the motor vehicle
registration laws of the state or other jurisdiction in which the unit is
located. In a few states, where certificates of title are not required for
manufactured homes, security interests are perfected by the filing of a
financing statement under Article 9 of the UCC which has been adopted by
all
states. Financing statements are effective for five years and must be renewed
at
the end of each five years. The certificate of title laws adopted by the
majority of states provide that ownership of motor vehicles and manufactured
housing shall be evidenced by a certificate of title issued by the motor
vehicles department, or a similar entity, of the state. In the states that
have
enacted certificate of title laws, a security interest in a unit of manufactured
housing, so long as it is not attached to land in so permanent a fashion
as to
become a fixture, is generally perfected by the recording of the interest
on the
certificate of title to the unit in the appropriate motor vehicle registration
office or by delivery of the required documents and payment of a fee to such
office, depending on state law.
The
master servicer will be required under the related servicing agreement to
effect
the notation or delivery of the required documents and fees, and to obtain
possession of the certificate of title, as appropriate under the laws of
the
state in which any manufactured home is registered. If the master servicer
fails, due to clerical errors or otherwise, to effect the notation or delivery,
or files the security interest under the wrong law, for example, under a
motor
vehicle title statute rather than under the UCC, in a few states, the trustee
may not have a first priority security interest in the manufactured home
securing a manufactured housing contract. As manufactured homes have become
larger and often have been attached to their sites without any apparent
intention by the borrowers to move them, courts in many states have held
that
manufactured homes may become subject to real estate title and recording
laws.
As a result, a security interest in a manufactured home could be rendered
subordinate to the interests of other parties claiming an interest in the
home
under applicable state real estate law. In order to perfect a security interest
in a manufactured home under real estate laws, the holder of the security
interest must file either a fixture filing under the provisions of the UCC
or a
real estate mortgage under the real estate laws of the state where the home
is
located. These filings must be made in the real estate records office of
the
county where the home is located. Generally, manufactured housing contracts
will
contain provisions prohibiting the obligor from permanently attaching the
manufactured home to its site. So long as the obligor does not violate this
agreement, a security interest in the manufactured home will be governed
by the
certificate of title laws or the UCC, and the notation of the security interest
on the certificate of title or the filing of a UCC financing statement will
be
effective to maintain the priority of the security interest in the manufactured
home. If, however, a manufactured home is permanently attached to its site,
other parties could obtain an interest in the manufactured home that is prior
to
the security interest originally retained by the seller and transferred to
the
depositor.
The
depositor will assign or cause to be assigned a security interest in the
manufactured homes to the trustee, on behalf of the securityholders. Neither
the
depositor, the master servicer nor the trustee will amend the certificates
of
title to identify the trustee, on behalf of the securityholders, as the new
secured party and, accordingly, the depositor or the mortgage loan seller
will
continue to be named as the secured party on the certificates of title relating
to the manufactured homes. In most states, an assignment is an effective
conveyance of a security interest in a manufactured home without amendment
of
any lien noted on the related certificate of title and the new secured party
succeeds to the depositor’s rights as the secured party. However, in several
states there exists a risk that, in the absence of an amendment to the
certificate of title, the assignment of the security interest might not be
held
effective against creditors of the depositor or mortgage loan
seller.
In
the
absence of fraud, forgery or permanent affixation of the manufactured home
to
its site by the manufactured home owner, or administrative error by state
recording officials, the notation of the lien of the depositor on the
certificate of title or delivery of the required documents and fees will
be
sufficient to protect the trustee against the rights of subsequent purchasers
of
a manufactured home or subsequent lenders who take a security interest in
the
manufactured home. If there are any manufactured homes as to which the depositor
has failed to perfect or cause to be perfected the security interest assigned
to
the trust fund, the security interest would be subordinate to subsequent
purchasers for value of manufactured homes and holders of perfected security
interests. There also exists a risk in not identifying the trustee, on behalf
of
the securityholders, as the new secured party on the certificate of title
that,
through fraud or negligence, the security interest of the trustee could be
released.
If
the
owner of a manufactured home moves it to a state other than the state in
which
the manufactured home initially is registered, under the laws of most states,
the perfected security interest in the manufactured home would continue for
four
months after the relocation and thereafter until the owner re-registers the
manufactured home in that state. If the owner were to relocate a manufactured
home to another state and re-register the manufactured home in the new state,
and if the depositor did not take steps to re-perfect its security interest
in
the new state, the security interest in the manufactured home would cease
to be
perfected. A majority of states generally require surrender of a certificate
of
title to re-register a manufactured home. Accordingly, the depositor must
surrender possession if it holds the certificate of title to the manufactured
home or, in the case of manufactured homes registered in states that provide
for
notation of lien, the depositor would receive notice of surrender if the
security interest in the manufactured home is noted on the certificate of
title.
Accordingly, the depositor would have the opportunity to re-perfect its security
interest in the manufactured home in the state of relocation. In states that
do
not require a certificate of title for registration of a manufactured home,
re-registration could defeat perfection. Similarly, when an obligor under
a
manufactured housing conditional sales contract sells a manufactured home,
the
obligee must surrender possession of the certificate of title or it will
receive
notice as a result of its lien noted thereon and accordingly will have an
opportunity to require satisfaction of the related manufactured housing
conditional sales contract before release of the lien. Under each related
servicing agreement, the master servicer will be obligated to take those
steps,
at the master servicer’s expense, as are necessary to maintain perfection of
security interests in the manufactured homes.
Under
the
laws of most states, liens for repairs performed on a manufactured home take
priority even over a perfected security interest. The depositor will obtain
the
representation of the mortgage loan seller that it has no knowledge of any
liens
of that type with respect to any manufactured home securing a manufactured
home
loan. However, liens could arise at any time during the term of a manufactured
home loan. No notice will be given to the trustee or securityholders in the
event a lien for repairs arises.
Home
Improvement Contracts
The
home
improvement contracts, other than those home improvement contracts that are
unsecured or secured by mortgages on real estate, generally are “chattel paper”
or constitute “purchase money security interests”, each as defined in the UCC.
Pursuant to the UCC, the sale of chattel paper is treated in a manner similar
to
perfection of a security interest in chattel paper. Under the related agreement,
the depositor will transfer physical possession of the contracts to the trustee
or a designated custodian or may retain possession of the contracts as custodian
for the trustee. In addition, the depositor will make an appropriate filing
of a
UCC-1 financing statement in the appropriate states to give notice of the
trustee’s ownership of the contracts. The contracts will not be stamped or
otherwise marked to reflect their assignment from the depositor to the trustee.
Therefore, if through negligence, fraud or otherwise, a subsequent purchaser
were able to take physical possession of the contracts without notice of
such
assignment, the trustee’s interest in the contracts could be
defeated.
The
contracts that are secured by the home improvements financed thereby grant
to
the originator of the contracts a purchase money security interest in such
home
improvements to secure all or part of the purchase price of the home
improvements and related services. A financing statement generally is not
required to be filed to perfect a purchase money security interest in consumer
goods. Such purchase money security interests are assignable. In general,
a
purchase money security interest grants to the holder a security interest
that
has priority over a conflicting security interest in the same collateral
and the
proceeds of such collateral. However, to the extent that the collateral subject
to a purchase money security interest becomes a fixture, in order for the
related purchase money security interest to take priority over a conflicting
interest in the fixture, the holder’s interest in such home improvement must
generally be perfected by a timely fixture filing. In general, under the
UCC, a
security interest does not exist under the UCC in ordinary building material
incorporated into an improvement on land. Home improvement contracts that
finance lumber, bricks, other types of ordinary building material or other
goods
that are deemed to lose such characterization, upon incorporation of the
materials into the related property, will not be secured by a purchase money
security interest in the home improvement being financed.
So
long
as the home improvement has not become subject to the real estate law, a
creditor can repossess a home improvement securing a contract by voluntary
surrender, “self-help” repossession that is “peaceful”, i.e., without breach of
the peace, or, in the absence of voluntary surrender and the ability to
repossess without breach of the peace, judicial process. The holder of a
contract must give the debtor a number of days’ notice, which varies from 10 to
30 days or more depending on the state, prior to commencement of any
repossession. The UCC and consumer protection laws in most states restrict
repossession sales, including requiring prior notice to the debtor and
commercial reasonableness in effecting such a sale. The law in most states
also
requires that the debtor be given notice of any sale prior to resale of the
related property so that the debtor may redeem it at or before such
resale.
Under
the
laws applicable in most states, a creditor is entitled to obtain a deficiency
judgment from a debtor for any deficiency on repossession and resale of the
property securing the debtor’s loan. However, some states impose prohibitions or
limitations on deficiency judgments and in many cases the defaulting borrower
would have no assets with which to pay a judgment.
Other
statutory provisions, including federal and state bankruptcy and insolvency
laws
and general equity principles, may limit or delay the ability of a lender
to
repossess and resell collateral or enforce a deficiency judgment.
Foreclosure
on Mortgages
Foreclosure
of a deed of trust is generally accomplished by a non-judicial trustee’s sale
under a specific provision in the deed of trust, which authorizes the trustee
to
sell the property upon any default by the borrower under the terms of the
note
or deed of trust. In several states, the trustee must record a notice of
default
and send a copy to the borrower-trustor and to any person who has recorded
a
request for a copy of a notice of default and notice of sale. In addition,
the
trustee in several states must provide notice to any other individual having
an
interest in the real property, including any junior lienholder. The trustor,
borrower, or any person having a junior encumbrance on the real estate, may,
during a reinstatement period, cure the default by paying the entire amount
in
arrears plus the costs and expenses incurred in enforcing the obligation.
Generally, state law controls the amount of foreclosure expenses and costs,
including attorneys’ fees, that may be recovered by a lender. If the deed of
trust is not reinstated, a notice of sale must be posted in a public place
and,
in most states, published for a specific period of time in one or more
newspapers. In addition, several state laws require that a copy of the notice
of
sale be posted on the property, recorded and sent to all parties having an
interest in the real property.
An
action
to foreclose a mortgage is an action to recover the mortgage debt by enforcing
the mortgagee’s rights under the mortgage and in the mortgaged property. It is
regulated by statutes and rules and subject throughout to the court’s equitable
powers. A mortgagor is usually bound by the terms of the mortgage note and
the
mortgage as made and cannot be relieved from its own default. However, since
a
foreclosure action is equitable in nature and is addressed to a court of
equity,
the court may relieve a mortgagor of a default and deny the mortgagee
foreclosure on proof that the mortgagor’s default was neither willful nor in bad
faith and that the mortgagee’s action established a waiver of fraud, bad faith,
oppressive or unconscionable conduct warranted a court of equity to refuse
affirmative relief to the mortgagee. A court of equity may relieve the mortgagor
from an entirely technical default where the default was not
willful.
A
foreclosure action or sale in accordance with a power of sale is subject
to most
of the delays and expenses of other lawsuits if defenses or counterclaims
are
interposed, sometimes requiring up to several years to complete. Moreover,
recent judicial decisions suggest that a non- collusive, regularly conducted
foreclosure sale or sale in accordance with a power of sale may be challenged
as
a fraudulent conveyance, regardless of the parties’ intent, if a court
determines that the sale was for less than fair consideration and the sale
occurred while the mortgagor was insolvent and within one year, or within
the
state statute of limitations if the trustee in bankruptcy elects to proceed
under state fraudulent conveyance law, of the filing of bankruptcy. Similarly,
a
suit against the debtor on the mortgage note may take several
years.
In
case
of foreclosure under either a mortgage or a deed of trust, the sale by the
referee or other designated officer or by the trustee is a public sale. However,
because of the difficulty potential third party purchasers at the sale have
in
determining the exact status of title and because the physical condition
of the
property may have deteriorated during the foreclosure proceedings, it is
uncommon for a third party to purchase the property at the foreclosure sale.
Rather, it is common for the lender to purchase the property from the trustee
or
referee for an amount equal to the principal amount of the mortgage or deed
of
trust plus accrued and unpaid interest and the expenses of foreclosure.
Thereafter, the lender will assume the burdens of ownership, including obtaining
casualty insurance, paying taxes and making repairs at its own expense as
are
necessary to render the property suitable for sale. Depending upon market
conditions, the ultimate proceeds of the sale of the property may not equal
the
lender’s investment in the property. Any loss may be reduced by the receipt of
any mortgage insurance proceeds.
A
junior
mortgagee may not foreclose on the property securing a junior mortgage unless
it
forecloses subject to the senior mortgages, in which case it must either
pay the
entire amount due on the senior mortgages to the senior mortgagees prior
to or
at the time of the foreclosure sale or undertake the obligation to make payments
on the senior mortgages if the mortgagor is in default thereunder. In either
event the amounts expended will be added to the balance due on the junior
loan,
and may be subrogated to the rights of the senior mortgagees. In addition,
if
the foreclosure of a junior mortgage triggers the enforcement of a due-on-sale
clause in a senior mortgage, the junior mortgagee may be required to pay
the
full amount of the senior mortgages to the senior mortgagees. Accordingly,
with
respect to those mortgage loans which are junior mortgage loans, if the lender
purchases the property, the lender’s title will be subject to all senior liens
and claims and some governmental liens. The proceeds received by the referee
or
trustee from the sale are applied first to the costs, fees and expenses of
sale,
real estate taxes and then in satisfaction of the indebtedness secured by
the
mortgage or deed of trust under which the sale was conducted. Any remaining
proceeds are generally payable to the holders of junior mortgages or deeds
of
trust and other liens and claims in order of their priority, whether or not
the
borrower is in default. Any additional proceeds are generally payable to
the
mortgagor or trustor. The payment of the proceeds to the holders of junior
mortgages may occur in the foreclosure action of the senior mortgagee or
may
require the institution of separate legal proceedings.
If
the
master servicer were to foreclose on any junior lien it would do so subject
to
any related senior lien. In order for the debt related to the junior mortgage
loan to be paid in full at the sale, a bidder at the foreclosure sale of
the
junior mortgage loan would have to bid an amount sufficient to pay off all
sums
due under the junior mortgage loan and the senior lien or purchase the mortgaged
property subject to the senior lien. If proceeds from a foreclosure or similar
sale of the mortgaged property are insufficient to satisfy all senior liens
and
the junior mortgage loan in the aggregate, the trust fund as the holder of
the
junior lien and, accordingly, holders of one or more classes of related
securities bear (1) the risk of delay in distributions while a deficiency
judgment against the borrower is obtained and (2) the risk of loss if the
deficiency judgment is not realized upon. Moreover, deficiency judgments
may not
be available in a jurisdiction. In addition, liquidation expenses with respect
to defaulted junior mortgage loans do not vary directly with the outstanding
principal balance of the loans at the time of default. Therefore, assuming
that
the master servicer took the same steps in realizing upon a defaulted junior
mortgage loan having a small remaining principal balance as it would in the
case
of a defaulted junior mortgage loan having a large remaining principal balance,
the amount realized after expenses of liquidation would be smaller as a
percentage of the outstanding principal balance of the small junior mortgage
loan than would be the case with the defaulted junior mortgage loan having
a
large remaining principal balance.
In
foreclosure, courts have imposed general equitable principles. The equitable
principles are generally designed to relieve the borrower from the legal
effect
of its defaults under the loan documents. Examples of judicial remedies that
have been fashioned include judicial requirements that the lender undertake
affirmative and expensive actions to determine the causes for the borrower’s
default and the likelihood that the borrower will be able to reinstate the
loan.
In a few cases, courts have substituted their judgment for the lender’s judgment
and have required that lenders reinstate loans or recast payment schedules
in
order to accommodate borrowers who are suffering from temporary financial
disability. In other cases, courts have limited the right of a lender to
foreclose if the default under the mortgage instrument is not monetary, for
example, the borrower’s failure to adequately maintain the property or the
borrower’s execution of a second mortgage or deed of trust affecting the
property. Finally, a few courts have been faced with the issue of whether
or not
federal or state constitutional provisions reflecting due process concerns
for
adequate notice require that borrowers under deeds of trust or mortgages
receive
notices in addition to the statutorily-prescribed minimums. For the most
part,
these cases have upheld the notice provisions as being reasonable or have
found
that the sale by a trustee under a deed of trust, or under a mortgage having
a
power of sale, does not involve sufficient state action to afford constitutional
protection to the borrower.
Foreclosure
on Mortgaged Properties Located in the Commonwealth of Puerto
Rico
Under
the
laws of the Commonwealth of Puerto Rico the foreclosure of a real estate
mortgage usually follows an ordinary civil action filed in the Superior Court
for the district where the mortgaged property is located. If the defendant
does
not contest the action filed, a default judgment is rendered for the plaintiff
and the mortgaged property is sold at public auction, after publication of
the
sale for two weeks, by posting written notice in three public places in the
municipality where the auction will be held, in the tax collection office
and in
the public school of the municipality where the mortgagor resides, if known.
If
the residence of the mortgagor is not known, publication in one of the
newspapers of general circulation in the Commonwealth of Puerto Rico must
be
made at least once a week for two weeks. There may be as many as three public
sales of the mortgaged property. If the defendant contests the foreclosure,
the
case may be tried and judgment rendered based on the merits of the
case.
There
are
no redemption rights after the public sale of a foreclosed property under
the
laws of the Commonwealth of Puerto Rico. Commonwealth of Puerto Rico law
provides for a summary proceeding for the foreclosure of a mortgage, but
it is
very seldom used because of concerns regarding the validity of these actions.
The process may be expedited if the mortgagee can obtain the consent of the
defendant to the execution of a deed in lieu of foreclosure.
Under
Commonwealth of Puerto Rico law, in the case of the public sale upon foreclosure
of a mortgaged property that (1) is subject to a mortgage loan that was obtained
for a purpose other than the financing or refinancing of the acquisition,
construction or improvement of the property and (2) is occupied by the mortgagor
as his principal residence, the mortgagor of the property has a right to
be paid
the first $1,500 from the proceeds obtained on the public sale of the property.
The mortgagor can claim this sum of money from the mortgagee at any time
prior
to the public sale or up to one year after the sale. This payment would reduce
the amount of sales proceeds available to satisfy the mortgage loan and may
increase the amount of the loss.
Foreclosure
on Cooperative Shares
The
cooperative shares and proprietary lease or occupancy agreement owned by
the
tenant- stockholder and pledged to the lender are, in almost all cases, subject
to restrictions on transfer as set forth in the cooperative’s certificate of
incorporation and by-laws, as well as in the proprietary lease or occupancy
agreement, and may be canceled by the cooperative for failure by the tenant-
stockholder to pay rent or other obligations or charges owed by the
tenant-stockholder, including mechanics’ liens against the cooperative apartment
building incurred by the tenant-stockholder. Typically, rent and other
obligations and charges arising under a proprietary lease or occupancy agreement
that are owed to the cooperative are made liens upon the shares to which
the
proprietary lease or occupancy agreement relates. In addition, the proprietary
lease or occupancy agreement generally permits the cooperative to terminate
the
lease or agreement in the event the tenant- stockholder fails to make payments
or defaults in the performance of covenants required thereunder. Typically,
the
lender and the cooperative enter into a recognition agreement that, together
with any lender protection provisions contained in the proprietary lease,
establishes the rights and obligations of both parties in the event of a
default
by the tenant-stockholder on its obligations under the proprietary lease
or
occupancy agreement. A default by the tenant-stockholder under the proprietary
lease or occupancy agreement will usually constitute a default under the
security agreement between the lender and the tenant-stockholder.
The
recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement, the cooperative will take no action to terminate the lease or
agreement until the lender has been provided with notice of and an opportunity
to cure the default. The recognition agreement typically provides that if
the
proprietary lease or occupancy agreement is terminated, the cooperative will
recognize the lender’s lien against proceeds from a sale of the cooperative
apartment, subject, however, to the cooperative’s right to sums due under the
proprietary lease or occupancy agreement or that have become liens on the
shares
relating to the proprietary lease or occupancy agreement. The total amount
owed
to the cooperative by the tenant-stockholder, which the lender generally
cannot
restrict and does not monitor, could reduce the value of the collateral below
the outstanding principal balance of the cooperative loan and accrued and
unpaid
interest thereon.
Recognition
agreements also provide that in the event of a foreclosure on a cooperative
loan, the lender must obtain the approval or consent of the cooperative as
required by the proprietary lease before transferring the cooperative shares
or
assigning the proprietary lease. Generally, the lender is not limited in
any
rights it may have to dispossess the tenant-stockholders.
Under
the
laws applicable in most states, foreclosure on the cooperative shares is
accomplished by a sale in accordance with the provisions of Article 9 of
the UCC
and the security agreement relating to those shares. Article 9 of the UCC
requires that a sale be conducted in a “commercially reasonable” manner. Whether
a foreclosure sale has been conducted in a commercially reasonable manner
will
depend on the facts in each case. In determining commercial reasonableness,
a
court will look to the notice given the debtor and the method, manner, time,
place and terms of the foreclosure. Generally, a sale conducted according
to the
usual practice of banks selling similar collateral will be considered reasonably
conducted.
Article
9
of the UCC provides that the proceeds of the sale will be applied first to
pay
the costs and expenses of the sale and then to satisfy the indebtedness secured
by the lender’s security interest. The recognition agreement, however, generally
provides that the lender’s right to reimbursement is subject to the right of the
cooperative corporation to receive sums due under the proprietary lease or
occupancy agreement. If there are proceeds remaining, the lender must account
to
the tenant-stockholder for the surplus. Conversely, if a portion of the
indebtedness remains unpaid, the tenant-stockholder is generally responsible
for
the deficiency. See “—Anti-Deficiency Legislation and Other Limitations on
Lenders” below.
Repossession
with Respect to Manufactured Housing Contracts
Repossession
of manufactured housing is governed by state law. A few states have enacted
legislation that requires that the debtor be given an opportunity to cure
its
default (typically 30 days to bring the account current) before repossession
can
commence. Unless as a manufactured home has not become so attached to real
estate that it would be treated as a part of the real estate under the law
of
the state where it is located, repossession of the manufactured home in the
event of a default by the obligor will generally be governed by the UCC.
Article
9 of the UCC provides the statutory framework for the repossession of
manufactured housing. While the UCC as adopted by the various states may
vary in
minimal ways, the general repossession procedure established by the UCC is
as
follows:
·
Except
in those states where the debtor must receive notice of the right
to cure
a default, repossession can commence immediately upon default without
prior notice. Repossession maybe effected either through self-
help
pursuant to a peaceable retaking without court order, voluntary
repossession or through judicial process by means of repossession
under a
court-issued writ of replevin. The self-help or voluntary repossession
methods are more commonly employed, and are accomplished simply
by
retaking possession of the manufactured home. In cases in which
the debtor
objects or raises a defense to repossession, a court order must
be
obtained from the appropriate state court, and the manufactured
home must
then be repossessed in accordance with that order. Whether the
method
employed is self-help, voluntary repossession or judicial repossession,
the repossession can be accomplished either by an actual physical
removal
of the manufactured home to a secure location for refurbishment
and resale
or by removing the occupants and their belongings from the manufactured
home and maintaining possession of the manufactured home on the
location
where the occupants were residing. Various factors may affect whether
the
manufactured home is physically removed or left on location, such
as the
nature and term of the lease of the site on which it is located
and the
condition of the unit. In many cases, leaving the manufactured
home on
location is preferable if the home is already set up because the
expenses
of retaking and redelivery will be saved. However, in those cases
where
the home is left on location, expenses for site rentals will usually
be
incurred.
·
Once
repossession has been achieved, preparation for the subsequent
disposition
of the manufactured home can commence. The disposition may be by
public or
private sale provided the method, manner, time, place and terms
of the
sale are commercially reasonable.
·
Sale
proceeds are to be applied first to repossession expenses like
those
expenses incurred in retaking, storage, preparing for sale including
refurbishing costs and selling, and then to satisfaction of the
indebtedness. While several states impose prohibitions or limitations
on
deficiency judgments if the net proceeds from resale do not cover
the full
amount of the indebtedness, the remainder may be sought from the
debtor in
the form of a deficiency judgment in those states that do not prohibit
or
limit deficiency judgments. The deficiency judgment is a personal
judgment
against the debtor for the shortfall. Occasionally, after resale
of a
manufactured home and payment of all expenses and indebtedness,
there is a
surplus of funds. In that case, the UCC requires the party suing
for the
deficiency judgment to remit the surplus to the debtor. Because
the
defaulting owner of a manufactured home generally has very little
capital
or income available following repossession, a deficiency judgment
may not
be sought in many cases or, if obtained, will be settled at a significant
discount in light of the defaulting owner’s strained financial
condition.
Rights
of Redemption with Respect to Mortgage Loans
In
several states, after sale in accordance with a deed of trust or foreclosure
of
a mortgage, the trustor or mortgagor and foreclosed junior lienors are given
a
statutory period in which to redeem the property from the foreclosure sale.
The
right of redemption should be distinguished from the equity of redemption,
which
is a nonstatutory right that must be exercised prior to the foreclosure sale.
In
several states, redemption may occur only upon payment of the entire principal
balance of the loan, accrued interest and expenses of foreclosure. In other
states, redemption may be authorized if the former borrower pays only a portion
of the sums due. The effect of a statutory right of redemption is to diminish
the ability of the lender to sell the foreclosed property. The right of
redemption would defeat the title of any purchaser acquired at a public sale.
Consequently, the practical effect of a right of redemption is to force the
lender to retain the property and pay the expenses of ownership and maintenance
of the property until the redemption period has expired. In several states,
there is no right to redeem property after a trustee’s sale under a deed of
trust.
Notice
of Sale; Redemption Rights with Respect to Manufactured Housing
Contracts
While
state laws do not usually require notice to be given to debtors prior to
repossession, many states do require delivery of a notice of default and
of the
debtor’s right to cure defaults before repossession of a manufactured home. The
law in most states also requires that the debtor be given notice of sale
prior
to the resale of the home so that the owner may redeem at or before resale.
In
addition, the sale must comply with the requirements of the UCC.
Anti-Deficiency
Legislation and Other Limitations on Lenders
Several
states have imposed statutory prohibitions that limit the remedies of a
beneficiary under a deed of trust or a mortgagee under a mortgage. In several
states, statutes limit the right of the beneficiary or mortgagee to obtain
a
deficiency judgment against the borrower following foreclosure or sale under
a
deed of trust. A deficiency judgment is a personal judgment against the former
borrower equal in most cases to the difference between the net amount realized
upon the public sale of the real property and the amount due to the lender.
Other statutes require the beneficiary or mortgagee to exhaust the security
afforded under a deed of trust or mortgage by foreclosure in an attempt to
satisfy the full debt before bringing a personal action against the borrower.
Finally, other statutory provisions limit any deficiency judgment against
the
former borrower following a judicial sale to the excess of the outstanding
debt
over the fair market value of the property at the time of the public sale.
The
purpose of these statutes is generally to prevent a beneficiary or a mortgagee
from obtaining a large deficiency judgment against the former borrower as
a
result of low or no bids at the judicial sale.
In
addition to laws limiting or prohibiting deficiency judgments, numerous other
statutory provisions, including the federal bankruptcy laws and state laws
affording relief to debtors, may interfere with or affect the ability of
the
secured mortgage lender to realize upon collateral or enforce a deficiency
judgment. For example, with respect to federal bankruptcy law, the filing
of a
petition acts as a stay against the enforcement of remedies of collection
of a
debt. Moreover, a court with federal bankruptcy jurisdiction may permit a
debtor
through his or her Chapter 13 rehabilitative plan to cure a monetary default
with respect to a mortgage loan on a debtor’s residence by paying arrearages
within a reasonable time period and reinstating the original mortgage loan
payment schedule even though the lender accelerated the mortgage loan and
final
judgment of foreclosure had been entered in state court (provided no sale
of the
property had yet occurred) prior to the filing of the debtor’s Chapter 13
petition. Several courts with federal bankruptcy jurisdiction have approved
plans, based on the particular facts of the reorganization case, that effected
the curing of a mortgage loan default by paying arrearages over a number
of
years.
Courts
with federal bankruptcy jurisdiction have also indicated that the terms of
a
mortgage loan secured by property of the debtor may be modified if the borrower
has filed a petition under Chapter 13. These courts have suggested that the
modifications may include reducing the amount of each monthly payment, changing
the rate of interest, altering the repayment schedule and reducing the lender’s
security interest to the value of the residence, thus leaving the lender
a
general unsecured creditor for the difference between the value of the residence
and the outstanding balance of the loan. Federal bankruptcy law and limited
case
law indicate that the foregoing modifications could not be applied to the
terms
of a loan secured by property that is the principal residence of the debtor.
In
all cases, the secured creditor is entitled to the value of its security
plus
post-petition interest, attorneys’ fees and costs to the extent the value of the
security exceeds the debt.
The
Bankruptcy Reform Act of 1994 established the National Bankruptcy Review
Commission for purposes of analyzing the nation’s bankruptcy laws and making
recommendations to Congress for legislative changes to the bankruptcy laws.
A
similar commission was involved in developing the Bankruptcy Code. The NBRC
delivered its report to Congress, the President of the United States and
the
Chief Justice of the Supreme Court on October 20, 1997. Among other topics,
high
leverage loans were addressed in the NBRC’s report. Despite several ambiguities,
the NBRC’s report appears to recommend that Congress amend Bankruptcy Code
section 1322(b)(2) by treating a claim secured only by a junior security
interest in a debtor’s principal residence as protected only to the extent that
the claim was secured when the security interest was made if the value of
the
property securing the junior security interest is less than that amount.
However, the express language of the report implies that a claim secured
only by
a junior security interest in a debtor’s principal residence may not be modified
to reduce the claim below the appraised value of the property at the time
the
security interest was made. A strong dissent by some members of the NBRC
recommends that the protections of Bankruptcy Code section 1322(b)(2) be
extended to creditors principally secured by the debtor’s principal residence.
Additionally, the NBRC’s report recommends that a creditor’s secured claim in
real property should be determined by the property’s fair market value, less
hypothetical costs of sale. The standard advocated by this recommendation
would
not apply to mortgages on the primary residence of a Chapter 11 or 13 debtor
who
retains the residence if the mortgages are protected from modification such
as
those senior mortgages not subject to modification under Bankruptcy Code
Sections 1322(b)(2) and 1123(b)(5). The final NBRC report may ultimately
lead to
substantive changes to the existing Bankruptcy Code, such as reducing
outstanding loan balances to the appraised value of a debtor’s principal
residence at the time the security interest in the property was taken, which
could affect the mortgage loans included in a trust fund and the enforcement
of
rights therein.
Several
tax liens arising under the Code, may provide priority over the lien of a
mortgage or deed of trust. In addition, substantive requirements are imposed
upon mortgage lenders in connection with the origination and the servicing
of
single family mortgage loans by numerous federal and state consumer protection
laws. These laws include the Federal Truth-in-Lending Act, Regulation Z,
Real
Estate Settlement Procedures Act, Regulation X, Equal Credit Opportunity
Act,
Regulation B, Fair Credit Billing Act, Fair Housing Act, Fair Credit Reporting
Act and related statutes. These federal laws impose specific statutory
liabilities upon lenders who originate mortgage loans and who fail to comply
with the provisions of the law. This liability may affect assignees of the
mortgage loans. In particular, the originators’ failure to comply with
requirements of the Federal Truth-in-Lending Act, as implemented by Regulation
Z, could subject both originators and assignees of the obligations to monetary
penalties and could result in obligors’ rescinding loans against either
originators or assignees.
In
addition, some of the Mortgage Loans may be subject to special rules, disclosure
requirements and other provisions that were added to the federal
Truth-in-Lending Act by the Home Ownership and Equity Protection Act of 1994
(the “Homeownership Act”), if such Mortgage Loans were originated on or after
October 1, 1995, are not loans made to finance the purchase of the mortgaged
property and have mortgage rates or origination costs in excess of certain
prescribed levels (the “High Cost Loans”). The Homeownership Act requires
certain additional disclosures, specifies the timing of those disclosures
and
limits or prohibits inclusion of certain provisions in mortgages subject
to the
Homeownership Act. Purchasers or assignees of any High Cost Loan, including
the
trust, could be liable under federal law for all claims and subject to all
defenses that the borrower could assert against the originator of the High
Cost
Loan, under the federal Truth-in-Lending Act or any other law, unless the
purchaser or assignee did not know and could not with reasonable diligence
have
determined that the loan was subject to the provisions of the Homeownership
Act.
Remedies available to the borrower include monetary penalties, as well as
rescission rights if appropriate disclosures were not given as required or
if
the particular mortgage includes provisions prohibited by the law. The maximum
damages that may be recovered under these provisions from an assignee, including
the trust, is the remaining amount of indebtedness plus the total amount
paid by
the borrower in connection with the Mortgage Loan.
For
Cooperative Loans
Generally,
Article 9 of the UCC governs foreclosure on cooperative shares and the related
proprietary lease or occupancy agreement. Several courts have interpreted
Section 9-504 of the UCC to prohibit a deficiency award unless the creditor
establishes that the sale of the collateral, which, in the case of a cooperative
loan, would be the shares of the cooperative and the related proprietary
lease
or occupancy agreement, was conducted in a commercially reasonable
manner.
Junior
Mortgages
The
mortgage loans may be secured by junior mortgages or deeds of trust, which
are
junior to senior mortgages or deeds of trust which are not part of the trust
fund. The rights of the securityholders as the holders of a junior deed of
trust
or a junior mortgage are subordinate in lien priority and in payment priority
to
those of the holder of the senior mortgage or deed of trust, including the
prior
rights of the senior mortgagee or beneficiary to receive and apply hazard
insurance and condemnation proceeds and, upon default of the mortgagor, to
cause
a foreclosure on the property. Upon completion of the foreclosure proceedings
by
the holder of the senior mortgage or the sale in accordance with the deed
of
trust, the junior mortgagee’s or junior beneficiary’s lien will be extinguished
unless the junior lienholder satisfies the defaulted senior loan or asserts
its
subordinate interest in a property in foreclosure proceedings. See “—Foreclosure
on Mortgages.”
Furthermore,
the terms of the junior mortgage or deed of trust are subordinate to the
terms
of the senior mortgage or deed of trust. If there is a conflict between the
terms of the senior mortgage or deed of trust and the junior mortgage or
deed of
trust, the terms of the senior mortgage or deed of trust will govern generally.
Upon a failure of the mortgagor or trustor to perform any of its obligations,
the senior mortgagee or beneficiary, subject to the terms of the senior mortgage
or deed of trust, may have the right to perform the obligation itself.
Generally, all sums so expended by the mortgagee or beneficiary become part
of
the indebtedness secured by the mortgage or deed of trust. To the extent
a
senior mortgagee expends sums, these sums will generally have priority over
all
sums due under the junior mortgage.
Home
Equity Line of Credit Loans
The
form
of credit line trust deed or mortgage generally used by most institutional
lenders which make home equity line of credit loans typically contains a
‘future
advance’ clause, which provides, in essence, that additional amounts advanced to
or on behalf of the borrower by the beneficiary or lender are to be secured
by
the deed of trust or mortgage. Any amounts so advances after the cut-off
date
with respect to any Mortgage will not be included in the trust fund. The
priority of the lien securing any advance made under the clause may depend
in
most states on whether the deed of trust or mortgage is called and recorded
as a
credit line deed of trust or mortgage. If the beneficiary or lender advances
additional amounts, the advance is entitled to receive the same priority
as
amounts initially advanced under the trust deed or mortgage, notwithstanding
the
fact that there may be junior trust deeds or mortgages and other liens which
intervene between the date of recording of the trust deed or mortgage and
the
date of the future advance, and notwithstanding that the beneficiary or lender
had actual knowledge of the intervening junior trust deeds or mortgages and
other liens at the time of the advance. In most states, the trust deed or
mortgage liens securing mortgage loans of the type which includes home equity
credit lines applies retroactively to the date of the original recording
of the
trust deed or mortgage, provided that the total amount of advances under
the
home equity credit line does not exceed the maximum specified principal amount
of the recorded trust deed or mortgage, except as to advances made after
receipt
by the lender of a written notice of lien from a judgment lien creditor of
the
trustor.
Consumer
Protection Laws with Respect to Manufactured Housing Contracts and Home
Improvement Contracts
Numerous
federal and state consumer protection laws impose substantial requirements
upon
creditors involved in consumer finance. These laws include the Federal
Truth-in-Lending Act, Regulation Z, the Equal Credit Opportunity Act, Regulation
B, the Fair Credit Reporting Act, the Real Estate Settlement Procedures Act,
Regulation X, the Fair Housing Act and related statutes. These laws can impose
specific statutory liabilities upon creditors who fail to comply with their
provisions. This liability may affect an assignee’s ability to enforce a
contract. In particular, the originators’ failure to comply with requirements of
the Federal Truth-in-Lending Act, as implemented by Regulation Z, could subject
both originators and assignees of the obligations to monetary penalties and
could result in obligors’ rescinding the contracts against either the
originators or assignees. Further, if the manufactured housing contracts
or home
improvement contracts are deemed High Cost Loans within the meaning of the
Homeownership Act, they would be subject to the same provisions of the
Homeownership Act as mortgage loans as described in “—Anti-Deficiency
Legislation and Other Limitations on Lenders” above.
Manufactured
housing contracts and home improvement contracts often contain provisions
obligating the obligor to pay late charges if payments are not timely made.
Federal and state law may specifically limit the amount of late charges that
may
be collected. Unless the prospectus supplement indicates otherwise, under
the
related servicing agreement, late charges will be retained by the master
servicer as additional servicing compensation, and any inability to collect
these amounts will not affect payments to securityholders.
Courts
have imposed general equitable principles upon repossession and litigation
involving deficiency balances. These equitable principles are generally designed
to relieve a consumer from the legal consequences of a default.
In
several cases, consumers have asserted that the remedies provided to secured
parties under the UCC and related laws violate the due process protections
provided under the 14th Amendment to the Constitution of the United States.
For
the most part, courts have upheld the notice provisions of the UCC and related
laws as reasonable or have found that the repossession and resale by the
creditor does not involve sufficient state action to afford constitutional
protection to consumers.
The
so-called Holder-in-Due-Course Rule of the Federal Trade Commission has the
effect of subjecting a seller, and related creditors and their assignees,
in a
consumer credit transaction and any assignee of the creditor to all claims
and
defenses which the debtor in the transaction could assert against the seller
of
the goods. Liability under the FTC Rule is limited to the amounts paid by
a
debtor on the contract, and the holder of the contract may also be unable
to
collect amounts still due thereunder.
Most
of
the manufactured housing contracts and home improvement contracts in a trust
fund will be subject to the requirements of the FTC Rule. Accordingly, the
trustee, as holder of the manufactured housing contracts or home improvement
contracts, will be subject to any claims or defenses that the purchaser of
the
related home or manufactured home may assert against the seller of the home
or
manufactured home, subject to a maximum liability equal to the amounts paid
by
the obligor on the manufactured housing contract or home improvement contract.
If an obligor is successful in asserting this type of claim or defense, and
if
the mortgage loan seller had or should have had knowledge of that claim or
defense, the master servicer will have the right to require the mortgage
loan
seller to repurchase the manufactured housing contract or home improvement
contract because of a breach of its mortgage loan seller’s representation and
warranty that no claims or defenses exist that would affect the obligor’s
obligation to make the required payments under the manufactured housing contract
or home improvement contract. The mortgage loan seller would then have the
right
to require the originating dealer to repurchase the manufactured housing
contract from it and might also have the right to recover from the dealer
for
any losses suffered by the mortgage loan seller with respect to which the
dealer
would have been primarily liable to the obligor.
Prepayment
Charges
Some
state laws restrict the imposition of prepayment charges and late fees even
when
the loans expressly provide for the collection of those charges. Although
the
Alternative Mortgage Transaction Parity Act of 1982 (the “Parity Act”), permits
the collection of prepayment charges and late fees in connection with some
types
of eligible loans preempting any contrary state law prohibitions, some states
may not recognize the preemptive authority of the Parity Act or have formally
opted out of the Parity Act. As a result, it is possible that prepayment
charges
and late fees may not be collected even on loans that provide for the payment
of
those charges unless otherwise specified in the accompanying prospectus
supplement. The master servicer or another entity identified in the accompanying
prospectus supplement will be entitled to all prepayment charges and late
payment charges received on the loans and those amounts will not be available
for payment on the certificates. The Office of Thrift Supervision (“OTS”), the
agency that administers the Parity Act for unregulated housing creditors,
withdrew its favorable Parity Act regulations and Chief Counsel Opinions
that
previously authorized lenders to charge prepayment charges and late fees
in
certain circumstances notwithstanding contrary state law, effective with
respect
to loans originated on or after July 1, 2003. However, the OTS’s ruling does not
retroactively affect loans originated before July 1, 2003.
Other
Limitations
In
addition to the laws limiting or prohibiting deficiency judgments, numerous
other statutory provisions including federal bankruptcy laws and related
state
laws may interfere with or affect the ability of a lender to realize upon
collateral or enforce a deficiency judgment. For example, in a Chapter 13
proceeding under the federal bankruptcy law, a court may prevent a lender
from
repossessing a home, and as part of the rehabilitation plan reduce the amount
of
the secured indebtedness to the market value of the home at the time of
bankruptcy, as determined by the court, leaving the party providing financing
as
a general unsecured creditor for the remainder of the indebtedness. A bankruptcy
court may also reduce the monthly payments due under a contract or change
the
rate of interest and time of repayment of the indebtedness.
Enforceability
of Provisions
The
mortgage loans in a trust fund will in most cases contain due-on-sale clauses.
These clauses permit the lender to accelerate the maturity of the loan if
the
borrower sells, transfers, or conveys the property without the prior consent
of
the lender. The enforceability of these clauses has been impaired in various
ways in several states by statute or decisional law. The ability of lenders
and
their assignees and transferees to enforce due-on-sale clauses was addressed
by
the Garn-St Germain Depository Institutions Act of 1982. This legislation,
subject to exceptions, preempts state constitutional, statutory and case
law
that prohibits the enforcement of due-on-sale clauses. The Garn-St Germain
Act
does encourage lenders to permit assumptions of loans at the original rate
of
interest or at another rate less than the average of the original rate and
the
market rate.
The
Garn-St Germain Act also sets forth nine specific instances in which a mortgage
lender covered by the Garn-St Germain Act, including federal savings and
loan
associations and federal savings banks, may not exercise a due-on-sale clause,
even though a transfer of the property may have occurred. These include
intra-family transfers, some transfers by operation of law, leases of fewer
than
three years and the creation of a junior encumbrance. Regulations promulgated
under the Garn-St Germain Act also prohibit the imposition of a prepayment
penalty upon the acceleration of a loan in accordance with a due-on-sale
clause.
The
inability to enforce a due-on-sale clause may result in a mortgage loan bearing
an interest rate below the current market rate being assumed by a new home
buyer
rather than being paid off, which may have an impact upon the average life
of
the mortgage loans related to a series and the number of mortgage loans that
may
be outstanding until maturity.
Transfer
ofManufactured
Homes under Manufactured Housing Contracts
Generally,
manufactured housing contracts contain provisions prohibiting the sale or
transfer of the related manufactured homes without the consent of the obligee
on
the contract and permitting the acceleration of the maturity of the contracts
by
the obligee on the contract upon any sale or transfer that is not consented
to.
The master servicer will, to the extent it has knowledge of the conveyance
or
proposed conveyance, exercise or cause to be exercised its rights to accelerate
the maturity of the related manufactured housing contract through enforcement
of
due-on-sale clauses, subject to applicable state law. The transfer may be
made
by a delinquent obligor in order to avoid a repossession proceeding with
respect
to a manufactured home.
In
the
case of a transfer of a manufactured home as to which the master servicer
desires to accelerate the maturity of the related manufactured housing contract,
the master servicer’s ability to do so will depend on the enforceability under
state law of the due-on-sale clause. The Garn-St Germain Act preempts, subject
to exceptions and conditions, state laws prohibiting enforcement of due-on-sale
clauses applicable to the manufactured homes. Consequently, the master servicer
may be prohibited from enforcing a due-on-sale clause in respect of those
manufactured homes.
Prepayment
Charges and Prepayments
The
regulations of the Federal Home Loan Bank Board, predecessor to the Office
of
Thrift Supervision, prohibit the imposition of a prepayment penalty or
equivalent fee for or in connection with the acceleration of a loan by exercise
of a due-on-sale clause. A mortgagee to whom a prepayment in full has been
tendered may be compelled to give either a release of the mortgage or an
instrument assigning the existing mortgage to a refinancing lender.
Leases
and Rents
Mortgages
that encumber income-producing property often contain an assignment of rents
and
leases and/or may be accompanied by a separate assignment of rents and leases,
pursuant to which the borrower assigns to the lender the borrower’s right, title
and interest as landlord under each lease and the income derived therefrom,
and,
unless rents are to be paid directly to the lender, retains a revocable license
to collect the rents for so long as there is no default. If the borrower
defaults, the license terminates and the lender is entitled to collect the
rents. Local law may require that the lender take possession of the property
and/or obtain a court-appointed receiver before becoming entitled to collect
the
rents. In addition, if bankruptcy or similar proceedings are commenced by
or in
respect of the borrower, the lender’s ability to collect the rents may be
adversely affected. In the event of borrower default, the amount of rent
the
lender is able to collect from the tenants can significantly affect the value
of
the lender’s security interest.
Subordinate
Financing
When
the
mortgagor encumbers mortgaged property with one or more junior liens, the
senior
lender is subjected to additional risk. First, the mortgagor may have difficulty
servicing and repaying multiple loans. In addition, if the junior loan permits
recourse to the mortgagor, as junior loans often do, and the senior loan
does
not, a mortgagor may be more likely to repay sums due on the junior loan
than
those on the senior loan. Second, acts of the senior lender that prejudice
the
junior lender or impair the junior lender’s security may create a superior
equity in favor of the junior lender. For example, if the mortgagor and the
senior lender agree to an increase in the principal amount of or the interest
rate payable on the senior loan, the senior lender may lose its priority
to the
extent an existing junior lender is harmed or the mortgagor is additionally
burdened. Third, if the mortgagor defaults on the senior loan or any junior
loan, or both, the existence of junior loans and actions taken by junior lenders
can impair the security available to the senior lender and can interfere
with or
delay the taking of action by the senior lender. Moreover, the bankruptcy
of a
junior lender may operate to stay foreclosure or similar proceeds by the
senior
lender.
Applicability
of Usury Laws
Title
V
of the Depository Institutions Deregulation and Monetary Control Act of 1980
provides that state usury limitations shall not apply to certain types of
residential first mortgage loans originated by certain lenders after March
31,
1980. A similar federal statute was in effect with respect to mortgage loans
made during the first three months of 1980. The statute authorized any state
to
reimpose interest rate limits by adopting before April 1, 1983 a law or
constitutional provision that expressly rejects application of the federal
law.
In addition, even where Title V is not so rejected, any state is authorized
by
the law to adopt a provision limiting discount points or other charges on
mortgage loans covered by Title V. Several states have taken action to reimpose
interest rate limits or to limit discount points or other charges.
The
depositor has been advised by Thacher Proffitt & Wood LLP that a court
interpreting Title V would hold that mortgage loans originated on or after
January 1, 1980 are subject to federal preemption. Therefore, in a state
that
has not taken the requisite action to reject application of Title V or to
adopt
a provision limiting discount points or other charges prior to origination
of
the mortgage loans, any such limitation under the state’s usury law would not
apply to the mortgage loans.
In
any
state in which application of Title V has been expressly rejected or a provision
limiting discount points or other charges is adopted, no mortgage loans
originated after the date of that state action will be eligible for inclusion
in
a trust fund if the mortgage loans bear interest or provide for discount
points
or charges in excess of permitted levels. No mortgage loan originated prior
to
January 1, 1980 will bear interest or provide for discount points or charges
in
excess of permitted levels.
Title
V
also provides that state usury limitations do not apply to any loan that
is
secured by a first lien on specific kinds of manufactured housing if certain
conditions are met, including the terms of any prepayments, late charges
and
deferral fees and requiring a 30-day notice period prior to instituting any
action leading to repossession of or foreclosure with respect to the related
unit. Title V authorized any state to reimpose limitations on interest rates
and
finance charges by adopting before April 1, 1983 a law or constitutional
provision which expressly rejects application of the federal law. Fifteen
states
adopted such a law prior to the April 1, 1983 deadline. In addition, even
where
Title V was not so rejected, any state is authorized by the law to adopt
a
provision limiting discount points or other charges on loans covered by Title
V.
In any state in which application of Title V was expressly rejected or a
provision limiting discount points or other charges has been adopted, no
manufactured housing contract which imposes finance charges or provides for
discount points or charges in excess of permitted levels has been included
in
the trust fund.
Alternative
Mortgage Instruments
ARM
Loans
originated by non-federally chartered lenders have historically been subject
to
a variety of restrictions. These restrictions differed from state to state,
resulting in difficulties in determining whether a particular alternative
mortgage instrument originated by a state-chartered lender complied with
applicable law. These difficulties were simplified substantially as a result
of
the enactment of Title VIII of the Garn-St Germain Act. Title VIII provides
that, notwithstanding any state law to the contrary,
·
state-chartered
banks may originate alternative mortgage instruments, including
ARM Loans,
in accordance with regulations promulgated by the Comptroller of
the
Currency with respect to origination of alternative mortgage instruments
by national banks,
·
state-chartered
credit unions may originate alternative mortgage instruments in
accordance
with regulations promulgated by the National Credit Union Administration
with respect to origination of alternative mortgage instruments
by federal
credit unions, and
·
all
other non-federally chartered housing creditors, including, without
limitation, state-chartered savings and loan associations, savings
banks
and mutual savings banks and mortgage banking companies may originate
alternative mortgage instruments in accordance with the regulations
promulgated by the Federal Home Loan Bank Board, predecessor to
the Office
of Thrift Supervision, with respect to origination of alternative
mortgage
instruments by federal savings and loan
associations.
Title
VIII further provides that any state may reject applicability of the provisions
of Title VIII by adopting prior to October 15, 1985 a law or constitutional
provision expressly rejecting the applicability of these provisions. Several
states have taken this type of action.
The
depositor has been advised by Thacher Proffitt & Wood LLP that a court
interpreting Title VIII would hold that ARM Loans that were originated by
state-chartered lenders before the date of enactment of any state law or
constitutional provision rejecting applicability of Title VIII would not
be
subject to state laws imposing restrictions or prohibitions on the ability
of
state-chartered lenders to originate alternative mortgage
instruments.
All
of
the ARM Loans in a trust fund that were originated by a state-chartered lender
after the enactment of a state law or constitutional provision rejecting
the
applicability of Title VIII will have complied with applicable state law.
All of
the ARM Loans in a trust fund that were originated by federally chartered
lenders or that were originated by state-chartered lenders prior to enactment
of
a state law or constitutional provision rejecting the applicability of Title
VIII will have been originated in compliance with all applicable federal
regulations.
Formaldehyde
Litigation with Respect to Manufactured Homes
A
number
of lawsuits are pending in the United States alleging personal injury from
exposure to the chemical formaldehyde, which is present in many building
materials including components of manufactured housing such as plywood flooring
and wall paneling. Some of these lawsuits are pending against manufacturers
of
manufactured housing, suppliers of component parts, and related persons in
the
distribution process. The depositor is aware of a limited number of cases
in
which plaintiffs have won judgments in these lawsuits.
Under
the
FTC Rule, which is described above under “Consumer Protection Laws”, the holder
of any loan or contract secured by a manufactured home with respect to which
a
formaldehyde claim has been successfully asserted may be liable to the obligor
for the amount paid by the obligor on the related loan or contract and may
be
unable to collect amounts still due under the loan or contract. The successful
assertion of this type of claim will constitute a breach of a representation
or
warranty of the mortgage loan seller, and the securityholders would suffer
a
loss only to the extent that:
·
the
mortgage loan seller breached its obligation to repurchase the
loan or
contract in the event an obligor is successful in asserting the
claim,
and
·
the
mortgage loan seller, the depositor or the trustee were unsuccessful
in
asserting any claim of contribution or subrogation on behalf of
the
securityholders against the manufacturer or other persons who were
directly liable to the plaintiff for the
damages.
Typical
products liability insurance policies held by manufacturers and component
suppliers of manufactured homes may not cover liabilities arising from
formaldehyde in manufactured housing, with the result that recoveries from
the
manufacturers, suppliers or other persons may be limited to their corporate
assets without the benefit of insurance.
Servicemembers
Civil Relief Act
Under
the
terms of the Servicemembers Civil Relief Act, a borrower who enters military
service after the origination of that borrower’s mortgage loan, including a
borrower who was in reserve status and is called to active duty after
origination of the mortgage loan, may not be charged interest, including
fees
and charges, above an annual rate of 6% during the period of that borrower’s
active duty status unless a court orders otherwise upon application of the
lender. The Relief Act applies to borrowers who are members of the Army,
Navy,
Air Force, Marines, National Guard, Reserves, Coast Guard, and officers of
the
U.S. Public Health Service assigned to duty with the military. Because the
Relief Act applies to borrowers who enter military service, including reservists
who are called to active duty, after origination of the related mortgage
loan no
information can be provided as to the number of loans that may be affected
by
the Relief Act. Application of the Relief Act would adversely affect, for
an
indeterminate period of time, the ability of the master servicer to collect
full
amounts of interest on the applicable mortgage loans. Any shortfalls in interest
collections resulting from the application of the Relief Act would result
in a
reduction of the amounts distributable to the holders of the related series
of
securities, and would not be covered by advances or, unless specified in
the
related prospectus supplement, any form of credit support provided in connection
with the securities. In addition, the Relief Act imposes limitations that
would
impair the ability of the master servicer to foreclose on an affected mortgage
loan, cooperative loan or enforce rights under a manufactured housing contract
during the borrower’s period of active duty status, and, sometimes, during an
additional three month period thereafter. Thus, if the Relief Act applies
to any
mortgage asset that goes into default, there may be delays in payment and
losses
incurred by the related securityholders.
Environmental
Legislation
Under
the
federal Comprehensive Environmental Response, Compensation and Liability
Act, as
amended, and under several state laws, a secured party which takes a
deed-in-lieu of foreclosure, purchases a mortgaged property at a foreclosure
sale, or operates a mortgaged property may become liable for the costs of
cleaning up hazardous substances regardless of whether they have contaminated
the property. CERCLA imposes strict as well as joint and several liability
on
several classes of potentially responsible parties, including current owners
and
operators of the property who did not cause or contribute to the contamination.
Furthermore, liability under CERCLA is not limited to the original or
unamortized principal balance of a loan or to the value of the property securing
a loan. Lenders may be held liable under CERCLA as owners or operators unless
they qualify for the secured creditor exemption to CERCLA. This exemption
exempts from the definition of owners and operators those who, without
participating in the management of a facility, hold indicia of ownership
primarily to protect a security interest in the facility. What constitutes
sufficient participation in the management of a property securing a loan
or the
business of a borrower to render the exemption unavailable to a lender has
been
a matter of interpretation by the courts. CERCLA has been interpreted to
impose
liability on a secured party even absent foreclosure where the party
participated in the financial management of the borrower’s business to a degree
indicating a capacity to influence waste disposal decisions. However, court
interpretations of the secured creditor exemption have been inconsistent.
In
addition, when lenders foreclose and become owners of collateral property,
courts are inconsistent as to whether that ownership renders the secured
creditor exemption unavailable. Other federal and state laws may impose
liability on a secured party which takes a deed-in-lieu of foreclosure,
purchases a mortgaged property at a foreclosure sale, or operates a mortgaged
property on which contaminants other than CERCLA hazardous substances are
present, including petroleum, agricultural chemicals, hazardous wastes,
asbestos, radon, and lead- based paint. Environmental cleanup costs may be
substantial. It is possible that the cleanup costs could become a liability
of a
trust fund and reduce the amounts otherwise distributable to the holders
of the
related series of securities. Moreover, there are federal statutes and state
statutes that impose an environmental lien for any cleanup costs incurred
by the
state on the property that is the subject of the cleanup costs. All subsequent
liens on a property generally are subordinated to an environmental lien and
in
some states even prior recorded liens are subordinated to environmental liens.
In the latter states, the security interest of the trust fund in a related
parcel of real property that is subject to an environmental lien could be
adversely affected.
Traditionally,
many residential mortgage lenders have not taken steps to evaluate whether
contaminants are present with respect to any mortgaged property prior to
the
origination of the mortgage loan or prior to foreclosure or accepting a
deed-in-lieu of foreclosure. Accordingly, the master servicer has not made
and
will not make these kinds of evaluations prior to the origination of the
mortgage loans. Neither the master servicer nor any replacement servicer
will be
required by any servicing agreement to undertake any environmental evaluations
prior to foreclosure or accepting a deed-in-lieu of foreclosure. The master
servicer will not make any representations or warranties or assume any liability
with respect to the absence or effect of contaminants on any related real
property or any casualty resulting from the presence or effect of contaminants.
The master servicer will not be obligated to foreclose on related real property
or accept a deed-in-lieu of foreclosure if it knows or reasonably believes
that
there are material contaminated conditions on a property. A failure so to
foreclose may reduce the amounts otherwise available to securityholders of
the
related series.
Forfeitures
in Drug and RICO Proceedings
Federal
law provides that property owned by persons convicted of drug-related crimes
or
of criminal violations of the Racketeer Influenced and Corrupt Organizations
statute can be seized by the government if the property was used in or purchased
with the proceeds of these crimes. Under procedures contained in the
Comprehensive Crime Control Act of 1984 the government may seize the property
even before conviction. The government must publish notice of the forfeiture
proceeding and may give notice to all parties “known to have an alleged interest
in the property”, including the holders of mortgage loans.
A
lender
may avoid forfeiture of its interest in the property if it establishes that:
(1)
its mortgage was executed and recorded before commission of the crime upon
which
the forfeiture is based, or (2) the lender was at the time of execution of
the
mortgage “reasonably without cause to believe” that the property was used in or
purchased with the proceeds of illegal drug or RICO activities.
Negative
Amortization Loans
A
recent
case decided by the United States Court of Appeals, First Circuit, held that
state restrictions on the compounding of interest are not preempted by the
provisions of the Depository Institutions Deregulation and Monetary Control
Act
of 1980 and as a result, a mortgage loan that provided for negative amortization
violated New Hampshire’s requirement that first mortgage loans provide for
computation of interest on a simple interest basis. The holding was limited
to
the effect of DIDMC on state laws regarding the compounding of interest and
the
court did not address the applicability of the Alternative Mortgage Transaction
Parity Act of 1982, which authorizes lender to make residential mortgage
loans
that provide for negative amortization. The First Circuit’s decision is binding
authority only on Federal District Courts in Maine, New Hampshire,
Massachusetts, Rhode Island and Puerto Rico.
Installment
Contracts
The
trust
fund may also consist of installment sales contracts. Under an installment
sales
contract the seller, referred to in this section as the “lender”, retains legal
title to the property and enters into an agreement with the purchaser, referred
to in this section as the “borrower”, for the payment of the purchase price,
plus interest, over the term of such contract. Only after full performance
by
the borrower of the installment contract is the lender obligated to convey
title
to the property to the purchaser. As with mortgage or deed of trust financing,
during the effective period of the installment contract the borrower is
generally responsible for maintaining the property in good condition and
for
paying real estate taxes, assessments and hazard insurance premiums associated
with the property.
The
method of enforcing the rights of the lender under an installment contract
varies on a state-by-state basis depending upon the extent to which state
courts
are willing or able pursuant to state statute to enforce the contract strictly
according to its terms. The terms of installment contracts generally provide
that upon a default by the borrower, the borrower loses his or her right
to
occupy the property, the entire indebtedness is accelerated and the buyer’s
equitable interest in the property is forfeited. The lender in such a situation
is not required to foreclose in order to obtain title to the property, although
in some cases a quiet title action is pursued if the borrower has filed the
installment contract in local land records and an ejectment action may be
necessary to recover possession. In a few states, particularly in cases of
borrower default during the early years of an installment contract, the courts
will permit ejectment of the buyer and a forfeiture of his or her interest
in
the property. However, most state legislatures have enacted provisions by
analogy to mortgage law protecting borrowers under installment contracts
from
the harsh consequences of forfeiture. Under such statutes a judicial or
nonjudicial foreclosure may be required, the lender may be required to give
notice of default and the borrower may be granted some grace period during
which
the installment contract may be reinstated upon full payment of the defaulted
amount and the borrower may have a post-foreclosure statutory redemption
right.
In other states courts in equity may permit a borrower with significant
investment in the property under an installment contract for the sale of
real
estate to share in the proceeds of sale of the property after the indebtedness
is repaid or may otherwise refuse to enforce the forfeiture clause.
Nevertheless, generally the lender’s procedures for obtaining possession and
clear title under an installment contract in a given state are simpler and
less
time consuming and costly than are the procedures for foreclosing and obtaining
clear title to a property subject to one or more liens.
FEDERAL
INCOME TAX CONSEQUENCES
General
The
following discussion is the opinion of Thacher Proffitt & Wood LLP, counsel
to the depositor, with respect to the material federal income tax consequences
of the purchase, ownership and disposition of the securities offered under
this
prospectus and the prospectus supplement. This discussion is for securityholders
that hold the securities as capital assets within the meaning of Section
1221 of
the Code and does not purport to discuss all federal income tax consequences
that may be applicable to the individual circumstances of banks, insurance
companies, foreign investors, tax-exempt organizations, dealers in securities
or
currencies, mutual funds, real estate investment trusts, S corporations,
estates
and trusts, securityholders that hold the securities as part of a hedge,
straddle or, an integrated or conversion transaction, or securityholders
whose
functional currency is not the United States dollar.
The
authorities on which this discussion and the opinion referred to below are
based
are subject to change or differing interpretations which could apply
retroactively. Prospective investors should note that no rulings have been
or
will be sought from the IRS with respect to any of the federal income tax
consequences discussed below, and no assurance can be given that the IRS
will
not take contrary positions. Taxpayers and preparers of tax returns should
be
aware that under applicable Treasury regulations a provider of advice on
specific issues of law is not considered an income tax return preparer unless
the advice (1) is given with respect to events that have occurred at the
time
the advice is rendered and is not given with respect to the consequences
of
contemplated actions, and (2) is directly relevant to the determination of
an
entry on a tax return. Accordingly, it is suggested that taxpayers consult
their
own tax advisors and tax return preparers regarding the preparation of any
item
on a tax return, even where the anticipated tax treatment has been discussed
in
this prospectus. In addition to the federal income tax consequences described
in
this prospectus, potential investors should consider the state and local
tax
consequences, if any, of the purchase, ownership and disposition of the
securities. See “State and Other Tax Consequences.”
The
following discussion addresses securities of five general types:
·
REMIC
Certificates representing interests in a trust fund, or a portion
thereof,
that the trustee will elect to have treated as a REMIC under the
REMIC
Provisions of the Code,
·
Notes
representing indebtedness of an owner trust for federal income
tax
purposes,
·
Grantor
Trust Certificates representing interests in a Grantor Trust Fund
as to
which no REMIC election will be
made,
·
Partnership
Certificates representing interests in a Partnership Trust Fund
which is
treated as a partnership for federal income tax purposes,
and
·
Debt
Certificates representing indebtedness of a Partnership Trust Fund
for
federal income tax purposes.
The
prospectus supplement for each series of certificates will indicate whether
one
or more REMIC elections will be made for the related trust fund and will
identify all regular interests and residual interests in the REMIC or REMICs
or
the “regular interests,”“high yield regular interests” as the case may be. For
purposes of this tax discussion, references to a securityholder or a holder
are
to the beneficial owner of a security.
The
following discussion is based in part upon the OID Regulations and in part
upon
REMIC Regulations. The OID Regulations do not adequately address issues relevant
to the offered securities. As described at “Taxation of Owners of REMIC Regular
Certificates—Original Issue Discount,” in some instances the OID Regulations
provide that they are not applicable to securities like the offered
securities.
Purchasers
of the offered securities should be aware that the OID Regulations do not
adequately address certain issues relevant to, or are not applicable to,
prepayable securities such as the offered securities. In addition, there
is
considerable uncertainty concerning the application of the OID Regulations
to
REMIC Regular Certificates that provide for payments based on an adjustable
rate
such as the offered securities. Because of the uncertainty concerning the
application of Section 1272(a)(6) of the Code to such Certificates and because
the rules of the OID Regulations relating to debt instruments having an
adjustable rate of interest are limited in their application in ways that
could
preclude their application to such Certificates even in the absence of Section
1272(a)(6) of the Code, the IRS could assert that the offered securities
should
be treated as issued with original issue discount or should be governed by
the
rules applicable to debt instruments having contingent payments or by some
other
method not yet set forth in regulations. Prospective purchasers of the offered
securities are advised to consult their tax advisors concerning the tax
treatment of such Certificates.
It
appears that a reasonable method of reporting original issue discount with
respect to the offered securities, if such Certificates are required to be
treated as issued with original issue discount, generally would be to report
income with respect to such Certificates as original issue discount for each
period by computing such original issue discount (i) by assuming that the
value
of the applicable index will remain constant for purposes of determining
the
original yield to maturity of, and projecting future distributions on such
Certificates, thereby treating such Certificates as fixed rate instruments
to
which the original issue discount computation rules described in the Prospectus
can be applied, and (ii) by accounting for any positive or negative variation
in
the actual value of the applicable index in any period from its assumed value
as
a current adjustment to original issue discount with respect to such
period.
REMICs
Classification
of REMICs.
On or
prior to the date of the related prospectus supplement with respect to the
issuance of each series of REMIC Certificates, Thacher Proffitt & Wood LLP,
counsel to the depositor, will provide its opinion that, assuming compliance
with all provisions of the related pooling and servicing agreement, for federal
income tax purposes, the related trust fund or each applicable portion of
the
related trust fund will qualify as a REMIC and the offered REMIC Certificates
will be considered to evidence ownership of REMIC Regular Certificates or
REMIC
Residual Certificates in that REMIC within the meaning of the REMIC
Provisions.
If
an
entity electing to be treated as a REMIC fails to comply with one or more
of the
ongoing requirements of the Code for status as a REMIC during any taxable
year,
the Code provides that the entity will not be treated as a REMIC for that
year
and for later years. In that event, the entity may be taxable as a corporation
under Treasury regulations, and the related REMIC Certificates may not be
accorded the status or given the tax treatment described under “Taxation of
Owners of REMIC Regular Certificates” and “Taxation of Owners of REMIC Residual
Certificates.” Although the Code authorizes the Treasury Department to issue
regulations providing relief in the event of an inadvertent termination of
REMIC
status, these regulations have not been issued. If these regulations are
issued,
relief in the event of an inadvertent termination may be accompanied by
sanctions, which may include the imposition of a corporate tax on all or
a
portion of the REMIC’s income for the period in which the requirements for
status as a REMIC are not satisfied. The pooling and servicing agreement
with
respect to each REMIC will include provisions designed to maintain the trust
fund’s status as a REMIC under the REMIC Provisions. It is not anticipated that
the status of any trust fund as a REMIC will be inadvertently
terminated.
Characterization
of Investments in REMIC Certificates.
Except
as provided in the following sentence, the REMIC Certificates will be real
estate assets within the meaning of Section 856(c)(5)(B) of the Code and
assets
described in Section 7701(a)(19)(C) of the Code in the same proportion as
the
assets of the REMIC underlying the certificates. If 95% or more of the assets
of
the REMIC qualify for either of the treatments described in the previous
sentence at all times during a calendar year, the REMIC Certificates will
qualify for the corresponding status in their entirety for that calendar
year.
Interest, including original issue discount, on the REMIC Regular Certificates
and income allocated to the class of REMIC Residual Certificates will be
interest described in Section 856(c)(3)(B) of the Code to the extent that
the
certificates are treated as real estate assets within the meaning of Section
856(c)(5)(B) of the Code. In addition, the REMIC Regular Certificates will
be
qualified mortgages within the meaning of Section 860G(a)(3) of the Code
if
transferred to another REMIC on its startup day in exchange for regular or
residual interests of that REMIC. The determination as to the percentage
of the
REMIC’s assets that constitute assets described in these sections of the Code
will be made for each calendar quarter based on the average adjusted basis
of
each category of the assets held by the REMIC during the calendar quarter.
The
trustee will report those determinations to certificateholders in the manner
and
at the times required by Treasury regulations.
The
assets of the REMIC will include mortgage loans, payments on mortgage loans
held
prior to the distribution of these payments to the REMIC Certificates and
any
property acquired by foreclosure held prior to the sale of this property,
and
may include amounts in reserve accounts. It is unclear whether property acquired
by foreclosure held prior to the sale of this property and amounts in reserve
accounts would be considered to be part of the mortgage loans, or whether
these
assets otherwise would receive the same treatment as the mortgage loans for
purposes of all of the Code sections discussed in the immediately preceding
paragraph. The related prospectus supplement will describe the mortgage loans
that may not be treated entirely as assets described in the sections of the
Code
discussed in the immediately preceding paragraph. The REMIC Regulations do
provide, however, that cash received from payments on mortgage loans held
pending distribution is considered part of the mortgage loans for purposes
of
Section 856(c)(5)(B) of the Code. Furthermore, foreclosure property will
qualify
as real estate assets under Section 856(c)(5)(B) of the Code.
Tiered
REMIC Structures.
For a
series of REMIC Certificates, two or more separate elections may be made
to
treat designated portions of the related trust fund as REMICs for federal
income
tax purposes, creating a tiered REMIC structure. As to each series of REMIC
Certificates that is a tiered REMIC structure, in the opinion of Thacher
Proffitt & Wood LLP, counsel to the depositor, assuming compliance with all
provisions of the related pooling and servicing agreement, each of the REMICs
in
that series will qualify as a REMIC and the REMIC Certificates issued by
these
REMICs will be considered to evidence ownership of REMIC Regular Certificates
or
REMIC Residual Certificates in the related REMIC within the meaning of the
REMIC
Provisions.
Solely
for purposes of determining whether the REMIC Certificates will be real estate
assets within the meaning of Section 856(c)(5)(B) of the Code, and loans
secured
by an interest in real property under Section 7701(a)(19)(C) of the Code,
and
whether the income on the certificates is interest described in Section
856(c)(3)(B) of the Code, all of the REMICs in that series will be treated
as
one REMIC.
Taxation
of Owners of REMIC Regular Certificates
General.
Except
as described in “Taxation of Owners of REMIC Residual Certificates—Possible
Pass-Through of Miscellaneous Itemized Deductions,” REMIC Regular Certificates
will be treated for federal income tax purposes as debt instruments issued
by
the REMIC and not as ownership interests in the REMIC or its assets. Moreover,
holders of REMIC Regular Certificates that ordinarily report income under
a cash
method of accounting will be required to report income for REMIC Regular
Certificates under an accrual method.
Original
Issue Discount.
A REMIC
Regular Certificate may be issued with original issue discount within the
meaning of Section 1273(a) of the Code. Any holder of a REMIC Regular
Certificate issued with original issue discount will be required to include
original issue discount in income as it accrues, in accordance with the constant
yield method, in advance of the receipt of the cash attributable to that
income
if the original issue discount exceeds a de
minimis
amount.
In addition, Section 1272(a)(6) of the Code provides special rules applicable
to
REMIC Regular Certificates and other debt instruments issued with original
issue
discount. Regulations have not been issued under that section.
The
Code
requires that a reasonable Prepayment Assumption be used for mortgage loans
held
by a REMIC in computing the accrual of original issue discount on REMIC Regular
Certificates issued by that REMIC, and that adjustments be made in the amount
and rate of accrual of that discount to reflect differences between the actual
prepayment rate and the Prepayment Assumption. The Prepayment Assumption
is to
be determined in a manner prescribed in Treasury regulations; as noted in
the
preceding paragraph, those regulations have not been issued. The Committee
Report indicates that the regulations will provide that the Prepayment
Assumption used for a REMIC Regular Certificate must be the same as that
used in
pricing the initial offering of the REMIC Regular Certificate. The Prepayment
Assumption used in reporting original issue discount for each series of REMIC
Regular Certificates will be consistent with this standard and will be disclosed
in the related prospectus supplement. However, none of the depositor, the
master
servicer or the trustee will make any representation that the mortgage loans
will in fact prepay at a rate conforming to the Prepayment Assumption or
at any
other rate.
The
original issue discount, if any, on a REMIC Regular Certificate will be the
excess of its stated redemption price at maturity over its issue price. The
issue price of a particular class of REMIC Regular Certificates will be the
first cash price at which a substantial amount of REMIC Regular Certificates
of
that class is sold, excluding sales to bond houses, brokers and underwriters.
If
less than a substantial amount of a class of REMIC Regular Certificates is
sold
for cash on or prior to the closing date, the issue price for that class
will be
the fair market value of that class on the closing date. Under the OID
Regulations, the stated redemption price of a REMIC Regular Certificate is
equal
to the total of all payments to be made on the certificate other than qualified
stated interest. Qualified stated interest is interest that is unconditionally
payable at least annually during the entire term of the instrument at a single
fixed rate, a qualified floating rate, an objective rate, a combination of
a
single fixed rate and one or more qualified floating rates or one qualified
inverse floating rate, or a combination of qualified floating rates that
does
not operate in a manner that accelerates or defers interest payments on the
REMIC Regular Certificate.
In
the
case of REMIC Regular Certificates bearing adjustable interest rates, the
determination of the total amount of original issue discount and the timing
of
the inclusion thereof will vary according to the characteristics of the REMIC
Regular Certificates. If the original issue discount rules apply to the
certificates in a particular series, the related prospectus supplement will
describe the manner in which these rules will be applied with respect to
the
certificates in that series that bear an adjustable interest rate in preparing
information returns to the certificateholders and the IRS.
The
first
interest payment on a REMIC Regular Certificate may be made more than one
month
after the date of issuance, which is a period longer than the subsequent
monthly
intervals between interest payments. Assuming the accrual period for original
issue discount is each monthly period that ends on the day prior to each
distribution date, as a consequence of this long first accrual period some
or
all interest payments may be required to be included in the stated redemption
price of the REMIC Regular Certificate and accounted for as original issue
discount. Because interest on REMIC Regular Certificates must in any event
be
accounted for under an accrual method, applying this analysis would result
in
only a slight difference in the timing of the inclusion in income of the
yield
on the REMIC Regular Certificates.
If
the
accrued interest to be paid on the first distribution date is computed for
a
period that begins prior to the closing date, a portion of the purchase price
paid for a REMIC Regular Certificate will reflect the accrued interest. In
these
cases, information returns to the certificateholders and the IRS will take
the
position that the portion of the purchase price paid for the interest accrued
for periods prior to the closing date is part of the overall cost of the
REMIC
Regular Certificate, and not a separate asset the cost of which is recovered
entirely out of interest received on the next distribution date, and that
portion of the interest paid on the first distribution date in excess of
interest accrued for a number of days corresponding to the number of days
from
the closing date to the first distribution date should be included in the
stated
redemption price of the REMIC Regular Certificate. However, the OID Regulations
state that all or a portion of the accrued interest may be treated as a separate
asset the cost of which is recovered entirely out of interest paid on the
first
distribution date. It is unclear how an election to do so would be made under
the OID Regulations and whether this election could be made unilaterally
by a
certificateholder.
Notwithstanding
the general definition of original issue discount, original issue discount
on a
REMIC Regular Certificate will be considered to be de
minimis
if it is
less than 0.25% of the stated redemption price of the REMIC Regular Certificate
multiplied by its weighted average life. For this purpose, the weighted average
life of a REMIC Regular Certificate is computed as the sum of the amounts
determined, as to each payment included in the stated redemption price of
the
REMIC Regular Certificate, by multiplying (1) the number of complete years
from
the issue date until that payment is expected to be made, presumably taking
into
account the Prepayment Assumption, by (2) a fraction, the numerator of which
is
the amount of the payment, and the denominator of which is the stated redemption
price at maturity of the REMIC Regular Certificate. Under the OID Regulations,
original issue discount of only a de
minimis
amount,
other than de
minimis
original
issue discount attributable to a teaser interest rate or an initial interest
holiday, will be included in income as each payment of stated principal is
made,
based on the product of the total amount of the de
minimis
original
issue discount attributable to that certificate and a fraction, the numerator
of
which is the amount of the principal payment and the denominator of which
is the
outstanding stated principal amount of the REMIC Regular Certificate. The
OID
Regulations also would permit a certificateholder to elect to accrue
de
minimis
original
issue discount into income currently based on a constant yield method. See
“Taxation of Owners of REMIC Regular Certificates—Market Discount” for a
description of this election under the OID Regulations.
If
original issue discount on a REMIC Regular Certificate is in excess of a
de
minimis
amount,
the holder of the certificate must include in ordinary gross income the sum
of
the daily portions of original issue discount for each day during its taxable
year on which it held the REMIC Regular Certificate, including the purchase
date
but excluding the disposition date. In the case of an original holder of
a REMIC
Regular Certificate, the daily portions of original issue discount will be
determined as described in the following paragraph.
An
accrual period is a period that ends on the day prior to a distribution date
and
begins on the first day following the immediately preceding accrual period,
except that the first accrual period begins on the closing date. As to each
accrual period, a calculation will be made of the portion of the original
issue
discount that accrued during the accrual period. The portion of original
issue
discount that accrues in any accrual period will equal the excess of (1)
the sum
of (a) the present value, as of the end of the accrual period, of all of
the
distributions remaining to be made on the REMIC Regular Certificate in future
periods and (b) the distributions made on the REMIC Regular Certificate during
the accrual period of amounts included in the stated redemption price, over
(2)
the adjusted issue price of the REMIC Regular Certificate at the beginning
of
the accrual period. The present value of the remaining distributions referred
to
in the preceding sentence will be calculated assuming that distributions
on the
REMIC Regular Certificate will be received in future periods based on the
mortgage loans being prepaid at a rate equal to the Prepayment Assumption,
using
a discount rate equal to the original yield to maturity of the certificate
and
taking into account events, including actual prepayments, that have occurred
before the close of the accrual period. For these purposes, the original
yield
to maturity of the certificate will be calculated based on its issue price
and
assuming that distributions on the certificate will be made in all accrual
periods based on the mortgage loans being prepaid at a rate equal to the
Prepayment Assumption. The adjusted issue price of a REMIC Regular Certificate
at the beginning of any accrual period will equal the issue price of the
certificate, increased by the aggregate amount of original issue discount
that
accrued with respect to the certificate in prior accrual periods, and reduced
by
the amount of any distributions made on the certificate in prior accrual
periods
of amounts included in the stated redemption price. The original issue discount
accruing during any accrual period will be allocated ratably to each day
during
the accrual period to determine the daily portion of original issue discount
for
that day.
If
a
REMIC Regular Certificate issued with original issue discount is purchased
at a
cost, excluding any portion of the cost attributable to accrued qualified
stated
interest, less than its remaining stated redemption price, the purchaser
will
also be required to include in gross income the daily portions of any original
issue discount for the certificate. However, if the cost of the certificate
is
in excess of its adjusted issue price, each daily portion will be reduced
in
proportion to the ratio the excess bears to the aggregate original issue
discount remaining to be accrued on the REMIC Regular Certificate. The adjusted
issue price of a REMIC Regular Certificate on any given day equals the sum
of
(1) the adjusted issue price or, in the case of the first accrual period,
the
issue price, of the certificate at the beginning of the accrual period which
includes that day and (2) the daily portions of original issue discount for
all
days during the accrual period prior to that day.
Market
Discount.
A
certificateholder that purchases a REMIC Regular Certificate at a market
discount will recognize gain upon receipt of each distribution representing
stated redemption price. A REMIC Regular Certificate issued without original
issue discount will have market discount if purchased for less than its
remaining stated principal amount and a REMIC Regular Certificate issued
with
original issue discount will have market discount if purchased for less than
its
adjusted issue price. Under Section 1276 of the Code, a certificateholder
that
purchases a REMIC Regular Certificate at a market discount in excess of a
de
minimis
amount
will be required to allocate the portion of each distribution representing
stated redemption price first to accrued market discount not previously included
in income, and to recognize ordinary income to that extent. A certificateholder
may elect to include market discount in income currently as it accrues rather
than including it on a deferred basis. If made, the election will apply to
all
market discount bonds acquired by the certificateholder on or after the first
day of the first taxable year to which the election applies. In addition,
the
OID Regulations permit a certificateholder to elect to accrue all interest
and
discount in income as interest, and to amortize premium, based on a constant
yield method. If such an election were made with respect to a REMIC Regular
Certificate with market discount, the certificateholder would be deemed to
have
made an election to include currently market discount in income with respect
to
all other debt instruments having market discount that the certificateholder
acquires during the taxable year of the election or later taxable years,
and
possibly previously acquired instruments. Similarly, a certificateholder
that
made this election for a certificate that is acquired at a premium would
be
deemed to have made an election to amortize bond premium with respect to
all
debt instruments having amortizable bond premium that the certificateholder
owns
or acquires. Each of these elections to accrue interest, discount and premium
with respect to a certificate on a constant yield method or as interest would
be
irrevocable, except with the approval of the IRS. See “Taxation of Owners of
REMIC Regular Certificates—Premium” below.
However,
market discount with respect to a REMIC Regular Certificate will be considered
to be de
minimis
for
purposes of Section 1276 of the Code if the market discount is less than
0.25%
of the remaining stated redemption price of the REMIC Regular Certificate
multiplied by the number of complete years to maturity remaining after the
date
of its purchase. In interpreting a similar rule with respect to original
issue
discount on obligations payable in installments, the OID Regulations refer
to
the weighted average maturity of obligations, and it is likely that the same
rule will be applied with respect to market discount, presumably taking into
account the Prepayment Assumption. If market discount is treated as de
minimis
under
this rule, it appears that the actual discount would be treated in a manner
similar to original issue discount of a de
minimis
amount.
This treatment would result in discount being included in income at a slower
rate than discount would be required to be included in income using the method
described above. See “Taxation of Owners of REMIC Regular Certificates—Original
Issue Discount” above.
Section
1276(b)(3) of the Code specifically authorizes the Treasury Department to
issue
regulations providing for the method for accruing market discount on debt
instruments, the principal of which is payable in more than one installment.
Until regulations are issued by the Treasury Department, the rules described
in
the Committee Report apply. The Committee Report indicates that in each accrual
period market discount on REMIC Regular Certificates should accrue, at the
certificateholder’s option:
(1)
on
the basis of a constant yield
method,
(2)
in
the case of a REMIC Regular Certificate issued without original
issue
discount, in an amount that bears the same ratio to the total remaining
market discount as the stated interest paid in the accrual period
bears to
the total amount of stated interest remaining to be paid on the
REMIC
Regular Certificate as of the beginning of the accrual period,
or
(3)
in
the case of a REMIC Regular Certificate issued with original issue
discount, in an amount that bears the same ratio to the total remaining
market discount as the original issue discount accrued in the accrual
period bears to the total original issue discount remaining on
the REMIC
Regular Certificate at the beginning of the accrual
period.
Moreover,
the Prepayment Assumption used in calculating the accrual of original issue
discount is also used in calculating the accrual of market discount. Because
the
regulations referred to in this paragraph have not been issued, it is not
possible to predict what effect these regulations might have on the tax
treatment of a REMIC Regular Certificate purchased at a discount in the
secondary market.
To
the
extent that REMIC Regular Certificates provide for monthly or other periodic
distributions throughout their term, the effect of these rules may be to
require
market discount to be includible in income at a rate that is not significantly
slower than the rate at which the discount would accrue if it were original
issue discount. Moreover, in any event a holder of a REMIC Regular Certificate
generally will be required to treat a portion of any gain on the sale or
exchange of the certificate as ordinary income to the extent of the market
discount accrued to the date of disposition under one of these methods, less
any
accrued market discount previously reported as ordinary income.
Further,
under Section 1277 of the Code a holder of a REMIC Regular Certificate may
be
required to defer a portion of its interest deductions for the taxable year
attributable to any indebtedness incurred or continued to purchase or carry
a
REMIC Regular Certificate purchased with market discount. For these purposes,
the de
minimis
rule
applies. Any such deferred interest expense would not exceed the market discount
that accrues during the taxable year and is, in general, allowed as a deduction
not later than the year in which the market discount is includible in income.
If
a holder elects to include market discount in income currently as it accrues
on
all market discount instruments acquired by the holder in that taxable year
or
later taxable years, the interest deferral rule will not apply.
Premium.
A REMIC
Regular Certificate purchased at a cost, excluding any portion of the cost
attributable to accrued qualified stated interest, greater than its remaining
stated redemption price will be considered to be purchased at a premium.
The
holder of a REMIC Regular Certificate may elect under Section 171 of the
Code to
amortize the premium under the constant yield method over the life of the
certificate. If made, the election will apply to all debt instruments having
amortizable bond premium that the holder owns or subsequently acquires.
Amortizable premium will be treated as an offset to interest income on the
related debt instrument, rather than as a separate interest deduction. The
OID
Regulations also permit certificateholders to elect to include all interest,
discount and premium in income based on a constant yield method, further
treating the certificateholder as having made the election to amortize premium
generally. The Committee Report states that the same rules that apply to
accrual
of market discount, which rules will require use of a Prepayment Assumption
in
accruing market discount with respect to REMIC Regular Certificates without
regard to whether the certificates have original issue discount, will also
apply
in amortizing bond premium under Section 171 of the Code. See “Taxation of
Owners of REMIC Regular Certificates—Market Discount” above.
Realized
Losses.
Under
Section 166 of the Code, both corporate holders of the REMIC Regular
Certificates and noncorporate holders of the REMIC Regular Certificates that
acquire the certificates in connection with a trade or business should be
allowed to deduct, as ordinary losses, any losses sustained during a taxable
year in which their certificates become wholly or partially worthless as
the
result of one or more realized losses on the mortgage loans. However, it
appears
that a noncorporate holder that does not acquire a REMIC Regular Certificate
in
connection with a trade or business will not be entitled to deduct a loss
under
Section 166 of the Code until the holder’s certificate becomes wholly worthless,
i.e., until its outstanding principal balance has been reduced to zero, and
that
the loss will be characterized as a short-term capital loss.
Each
holder of a REMIC Regular Certificate will be required to accrue interest
and
original issue discount with respect to the certificate, without giving effect
to any reduction in distributions attributable to defaults or delinquencies
on
the mortgage loans or the certificate underlying the REMIC Certificates,
as the
case may be, until it can be established the reduction ultimately will not
be
recoverable. As a result, the amount of taxable income reported in any period
by
the holder of a REMIC Regular Certificate could exceed the amount of economic
income actually realized by that holder in the period. Although the holder
of a
REMIC Regular Certificate eventually will recognize a loss or reduction in
income attributable to previously accrued and included income that as the
result
of a realized loss ultimately will not be realized, the law is unclear with
respect to the timing and character of this loss or reduction in
income.
Taxation
of Owners of REMIC Residual Certificates
General.
Although a REMIC is a separate entity for federal income tax purposes, a
REMIC
is not subject to entity-level taxation, except with regard to prohibited
transactions and some other transactions. Rather, the taxable income or net
loss
of a REMIC is generally taken into account by the holder of the REMIC Residual
Certificates. Accordingly, the REMIC Residual Certificates will be subject
to
tax rules that differ significantly from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the mortgage loans or as debt instruments issued by
the
REMIC. See “—Prohibited Transactions Tax and Other Taxes” below.
A
holder
of a REMIC Residual Certificate generally will be required to report its
daily
portion of the taxable income or, subject to the limitations noted in this
discussion, the net loss of the REMIC for each day during a calendar quarter
that the holder owned the REMIC Residual Certificate. For this purpose, the
taxable income or net loss of the REMIC will be allocated to each day in
the
calendar quarter ratably using a 30 days per month/90 days per quarter/360
days
per year convention unless otherwise disclosed in the related prospectus
supplement. The daily amounts so allocated will then be allocated among the
REMIC Residual Certificateholders in proportion to their respective ownership
interests on that day. Any amount included in the gross income or allowed
as a
loss of any REMIC Residual Certificateholder by virtue of this paragraph
will be
treated as ordinary income or loss. The taxable income of the REMIC will
be
determined under the rules described below in “Taxable Income of the REMIC” and
will be taxable to the REMIC Residual Certificateholders without regard to
the
timing or amount of cash distributions by the REMIC. Ordinary income derived
from REMIC Residual Certificates will be portfolio income for purposes of
the
taxation of taxpayers subject to limitations under Section 469 of the Code
on
the deductibility of passive losses.
A
holder
of a REMIC Residual Certificate that purchased the certificate from a prior
holder of that certificate also will be required to report on its federal
income
tax return amounts representing its daily share of the taxable income, or
net
loss, of the REMIC for each day that it holds the REMIC Residual Certificate.
Those daily amounts generally will equal the amounts of taxable income or
net
loss. The Committee Report indicates that some modifications of the general
rules may be made, by regulations, legislation or otherwise to reduce, or
increase, the income of a REMIC Residual Certificateholder that purchased
the
REMIC Residual Certificate from a prior holder of the certificate at a price
greater than, or less than, the adjusted basis, the REMIC Residual Certificate
would have had in the hands of an original holder of the certificate. The
REMIC
Regulations, however, do not provide for any such modifications.
Any
payments received by a holder of a REMIC Residual Certificate in connection
with
the acquisition of the REMIC Residual Certificate will be taken into account
in
determining the income of the holder for federal income tax purposes. Although
it appears likely that any of these payments would be includible in income
immediately upon its receipt, the IRS might assert that these payments should
be
included in income over time according to an amortization schedule or according
to another method. Because of the uncertainty concerning the treatment of
these
payments, holders of REMIC Residual Certificates should consult their tax
advisors concerning the treatment of these payments for income tax
purposes.
The
amount of income REMIC Residual Certificateholders will be required to report,
or the tax liability associated with the income, may exceed the amount of
cash
distributions received from the REMIC for the corresponding period.
Consequently, REMIC Residual Certificateholders should have other sources
of
funds sufficient to pay any federal income taxes due as a result of their
ownership of REMIC Residual Certificates or unrelated deductions against
which
income may be offset, subject to the rules relating to excess inclusions,
and
noneconomic residual interests discussed at “-Noneconomic REMIC Residual
Certificates.” The fact that the tax liability associated with the income
allocated to REMIC Residual Certificateholders may exceed the cash distributions
received by the REMIC Residual Certificateholders for the corresponding period
may significantly adversely affect the REMIC Residual Certificateholders’
after-tax rate of return. This disparity between income and distributions
may
not be offset by corresponding losses or reductions of income attributable
to
the REMIC Residual Certificateholder until subsequent tax years and, then,
may
not be completely offset due to changes in the Code, tax rates or character
of
the income or loss.
Taxable
Income of the REMIC. The taxable income of the REMIC will equal the income
from
the mortgage loans and other assets of the REMIC plus any cancellation of
indebtedness income due to the allocation of realized losses to REMIC Regular
Certificates, less the deductions allowed to the REMIC for interest, including
original issue discount and reduced by any premium on issuance, on the REMIC
Regular Certificates, whether or not offered by the prospectus, amortization
of
any premium on the mortgage loans, bad debt losses with respect to the mortgage
loans and, except as described below, for servicing, administrative and other
expenses.
For
purposes of determining its taxable income, the REMIC will have an initial
aggregate basis in its assets equal to the sum of the issue prices of all
REMIC
Certificates, or if a class of REMIC Certificates is not sold initially,
their
fair market values. The aggregate basis will be allocated among the mortgage
loans and the other assets of the REMIC in proportion to their respective
fair
market values. The issue price of any offered REMIC Certificates will be
determined in the manner described above under “—Taxation of Owners of REMIC
Regular Certificates—Original Issue Discount.” The issue price of a REMIC
Certificate received in exchange for an interest in the mortgage loans or
other
property will equal the fair market value of the interests in the mortgage
loans
or other property. Accordingly, if one or more classes of REMIC Certificates
are
retained initially rather than sold, the trustee may be required to estimate
the
fair market value of the interests in order to determine the basis of the
REMIC
in the mortgage loans and other property held by the REMIC.
Subject
to possible application of the de
minimis
rules,
the method of accrual by the REMIC of original issue discount income and
market
discount income with respect to mortgage loans that it holds will be equivalent
to the method for accruing original issue discount income for holders of
REMIC
Regular Certificates. However, a REMIC that acquires loans at a market discount
must include the market discount in income currently, as it accrues, on a
constant yield basis. See “—Taxation of Owners of REMIC Regular Certificates”
above, which describes a method for accruing discount income that is analogous
to that required to be used by a REMIC as to mortgage loans with market discount
that it holds.
A
mortgage loan will be deemed to have been acquired with either discount or
premium to the extent that the REMIC’s basis in the mortgage loan is either less
than or greater than its stated redemption price. Any discount will be
includible in the income of the REMIC as it accrues, in advance of receipt
of
the cash attributable to the income, under a method similar to the method
described above for accruing original issue discount on the REMIC Regular
Certificates. It is anticipated that each REMIC will elect under Section
171 of
the Code to amortize any premium on the mortgage loans. Premium on any mortgage
loan to which the election applies may be amortized under a constant yield
method, presumably taking into account a Prepayment Assumption. This election
would not apply to any mortgage loan originated on or before September 27,
1985,
premium on which should be allocated among the principal payments on that
mortgage loan and be deductible by the REMIC as those payments become due
or
upon the prepayment of the mortgage loan.
A
REMIC
will be allowed deductions for interest, including original issue discount,
on
the REMIC Regular Certificates, whether or not offered by this prospectus,
equal
to the deductions that would be allowed if these REMIC Regular Certificates
were
indebtedness of the REMIC. Original issue discount will be considered to
accrue
for this purpose as described above under “—Taxation of Owners of REMIC Regular
Certificates—Original Issue Discount,” except that the de
minimis
rule and
the adjustments for subsequent holders of these REMIC Regular Certificates
will
not apply.
Issue
premium is the excess of the issue price of a REMIC Regular Certificate over
its
stated redemption price. If a class of REMIC Regular Certificates is issued
with
issue premium, the net amount of interest deductions that are allowed the
REMIC
in each taxable year for the REMIC Regular Certificates of that class will
be
reduced by an amount equal to the portion of the issue premium that is
considered to be amortized or repaid in that year. Although the matter is
not
entirely clear, it is likely that issue premium would be amortized under
a
constant yield method in a manner analogous to the method of accruing original
issue discount described above under “—Taxation of Owners of REMIC Regular
Certificates—Original Issue Discount.”
Subject
to the exceptions described in the following sentences, the taxable income
of a
REMIC will be determined in the same manner as if the REMIC were an individual
having the calendar year as its taxable year and using the accrual method
of
accounting. However, no item of income, gain, loss or deduction allocable
to a
prohibited transaction will be taken into account. See “—Prohibited Transactions
Tax and Other Taxes” below.
Further,
the limitation on miscellaneous itemized deductions imposed on individuals
by
Section 67 of the Code, allowing these deductions only to the extent they
exceed
in the aggregate two percent of the taxpayer’s adjusted gross income, will not
be applied at the REMIC level and the REMIC will be allowed deductions for
servicing, administrative and other non-interest expenses in determining
its
taxable income. These expenses will be allocated as a separate item to the
holders of REMIC Certificates, subject to the limitation of Section 67 of
the
Code. If the deductions allowed to the REMIC exceed its gross income for
a
calendar quarter, the excess will be the net loss for the REMIC for that
calendar quarter. See “—Possible Pass-Through of Miscellaneous Itemized
Deductions” below.
Basis
Rules, Net Losses and Distributions.
The
adjusted basis of a REMIC Residual Certificate will be equal to the amount
paid
for the REMIC Residual Certificate, increased by amounts included in the
income
of the REMIC Residual Certificateholder and decreased, but not below zero,
by
distributions made, and by net losses allocated, to the REMIC Residual
Certificateholder.
A
REMIC
Residual Certificateholder is not allowed to take into account any net loss
for
any calendar quarter to the extent the net loss exceeds the REMIC Residual
Certificateholder’s adjusted basis in its REMIC Residual Certificate as of the
close of the calendar quarter, determined without regard to the net loss.
Any
loss that is not currently deductible by reason of this limitation may be
carried forward indefinitely to future calendar quarters and, subject to
the
same limitation, may be used only to offset income from the REMIC Residual
Certificate. The ability of REMIC Residual Certificateholders to deduct net
losses may be subject to additional limitations under the Code, as to which
REMIC Residual Certificateholders should consult their tax
advisors.
Any
distribution on a REMIC Residual Certificate will be treated as a non-taxable
return of capital to the extent it does not exceed the holder’s adjusted basis
in the REMIC Residual Certificate. To the extent a distribution on a REMIC
Residual Certificate exceeds this adjusted basis, it will be treated as gain
from the sale of the REMIC Residual Certificate. Holders of REMIC Residual
Certificates may be entitled to distributions early in the term of the related
REMIC under circumstances in which their bases in the REMIC Residual
Certificates will not be sufficiently large that the distributions will be
treated as nontaxable returns of capital. Their bases in the REMIC Residual
Certificates will initially equal the amount paid for the REMIC Residual
Certificates and will be increased by the REMIC Residual Certificateholders’
allocable shares of taxable income of the REMIC. However, these bases increases
may not occur until the end of the calendar quarter, or perhaps the end of
the
calendar year, with respect to which the REMIC taxable income is allocated
to
the REMIC Residual Certificateholders. To the extent the REMIC Residual
Certificateholders’ initial bases are less than the distributions to the REMIC
Residual Certificateholders, and increases in initial bases either occur
after
the distributions or, together with their initial bases, are less than the
amount of the distributions, gain will be recognized by the REMIC Residual
Certificateholders on these distributions and will be treated as gain from
the
sale of their REMIC Residual Certificates.
The
effect of these rules is that a REMIC Residual Certificateholder may not
amortize its basis in a REMIC Residual Certificate, but may only recover
its
basis through distributions, through the deduction of any net losses of the
REMIC or upon the sale of its REMIC Residual Certificate. See “—Sales of REMIC
Certificates” Below.
For
a
discussion of possible modifications of these rules that may require adjustments
to income of a holder of a REMIC Residual Certificate other than an original
holder in order to reflect any difference between the cost of the REMIC Residual
Certificate to the REMIC Residual Certificateholder and the adjusted basis
the
REMIC Residual Certificate would have in the hands of an original holder.
See
“—Taxation of Owners of REMIC Residual Certificates—General” above.
Excess
Inclusions.
Any
excess inclusions with respect to a REMIC Residual Certificate will be subject
to federal income tax in all events.
In
general, the excess inclusions with respect to a REMIC Residual Certificate
for
any calendar quarter will be the excess, if any, of
(1)
the
daily portions of REMIC taxable income allocable to the REMIC Residual
Certificate over
(2)
the
sum of the daily accruals for each day during the quarter that
the REMIC
Residual Certificate was held by the REMIC Residual
Certificateholder.
The
daily
accruals of a REMIC Residual Certificateholder will be determined by allocating
to each day during a calendar quarter its ratable portion of the product
of the
adjusted issue price of the REMIC Residual Certificate at the beginning of
the
calendar quarter and 120% of the long-term Federal rate in effect on the
closing
date. For this purpose, the adjusted issue price of a REMIC Residual Certificate
as of the beginning of any calendar quarter will be equal to the issue price
of
the REMIC Residual Certificate, increased by the sum of the daily accruals
for
all prior quarters and decreased, but not below zero, by any distributions
made
with respect to the REMIC Residual Certificate before the beginning of that
quarter. The issue price of a REMIC Residual Certificate is the initial offering
price to the public, excluding bond houses and brokers, at which a substantial
amount of the REMIC Residual Certificates were sold. The long-term Federal
rate
is an average of current yields on Treasury securities with a remaining term
of
greater than nine years, computed and published monthly by the IRS. Although
it
has not done so, the Treasury has authority to issue regulations that would
treat the entire amount of income accruing on a REMIC Residual Certificate
as an
excess inclusion if the REMIC Residual Certificates are considered to have
significant value.
For
REMIC
Residual Certificateholders, an excess inclusion:
(1)
will
not be permitted to be offset by deductions, losses or loss carryovers
from other activities,
(2)
will
be treated as unrelated business taxable income to an otherwise
tax-exempt
organization and
(3)
will
not be eligible for any rate reduction or exemption under any applicable
tax treaty with respect to the 30% United States withholding tax
imposed
on distributions to REMIC Residual Certificateholders that are
foreign
investors. See, however, “—Foreign Investors in REMIC Certificates”
below.
Furthermore,
for purposes of the alternative minimum tax, excess inclusions will not be
permitted to be offset by the alternative tax net operating loss deduction
and
alternative minimum taxable income may not be less than the taxpayer’s excess
inclusions. The latter rule has the effect of preventing nonrefundable tax
credits from reducing the taxpayer’s income tax to an amount lower than the
alternative minimum tax on excess inclusions.
In
the
case of any REMIC Residual Certificates held by a real estate investment
trust,
the aggregate excess inclusions with respect to the REMIC Residual Certificates,
as reduced, but not below zero, by the real estate investment trust taxable
income, will be allocated among the shareholders of the trust in proportion
to
the dividends received by the shareholders from the trust, and any amount
so
allocated will be treated as an excess inclusion with respect to a REMIC
Residual Certificate as if held directly by the shareholder. “Real estate
investment trust taxable income” is defined by Section 857(b)(2) of the Code,
and as used in the prior sentence does not include any net capital gain.
Treasury regulations yet to be issued could apply a similar rule to regulated
investment companies, common trust funds and cooperatives; the REMIC Regulations
currently do not address this subject.
Noneconomic
REMIC Residual Certificates.
Under
the REMIC Regulations, transfers of noneconomic REMIC Residual Certificates
will
be disregarded for all federal income tax purposes if “a significant purpose of
the transfer was to enable the transferor to impede the assessment or collection
of tax.” If the transfer is disregarded, the purported transferor will continue
to remain liable for any taxes due with respect to the income on the noneconomic
REMIC Residual Certificate. The REMIC Regulations provide that a REMIC Residual
Certificate is “noneconomic” unless, based on the Prepayment Assumption and on
any required or permitted clean up calls, or required liquidation provided
for
in the REMIC’s organizational documents, the present value of the expected
future distributions, discounted using the applicable Federal rate for
obligations whose term ends on the close of the last quarter in which excess
inclusions are expected to accrue with respect to the REMIC Residual
Certificate, on the REMIC Residual Certificate equals at least the present
value
of the expected tax on the anticipated excess inclusions, and the transferor
reasonably expects that the transferee will receive distributions with respect
to the REMIC Residual Certificate at or after the time the taxes accrue on
the
anticipated excess inclusions in an amount sufficient to satisfy the accrued
taxes. Accordingly, all transfers of REMIC Residual Certificates that may
constitute noneconomic residual interests will be subject to restrictions
under
the terms of the related pooling and servicing agreement that are intended
to
reduce the possibility of a transfer of REMIC Residual Certificates being
disregarded. These restrictions will require each party to a transfer to
provide
an affidavit that no purpose of the transfer is to impede the assessment
or
collection of tax, including representations as to the financial condition
of
the prospective transferee, for which the transferor is also required to
make a
reasonable investigation to determine the transferee’s historic payment of its
debts and ability to continue to pay its debts as they come due in the future.
Prior to purchasing a REMIC Residual Certificate, a prospective purchaser
should
consider the possibility that a purported transfer of the REMIC Residual
Certificate by that prospective purchaser to another purchaser at a future
date
may be disregarded in accordance with the rule described in the first sentence
of this paragraph, which would result in the retention of tax liability by
the
purchaser.
The
REMIC
regulations explain that a significant purpose to impede the assessment or
collection of tax exists if the transferor, at the time of the transfer,
either
knew or should have known that the transferee would be unwilling or unable
to
pay taxes due on its share of the taxable income of the REMIC. A safe harbor
is
provided if (i) the transferor conducted, at the time of the transfer, a
reasonable investigation of the financial condition of the transferee and
found
that the transferee historically had paid its debts as they became due and
found
no significant evidence to indicate that the transferee would not continue
to
pay its debts as they came due in the future, (ii) the transferee represents
to
the transferor that it understands that, as the holder of the noneconomic
REMIC
Residual Certificate, the transferee may incur tax liabilities in excess
of any
cash flows generated by the interest and that the transferee intends to pay
taxes associated with holding the residual interest as they become due, (iii)
the transferee represents to the transferor that it will not cause income
from
the noneconomic REMIC Residual Certificate to be attributable to a foreign
permanent establishment or fixed base (within the meaning of an applicable
income tax treaty) of the transferee or any other person, and (iv) one of
the
two following tests is satisfied:
(a) the
“formula test”:
the
present value of the anticipated tax liabilities associated with the holding
of
the noneconomic REMIC Residual Certificate will not exceed the sum
of:
(1) the
present value of any consideration given to the transferee to acquire the
residual interest;
(2) the
present value of the expected future distributions on the residual interest;
and
(3) the
present value of the anticipated tax savings associated with holding the
residual interest as the REMIC generates losses; or
(b) the
“asset test”:
(1) at
the
time of the transfer, and at the close of each of the transferee’s two fiscal
years preceding the transferee’s fiscal year of the transfer, the transferee’s
gross assets for financial reporting purposes exceed $100 million and its
net assets for financial reporting purposes exceed $10 million, excluding
obligations of any related persons or any other asset if a principal purpose
for
holding or acquiring the other asset is to permit the transferee to satisfy
the
asset test.
(2) the
transferee must be a domestic “C” corporation (other than a corporation exempt
from taxation or a regulated investment company or real estate investment
trust); the transferee must agree in writing that any subsequent transfer
of the
noneconomic REMIC Residual Certificate would be to an eligible “C” corporation
and would meet the requirements for a safe harbor transfer, and the facts
and
circumstances known to the transferor on or before the date of the transfer
must
not reasonably indicate that the taxes associated with ownership of the residual
interest will not be paid by the transferee; and
(3) a
reasonable person would not conclude, based on the facts and circumstances
known
to the transferor on or before the date of the transfer (including the
consideration given to the transferee to acquire the noneconomic REMIC Residual
Certificate in the REMIC), that the taxes associated with the residual interest
will not be paid.
For
purposes of the computation in clause (a), the transferee is assumed to pay
tax
at the highest corporate rate of tax specified in the Code or, in certain
circumstances, the alternative minimum tax rate. Further, present values
generally are computed using a discount rate equal to the short-term Federal
rate set forth in Section 1274(d) of the Code for the month of the transfer
and
the compounding period used by the transferee.
Final
regulations addressing the federal income tax treatment of “inducement fees”
received by transferees of noneconomic REMIC Residual Certificate require
inducement fees to be included in income over a period reasonably related
to the
period during which the applicable REMIC is expected to generate taxable
income
or net loss allocable to the holder of the noneconomic REMIC Residual
Certificate. Under two safe harbor methods currently set forth in the
regulations, inducement fees would be permitted to be included in income
(i) in
the
same amounts and over the same period that the taxpayer uses for financial
reporting purposes, provided that such period is not shorter than the period
the
applicable REMIC is expected to generate taxable income, or
(ii) ratably
over the remaining anticipated weighted average life of the applicable REMIC,
determined based on actual distributions projected as remaining to be made
on
all the regular and residual interests issued by the REMIC under the prepayment
assumption.
If
the
holder of a REMIC Residual Certificate sells or otherwise disposes of the
REMIC
Residual Certificate, any unrecognized portion of the inducement fee would
be
required to be taken into account at the time of the sale or disposition.
Prospective
purchasers of the noneconomic REMIC Residual Certificate should consult with
their tax advisors regarding the effect of these final regulations.
The
related prospectus supplement will disclose whether offered REMIC Residual
Certificates may be considered noneconomic residual interests under the REMIC
Regulations; provided, however, that any disclosure that a REMIC Residual
Certificate will not be considered noneconomic will be based upon assumptions,
and the depositor will make no representation that a REMIC Residual Certificate
will not be considered noneconomic for purposes of the rules described in
the
preceding paragraph. See “—Foreign Investors in REMIC Certificates—REMIC
Residual Certificates” below for additional restrictions applicable to transfers
of REMIC Residual Certificates to foreign persons.
Mark-to-Market
Rules.
In
general, all securities owned by a dealer, except to the extent that the
dealer
has specifically identified a security as held for investment, must be marked
to
market in accordance with the applicable Code provision and the related
regulations. Under Treasury regulations, a REMIC Residual Certificate acquired
after January 4, 1995 is not treated as a security and thus may not be marked
to
market.
Possible
Pass-Through of Miscellaneous Itemized Deductions.
Fees
and expenses of a REMIC generally will be allocated to the holders of the
related REMIC Residual Certificates. The applicable Treasury regulations
indicate, however, that in the case of a REMIC that is similar to a single
class
grantor trust, all or a portion of these fees and expenses should be allocated
to the holders of the related REMIC Regular Certificates. Except as stated
in
the related prospectus supplement, these fees and expenses will be allocated
to
holders of the related REMIC Residual Certificates in their entirety and
not to
the holders of the related REMIC Regular Certificates.
With
respect to REMIC Residual Certificates or REMIC Regular Certificates the
holders
of which receive an allocation of fees and expenses in accordance with the
preceding discussion, if any holder thereof is an individual, estate or trust,
or a pass-through entity beneficially owned by one or more individuals, estates
or trusts,
·
an
amount equal to the individual’s, estate’s or trust’s share of the fees
and expenses will be added to the gross income of the holder,
and
·
the
individual’s, estate’s or trust’s share of the fees and expenses will be
treated as a miscellaneous itemized deduction allowable subject
to the
limitation of Section 67 of the
Code.
Section
67 of the Code permits these deductions only to the extent they exceed in
the
aggregate two percent of a taxpayer’s adjusted gross income. In addition,
Section 68 of the Code provides that the amount of itemized deductions otherwise
allowable for an individual whose adjusted gross income exceeds a specified
amount will be reduced by the lesser of (1) 3% of the excess of the individual’s
adjusted gross income over that amount or (2) 80% of the amount of itemized
deductions otherwise allowable for the taxable year. The amount of additional
taxable income reportable by REMIC Certificateholders that are subject to
the
limitations of either Section 67 or Section 68 of the Code may be substantial.
Furthermore, in determining the alternative minimum taxable income of a holder
of a REMIC Certificate that is an individual, estate or trust, or a pass-through
entity beneficially owned by one or more individuals, estates or trusts,
no
deduction will be allowed for the holder’s allocable portion of servicing fees
and other miscellaneous itemized deductions of the REMIC, even though an
amount
equal to the amount of the fees and other deductions will be included in
the
holder’s gross income. Accordingly, these REMIC Certificates may not be
appropriate investments for individuals, estates, or trusts, or pass-through
entities beneficially owned by one or more individuals, estates or trusts.
Prospective investors should consult with their own tax advisors prior to
making
an investment in the certificates.
Sales
of REMIC Certificates.
If a
REMIC Certificate is sold, the selling Certificateholder will recognize gain
or
loss equal to the difference between the amount realized on the sale and
its
adjusted basis in the REMIC Certificate. The adjusted basis of a REMIC Regular
Certificate generally will be:
·
equal
the cost of the REMIC Regular Certificate to the
certificateholder,
·
increased
by income reported by such certificateholder with respect to the
REMIC
Regular Certificate, including original issue discount and market
discount
income, and
·
reduced,
but not below zero, by distributions on the REMIC Regular Certificate
received by the certificateholder and by any amortized
premium.
The
adjusted basis of a REMIC Residual Certificate will be determined as described
under “—Taxation of Owners of REMIC Residual Certificates—Basis Rules, Net
Losses and Distributions.” Except as provided in the following four paragraphs,
gain or loss from the sale of a REMIC Certificate will be capital gain or
loss,
provided the REMIC Certificate is held as a capital asset within the meaning
of
Section 1221 of the Code.
Gain
from
the sale of a REMIC Regular Certificate that might otherwise be capital gain
will be treated as ordinary income to the extent the gain does not exceed
the
excess, if any, of (1) the amount that would have been includible in the
seller’s income with respect to the REMIC Regular Certificate assuming that
income had accrued thereon at a rate equal to 110% of the applicable Federal
rate, determined as of the date of purchase of the REMIC Regular Certificate,
over (2) the amount of ordinary income actually includible in the seller’s
income prior to the sale. In addition, gain recognized on the sale of a REMIC
Regular Certificate by a seller who purchased the REMIC Regular Certificate
at a
market discount will be taxable as ordinary income in an amount not exceeding
the portion of the discount that accrued during the period the REMIC Certificate
was held by the holder, reduced by any market discount included in income
under
the rules described above under “—Taxation of Owners of REMIC Regular
Certificates—Market Discount” and “—Premium.”
REMIC
Certificates will be evidences of indebtedness within the meaning of Section
582(c)(1) of the Code, so that gain or loss recognized from the sale of a
REMIC
Certificate by a bank or thrift institution to which this section applies
will
be ordinary income or loss.
A
portion
of any gain from the sale of a REMIC Regular Certificate that might otherwise
be
capital gain may be treated as ordinary income to the extent that the
certificate is held as part of a conversion transaction within the meaning
of
Section 1258 of the Code. A conversion transaction includes a transaction
in
which the taxpayer has taken two or more positions in the same or similar
property that reduce or eliminate market risk, if substantially all of the
taxpayer’s return is attributable to the time value of the taxpayer’s net
investment in the transaction. The amount of gain so realized in a conversion
transaction that is recharacterized as ordinary income generally will not
exceed
the amount of interest that would have accrued on the taxpayer’s net investment
at 120% of the appropriate applicable Federal rate at the time the taxpayer
enters into the conversion transaction, subject to appropriate reduction
for
prior inclusion of interest and other ordinary income items from the
transaction.
Finally,
a taxpayer may elect to have net capital gain taxed at ordinary income rates
rather than capital gains rates in order to include the net capital gain
in
total net investment income for the taxable year, for purposes of the rule
that
limits the deduction of interest on indebtedness incurred to purchase or
carry
property held for investment to a taxpayer’s net investment income.
Except
as
may be provided in Treasury regulations yet to be issued, if the seller of
a
REMIC Residual Certificate reacquires the REMIC Residual Certificate, or
acquires any other residual interest in a REMIC or any similar interest in
a
taxable mortgage pool, as defined in Section 7701(i) of the Code, during
the
period beginning six months before, and ending six months after, the date
of the
sale, such sale will be subject to the wash sale rules of Section 1091 of
the
Code. In that event, any loss realized by the REMIC Residual Certificateholder
on the sale will not be deductible, but instead will be added to the REMIC
Residual Certificateholder’s adjusted basis in the newly- acquired
asset.
Prohibited
Transactions And Other Possible REMIC Taxes.
In the
event a REMIC engages in a prohibited transaction, the Code imposes a 100%
tax
on the income derived by the REMIC from the prohibited transaction. A prohibited
transaction may occur upon the disposition of a mortgage loan, the receipt
of
income from a source other than a mortgage loan or other permitted investments,
the receipt of compensation for services, or gain from the disposition of
an
asset purchased with the payments on the mortgage loans for temporary investment
pending distribution on the REMIC Certificates. It is not anticipated that
any
REMIC will engage in any prohibited transactions in which it would recognize
a
material amount of net income.
In
addition, a contribution to a REMIC made after the day on which the REMIC
issues
all of its interests could result in the imposition on the REMIC of a tax
equal
to 100% of the value of the contributed property. Each pooling and servicing
agreement will include provisions designed to prevent the acceptance of any
contributions that would be subject to this tax.
REMICs
also are subject to federal income tax at the highest corporate rate on net
income from foreclosure property, determined by reference to the rules
applicable to real estate investment trusts. Net income from foreclosure
property generally means gain from the sale of a foreclosure property that
is
inventory property and gross income from foreclosure property other than
qualifying rents and other qualifying income for a real estate investment
trust.
It is not anticipated that any REMIC will recognize net income from foreclosure
property subject to federal income tax.
To
the
extent permitted by then applicable laws, any tax resulting from a prohibited
transaction, tax resulting from a contribution made after the closing date,
tax
on net income from foreclosure property or state or local income or franchise
tax that may be imposed on the REMIC will be borne by the related master
servicer or trustee in either case out of its own funds, provided that the
master servicer or the trustee has sufficient assets to do so, and provided
that
the tax arises out of a breach of the master servicer’s or the trustee’s
obligations under the related pooling and servicing agreement and in respect
of
compliance with applicable laws and regulations. Any of these taxes not borne
by
the master servicer or the trustee will be charged against the related trust
fund resulting in a reduction in amounts payable to holders of the related
REMIC
Certificates.
Tax
And Restrictions on Transfers of REMIC Residual Certificates to Certain
Organizations.
If a
REMIC Residual Certificate is transferred to a disqualified organization,
a tax
would be imposed in an amount equal to the product of:
·
the
present value, discounted using the applicable Federal rate for
obligations whose term ends on the close of the last quarter in
which
excess inclusions are expected to accrue with respect to the REMIC
Residual Certificate, of the total anticipated excess inclusions
with
respect to the REMIC Residual Certificate for periods after the
transfer
and
·
the
highest marginal federal income tax rate applicable to
corporations.
The
anticipated excess inclusions must be determined as of the date that the
REMIC
Residual Certificate is transferred and must be based on events that have
occurred up to the time of the transfer, the Prepayment Assumption and any
required or permitted clean up calls or required liquidation provided for
in the
REMIC’s organizational documents. The tax would be imposed on the transferor of
the REMIC Residual Certificate, except that where the transfer is through
an
agent for a disqualified organization, the tax would instead be imposed on
the
agent. However, a transferor of a REMIC Residual Certificate would in no
event
be liable for the tax with respect to a transfer if the transferee furnishes
to
the transferor an affidavit that the transferee is not a disqualified
organization and, as of the time of the transfer, the transferor does not
have
actual knowledge that the affidavit is false. Moreover, an entity will not
qualify as a REMIC unless there are reasonable arrangements designed to ensure
that
·
residual
interests in the entity are not held by disqualified organizations
and
·
information
necessary for the application of the tax described herein will
be made
available. Restrictions on the transfer of REMIC Residual Certificates
and
other provisions that are intended to meet this requirement will
be
included in the pooling and servicing agreement, and will be discussed
more fully in any prospectus supplement relating to the offering
of any
REMIC Residual Certificate.
In
addition, if a pass-through entity includes in income excess inclusions with
respect to a REMIC Residual Certificate, and a disqualified organization
is the
record holder of an interest in the entity, then a tax will be imposed on
the
entity equal to the product of (1) the amount of excess inclusions on the
REMIC
Residual Certificate that are allocable to the interest in the pass-through
entity held by the disqualified organization and (2) the highest marginal
federal income tax rate imposed on corporations. A pass-through entity will
not
be subject to this tax for any period, however, if each record holder of
an
interest in the pass-through entity furnishes to the pass-through
entity
·
the
holder’s social security number and a statement under penalties of perjury
that the social security number is that of the record holder
or
·
a
statement under penalties of perjury that the record holder is
not a
disqualified organization. Notwithstanding the preceding two sentences,
in
the case of a REMIC Residual Certificate held by an electing large
partnership, as defined in Section 775 of the Code, all interests
in the
partnership shall be treated as held by disqualified organizations,
without regard to whether the record holders of the partnership
furnish
statements described in the preceding sentence, and the amount
that is
subject to tax under the second preceding sentence is excluded
from the
gross income of the partnership allocated to the partners, in lieu
of
allocating to the partners a deduction for the tax paid by the
partnership.
For
these
purposes, a disqualified organization means:
·
the
United States, any State or political subdivision thereof, any
foreign
government, any international organization, or any agency or
instrumentality of the foregoing, not including, however,
instrumentalities described in Section 168(h)(2)(D) of the Code
or the
Federal Home Loan Mortgage
Corporation,
·
any
organization, other than a cooperative described in Section 521
of the
Code, that is exempt from federal income tax, unless it is subject
to the
tax imposed by Section 511 of the Code
or
·
any
organization described in Section 1381(a)(2)(C) of the
Code.
For
these
purposes, a pass-through entity means any regulated investment company, real
estate investment trust, trust, partnership or other entity described in
Section
860E(e)(6)(B) of the Code. In addition, a person holding an interest in a
pass-through entity as a nominee for another person will, with respect to
the
interest, be treated as a pass-through entity.
Termination.
A REMIC
will terminate immediately after the distribution date following receipt
by the
REMIC of the final payment in respect of the mortgage loans or upon a sale
of
the REMIC’s assets following the adoption by the REMIC of a plan of complete
liquidation. The last distribution on a REMIC Regular Certificate will be
treated as a payment in retirement of a debt instrument. In the case of a
REMIC
Residual certificate, if the last distribution on the REMIC Residual Certificate
is less than the REMIC Residual Certificateholder’s adjusted basis in the
Certificate, the REMIC Residual Certificateholder should, but may not, be
treated as realizing a loss equal to the amount of the difference, and the
loss
may be treated as a capital loss.
Reporting
And Other Administrative Matters.
Solely
for purposes of the administrative provisions of the Code, the REMIC will
be
treated as a partnership and REMIC Residual Certificateholders will be treated
as partners. The trustee or other party specified in the related prospectus
supplement will file REMIC federal income tax returns on behalf of the related
REMIC, and under the terms of the related pooling and servicing agreement,
will
either (1) be irrevocably appointed by the holders of the largest percentage
interest in the related REMIC Residual Certificates as their agent to perform
all of the duties of the tax matters person with respect to the REMIC in
all
respects or (2) will be designated as and will act as the tax matters person
with respect to the related REMIC in all respects and will hold at least
a
nominal amount of REMIC Residual Certificates.
The
trustee, as the tax matters person or as agent for the tax matters person,
subject to notice requirements and various restrictions and limitations,
generally will have the authority to act on behalf of the REMIC and the REMIC
Residual Certificateholders in connection with the administrative and judicial
review of items of income, deduction, gain or loss of the REMIC, as well
as the
REMIC’s classification. REMIC Residual Certificateholders generally will be
required to report such REMIC items consistently with their treatment on
the
REMIC’s tax return and may be bound by a settlement agreement between the
Trustee, as either tax matters person or as agent for the tax matters person,
and the IRS concerning any REMIC item subject to that settlement agreement.
Adjustments made to the REMIC tax return may require a REMIC Residual
Certificateholder to make corresponding adjustments on its return, and an
audit
of the REMIC’s tax return, or the adjustments resulting from an audit, could
result in an audit of a REMIC Residual Certificateholder’s return. Any person
that holds a REMIC Residual Certificate as a nominee for another person may
be
required to furnish the REMIC, in a manner to be provided in Treasury
regulations, with the name and address of the person and other
information.
Reporting
of interest income, including any original issue discount, with respect to
REMIC
Regular Certificates is required annually, and may be required more frequently
under Treasury regulations. These information reports generally are required
to
be sent to individual holders of REMIC regular interests and the IRS; holders
of
REMIC Regular Certificates that are corporations, trusts, securities dealers
and
some other non-individuals will be provided interest and original issue discount
income information and the information set forth in the following paragraph
upon
request in accordance with the requirements of the applicable regulations.
The
information must be provided by the later of 30 days after the end of the
quarter for which the information was requested, or two weeks after the receipt
of the request. The REMIC must also comply with rules requiring a REMIC Regular
Certificate issued with original issue discount to disclose on its face the
amount of original issue discount and the issue date, and requiring the
information to be reported to the IRS. Reporting with respect to the REMIC
Residual Certificates, including income, excess inclusions, investment expenses
and relevant information regarding qualification of the REMIC’s assets will be
made as required under the Treasury regulations, generally on a quarterly
basis.
The
REMIC
Regular Certificate information reports will include a statement of the adjusted
issue price of the REMIC Regular Certificate at the beginning of each accrual
period. In addition, the reports will include information required by
regulations with respect to computing the accrual of any market discount.
Because exact computation of the accrual of market discount on a constant
yield
method would require information relating to the holder’s purchase price that
the REMIC may not have, Treasury regulations only require that information
pertaining to the appropriate proportionate method of accruing market discount
be provided. See “—Taxation of Owners of REMIC Regular Certificates—Market
Discount.”
The
responsibility for complying with the foregoing reporting rules will be borne
by
the Trustee or other party designated in the related prospectus
supplement.
Backup
Withholding With Respect to REMIC Certificates.
Payments of interest and principal, as well as payments of proceeds from
the
sale of REMIC Certificates, may be subject to the backup withholding tax
under
Section 3406 of the Code at a rate of 28% if recipients of the payments fail
to
furnish to the payor information including their taxpayer identification
numbers, or otherwise fail to establish an exemption from the backup withholding
tax. Any amounts deducted and withheld from a distribution to a recipient
would
be allowed as a credit against the recipient’s federal income tax. Furthermore,
penalties may be imposed by the IRS on a recipient of payments that is required
to supply information but that does not do so in the proper manner.
Foreign
Investors in REMIC Certificates.
A REMIC
Regular Certificateholder that is not a United States Person and is not subject
to federal income tax as a result of any direct or indirect connection to
the
United States in addition to its ownership of a REMIC Regular Certificate,
will
not be subject to United States federal income or withholding tax in respect
of
a distribution on a REMIC Regular Certificate, provided that the holder complies
to the extent necessary with identification requirements including delivery
of a
statement signed by the certificateholder under penalties of perjury, certifying
that the certificateholder is not a United States Person and providing the
name
and address of the certificateholder. The IRS may assert that the foregoing
tax
exemption should not apply with respect to a REMIC Regular Certificate held
by a
REMIC Residual Certificateholder that owns directly or indirectly a 10% or
greater interest in the REMIC Residual Certificates. If the holder does not
qualify for exemption, distributions of interest, including distributions
in
respect of accrued original issue discount, to the holder may be subject
to a
tax rate of 30%, subject to reduction under any applicable tax
treaty.
Special
rules apply to partnerships, estates and trusts, and in certain circumstances
certifications as to foreign status and other matters may be required to
be
provided by partners and beneficiaries thereof.
In
addition, the foregoing rules will not apply to exempt a United States
shareholder of a controlled foreign corporation from taxation on the United
States shareholder’s allocable portion of the interest income received by the
controlled foreign corporation.
Further,
it appears that a REMIC Regular Certificate would not be included in the
estate
of a non-resident alien individual and would not be subject to United States
estate taxes. However, it is suggested that certificateholders who are
non-resident alien individuals consult their tax advisors concerning this
question.
Except
as
stated in the related prospectus supplement, transfers of REMIC Residual
Certificates to investors that are not United States Persons will be prohibited
under the related pooling and servicing agreement.
Notes
On
or
prior to the date of the related prospectus supplement with respect to the
proposed issuance of each series of notes, Thacher Proffitt & Wood LLP,
counsel to the depositor, will provide its opinion that, assuming compliance
with all provisions of the indenture, owner trust agreement and other related
documents, for federal income tax purposes (1) the notes will be treated
as
indebtedness and (2) the issuer, as created under the owner trust agreement,
will not be characterized as an association or publicly traded partnership
taxable as a corporation or as a taxable mortgage pool. For purposes of this
tax
discussion, references to a noteholder or a holder are to the beneficial
owner
of a note.
Status
as Real Property Loans
Notes
held by a domestic building and loan association will not constitute “loans . .
. secured by an interest in real property” within the meaning of Code section
7701(a)(19)(C)(v); and notes held by a real estate investment trust will
not
constitute real estate assets within the meaning of Code section 856(c)(5)(B)
and interest on notes will not be considered “interest on obligations secured by
mortgages on real property” within the meaning of Code section
856(c)(3)(B).
Taxation
of Noteholders
Notes
generally will be subject to the same rules of taxation as REMIC Regular
Certificates issued by a REMIC, except that (1) income reportable on the
notes
is not required to be reported under the accrual method unless the holder
otherwise uses the accrual method and (2) the special rule treating a portion
of
the gain on sale or exchange of a REMIC Regular Certificate as ordinary income
is inapplicable to the notes. See “—REMICs—Taxation of Owners of REMIC Regular
Certificates” and “—Sales of REMIC Certificates.”
Grantor
Trust Funds
Classification
of Grantor Trust Funds
On
or
prior to the date of the related prospectus supplement with respect to the
proposed issuance of each series of Grantor Trust Certificates, Thacher Proffitt
& Wood LLP, counsel to the depositor, will provide its opinion that,
assuming compliance with all provisions of the related pooling and servicing
agreement, the related Grantor Trust Fund will be classified as a grantor
trust
under subpart E, part I of subchapter J of Chapter 1 of the Code and not
as a
partnership or an association taxable as a corporation.
Characterization
of Investments in Grantor Trust Certificates
Grantor
Trust Fractional Interest Certificates.
In the
case of Grantor Trust Fractional Interest Certificates, except as disclosed
in
the related prospectus supplement, Thacher Proffitt & Wood LLP, counsel to
the depositor, will provide its opinion that Grantor Trust Fractional Interest
Certificates will represent interests in “loans . . . secured by an interest in
real property” within the meaning of Section 7701(a)(19)(C)(v) of the Code;
“obligation[s] (including any participation or certificate of beneficial
ownership therein) which . . .[are] principally secured by an interest in
real
property” within the meaning of Section 860G(a)(3) of the Code; and real estate
assets within the meaning of Section 856(c)(5)(B) of the Code. In addition,
Thacher Proffitt & Wood LLP, counsel to the depositor, will deliver its
opinion that interest on Grantor Trust Fractional Interest Certificates will
to
the same extent be considered “interest on obligations secured by mortgages on
real property or on interests in real property” within the meaning of Section
856(c)(3)(B) of the Code.
The
assets constituting certain Grantor Trust Funds may include buydown mortgage
loans. The characterization of an investment in buydown mortgage loans will
depend upon the precise terms of the related buydown agreement, but to the
extent that the buydown mortgage loans are secured by a bank account or other
personal property, they may not be treated in their entirety as assets described
in the preceding paragraph. No directly applicable precedents exist with
respect
to the federal income tax treatment or the characterization of investments
in
buydown mortgage loans. Accordingly, holders of Grantor Trust Certificates
should consult their own tax advisors with respect to the characterization
of
investments in Grantor Trust Certificates representing an interest in a Grantor
Trust Fund that includes buydown mortgage loans.
Grantor
Trust Strip Certificates.
Even if
Grantor Trust Strip Certificates evidence an interest in a Grantor Trust
Fund
consisting of mortgage loans that are “loans . . . secured by an interest in
real property” within the meaning of Section 7701(a)(19)(C)(v) of the Code, and
real estate assets within the meaning of Section 856(c)(5)(B) of the Code,
and
the interest on the mortgage loans is “interest on obligations secured by
mortgages on real property” within the meaning of Section 856(c)(3)(B) of the
Code, it is unclear whether the Grantor Trust Strip Certificates, and income
from the Grantor Trust Certificates will be characterized the same way. However,
the policies underlying these sections, to encourage or require investments
in
mortgage loans by thrift institutions and real estate investment trusts,
suggest
that this characterization is appropriate. Thacher Proffitt & Wood LLP,
counsel to the depositor, will not deliver any opinion on these questions.
It is
suggested that prospective purchasers to which the characterization of an
investment in Grantor Trust Strip Certificates is material consult their
tax
advisors regarding whether the Grantor Trust Strip Certificates, and the
income
therefrom, will be so characterized.
The
Grantor Trust Strip Certificates will be “obligation[s] (including any
participation or certificate of beneficial ownership therein) which . . .[are]
principally secured by an interest in real property” within the meaning of
Section 860G(a)(3)(A) of the Code.
Taxation
of Owners of Grantor Trust Fractional Interest Certificates.
Holders
of a particular series of Grantor Trust Fractional Interest Certificates
generally will be required to report on their federal income tax returns
their
shares of the entire income from the mortgage loans, including amounts used
to
pay reasonable servicing fees and other expenses, and will be entitled to
deduct
their shares of any reasonable servicing fees and other expenses. Because
of
stripped interests, market or original issue discount, or premium, the amount
includible in income on account of a Grantor Trust Fractional Interest
Certificate may differ significantly from the amount distributable on the
same
certificate representing interest on the mortgage loans. Under Section 67
of the
Code, an individual, estate or trust holding a Grantor Trust Fractional Interest
Certificate directly or through some pass-through entities will be allowed
a
deduction for the reasonable servicing fees and expenses only to the extent
that
the aggregate of the holder’s miscellaneous itemized deductions exceeds two
percent of the holder’s adjusted gross income. In addition, Section 68 of the
Code provides that the amount of itemized deductions otherwise allowable
for an
individual whose adjusted gross income exceeds a specified amount will be
reduced by the lesser of (1) 3% of the excess of the individual’s adjusted gross
income over the amount or (2) 80% of the amount of itemized deductions otherwise
allowable for the taxable year. The amount of additional taxable income
reportable by holders of Grantor Trust Fractional Interest Certificates who
are
subject to the limitations of either Section 67 or Section 68 of the Code
may be
substantial. Further, certificateholders other than corporations subject
to the
alternative minimum tax may not deduct miscellaneous itemized deductions
in
determining the holder’s alternative minimum taxable income. Although it is not
entirely clear, it appears that in transactions in which multiple classes
of
Grantor Trust Certificates, including Grantor Trust Strip Certificates, are
issued, the fees and expenses should be allocated among the classes of Grantor
Trust Certificates using a method that recognizes that each class benefits
from
the related services. In the absence of statutory or administrative
clarification as to the method to be used, it is intended to base information
returns or reports to the IRS and certificateholders on a method that allocates
the expenses among classes of Grantor Trust Certificates with respect to
each
period on the distributions made to each class during that period.
The
federal income tax treatment of Grantor Trust Fractional Interest Certificates
of any series will depend on whether they are subject to the stripped bond
rules
of Section 1286 of the Code. Grantor Trust Fractional Interest Certificates
may
be subject to those rules if (1) a class of Grantor Trust Strip Certificates
is
issued as part of the same series of certificates or (2) the depositor or
any of
its affiliates retains, for its own account or for purposes of resale, a
right
to receive a specified portion of the interest payable on the mortgage loans.
Further, the IRS has ruled that an unreasonably high servicing fee retained
by a
seller or servicer will be treated as a retained ownership interest in mortgages
that constitutes a stripped coupon. For purposes of determining what constitutes
reasonable servicing fees for various types of mortgages the IRS has established
safe harbors. The servicing fees paid with respect to the mortgage loans
for a
series of Grantor Trust Certificates may be higher than those safe harbors
and,
accordingly, may not constitute reasonable servicing compensation. The related
prospectus supplement will include information regarding servicing fees paid
to
the master servicer, any subservicer or their respective affiliates necessary
to
determine whether the safe harbor rules apply.
If
Stripped Bond Rules Apply.
If the
stripped bond rules apply, each Grantor Trust Fractional Interest Certificate
will be treated as having been issued with original issue discount within
the
meaning of Section 1273(a) of the Code, subject, however, to the discussion
in
the sixth following paragraph regarding the possible treatment of stripped
bonds
as market discount bonds and the discussion regarding de
minimis
market
discount. See “—Taxation of Owners of Grantor Trust Fractional Interest
Certificates—Discount” below.
Under
the
stripped bond rules, the holder of a Grantor Trust Fractional Interest
Certificate, whether a cash or accrual method taxpayer, will be required
to
report interest income from its Grantor Trust Fractional Interest Certificate
for each month in an amount equal to the income that accrues on the certificate
in that month calculated under a constant yield method, in accordance with
the
rules of the Code relating to original issue discount.
The
original issue discount on a Grantor Trust Fractional Interest Certificate
will
be the excess of the certificate’s stated redemption price over its issue price.
The issue price of a Grantor Trust Fractional Interest Certificate as to
any
purchaser will be equal to the price paid by the purchaser for the Grantor
Trust
Fractional Interest Certificate. The stated redemption price of a Grantor
Trust
Fractional Interest Certificate will be the sum of all payments to be made
on
the certificate, other than qualified stated interest, if any, as well as
the
certificate’s share of reasonable servicing fees and other expenses. See
“—Taxation of Owners of Grantor Trust Fractional Interest Certificates—Stripped
Bond Rules Do Not Apply” for a definition of qualified stated
interest.
In
general, the amount of the income that accrues in any month would equal the
product of the holder’s adjusted basis in the Grantor Trust Fractional Interest
Certificate at the beginning of the month, see “Sales of Grantor Trust
Certificates”, and the yield of the Grantor Trust Fractional Interest
Certificate to the holder. This yield is equal to a rate that, compounded
based
on the regular interval between distribution dates and used to discount the
holder’s share of future payments on the mortgage loans, causes the present
value of those future payments to equal the price at which the holder purchased
the certificate. In computing yield under the stripped bond rules, a
certificateholder’s share of future payments on the mortgage loans will not
include any payments made in respect of any ownership interest in the mortgage
loans retained by the depositor, the master servicer, any subservicer or
their
respective affiliates, but will include the certificateholder’s share of any
reasonable servicing fees and other expenses.
To
the
extent the Grantor Trust Fractional Interest Certificates represent an interest
in any pool of debt instruments the yield on which may be affected by reason
of
prepayments, Section 1272(a)(6) of the Code requires (1) the use of a reasonable
Prepayment Assumption in accruing original issue discount and (2) adjustments
in
the accrual of original issue discount when prepayments do not conform to
the
Prepayment Assumption. It is unclear whether those provisions would be
applicable to the Grantor Trust Fractional Interest Certificates that do
not
represent an interest in any pool of debt instruments the yield on which
may be
affected by reason of prepayments, or whether use of a reasonable Prepayment
Assumption may be required or permitted without reliance on these rules.
It is
also uncertain, if a Prepayment Assumption is used, whether the assumed
prepayment rate would be determined based on conditions at the time of the
first
sale of the Grantor Trust Fractional Interest Certificate or, for a particular
holder, at the time of purchase of the Grantor Trust Fractional Interest
Certificate by that holder. It is suggested that Certificateholders consult
their own tax advisors concerning reporting original issue discount with
respect
to Grantor Trust Fractional Interest Certificates and, in particular, whether
a
Prepayment Assumption should be used in reporting original issue
discount.
In
the
case of a Grantor Trust Fractional Interest Certificate acquired at a price
equal to the principal amount of the mortgage loans allocable to the
certificate, the use of a Prepayment Assumption generally would not have
any
significant effect on the yield used in calculating accruals of interest
income.
In the case, however, of a Grantor Trust Fractional Interest Certificate
acquired at a price less than or greater than the principal amount of the
certificate, that is, at a discount or a premium, the use of a reasonable
Prepayment Assumption would increase or decrease the yield, and thus accelerate
or decelerate, respectively, the reporting of income.
If
a
Prepayment Assumption is not used, then when a mortgage loan prepays in full,
the holder of a Grantor Trust Fractional Interest Certificate acquired at
a
discount or a premium generally will recognize ordinary income or loss equal
to
the difference between the portion of the prepaid principal amount of the
mortgage loan that is allocable to the certificate and the portion of the
adjusted basis of the certificate that is allocable to the certificateholder’s
interest in the mortgage loan. If a Prepayment Assumption is used, it appears
that no separate item of income or loss should be recognized upon a prepayment.
Instead, a prepayment should be treated as a partial payment of the stated
redemption price of the Grantor Trust Fractional Interest Certificate and
accounted for under a method similar to that described for taking account
of
original issue discount on REMIC Regular Certificates. It is unclear whether
any
other adjustments would be required to reflect differences between an assumed
prepayment rate and the actual rate of prepayments. See “—REMICs—Taxation of
Owners of REMIC Regular Certificates—Original Issue Discount.”
It
is
intended to base information reports or returns to the IRS and
certificateholders in transactions subject to the stripped bond rules on
a
Prepayment Assumption that will be disclosed in the related prospectus
supplement and on a constant yield computed using a representative initial
offering price for each class of certificates. However, none of the depositor,
the master servicer or the trustee will make any representation that the
mortgage loans will in fact prepay at a rate conforming to the Prepayment
Assumption or any other rate and certificateholders should bear in mind that
the
use of a representative initial offering price will mean that the information
returns or reports, even if otherwise accepted as accurate by the IRS, will
in
any event be accurate only as to the initial certificateholders of each series
who bought at that price.
Under
Treasury regulation Section 1.1286-1, stripped bonds may to be treated as
market
discount bonds and any purchaser of a stripped bond treated as a market discount
bond is to account for any discount on the bond as market discount rather
than
original issue discount. This treatment only applies, however, if immediately
after the most recent disposition of the bond by a person stripping one or
more
coupons from the bond and disposing of the bond or coupon (1) there is no,
or
only a de
minimis
amount
of, original issue discount or (2) the annual stated rate of interest payable
on
the original bond is no more than one percentage point lower than the gross
interest rate payable on the original mortgage loan, before subtracting any
servicing fee or any stripped coupon. If interest payable on a Grantor Trust
Fractional Interest Certificate is more than one percentage point lower than
the
gross interest rate payable on the mortgage loans, the related prospectus
supplement will disclose that fact. If the original issue discount or market
discount on a Grantor Trust Fractional Interest Certificate determined under
the
stripped bond rules is less than 0.25% of the stated redemption price multiplied
by the weighted average maturity of the mortgage loans, then that original
issue
discount or market discount will be considered to be de
minimis.
Original issue discount or market discount of only a de minimis amount will
be
included in income in the same manner as de
minimis
original
issue and market discount described in “—Characteristics of Investments in
Grantor Trust Certificates—If Stripped Bond Rules Do Not Apply” and “—Market
Discount” below.
If
Stripped Bond Rules Do Not Apply.
Subject
to the discussion below on original issue discount, if the stripped bond
rules
do not apply to a Grantor Trust Fractional Interest Certificate, the
certificateholder will be required to report its share of the interest income
on
the mortgage loans in accordance with the certificateholder’s normal method of
accounting. The original issue discount rules will apply to a Grantor Trust
Fractional Interest Certificate to the extent it evidences an interest in
mortgage loans issued with original issue discount.
The
original issue discount, if any, on the mortgage loans will equal the difference
between the stated redemption price of the mortgage loans and their issue
price.
Under the OID Regulations, the stated redemption price is equal to the total
of
all payments to be made on the mortgage loan other than qualified stated
interest. Qualified stated interest is interest that is unconditionally payable
at least annually at a single fixed rate, a qualified floating rate, an
objective rate, a combination of a single fixed rate and one or more qualified
floating rates or one qualified inverse floating rate, or a combination of
qualified floating rates that does not operate in a manner that accelerates
or
defers interest payments on the mortgage loan. In general, the issue price
of a
mortgage loan will be the amount received by the borrower from the lender
under
the terms of the mortgage loan, less any points paid by the borrower, and
the
stated redemption price of a mortgage loan will equal its principal amount,
unless the mortgage loan provides for an initial below-market rate of interest
or the acceleration or the deferral of interest payments. The determination
as
to whether original issue discount will be considered to be de
minimis
will be
calculated using the same test described in the REMIC discussion. See “—Taxation
of Owners of REMIC Regular Certificates—Original Issue Discount”
above.
In
the
case of mortgage loans bearing adjustable or variable interest rates, the
related prospectus supplement will describe the manner in which the rules
will
be applied with respect to those mortgage loans by the master servicer or
the
trustee in preparing information returns to the certificateholders and the
IRS.
If
original issue discount is in excess of a de
minimis
amount,
all original issue discount with respect to a mortgage loan will be required
to
be accrued and reported in income each month, based on a constant yield.
Section
1272(a)(6) of the Code requires that a Prepayment Assumption be made in
computing yield with respect to any pool of debt instruments the yield on
which
may be affected by reason of prepayments. Accordingly, for certificates backed
by these pools, it is intended to base information reports and returns to
the
IRS and certificateholders on the use of a Prepayment Assumption. However,
in
the case of certificates not backed by these pools, it currently is not intended
to base the reports and returns on the use of a Prepayment Assumption. It
is
suggested that certificateholders consult their own tax advisors concerning
whether a Prepayment Assumption should be used in reporting original issue
discount with respect to Grantor Trust Fractional Interest Certificates.
Certificateholders should refer to the related prospectus supplement with
respect to each series to determine whether and in what manner the original
issue discount rules will apply to mortgage loans in the series.
A
purchaser of a Grantor Trust Fractional Interest Certificate that purchases
the
Grantor Trust Fractional Interest Certificate at a cost less than the
certificate’s allocable portion of the aggregate remaining stated redemption
price of the mortgage loans held in the related trust fund will also be required
to include in gross income the certificate’s daily portions of any original
issue discount with respect to the mortgage loans. However, the daily portion
will be reduced, if the cost of the Grantor Trust Fractional Interest
Certificate to the purchaser is in excess of the certificate’s allocable portion
of the aggregate adjusted issue prices of the mortgage loans held in the
related
trust fund, approximately in proportion to the ratio the excess bears to
the
certificate’s allocable portion of the aggregate original issue discount
remaining to be accrued on the mortgage loans. The adjusted issue price of
a
mortgage loan on any given day equals the sum of (1) the adjusted issue price,
or, in the case of the first accrual period, the issue price, of the mortgage
loan at the beginning of the accrual period that includes that day and (2)
the
daily portions of original issue discount for all days during the accrual
period
prior to that day. The adjusted issue price of a mortgage loan at the beginning
of any accrual period will equal the issue price of the mortgage loan, increased
by the aggregate amount of original issue discount with respect to the mortgage
loan that accrued in prior accrual periods, and reduced by the amount of
any
payments made on the mortgage loan in prior accrual periods of amounts included
in its stated redemption price.
In
addition to its regular reports, the master servicer or the trustee, except
as
provided in the related prospectus supplement, will provide to any holder
of a
Grantor Trust Fractional Interest Certificate such information as the holder
may
reasonably request from time to time with respect to original issue discount
accruing on Grantor Trust Fractional Interest Certificates. See “Grantor Trust
Reporting” below.
Market
Discount.
If the
stripped bond rules do not apply to the Grantor Trust Fractional Interest
Certificate, a certificateholder may be subject to the market discount rules
of
Sections 1276 through 1278 of the Code to the extent an interest in a mortgage
loan is considered to have been purchased at a market discount, that is,
in the
case of a mortgage loan issued without original issue discount, at a purchase
price less than its remaining stated redemption price, or in the case of
a
mortgage loan issued with original issue discount, at a purchase price less
than
its adjusted issue price. If market discount is in excess of a de
minimis
amount,
the holder generally will be required to include in income in each month
the
amount of the discount that has accrued through the month that has not
previously been included in income, but limited, in the case of the portion
of
the discount that is allocable to any mortgage loan, to the payment of stated
redemption price on the mortgage loan that is received by, or, in the case
of
accrual basis certificateholders, due to, the trust fund in that month. A
certificateholder may elect to include market discount in income currently
as it
accrues under a constant yield method based on the yield of the certificate
to
the holder rather than including it on a deferred basis under rules similar
to
those described in “—Taxation of Owners of REMIC Regular Certificates—Market
Discount” above.
Section
1276(b)(3) of the Code authorized the Treasury Department to issue regulations
providing for the method for accruing market discount on debt instruments,
the
principal of which is payable in more than one installment. Until regulations
are issued by the Treasury Department, rules described in the Committee Report
will apply. Under those rules, in each accrual period market discount on
the
mortgage loans should accrue, at the certificateholder’s option: (1) on the
basis of a constant yield method, (2) in the case of a mortgage loan issued
without original issue discount, in an amount that bears the same ratio to
the
total remaining market discount as the stated interest paid in the accrual
period bears to the total stated interest remaining to be paid on the mortgage
loan as of the beginning of the accrual period, or (3) in the case of a mortgage
loan issued with original issue discount, in an amount that bears the same
ratio
to the total remaining market discount as the original issue discount accrued
in
the accrual period bears to the total original issue discount remaining at
the
beginning of the accrual period. The Prepayment Assumption, if any, used
in
calculating the accrual of original issue discount is to be used in calculating
the accrual of market discount. The effect of using a Prepayment Assumption
could be to accelerate the reporting of the discount income. Because the
regulations referred to in this paragraph have not been issued, it is not
possible to predict what effect the regulations might have on the tax treatment
of a mortgage loan purchased at a discount in the secondary market.
Because
the mortgage loans will provide for periodic payments of stated redemption
price, the market discount may be required to be included in income at a
rate
that is not significantly slower than the rate at which the discount would
be
included in income if it were original issue discount.
Market
discount with respect to mortgage loans may be considered to be de
minimis
and, if
so, will be includible in income under de
minimis
rules
similar to those described above in “—REMICs—Taxation of Owners of REMIC Regular
Certificates—Original Issue Discount” with the exception that it is less likely
that a Prepayment Assumption will be used for purposes of these rules with
respect to the mortgage loans.
Further,
under the rules described in “—REMICs—Taxation of Owners of REMIC Regular
Certificates—Market Discount,” above, any discount that is not original issue
discount and exceeds a de
minimis
amount
may require the deferral of interest expense deductions attributable to accrued
market discount not yet includible in income, unless an election has been
made
to report market discount currently as it accrues. This rule applies without
regard to the origination dates of the mortgage loans.
Premium.
If a
certificateholder is treated as acquiring the underlying mortgage loans at
a
premium, that is, at a price in excess of their remaining stated redemption
price, the certificateholder may elect under Section 171 of the Code to amortize
using a constant yield method the portion of the premium allocable to mortgage
loans originated after September 27, 1985. Amortizable premium is treated
as an
offset to interest income on the related debt instrument, rather than as
a
separate interest deduction. However, premium allocable to mortgage loans
originated before September 28, 1985 or to mortgage loans for which an
amortization election is not made, should be allocated among the payments
of
stated redemption price on the mortgage loan and be allowed as a deduction
as
these payments are made, or, for a certificateholder using the accrual method
of
accounting, when the payments of stated redemption price are due.
It
is
unclear whether a Prepayment Assumption should be used in computing amortization
of premium allowable under Section 171 of the Code. If premium is not subject
to
amortization using a Prepayment Assumption and a mortgage loan prepays in
full,
the holder of a Grantor Trust Fractional Interest Certificate acquired at
a
premium should recognize a loss, equal to the difference between the portion
of
the prepaid principal amount of the mortgage loan that is allocable to the
certificate and the portion of the adjusted basis of the certificate that
is
allocable to the mortgage loan. If a Prepayment Assumption is used to amortize
this premium, it appears that this loss would be unavailable. Instead, if
a
Prepayment Assumption is used, a prepayment should be treated as a partial
payment of the stated redemption price of the Grantor Trust Fractional Interest
Certificate and accounted for under a method similar to that described for
taking account of original issue discount on REMIC Regular Certificates.
It is
unclear whether any other adjustments would be required to reflect differences
between the Prepayment Assumption used, and the actual rate of prepayments.
See
“REMICs—Taxation of Owners of REMIC Regular Certificates—Original Issue
Discount.”
Taxation
of Owners of Grantor Trust Strip Certificates.
The
stripped coupon rules of Section 1286 of the Code will apply to the Grantor
Trust Strip Certificates. Except as described above in “Characterization of
Investments in Grantor Trust Certificates—If Stripped Bond Rules Apply,” no
regulations or published rulings under Section 1286 of the Code have been
issued
and uncertainty exists as to how it will be applied to securities like the
Grantor Trust Strip Certificates. Accordingly, it is suggested that holders
of
Grantor Trust Strip Certificates consult their own tax advisors concerning
the
method to be used in reporting income or loss with respect to the
certificates.
The
OID
Regulations do not apply to stripped coupons, although they provide general
guidance as to how the original issue discount sections of the Code will
be
applied. In addition, the discussion below is subject to the discussion under
“—Application of Contingent Payment Rules” and assumes that the holder of a
Grantor Trust Strip Certificate will not own any Grantor Trust Fractional
Interest Certificates.
Under
the
stripped coupon rules, it appears that original issue discount will be required
to be accrued in each month on the Grantor Trust Strip Certificates based
on a
constant yield method. In effect, each holder of Grantor Trust Strip
Certificates would include as interest income in each month an amount equal
to
the product of the holder’s adjusted basis in the Grantor Trust Strip
Certificate at the beginning of that month and the yield of the Grantor Trust
Strip Certificate to the holder. The yield would be calculated based on the
price paid for that Grantor Trust Strip Certificate by its holder and the
payments remaining to be made thereon at the time of the purchase, plus an
allocable portion of the servicing fees and expenses to be paid with respect
to
the mortgage loans. See “Characterization of Investments in Grantor Trust
Certificates—Stripped Bond Rules Apply” above.
As
noted,
Section 1272(a)(6) of the Code requires that a Prepayment Assumption be used
in
computing the accrual of original issue discount with respect to some categories
of debt instruments, and that adjustments be made in the amount and rate
of
accrual of the discount when prepayments do not conform to the Prepayment
Assumption. To the extent the Grantor Trust Strip Certificates represent
an
interest in any pool of debt instruments the yield on which may be affected
by
reason of prepayments, those provisions apply to Grantor Trust Strip
Certificates. It is unclear whether those provisions would be applicable
to the
Grantor Trust Strip Certificates that do not represent an interest in any
such
pool, or whether use of a Prepayment Assumption may be required or permitted
in
the absence of these provisions. It is also uncertain, if a Prepayment
Assumption is used, whether the assumed prepayment rate would be determined
based on conditions at the time of the first sale of the Grantor Trust Strip
Certificate or, with respect to any subsequent holder, at the time of purchase
of the Grantor Trust Strip Certificate by that holder.
The
accrual of income on the Grantor Trust Strip Certificates will be significantly
slower if a Prepayment Assumption is permitted to be made than if yield is
computed assuming no prepayments. It currently is intended to base information
returns or reports to the IRS and certificateholders on the Prepayment
Assumption disclosed in the related prospectus supplement and on a constant
yield computed using a representative initial offering price for each class
of
certificates. However, none of the depositor, the master servicer or the
trustee
will make any representation that the mortgage loans will in fact prepay
at a
rate conforming to the Prepayment Assumption or at any other rate and
certificateholders should bear in mind that the use of a representative initial
offering price will mean that the information returns or reports, even if
otherwise accepted as accurate by the IRS, will in any event be accurate
only as
to the initial certificateholders of each series who bought at that price.
Prospective purchasers of the Grantor Trust Strip Certificates should consult
their own tax advisors regarding the use of the Prepayment
Assumption.
It
is
unclear under what circumstances, if any, the prepayment of a mortgage loan
will
give rise to a loss to the holder of a Grantor Trust Strip Certificate. If
a
Grantor Trust Strip Certificate is treated as a single instrument rather
than an
interest in discrete mortgage loans and the effect of prepayments is taken
into
account in computing yield with respect to the Grantor Trust Strip Certificate,
it appears that no loss may be available as a result of any particular
prepayment unless prepayments occur at a rate faster than the Prepayment
Assumption. However, if a Grantor Trust Strip Certificate is treated as an
interest in discrete mortgage loans, or if the Prepayment Assumption is not
used, then, when a mortgage loan is prepaid, the holder of a Grantor Trust
Strip
Certificate should be able to recognize a loss equal to the portion of the
adjusted issue price of the Grantor Trust Strip Certificate that is allocable
to
the mortgage loan.
Possible
Application of Contingent Payment Rules.
The
coupon stripping rules’ general treatment of stripped coupons is to regard them
as newly issued debt instruments in the hands of each purchaser. To the extent
that payments on the Grantor Trust Strip Certificates would cease if the
mortgage loans were prepaid in full, the Grantor Trust Strip Certificates
could
be considered to be debt instruments providing for contingent payments. Under
the OID Regulations, debt instruments providing for contingent payments are
not
subject to the same rules as debt instruments providing for noncontingent
payments. Regulations were promulgated on June 14, 1996, regarding contingent
payment debt instruments, the “Contingent Payment Regulations”, but it appears
that Grantor Trust Strip Certificates, to the extent subject to Section
1272(a)(6) of the Code as described above, or due to their similarity to
other
mortgage-backed securities, such as REMIC regular interests and debt instruments
subject to Section 1272(a)(6) of the Code, that are expressly excepted from
the
application of the Contingent Payment Regulations, are or may be excepted
from
these regulations. Like the OID Regulations, the Contingent Payment Regulations
do not specifically address securities, like the Grantor Trust Strip
Certificates, that are subject to the stripped bond rules of Section 1286
of the
Code.
If
the
contingent payment rules under the Contingent Payment Regulations were to
apply,
the holder of a Grantor Trust Strip Certificate would be required to apply
the
noncontingent bond method. Under the noncontingent bond method, the issuer
of a
Grantor Trust Strip Certificate determines a projected payment schedule on
which
interest will accrue. Holders of Grantor Trust Strip Certificates are bound
by
the issuer’s projected payment schedule. The projected payment schedule consists
of all noncontingent payments and a projected amount for each contingent
payment
based on the projected yield of the Grantor Trust Strip
Certificate.
The
projected amount of each payment is determined so that the projected payment
schedule reflects the projected yield. The projected amount of each payment
must
reasonably reflect the relative expected values of the payments to be received
by the holder of a Grantor Trust Strip Certificate. The projected yield referred
to above is a reasonable rate, not less than the applicable Federal rate
that,
as of the issue date, reflects general market conditions, the credit quality
of
the issuer, and the terms and conditions of the mortgage loans. The holder
of a
Grantor Trust Strip Certificate would be required to include as interest
income
in each month the adjusted issue price of the Grantor Trust Strip Certificate
at
the beginning of the period multiplied by the projected yield, and would
add to,
or subtract from, the income any variation between the payment actually received
in that month and the payment originally projected to be made in that
month.
Assuming
that a Prepayment Assumption were used, if the Contingent Payment Regulations
or
their principles were applied to Grantor Trust Strip Certificates, the amount
of
income reported with respect thereto would be substantially similar to that
described under “Taxation of Owners of Grantor Trust Strip Certificates.”
Certificateholders should consult their tax advisors concerning the possible
application of the contingent payment rules to the Grantor Trust Strip
Certificates.
Sales
of Grantor Trust Certificates.
Any
gain or loss equal to the difference between the amount realized on the sale
or
exchange of a Grantor Trust Certificate and its adjusted basis recognized
on the
sale or exchange of a Grantor Trust Certificate by an investor who holds
the
Grantor Trust Certificate as a capital asset will be capital gain or loss,
except to the extent of accrued and unrecognized market discount, which will
be
treated as ordinary income, and, in the case of banks and other financial
institutions, except as provided under Section 582(c) of the Code. The adjusted
basis of a Grantor Trust Certificate generally will equal its cost, increased
by
any income reported by the seller, including original issue discount and
market
discount income, and reduced, but not below zero, by any previously reported
losses, any amortized premium and by any distributions with respect to the
Grantor Trust Certificate.
Gain
or
loss from the sale of a Grantor Trust Certificate may be partially or wholly
ordinary and not capital in some circumstances. Gain attributable to accrued
and
unrecognized market discount will be treated as ordinary income, as will
gain or
loss recognized by banks and other financial institutions subject to Section
582(c) of the Code. Furthermore, a portion of any gain that might otherwise
be
capital gain may be treated as ordinary income to the extent that the Grantor
Trust Certificate is held as part of a conversion transaction within the
meaning
of Section 1258 of the Code. A conversion transaction generally is one in
which
the taxpayer has taken two or more positions in the same or similar property
that reduce or eliminate market risk, if substantially all of the taxpayer’s
return is attributable to the time value of the taxpayer’s net investment in the
transaction. The amount of gain realized in a conversion transaction that
is
recharacterized as ordinary income generally will not exceed the amount of
interest that would have accrued on the taxpayer’s net investment at 120% of the
appropriate applicable Federal rate at the time the taxpayer enters into
the
conversion transaction, subject to appropriate reduction for prior inclusion
of
interest and other ordinary income items from the transaction. Finally, a
taxpayer may elect to have net capital gain taxed at ordinary income rates
rather than capital gains rates in order to include the net capital gain
in
total net investment income for that taxable year, for purposes of the rule
that
limits the deduction of interest on indebtedness incurred to purchase or
carry
property held for investment to a taxpayer’s net investment income.
Grantor
Trust Reporting.
The
master servicer or the trustee will furnish to each holder of a Grantor Trust
Fractional Interest Certificate with each distribution a statement setting
forth
the amount of the distribution allocable to principal on the underlying mortgage
loans and to interest thereon at the related pass-through rate. In addition,
the
master servicer or the trustee will furnish, within a reasonable time after
the
end of each calendar year, to each holder of a Grantor Trust Certificate
who was
a holder at any time during that year, information regarding the amount of
any
servicing compensation received by the master servicer and subservicer and
any
other customary factual information as the master servicer or the trustee
deems
necessary or desirable to enable holders of Grantor Trust Certificates to
prepare their tax returns and will furnish comparable information to the
IRS as
and when required by law to do so. Because the rules for accruing discount
and
amortizing premium with respect to the Grantor Trust Certificates are uncertain
in various respects, there is no assurance the IRS will agree with the trust
fund’s information reports of these items of income and expense. Moreover, these
information reports, even if otherwise accepted as accurate by the IRS, will
in
any event be accurate only as to the initial certificateholders that bought
their certificates at the representative initial offering price used in
preparing the reports.
Except
as
disclosed in the related prospectus supplement, the responsibility for complying
with the foregoing reporting rules will be borne by the master servicer or
the
trustee.
Backup
Withholding.
In
general, the rules described in “—REMICs—Backup Withholding with Respect to
REMIC Certificates” will also apply to Grantor Trust Certificates.
Foreign
Investors.
In
general, the discussion with respect to REMIC Regular Certificates in
“REMICS—Foreign Investors in REMIC Certificates” applies to Grantor Trust
Certificates except that Grantor Trust Certificates will, except as disclosed
in
the related prospectus supplement, be eligible for exemption from U.S.
withholding tax, subject to the conditions described in the discussion, only
to
the extent the related mortgage loans were originated after July 18, 1984
and
only to the extent such mortgage loans have not been converted to real
property.
To
the
extent that interest on a Grantor Trust Certificate would be exempt under
Sections 871(h)(1) and 881(c) of the Code from United States withholding
tax,
and the Grantor Trust Certificate is not held in connection with a
certificateholder’s trade or business in the United States, the Grantor Trust
Certificate will not be subject to United States estate taxes in the estate
of a
non- resident alien individual.
Partnership
Trust Funds
Classification
of Partnership Trust Funds.
With
respect to each series of Partnership Certificates, Thacher Proffitt & Wood
LLP, counsel to the depositor, will provide its opinion that the trust fund
will
not be a taxable mortgage pool or an association, or publicly traded
partnership, taxable as a corporation for federal income tax purposes. This
opinion will be based on the assumption that the terms of the related pooling
and servicing agreement and related documents will be complied with, and
on
Thacher Proffitt & Wood LLP’s conclusions that the nature of the income of
the trust fund will exempt it from the rule that certain publicly traded
partnerships are taxable as corporations.
If
the
trust fund were taxable as a corporation for federal income tax purposes,
the
trust fund would be subject to corporate income tax on its taxable income.
The
trust fund’s taxable income would include all its income on the related mortgage
loans, possibly reduced by its interest expense on any outstanding debt
securities. Any corporate income tax could materially reduce cash available
to
make distributions on the Partnership Certificates and certificateholders
could
be liable for any tax that is unpaid by the trust fund.
Characterization
of Investments in Partnership Certificates. For federal income tax
purposes,
(1)
Partnership
Certificates held by a thrift institution taxed as a domestic building
and
loan association will not constitute “loans ... secured by an interest in
real property” within the meaning of Code Section
7701(a)(19)(C)(v);
(2)
Partnership
Certificates held by a real estate investment trust will constitute
real
estate assets within the meaning of Code Section 856(c)(5)(B) and
interest
on Partnership Certificates will be treated as “interest on obligations
secured by mortgages on real property or on interests in real property”
within the meaning of Code Section 856(c)(3)(B), based on the real
estate
investments trust’s proportionate interest in the assets of the
Partnership Trust Fund based on capital accounts;
and
(3)
Partnership
Certificates held by a regulated investment company will not constitute
Government securities within the meaning of Code Section
851(b)(3)(A)(i).
Taxation
of Owners of Partnership Certificates
Treatment
of the Partnership Trust Fund as a Partnership.
If
specified in the prospectus supplement, the depositor will agree, and the
certificateholders will agree by their purchase of Certificates, to treat
the
Partnership Trust Fund as a partnership for purposes of federal and state
income
tax, franchise tax and any other tax measured in whole or in part by income,
with the assets of the partnership being the assets held by the Partnership
Trust Fund, the partners of the partnership being the certificateholders,
including the depositor. However, the proper characterization of the arrangement
involving the Partnership Trust Fund, the Partnership Certificates and the
depositor is not clear, because there is no authority on transactions closely
comparable to that contemplated in the prospectus.
A
variety
of alternative characterizations are possible. For example, because one or
more
of the classes of Partnership Certificates have certain features characteristic
of debt, the Partnership Certificates might be considered debt of the depositor
or the Partnership Trust Fund. Any alternative characterization would not
result
in materially adverse tax consequences to Certificateholders as compared
to the
consequences from treatment of the Partnership Certificates as equity in
a
partnership. The following discussion assumes that the Partnership Certificates
represent equity interests in a partnership.
Partnership
Taxation.
As a
partnership, the Partnership Trust Fund will not be subject to federal income
tax. Rather, each Certificateholder will be required to separately take into
account the holder’s allocated share of income, gains, losses, deductions and
credits of the Partnership Trust Fund. It is anticipated that the Partnership
Trust Fund’s income will consist primarily of interest earned on the mortgage
loans, including appropriate adjustments for market discount, original issue
discount and bond premium, as described above under “—Grantor Trust
Funds—Taxation of Owners of Grantor Trust Fractional Interest Certificates—If
Stripped Bond Ruled Do Not Apply—”, “—Market Discount” and “—Premium”, and any
gain upon collection or disposition of mortgage loans. The Partnership Trust
Fund’s deductions will consist primarily of interest accruing with respect to
any outstanding debt securities, servicing and other fees, and losses or
deductions upon collection or disposition of any outstanding debt
securities.
The
tax
items of a partnership are allocable to the partners in accordance with the
Code, Treasury regulations and the partnership agreement, which will include
a
pooling and servicing agreement and related documents. The pooling and servicing
agreement will provide, in general, that the Certificateholders will be
allocated taxable income of the Partnership Trust Fund for each due period
equal
to the sum of (1) the interest that accrues on the Partnership Certificates
in
accordance with their terms for the due period, including interest accruing
at
the applicable pass-through rate for the due period and interest on amounts
previously due on the Partnership Certificates but not yet distributed; (2)
any
Partnership Trust Fund income attributable to discount on the mortgage loans
that corresponds to any excess of the principal amount of the Partnership
Certificates over their initial issue price; and (3) any other amounts of
income
payable to the certificateholders for the due period. The allocation will
be
reduced by any amortization by the Partnership Trust Fund of premium on mortgage
loans that corresponds to any excess of the issue price of Partnership
Certificates over their principal amount. All remaining taxable income of
the
Partnership Trust Fund will be allocated to the depositor. Based on the economic
arrangement of the parties, this approach for allocating Partnership Trust
Fund
income should be permissible under applicable Treasury regulations, although
no
assurance can be given that the IRS would not require a greater amount of
income
to be allocated to certificateholders. Moreover, even under that method of
allocation, certificateholders may be allocated income equal to the entire
pass-through rate plus the other items described under that method even though
the Trust Fund might not have sufficient cash to make current cash distributions
of these amounts. Thus, cash basis holders will in effect be required to
report
income from the Partnership Certificates on the accrual basis and
certificateholders may become liable for taxes on Partnership Trust Fund
income
even if they have not received cash from the Partnership Trust Fund to pay
these
taxes.
All
of
the taxable income allocated to a certificateholder that is a pension, profit
sharing or employee benefit plan or other tax-exempt entity, including an
individual retirement account, will constitute unrelated business taxable
income
generally taxable to that holder under the Code.
A
share
of expenses of the Partnership Trust Fund, including fees of the master servicer
but not interest expense, allocable to an individual, estate or trust
certificateholder would be miscellaneous itemized deductions subject to the
limitations described above under “—Grantor Trust Funds—Taxation of Owners of
Grantor Trust Fractional Interest Certificates.” Accordingly, deductions for
these expenses might be disallowed to the individual in whole or in part
and
might result in that holder being taxed on an amount of income that exceeds
the
amount of cash actually distributed to the holder over the life of the
Partnership Trust Fund.
Discount
income or premium amortization with respect to each mortgage loan would be
calculated in a manner similar to the description under “—Grantor Trust
Funds—Taxation of Owners of Grantor Trust Fractional Interest Certificates - If
Stripped Bond Rules Do Not Apply.” Notwithstanding this description, it is
intended that the Partnership Trust Fund will make all tax calculations relating
to income and allocations to certificateholders on an aggregate basis for
all
mortgage loans held by the Partnership Trust Fund rather than on a mortgage
loan-by-mortgage loan basis. If the IRS were to require that these calculations
be made separately for each mortgage loan, the Partnership Trust Fund might
be
required to incur additional expense, but it is believed that there would
not be
a material adverse effect on certificateholders.
Discount
And Premium.
Unless
indicated otherwise in the applicable prospectus supplement, it is not
anticipated that the mortgage loans will have been issued with original issue
discount and, therefore, the Partnership Trust Fund should not have original
issue discount income. However, the purchase price paid by the Partnership
Trust
Fund for the mortgage loans may be greater or less than the remaining principal
balance of the mortgage loans at the time of purchase. If so, the mortgage
loans
will have been acquired at a premium or discount, as the case may be. As
stated
in the previous paragraph, the Partnership Trust Fund intends to make any
calculation of original issue discount on an aggregate basis, but might be
required to recompute it on a mortgage loan-by-mortgage loan basis. See
“—Grantor Trust Funds—Taxation of Owners of Grantor Trust Fractional Interest
Certificates—Market Discount” and “Premium.”
If
the
Partnership Trust Fund acquires the mortgage loans at a market discount or
premium, the Partnership Trust Fund will elect to include any discount in
income
currently as it accrues over the life of the mortgage loans or to offset
any
premium against interest income on the mortgage loans. As stated in the second
preceding paragraph, a portion of the market discount income or premium
deduction may be allocated to certificateholders.
Section
708 Termination.
Under
Section 708 of the Code, the Partnership Trust Fund will be deemed to terminate
for federal income tax purposes if 50% or more of the capital and profits
interests in the Partnership Trust Fund are sold or exchanged within a 12-month
period. A 50% or greater transfer would cause a deemed contribution of the
assets of a Partnership Trust Fund, the old partnership, to a new Partnership
Trust Fund, the new partnership, in exchange for interests in the new
partnership. These interests would be deemed distributed to the partners
of the
old partnership in liquidation thereof, which would not constitute a sale
or
exchange.
Disposition
of Certificates.
Generally, capital gain or loss will be recognized on a sale of Partnership
Certificates in an amount equal to the difference between the amount realized
and the seller’s tax basis in the Partnership Certificates sold. A
certificateholder’s tax basis in an Partnership Certificate will generally equal
the holder’s cost increased by the holder’s share of Partnership Trust Fund
income includible in income and decreased by any distributions received with
respect to the Partnership Certificate. In addition, both the tax basis in
the
Partnership Certificates and the amount realized on a sale of an Partnership
Certificate would include the holder’s share of any liabilities of the
Partnership Trust Fund. A holder acquiring Partnership Certificates at different
prices may be required to maintain a single aggregate adjusted tax basis
in such
Partnership Certificates, and, upon sale or other disposition of some of
the
Partnership Certificates, allocate a portion of the aggregate tax basis to
the
Partnership Certificates sold, rather than maintaining a separate tax basis
in
each Partnership Certificate for purposes of computing gain or loss on a
sale of
that Partnership Certificate.
Any
gain
on the sale of an Partnership Certificate attributable to the holder’s share of
unrecognized accrued market discount on the mortgage loans would generally
be
treated as ordinary income to the holder and would give rise to special tax
reporting requirements. The Partnership Trust Fund does not expect to have
any
other assets that would give rise to such special reporting considerations.
Thus, to avoid those special reporting requirements, the Partnership Trust
Fund
will elect to include market discount in income as it accrues.
If
a
certificateholder is required to recognize an aggregate amount of income,
not
including income attributable to disallowed itemized deductions, over the
life
of the Partnership Certificates that exceeds the aggregate cash distributions
with respect thereto, the excess will generally give rise to a capital loss
upon
the retirement of the Partnership Certificates.
Allocations
Between Transferors and Transferees.
In
general, the Partnership Trust Fund’s taxable income and losses will be
determined each due period and the tax items for a particular due period
will be
apportioned among the certificateholders in proportion to the principal amount
of Partnership Certificates owned by them as of the close of the last day
of
such due period. As a result, a holder purchasing Partnership Certificates
may
be allocated tax items which will affect its tax liability and tax basis
attributable to periods before the actual transaction.
The
use
of a due period convention may not be permitted by existing regulations.
If a
due period convention is not allowed or only applies to transfers of less
than
all of the partner’s interest, taxable income or losses of the Partnership Trust
Fund might be reallocated among the certificateholders. The depositor will
be
authorized to revise the Partnership Trust Fund’s method of allocation between
transferors and transferees to conform to a method permitted by future
regulations.
Section
731 Distributions.
In the
case of any distribution to a certificateholder, no gain will be recognized
to
that certificateholder to the extent that the amount of any money distributed
with respect to the Partnership Certificate exceeds the adjusted basis of
the
certificateholder’s interest in the Partnership Certificate. To the extent that
the amount of money distributed exceeds the certificateholder’s adjusted basis,
gain will be currently recognized. In the case of any distribution to a
certificateholder, no loss will be recognized except upon a distribution
in
liquidation of a certificateholder’s interest. Any gain or loss recognized by a
certificateholder will be capital gain or loss.
Section
754 Election.
In the
event that a certificateholder sells its Partnership Certificates at a profit,
the purchasing certificateholder will have a higher basis in the Partnership
Certificates than the selling certificateholder had. An opposite result will
follow if the Partnership Certificate is sold at a loss. The tax basis of
the
Partnership Trust Fund’s assets would not be adjusted to reflect that higher or
lower basis unless the Partnership Trust Fund were to file an election under
Section 754 of the Code. In order to avoid the administrative complexities
that
would be involved in keeping accurate accounting records, as well as potentially
onerous information reporting requirements, the Partnership Trust Fund will
not
make such election. As a result, a certificateholder might be allocated a
greater or lesser amount of Partnership Trust Fund income than would be
appropriate based on their own purchase price for Partnership
Certificates.
Administrative
Matters.
The
trustee is required to keep or have kept complete and accurate books of the
Partnership Trust Fund. Such books will be maintained for financial reporting
and tax purposes on an accrual basis and the fiscal year of the Partnership
Trust Fund will be the calendar year. The trustee will file a partnership
information return, IRS Form 1065, with the IRS for each taxable year of
the
Partnership Trust Fund and will report each certificateholder’s allocable share
of items of Partnership Trust Fund income and expense to holders and the
IRS on
Schedule K-1. The trustee will provide the Schedule K-1 information to nominees
that fail to provide the Partnership Trust Fund with the information statement
described below and the nominees will be required to forward this information
to
the beneficial owners of the Partnership Certificates. Generally, holders
must
file tax returns that are consistent with the information return filed by
the
Partnership Trust Fund or be subject to penalties unless the holder notifies
the
IRS of all such inconsistencies.
Under
Section 6031 of the Code, any person that holds Partnership Certificates
as a
nominee at any time during a calendar year is required to furnish the
Partnership Trust Fund with a statement containing information on the nominee,
the beneficial owners and the Partnership Certificates so held. Such information
includes (1) the name, address and taxpayer identification number of the
nominee
and (2) as to each beneficial owner (x) the name, address and identification
number of that person, (y) whether that person is a United States Person,
a
tax-exempt entity or a foreign government, an international organization,
or any
wholly-owned agency or instrumentality of either of the foregoing, and (z)
information relating to Partnership Certificates that were held, bought or
sold
on behalf of that person throughout the year. In addition, brokers and financial
institutions that hold Partnership Certificates through a nominee are required
to furnish directly to the trustee information as to themselves and their
ownership of Partnership Certificates. A clearing agency registered under
Section 17A of the Exchange Act is not required to furnish any information
statement to the Partnership Trust Fund. The information referred to above
for
any calendar year must be furnished to the Partnership Trust Fund on or before
the following January 31. Nominees, brokers and financial institutions that
fail
to provide the Partnership Trust Fund with the information described above
may
be subject to penalties.
The
depositor will be designated as the tax matters partner in the pooling and
servicing agreement and will be responsible for representing the
certificateholders in any dispute with the IRS. The Code provides for
administrative examination of a partnership as if the partnership were a
separate and distinct taxpayer. Generally, the statute of limitations for
partnership items does not expire until three years after the date on which
the
partnership information return is filed. Any adverse determination following
an
audit of the return of the Partnership Trust Fund by the appropriate taxing
authorities could result in an adjustment of the returns of the
certificateholders, and a certificateholder may be precluded from separately
litigating a proposed adjustment to the items of the Partnership Trust Fund.
An
adjustment could also result in an audit of a certificateholder’s returns and
adjustments of items not related to the income and losses of the Partnership
Trust Fund.
Tax
Consequences to Foreign Certificateholders.
It is
not clear whether the Partnership Trust Fund would be considered to be engaged
in a trade or business in the United States for purposes of federal withholding
taxes with respect to non-United States Persons, because there is no clear
authority dealing with that issue under facts substantially similar to those
in
this case. Although it is not expected that the Partnership Trust Fund would
be
engaged in a trade or business in the United States for these purposes, unless
the trustee was to receive an opinion of counsel that the Partnership Trust
Fund
was not so engaged, it is possible the trustee may withhold as if it were
so
engaged in order to protect the Partnership Trust Fund from possible adverse
consequences of a failure to withhold. If so, the trustee would withhold
on the
portion of its taxable income that is allocable to foreign certificateholders
pursuant to Section 1446 of the Code, at a rate of 35% for foreign holders
that
are taxable as corporations and 39.6% for all other foreign holders. Amounts
so
withheld would be deemed distributed to the foreign certificateholders.
Subsequent adoption of Treasury regulations or the issuance of other
administrative pronouncements may require the Partnership Trust Fund to change
its withholding procedures. In determining a holder’s withholding status, the
Partnership Trust Fund may rely on IRS Form W-8BEN, IRS Form W-9 or the holder’s
certification of nonforeign status signed under penalties of
perjury.
Each
foreign holder might be required to file a U.S. individual or corporate income
tax return, including, in the case of a corporation, the branch profits tax,
on
its share of the Partnership Trust Fund’s income. Each foreign holder must
obtain a taxpayer identification number from the IRS and submit that number
to
the Partnership Trust Fund on Form W-8BEN in order to assure appropriate
crediting of the taxes withheld. A foreign holder generally would be entitled
to
file with the IRS a claim for refund with respect to taxes withheld by the
Partnership Trust Fund, taking the position that no taxes were due because
the
Partnership Trust Fund was not engaged in a U.S. trade or business. However,
interest payments made or accrued to a certificateholder who is a foreign
person
generally will be considered guaranteed payments to the extent such payments
are
determined without regard to the income of the Partnership Trust Fund. If
these
interest payments are properly characterized as guaranteed payments, then
the
interest will not be considered portfolio interest. As a result,
certificateholders who are foreign persons will be subject to United States
federal income tax and withholding tax at a rate of 30 percent, unless reduced
or eliminated pursuant to an applicable treaty. In that event, a foreign
holder
would only be entitled to claim a refund for that portion of the taxes in
excess
of the taxes that should be withheld with respect to the guaranteed
payments.
Backup
Withholding.
Distributions made on the Partnership Certificates and proceeds from the
sale of
the Partnership Certificates will be subject to a backup withholding tax
of 31%
if the certificateholder fails to comply with certain identification procedures,
unless the holder is an exempt recipient under applicable provisions of the
Code.
It
is
suggested that prospective purchasers consult their tax advisors with respect
to
the tax consequences to them of the purchase, ownership and disposition of
REMIC
Certificates, Notes, Grantor Trust Certificates and Partnership Certificates,
including the tax consequences under state, local, foreign and other tax
laws
and the possible effects of changes in federal or other tax laws.
STATE
AND OTHER TAX CONSEQUENCES
In
addition to the federal income tax consequences described in “Federal Income Tax
Consequences”, potential investors should consider the state and local tax
consequences of the acquisition, ownership, and disposition of the securities
offered hereunder. State tax law may differ substantially from the corresponding
federal tax law, and the discussion described under “Federal Income Tax
Consequences” does not purport to describe any aspect of the tax laws of any
state or other jurisdiction. Therefore, prospective investors should consult
their own tax advisors with respect to the various tax consequences of
investments in the securities offered hereunder.
CONSIDERATIONS
FOR BENEFIT PLAN INVESTORS
Investors
Affected
A
federal
law called the Employee Retirement Income Security Act of 1974, as amended,
the
Code and a variety of state laws may affect your decision whether to invest
in
the securities if you are investing for:
·
a
pension or other employee benefit plan of employers in the private
sector
that are regulated under ERISA, referred to as an ERISA
plan,
·
an
individual retirement account or annuity, called an IRA, or a pension
or
other benefit plan for self-employed individuals, called a Keogh
plan,
·
a
pension and other benefit plan for the employees of state and local
governments, called a government plan,
or
·
an
insurance company general or separate account, a bank collective
investment fund or other pooled investment vehicle which includes
the
assets of ERISA plans, IRAs, Keogh plans, and/or government
plans.
A
summary
of the effects of those laws follows.
Fiduciary
Standards for ERISA Plans and Related Investment Vehicles
ERISA
imposes standards of fiduciary conduct on those who are responsible for
operating ERISA plans or investing their assets. These standards include
requirements that fiduciaries act prudently in making investment decisions
and
diversify investments so as to avoid large losses unless under the circumstances
it is clearly prudent not to do so. If you are a fiduciary of an ERISA plan,
you
are subject to these standards in deciding whether to invest the plan’s assets
in securities. You may find the full text of the applicable standards of
fiduciary conduct in section 404 of ERISA. If you are a fiduciary of an ERISA
Plan, you should consult with your advisors concerning your investment decision
in the context of section 404 of ERISA.
Prohibited
Transaction Issues for ERISA Plans, Keogh Plans, IRAs and Related Investment
Vehicles
General.
Transactions involving the assets of an ERISA plan, a Keogh plan or an IRA,
called prohibited transactions, may result in the imposition of excise taxes
and, in the case of an ERISA plan, civil money penalties and certain other
extraordinary remedies. A prohibited transaction occurs when a person with
a
pre-existing relationship to an ERISA plan, a Keogh plan or IRA, known as
a
party in interest or a disqualified person, engages in a transaction involving
the assets of the plan or IRA. You may find the laws applicable to prohibited
transactions in section 406 of ERISA and section 4975 of the Code. There
are
statutory and regulatory prohibited transaction exemptions, as well as
administrative exemptions granted by the United States Department of Labor.
Prohibited transactions exemptions waive the excise taxes, civil money penalties
and other remedies for certain prohibited transactions which are structured
to
satisfy prescribed conditions.
Purchase
and Sale of Securities.
If an
ERISA plan, a Keogh plan, an IRA or a related investment vehicle acquires
securities from, or sells securities to, a party in interest or a disqualified
person, a prohibited transaction may occur. In such a case, the party in
interest or disqualified person might be liable for excise taxes unless a
prohibited transaction exemption is available. Where a prohibited transaction
involves an ERISA plan or related investment vehicle, the fiduciary who causes
or permits the prohibited transaction may also be liable for civil money
penalties.
Transactions
Incidental to the Operation of the Trust.
Transactions involving the assets of a trust may also give rise to prohibited
transactions to the extent that an investment in securities causes the assets
of
a trust to be considered assets, commonly known as plan assets, of an ERISA
plan, a Keogh plan, an IRA or a related investment vehicle. Whether an
investment in securities will cause a trust’s assets to be treated as plan
assets depends on whether the securities are debt or equity investments for
purposes of ERISA. The United States Department of Labor has issued regulations,
commonly known as the plan asset regulations, which define debt and equity
investments. The plan asset regulations appear at 29 C.F.R.
ss.2510.3-101.
Under
the
plan asset regulations, a trust’s assets will not be plan assets of an ERISA
plan, Keogh plan, IRA or related investment vehicle that purchases securities
if
the securities are considered debt. For this purpose, the securities will
be
debt only if they are treated as indebtedness under applicable local law
and do
not have any substantial equity features. The term substantial equity features
has no definition under the plan asset regulations. In the absence of such
a
definition, we cannot assure you that the securities, either when they are
issued or at any later date, will have no substantial equity features. The
prospectus supplement for a particular offering of securities may tell you
whether we believe the securities should be treated as debt for ERISA
purposes.
To
the
extent that the securities do not constitute debt for purposes of ERISA,
they
will constitute equity investments. In this case, an ERISA plan, Keogh plan,
IRA
or related investment vehicle that acquires securities would also acquire
an
undivided interest in each asset of the trust unless (1) the trust is an
operating company or a venture capital operating company as defined in the
plan
asset regulations, (2) the securities are publicly offered securities as
defined
in the plan asset regulations or (3) benefit plan investors as defined in
the
plan asset regulations do not own 25% or more of the securities or any other
class of equity security issued by the trust. If the securities may be treated
as an equity investment under the plan asset regulations, the prospectus
supplement may tell you whether we believe any of these exceptions will
apply.
Possible
Exemptive Relief
The
United States Department of Labor has issued prohibited transaction exemptions,
which conditionally waive excise taxes and civil money penalties that might
otherwise apply to a type of transactions.
Class
Exemptions.
The
United States Department of Labor has issued Prohibited Transaction Class
Exemptions, or PTCEs, which provide exemptive relief to parties to any
transaction which satisfies the conditions of the exemption. A partial listing
of the PTCEs which may be available for investments in securities follows.
Each
of these exemptions is available only if specified conditions are satisfied
and
may provide relief for some, but not all, of the prohibited transactions
that a
particular transaction may cause. The prospectus supplement for a particular
offering of securities may tell you whether the securities themselves satisfy
the conditions of these exemptions. You should consult with your advisors
regarding the specific scope, terms and conditions of an exemption as it
applies
to you, as an investor, before relying on that exemption’s
availability.
Class
Exemptions for Purchases and Sales of Securities.
The
following exemptions may apply to a purchase or sale of securities between
an
ERISA plan, a Keogh plan, an IRA or related investment vehicle, on the one
hand,
and a party in interest or disqualified person, on the other hand:
·
PTCE
84-14, which exempts certain transactions approved on behalf of
the plan
by a qualified professional asset manager, or
QPAM.
·
PTCE
86-128, which exempts certain transactions between a plan and certain
broker-dealers.
·
PTCE
90-1, which exempts certain transactions entered into by insurance
company
pooled separate accounts in which plans have made
investments.
·
PTCE
91-38, which exempts certain transactions entered into by bank
collective
investment funds in which plans have made
investments.
·
PTCE
96-23, which exempts certain transaction approved on behalf of
a plan by
an in-house investment manager, or
INHAM.
These
exemptions do not expressly address prohibited transactions that might result
from transactions incidental to the operation of a trust. We cannot assure
you
that a purchase or sale of securities in reliance on one of these exemptions
will not give rise to indirect, non-exempt prohibited transactions.
Class
Exemptions for Purchases and Sales of Securities and Transactions Incidental
to
the Operation of the Trust.
The
following exemptions may apply to a purchase or sale of securities between
an
ERISA plan, a Keogh plan, an IRA or related investment vehicle, on the one
hand,
and a party in interest or disqualified person, on the other hand, and may
also
apply to prohibited transactions that may result from transactions incident
to
the operation of the trust:
·
PTCE
95-60, which exempts certain transactions involving insurance company
general accounts.
·
PTCE
83-1, which exempts certain transactions involving the purchase
of pass-
through certificates in mortgage pool investment trusts from, and
the sale
of such certificates to, the pool sponsor, as well as transactions
in
connection with the servicing and operation of the
pool.
Administrative
Exemption for Offerings Managed by Certain Underwriters.
The DOL
has also issued exemptions to several underwriters of securities, for specific
offerings in which that underwriter or any person directly or indirectly,
through one or more intermediaries, controlling, controlled by or under common
control with that underwriter is an underwriter, placement agent or a manager
or
co-manager of the underwriting syndicate or selling group where the trust
and
the offered certificates meet specified conditions. Each of these are called
an
Underwriters’ Exemption. Amendments to each of the Underwriters’ Exemptions may
be found at 62 Fed. Reg. 39021 (July 21, 1997), PTE 2002-58 at 65 Fed. Reg.
67765 (November 13, 2000) and PTE 2002-41 at 67 Fed. Reg. 54487. The
Underwriters’ Exemptions, as amended, provides a partial exemption for
transactions involving certificates representing a beneficial interest in
a
trust and entitling the holder to pass-through payments of principal, interest
and/or other payments with respect to the trust’s assets or a debt instrument
issued by the trust. These certificates and debt instruments are referred
to in
this prospectus as “Securities.” When applicable, the Underwriters’ Exemptions
applies to the initial purchase, holding and subsequent resale of Securities,
and certain transactions incidental to the servicing and operation of the
assets
of such a trust.
In
order
for the Underwriters’ Exemptions to be available to a purchase of securities,
the trust’s assets must consist solely of certain types of assets, including
obligations that bear interest or are purchased at a discount and which are
secured by single-family residential, multi-family residential and commercial
property (including certain obligations secured by leasehold interests on
commercial property); fractional undivided interests in any of these
obligations; property which had secured any of these obligations; undistributed
cash; rights under any insurance policies, third-party guarantees, contracts
of
suretyship, certain interest rate cap and swap payments and yield maintenance
agreements as described below; other credit support arrangements with respect
to
any of these obligations; and a pre-funding account.
Conditions
for Pre-Funding Accounts.
If the
trust includes a pre-funding account, the following conditions also
apply:
·
The
ratio of the amount allocated to the pre-funding account to the
total
principal amount of the securities being offered must be less than
or
equal to 25%.
·
All
additional obligations transferred to the trust after the closing
date of
the offering of securities must meet the same terms and conditions
of
eligibility for inclusion in the trust as the obligations placed
in the
trust at or prior to the closing date, and these terms and conditions
must
have been approved by Standard & Poor’s Rating Services, Inc., Moody’s
Investors Service, Inc. or Fitch Ratings, called the Exemption
Rating
Agencies. These terms and conditions may be changed if the changes
receive
prior approval of either an Exemption Rating Agency or a majority
vote of
outstanding certificateholders.
·
After
the transfer of additional obligations to the trust, the securities
must
have a credit rating from one of the Exemption Rating Agencies
at least a
high as the rating assigned at the time of the initial issuance
of the
securities.
·
The
use of pre-funding does not, in and of itself, cause a reduction
of 100
basis points or more in the weighted average annual percentage
interest
rate of all of the obligations included in the trust between the
time of
initial issuance of the securities and the end of the pre-funding
period.
·
Either
the characteristics of the obligations added to the trust during
the pre-
funding period must be monitored by an independent insurer or other
independent credit support provider, or an independent accountant
must
furnish a letter, prepared using the same type of procedures as
were
applicable to the obligations which were transferred to the trust
as of
the closing date of the initial offering of securities, stating
whether or
not the characteristics of the additional obligations conform to
the
characteristics described in the prospectus or prospectus
supplement.
·
The
pre-funding period must end no later than three months, or 90 days
if
later, after the closing date of the initial issuance of securities,
or
earlier in certain circumstances if the unused balance in the pre-funding
account falls below a specified minimum level or an event of default
occurs.
·
Amounts
transferred to any pre-funding account and/or capitalized interest
account
used in connection with the pre-funding may be invested only in
investments which are described in the pooling and servicing agreement,
are permitted by the Exemption Rating Agencies rating the securities
and
have been rated, or the obligor has been rated, in one of the three
highest generic rating categories by one of the Exemption Rating
Agencies
or else are either direct obligations of, or obligations fully
guaranteed
as to timely payment of principal and interest by, the United States
or
any agency or instrumentality thereof, provided that such obligations
are
backed by the full faith and credit of the United
States.
·
The
prospectus or prospectus supplement must describe the duration
of the pre-
funding period.
·
The
trustee, or any agent with which the trustee contracts to provide
trust
services, must be a substantial financial institution or trust
company
experienced in trust activities and familiar with its duties,
responsibilities and liabilities with ERISA and the trustee, as
legal
owner of the assets of the trust, must enforce all the rights created
in
favor of Securityholders of the trust, including ERISA
plans.
Additional
Conditions for the Underwriters’ Exemption.
If the
requirements applicable to the trust and pre-funding account are met, the
Underwriters’ Exemption will apply to a particular transaction only if the
transaction meets the following additional conditions:
·
The
acquisition of securities by an ERISA Plan, a Keogh Plan, an IRA
or a
related investment vehicle is on terms, including price, that are
at least
as favorable to the buyer as they would be in an arm’s-length transaction
with an unrelated party.
·
The
rights and interests evidenced by the securities acquired by the
ERISA
Plan, Keogh Plan, IRA or related investment vehicle are not subordinated
to the rights and interests evidenced by other securities of the
same
trust unless none of the mortgage loans or other assets has a
loan-to-value ratio that exceeds 100% as of the date of the issuance
of
the securities.
·
The
securities acquired by the ERISA Plan, Keogh Plan, IRA or related
investment vehicle have received a rating that is in one of four
highest
generic rating categories from the Exemption Rating Agencies. The
securities must be rated in one of the two highest generic categories
by
the Exemption Rating Agencies if the loan-to-value ratio of any
one-to-four-family residential mortgage loan or home equity loan
held in
the trust exceeds 100% at the date of issuance of the securities.
However,
in that case the Underwriters’ Exemptions will not apply (a) to any of the
securities if (x) any mortgage loan or other asset held in the
trust
(other than a one- to four-family residential mortgage loan or
home equity
loan) has a loan-to-value ratio that exceeds 100% at the date of
issuance
of the securities or (y) any one- to four-family residential mortgage
loan
or home equity loan has a loan-to-value ratio that exceeds 125%
at the
date of the issuance of the securities or (b) to any subordinate
securities.
·
The
trustee of the trust is not an affiliate of the trust sponsor,
any
servicer, any underwriter, any insurer, any swap counterparty or
any
obligor with respect to obligations or receivables constituting
more than
5% of the aggregate unamortized principal balance of the assets
in the
trust, determined on the date of initial issuance of securities,
or any
affiliate of any of these entities.
·
The
sum of all payments made to and retained by the underwriter(s)
or selling
agents must represent not more than reasonable compensation for
underwriting the securities; the sum of all payments made to and
retained
by the sponsor pursuant to the assignment of the assets to the
trust must
represent not more than the fair market value of such obligations;
and the
sum of all payments made to and retained by all servicers must
represent
not more than reasonable compensation for such persons’ services and
reimbursement of such person’s reasonable expenses in connection with such
services.
·
The
investing ERISA plan, Keogh plan, IRA or related investment vehicle
must
be an accredited investor as defined in Rule 501(a)(1) of Regulation
D of
the Commission under the Securities Act of 1933, as
amended.
·
In
the case of certain types of issuers, the pooling and servicing
agreement
contains restrictions necessary to ensure that the assets of the
trust may
not be reached by creditors of the depositor in the event of its
bankruptcy or insolvency and prohibits all parties from filing
an
involuntary bankruptcy or insolvency petition against the trust,
and a
true sale opinion is issued in connection with the transfer of
assets to
the trust.
Swaps
and Caps.
In
addition, the Underwriters’ Exemptions permit interest-rate swaps, interest rate
caps and yield supplement agreements to be assets of a trust fund if certain
conditions are satisfied.
An
interest-rate swap or (if purchased by or on behalf of the trust) an
interest-rate cap contract (collectively, a “Swap” or “Swap Agreement”) is a
permitted trust fund asset if it: (a) is an “eligible Swap;” (b) is with an
“eligible counterparty;” (c) is purchased by a “qualified plan investor;” (d)
meets certain additional specific conditions which depend on whether the
Swap is
a “ratings dependent Swap” or a “non-ratings dependent Swap” and (e) permits the
trust to make termination payments to the Swap counterparty (other than
currently scheduled payments) solely from excess spread or amounts otherwise
payable to the servicer, depositor or seller.
An
“eligible Swap” is one which: (a) is denominated in U.S. dollars; (b) pursuant
to which the trust pays or receives, on or immediately prior to the respective
payment or distribution date for the class of securities to which the Swap
relates, a fixed rate of interest or a floating rate of interest based on
a
publicly available index (e.g., LIBOR or the U.S. Federal Reserve’s Cost of
Funds Index (COFI)), with the trust receiving such payments on at least a
quarterly basis and obligated to make separate payments no more frequently
than
the counterparty, with all simultaneous payments being netted (“Allowable
Interest Rate”); (c) has a notional amount that does not exceed either: (i) the
principal balance of the class of securities to which the Swap relates, or
(ii)
the portion of the principal balance of such class represented by obligations
(“Allowable Notional Amount”); (d) is not leveraged (i.e., payments are based on
the applicable notional amount, the day count fractions, the fixed or floating
rates permitted above, and the difference between the products thereof,
calculated on a one-to-one ratio and not on a multiplier of such difference)
(“Leveraged”); (e) has a final termination date that is either the earlier of
the date on which the issuer terminates or the related class of securities
are
fully repaid and (f) does not incorporate any provision which could cause
a
unilateral alteration in the interest rate requirements described above or
the
prohibition against leveraging.
An
“eligible counterparty” means a bank or other financial institution which has a
rating at the date of issuance of the securities, which is in one of the
three
highest long term credit rating categories or one of the two highest short
term
credit rating categories, utilized by at least one of the Rating Agencies
rating
the securities; provided that, if a counterparty is relying on its short
term
rating to establish eligibility hereunder, such counterparty must either
have a
long term rating in one of the three highest long term rating categories
or not
have a long term rating from the applicable Rating Agency.
A
“qualified plan investor” is a plan where the decision to buy such class of
securities is made on behalf of the plan by an independent fiduciary qualified
to understand the Swap transaction and the effect the Swap would have on
the
rating of the securities and such fiduciary is either (a) a “qualified
professional asset manager” (“QPAM”) under PTCE 84-14, (b) an “in-house asset
manager” under PTCE 96-23 or (c) has total assets (both plan and non-plan) under
management of at least $100 million at the time the securities are acquired
by
the plan.
In
“ratings dependent Swaps” (where the rating of a class of securities is
dependent on the terms and conditions of the Swap), the Swap Agreement must
provide that if the credit rating of the counterparty is withdrawn or reduced
by
any Rating Agency below a level specified by the Rating Agency, the servicer
must, within the period specified under the Pooling and Servicing Agreement:
(a)
obtain a replacement Swap Agreement with an eligible counterparty which is
acceptable to the Rating Agency and the terms of which are substantially
the
same as the current Swap Agreement (at which time the earlier Swap Agreement
must terminate); or (b) cause the Swap counterparty to establish any
collateralization or other arrangement satisfactory to the Rating Agency
such
that the then current rating by the Rating Agency of the particular class
of
securities will not be withdrawn or reduced (and the terms of the Swap Agreement
must specifically obligate the counterparty to perform these duties for any
class of securities with a term of more than one year). In the event that
the
servicer fails to meet these obligations, holders of the securities that
are
employee benefit plans or other retirement arrangements must be notified
in the
immediately following periodic report which is provided to the holders of
the
securities but in no event later than the end of the second month beginning
after the date of such failure. Sixty days after the receipt of such report,
the
exemptive relief provided under the Underwriter’s Exemption will prospectively
cease to be applicable to any class of securities held by an employee benefit
plan or other retirement arrangement which involves such ratings dependent
Swaps.
“Non-ratings
dependent Swaps” (those where the rating of the securities does not depend on
the terms and conditions of the Swap) are subject to the following conditions.
If the credit rating of the counterparty is withdrawn or reduced below the
lowest level permitted above, the servicer will, within a specified period
after
such rating withdrawal or reduction: (a) obtain a replacement Swap Agreement
with an eligible counterparty, the terms of which are substantially the same
as
the current Swap Agreement (at which time the earlier Swap Agreement must
terminate); (b) cause the counterparty to post collateral with the trust
in an
amount equal to all payments owed by the counterparty if the Swap transaction
were terminated; or (c) terminate the Swap Agreement in accordance with its
terms.
An
“eligible yield supplement agreement” is any yield supplement agreement or
similar arrangement or (if purchased by or on behalf of the trust) an interest
rate cap contract to supplement the interest rates otherwise payable on
obligations held by the trust fund (“EYS Agreement”). If the EYS Agreement has a
notional principal amount and/or is written on an International Swaps and
Derivatives Association, Inc. (ISDA) form, the EYS Agreement may only be
held as
an asset of the trust fund if it meets the following conditions: (a) it is
denominated in U.S. dollars; (b) it pays an Allowable Interest Rate; (c)
it is
not Leveraged; (d) it does not allow any of these three preceding requirements
to be unilaterally altered without the consent of the trustee; (e) it is
entered
into between the trust and an eligible counterparty and (f) it has an Allowable
Notional Amount.
Limits
on Scope of the Underwriters’ Exemptions.
The
Underwriters’ Exemptions will not provide complete exemptive relief even where a
trust satisfies all of the conditions applicable to the trust and all of
the
general conditions are met. It does not provide relief for the purchase of
securities from, or the sale of securities to, a party in interest or
disqualified person where the party in interest or disqualified person is
a
fiduciary of the purchaser or seller in which the fiduciary receives
consideration for its personal account from any party other than the purchaser
or the seller.
The
Underwriters’ Exemptions also will not provide exemptive relief for the purchase
and holding of securities by a fiduciary on behalf of a plan sponsored by
the
trust’s sponsor, the trustee, any insurer, any servicer, any obligor with
respect to obligations or receivables included in the trust constituting
more
than 5% of the aggregate unamortized principal balance of the assets in the
trust, determined on the date of initial issuance of the securities, and
any
affiliate of any of these entities. The Underwriters’ Exemptions generally
provides exemptive relief in other cases for the purchase of securities from,
or
the sale of securities to, a party in interest or disqualified person where
the
party in interest or disqualified person is a fiduciary of the purchaser
or
seller and is also an obligor with respect to 5% or less of the fair market
value of obligations or receivables contained in the trust or an affiliate
only
when the following additional conditions are met:
·
The
purchaser or seller is not an ERISA plan, an IRA or a Keogh plan
that is
sponsored by an underwriter or selling agent, a trust’s sponsor, the
trustee, any insurer, any servicer or any obligor with respect
to
obligations or receivables included in the trust constituting more
than 5%
of the aggregate unamortized principal balance of the assets in
the trust,
determined on the date of initial issuance of the securities, or
any
affiliate of any of these entities.
·
Solely
in the case of initial issuance of securities, at least 50% of
each class
of securities issued by the trust is acquired by persons independent
of
the underwriters or selling agents, the trust’s sponsor, the trustee, any
insurer, any servicer, any obligor with respect to obligations
or
receivables included in the trust constituting more than 5% of
the
aggregate unamortized principal balance of the assets in the trust,
determined on the date of initial issuance of the securities, and
any
affiliate of any of these entities.
·
The
purchaser’s investment in each class of securities issued by the trust
does not exceed 25% of all of the securities in such class outstanding
at
the time of the issuance.
·
Immediately
after the acquisition, no more than 25% of the purchaser’s assets are
invested in securities issued by trusts containing assets sold
or serviced
by an entity that has discretionary authority over the purchaser
or
renders investment advice to the purchaser for a
fee.
The
Underwriters’ Exemptions provide relief for transactions in connection with the
servicing, operation and management of a trust only if:
·
The
transactions are carried out in accordance with the terms of a
binding
pooling and servicing agreement.
·
The
pooling and servicing agreement is provided to, or fully described
in the
prospectus or offering memorandum provided to, investing ERISA
plans,
Keogh plans, IRAs and related investment vehicles before they purchase
securities issued by the trust.
Statutory
Exemption for Insurance Company General Accounts.
Insurance companies contemplating the investment of general account assets
in
the securities should consult with their legal advisors with respect to the
applicability of Section 401(c) of ERISA. The DOL issued final regulations
under
Section 401(c) which were published in the Federal Register on January 5,2000,
but these final regulations are generally not applicable until July 5,2001.
Consultation
with Counsel
There
can
be no assurance that any DOL exemption will apply with respect to any particular
Plan that acquires the securities or, even if all the conditions specified
therein were satisfied, that any such exemption would apply to transactions
involving the trust fund. Prospective Plan investors should consult with
their
legal counsel concerning the impact of ERISA and the Code and the potential
consequences to their specific circumstances prior to making an investment
in
the securities. Neither the Depositor, the Trustee, the Servicer nor any
of
their respective affiliates will make any representation to the effect that
the
securities satisfy all legal requirements with respect to the investment
therein
by Plans generally or any particular Plan or to the effect that the securities
are an appropriate investment for Plans generally or any particular
Plan.
Government
Plans
Government
plans are generally not subject to the fiduciary standards of ERISA or the
prohibited transaction rules of ERISA or the Code. However, many states have
enacted laws which established standards of fiduciary conduct, legal investment
rules, or other requirements for investment transactions involving the assets
of
government plans. If you are considering investing in securities on behalf
of a
government plan, you should consult with your advisors regarding the
requirements of applicable state law.
Required
Deemed Representations of Investors
If
so
provided in the prospectus supplement for a series, a purchaser of the one
or
more classes of the related securities may be required to represent or may
be
deemed to have represented that either (a) it is not an ERISA Plan, an IRA
or a
Keogh Plan and is not purchasing such securities by or on behalf of or with
plan
assets of an ERISA Plan, an IRA or a Keogh Plan or (b) the purchase of any
such
securities by or on behalf of or with plan assets of an ERISA Plan, an IRA
or a
Keogh Plan is permissible under applicable law, will not result in any
non-exempt prohibited transaction under ERISA or Section 4975 of the Code
and
will not subject the Servicer, the Depositor or the Trustee to any obligation
in
addition to those undertaken in the related Agreement. A fiduciary of a Plan
or
any person investing plan assets to purchase securities must make its own
determination that the conditions for purchase will be satisfied with respect
to
such securities.
THIS
DISCUSSION IS A GENERAL DISCUSSION OF SOME OF THE RULES WHICH APPLY TO ERISA
PLANS, KEOGH PLANS, IRAS, GOVERNMENT PLANS AND THEIR RELATED INVESTMENT
VEHICLES. PRIOR TO MAKING AN INVESTMENT IN SECURITIES, PROSPECTIVE PLAN
INVESTORS SHOULD CONSULT WITH THEIR LEGAL AND OTHER ADVISORS CONCERNING THE
IMPACT OF ERISA AND THE CODE AND, PARTICULARLY IN THE CASE OF GOVERNMENT
PLANS
AND RELATED INVESTMENT VEHICLES, ANY ADDITIONAL STATE LAW CONSIDERATIONS,
AND
THE POTENTIAL CONSEQUENCES IN THEIR SPECIFIC
CIRCUMSTANCES.
LEGAL
INVESTMENT
The
prospectus supplement for each series of securities will specify which classes
of securities of the series, if any, will constitute mortgage related securities
for purposes of the Secondary Mortgage Market Enhancement Act of 1984. Any
class
of securities that is not rated in one of the two highest rating categories
by
one or more nationally recognized statistical rating agencies or that represents
an interest in a trust fund that includes junior mortgage loans will not
constitute mortgage related securities for purposes of SMMEA Mortgage related
securities are legal investments to the same extent that, under applicable
law,
obligations issued by or guaranteed as to principal and interest by the United
States or any agency or instrumentality thereof constitute legal investments
for
persons, trusts, corporations, partnerships, associations, business trusts
and
business entities, including depository institutions, insurance companies
and
pension funds created pursuant to or existing under the laws of the United
States or of any state, the authorized investments of which are subject to
state
regulation. Under SMMEA, if a state enacted legislation prior to October
3, 1991
specifically limiting the legal investment authority of any entities with
respect to mortgage related securities, the securities would constitute legal
investments for entities subject to that legislation only to the extent provided
in that legislation. SMMEA provides, however, that in no event will the
enactment of any legislation of this kind affect the validity of any contractual
commitment to purchase, hold or invest in mortgage related securities, or
require the sale or other disposition of such securities, so long as that
contractual commitment was made or the securities were acquired prior to
the
enactment of that legislation.
SMMEA
also amended the legal investment authority of federally chartered depository
institutions as follows: federal savings and loan associations and federal
savings banks may invest in, sell or otherwise deal with mortgage related
securities without limitation as to the percentage of their assets represented
thereby, federal credit unions may invest in those securities, and national
banks may purchase those securities for their own account without regard
to the
limitations generally applicable to investment securities set forth in 12
U.S.C.
24 (Seventh), subject in each case to regulations as the applicable federal
regulatory authority may prescribe.
On
April23, 1998, the Federal Financial Institutions Examination Council issued a
revised supervisory policy statement applicable to all depository institutions,
setting forth guidelines for investments in high-risk mortgage securities.
The
1998 policy statement has been adopted by the Federal Reserve Board, the
Office
of the Comptroller of the Currency, the FDIC, the National Credit Union
Administration and the Office of Thrift Supervision with an effective date
of
May 26, 1998. The 1998 policy statement rescinds a 1992 policy statement
that
had required, prior to purchase, a depository institution to determine whether
a
mortgage derivative product that it is considering acquiring is high-risk,
and,
if so, that the proposed acquisition would reduce the institution’s overall
interest rate risk. The 1998 policy statement eliminates former constraints
on
investing in certain high-risk mortgage derivative products and substitutes
broader guidelines for evaluating and monitoring investment risk.
The
Office of Thrift Supervision (the “OTS”) has issued Thrift Bulletins 73a,
entitled “Investing in Complex Securities” (“TB 73a”), which is effective as of
December 18, 2001 and applies to savings associations regulated by the OTS,
and
13a, entitled “Management of Interest Rate Risk, Investment Securities, and
Derivatives Activities” (“TB 13a”), which is effective as of December 1, 1998,
and applies to thrift institutions regulated by the OTS.
One
of
the primary purposes of TB 73a is to require savings associations, prior
to
taking any investment position, to determine that the investment position
meets
applicable regulatory and policy requirements (including those set forth
TB 13a
(see below)) and internal guidelines, is suitable for the institution, and
is
safe and sound. OTS recommends, with respect to purchases of specific
securities, additional analysis, including, among others, analysis of repayment
terms, legal structure, expected performance of the issuer and any underlying
assets as well as analysis of the effects of payment priority, with respect
to a
security which is divided into separate tranches with unequal payments, and
collateral investment parameters, with respect to a security that is prefunded
or involves a revolving period. TB 73a reiterates OTS’s due diligence
requirements for investing in all securities and warns that if a savings
association makes an investment that does not meet the applicable regulatory
requirements, the savings association’s investment practices will be subject to
criticism, and OTS may require divestiture of such securities. OTS also
recommends, with respect to an investment in any “complex securities,” that
savings associations should take into account quality and suitability, interest
rate risk, and classification factors. For the purposes of each of TB 73a
and TB
13a, “complex security” includes among other things any collateralized mortgage
obligation or real estate mortgage investment conduit security, other than
any
“plain vanilla” asset-backed pass-through security (that is, securities that are
part of a single class of securities in the related pool that are non-callable
and do not have any special features). Accordingly, all Classes of the Offered
Certificates would likely be viewed as “complex securities.” With respect to
quality and suitability factors, TB 73a warns (i) that a savings association’s
sole reliance on outside ratings for material purchases of complex securities
is
an unsafe and unsound practice, (ii) that a savings association should only
use
ratings and analyses from nationally recognized rating agencies in conjunction
with, and in validation of, its own underwriting processes, and (iii) that
it
should not use ratings as a substitute for its own thorough underwriting
analyses. With respect the interest rate risk factor, TB 73a recommends that
savings associations should follow the guidance set forth in TB 13a. With
respect to collateralized loan or bond obligations, TB 73a also requires
that
the savings associations meet similar requirements with respect to the
underlying collateral, and warns that investments that are not fully rated
as to
both principal and interest do not meet OTS regulatory
requirements.
One
of
the primary purposes of TB 13a is to require thrift institutions, prior to
taking any investment position, to (i) conduct a pre-purchase portfolio
sensitivity analysis for any “significant transaction” involving securities or
financial derivatives, and (ii) conduct a pre-purchase price sensitivity
analysis of any “complex security” or financial derivative. The OTS recommends
that while a thrift institution should conduct its own in-house pre-acquisition
analysis, it may rely on an analysis conducted by an independent third-party
as
long as management understands the analysis and its key assumptions. Further,
TB
13a recommends that the use of “complex securities with high price sensitivity”
be limited to transactions and strategies that lower a thrift institution’s
portfolio interest rate risk. TB 13a warns that investment in complex securities
by thrift institutions that do not have adequate risk measurement, monitoring
and control systems may be viewed by OTS examiners as an unsafe and unsound
practice.
Prospective
investors in the securities, including in particular the classes of securities
that do not constitute mortgage related securities for purposes of SMMEA
should
consider the matters discussed in the following paragraph.
There
may
be other restrictions on the ability of certain investors, including depository
institutions, either to purchase securities or to purchase securities
representing more than a specified percentage of the investor’s assets.
Investors
should consult their own legal advisors in determining whether and to what
extent the securities constitute legal investments for those investors or
are
subject to investment, capital or other restrictions, and, if applicable,
whether SMMEA has been overridden in any jurisdiction relevant to that
investor.
METHODS
OF DISTRIBUTION
The
securities offered hereby and by the related prospectus supplements will
be
offered in series through one or more of the methods described in the paragraph
below. The prospectus supplement prepared for each series will describe the
method of offering being utilized for that series and will state the net
proceeds to the depositor from the sale.
The
depositor intends that securities will be offered through the following methods
from time to time and that offerings may be made concurrently through more
than
one of these methods or that an offering of the securities of a particular
series may be made through a combination of two or more of these methods.
These
methods are as follows:
1.
By
negotiated firm commitment or best efforts underwriting and public
re-offering by underwriters;
2.
By
placements by the depositor with institutional investors through
dealers;
and
3.
By
direct placements by the depositor with institutional
investors.
If
underwriters are used in a sale of any securities, other than in connection
with
an underwriting on a best efforts basis, the securities will be acquired
by the
underwriters for their own account and may be resold from time to time in
one or
more transactions, including negotiated transactions, at fixed public offering
prices or at varying prices to be determined at the time of sale or at the
time
of commitment therefor. The underwriters may be broker-dealers affiliated
with
the depositor whose identities and relationships to the depositor will be
as set
forth in the related prospectus supplement. The managing underwriter or
underwriters with respect to the offer and sale of the securities of a
particular series will be set forth on the cover of the prospectus supplement
relating to the series and the members of the underwriting syndicate, if
any,
will be named in the prospectus supplement.
In
connection with the sale of the securities offered, underwriters may receive
compensation from the depositor or from purchasers of such securities in
the
form of discounts, concessions or commissions. Underwriters and dealers
participating in the distribution of the securities may be deemed to be
underwriters in connection with the securities, and any discounts or commissions
received by them from the depositor and any profit on the resale of offered
securities by them may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended.
It
is
anticipated that the underwriting agreement pertaining to the sale of offered
securities of any series will provide that the obligations of the underwriters
will be subject to conditions precedent, that the underwriters will be obligated
to purchase all the securities if any are purchased, other than in connection
with an underwriting on a best efforts basis, and that, in limited
circumstances, the depositor will indemnify the several underwriters and
the
underwriters will indemnify the depositor against certain civil liabilities,
including liabilities under the Securities Act of 1933 or will contribute
to
payments required to be made in respect thereof.
The
prospectus supplement with respect to any series offered by placements through
dealers will contain information regarding the nature of the offering and
any
agreements to be entered into between the depositor and purchasers of offered
securities of the series.
The
depositor anticipates that the securities offered hereby will be sold primarily
to institutional investors or sophisticated non-institutional investors.
Purchasers of offered securities, including dealers, may, depending on the
facts
and circumstances of such purchases, be deemed to be underwriters within
the
meaning of the Securities Act of 1933 in connection with reoffers and sales
by
them of the offered securities. Holders of offered securities should consult
with their legal advisors in this regard prior to any reoffer or
sale.
LEGAL
MATTERS
Certain
legal matters in connection with the securities will be passed upon for the
depositor by Thacher Proffitt & Wood LLP, New York, New York.
FINANCIAL
INFORMATION
The
depositor has determined that its financial statements are not material to
the
offering made hereby. Any prospective purchaser that desires to review financial
information concerning the depositor will be provided by the depositor on
request with a copy of the most recent financial statements of the
depositor.
RATING
It
is a
condition to the issuance of any class of securities that they shall have
been
rated not lower than investment grade, that is, in one of the four highest
rating categories, by at least one nationally recognized statistical rating
organization.
Any
ratings on the securities address the likelihood of receipt by the holders
thereof of all collections on the underlying mortgage assets to which such
holders are entitled. These ratings address the structural, legal and
issuer-related aspects associated with the securities, the nature of the
underlying mortgage assets and the credit quality of the guarantor, if any.
The
ratings do not represent any assessment of the likelihood of principal
prepayments by borrowers or of the degree by which prepayments might differ
from
those originally anticipated. As a result, securityholders might suffer a
lower
than anticipated yield, and, in addition, holders of Strip Securities in
extreme
cases might fail to recoup their initial investments.
AVAILABLE
INFORMATION
The
depositor is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Securities and Exchange Commission. Reports and other
information filed by the depositor can be inspected and copied at the public
reference facility maintained by the Commission at its Public Reference Section,
100 F Street, N.W., Washington, D.C. 20549. Copies of this material can also
be
obtained from the Public Reference Section of the Commission, 100 F Street,
N.W., Washington, D.C. 20549, at prescribed rates and electronically through
the
Commission’s Electronic Data Gathering, Analysis and Retrieval System at the
Commission’s Web site (http:\\www.sec.gov). The depositor does not intend to
send any financial reports to securityholders.
Any
Form
10-D, Form 10-K or Form 8-K filed on behalf of the issuing entity will be
signed
by the depositor.
This
prospectus does not contain all of the information set forth in the registration
statement, of which this prospectus forms a part, and exhibits thereto which
the
depositor has filed with the Commission under the securities Act of 1933
and to
which reference is hereby made.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
There
are
incorporated into this prospectus by reference all documents and reports
filed
or caused to be filed by the depositor with respect to a trust fund under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
prior
to the termination of the offering of securities offered hereby evidencing
interest in a trust fund. Finalized agreements, including the exhibits to
these
agreements, will be filed by Form 8-K and incorporated by reference into
the
registration statement. The depositor will provide or cause to be provided
without charge to each person to whom this prospectus is delivered in connection
with the offering of one or more classes of securities offered hereby, a
copy of
any or all documents or reports incorporated herein by reference, in each
case
to the extent those documents or reports relate to one or more of the classes
of
those offered securities, other than the exhibits to those documents (unless
the
exhibits are specifically incorporated by reference in the documents). Requests
to the depositor should be directed in writing to its principal executive
office
at 1100 Town & Country Road, Orange, California92868, Attention: Secretary,
or by telephone at (714) 541-9960. The depositor has determined that its
financial statements are not material to the offering of any securities offered
hereby.
GLOSSARY
Accrual
Securities:
A class
of securities as to which accrued interest or a portion thereof will not
be
distributed but rather will be added to the principal balance of the security
on
each distribution date in the manner described in the related prospectus
supplement.
Applicable
Federal Rate:
A rate
based on the average of current yields on Treasury securities, which rate
is
computed and published monthly by the IRS.
ARM
Loan:
A
mortgage loan with an interest rate that adjusts periodically, with a
corresponding adjustment in the amount of the monthly payment, to equal the
sum
of a fixed percentage amount and an index.
BIF:
Bank
Insurance Fund. The fund that provides deposit insurance for commercial banks
and is administered by the Federal Deposit Insurance Corporation
(FDIC).
Call
Class:
The
holder of a non-offered class of securities that has the right, at its
discretion, to terminate the related trust fund on and effect early retirement
of the securities of such series in the manner described under “Description of
the Securities—Termination” in this prospectus.
CERCLA:
The
Comprehensive Environmental Response, Compensation and Liability Act, as
amended.
Clean-up
Call:
The
right of the party entitled to effect a termination of a trust fund upon
the
aggregate principal balance of the outstanding trust fund assets for the
series
at that time being less than the percentage, as specified in the related
prospectus supplement, of the aggregate principal balance of the trust fund
assets at the cut-off date for that series and which percentage will be between
25% and 0%.
Closing
Date:
With
respect to any series of securities, the date on which the securities are
issued.
Code:
The
Internal Revenue Code of 1986, as amended.
Commission:
The
Securities and Exchange Commission.
Committee
Report:
The
conference committee report accompanying the Tax Reform Act of
1986.
CPR:
The
Constant Prepayment Rate model, which assumes that the outstanding principal
balance of a pool of mortgage loans prepays at a specified constant annual
rate.
In generating monthly cash flows, this rate is converted to an equivalent
constant monthly rate.
Crime
Control Act:
The
Comprehensive Crime Control Act of 1984.
DIDMC:
The
Depository Institutions Deregulation and Monetary Control Act of
1980.
DOL:
The
U.S. Department of Labor.
DOL
Regulations:
The
regulations promulgated by the U.S. Department of Labor at 29 C.F.R. ss.2510.
3-101
Due
Period:
The
second day of the month immediately preceding the month in which the
distribution date occurs, or the day after the cut-off date in the case of
the
first Due Period, and ending on the first day of the month of the related
distribution date, unless the prospectus supplement specifies
otherwise.
Equity
Certificates:
Where
the issuer is an owner trust, the certificates evidencing ownership of the
trust
fund.
ERISA
Permitted Investments:
The
types of investments permitted by the rating agencies named in the Underwriter’s
Exemption issued by the DOL in which funds in a pre-funding account may be
invested.
FTC
Rule:
The
“Holder in the Due Course” Rule of the Federal Trade Commission.
Garn-St.
Germain Act:
The
Garn-St. Germain Depositor Institutions Act of 1982.
Grantor
Trust Certificate:
A
certificate representing an interest in a Grantor Trust Fund.
Grantor
Trust Fractional Certificate:
A
Grantor Trust Certificate representing an undivided equitable ownership interest
in the principal of the mortgage loans constituting the related Grantor Trust
Fund, together with interest on the Grantor Trust Certificates at a pass-through
rate.
Grantor
Trust Strip Certificate:
A
certificate representing ownership of all or a portion of the difference
between
interest paid on the mortgage loans constituting the related Grantor Trust
Fund
(net of normal administration fees and any retained interest of the depositor)
and interest paid to the holders of Grantor Trust Fractional Interest
Certificates issued with respect to the Grantor Trust Fund. A Grantor Trust
Strip Certificate may also evidence a nominal ownership interest in the
principal of the mortgage loans constituting the related Grantor Trust
Fund.
Grantor
Trust Fund:
A trust
fund as to which no REMIC election will be made and which qualifies as a
grantor
trust within the meaning of Subpart E, part I, subchapter J of Chapter 1
of the
Code.
High
Cost Loan:
A
mortgage loan subject to the Home Ownership and Equity Protection Act of
1994.
High
LTV Loan:
Mortgage loans with loan-to-value ratios in excess of 80% and as high as
150%
and which are not insured by a primary insurance policy.
Homeownership
Act:
The
Home Ownership and Equity Protection Act of 1994.
Insurance
Proceeds:
Proceeds received with respect to a mortgage loan under any hazard insurance
policy, special insurance policy, primary insurance policy, FHA insurance
policy, VA guarantee, bankruptcy bond or mortgage pool insurance policy,
to the
extent such proceeds are not applied to the restoration of the property or
released to the mortgagor in accordance with normal servicing
procedures.
Liquidated
Loan:
A
defaulted mortgage loan that is finally liquidated, through foreclosure sale
or
otherwise.
Liquidation
Proceeds:
All
amounts, other than Insurance Proceeds, received and retained in connection
with
the liquidation of a defaulted mortgage loan, by foreclosure or
otherwise.
Lockout
Date:
The
date of expiration of the Lockout Period with respect to a mortgage
loan.
Lockout
Period:
The
period specified in a mortgage note during which prepayment of the mortgage
loan
is prohibited.
Mortgage:
The
mortgage, deed of trust or similar instrument securing a mortgage
loan.
NBRC:
The
National Bankruptcy Review Commission.
NCUA:
The
National Credit Union Administration.
Nonrecoverable
Advance:
An
advance made or to be made with respect to a mortgage loan which the master
servicer determines is not ultimately recoverable from Related
Proceeds.
OID
Regulations:
The
rules governing original issue discount that are set forth in Sections 1271-1273
and 1275 of the Code and in the related Treasury regulations.
Partnership
Certificate:
A
certificate representing an interest in a Partnership Trust Fund.
Partnership
Trust Fund:
A trust
fund as to which no REMIC election will be made and which qualifies as a
partnership within the meaning of subchapter K of Chapter 1 of the
Code.
Plans:
Employee pension and welfare benefit plans subject to ERISA and tax-qualified
retirement plans described in Section 401(a) of the Code or Individual
Retirement Accounts described in Section 408 of the Code.
Prepayment
Assumption:
With
respect to a REMIC Regular Certificate or a Grantor Trust Certificate, the
assumption as to the rate of prepayments of the principal balances of mortgage
loans held by the trust fund used in pricing the initial offering of that
security.
Prepayment
Period:
The
calendar month immediately preceding the month in which the distribution
date
occurs, unless the prospectus supplement specifies otherwise.
PTCE:
Prohibited Transaction Class Exemption.
Purchase
Price:
As to
any mortgage loan, an amount equal to the sum of (1) the unpaid principal
balance of the mortgage loan, (2) unpaid accrued interest on the Stated
Principal Balance at the rate at which interest accrues on the mortgage loan,
net of the servicing fee and any retained interest, from the date as to which
interest was last paid to the calendar month in which the relevant purchase
is
to occur, (3) any unpaid servicing fees and unreimbursed servicing expenses
payable or reimbursable to the master servicer with respect to that mortgage
loan, (4) any unpaid retained interest with respect to that mortgage loan,
(5)
any realized losses incurred with respect to that mortgage loan and (6) if
applicable, any expenses reasonably incurred or to be incurred by the master
servicer or the trustee in respect of the breach or defect giving rise to
a
purchase obligation including any costs and damages incurred by the trust
in
connection with any violation by such loan of any predatory or abusive lending
law.
Record
Date:
The
last business day of the month preceding the month in which a distribution
date
occurs, unless the prospectus supplement specifies otherwise.
Related
Proceeds:
Recoveries on a mortgage loan related to amounts which the master servicer
has
previously advanced to the related trust fund.
Relief
Act:
The
Servicemembers Civil Relief Act.
REMIC:
A real
estate mortgage investment conduit as defined in Sections 860A through 860G
of
the Code.
REMIC
Certificates:
Certificates evidencing interests in a trust fund as to which a REMIC election
has been made.
REMIC
Provisions:
Sections 860A through 860G of the Code.
REMIC
Regular Certificate:
A REMIC
Certificate designated as a regular interest in the related REMIC.
REMIC
Residual Certificate:
A REMIC
Certificate designated as a residual interest in the related REMIC.
REMIC
Provisions:
The
REMIC Provisions and the related Treasury regulations.
Retained
Interest:
A
portion of the interest payments on a trust fund asset that may be retained
by
the depositor or any previous owner of the asset.
RICO:
The
Racketeer Influenced and Corrupt Organizations statute.
SAIF:
The
Savings Association Insurance Fund.
Scheduled
Principal Balance:
As to
any mortgage loan or manufactured housing contract, the unpaid principal
balance
thereof as of the date of determination, reduced by the principal portion
of all
monthly payments due but unpaid as of the date of determination.
Senior/Subordinate
Series:
A
series of securities of which one or more classes is senior in right of payment
to one or more other classes to the extent described in the related prospectus
supplement.
Single
Family Properties:
One- to
four-family residential properties including detached and attached dwellings,
townhouses, rowhouses, individual condominium units, individual units in
planned-unit developments and individual units in de
minimis
planned-unit developments.
Special
Hazard Subordination Amount:
The
amount of any Special Hazard Realized Loss that is allocated to the subordinate
securities of a series.
Stated
Principal Balance:
As to
any mortgage loan or manufactured housing contract, the principal balance
of the
mortgage loan or manufactured housing contract as of the cut-off date, after
application of all scheduled principal payments due on or before the cut-off
date, whether or not received, reduced by all amounts, including advances
by the
master servicer, allocable to principal that are distributed to securityholders
on or before the date of determination, and as further reduced to the extent
that any realized loss thereon has been, or had it not been covered by a
form of
credit support, would have been, allocated to one or more classes of securities
on or before the determination date.
Strip
Securities:
A class
of securities which are entitled to (a) principal distributions, with
disproportionate, nominal or no interest distributions, or (b) interest
distributions, with disproportionate, nominal or no principal
distributions.
Stripped
Interest:
The
distributions of interest on a Strip Security with no or a nominal principal
balance.
United
States Person:
A
citizen or resident of the United States; a corporation or partnership,
including an entity treated as a corporation or partnership for federal income
tax purposes, created or organized in, or under the laws of, the United States
or any state thereof or the District of Columbia, except, in the case of
a
partnership, to the extent provided in Treasury regulations; an estate whose
income is subject to United States federal income tax regardless of its source;
or a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust.
To
the extent prescribed in regulations by the Secretary of the Treasury, which
have not yet been issued, a trust which was in existence on August 20, 1996,
other than a trust treated as owned by the grantor under subpart E of part
I of
subchapter J of chapter 1 of the Code, and which was treated as a United
States
person on August 20, 1996 may elect to continue to be treated as a United
States
person notwithstanding the previous sentence.
$1,343,036,000(Approximate)
Argent
Securities Trust 2006-W5
Issuing
Entity
Asset-Backed
Pass-Through Certificates, Series 2006-W5
Argent
Securities Inc.
Depositor
Ameriquest
Mortgage Company
Seller,
Sponsor and Master Servicer
____________________
FREE
WRITING PROSPECTUS
____________________
RBS
Greenwich Capital
Barclays
Capital
Deutsche
Bank Securities
Merrill
Lynch & Co.
You
should rely only on the information contained or incorporated by reference
in
this free writing prospectus and the accompanying prospectus. We have not
authorized anyone to provide you with different information.
We
are
not offering the Asset-Backed Pass-Through Certificates, Series 2006-W5 in
any
state where the offer is not permitted.
We
do not
claim that the information in this free writing prospectus and prospectus is
accurate as of any date other than the dates stated on the respective
covers.