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WaMu Asset Acceptance Corp., et al. – ‘424B5’ on 3/26/07

On:  Monday, 3/26/07, at 3:34pm ET   ·   Accession #:  930413-7-2821   ·   File #s:  333-130795, -57

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

 3/26/07  WaMu Asset Acceptance Corp.       424B5                  1:3.3M                                   Command Financial
          WaMu Mortgage Pass-Through Certificates, Series 2007-OA3

Prospectus   —   Rule 424(b)(5)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B5       Prospectus                                          HTML   2.56M 


Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
5Summary Information
"Transaction Participants
"What You Own
"Information About the Mortgage Pool
6The Certificates
"The Offered Certificates
11The Non-Offered Certificates
12Relationship Between Loan Groups and the Offered Certificates
"Initial Principal Balance of the Certificates
"Last Scheduled Distribution Date
"Distributions on the Certificates
"Monthly Distributions
13Distributions of Interest
15Compensating Interest and Interest Shortfalls
16Distributions of Principal
17Cross-Collateralization
"The Class R Certificates
"Credit Enhancements
"Allocation of Losses
18Optional Termination
"Yield Considerations
"Book-Entry Registration
19Denominations
"Legal Investment
"ERISA Considerations
"Federal Income Tax Consequences
"Ratings
21Risk Factors
36The Sponsor
"General
"The Sponsor's Origination Channels
37Static Pool Information
"Underwriting of the Mortgage Loans
"Evaluation of the Borrower's Credit Standing
38Evaluation of the Borrower's Repayment Ability
"Evaluation of the Adequacy of the Collateral
"Documentation Programs
39Exceptions to Program Parameters
"Automated Underwriting System
"Quality Control Review
40The Depositor
"The Trust
"Assignment of the Mortgage Loans and Other Assets to the Trust
41Restrictions on Activities of the Trust
"Discretionary Activities With Respect to the Trust
42The Trustees
"The Trustee
"Material Duties of the Trustee
"Events of Default Under the Pooling Agreement
43The Delaware Trustee
"Limitations on the Trustees' Liability
"Resignation and Removal of the Trustees
"The Servicers
44The Servicer
"The Servicer's Servicing Experience
"Servicing Procedures
47Flow of Payments
49The Servicer's Quality Control Procedures
50The Administrative Agent
"The Administrative Agent's Servicing Experience
"Services Performed by the Administrative Agent
51The Administrative Agent's Quality Control Procedures
"The Custodian
52Special Servicing Agreements
"Affiliations and Related Transactions
53Description of the Mortgage Pool
57The Indexes
"Additional Information
58Representations and Warranties Regarding the Mortgage Loans
59Criteria for Selection of Mortgage Loans
60Description of the Certificates
62Definitive Certificates
"Priority of Distributions
66Distributions to the Class CX-PPP Certificates
73Calculation of LIBOR
75Calculation of Index for MTA Certificates
78Group 1 Senior Principal Distribution Amount
"Group 2 Senior Principal Distribution Amount
79Subordinate Principal Distribution Amount
80Principal Prepayments
81Subordination and Allocation of Losses
85Available Distribution Amount
86Amendment of the Pooling Agreement
87Payment of Fees and Expenses
89Reports and Other Information
90Yield and Prepayment Considerations
91Principal Prepayments and Compensating Interest
"LIBOR Certificates
92Rate of Payments
"Prepayment Assumptions
96Lack of Historical Prepayment Data
97Yield Considerations with Respect to the Right of the Class CX-PPP Certificates to Receive Prepayment Penalties
"Yield Considerations with Respect to the Class X Certificates
99Yield Considerations with Respect to the Senior Subordinate Certificates
102Additional Yield Considerations Applicable Solely to the Class R Certificates
"Subordination
"Shifting of Interests
103Material Federal Income Tax Consequences
104Special Tax Considerations Applicable to the Class A and Class B Certificates
105Taxation of the Cap Agreement Portion of the Class CX-PPP Certificates
106Taxation of the Class CX-PPP Component Portion of the Class CX-PPP Certificates
108Special Tax Considerations Applicable to the Residual Certificates
109Certain Legal Investment Aspects
111Method of Distribution
112Legal Matters
"Certificate Ratings
113Appendix A: Decrement Tables
114Appendix B: Mortgage Loan Tables
125Index of Terms
150Additional Risk Factors Applicable to Negative Amortization Loans
153Description of the Trusts
"Description of the Mortgage Assets to be Held By a Trust
160Mortgage Loan Information in Prospectus Supplement
161Description of the Pre-Funding Account for the Purchase of Additional Mortgage Loans
162The Depositor, the Sponsor, the Servicer and Certain Other Transaction Parties
"Use of Proceeds
163Yield and Maturity Considerations
165Maturity and Weighted Average Life
168The Depositor's Mortgage Loan Purchase Program
"Underwriting Standards
169Qualifications of Originators and Mortgage Loan Sellers
170Description of the Securities
171Form of Securities
173Exchangeable Securities
175Assignment of Trust Assets; Review of Files by Trustee
177Representations and Warranties Regarding the Mortgage Loans; Remedies for Breach
179Establishment of Custodial Account; Deposits to Custodial Account In Respect of Trust Assets
182Deposits to Distribution Account
"Distributions on the Securities
184Advances by Servicer in Respect of Delinquencies on the Trust Assets
185Form of Reports to Securityholders
186Collection and Other Servicing Procedures Employed by the Servicer, Manager, Bond Administrator or Certificate Administrator
187Description of Sub-Servicing
188Procedures for Realization Upon Defaulted Mortgage Assets
190Retained Interest; Servicing or Administration Compensation and Payment of Expenses
"Annual Servicing Compliance Reports
191Matters Regarding the Servicer and the Depositor
192Events of Default Under the Governing Agreement and Rights Upon Events of Default
194Amendment of the Governing Agreements
195Termination of the Trust and Disposition of Trust Assets
196Description of the Trustee
"Duties of the Trustee
197Description of Credit Support
198Letter of Credit
200Mortgage Pool Insurance Policy
201Special Hazard Insurance Policy
203Bankruptcy Bond
"Fraud Bond
"Financial Guarantee Insurance
"Reserve Fund
"Overcollateralization
204Cross-Support Features
"Other Financial Obligations Related to the Securities
"Swaps and Yield Supplement Agreements
"Purchase Obligations
205Mandatory Auctions
206Description of Primary Insurance Policies
"Primary Mortgage Insurance Policies
"Primary Hazard Insurance Policies
207FHA Insurance
210VA Guarantees
"Legal Aspects of Mortgage Assets
"Mortgage Loans
211Cooperative Loans
212Foreclosure on Mortgages
213Foreclosure on Mortgaged Properties Located in the Commonwealth of Puerto Rico
214Foreclosure on Cooperative Shares
215Rights of Redemption with Respect to Mortgage Loans
"Anti-Deficiency Legislation and Other Limitations on Lenders
217Junior Mortgages
"Home Equity Line of Credit Loans
"Enforceability of Due-on-Sale Clauses
218Prepayment Charges and Prepayments
"Leases and Rents
"Subordinate Financing
219Applicability of Usury Laws
"Alternative Mortgage Instruments
220Servicemembers Civil Relief Act
"Environmental Legislation
221Forfeitures in Drug and RICO Proceedings
"Negative Amortization Loans
222Opinions
223REMICs
225Taxation of Owners of REMIC Regular Certificates
231Taxation of Owners of REMIC Residual Certificates
236Matters Relevant to Holders of All REMIC Certificates
241Withholding Regulations
"Notes
"Grantor Trusts
249Partnership Trusts
254Tax Return Disclosure and Investor List Requirements
"State and Other Tax Consequences
255Plan Asset Regulation
"Underwriter's and WCC Exemption
258Other Exemptions
259Insurance Company General Accounts
"Representations from Investing Plans
"Tax-Exempt Plan Investors
"Consultation with Counsel
261Methods of Distribution
262Financial Information
263Available Information
"Incorporation of Certain Information by Reference
264Glossary
269Appendix A

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Prospectus Supplement to Prospectus Dated March 22, 2007

WaMu Mortgage Pass-Through Certificates,
Series 2007-OA3

WaMu Asset Acceptance Corp.
Depositor

Washington Mutual Bank
Sponsor and Servicer

$1,053,580,100
(Approximate)

Consider carefully the risk factors beginning on page S-21 in this prospectus supplement and page 5 in the accompanying prospectus.

The certificates will represent interests only in the issuing entity which is WaMu Mortgage Pass-Through Certificates Series 2007-OA3 Trust and will not represent interests in or obligations of Washington Mutual Bank, WaMu Asset Acceptance Corp., Washington Mutual, Inc. or any of their affiliates.

Neither these certificates nor the underlying mortgage loans are guaranteed by any agency or instrumentality of the United States.

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

The WaMu Mortgage Pass-Through Certificates Series 2007-OA3 Trust will issue sixteen classes of offered certificates and three classes of privately placed certificates. Each class of offered certificates will be entitled to receive monthly distributions of interest, principal or both, beginning on April 25, 2007. The certificate interest rate for some classes of offered certificates will be variable, and will be based in part on the one-year MTA index or the one-month LIBOR index, as described in this prospectus supplement. The table on page S-6 of this prospectus supplement contains a list of the classes of offered certificates, including the initial class principal balance, certificate interest rate, and special characteristics of each class.

The primary asset of the Trust will be a pool of first lien single-family residential mortgage loans whose interest rates (after an initial fixed-rate period) adjust monthly and which include a negative amortization feature. The Trust will also contain other assets, which are described on page S-40 of this prospectus supplement.

Offered Certificates

 

 

 

Total principal amount (approximate)

 

$1,053,580,100

First payment date

 

April 25, 2007

Interest and/or principal paid

 

Monthly

Last payment date

 

April 25, 2047

Credit enhancement for the offered certificates is being provided by three classes of privately offered certificates, which have an aggregate principal balance of approximately $14,418,458. Additional credit enhancement for the offered senior certificates is being provided by eleven classes of offered subordinate certificates. Losses otherwise allocable to some senior certificates will instead be allocated to other senior certificates.

The underwriter listed below will offer the offered certificates at varying prices to be determined at the time of sale. The proceeds to WaMu Asset Acceptance Corp. from the sale of the offered certificates will be approximately 100.92% of the principal balance of the offered certificates plus accrued interest, before deducting expenses. The underwriter’s commission will be the difference between the price it pays to WaMu Asset Acceptance Corp. for the offered certificates and the amount it receives from the sale of the offered certificates to the public.

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

Underwriter
WaMu Capital Corp.

March 23, 2007


424B52nd “Page” of 273TOC1stPreviousNextBottomJust 2nd

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

We provide information to you about the offered certificates in two separate documents that progressively provide more detail: (a) the accompanying prospectus, which provides general information, some of which may not apply to your series of certificates, and (b) this prospectus supplement, which describes the specific terms of your series of certificates.

You should be certain to review the information in this prospectus supplement for a description of the specific terms of your certificates.

We include cross-references in this prospectus supplement and the accompanying prospectus to captions in these materials where you can find further related discussions. The following table of contents and the table of contents included in the accompanying prospectus provide the pages on which these captions are located.

You can find a listing of the pages where some of the capitalized terms used in this prospectus supplement and the accompanying prospectus are defined under the caption “Index of Terms” on page S-125 in this prospectus supplement and under the caption “Glossary” beginning on page 138 in the accompanying prospectus. Capitalized terms used in this prospectus supplement and not otherwise defined in this prospectus supplement have the meanings assigned in the accompanying prospectus.

European Economic Area

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), the underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation Date”) it has not made and will not make an offer of certificates to the public in that Relevant Member State prior to the publication of a prospectus in relation to the certificates which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of certificates to the public in that Relevant Member State at any time:

 

(a)

 

 

 

to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

 

(b)

 

 

 

to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than 43,000,000 and (3) an annual net turnover of more than 50,000,000, as shown in its last annual or consolidated accounts; or

 

(c)

 

 

 

in any other circumstances which do not require the publication by the issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer of certificates to the public” in relation to any certificates in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the certificates to be offered so as to enable an investor to decide to purchase or subscribe to the certificates, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

United Kingdom

The underwriter has represented and agreed that:

 

(a)

 

 

 

it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act) received by it in connection with the issue or sale of the certificates in circumstances in which Section 21(1) of the Financial Services and Markets Act does not apply to the issuer; and

 

(b)

 

 

 

it has complied and will comply with all applicable provisions of the Financial Services and Markets Act with respect to anything done by it in relation to the certificates in, from or otherwise involving the United Kingdom.

S-2


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TABLE OF CONTENTS

 

 

 

 

 

Page

SUMMARY INFORMATION

 

S-5

Transaction Participants

 

S-5

What You Own

 

S-5

Information About the Mortgage Pool

 

S-5

The Certificates

 

S-6

The Offered Certificates

 

S-6

The Non-Offered Certificates

 

S-11

Relationship Between Loan Groups and the Offered Certificates

 

S-12

Initial Principal Balance of the Certificates

 

S-12

Last Scheduled Distribution Date

 

S-12

Distributions on the Certificates

 

S-12

Monthly Distributions

 

S-12

Distributions of Interest

 

S-13

Compensating Interest and Interest Shortfalls

 

S-15

Distributions of Principal

 

S-16

Cross-Collateralization

 

S-17

The Class R Certificates

 

S-17

Credit Enhancements

 

S-17

Allocation of Losses

 

S-17

Optional Termination

 

S-18

Yield Considerations

 

S-18

Book-Entry Registration

 

S-18

Denominations

 

S-19

Legal Investment

 

S-19

ERISA Considerations

 

S-19

Federal Income Tax Consequences

 

S-19

Ratings

 

S-19

RISK FACTORS

 

S-21

THE SPONSOR

 

S-36

General

 

S-36

The Sponsor’s Origination Channels

 

S-36

STATIC POOL INFORMATION

 

S-37

UNDERWRITING OF THE MORTGAGE LOANS

 

S-37

General

 

S-37

Evaluation of the Borrower’s Credit Standing

 

S-37

Evaluation of the Borrower’s Repayment Ability

 

S-38

Evaluation of the Adequacy of the Collateral

 

S-38

Documentation Programs

 

S-38

Exceptions to Program Parameters

 

S-39

Automated Underwriting System

 

S-39

Quality Control Review

 

S-39

THE DEPOSITOR

 

S-40

THE TRUST

 

S-40

General

 

S-40

Assignment of the Mortgage Loans and Other Assets to the Trust

 

S-40

Restrictions on Activities of the Trust

 

S-41

Discretionary Activities With Respect to the Trust

 

S-41

THE TRUSTEES

 

S-42

The Trustee

 

S-42

General

 

S-42

Material Duties of the Trustee

 

S-42

Events of Default Under the Pooling Agreement

 

S-42

The Delaware Trustee

 

S-43

Limitations on the Trustees’ Liability

 

S-43

Resignation and Removal of the Trustees

 

S-43

THE SERVICERS

 

S-43

General

 

S-43

The Servicer

 

S-44

The Servicer’s Servicing Experience

 

S-44

Servicing Procedures

 

S-44

Flow of Payments

 

S-47

The Servicer’s Quality Control Procedures

 

S-49

The Administrative Agent

 

S-50

The Administrative Agent’s Servicing Experience

 

S-50

Services Performed by the Administrative Agent

 

S-50

The Administrative Agent’s Quality Control Procedures

 

S-51

The Custodian

 

S-51

Special Servicing Agreements

 

S-52

AFFILIATIONS AND RELATED TRANSACTIONS

 

S-52

DESCRIPTION OF THE MORTGAGE POOL

 

S-53

The Indexes

 

S-57

Additional Information

 

S-57

Representations and Warranties Regarding the Mortgage Loans

 

S-58

Criteria for Selection of Mortgage Loans

 

S-59

DESCRIPTION OF THE CERTIFICATES

 

S-60

General

 

S-60

Book-Entry Registration

 

S-62

Definitive Certificates

 

S-62

Priority of Distributions

 

S-62

Distributions to the Class CX-PPP Certificates

 

S-66

Distributions of Interest

 

S-67

Calculation of LIBOR

 

S-73

Calculation of Index for MTA Certificates

 

S-75

Cross-Collateralization

 

S-75

S-3


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Page

Distributions of Principal

 

S-77

General

 

S-77

Group 1 Senior Principal Distribution Amount

 

S-78

Group 2 Senior Principal Distribution Amount

 

S-78

Subordinate Principal Distribution Amount

 

S-79

Principal Prepayments

 

S-80

Subordination and Allocation of Losses

 

S-81

The Class R Certificates

 

S-84

Available Distribution Amount

 

S-85

Last Scheduled Distribution Date

 

S-86

Optional Termination

 

S-86

Amendment of the Pooling Agreement

 

S-86

Payment of Fees and Expenses

 

S-87

Reports and Other Information

 

S-89

YIELD AND PREPAYMENT CONSIDERATIONS

 

S-90

General

 

S-90

Principal Prepayments and Compensating Interest

 

S-91

LIBOR Certificates

 

S-91

Rate of Payments

 

S-92

Prepayment Assumptions

 

S-92

Lack of Historical Prepayment Data

 

S-96

Yield Considerations with Respect to the Right of the Class CX-PPP Certificates to Receive Prepayment Penalties

 

S-97

Yield Considerations with Respect to the Class X Certificates

 

S-97

Yield Considerations with Respect to the Senior Subordinate Certificates

 

S-99

Additional Yield Considerations Applicable Solely to the Class R Certificates

 

S-102

CREDIT ENHANCEMENTS

 

S-102

Subordination

 

S-102

Shifting of Interests

 

S-102

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

 

S-103

Special Tax Considerations Applicable to the Class A and Class B Certificates

 

S-104

Taxation of the Cap Agreement Portion of the Class CX-PPP Certificates

 

S-105

Taxation of the Class CX-PPP Component Portion of the Class CX-PPP Certificates

 

S-106

Special Tax Considerations Applicable to the Residual Certificates

 

S-108

CERTAIN LEGAL INVESTMENT ASPECTS

 

S-109

ERISA CONSIDERATIONS

 

S-110

METHOD OF DISTRIBUTION

 

S-111

LEGAL MATTERS

 

S-112

CERTIFICATE RATINGS

 

S-112

APPENDIX A: DECREMENT TABLES

 

S-113

APPENDIX B: MORTGAGE LOAN TABLES

 

S-114

INDEX OF TERMS

 

S-125

S-4


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SUMMARY INFORMATION

The following summary highlights selected information from this prospectus supplement. It does not contain all of the information that you need to consider in making your investment decision. To understand the terms of the offered certificates, read carefully this entire prospectus supplement and the accompanying prospectus.

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

TRANSACTION PARTICIPANTS

On March 27, 2007, which is the closing date, the mortgage loans that support the certificates will be sold by Washington Mutual Bank, the sponsor of the securitization transaction, to WaMu Asset Acceptance Corp., the depositor. On the closing date, the depositor will sell the mortgage loans and related assets to the WaMu Mortgage Pass-Through Certificates Series 2007-OA3 Trust. In exchange for the mortgage loans and related assets, the Trust will issue the certificates pursuant to the order of the depositor.

The mortgage loans will be serviced by Washington Mutual Bank, as servicer. Some servicing functions will be performed by Washington Mutual Mortgage Securities Corp., as administrative agent of the servicer. Some servicing functions will be outsourced to third party vendors.

The trustee of the Trust will be LaSalle Bank National Association, and the Delaware trustee will be Christiana Bank & Trust Company. Washington Mutual Bank fsb will have possession of and will review the mortgage notes, mortgages and other legal documents related to the mortgage loans as custodian for the Trust.

WHAT YOU OWN

Your certificates represent interests only in the assets of the issuing entity. All payments to you will come only from the amounts received in connection with those assets.

The Trust owns a pool of mortgage loans and other assets, as described under “The Trust” in this prospectus supplement.

There are no outstanding series or classes of securities that are backed by the assets of the issuing entity or otherwise have claims on the assets of the issuing entity, other than the certificates. The depositor does not expect that any securities representing additional interests in or claims on the assets of the issuing entity will be issued in the future.

Information About the Mortgage Pool

The mortgage pool consists of 1,906 mortgage loans with an aggregate principal balance as of March 1, 2007 of approximately $1,067,998,559. All of the mortgage loans are secured by residential properties (or shares of cooperative apartments) and each has an original term to maturity of not more than 40 years.

After an initial fixed-rate period of one or three months, the interest rate on each mortgage loan will adjust monthly to equal the sum of an index and a margin. As of March 1, 2007, approximately 79.3% of the mortgage loans (by aggregate principal balance) were still in their initial fixed-rate period. The interest rates on the mortgage loans are subject to overall maximum and minimum interest rate limits.

The index for the mortgage loans will be One-Year MTA, the 12-month moving average yield on United States Treasury Securities adjusted to a constant maturity of one year.

While the interest rate on each mortgage loan will adjust monthly (after the initial fixed-rate period), the minimum monthly payment on each mortgage loan generally will adjust only annually. On each annual payment adjustment date, the minimum monthly payment generally will not increase or decrease by more than 7.5%. As a result, the interest due with respect to a mortgage loan for any given month may, under certain circumstances, exceed the monthly payment for that month. In that case, payment of the excess of interest due over the monthly payment will be deferred and that excess will be added to the principal balance of that mortgage loan in the form of “negative amortization.” See “Description of the Mortgage Pool” in this prospectus supplement.

In the event of a material breach of the representations and warranties made by the sponsor or the depositor with respect to the mortgage loans, or in the event that a required loan document is not included in the mortgage files for the mortgage loans, the breaching party will, unless it has cured the breach in all material respects, be required to

S-5


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repurchase the affected mortgage loan or substitute a new mortgage loan for the affected mortgage loan. See “Description of the Mortgage Pool—Representations and Warranties Regarding the Mortgage Loans” in this prospectus supplement.

For a further description of the mortgage loans, see “Description of the Mortgage Pool” and Appendix B in this prospectus supplement.

The mortgage pool consists of the following two loan groups:

 

 

 

 

 

 

 

Loan Group

 

Number of
Mortgage
Loans

 

Approximate
Principal Balance
as of
March 1, 2007

 

Maximum
Years to
Maturity
From
Origination
Date

 

Loan Group 1

 

 

 

749

   

 

$

 

194,639,464

   

 

 

40

 

Loan Group 2

 

 

 

1,157

   

 

$

 

873,359,094

   

 

 

40

 

For purposes of calculating distributions of interest to the Class 2X-1 Certificates, the mortgage loans in loan group 2 will be divided into the following two subgroups:

 

 

 

 

 

 

 

Subgroup

 

Number of
Mortgage
Loans

 

Approximate
Principal Balance
as of
March 1, 2007

 

Maximum
Years to
Maturity
From
Origination
Date

 

Subgroup 2A

 

 

 

100

   

 

$

 

94,334,074

   

 

 

40

 

Subgroup 2B

 

 

 

1,057

   

 

$

 

779,025,021

   

 

 

40

 

Distributions to the Class 2X-1 Certificates of interest will be calculated based on interest accruing on the mortgage loans in subgroup 2A.

The mortgage loans in subgroup 2A are mortgage loans in loan group 2 that do not impose prepayment penalties and have an initial fixed rate period of three months. The mortgage loans in subgroup 2B are mortgage loans in loan group 2 that are not mortgage loans in subgroup 2A.

THE CERTIFICATES

The Offered Certificates

The approximate initial class principal balance, annual certificate interest rate and type of each class of the offered certificates will be as follows:

 

 

 

 

 

 

 

Class

 

Approximate
Initial Class
Principal
Balance

 

Annual
Certificate
Interest Rate

 

Type

 

1A

 

 

$

 

140,139,000

   

 

 

Variable

(1)

 

 

Senior/One-Year MTA

2A

 

 

 

408,000,000

   

 

 

Variable

(2)

 

 

Senior/One-Year MTA

2A-1A

 

 

 

165,000,000

   

 

 

Variable

(3)

 

 

Senior/One-Year MTA

2A-1B

 

 

 

55,817,000

   

 

 

Variable

(4)

 

 

Senior/One-Year MTA/Mezzanine

CA-1B

 

 

 

96,121,000

(5)

 

 

 

 

Variable

(6)

 

 

Senior/LIBOR/Mezzanine

CA-1C

 

 

 

96,121,000

(7)

 

 

 

 

Variable

(8)

 

 

Senior/LIBOR/Mezzanine

CX-PPP

 

 

 

(9)

 

 

 

 

Variable

(10)

 

 

Senior/IO/PO/Prepayment Penalty

2X-1

 

 

 

 

(11)

 

 

 

 

Variable

(12)

 

 

Senior/IO

B-1

 

 

 

18,690,000

   

 

 

Variable

(13)

 

 

Subordinate/LIBOR

B-2

 

 

 

18,690,000

   

 

 

Variable

(14)

 

 

Subordinate/LIBOR

B-3

 

 

 

8,010,000

   

 

 

Variable

(15)

 

 

Subordinate/LIBOR

B-4

 

 

 

26,700,000

   

 

 

Variable

(16)

 

 

Subordinate/LIBOR

B-5

 

 

 

11,214,000

   

 

 

Variable

(17)

 

 

Subordinate/LIBOR

B-6

 

 

 

4,806,000

   

 

 

Variable

(18)

 

 

Subordinate/LIBOR

B-7

 

 

 

4,272,000

   

 

 

Variable

(19)

 

 

Subordinate/LIBOR

R

 

 

 

100

   

 

 

1.591%

   

Senior/Residual

 

(1)

 

 

 

For each distribution date, the annual certificate interest rate on the Class 1A Certificates will equal the lesser of (x) the weighted average of the mortgage interest rates on the mortgage loans in loan group 1 as of the second preceding due date less the per annum rate at which the related servicing fee (as described in “Description of the Certificates—Payment of Fees and Expenses” in this prospectus supplement) is calculated (the “Loan Group 1 Weighted Average Pass-Through Rate”) and (y) One-Year MTA (as described in “Description of the Mortgage Pool—The Indexes” in this prospectus supplement) plus 0.76%. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. In addition, if on the initial distribution date the certificate interest rate on the Class 1A Certificates is equal to the Loan Group 1 Weighted Average Pass-Through Rate, the Class 1A Certificates may be entitled to receive, as interest, carryover shortfall amounts from amounts, if any, otherwise payable to the Class CX-PPP Certificates, as described in this prospectus supplement. The Class 1A Certificates will not be entitled to receive carryover shortfall amounts on any distribution date other than the initial distribution date. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. For the initial distribution date, after giving effect to carryover shortfall payments, if any, the annual certificate interest rate on these certificates will equal approximately 5.743%.

 

(2)

 

 

 

For each distribution date, the annual certificate interest rate on the Class 2A Certificates will equal the lesser of (x) the “Loan Group 2 Net Weighted Average Pass-Through Rate”, which is (i) the weighted average of the mortgage interest rates on the mortgage loans in loan group 2 as of the second preceding due date less the per annum rate at which the related servicing fee (as described in “Description of the Certificates—Payment of Fees and Expenses” in this

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prospectus supplement) is calculated, reduced by (ii) a fraction, the numerator of which is the product of (a) the Class 2X-1 Certificate interest rate for that distribution date and (b) the aggregate principal balance of the mortgage loans in subgroup 2A as of the second preceding due date and the denominator is the aggregate principal balance of the mortgage loans in loan group 2 as of the second preceding due date and (y) One-Year MTA (as described in “Description of the Mortgage Pool—The Indexes” in this prospectus supplement) plus Ï0.77%. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. In addition, if on the initial distribution date the certificate interest rate on the Class 2A Certificates is equal to the Loan Group 2 Net Weighted Average Pass-Through Rate, the Class 2A Certificates may be entitled to receive, as interest, carryover shortfall amounts from amounts, if any, otherwise payable to the Class CX-PPP Certificates, as described in this prospectus supplement. The Class 2A Certificates will not be entitled to receive carryover shortfall amounts on any distribution date other than the initial distribution date. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. For the initial distribution date, after giving effect to carryover shortfall payments, if any, the annual certificate interest rate on these certificates will equal approximately 5.753%.

 

(3)

 

 

 

For each distribution date, the annual certificate interest rate on the Class 2A-1A Certificates will equal the lesser of (x) the Loan Group 2 Net Weighted Average Pass-Through Rate and (y) One-Year MTA plus 0.76%. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. In addition, if on the initial distribution date the certificate interest rate on the Class 2A-1A Certificates is equal to the Loan Group 2 Net Weighted Average Pass-Through Rate, the Class 2A-1A Certificates may be entitled to receive, as interest, carryover shortfall amounts from amounts, if any, otherwise payable to the Class CX-PPP Certificates, as described in this prospectus supplement. The Class 2A-1A Certificates will not be entitled to receive carryover shortfall amounts on any distribution date other than the initial distribution date. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. For the initial distribution date, after giving effect to carryover shortfall payments, if any, the annual certificate interest rate on these certificates will equal approximately 5.743%.

 

(4)

 

 

 

For each distribution date, the annual certificate interest rate on the Class 2A-1B Certificates will equal the lesser of (x) the Loan Group 2 Net Weighted Average Pass-Through Rate and (y) One-Year MTA plus 0.76%. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. In addition, if on the initial distribution date the certificate interest rate on the Class 2A-1B Certificates is equal to the Loan Group 2 Net Weighted Average Pass-Through Rate, the Class 2A-1B Certificates may be entitled to receive, as interest, carryover shortfall amounts from amounts, if any, otherwise payable to the Class CX-PPP Certificates, as described in this prospectus supplement. The Class 2A-1B Certificates will not be entitled to receive carryover shortfall amounts on any distribution date other than the initial distribution date. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. For the initial distribution date, after giving effect to carryover shortfall payments, if any, the annual certificate interest rate on these certificates will equal approximately 5.743%.

 

(5)

 

 

 

Solely for purposes of calculating distributions of principal and interest and the allocation of losses realized on the mortgage loans, the Class CA-1B Certificates will be deemed to be comprised of two components (the “Class CA-1B Group 1 Component” and the “Class CA-1B Group 2 Component”, each, a “Class CA-1B Component”). Each Class CA-1B Component will have a component principal balance representing a portion of the Class CA-1B principal balance. Interest will be payable with respect to each Class CA-1B Component. The initial principal balance of the Class CA-1B Group 1 Component and the Class CA-1B Group 2 Component will be approximately $17,518,000 and $78,603,000, respectively.

 

(6)

 

 

 

For each distribution date on or before the date on which the aggregate principal balance of the mortgage loans in loan group 1 and loan group 2 has been reduced to less than 10% of that balance as of March 1, 2007 (the “Clean-Up

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Call Option Date”), the annual certificate interest rate on the Class CA-1B Group 1 Component will equal the least of (x) the product of (i) the Loan Group 1 Weighted Average Pass-Through Rate and (ii) a fraction, the numerator of which is 30 and the denominator of which is the actual number of days in the related certificate accrual period (the “Adjusted Loan Group 1 Weighted Average Pass-Through Rate”), (y) LIBOR (as described in “Description of the Certificates—Calculation of LIBOR” in this prospectus supplement) plus 0.22% and (z) the Maximum Loan Group 1 Rate (as defined in “Description of the Certificates—Distributions of Interest” in this prospectus supplement). For each distribution date after the Clean-Up Call Option Date, the annual certificate interest rate on the Class CA-1B Group 1 Component will equal the least of (x) the Adjusted Loan Group 1 Weighted Average Pass-Through Rate, (y) LIBOR plus 0.44% and (z) the Maximum Loan Group 1 Rate.

For each distribution date on or before the Clean-Up Call Option Date, the annual certificate interest rate on the Class CA-1B Group 2 Component will equal the least of (x) the product of (i) the Loan Group 2 Net Weighted Average Pass-Through Rate and (ii) a fraction, the numerator of which is 30 and the denominator of which is the actual number of days in the related certificate accrual period (the “Adjusted Loan Group 2 Net Weighted Average Pass-Through Rate”), (y) LIBOR plus 0.22% and (z) the Maximum Loan Group 2 Rate (as defined in “Description of the Certificates—Distributions of Interest” in this prospectus supplement). For each distribution date after the Clean-Up Call Option Date, the annual certificate interest rate on the Class CA-1B Group 2 Component will equal the least of (x) the Adjusted Loan Group 2 Net Weighted Average Pass-Through Rate, (y) LIBOR plus 0.44% and (z) the Maximum Loan Group 2 Rate.

In addition, if on any distribution date the certificate interest rate on any of the Class CA-1B Components is equal to the Adjusted Loan Group 1 Weighted Average Pass-Through Rate or the Adjusted Loan Group 2 Net Weighted Average Pass-Through Rate, as applicable, the Class CA-1B Certificates may be entitled to receive, as interest, carryover shortfall amounts from amounts, if any, otherwise payable to the Class CX-PPP Certificates, as described in this prospectus supplement. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. For the initial distribution date, after giving effect to carryover shortfall payments, if any, the annual certificate interest rate on the Class CA-1B Components will equal LIBOR as of March 23, 2007 plus 0.22%.

 

(7)

 

 

 

Solely for purposes of calculating distributions of principal and interest and the allocation of losses realized on the mortgage loans, the Class CA-1C Certificates will be deemed to be comprised of two components (the “Class CA-1C Group 1 Component” and the “Class CA-1C Group 2 Component”, each, a “Class CA-1C Component”). Each Class CA-1C Component will have a component principal balance representing a portion of the Class CA-1C principal balance. Interest will be payable with respect to each Class CA-1C Component. The initial principal balance of the Class CA-1C Group 1 Component and the Class CA-1C Group 2 Component will be approximately $17,518,000 and $78,603,000, respectively.

 

(8)

 

 

 

For each distribution date on or before the Clean-Up Call Option Date, the annual certificate interest rate on the Class CA-1C Group 1 Component will equal the least of (x) the Adjusted Loan Group 1 Weighted Average Pass-Through Rate, (y) LIBOR plus 0.30% and (z) the Maximum Loan Group 1 Rate. For each distribution date after the Clean-Up Call Option Date, the annual certificate interest rate on the Class CA-1C Group 1 Component will equal the least of (x) the Adjusted Loan Group 1 Weighted Average Pass-Through Rate, (y) LIBOR plus 0.60% and (z) the Maximum Loan Group 1 Rate.

For each distribution date on or before the Clean-Up Call Option Date, the annual certificate interest rate on the Class CA-1C Group 2 Component will equal the least of (x) the Adjusted Loan Group 2 Net Weighted Average Pass-Through Rate, (y) LIBOR plus 0.30% and (z) the Maximum Loan Group 2 Rate. For each distribution date after the Clean-Up Call Option Date, the annual certificate interest rate on the Class CA-1C Group 2 Component will equal the least of (x) the Adjusted Loan Group 2 Net Weighted Average Pass-Through Rate,

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  (y) LIBOR plus 0.60% and (z) the Maximum Loan Group 2 Rate.

In addition, if on any distribution date the certificate interest rate on any of the Class CA-1C Components is equal to the Adjusted Loan Group 1 Weighted Average Pass-Through Rate or the Adjusted Loan Group 2 Net Weighted Average Pass-Through Rate, as applicable, the Class CA-1C Certificates may be entitled to receive, as interest, carryover shortfall amounts from amounts, if any, otherwise payable to the Class CX-PPP Certificates, as described in this prospectus supplement. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. For the initial distribution date, after giving effect to carryover shortfall payments, if any, the annual certificate interest rate on the Class CA-1C Components will equal LIBOR as of March 23, 2007 plus 0.30%.

 

(9)

 

 

 

Solely for purposes of calculating distributions of principal and interest and the allocation of losses realized on the mortgage loans the Class CX-PPP Certificates will be deemed to be comprised of two interest-only components (the “Class CX-PPP Loan Group 1 IO Component” and the “Class CX-PPP Loan Group 2 IO Component”, each, a “Class X IO Component”) and two principal-only components (the “Class CX-PPP Loan Group 1 PO Component” and the “Class CX-PPP Loan Group 2 PO Component”, each, a “Class X PO Component”). Interest, if any, will be payable with respect to each Class X IO Component. The Class X IO Components will not have a principal balance and principal will not be payable with respect to the Class X IO Components. Each of the Class X PO Components will have a principal balance which initially will equal zero. Interest will not accrue on any Class X PO Component. In the event that interest otherwise payable with respect to any Class X IO Component is reduced as a result of the allocation of net negative amortization (as described in “Description of the Certificates—Distributions of Interest” in this prospectus supplement), the amount of such reduction will be added as principal to the related Class X PO Component.

In addition, the Class CX-PPP Certificates will be entitled to receive prepayment penalties paid by borrowers upon voluntary full prepayment of certain mortgage loans in loan group 1 and loan group 2 if such mortgage loans are prepaid during certain periods. See “Description of the Mortgage Pool” and “Description of the Certificates—Distributions to the Class CX-PPP Certificates” herein and the “Prepayment Penalty Terms of the Group 1 Loans” and “Prepayment Penalty Terms of the Group 2 Loans” tables in Appendix B hereto for more information regarding the Class CX-PPP Certificates and prepayment penalties.

 

(10)

 

 

 

The amount of interest available for distribution to the Class CX-PPP Certificates on any distribution date (before giving effect to the allocation of any shortfall in interest collections and payment of carryover shortfall amounts) will equal the Class CX-PPP Accrued Interest (as defined in this prospectus supplement). Notwithstanding the foregoing, interest otherwise available for distribution to the Class CX-PPP Certificates on any distribution date may instead be distributed as carryover shortfall amounts. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement.

 

(11)

 

 

 

For each distribution date, the Class 2X-1 Certificates will not receive any distributions of principal, but will accrue interest on the Class 2X-1 notional amount, which will equal the aggregate principal balance of the mortgage loans in subgroup 2A as of the second preceding due date. The initial Class 2X-1 notional amount will be approximately $94,334,073. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement.

 

(12)

 

 

 

For each distribution date, the certificate interest rate for the Class 2X-1 Certificates will be equal to the weighted average of an amount on each mortgage loan in subgroup 2A which is calculated as follows: (a) for each mortgage loan in subgroup 2A that was in its initial three month fixed rate period in the calendar month immediately preceding such distribution date, 0.00% and (b) for each mortgage loan in subgroup 2A that was not in its initial three month fixed rate period in the calendar month immediately preceding such distribution date, the excess, if any, of the initial Margin (as defined in “Description of the Mortgage Pool” in this prospectus supplement) for such mortgage loan over 1.475%.

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(13)

 

 

 

For each distribution date on or before the Clean-Up Call Option Date, the annual certificate interest rate on the Class B-1 Certificates will equal the least of (x) the Class B Net Weighted Average Pass- Through Rate (as defined in “Description of the Certificates—Distributions of Interest” in this prospectus supplement), (y) LIBOR plus 0.45% and (z) the Maximum Class B Rate (as defined in “Description of the Certificates—Distributions of Interest” in this prospectus supplement). For each distribution date after the Clean-Up Call Option Date, the annual certificate interest rate on the Class B-1 Certificates will equal the least of (x) the Class B Net Weighted Average Pass-Through Rate, (y) LIBOR plus 0.675% and (z) the Maximum Class B Rate. In addition, if on any distribution date the certificate interest rate on the Class B-1 Certificates is equal to the Class B Net Weighted Average Pass-Through Rate, the Class B-1 Certificates may be entitled to receive, as interest, carryover shortfall amounts from amounts, if any, otherwise payable to the Class CX-PPP Certificates, as described in this prospectus supplement. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. For the initial distribution date, after giving effect to carryover shortfall payments, if any, the annual certificate interest rate on these certificates will equal LIBOR as of March 23, 2007 plus 0.45%.

 

(14)

 

 

 

For each distribution date on or before the Clean-Up Call Option Date, the annual certificate interest rate on the Class B-2 Certificates will equal the least of (x) the Class B Net Weighted Average Pass- Through Rate, (y) LIBOR plus 0.50% and (z) the Maximum Class B Rate. For each distribution date after the Clean-Up Call Option Date, the annual certificate interest rate on the Class B-2 Certificates will equal the least of (x) the Class B Net Weighted Average Pass-Through Rate, (y) LIBOR plus 0.75% and (z) the Maximum Class B Rate. In addition, if on any distribution date the certificate interest rate on the Class B-2 Certificates is equal to the Class B Net Weighted Average Pass-Through Rate, the Class B-2 Certificates may be entitled to receive, as interest, carryover shortfall amounts from amounts, if any, otherwise payable to the Class CX-PPP Certificates, as described in this prospectus supplement. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. For the initial distribution date, after giving effect to carryover shortfall payments, if any, the annual certificate interest rate on these certificates will equal LIBOR as of March 23, 2007 plus 0.50%.

 

(15)

 

 

 

For each distribution date on or before the Clean-Up Call Option Date, the annual certificate interest rate on the Class B-3 Certificates will equal the least of (x) the Class B Net Weighted Average Pass- Through Rate, (y) LIBOR plus 0.70% and (z) the Maximum Class B Rate. For each distribution date after the Clean-Up Call Option Date, the annual certificate interest rate on the Class B-3 Certificates will equal the least of (x) the Class B Net Weighted Average Pass-Through Rate, (y) LIBOR plus 1.05% and (z) the Maximum Class B Rate. In addition, if on any distribution date the certificate interest rate on the Class B-3 Certificates is equal to the Class B Net Weighted Average Pass-Through Rate, the Class B-3 Certificates may be entitled to receive, as interest, carryover shortfall amounts from amounts, if any, otherwise payable to the Class CX-PPP Certificates, as described in this prospectus supplement. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. For the initial distribution date, after giving effect to carryover shortfall payments, if any, the annual certificate interest rate on these certificates will equal LIBOR as of March 23, 2007 plus 0.70%.

 

(16)

 

 

 

For each distribution date on or before the Clean-Up Call Option Date, the annual certificate interest rate on the Class B-4 Certificates will equal the least of (x) the Class B Net Weighted Average Pass- Through Rate, (y) LIBOR plus 1.10% and (z) the Maximum Class B Rate. For each distribution date after the Clean-Up Call Option Date, the annual certificate interest rate on the Class B-4 Certificates will equal the least of (x) the Class B Net Weighted Average Pass-Through Rate, (y) LIBOR plus 1.65% and (z) the Maximum Class B Rate. In addition, if on any distribution date the certificate interest rate on the Class B-4 Certificates is equal to the Class B Net Weighted Average Pass-Through Rate, the Class B-4 Certificates may be entitled to

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  receive, as interest, carryover shortfall amounts from amounts, if any, otherwise payable to the Class CX-PPP Certificates, as described in this prospectus supplement. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. For the initial distribution date, after giving effect to carryover shortfall payments, if any, the annual certificate interest rate on these certificates will equal LIBOR as of March 23, 2007 plus 1.10%.

 

(17)

 

 

 

For each distribution date on or before the Clean-Up Call Option Date, the annual certificate interest rate on the Class B-5 Certificates will equal the least of (x) the Class B Net Weighted Average Pass- Through Rate, (y) LIBOR plus 1.20% and (z) the Maximum Class B Rate. For each distribution date after the Clean-Up Call Option Date, the annual certificate interest rate on the Class B-5 Certificates will equal the least of (x) the Class B Net Weighted Average Pass-Through Rate, (y) LIBOR plus 1.80% and (z) the Maximum Class B Rate. In addition, if on any distribution date the certificate interest rate on the Class B-5 Certificates is equal to the Class B Net Weighted Average Pass-Through Rate, the Class B-5 Certificates may be entitled to receive, as interest, carryover shortfall amounts from amounts, if any, otherwise payable to the Class CX-PPP Certificates, as described in this prospectus supplement. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. For the initial distribution date, after giving effect to carryover shortfall payments, if any, the annual certificate interest rate on these certificates will equal LIBOR as of March 23, 2007 plus 1.20%.

 

(18)

 

 

 

For each distribution date on or before the Clean-Up Call Option Date, the annual certificate interest rate on the Class B-6 Certificates will equal the least of (x) the Class B Net Weighted Average Pass- Through Rate, (y) LIBOR plus 1.20% and (z) the Maximum Class B Rate. For each distribution date after the Clean-Up Call Option Date, the annual certificate interest rate on the Class B-6 Certificates will equal the least of (x) the Class B Net Weighted Average Pass-Through Rate, (y) LIBOR plus 1.80% and (z) the Maximum Class B Rate. In addition, if on any distribution date the certificate interest rate on the Class B-6 Certificates is equal to the Class B Net Weighted Average Pass-Through Rate, the Class B-6 Certificates may be entitled to receive, as interest, carryover shortfall amounts from amounts, if any, otherwise payable to the Class CX-PPP Certificates, as described in this prospectus supplement. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. For the initial distribution date, after giving effect to carryover shortfall payments, if any, the annual certificate interest rate on these certificates will equal LIBOR as of March 23, 2007 plus 1.20%.

 

(19)

 

 

 

For each distribution date on or before the Clean-Up Call Option Date, the annual certificate interest rate on the Class B-7 Certificates will equal the least of (x) the Class B Net Weighted Average Pass- Through Rate, (y) LIBOR plus 1.20% and (z) the Maximum Class B Rate. For each distribution date after the Clean-Up Call Option Date, the annual certificate interest rate on the Class B-7 Certificates will equal the least of (x) the Class B Net Weighted Average Pass-Through Rate, (y) LIBOR plus 1.80% and (z) the Maximum Class B Rate. In addition, if on any distribution date the certificate interest rate on the Class B-7 Certificates is equal to the Class B Net Weighted Average Pass-Through Rate, the Class B-7 Certificates may be entitled to receive, as interest, carryover shortfall amounts from amounts, if any, otherwise payable to the Class CX-PPP Certificates, as described in this prospectus supplement. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. For the initial distribution date, after giving effect to carryover shortfall payments, if any, the annual certificate interest rate on these certificates will equal LIBOR as of March 23, 2007 plus 1.20%.

The Non-Offered Certificates

In addition to the offered certificates, the Trust will also issue the Class B-8, Class B-9 and Class B-10, Certificates. These certificates are not being offered by this prospectus supplement.

The approximate initial class principal balance, annual certificate interest rate and type of each of the Class B-8, Class B-9 and Class B-10 Certificates will be as follows:

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Class

 

Approximate
Initial Class
Principal
Balance

 

Annual
Certificate
Interest
Rate

 

Type

 

B-8

 

 

$

 

3,204,000

   

Variable(1)

 

Subordinate/LIBOR

B-9

 

 

 

3,204,000

   

Variable(1)

 

Subordinate/LIBOR

B-10

 

 

 

8,010,458

   

Variable(1)

 

Subordinate/LIBOR

 

(1)

 

 

 

For each distribution date on or before the Clean-Up Call Option Date, the annual certificate interest rate on the Class B-8, Class B-9 and Class B-10 Certificates will equal the least of (x) the Class B Net Weighted Average Pass-Through Rate, (y) LIBOR plus 1.20% and (z) the Maximum Class B Rate. For each distribution date after the Clean-Up Call Option Date, the annual certificate interest rate on the Class B-8, Class B-9 and Class B-10 Certificates will equal the least of (x) the Class B Net Weighted Average Pass-Through Rate, (y) LIBOR plus 1.80% and (z) the Maximum Class B Rate. In addition, if on any distribution date the certificate interest rate on the Class B-8, Class B-9 and Class B-10 Certificates is equal to the Class B Net Weighted Average Pass-Through Rate, the Class B-8, Class B-9 and Class B- 10 Certificates may be entitled to receive, as interest, carryover shortfall amounts from amounts, if any, otherwise payable to the Class CX-PPP Certificates, as described in this prospectus supplement. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement. For the initial distribution date, after giving effect to carryover shortfall payments, if any, the annual certificate interest rate on these certificates will equal LIBOR as of March 23, 2007 plus 1.20%.

The Class B-8, Class B-9 and Class B-10 Certificates will be subordinate in right of payment to the offered certificates and will not receive distributions of interest or principal on any distribution date until the offered certificates have received all distributions of interest and principal that they are entitled to receive on that distribution date. In addition, losses realized on the mortgage loans will be allocated to the Class B-8, Class B-9 and Class B-10 Certificates, until their principal balances have been reduced to zero, before they are allocated to the offered certificates. See “Description of the Certificates—Subordination and Allocation of Losses” in this prospectus supplement.

Relationship Between Loan Groups and the Offered Certificates

The certificates whose class designation begins with “1” correspond to loan group 1. The certificates whose class designation begins with “2” correspond to loan group 2. The certificates whose class designation begins with “B” or “C” correspond to loan groups 1 and 2. Each of the certificates generally receives distributions based on principal and interest collected from mortgage loans in its corresponding loan group or loan groups.

Initial Principal Balance of the Certificates

The initial aggregate principal balance of the certificates issued by the Trust is approximately $1,067,998,559, subject to an upward or downward variance of no more than 5%.

The initial aggregate principal balance of the certificates has the following composition:

 

 

 

 

the senior certificates related to loan group 1 and loan group 2 comprise approximately 90.00% of the principal balance of the applicable loan group;

 

 

 

 

the Class B-1, Class B-2, Class B-3, Class B-4, Class B-5, Class B-6 and Class B-7 Certificates comprise approximately 8.65% of the aggregate principal balance of loan groups 1 and 2; and

 

 

 

 

the privately offered Class B-8, Class B-9 and Class B-10 Certificates comprise approximately 1.35% of the aggregate principal balance of loan groups 1 and 2.

Last Scheduled Distribution Date

The last scheduled distribution date for each class of certificates is the distribution date in the month after the scheduled maturity date for the latest maturing mortgage loan in the related loan group or loan groups.

The actual rate of principal payments on the certificates will depend on the rate of principal payments (including principal prepayments) on the related mortgage loans. No assurance can be given as to the actual payment experience on the mortgage loans.

See “Description of the Certificates—Last Scheduled Distribution Date” in this prospectus supplement.

DISTRIBUTIONS ON THE CERTIFICATES

Monthly Distributions

Each month, the trustee, LaSalle Bank National Association, will make distributions of interest

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and/or principal to the holders of the certificates. Distributions will be made on the 25th day of each month, or if the 25th day is not a business day, on the next business day. The first distribution date will be April 25, 2007.

Source of Payments. The mortgagors pay their interest and principal during the month to the servicer. Each month, the servicer subtracts its servicing fee and sends the remainder to the trustee. On the distribution date for that month, the trustee distributes that remaining amount by loan group to the holders of the certificates related to that loan group in the order described in “Description of the Certificates—Priority of Distributions” in this prospectus supplement (in accordance with the monthly distribution report). The servicing fee will be calculated as a per annum percentage for each mortgage loan. The following table describes the servicing fee for each type of mortgage loan:

 

 

 

Type of Mortgage Loan

 

Servicing Fee

 

mortgage loan in loan group 1 that does not impose a penalty for voluntary full prepayments

 

the greater of (i) 0.375% and (ii) the excess, if any, of the initial Margin on that mortgage loan over 1.10%

mortgage loan in loan group 1 that imposes a penalty for voluntary full prepayments and has a prepayment penalty term of 12 months from origination

 

the greater of (i) 0.375% and (ii) the excess, if any, of the initial Margin on that mortgage loan over 1.40%

mortgage loan in loan group 1 that imposes a penalty for voluntary full prepayments and has a prepayment penalty term of 30 months or 36 months from origination

 

the greater of (i) 0.375% and (ii) the excess, if any, of the initial Margin on that mortgage loan over 2.20%

mortgage loan in subgroup 2A

 

0.375%

mortgage loan in subgroup 2B that does not impose a penalty for voluntary full prepayments

 

the greater of (i) 0.375% and (ii) the excess, if any, of the initial Margin on that mortgage loan over 1.10%

mortgage loan in subgroup 2B that imposes a penalty for voluntary full prepayments and has a prepayment penalty term of 12 months from origination

 

the greater of (i) 0.375% and (ii) the excess, if any, of the initial Margin on that mortgage loan over 1.40%

mortgage loan in subgroup 2B that imposes a penalty for voluntary full prepayments and has a prepayment penalty term of 30 months or 36 months from origination

 

the greater of (i) 0.375% and (ii) the excess, if any, of the initial Margin on that mortgage loan over 2.20%

Advances. For any month, if the servicer receives a payment on a mortgage loan that is less than the minimum monthly payment due or if no payment is received at all, the servicer will advance its own funds or funds collected by the servicer on the mortgage loans but not required to be distributed to the certificateholders on the current distribution date, to cover the difference between the minimum monthly payment due and the amount actually received by the servicer. However, the servicer will not be required to make advances if it determines that those advances will not be recoverable from future payments or collections on that mortgage loan. See “The Servicers—The Servicer—Servicing Procedures—Advances” in this prospectus supplement.

Distributions of Interest

Each class of offered certificates will accrue interest. On each distribution date interest will be distributed to these classes in the order described in “Description of the Certificates—Priority of Distributions” in this prospectus supplement.

Solely for purposes of calculating distributions of principal and interest and the allocation of losses realized on the mortgage loans, the Class CX-PPP Certificates will be deemed to be comprised of the Class CX- PPP Loan Group 1 IO Component, the Class CX-PPP Loan Group 2 IO Component, the Class CX-PPP Loan Group 1 PO Component and the Class CX-PPP Loan Group 2 PO Component. Interest, if any, will be payable with respect to each Class X IO Component. The Class X IO Components will not have a principal balance and principal will not be payable with respect to those Class X IO Components. Each of the Class X PO

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Components will have a principal balance, which initially will equal zero. Interest will not accrue on any Class X PO Component.

The Class 2X-1 Certificates will accrue interest on the Class 2X-1 Notional Amount. The Class 2X-1 Certificates will not have a principal component and will not receive distributions of principal.

Solely for purposes of calculating distributions of principal and interest and the allocation of losses realized on the mortgage loans, the Class CA-1B Certificates will be deemed to be comprised of the Class CA- 1B Group 1 Component and the Class CA-1B Group 2 Component. Each Class CA-1B Component will have a component principal balance representing the portion of the related class principal balance. Interest will be payable with respect to each Class CA-1B Component.

Solely for purposes of calculating distributions of principal and interest and the allocation of losses realized on the mortgage loans, the Class CA-1C Certificates will be deemed to be comprised of the Class CA- 1C Group 1 Component and the Class CA-1C Group 2 Component. Each Class CA-1C Component will have a component principal balance representing the portion of the related class principal balance. Interest will be payable with respect to each Class CA-1C Component.

Interest to be distributed on the certificates (or added to the principal balance of the certificates in the form of Net Negative Amortization, as defined below) on any distribution date will consist of accrued and unpaid interest as of previous distribution dates and interest accrued during the period beginning on the 25th day of the preceding calendar month (or, in the case of the first distribution date, March 27, 2007) and ending on the 24th day of the month of that distribution date, except for the Class 1A, Class 2A, Class 2A-1A, Class 2A-1B, Class 2X-1 and Class CX-PPP Certificates, which accrue interest during the preceding calendar month. Interest on the Class CA-1B, Class CA-1C and Class B Certificates (as defined in “Description of the Certificates—General” in this prospectus supplement) will be calculated based on the actual number of days in the certificate accrual period and assuming a 360 day year. Interest on the Class 1A, Class 2A, Class 2A-1A, Class 2A-1B, Class 2X-1 and Class CX-PPP Certificates will be calculated based on a year consisting of twelve thirty-day months.

In the event that an increase in the applicable index causes interest to accrue on a mortgage loan for a given month in excess of the monthly payment for that mortgage loan, the excess interest will be added to the outstanding principal balance of that mortgage loan in the form of “negative amortization.” For any distribution date, the excess, if any, of (i) the aggregate amount of negative amortization with respect to all mortgage loans in a loan group for the calendar month prior to that distribution date, over (ii) the aggregate amount of prepayments in full and partial prepayments received with respect to all mortgage loans in that loan group during the related prepayment period (the “Net Negative Amortization”), will be deducted from interest payable to the related certificates as described in “Description of the Certificates—Distributions of Interest” in this prospectus supplement. The amount deducted from the interest payable to each class of certificates will be added to the principal balance of that class.

It is possible that, on any given distribution date, there will be insufficient payments from the mortgage loans to make the interest distributions (net of any Net Negative Amortization deducted from interest payable) described in this prospectus supplement. If the servicer does not advance its own funds, because it determines that the advance would be nonrecoverable, some certificates, most likely the subordinate certificates, may not receive the full amount of accrued interest to which they are entitled. If this happens, those certificates will be entitled to receive any shortfall in interest distributions on future distribution dates in the same priority as their distribution of current interest. However, there will be no extra interest paid on that shortfall.

The amount of interest each Class CA-1B or Class CA-1C Component and each class of Class B Certificates accrues during each certificate accrual period will equal a ratio, the numerator of which is the actual number of days in that accrual period and the denominator of which is 360, multiplied by the annual certificate interest rate in effect for that accrual period for that class or component and multiplied by the related class principal balance or component principal balance. The amount of interest the Class 1A, Class 2A, Class 2A-1A, Class 2A-1B and Class 2X-1 Certificates accrue during each certificate accrual period will equal 1/12th of the annual certificate interest rate in effect for that accrual period for that class multiplied by their respective class principal balance or class notional

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amount, as applicable. The principal balance used for this calculation for the Class A Certificates (as defined in “Description of the Certificates—General” in this prospectus supplement) and Class B Certificates on the first distribution date will be the applicable principal balance as of March 27, 2007, which is the closing date. The principal balance used for this calculation on each distribution date thereafter will be the applicable principal balance immediately after the preceding distribution date. For a description of how the interest distributions to the Class 2X-1 and Class CX-PPP Certificates are determined, see “Description of the Certificates—Distributions of Interest” in this prospectus supplement. The annual certificate interest rate for each class of offered certificates is described on pages S-6 to S-11 of this prospectus supplement.

No interest will accrue on the Class X PO Components.

One-Year MTA Certificates. The certificate interest rate for the Class 1A, Class 2A, Class 2A-1A and Class 2A-1B Certificates adjusts monthly based on an index (currently One-Year MTA, as described in “Description of the Mortgage Pool—The Indexes” in this prospectus supplement). The formula for the calculation of the certificate interest rate for the Class 1A, Class 2A, Class 2A-1A and Class 2A-1B Certificates appears in the notes to the table on page S-6 of this prospectus supplement. However, the certificate interest rate for these certificates is subject to a cap described in the notes to the table on page S-6 of this prospectus supplement. For more information, see “Risk Factors—If an Index is Replaced, the Mortgage Loan Margins and the Certificate Margins on the MTA Certificates May be Adjusted”, “—The Class 1A, Class 2A, Class 2A-1A and Class 2A-1B Certificates May Receive Interest at a Certificate Interest Rate Lower than the One-Year MTA Index Plus the Related Margin”, “Description of the Mortgage Pool—The Indexes” and “Description of the Certificates—Distributions of Interest” in this prospectus supplement.

For the initial distribution date only, the Class 1A, Class 2A, Class 2A-1A and Class 2A-1B Certificates may receive as interest, in addition to interest accrued at their certificate interest rate, carryover shortfall amounts, as described in “Description of the Certificates—Distributions of Interest—Carryover Shortfall Amount” in this prospectus supplement. The Class 1A, Class 2A, Class 2A-1A and Class 2A-1B Certificates will not receive any carryover shortfall payments on any other distribution date.

LIBOR Certificates. The certificate interest rates for the Class CA-1B, Class CA-1C and Class B Certificates (or components thereof) adjust monthly based on the average of quotations of the London Interbank Offered Rate for one-month U.S. dollar deposits, or LIBOR, as described in “Description of the Certificates—Calculation of LIBOR” in this prospectus supplement. The formulas for the calculation of the certificate interest rates for these classes of certificates (or the components thereof) appear in the notes to the table on page S-6 of this prospectus supplement. However, the certificate interest rates for these classes (or the components thereof) are subject to caps described in the notes to the table on page S-6 of this prospectus supplement.

On each distribution date, the Class CA-1B, Class CA-1C and Class B Certificates may receive as interest, in addition to interest accrued at their certificate interest rates, carryover shortfall amounts, as described in “Description of the Certificates—Distributions of Interest—Carryover Shortfall Amount” in this prospectus supplement.

Subject to the limitations described under “Description of the Certificates—Distributions of Interest—Carryover Shortfall Amounts” in this prospectus supplement, interest otherwise available for distribution to the Class CX-PPP Certificates on any distribution date may be reduced by carryover shortfall amounts payable to the Class A and Class B Certificates, as described in “Description of the Certificates—Distributions of Interest—Carryover Shortfall Amounts” in this prospectus supplement.

Compensating Interest and Interest Shortfalls

Prepayments in Full. When mortgagors make prepayments in full, they need not pay a full month’s interest. Instead, they are required to pay interest only to the date of their prepayment. To compensate certificateholders for the shortfall in interest this causes, the servicer may pay compensating interest to the certificateholders out of the servicing fee it collects, as well as from certain other sources. For a description of how compensating interest is allocated among the certificates as well as important limitations on the amount of compensating interest that will be allocated among the certificates, see “Description of the Certificates—Distributions of Interest—Compensating Interest” and “Yield and Prepayment Considerations” in this prospectus supplement.

Partial Prepayments. When mortgagors make partial prepayments, they do not pay interest on the amount of that prepayment. Certificateholders will receive

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no compensating interest to compensate them for the shortfall in interest this causes.

Distributions of Principal

General. As the mortgagors pay principal on the mortgage loans in each loan group, that principal is passed on to the holders of the certificates related to that loan group.

The Class A Certificates and (in the event Net Negative Amortization has been allocated to the Class CX-PPP Certificates) the Class CX-PPP Certificates (or components thereof), in the aggregate, generally will receive their pro rata share of scheduled principal payments received on the mortgage loans in the related loan group on each distribution date. In addition, unless credit enhancement to the Class A and Class CX- PPP Certificates (or components thereof) has reached a specified level and the delinquencies and losses on the mortgage loans do not exceed specified limits, the Class A and Class CX-PPP Certificates (or components thereof), in the aggregate, generally will receive 100% of all principal prepayments received on the mortgage loans in the related loan group, net of any portion thereof applied to reduce negative amortization, until the tenth anniversary of the first distribution date, after which they will receive a disproportionately large, but decreasing, share of principal prepayments.

Certificates Related to Loan Group 1. On each distribution date, a portion of the principal received or advanced on the mortgage loans in loan group 1 will be distributed to the Class 1A Certificates and the Class CX-PPP Loan Group 1 PO, Class CA-1B Group 1 and Class CA-1C Group 1 Components in the order of priority described in “Description of the Certificates—Distributions of Principal—Group 1 Senior Principal Distribution Amount” in this prospectus supplement. However, not all of these certificates may receive principal on each distribution date. See Appendix A for a table showing, for each class of these certificates (other than the Class CX-PPP Certificates), the rate of return of principal that would result from different rates of prepayments on the mortgage loans in loan group 1. However, if the Class B Certificates are no longer outstanding, then the Class 1A Certificates and the Class CX-PPP Loan Group 1 PO, Class CA-1B Group 1 and Class CA-1C Group 1 Components will not receive principal in the order of priority described in “Description of the Certificates—Distributions of Principal—Group 1 Senior Principal Distribution Amount” in this prospectus supplement. Instead, each of these classes of certificates will generally receive principal pro rata according to its class principal balance or related component principal balance, as applicable.

Certificates Related to Loan Group 2. On each distribution date, a portion of the principal received or advanced on the mortgage loans in loan group 2 will be distributed to the Class 2A, Class 2A-1A and Class 2A-1B Certificates and the Class CX-PPP Loan Group 2 PO, Class CA-1B Group 2 and Class CA-1C Group 2 Components in the order of priority described in “Description of the Certificates—Distributions of Principal—Group 2 Senior Principal Distribution Amount” in this prospectus supplement. However, not all of these certificates may receive principal on each distribution date. See Appendix A for a table showing, for each class of these certificates (other than the Class CX-PPP Certificates), the rate of return of principal that would result from different rates of prepayments on the mortgage loans in loan group 2. However, if the Class B Certificates are no longer outstanding, then the Class 2A, Class 2A-1A and Class 2A-1B Certificates and the Class CX-PPP Loan Group 2 PO, Class CA-1B Group 2 and Class CA-1C Group 2 Components will not receive principal in the order of priority described in “Description of the Certificates—Distributions of Principal—Group 2 Senior Principal Distribution Amount” in this prospectus supplement. Instead, each of these classes of certificates will generally receive principal pro rata according to its class principal balance or related component principal balance, as applicable.

Class B Certificates. On each distribution date, the Class B-1, Class B-2, Class B-3, Class B-4, Class B-5, Class B-6, Class B-7, Class B-8, Class B-9 and Class B-10 Certificates will be entitled to receive a portion of the scheduled principal received or advanced on the mortgage loans, pro rata, according to their respective class principal balances. Unless credit enhancement to the senior certificates has reached a specified level and the delinquencies and losses on the mortgage loans do not exceed specified limits, the Class B Certificates generally will receive a portion of the principal prepayments on the mortgage loans only on and after the tenth anniversary of the first distribution date. However, under certain conditions described in this prospectus supplement under “Description of the Certificates—Priority of Distributions,” the amount of principal prepayments otherwise distributable to some classes of Class B Certificates (as defined in “Description

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of the Certificates—General” in this prospectus supplement) will instead be paid to other classes of these certificates with a higher priority.

Priority of Principal Distributions. Each class of certificates entitled to principal receives its principal entitlements in the order described in “Description of the Certificates—Priority of Distributions” in this prospectus supplement. It is possible that, on any given distribution date, there will be insufficient payments from the mortgage loans to make the principal distributions described in this prospectus supplement. As a result, some certificates, most likely the subordinate certificates, may not receive the full amount of principal distributions to which they are entitled.

The Class X Certificates (as defined in “Description of the Certificates—General” in this prospectus supplement) will not receive any distributions of principal in respect of their Class X IO Components.

The Class 2X-1 Certificates will not receive any distributions of principal.

For a more detailed description of how distributions of principal will be allocated among the various classes of certificates, see “Description of the Certificates—Distributions of Principal” in this prospectus supplement.

Cross-Collateralization

In certain limited circumstances, principal and interest collected from either of loan group 1 or loan group 2 may be used to pay principal or interest, or both, to the senior certificates unrelated to that loan group. See “Description of the Certificates—Cross-Collateralization” in this prospectus supplement.

The Class R Certificates

The Class R Certificates will receive $100 of principal on the first distribution date, as well as one month’s interest on that amount. These certificates are not expected to receive any material distributions on any other distribution date. See “Description of the Certificates—The Class R Certificates” in this prospectus supplement. However, holders of the Class R Certificates may have tax liabilities that substantially exceed any distributions on those certificates. See “Yield and Prepayment Considerations—Additional Yield Considerations Applicable Solely to the Class R Certificates” and “Material Federal Income Tax Consequences—Special Tax Considerations Applicable to the Residual Certificates” in this prospectus supplement.

CREDIT ENHANCEMENTS

Subordination. The senior certificates will receive all distributions of interest and principal that they are entitled to receive on each distribution date before the subordinate certificates receive any distributions on that distribution date. This provides credit enhancement to the senior certificates. In a similar fashion, each class of subordinate certificates will provide credit enhancement to all other subordinate certificates with lower numerical class designations.

Shifting of Interests. The senior certificates generally will receive their pro rata share of scheduled principal payments received on the mortgage loans in the related loan group on each distribution date. In addition, unless credit enhancement to the senior certificates has reached a specified level and the delinquencies and losses on the mortgage loans do not exceed specified limits, the senior certificates in the aggregate will receive 100% of all principal prepayments received on the mortgage loans in the related loan group, net of any portion thereof applied to reduce negative amortization, until the tenth anniversary of the first distribution date. During the next four years the senior certificates in the aggregate will generally receive a disproportionately large, but decreasing, share of principal prepayments on the mortgage loans in the related loan group. This will result in a quicker return of principal to the senior certificates and increases the likelihood that holders of these senior certificates will be paid the full amount of principal to which they are entitled.

For a more detailed description of how principal prepayments are allocated among the senior certificates and the subordinate certificates, see “Description of the Certificates—Principal Prepayments” in this prospectus supplement.

ALLOCATION OF LOSSES

Realized Losses. A loss is realized on a mortgage loan when the servicer determines that it has received all amounts it expects to recover for that mortgage loan and the amounts are less than the outstanding principal balance of the mortgage loan and its accrued and unpaid interest. Losses will be allocated to the certificates by deducting the losses from the principal balance of the certificates without making any payments to the certificateholders. The amount of losses will be

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allocated to the most junior class of subordinate certificates then outstanding. Losses will be allocated to the senior certificates only after the principal balances of all of the subordinate certificates have been reduced to zero. After the principal balances of all of the Class B Certificates have been reduced to zero, (i) any principal loss with respect to a mortgage loan in loan group 1 will be allocated to the Class 1A Certificates and the Class CX-PPP Loan Group 1 PO, Class CA-1B Group 1 and Class CA-1C Group 1 Components, pro rata, until their respective principal balances have been reduced to zero; provided, however, that the aggregate losses so allocated to the Class 1A Certificates and the Class CA-1B Group 1 and CA-1C Group 1 Components will be allocated (a) first, to the Class CA-1C Group 1 Component, until its component principal balance has been reduced to zero; (b) second, to the Class CA-1C Group 2 Component, until its component principal balance (after giving effect to losses applied in clause (ii)(a) below) has been reduced to zero; (c) third, to the Class CA-1B Group 1 Component, until its component principal balance has been reduced to zero; (d) fourth, to the Class CA-1B Group 2 Component, until its component principal balance (after giving effect to losses applied in (ii)(c) below) has been reduced to zero; and (e) fifth, to the Class 1A Certificates, until their class principal balance has been reduced to zero; and (ii) any principal loss with respect to a mortgage loan in loan group 2 will be allocated to the Class 2A, Class 2A-1A and Class 2A-1B Certificates and the Class CX-PPP Loan Group 2 PO, Class CA-1B Group 2 and Class CA-1C Group 2 Components, pro rata, until their respective principal balances have been reduced to zero; provided, however, that the aggregate losses so allocated to the Class 2A, Class 2A-1A and Class 2A-1B Certificates and the Class CA-1B Group 2 and Class CA-1C Group 2 Components will be allocated (a) first, to the Class CA-1C Group 2 Component, until its component principal balance has been reduced to zero; (b) second, to the Class CA-1C Group 1 Component, until its component principal balance (after giving effect to losses applied in clause (i)(a) above) has been reduced to zero; (c) third, to the Class CA- 1B Group 2 Component, until its component principal balance has been reduced to zero; (d) fourth, to the Class CA-1B Group 1 Component, until its component principal balance (after giving effect to losses applied in (i)(c) above) has been reduced to zero; and (e) fifth, to the Class 2A, Class 2A-1A and Class 2A-1B Certificates, pro rata, until their class principal balances have each been reduced to zero; provided however, that any loss allocable to the Class 2A-1A Certificates will first be allocated to the Class 2A-1B Certificates, until the Class 2A-1B principal balance has been reduced to zero.

OPTIONAL TERMINATION

When the aggregate principal balance of the mortgage loans has been reduced to less than 10% of that balance as of March 1, 2007, the servicer may purchase all of the mortgage loans, which will cause the retirement of the certificates. See “Description of the Certificates—Optional Termination of the Trust” in this prospectus supplement.

YIELD CONSIDERATIONS

The yield to maturity on each class of certificates will depend upon, among other things:

 

 

 

 

the price at which the certificates are purchased;

 

 

 

 

the amount payable to that class as interest, as applicable;

 

 

 

 

the amount of net negative amortization;

 

 

 

 

the rate of prepayments (including liquidations) on the related mortgage loans; and

 

 

 

 

whether the optional termination occurs.

The Class X Certificates, which generally receive only distributions of interest (except, with respect to the Class CX-PPP Certificates, for amounts added to their class principal balance as a result of the allocation of Net Negative Amortization, which is then distributed to those Class X Certificates as principal, and any amounts distributed to the Class CX-PPP Certificates in respect of prepayment penalties on the related mortgage loans), will be especially sensitive to the rate of prepayments on the related mortgage loans. For a discussion of special yield considerations applicable to these certificates, see “Risk Factors” and “Yield and Prepayment Considerations—Yield Considerations with Respect to the Class X Certificates” in this prospectus supplement.

See “Yield and Prepayment Considerations” in this prospectus supplement.

BOOK-ENTRY REGISTRATION

In general, the offered certificates, other than the Class R Certificates, will be available only in book-entry form through the facilities of The Depository Trust Company, Euroclear and Clearstream. See “Description of the Securities—Form of Securities” in the accompanying prospectus.

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DENOMINATIONS

The offered certificates, other than the Class X and Class R Certificates, are offered in minimum denominations of $25,000 each and multiples of $1 in excess of $25,000.

The Class X Certificates are offered in minimum denominations of $100,000 initial class notional amount each and multiples of $1 in excess of $100,000.

The Class R Certificates will have an initial class principal balance of $100 and will be offered in a single certificate that represents a 99.99% interest in its class.

LEGAL INVESTMENT

As of the date of their issuance, all of the offered certificates, other than the Class B-5, Class B-6 and Class B-7 Certificates, will be “mortgage related securities” for purposes of the Secondary Mortgage Market Enhancement Act of 1984. See “Certain Legal Investment Aspects” in this prospectus supplement for important information concerning possible restrictions on ownership of the offered certificates by regulated institutions. You should consult your own legal advisors in determining whether and to what extent the offered certificates constitute legal investments for you.

ERISA CONSIDERATIONS

Subject to important considerations described under “ERISA Considerations” in this prospectus supplement and in the accompanying prospectus, the offered certificates, other than the Class R Certificates, will be eligible for purchase by persons investing assets of employee benefit plans or individual retirement accounts. See “ERISA Considerations” in this prospectus supplement and in the accompanying prospectus.

FEDERAL INCOME TAX CONSEQUENCES

For federal income tax purposes, the servicer will cause one or more REMIC elections to be made with respect to the Trust (exclusive of the prepayment penalties to which the Class X Certificates are entitled). The offered certificates, other than the Class R Certificates, will represent ownership of REMIC regular interests coupled, in the case of the offered Class A and Class B certificates, with rights to receive carryover shortfall amounts and, in the case of the Class CX-PPP Certificates, with an obligation to pay carryover shortfall amounts, and will generally be treated as representing ownership of debt for federal income tax purposes to the extent of the REMIC regular interest portion thereof. You will be required to include in income all interest and original issue discount on these certificates in accordance with the accrual method of accounting regardless of your usual methods of accounting. In addition, the Class CX-PPP Certificates will also represent a right to receive certain prepayment penalties paid with respect to certain mortgage loans in loan group 1 and loan group 2. For federal income tax purposes, the Class R Certificates will represent ownership of the residual interests in each of the REMICs. The portion of the Class CX-PPP Certificates that represents a right to receive certain prepayment penalties will represent stripped interests in the mortgage loans to which they relate and will not represent an interest in any REMIC.

For further information regarding the federal income tax consequences of investing in the offered certificates, including important information regarding the tax treatment of the Class R Certificates, see “Material Federal Income Tax Consequences” in this prospectus supplement and in the accompanying prospectus.

RATINGS

It is a condition to the issuance of the offered certificates that they receive the following ratings from Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and Moody’s Investors Service, Inc.:

 

 

 

 

 

Class

 

Rating Agency

 

S&P

 

Moody’s

 

1A

 

AAA

 

Aaa

2A

 

AAA

 

Aaa

2A-1A

 

AAA

 

Aaa

2A-1B

 

AAA

 

Aaa

CA-1B

 

AAA

 

Aaa

CA-1C

 

AAA

 

Aaa

2X-1

 

AAA

 

Aaa

CX-PPP

 

AAA

 

Aaa

B-1

 

AA+

 

Aa1

B-2

 

AA

 

Aa1

B-3

 

AA–

 

Aa1

B-4

 

Not Rated

 

Aa2

B-5

 

Not Rated

 

A2

B-6

 

Not Rated

 

Baa1

B-7

 

Not Rated

 

Baa3

R

 

AAA

 

Aaa

The ratings on the offered certificates address the likelihood of the receipt by holders of the offered certificates of all distributions on the underlying mortgage loans to which they are entitled. They do not address the likely actual rate of prepayments.

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The rate of prepayments, if different than originally anticipated, could adversely affect the yield realized by holders of the offered certificates or cause the holders of the Class X Certificates to fail to recover their initial investment. The ratings assigned to the Class CX-PPP Certificates do not address any assessment of the likelihood or frequency of prepayments on the related mortgage loans or the likelihood of receipt of prepayment penalty payments.

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RISK FACTORS

The offered certificates are not suitable investments for all investors. In particular, you should not purchase any class of offered certificates unless you understand and are able to bear the prepayment, credit, liquidity and market risks associated with that class.

The offered certificates are complex securities and it is important that you possess, either alone or together with your advisors, including your accountants, the expertise necessary to evaluate the information contained in this prospectus supplement and the accompanying prospectus in the context of your financial situation.

 

 

 

 

 

 

 

There is No Guarantee That You Will Receive Principal Payments on Your Certificates at any Specific Rate or on any Specific Dates

 

As the mortgagors make payments of interest and principal on their mortgage loans, you will receive payments. Because the mortgagors are free to make those payments faster than scheduled, you may receive distributions faster than you expected. There is no guarantee that you will receive principal payments on your certificates at any specific rate or on any specific dates.

The Yield on Your Certificates is Directly Related to the Prepayment Rate on the Related Mortgage Loans

 

The yield to maturity on your certificates is directly related to the rate at which the mortgagors pay principal on the related mortgage loans. Principal payments on the mortgage loans may be in the following forms:

 

 

 

scheduled principal payments; and

 

 

 

principal prepayments, which consist of:

 

 

 

 

 

prepayments in full on a mortgage loan;

 

 

 

 

 

partial prepayments on a mortgage loan; and

 

 

 

 

 

liquidation principal, which is the principal recovered after foreclosing on or otherwise liquidating a defaulted mortgage loan.

    Each mortgage loan owned by the Trust is an adjustable-rate mortgage loan with an initial fixed-rate period. In general, during the initial fixed-rate period of one or three months, if prevailing mortgage interest rates decline significantly below the mortgage interest rates on the mortgage loans, the prepayment rate may increase. In addition, even after the initial fixed-rate period, if prevailing mortgage interest rates fall significantly, adjustable-rate mortgage loans could be subject to higher prepayment rates than if prevailing mortgage interest rates remain constant because the availability of fixed-rate mortgage loans at competitive interest rates may encourage mortgagors to refinance their mortgage loans to “lock in” lower fixed interest rates. Penalties for early prepayment may also affect the prepayment rate, as they may discourage mortgagors from prepaying their mortgage loans during the period such prepayment penalties are in effect, even in a declining interest rate environment. See “Description of the Mortgage Pool” in this prospectus supplement for a description of prepayment penalties imposed on the mortgage loans. General economic conditions and homeowner mobility will also affect the prepayment rate. See “Yield and Prepayment Considerations” in this prospectus

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supplement and “Yield and Maturity Considerations” in the accompanying prospectus. The prepayment rate may affect the yield on all of the offered certificates. However, if you have purchased a Class 2X-1 or Class CX-PPP Certificate, the prepayment rate will be especially important to you.

 

 

From time to time, the servicer may implement programs to solicit mortgagors of qualifying mortgage loans that it services for refinance, including mortgage loans underlying the certificates. While those programs will not specifically target the mortgage loans underlying the certificates for refinance, they may have the effect of accelerating the prepayment rate of those mortgage loans, which would adversely affect the yield on all classes of certificates purchased at a premium, particularly the Class 2X-1 and Class CX-PPP Certificates.

An Optional Termination May Adversely Affect the Offered Certificates

 

When the aggregate principal balance of the mortgage loans has been reduced to less than 10% of that balance as of March 1, 2007, the servicer may purchase all of the mortgage loans, which will result in the retirement of the certificates. Such an optional termination may occur even if the aggregate principal balance of the mortgage loans in any particular loan group is greater than 10% of that balance as of March 1, 2007. See “Description of the Certificates—Optional Termination” in this prospectus supplement. If this happens, the purchase price paid by the servicer will be passed through to the certificateholders. This would have the same effect as if all of the remaining mortgagors made prepayments in full on the last day of the month. Any class of certificates purchased at a premium could be adversely affected by an optional termination. Since the Class 2X-1 and Class CX-PPP Certificates generally receive only distributions of interest (except, in the case of the Class CX-PPP Certificates, for interest added to their class principal balance as a result of the allocation of any Net Negative Amortization, which is then distributed to those certificates as principal, and for certain prepayment penalties collected on the related mortgage loans), an optional termination would adversely affect holders of those certificates.

Rapid Prepayments Will Reduce the Yield on the Class 2X-1 Certificates

 

The Class 2X-1 Certificates receive only distributions of interest. The yield to maturity on the Class 2X-1 Certificates will be extremely sensitive to the level of prepayments on the mortgage loans in subgroup 2A. The faster that the mortgage loans in subgroup 2A prepay, the less interest the Class 2X-1 Certificates will receive.

    The yield to maturity on the Class 2X-1 Certificates will be especially sensitive to the level of prepayments on the mortgage loans in subgroup 2A with higher interest rates. For each distribution date, the amount of interest accrued on the Class 2X-1 Certificates is calculated by

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reference to the excess, if any, of the initial Margin on certain mortgage loans in subgroup 2A over a fixed percentage (as described in note (12) to the table on page S-6 of this prospectus supplement). Consequently, the higher the interest rates on the mortgage loans in subgroup 2A that prepay, the less interest will be available for distribution to the Class 2X-1 Certificates. Under certain prepayment scenarios, the Class 2X-1 Certificates may not be entitled to receive any interest. If mortgage interest rates decline, the higher interest rate mortgage loans in subgroup 2A are more likely to be refinanced, and, therefore, prepayments in full on these mortgage loans are more likely to occur.

 

 

You should fully consider the risks associated with an investment in the Class 2X-1 Certificates. If the mortgage loans in subgroup 2A prepay faster than expected, if the rate of liquidations on the mortgage loans in subgroup 2A is greater than expected or if the Trust is terminated earlier than expected, you may not fully recover your initial investment. See “Yield and Prepayment Considerations—Yield Considerations with Respect to the Class X Certificates” in this prospectus supplement for a table showing expected yields at different prepayment rates.

Rapid Prepayments Will Reduce the Yield on the Class CX-PPP Certificates

 

The Class CX-PPP Certificates generally receive only distributions of interest (except for amounts added to their class principal balance as a result of the allocation of Net Negative Amortization, which is then distributed to the Class CX-PPP Certificates as principal, and certain prepayment penalties collected on the mortgage loans in loan group 1 and loan group 2). The yield to maturity on the Class CX-PPP Certificates will be extremely sensitive to the level of prepayments on the mortgage loans in loan group 1 and loan group 2. The faster that the mortgage loans in loan group 1 and loan group 2 prepay, the less interest the Class CX-PPP Certificates will receive.

    The yield to maturity on the Class CX-PPP Certificates will be especially sensitive to the level of prepayments on the mortgage loans in loan group 1 and loan group 2 with higher interest rates. For each distribution date, the amount of interest available for distribution to the Class CX-PPP Certificates is calculated by reference to the Loan Group 1 Weighted Average Pass-Through Rate and the Loan Group 2 Net Weighted Average Pass-Through Rate. Consequently, the higher the interest rates on the mortgage loans in loan group 1 and loan group 2 that prepay, the less interest will be available for distribution to the Class CX-PPP Certificates. Under certain prepayment scenarios, the Class CX-PPP Certificates may not be entitled to receive any interest. If mortgage interest rates decline, the higher interest rate mortgage loans in loan group 1 and loan group 2 are more likely

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to be refinanced, and, therefore, prepayments in full on these mortgage loans are more likely to occur.

 

 

You should fully consider the risks associated with an investment in the Class CX-PPP Certificates. If the mortgage loans in loan group 1 and loan group 2 prepay faster than expected, if the rate of liquidations on the mortgage loans in loan group 1 and loan group 2 is greater than expected or if the Trust is terminated earlier than expected, you may not fully recover your initial investment. See “Yield and Prepayment Considerations—Yield Considerations with Respect to the Class X Certificates” in this prospectus supplement for a table showing expected yields at different prepayment rates.

Changes to the Certificate Margins After the Clean-Up Call Option Date Will Reduce the Class CX-PPP Certificate Interest Distributions

 

The certificate margins for the Class CA-1B, Class CA-1C and Class B Certificates will increase after the Clean-Up Call Option Date to the amounts specified in the notes to the table on page S-6 of this prospectus supplement, which will result in a corresponding decrease in the amount of interest available for distribution to the Class CX-PPP Certificates. The Clean-Up Call Option Date is the date on which the aggregate principal balance of the mortgage loans has been reduced to less than 10% of that balance as of March 1, 2007. Consequently, the faster that the mortgage loans prepay, the sooner this change in the amount of interest available for distribution to the Class CX-PPP Certificates will occur.

If an Index is Replaced, the Mortgage Loan Margins and the Certificate Margins on the MTA Certificates May be Adjusted

 

If One-Year MTA is no longer available, the servicer will choose a new index for the mortgage loans that is based on comparable information. The new index for the related mortgage loans will also be the new index for the MTA Certificates. When the servicer chooses a new index, it will increase or decrease the margin for each related mortgage loan by the difference between the average of the old index for the final three years it was in effect and the average of the replacement index for the most recent three years. The new margin for each mortgage loan will be rounded up as provided in the related mortgage note. The margins used to calculate the certificate interest rates for the MTA Certificates will be increased or decreased by the amount by which the margin for each related mortgage loan is increased or decreased; provided, however, that the rounding of the mortgage loan margins will be disregarded for this purpose.

The Class 1A, Class 2A, Class 2A-1A and Class 2A-1B Certificates Will be Sensitive to Changes in the One-Year MTA Index   The Class 1A Certificates will receive interest at a certificate interest rate equal to the lesser of (x) the Loan Group 1 Weighted Average Pass-Through Rate and (y) the One-Year MTA Index (as described in “Description of the Mortgage Pool—The Indexes” in this prospectus supplement) plus the related margin. Accordingly, the Class 1A Certificates will be sensitive to changes in the index value, unless the certificate

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interest rate for such certificates is limited to the Loan Group 1 Weighted Average Pass-Through Rate. No prediction can be made as to future levels of the One-Year MTA Index.

 

 

The Class 2A, Class 2A-1A and Class 2A-1B Certificates will receive interest at a certificate interest rate equal to the lesser of (x) the Loan Group 2 Net Weighted Average Pass-Through Rate and (y) the One-Year MTA Index (as described in “Description of the Mortgage Pool—The Indexes” in this prospectus supplement) plus the related margin. Accordingly, the Class 2A, Class 2A-1A and Class 2A-1B Certificates will be sensitive to changes in the index value, unless the certificate interest rate for such certificates is limited to the Loan Group 2 Net Weighted Average Pass-Through Rate. No prediction can be made as to future levels of the One-Year MTA Index.

 

 

For more information, see “Description of the Mortgage Pool—The Indexes” and “Description of the Certificates—Distributions of Interest” in this prospectus supplement.

The Class 1A, Class 2A, Class 2A-1A and Class 2A-1B Certificates May Receive Interest at a Certificate Interest Rate Lower than the One-Year MTA Index Plus the Related Margin

 

The Class 1A Certificates will receive interest at a certificate interest rate equal to the lesser of (x) the Loan Group 1 Weighted Average Pass-Through Rate and (y) the One-Year MTA Index (as described in “Description of the Mortgage Pool—The Indexes” in this prospectus supplement) plus the related margin. Accordingly, the prepayment of mortgage loans in loan group 1 with relatively higher pass-through rates may cause the Loan Group 1 Weighted Average Pass- Through Rate to be lower than the One-Year MTA Index plus the related margin, in which case the certificate interest rate for these certificates will be limited to the Loan Group 1 Weighted Average Pass-Through Rate. Therefore, the holders of the Class 1A Certificates will be subject to the risk that interest distributable to those certificates will equal the Loan Group 1 Weighted Average Pass-Through Rate.

 

 

If on the initial distribution date the certificate interest rate for the Class 1A Certificates is limited to the Loan Group 1 Weighted Average Pass-Through Rate, a carryover shortfall amount, equal to the excess, if any, of (i) the amount of interest that would have accrued on such class at a certificate interest rate equal to the One-Year MTA Index plus the related margin over (ii) the actual amount of interest accrued on such class for such distribution date, will be payable to such certificates, to the extent of available funds on the initial distribution date.

    The Class 2A, Class 2A-1A and Class 2A-1B Certificates will receive interest at a certificate interest rate equal to the lesser of (x) the Loan Group 2 Net Weighted Average Pass-Through Rate and (y) the One-

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Year MTA Index (as described in “Description of the Mortgage Pool—The Indexes” in this prospectus supplement) plus the related margin. Accordingly, the prepayment of mortgage loans in loan group 2 with relatively higher pass-through rates may cause the Loan Group 2 Net Weighted Average Pass-Through Rate to be lower than the One-Year MTA Index plus the related margin, in which case the certificate interest rate for these certificates will be limited to the Loan Group 2 Net Weighted Average Pass-Through Rate. Therefore, the holders of the Class 2A, Class 2A-1A and Class 2A-1B Certificates will be subject to the risk that interest distributable to those certificates will equal the Loan Group 2 Net Weighted Average Pass-Through Rate.

 

 

If on the initial distribution date the certificate interest rate for the Class 2A, Class 2A-1A and Class 2A-1B Certificates is limited to the Loan Group 2 Net Weighted Average Pass-Through Rate, a carryover shortfall amount, equal to the excess, if any, of (i) the amount of interest that would have accrued on such class at a certificate interest rate equal to the One-Year MTA Index plus the related margin over (ii) the actual amount of interest accrued on such class for such distribution date, will be payable to such certificates, to the extent of available funds on the initial distribution date.

 

 

However, any such carryover shortfall amount will be paid to the Class 1A, Class 2A, Class 2A-1A and Class 2A-1B Certificates on the initial distribution date only, and only to the extent that there are amounts on deposit to pay such shortfalls, funded from interest accrued on and otherwise distributable to the Class CX-PPP Certificates. Except to the extent that any carryover shortfall amounts are paid to the Class 1A, Class 2A, Class 2A-1A and Class 2A-1B Certificates from amounts otherwise distributable to the Class CX-PPP Certificates, the holders of the Class 1A, Class 2A, Class 2A-1A and Class 2A-1B Certificates will be subject to the risk that interest distributable to those classes will equal the Loan Group 1 Weighted Average Pass-Through Rate or Loan Group 2 Net Weighted Average Pass-Through Rate, as applicable.

 

 

See “Description of the Certificates—Distributions of Interest” in this prospectus supplement.

The Class CA-1B, Class CA-1C and Class B Certificates Will be Sensitive to Changes in LIBOR   Each component of the Class CA-1B and Class CA-1C Certificates will receive interest at a certificate interest rate equal to the least of (x) the Adjusted Loan Group 1 Weighted Average Pass-Through Rate or the Adjusted Loan Group 2 Net Weighted Average Pass-Through Rate, as applicable (the “Applicable Class CA Net WAC Cap”), (y) LIBOR plus the related margin and (z) the maximum rate described in clause (z) of the

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applicable paragraph of note (6) or (8) to the table on page S-6 of this prospectus supplement (the “Applicable Maximum Class CA Rate”). Accordingly, each component of the Class CA-1B and Class CA- 1C Certificates will be sensitive to changes in LIBOR, unless the certificate interest rate for such component is limited to the Applicable Class CA Net WAC Cap. No prediction can be made as to future levels of LIBOR.

 

 

The Class B Certificates will receive interest at a certificate interest rate equal to the least of (x) the Class B Net Weighted Average Pass-Through Rate, (y) LIBOR plus the related margin and (z) the Maximum Class B Rate. Accordingly, the Class B Certificates will be sensitive to changes in LIBOR, unless the certificate interest rate for such certificates is limited to the Class B Net Weighted Average Pass-Through Rate. No prediction can be made as to future levels of LIBOR.

 

 

See “Description of the Certificates—Distributions of Interest” and “—Calculation of LIBOR” in this prospectus supplement.

The Class CA-1B, Class CA-1C and Class B Certificates May Receive Interest at a Certificate Interest Rate Lower than LIBOR Plus the Related Margin

 

Each component of the Class CA-1B and Class CA-1C Certificates will receive interest at a certificate interest rate equal to the least of (x) the Applicable Class CA Net WAC Cap, (y) LIBOR plus the related margin and (z) the Applicable Maximum Class CA Rate. Accordingly, the prepayment of mortgage loans with relatively higher pass-through rates may cause the Applicable Class CA Net WAC Cap to be lower than LIBOR plus the related margin, in which case the certificate interest rate for the related component of the Class CA-1B and Class CA-1C Certificates will be limited to the lesser of (i) the Applicable Class CA Net WAC Cap and (ii) the Applicable Maximum Class CA Rate.

 

 

If on any distribution date the certificate interest rate for any component of the Class CA-1B or Class CA-1C Certificates is limited to the Applicable Class CA Net WAC Cap, a carryover shortfall amount, in the amount described under “Description of the Certificates—Distributions of Interest—Carryover Shortfall Amounts” in this prospectus supplement, will be payable to such certificates, to the extent of available funds on that distribution date or future distribution dates.

    The Class B Certificates will receive interest at a certificate interest rate equal to the least of (x) the Class B Net Weighted Average Pass-Through Rate, (y) LIBOR plus the related margin and (z) the Maximum Class B Rate. For any class of these certificates, the prepayment of mortgage loans with relatively higher pass- through rates may cause the Class B Net Weighted Average Pass-Through Rate to be lower than LIBOR plus the related margin, in which

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case the certificate interest rate for these certificates will be limited to the lesser of (i) the Class B Net Weighted Average Pass-Through Rate and (ii) the Maximum Class B Rate.

 

 

If on any distribution date the certificate interest rate for the Class B Certificates is limited to the Class B Net Weighted Average Pass-Through Rate, a carryover shortfall amount, in the amount described under “Description of the Certificates—Distributions of Interest—Carryover Shortfall Amounts” in this prospectus supplement, will be payable to such certificates, to the extent of available funds on that distribution date or future distribution dates.

 

 

However, any such carryover shortfall amounts, subject to the limitations described under “Description of the Certificates—Distributions of Interest—Carryover Shortfall Amounts” in this prospectus supplement, will be paid on any distribution date only to the extent that there are amounts on deposit to pay such shortfalls, funded from interest accrued on and otherwise distributable to the Class CX-PPP Certificates. Furthermore, on any distribution date, subject to the limitations described under “Description of the Certificates—Distributions of Interest—Carryover Shortfall Amounts” in this prospectus supplement, the amounts available to pay such carryover shortfall amounts from interest accrued on and otherwise distributable to the Class CX-PPP Certificates will be paid first to the Class 1A, Class 2A, Class 2A-1A and Class 2A-1B, Class CA-1B and Class CA-1C Certificates, as applicable, pro rata, and then sequentially to the Class B Certificates, in order of seniority, to the extent remaining after such interest has been applied to pay carryover shortfall amounts to the Class 1A, Class 2A, Class 2A-1A and Class 2A- 1B, Class CA-1B and Class CA-1C Certificates. Accordingly, these carryover shortfall amounts may remain unpaid on the date of any optional termination or the final distribution date.

    Except to the extent that any carryover shortfall amounts are paid to (a) the Class CA-1B or Class CA-1C Certificates from amounts otherwise distributable as interest to the Class CX-PPP Certificates, the holders of the Class CA-1B and Class CA-1C Certificates will be subject to the risk that interest distributable to those certificates in respect of each component will equal the lesser of (i) the Applicable Class CA Net WAC Cap and (ii) the Applicable Maximum Class CA Rate and (b) the Class B Certificates from amounts otherwise distributable as interest to the Class CX-PPP Certificates and remaining after such interest has been applied to pay carryover shortfall amounts to the Class 1A, Class 2A, Class 2A-1A and Class 2A-1B, Class CA-1B and Class CA-1C Certificates, the holders of the Class B

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Certificates will be subject to the risk that interest distributable to those classes will equal the lesser of (i) the Class B Net Weighted Average Pass- Through Rate and (ii) the Maximum Class B Rate. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement.

Certificates Bought at Premiums and Discounts May Receive a Lower Yield Than Expected

 

If you purchase a certificate at a discount from its original principal balance and the rate of principal payments is slower than you expect, your yield may be lower than you anticipate. If you purchase a certificate at a premium over its original principal balance and the rate of principal payments is faster than you expect, your yield may be lower than you anticipate.

Losses on the Mortgage Loans Will Reduce the Yield on the Certificates

 

The yield to maturity of the Class B-1, Class B-2, Class B-3, Class B-4, Class B-5, Class B-6 and Class B-7 Certificates will be sensitive to losses on the mortgage loans in loan group 1 and loan group 2 that occur after the aggregate principal balance of the Class B-8, Class B-9 and Class B-10 Certificates has been reduced to zero. Losses on the mortgage loans in loan group 1 and loan group 2 that occur after that time will be allocated exclusively to the Class B-1, Class B-2, Class B-3, Class B-4, Class B-5, Class B-6 and Class B-7 Certificates in reverse numerical order until the aggregate principal balance of those certificates has been reduced to zero.

 

 

In addition, if the aggregate principal balance of all the Class B Certificates has been reduced to zero, (i) any loss with respect to a mortgage loan in loan group 1 will be allocated to the Class 1A Certificates and the Class CX-PPP Loan Group 1 PO, Class CA-1B Group 1 and Class CA-1C Group 1 Components and (ii) any loss with respect to a mortgage loan in loan group 2 will be allocated to the Class 2A, Class 2A-1A and Class 2A-1B Certificates and the Class CX-PPP Loan Group 2 PO Class CA-1B Group 2 and CA-1C Group 2 Components, in the case of each of clause (i) and (ii), as described under “Description of the Certificates—Subordination and Allocation of Losses” in this prospectus supplement.

 

 

See “Description of the Certificates—Subordination and Allocation of Losses” in this prospectus supplement.

Losses on the Mortgage Loans in One Loan Group May Reduce the Yield on Senior Certificates Unrelated to That Loan Group   Because the Class B Certificates represent interests in the mortgage loans in loan group 1 and loan group 2, the class principal balances of the Class B Certificates could be reduced to zero as a result of realized losses on the mortgage loans in either of these loan groups. Therefore, the allocation of realized losses on the mortgage loans in either of these loan groups to the Class B Certificates will reduce the subordination provided by the subordinate certificates to all of the senior certificates, including the senior certificates related to either of these loan groups that did not suffer

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any losses. This will increase the likelihood that future realized losses may be allocated to the senior certificates related to a loan group that did not suffer those previous losses.

 

 

Similarly, if the Class B Certificates are no longer outstanding, because losses on the mortgage loans in loan group 1 and loan group 2 are allocated to the Class CA-1B and Class CA-1C Certificates, the class principal balance of the Class CA-1B or Class CA-1C Certificates could be reduced to zero as a result of a disproportionate amount of losses on the mortgage loans in either of these loan groups. Therefore, the allocation to the Class CA-1B and Class CA-1C Certificates of realized losses on the mortgage loans in loan group 1 will increase the likelihood that future realized losses in loan group 2 may be allocated to the senior certificates (or components thereof, as applicable) related to loan group 2, and the allocation to the Class CA-1B and Class CA-1C Certificates of realized losses on the mortgage loans in loan group 2 will increase the likelihood that future realized losses in loan group 1 may be allocated to the senior certificates (or components thereof, as applicable) related to loan group 1.

 

 

See “Description of the Certificates—Subordination and Allocation of Losses” in this prospectus supplement.

The Lack of Secondary Markets May Make it Difficult for You to Resell Your Certificates and Your Investment May Lose Value

 

The underwriter may make a secondary market in the classes of offered certificates actually purchased by it, but it has no obligation to do so. There is no assurance that such a secondary market will develop or, if it develops, that it will continue. Consequently, you may not be able to sell your certificates readily or at prices that will enable you to realize your desired yield. The market values of the offered certificates are likely to fluctuate; these fluctuations may be significant and could result in significant losses to you.

 

 

Investments can lose value because of actual performance as well as perceptions of future performance based on changes in the external interest rate environment and other market factors not directly related to the performance of the mortgage loans themselves.

 

 

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 Lack of Physical Certificates for Some Certificates May Cause Delays in Payment   You will not have a physical certificate if you own a Class A, Class X or Class B Certificate. As a result, you will be able to transfer your certificates only through The Depository Trust Company, participating

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organizations, including Euroclear and Clearstream and indirect participants. In addition, you may experience some delay in receiving distributions on these certificates because the trustee will not send distributions directly to you. Instead, the trustee will send all distributions to The Depository Trust Company, which will then credit those distributions to the participating organizations. Those organizations will in turn credit accounts you have either directly with them or indirectly with them through indirect participants.

The Return on Your Certificates Could be Reduced due to the Application of the Servicemembers Civil Relief Act or any Comparable State Legislation

 

Following the terrorist attacks in the United States on September 11, 2001, the United States has increased its active military operations (including, most recently, significant military actions in Iraq) and has placed a substantial number of military reservists and members of the National Guard on active duty status. It is possible that the number of reservists and members of the National Guard placed on active duty status in the near future may increase. Calling reservists, members of the National Guard and civilians to active military duty may adversely affect the performance of your certificates. Under the Servicemembers Civil Relief Act, as amended (the “Relief Act”), formerly known as the Soldiers’ and Sailors’ Civil Relief Act of 1940, persons in active military service are provided relief from the performance of some payment obligations. The relief includes a 6.000% per annum interest rate cap on each mortgage loan, provided that the mortgage loan was obtained before the commencement of active military service. In addition, all civil court actions, such as bankruptcy and foreclosure proceedings, are delayed. Furthermore, the servicer may be required to waive all or part of any prepayment penalty that would otherwise be due during the time that any mortgage loan is subject to the Relief Act.

 

 

State legislation may provide similar relief for military personnel placed on active duty status. For the purpose of this prospectus supplement, references to the Relief Act include any such comparable state legislation.

 

 

The application of the interest rate cap to any mortgage loan underlying the related certificates would result in certificateholders receiving less interest than they would otherwise be entitled to. The interest shortfall on any distribution date arising out of each of these mortgage loans would be equal to one month of interest on the principal balance of the mortgage loan at a rate equal to the difference between the interest rate payable by the borrower under the terms of the applicable mortgage note and 6.000%. The interest shortfall would be deducted from the interest payable to each class of related certificates, pro rata, in accordance with interest accrued on each class of certificates (or component thereof, as applicable) related to that loan group for the applicable distribution date.

 

 

 

 

 

 

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The effect of a delay in foreclosure proceedings with respect to any mortgage loan underlying the related certificates could be to cause a loss, or increase the severity of any loss that would have otherwise occurred, upon the final liquidation of the mortgage loan. These losses would be applied first to the Class B-10, Class B-9, Class B-8, Class B-7, Class B-6, Class B-5, Class B-4, Class B-3, Class B-2 and Class B-1 Certificates, in that order, and then to the senior certificates.

 

 

Neither the depositor nor the servicer is able to determine how many of the mortgage loans underlying the certificates may be affected by application of the Relief Act in the future.

The Geographic Concentration of the Mortgaged Properties Relating to the Mortgage Loans Increases Your Exposure to Adverse Conditions in California or in Other States With High Concentrations of Mortgaged Properties

 

The geographic concentration of mortgaged properties can expose the related mortgage loans to a higher incidence of losses due to a greater susceptibility to hazards not covered by standard hazard insurance, such as hurricanes, floods, mudslides and earthquakes, than properties located in other parts of the country. Also, the geographic concentration of mortgaged properties can expose the related mortgage loans to a higher incidence of losses due to economic conditions in states that have higher concentrations of businesses in particular economic segments than the nation as a whole. Consequently, the high concentration of mortgage loans in California or other states may adversely affect losses and prepayments on the mortgage loans which, in turn, would adversely affect the certificates. See Appendix B to this prospectus supplement for a table showing the geographic distribution of the mortgage loans by state.

A Loss or Delinquency on a Mortgage Loan May Have a Disproportionate Impact on the Performance of the Mortgage Pool Because the Mortgage Loans Have High Principal Balances

 

As of March 1, 2007, some of the mortgage loans had original principal balances in excess of $1,000,000. You should consider the risk that the loss and delinquency experience on the higher balance mortgage loans may have a disproportionate effect on the mortgage loans as a whole. A loss of the entire principal balance of one of these mortgage loans may result in a substantial realized loss, which may be allocated to the offered certificates. See Appendix B to this prospectus supplement for a table showing the original principal balance ranges of the mortgage loans.

Not All Mortgage Loans Impose Prepayment Penalties, and Those That Do Impose Them for Only a Limited Period of Time   As of March 1, 2007, certain of the mortgage loans impose penalties for early prepayments in full (but do not impose penalties for partial prepayments) received on or before the first or third anniversary, as stated in the related mortgage note, of the origination of the mortgage loan. As of March 1, 2007, certain of the mortgage loans impose penalties for early prepayments in full, and for partial prepayments in the event that aggregate partial prepayments made during a 12- month period exceed 20% of the original principal balance. Those prepayment penalties are in effect for 30 months

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after the origination of those mortgage loans. See Appendix B to this prospectus supplement for a table showing prepayment penalty terms of the mortgage loans. The amount of the applicable prepayment penalty, to the extent permitted by applicable law, is as provided in the related mortgage note. Such prepayment penalty may discourage mortgagors from prepaying their mortgage loans during the period such prepayment penalties are in effect and, accordingly, thereby affect the rate of prepayment of such mortgage loans even in a declining interest rate environment. See the “Prepayment Penalty Terms of the Group 1 Loans” and “Prepayment Penalty Terms of the Group 2 Loans” tables in Appendix B hereto for information regarding the number of loans, and the related percentage of each loan group, that contain prepayment penalties, broken out for each of the various prepayment penalty terms.

Only Penalties on Voluntary Prepayments in Full Will Be Assigned to the Class CX-PPP Certificateholders

 

The Class CX-PPP Certificates will receive distributions of interest and principal as described in this prospectus supplement. In addition, the Class CX-PPP Certificates are entitled to receive the Assigned Prepayment Penalties for loan group 1 and loan group 2.

 

 

The “Assigned Prepayment Penalties” for a loan group and a distribution date will equal the sum of (a) all prepayment penalty payments remitted to the Trust with respect to voluntary full prepayments on those mortgage loans in that loan group that have prepayment penalties during the Prepayment Penalty Period and (b) any amounts paid by the servicer during the Prepayment Penalty Period pursuant to the pooling agreement if the servicer waives a penalty on a voluntary full prepayment of a mortgage loan other than in accordance with the standards set forth in the pooling agreement, or paid by the sponsor during the Prepayment Penalty Period pursuant to the mortgage loan sale agreement if it breaches certain representations and warranties with respect to mortgage loans that require payment of a penalty on voluntary full prepayment.

 

 

The holders of the Class CX-PPP Certificates will not receive any prepayment penalty payments collected by the servicer with respect to voluntary partial prepayments; each such payment will be retained by the servicer as additional servicing compensation. No prepayment penalty payments will be available for distribution to holders of the other classes of certificates.

    In addition, in the event of a material breach of the representations and warranties made by the depositor or the sponsor with respect to the mortgage loans, the breaching party may be required to repurchase the affected mortgage loan from the Trust (or substitute a new mortgage loan for that mortgage loan). The holders of the Class CX-PPP Certificates will not receive any prepayment penalties paid, after the date of repurchase

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or substitution, on a mortgage loan that was repurchased or substituted for.

 

 

No prepayment penalty payments will be available for distribution to holders of the other classes of certificates.

There are Limitations in the Mortgage Loans on the Imposition of Prepayment Penalties; The Servicer May Waive Prepayment Penalties Under Certain Circumstances

 

Under certain circumstances set forth in the pooling agreement, the payment of any otherwise applicable penalty for voluntary full prepayment by a mortgagor of a mortgage loan may be waived by the servicer and, if waived in accordance with the terms of the pooling agreement, the amount of the waived penalty will not be available for distribution to the holders of the Class CX-PPP Certificates. Circumstances under which the servicer may waive a prepayment penalty include, among other circumstances set forth in the pooling agreement, (i) some cases, for mortgage loans originated by the servicer or an affiliate thereof, where the mortgagor sells the mortgaged property and obtains a new mortgage loan originated and serviced by the servicer to purchase another property, provided that the prepayment is made no earlier than one year after origination, (ii) some cases, for mortgage loans originated by the servicer or an affiliate thereof with prepayment penalty terms longer than one year, where the mortgagor refinances the mortgage loan with a new mortgage loan originated and serviced by the servicer, provided that 90 days or less remain in the prepayment penalty term or (iii) for prepayments of accrued but unpaid interest that has been added to principal as a result of negative amortization.

 

 

Moreover, regardless of the terms of the mortgage note, the servicer will not collect prepayment penalties required to be paid more than three years after the origination of the mortgage loan.

 

 

Investors should conduct their own analysis of the effect that the payment of penalties for voluntary full prepayment of the related mortgage loans, or decisions by the servicer with respect to waiver thereof, may have on the performance of the Class CX-PPP Certificates. See also “Description of the Mortgage Pool” and “Description of the Certificates—Distributions to the Class CX-PPP Certificates” in this prospectus supplement for a description of prepayment penalties imposed on the related mortgage loans.

The Conservatorship, Receivership, or Insolvency of Washington Mutual Bank as Mortgage Loan Seller Could Result In Delayed or Reduced Distributions on the Certificates   In addition to the applicable risk factors described in the accompanying prospectus, investors should consider the following risk factor:
In the receivership of an unrelated national bank, the FDIC successfully argued that certain of its rights and powers extended to a statutory trust formed by that national bank in connection with a securitization of credit card receivables. If Washington Mutual Bank were to enter conservatorship or receivership, the FDIC could argue that its rights and powers extend to the depositor

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or the Trust. If the FDIC were to take this position and seek to repudiate or otherwise affect the rights of the trustee or the holders of the certificates under any transaction document, delays or reductions in distributions on the certificates could result.

 

 

There could also be delays or reductions in distributions on the certificates if the FDIC successfully asserts that a statutory injunction automatically prevents the Trust, the trustee, and the holders of the certificates from exercising their rights, remedies, and interests for up to 90 days.

Additional Risks Relating to Option ARM Loans

 

In addition to the risk factors described in this prospectus supplement, you should carefully consider the risk factors described under “Additional Risk Factors Applicable to Negative Amortization Loans” in the accompanying prospectus, as well as the other risk factors in the accompanying prospectus related to your certificates.

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THE SPONSOR

General

Washington Mutual Bank, the sponsor of the securitization transaction, is a federal savings association that provides financial services to consumers and commercial clients. It is an indirect wholly-owned subsidiary of Washington Mutual, Inc. At December 31, 2006, Washington Mutual, Inc. and its subsidiaries had assets of $346.3 billion. The sponsor and its affiliates currently operate more than 2,600 retail banking, mortgage lending, commercial banking and financial services offices throughout the United States.

Securitization of mortgage loans is an integral part of the sponsor’s management of its capital. It has engaged in securitizations of first lien single-family residential mortgage loans through WaMu Asset Acceptance Corp., as depositor, since 2005, and through Washington Mutual Mortgage Securities Corp., as depositor, since 2001. From 1997 until 2001, the sponsor engaged in securitizations of single-family residential mortgage loans through unaffiliated depositors, and some of its predecessor organizations also securitized mortgage loans. It has engaged in securitizations of multi-family and commercial mortgage loans through unaffiliated depositors since 2001.

The sponsor generally acts as servicer of all mortgage loans securitized by the sponsor, and it will act as servicer of the mortgage loans owned by the Trust. The sponsor participated with the underwriter in structuring the securitization transaction.

The following table shows, for each indicated period, the aggregate principal balance of first lien single-family residential mortgage loans originated by the sponsor (or purchased by the sponsor from correspondent lenders) during that period and the portion of those mortgage loans securitized during that period through affiliated depositors.

The Sponsor’s Origination and Securitization of Single-Family Residential Mortgage Loans

 

 

 

 

 

 

 

 

 

Year Ended
December 31, 2004

 

Year Ended
December 31, 2005

 

Year Ended
December 31, 2006

 

 

(Dollar Amounts in Millions)

Aggregate Principal Balance of Mortgage Loans Originated by Sponsor

 

 

$

 

212,362

   

 

$

 

207,722

   

 

$

 

158,383

 

Aggregate Principal Balance of Mortgage Loans Securitized

 

 

$

 

34,707

   

 

$

 

71,584

   

 

$

 

70,781

 

The Sponsor’s Origination Channels

All of the mortgage loans owned by the Trust have been either originated by the sponsor or purchased by the sponsor from approved mortgage loan correspondent lenders. The sponsor originates mortgage loans through its retail lending division, which is a network of its own banks and mortgage lending offices; through its ConsumerDirect lending division, which originates mortgage loans to employees of the sponsor and its affiliates, originates mortgage loans through the internet and refinances mortgage loans held in the sponsor’s mortgage loan portfolio; and through its wholesale lending division, which is a network of independent mortgage loan brokers approved by the sponsor. For each mortgage loan originated through the sponsor’s wholesale lending division, a mortgage loan broker submits a loan application package to the sponsor for underwriting and funding, and receives a portion of the loan origination fee charged to the mortgagor at the time the loan is made.

Some of the sponsor’s correspondent lenders have delegated underwriting approval. Those correspondent lenders are authorized to underwrite mortgage loans with specified characteristics up to specified loan amounts, and must refer all other mortgage loans to the sponsor for underwriting. In the case of mortgage loans underwritten by a correspondent lender, the correspondent lender will represent to the sponsor that the mortgage loans have been underwritten in accordance with the sponsor’s underwriting guidelines. Correspondent lenders without delegated underwriting approval submit loan application packages to the sponsor for underwriting and fund each loan only upon approval by the sponsor.

As part of its general securitization program, the sponsor may also purchase pools of mortgage loans in the secondary market from originators that may have applied underwriting guidelines that differ from those of the sponsor. None of the mortgage loans owned by the Trust were purchased from such originators.

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STATIC POOL INFORMATION

On February 12, 2007, the depositor filed with the Securities and Exchange Commission, as Exhibits 99.7 and 99.8 to a Current Report on Form 8-K, static pool information about prior securitized pools of Option ARM Loans of the sponsor. The static pool information includes (i) information about the original characteristics of each prior securitized pool as of the cut-off date for that pool and (ii) delinquency, loss and prepayment information about each prior securitized pool in quarterly increments from the related cut-off date through December 31, 2006. The static pool information about prior securitized pools of Option ARM Loans of the sponsor that were established before January 1, 2006 is not deemed to be a part of this prospectus supplement, the prospectus or the related registration statement. “Option ARM Loans” are adjustable rate mortgage loans whose interest rates are tied to an index, which have an initial fixed-rate period of between one and twelve months, and which have a negative amortization feature.

There can be no assurance that the rates of delinquencies, losses and prepayments experienced by the prior securitized pools will be comparable to delinquencies, losses and prepayments expected to be experienced by the mortgage loans owned by the Trust.

UNDERWRITING OF THE MORTGAGE LOANS

General

All of the mortgage loans owned by the Trust have been originated in accordance with the underwriting guidelines of the sponsor as described in this section. Mortgage loans may have been underwritten directly by the sponsor or by correspondent lenders with delegated underwriting approval.

The sponsor’s underwriting guidelines generally are intended to evaluate the prospective borrower’s credit standing and repayment ability and the value and adequacy of the mortgaged property as collateral. Some mortgage loans are manually underwritten, in which case an underwriter reviews a loan application and supporting documentation, if required, and a credit report of the borrower, and based on that review determines whether to originate a loan in the amount and with the terms stated in the loan application. Some mortgage loans are underwritten through the sponsor’s automated underwriting system, described below.

Prospective borrowers are required to complete a standard loan application in which they provide financial information regarding such factors as their assets, liabilities and related monthly payments, income, employment history and credit history. Each borrower also provides an authorization to access a credit report that summarizes the borrower’s credit history. In the case of some mortgage loans originated under the sponsor’s streamline documentation programs (described below), the prospective borrower is not required to provide certain financial information, including information about income and assets.

Evaluation of the Borrower’s Credit Standing

To evaluate a prospective borrower’s credit history, the loan underwriter obtains a credit report relating to the borrower from one or more credit reporting companies, usually in the form of a merged credit report. The credit report typically contains information relating to such matters as credit history with local and national merchants and lenders, installment debt payments and any record of defaults, bankruptcy, repossession, suits or judgments. In most cases the credit report provides a credit score for the borrower, which represents a numerical weighing of the borrower’s credit characteristics. Credit scores are designed to assess a borrower’s creditworthiness and likelihood to default on an obligation over a defined period (usually two to three years) based on a borrower’s credit history. Credit scores do not necessarily correspond to the probability of default over the life of a mortgage loan because they reflect past credit history, rather than an assessment of future payment performance. In addition, credit scores only indicate general creditworthiness, and credit scores are not intended to specifically apply to mortgage debt. Credit scores range from approximately 250 to approximately 900, with higher scores indicating more favorable credit history. If the loan underwriter obtains credit scores from three credit reporting companies, the middle score generally is used, and if two credit scores are obtained, the lowest score generally is used. In the case of co-borrowers, the credit score for the borrower with the lowest credit score generally is used (determined for each borrower as described in the immediately preceding sentence). Minimum credit scores are required for some loan products and loan programs. For borrowers for which credit scores are not

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available, the loan underwriter will require alternative documentation indicating the borrower’s creditworthiness, such as rental or utility payment history or payment history on other debt.

Evaluation of the Borrower’s Repayment Ability

In evaluating a prospective borrower’s ability to repay a mortgage loan, the loan underwriter considers the ratio of the borrower’s mortgage payments, real property taxes and other monthly housing expenses to the borrower’s gross income (referred to as the “housing-to-income ratio” or “front end ratio”), and the ratio of the borrower’s total monthly debt (including non-housing expenses) to the borrower’s gross income (referred to as the “debt-to-income ratio” or “back end ratio”). The maximum acceptable ratios may vary depending on other loan factors, such as loan amount and loan purpose, loan-to-value ratio, credit score and the availability of other liquid assets. Exceptions to the ratio guidelines may be made when compensating factors are present.

For purposes of calculating the “front end” and “back end” ratios for certain Option ARM Loans, the borrower’s monthly mortgage debt is determined based on the fully indexed rate and a predetermined factor as set by the sponsor’s credit department from time to time (which rate may be greater than the rate in effect for the mortgage loan during the initial fixed-rate period). In addition, for purposes of calculating these ratios for an Option ARM Loan with a 40-year term, the borrower’s monthly mortgage debt is determined based on 30-year term. For purposes of calculating the “front end” and “back end” ratios for a Hybrid ARM Loan (which is an adjustable-rate mortgage loan whose interest rate is tied to an index and which has an initial fixed-rate period of five, seven or ten years), the borrower’s monthly mortgage debt is the initial scheduled monthly payment, except for certain Hybrid ARM Loans with certain loan-to-value ratios or credit scores, that during the initial fixed-rate period require payment of interest only, for which the borrower’s monthly mortgage debt is the fully amortizing payment.

Evaluation of the Adequacy of the Collateral

The adequacy of the mortgaged property as collateral generally is determined by an appraisal made in accordance with pre-established appraisal guidelines. At origination, all appraisals are required to conform to the Uniform Standards of Professional Appraisal Practice adopted by the Appraisal Standards Board of the Appraisal Foundation, and are made on forms acceptable to Fannie Mae and/or Freddie Mac. Appraisers may be staff appraisers employed by the sponsor or independent appraisers selected in accordance with the pre-established appraisal guidelines. Such guidelines generally require that the appraiser, or an agent on its behalf, personally inspect the property and verify whether the property is in adequate condition and, if the property is new construction, whether it is substantially completed. However, in the case of mortgage loans underwritten through the sponsor’s automated underwriting system, an automated valuation method may be used, under which the appraiser does not personally inspect the property but instead relies on public records regarding the mortgaged property and/or neighboring properties. In either case, the appraisal normally is based upon a market data analysis of recent sales of comparable properties and, when deemed applicable, a replacement cost analysis based on the current cost of constructing or purchasing a similar property. For mortgage loans underwritten under the sponsor’s streamline documentation programs, the appraisal guidelines in some cases permit the appraisal obtained for an existing mortgage loan to be used. Title insurance is required for all mortgage loans, except that for mortgage loans secured by shares of cooperative apartments, title insurance is not required for the cooperative apartment building (but a lien search is provided by the title company). Specific additional title insurance coverage is required for some types of mortgage loans.

Documentation Programs

Each mortgage loan has been underwritten under one of three documentation guidelines for verification of the borrower’s stated income and assets. Under the sponsor’s full/alternative documentation program, the prospective borrower’s stated income is verified through receipt of the borrower’s most recent pay stub and most recent W-2 form or, in the case of self-employed borrowers or borrowers with more than 25% of their income from commissions, two years of personal (and, if applicable, business) tax returns. For self-employed borrowers, profit and loss statements may also be required. Under the full/alternative documentation program, the borrower’s stated assets are verified through receipt of the borrower’s two most

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recent bank or brokerage statements. In addition, the borrower’s employment may be verified with the employer by telephone or by other independent means.

The sponsor’s low documentation program places increased reliance on the value and adequacy of the mortgaged property as collateral, the borrower’s credit standing and (in some cases) the borrower’s assets. It is available to borrowers with certain loan-to-value ratios, loan amounts and credit scores. Under this program, the income as stated in the borrower’s loan application is not verified, although the borrower’s employment may be verified by telephone. The borrower’s stated income must be reasonable for the borrower’s occupation and assets (as determined in the underwriter’s discretion). Assets may be verified for higher risk transactions and when exceptions are approved, such as when specific loan-to-value ratios or loan amount limits are exceeded.

The sponsor has several “streamline” documentation programs under which the prospective borrower’s income and assets either are not required to be obtained or are obtained but not verified. Eligibility criteria vary but may include minimum credit scores, maximum loan amounts, maximum debt-to-income ratios and specified payment histories on an existing mortgage loan (generally, a history of timely mortgage payments for the past twelve months, or for the duration of the mortgage loan if less than twelve months old) or on other debt. Purchase loans as well as refinance loans may be eligible under the streamline documentation programs. For some mortgage loans that qualify under these programs, the borrower’s income and assets are not required to be obtained. For some other mortgage loans that qualify under these programs, the borrower’s income and assets are obtained but not verified, the borrower’s employment is verified with the employer by telephone, and the borrower’s stated income must be reasonable for the borrower’s occupation and assets (as determined in the underwriter’s discretion).

A credit report for the borrower generally is required for all mortgage loans underwritten under the sponsor’s full/alternative and low documentation programs, and for all but a small percentage of mortgage loans underwritten under the sponsor’s streamline documentation program.

Exceptions to Program Parameters

Exceptions to the sponsor’s loan program parameters may be made on a case-by-case basis if compensating factors are present. In those cases, the basis for the exception is documented, and in some cases the approval of a senior underwriter is required. Compensating factors may include, but are not limited to, low loan-to-value ratio, low debt-to-income ratio, good credit standing, the availability of other liquid assets, stable employment and time in residence at the prospective borrower’s current address.

Automated Underwriting System

Some mortgage loans originated through the sponsor’s retail and wholesale lending divisions have been underwritten in whole or in part through the sponsor’s proprietary automated underwriting system, known as Enterprise Decision Engine or “EDE”. Based on the borrower’s credit report and the information in the borrower’s loan application, the system either (a) approves the loan subject to the satisfaction of specified conditions, which may include the receipt of additional documentation, or (b) refers the loan application to an underwriter for manual underwriting. In making the underwriting decision, EDE evaluates the borrower’s default risk based on both the credit score and the characteristics of the loan. The sponsor has been using EDE for underwriting of mortgage loans since January 2005. The version of EDE used by the sponsor through October 2006 was developed based on a statistical analysis of the past performance of approximately 193,000 mortgage loans originated by the sponsor for its own portfolio between 1998 and 2001. The version of EDE used by the sponsor since October 2006 was developed based on a statistical analysis of the past performance of approximately one million mortgage loans originated by the sponsor between 1998 and 2002. The sponsor has also used in the past, and currently uses, other automated underwriting systems. All or some of the mortgage loans owned by the Trust may have been underwritten through EDE or other automated underwriting systems.

Quality Control Review

The sponsor’s credit risk oversight department conducts quality control reviews of statistical samplings of previously originated mortgage loans on a regular basis.

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THE DEPOSITOR

WaMu Asset Acceptance Corp., the depositor, is a Delaware corporation and a wholly owned subsidiary of the sponsor. The depositor engages in no activities other than securitizing assets. It will have no material continuing obligations with respect to the mortgage loans or the certificates following the issuance of the certificates, other than the obligations (i) to file financing statements perfecting the Trust’s interest in the mortgage loans, (ii) to repurchase or substitute for affected mortgage loans in the event of a material breach of a representation and warranty made by the depositor in the pooling agreement that has not been remedied and (iii) to indemnify the underwriter against some civil liabilities, including liabilities under the Securities Act of 1933.

THE TRUST

General

The issuer of the certificates, the WaMu Mortgage Pass-Through Certificates Series 2007-OA3 Trust (the “Trust”), will be a statutory trust formed under the laws of the State of Delaware pursuant to a trust agreement between WaMu Asset Acceptance Corp., as depositor, and Christiana Bank & Trust Company, as Delaware trustee. The pooling and servicing agreement, dated as of March 1, 2007 (the “pooling agreement”), among the depositor, Washington Mutual Bank, as servicer, the Delaware trustee and LaSalle Bank National Association, as trustee, will restate the trust agreement and will be the governing instrument of the Trust.

The Trust will not own any assets other than the mortgage loans and the other assets described below. The Trust will not have any liabilities other than those incurred in connection with the pooling 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, except for a de minimis contribution made by the depositor pursuant to the trust agreement, 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 Delaware trustee, whose fees and reasonable expenses will be paid or reimbursed by the servicer.

Assignment of the Mortgage Loans and Other Assets to the Trust

A pool of mortgage loans, as described in this prospectus supplement, will be sold to the Trust on March 27, 2007 (the “Closing Date”). The Trust will own the right to receive all payments of principal and interest on the mortgage loans due after March 1, 2007 (the “Cut-Off Date”). A schedule to the pooling agreement will include information about each mortgage loan, including:

 

 

 

 

the applicable loan group;

 

 

 

 

the outstanding principal balance as of the close of business on the Cut-Off Date;

 

 

 

 

the term of the mortgage loan; and

 

 

 

 

the mortgage interest rate as of the close of business on the Cut-Off Date and information about how that mortgage interest rate adjusts.

The mortgage notes will not be endorsed to the Trust and no assignment of the mortgages to the Trust will be prepared. Washington Mutual Bank fsb, a wholly-owned subsidiary of the servicer, will have possession of and will review the mortgage notes and mortgages as custodian for the Trust and financing statements will be filed evidencing the Trust’s interest in the mortgage loans.

The mortgage pool will be the primary asset of the Trust. The Trust will also contain other assets, including:

 

 

 

 

insurance policies related to individual mortgage loans, if applicable;

 

 

 

 

any property that secured a mortgage loan that the Trust acquires after the Cut-Off Date by foreclosure or deed in lieu of foreclosure; and

 

 

 

 

amounts held in the certificate account.

In exchange for the mortgage loans and the other assets described above, the trustee will authenticate and deliver the certificates pursuant to the order of the depositor.

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It is the intent of the parties to the pooling agreement that the conveyance of the mortgage loans and the related assets to the Trust constitute an absolute sale of those assets. However, in the event that the pooling agreement for any reason is held or deemed to create a security interest in those assets, then the pooling agreement will constitute a security agreement and the depositor grants to the Trust a security interest in those assets. The depositor will file financing statements perfecting such security interest.

Restrictions on Activities of the Trust

Pursuant to the pooling agreement, the Trust will have the power and authority (i) to acquire, hold, lease, manage, administer, control, invest, reinvest, operate and transfer assets of the Trust, (ii) to issue and make distributions on the certificates and (iii) to engage in such other activities as are described in the pooling agreement. The Trust will be required to act in accordance with requirements specified in the pooling agreement that are designed to maintain the Trust’s existence as a legal entity separate and distinct from any other entity. The Trust will not be permitted to do any of the following:

 

 

 

 

to engage in any business or activity other than those described in the pooling agreement;

 

 

 

 

to incur or assume any indebtedness other than indebtedness incurred under the pooling agreement or any related agreement;

 

 

 

 

to guarantee or otherwise assume liability for the debts of any other entity;

 

 

 

 

to confess a judgment against the Trust;

 

 

 

 

to possess or assign the assets of the Trust for other than a Trust purpose;

 

 

 

 

to lend any funds to any entity, except as contemplated by the pooling agreement; or

 

 

 

 

to do other actions prohibited by the pooling agreement.

The permissible activities of the Trust may not be modified except by an amendment to the pooling agreement. See “Description of the Certificates—Amendment of the Pooling Agreement” in this prospectus supplement.

Discretionary Activities With Respect to the Trust

The following is a description of material discretionary activities that may be taken with regard to the administration of the mortgage loans or the certificates:

 

 

 

 

The servicer will be authorized to exercise discretion with regard to its servicing of the mortgage loans in accordance with the servicing standard specified in the pooling agreement. See “The Servicers—The Servicer—Servicing Procedures” in this prospectus supplement.

 

 

 

 

Each of the sponsor and the depositor will have discretion to determine whether to repurchase a mortgage loan or to substitute for a mortgage loan, if required under the mortgage loan sale agreement or the pooling agreement, as applicable, to repurchase or substitute for a defective mortgage loan. See “Description of the Mortgage Pool—Representations and Warranties Regarding the Mortgage Loans” in this prospectus supplement.

 

 

 

 

On any Distribution Date after the Clean-Up Call Option Date, the servicer will be permitted to purchase all of the mortgage loans owned by the Trust. See “Description of the Certificates—Optional Termination” in this prospectus supplement.

 

 

 

 

In the event of certain transfers of the Class R Certificates to a person who is not a permitted transferee under the pooling agreement, the depositor will have the right to sell the Class R Certificates to a purchaser selected by the depositor.

 

 

 

 

In the event of a default by the servicer under the pooling agreement that has not been remedied, either the trustee or holders of certificates evidencing at least 25% of the voting rights will have the right to terminate the servicer. If the servicer is terminated or resigns the trustee will become the successor servicer; however, the trustee will have the right to appoint, or to petition a court to appoint, a successor servicer. See “The Trustees—The Trustee—Events of Default Under the Pooling Agreement” in this prospectus supplement.

 

 

 

 

Holders of certificates evidencing more than 50% of the voting rights will have the right at any time to remove the trustee or the Delaware trustee and to appoint an eligible successor trustee.

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THE TRUSTEES

The Trustee

General

LaSalle Bank National Association (“LaSalle”) will be the trustee under the pooling agreement. LaSalle is a national banking association formed under the federal laws of the United States of America. Its parent company, LaSalle Bank Corporation, is an indirect subsidiary of ABN AMRO Bank N.V., a Netherlands banking corporation. LaSalle has extensive experience serving as trustee on securitizations of residential mortgage loans. Since January 1994, LaSalle has served as trustee or securities administrator or paying agent on over 500 residential mortgage-backed security transactions involving assets similar to the mortgage loans. As of December 31, 2006, LaSalle serves as trustee or securities administrator or paying agent on over 425 residential mortgage-backed security transactions. The depositor and servicer may maintain other banking relationships in the ordinary course of business with the trustee. The trustee’s corporate trust office is located at 135 South LaSalle Street, Suite 1511, Chicago, Illinois, 60603, Attention: Global Securities and Trust Services—WaMu Mortgage Pass-Through Certificates Series 2007-OA3, or at such other address as the trustee may designate from time to time.

Material Duties of the Trustee

The trustee will have the following material duties under the pooling agreement:

 

 

 

 

to authenticate and deliver the certificates, pursuant to the order of the depositor;

 

 

 

 

to maintain a certificate register and, upon surrender of certificates for registration of transfer or exchange, to authenticate and deliver new certificates;

 

 

 

 

to make the required distributions to certificateholders on each Distribution Date, in accordance with the monthly distribution report prepared by the administrative agent;

 

 

 

 

to deliver or make available to certificateholders the monthly distribution reports and any other reports required to be delivered by the trustee under the pooling agreement;

 

 

 

 

in the event that the trustee has received notice from the servicer that the remaining Class Principal Balance of a class of certificates is to be paid on a specified Distribution Date, to send a notice to that effect to the holders of that class of certificates; and

 

 

 

 

to act as successor servicer, or to appoint a successor servicer, to the extent described under “—Events of Default Under the Pooling Agreement” below.

Events of Default Under the Pooling Agreement

In the event of a default by the servicer under the pooling agreement that has not been remedied, either the trustee or holders of certificates evidencing at least 25% of the voting rights will have the right to terminate the servicer. If the servicer is terminated, or the servicer resigns because its duties under the pooling agreement are no longer permitted under applicable law, the trustee will become the successor servicer. However, if the trustee is unwilling or unable to act as successor servicer, it may appoint, or petition a court to appoint, a successor servicer.

The trustee will be required to notify certificateholders and the rating agencies of any event of a default by the servicer known to the trustee, and of the appointment of any successor servicer.

In the event of a default by the depositor under the pooling agreement that has not been remedied, holders of certificates evidencing at least 25% of the voting rights will have the right to direct the trustee to institute a legal action to enforce the depositor’s obligations under the pooling agreement.

See “Description of the Securities—Events of Default Under the Governing Agreement and Rights Upon Events of Default” in the prospectus.

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The Delaware Trustee

Christiana Bank & Trust Company, the Delaware trustee under the pooling agreement, is a Delaware banking corporation. The Delaware trustee has served as Delaware trustee for asset-backed securities transactions involving first lien single-family residential mortgage loans since approximately January 2002.

The Delaware trustee will serve as trustee for the Trust for the sole purpose of satisfying the requirement under the Delaware statutory trust statute that the Trust have at least one trustee with a principal place of business in Delaware. The Delaware trustee’s duties under the pooling agreement will be limited to (i) accepting legal process served on the Trust in the State of Delaware and (ii) executing any certificates with respect to the Trust which the Delaware Trustee is required to execute under the Delaware statutory trust statute.

Limitations on the Trustees’ Liability

Neither the trustee nor the Delaware trustee will be liable under the pooling agreement:

 

 

 

 

except for the performance of such duties and obligations as are specifically set forth in the pooling agreement;

 

 

 

 

for any action taken or omitted by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by the pooling agreement; or

 

 

 

 

for any action taken or omitted by it in good faith in accordance with the direction of holders of certificates evidencing at least 25% of the voting rights relating to the time, method and place of conducting any proceeding for any remedy available to such trustee, or relating to the exercise of any trust or power conferred upon such trustee under the pooling agreement.

In the absence of bad faith, the trustee and the Delaware trustee may conclusively rely upon any certificates or opinions of counsel furnished to such trustee under the pooling agreement. Any such opinion of counsel will be full and complete authorization and protection in respect of any action taken or omitted to be taken by such trustee in good faith and in accordance with such opinion of counsel. Neither the trustee nor the Delaware trustee will be deemed to have knowledge or notice of any matter, including an event of default, unless actually known to it or unless it has received written notice thereof.

Resignation and Removal of the Trustees

Each of the trustee and the Delaware trustee may at any time resign by giving written notice thereof to the servicer. Upon receiving such notice of resignation, the servicer will be required to appoint a successor trustee. If the trustee or the Delaware trustee ceases to be eligible under the pooling agreement and fails to resign, or if the trustee or the Delaware trustee becomes incapable of acting, the servicer may remove such trustee and appoint a successor trustee. The holders of certificates evidencing more than 50% of the voting rights may at any time remove the trustee or the Delaware trustee and appoint a successor trustee.

Any expenses associated with the resignation of a trustee will be required to be paid by such trustee, and any expenses associated with the removal of a trustee will be required to be paid by the servicer.

THE SERVICERS

General

All of the mortgage loans owned by the Trust will be serviced by Washington Mutual Bank, as servicer, pursuant to the pooling agreement. Washington Mutual Mortgage Securities Corp. will act as administrative agent of the servicer with respect to the mortgage loans, pursuant to an administrative agent agreement between the administrative agent and the servicer. The administrative agent will be responsible for calculating monthly distributions on the certificates, preparing monthly distribution reports and other functions, as described under “—The Administrative Agent” below. Washington Mutual Bank fsb, a wholly- owned subsidiary of the servicer, will have possession of the mortgage files as custodian for the Trust.

The servicer will outsource to third party vendors some servicing functions, as described under “—The Servicer—Servicing Procedures—The Servicer’s Third Party Vendors” below. The administrative agent will

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calculate monthly distributions to certificateholders and prepare monthly distribution reports using software licensed from a third party vendor and based on the third party vendor’s model of the priority of distributions on the certificates.

The Servicer

The Servicer’s Servicing Experience

The servicer has been servicing single-family residential mortgage loans for over 100 years. The single-family residential mortgage loans serviced by the servicer have included, since 2001, sub-prime residential mortgage loans serviced for Long Beach Mortgage Company, an affiliate of the servicer, or for its securitization trusts.

The following table shows the number and aggregate principal balance of single-family residential mortgage loans, including conforming and nonconforming mortgage loans and fixed rate and adjustable rate mortgage loans, and including prime and sub-prime mortgage loans, serviced by the servicer as of the specified date.

Single-Family Residential Prime and Subprime Mortgage Loans Serviced by the Servicer
(Dollar Amounts in Millions)

 

 

 

 

 

 

 

 

 

12/31/2004

 

12/31/2005

 

12/31/2006

Number of Mortgage Loans Serviced for Sponsor or Its Affiliates (or Their Securitization Trusts)

 

 

 

965,841

   

 

 

964,940

   

 

 

983,094

 

Aggregate Principal Balance

 

 

$

 

238,360

   

 

$

 

259,466

   

 

$

 

280,427

 

Number of Mortgage Loans Serviced for Unaffiliated Third Parties

 

 

 

3,832,119

   

 

 

3,568,487

   

 

 

2,801,702

 

Aggregate Principal Balance

 

 

$

 

445,272

   

 

$

 

436,293

   

 

$

 

373,873

 

The following table shows the number and aggregate principal balance of single-family residential mortgage loans, including conforming and nonconforming mortgage loans and fixed rate and adjustable rate mortgage loans (but excluding sub-prime mortgage loans), serviced by the servicer as of the specified date.

Single-Family Residential Prime Mortgage Loans Serviced by the Servicer
(Dollar Amounts in Millions)

 

 

 

 

 

 

 

 

 

12/31/2004

 

12/31/2005

 

12/31/2006

Number of Mortgage Loans Serviced for Sponsor or Its Affiliates (or Their Securitization Trusts)

 

 

 

798,269

   

 

 

766,384

   

 

 

707,497

 

Aggregate Principal Balance

 

 

$

 

213,525

   

 

$

 

226,334

   

 

$

 

232,607

 

Number of Mortgage Loans Serviced for Unaffiliated Third Parties

 

 

 

3,820,696

   

 

 

3,527,670

   

 

 

2,800,162

 

Aggregate Principal Balance

 

 

$

 

444,595

   

 

$

 

429,944

   

 

$

 

373,679

 

Servicing Procedures

Servicing Functions. The functions to be performed by the servicer will include payment collection and payment application, investor reporting and other investor services, default management and escrow administration. The servicer will perform its servicing functions at loan servicing centers located in Florence, South Carolina; Milwaukee, Wisconsin; Northridge/Chatsworth, California; and Jacksonville, Florida.

Servicing Standard; Waivers and Modifications. Pursuant to the pooling agreement, the servicer will be required to service the mortgage loans consistent with prudent mortgage loan servicing practices and (unless inconsistent with those servicing practices) in the same manner in which, and with the same care, skill, prudence and diligence with which, it services and administers similar mortgage loans for other portfolios. The servicer will be required to make reasonable efforts to collect or cause to be collected all payments under the mortgage loans and, to the extent consistent with the pooling agreement and applicable insurance policies, follow such collection procedures as are followed with respect to comparable mortgage loans that are held in portfolios of responsible mortgage lenders in the local areas where each mortgaged property is located.

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Consistent with the servicing standard described above, the servicer will be permitted to waive, modify or vary any term of any mortgage loan, subject to certain conditions, as described in “Description of the Securities—Collection and Other Servicing Procedures Employed by the Servicer, Manager, Bond Administrator or Certificate Administrator” in the prospectus.

Mortgage Loan Servicing System. In performing its servicing functions, the servicer will use computerized mortgage loan servicing systems that it leases from Fidelity Information Services, a division of Fidelity National Financial (“Fidelity”), a third party vendor (collectively, the “Fidelity System”). The Fidelity System produces detailed information about the financial status of each mortgage loan, including outstanding principal balance, current interest rate and the amount of any advances, unapplied payments, outstanding fees, escrow deposits or escrow account overdrafts, and about transactions that affect the mortgage loan, including the amount and due date of each payment, the date of receipt of each payment (including scheduled payments and prepayments), and how the payment was applied. The Fidelity System also produces additional information about mortgage loans that are in default, including the amount of any insurance and liquidation proceeds received. The servicer began using the Fidelity System in 1996. Prior to July 2004, the servicer serviced some mortgage loans using a proprietary mortgage loan servicing system; in July 2004, the servicer consolidated servicing into a single servicing platform by converting approximately 1.2 million loan records from the proprietary mortgage loan servicing system to the Fidelity System.

Custodial Account, Escrow Account, Investment Account and Certificate Account. Mortgagor payments on the mortgage loans, including scheduled monthly payments, any Curtailments and Payoffs and any escrow payments (which are payments made by some mortgagors and held by the servicer in escrow for future payment of taxes and insurance), will initially be deposited into either a lockbox account maintained by a third party financial institution or a payment clearing account maintained by the servicer. Payments deposited into the lockbox account will be transferred by the servicer into the payment clearing account. Other collections on the mortgage loans, including Liquidation Proceeds and Insurance Proceeds net of allowable reimbursement (each, as defined in the pooling agreement) (other than Insurance Proceeds required for the restoration or repair of the related mortgaged property, which the servicer will retain for such purpose), will also initially be deposited into a payment clearing account maintained by the servicer. Within 48 hours of receipt, the servicer will (i) transfer all such collections on the mortgage loans (other than escrow payments) into a custodial account maintained by the servicer and (ii) transfer all escrow payments into an escrow account maintained by the servicer.

The servicer will deposit into the custodial account any required advances of principal and interest. See “—Advances” below. The servicer will also deposit into the custodial account any Repurchase Proceeds. See “Description of the Mortgage Pool—Representations and Warranties Regarding the Mortgage Loans” below.

Under the pooling agreement, the servicer will be permitted to make a net deposit into the custodial account of the amounts required to be deposited into that account less the amounts that the servicer is permitted to withdraw from that account, as described under “—Permitted Withdrawals” below. Under the pooling agreement, the servicer will also be permitted to transfer funds held in the custodial account into an investment account maintained with an eligible investment depository, and to invest those funds in eligible investments, for its own benefit, before those funds are to be transferred to a certificate account maintained by the trustee.

On the business day immediately preceding each Distribution Date, the servicer will transfer (or cause the administrative agent to transfer) from the investment account into the certificate account the funds held in the investment account that are required to be distributed to certificateholders on that Distribution Date. The servicer may request the trustee to invest funds held in the certificate account in eligible investments, for the servicer’s benefit, before those funds are to be distributed to certificateholders.

On each Distribution Date, the trustee will withdraw from the certificate account the funds required to be distributed to certificateholders on that date.

Scheduled monthly payments generally will be held pending distribution to certificateholders from the date of receipt by the servicer until the immediately following Distribution Date. However, if a monthly payment is received prior to its scheduled Due Date, that payment will be held until the Distribution Date in the calendar month in which it was due. Payoffs received by the servicer in any Prepayment Period (that

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is, from the 15th day of a calendar month until the 14th day of the next calendar month) will be held until the Distribution Date immediately following the end of that Prepayment Period. Curtailments, Liquidation Proceeds, Insurance Proceeds, Subsequent Recoveries and Repurchase Proceeds will be held from the date of receipt by the servicer until the Distribution Date in the immediately succeeding calendar month.

Funds held in the lockbox accounts and the payment clearing accounts may be commingled with collections on other mortgage loans serviced by the servicer. Funds held in the investment account may be commingled with funds related to series of pass-through certificates with one or more classes of certificates that have ratings equal to the highest of the ratings of the certificates. Funds held in the custodial account, the escrow account and the certificate account will not be commingled with collections on mortgage loans that are not owned by the Trust.

Only the servicer or the third party financial institutions that maintain the lockbox accounts will have access to funds held in those accounts. Only the servicer will have access to funds held in the payment clearing accounts, the custodial account and the escrow account. Only the servicer and the administrative agent will have access to funds held in the investment account. Only the trustee will have direct access to funds held in the certificate account; however, the servicer or the administrative agent on its behalf may direct the trustee to invest funds in the certificate account for the servicer’s benefit and may direct the trustee to make certain withdrawals from that account.

All of the transaction accounts described above will be reconciled on a monthly basis. There will not be any external verification of activity in the transaction accounts, except as may occur in connection with the annual examination by Washington Mutual, Inc.’s independent accountants in connection with their audit of Washington Mutual, Inc. and its subsidiaries, or in connection with periodic examination by the servicer’s regulatory authorities.

The diagram on the next page illustrates the flow of collections and other payments on the mortgage loans through the transaction accounts described above.

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Flow of Payments

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Permitted Withdrawals. The pooling agreement will permit the servicer to make withdrawals (or, in the case of the certificate account, to direct the trustee to make withdrawals), from time to time, from the custodial account, the investment account and the certificate account for the following purposes:

 

 

 

 

to reimburse itself for advances, as described under “—Advances” below;

 

 

 

 

to pay to itself the servicing fee (to the extent not applied to pay compensating interest);

 

 

 

 

to pay to itself investment earnings earned on funds held in the investment account and the certificate account (to the extent not applied to pay compensating interest);

 

 

 

 

to pay to itself interest that was accrued and received on Payoffs received during the period from the first day through the 14th day of any month (to the extent not applied to pay compensating interest);

 

 

 

 

to reimburse itself or the depositor or any of their directors, officers, employees or agents for certain expenses, costs and liabilities incurred in connection with any legal action relating to the pooling agreement or the certificates, as and to the extent described under “Description of the Securities—Matters Regarding the Servicer and the Depositor” in the prospectus; and

 

 

 

 

other permitted purposes described in the pooling agreement.

Procedures for Applying Additional Payments. If the servicer receives a payment on a non-delinquent mortgage loan in addition to the minimum monthly payment, the servicer generally will apply the additional payment as a Curtailment (unless the mortgagor instructs the servicer to apply the payment in another manner). If the mortgage loan is an Option ARM Loan and the interest accrued on the mortgage loan exceeds the minimum monthly payment, the servicer will first increase the principal balance of the mortgage loan by the amount of the excess interest in the form of negative amortization, and will then decrease the principal balance by the amount of the Curtailment.

The servicer generally will not apply Curtailments on delinquent mortgage loans. If the servicer receives an additional payment on a delinquent mortgage loan with instruction from the mortgagor to apply the payment as a Curtailment, the servicer will hold the additional payment until the mortgage loan has been brought current. If the servicer receives an additional payment on a delinquent mortgage loan without instruction from the mortgagor as to payment application, the servicer generally will apply the additional payment to bring the mortgage loan current, to reimburse the servicer for any escrow advances and to pay any applicable outstanding fees, and will apply any remainder as a Curtailment.

Advances. The servicer will be required under the pooling agreement to advance its own funds (i) to cover any shortfall between payments of principal and interest scheduled to be received in respect of the mortgage loans each month and the amounts actually received, (ii) to pay any taxes or insurance with respect to mortgaged properties to the extent not paid by the mortgagor, (iii) to cover costs and expenses in connection with foreclosure or bankruptcy proceedings and (iv) to pay for the maintenance of and, to the extent not covered by insurance, the restoration of, properties acquired or to be acquired through foreclosure; provided, however, that the servicer will not make any of the advances described in clauses (i), (ii), (iii) and (iv) above if it determines, in good faith, that the advance would not be recoverable from late payments, Insurance Proceeds, Liquidation Proceeds or other amounts received for the applicable mortgage loan; provided, further, that in the case of clause (iv) above, the servicer will not make advances for the restoration of foreclosure properties unless it determines that the restoration will increase the Liquidation Proceeds after reimbursement to itself for those advances. The servicer will not charge interest or other fees with respect to any advances. For any Distribution Date and any advance described in clause (i) of this paragraph, instead of advancing its own funds, the servicer will be permitted to advance funds it collected on the mortgage loans but that are not required to be distributed to the certificateholders on the current Distribution Date, in which case the servicer will be required to reimburse those funds to the Trust prior to the Distribution Date on which they are required to be distributed to certificateholders.

If, at the time a mortgage loan becomes a Liquidated Mortgage Loan, an advance previously made by the servicer with respect to that mortgage loan has not been recovered from late payments, Insurance Proceeds, Liquidation Proceeds or other amounts received for that mortgage loan (a “Nonrecoverable Advance”), the servicer will be entitled to be reimbursed for such advance from collections on other mortgage loans owned by the Trust prior to any payments being made to the certificateholders.

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Servicing of Delinquent Mortgage Loans; Foreclosure. The servicer will make reasonable efforts to collect or cause to be collected all delinquent payments (that is, payments that are more than 30 days past due). Such efforts may include payment reminder telephone calls to the mortgagor, letter campaigns and drive-by property inspections. The servicer will be required under the pooling agreement to foreclose upon the mortgaged property related to each defaulted mortgage loan as to which no satisfactory arrangements can be made for collection of delinquent payments. Under the pooling agreement, the servicer will be permitted, in lieu of foreclosure, if prudent to do so and taking into account the desirability of maximizing net Liquidation Proceeds, to accept a payment of less than the outstanding principal balance of the defaulted mortgage loan. The servicer will not be permitted to foreclose upon a mortgaged property if it is aware of evidence of toxic waste or other environmental contamination on the mortgaged property and it determines that it would be imprudent to foreclose. See “Description of the Securities—Procedures for Realization Upon Defaulted Mortgage Assets” and “Legal Aspects of the Mortgage Assets—Foreclosure on Mortgages” in the prospectus.

Maintenance of Primary Mortgage, Hazard and Flood Insurance. For each mortgage loan with an original loan-to-value ratio greater than 80%, the pooling agreement generally will require the servicer to keep in full force and effect a primary mortgage insurance policy. The servicer generally will not be required to maintain such policy if the outstanding principal balance of the mortgage loan is 80% or less of the original appraised value of the related mortgaged property, unless required by applicable law.

The servicer will also be required to maintain or cause to be maintained hazard insurance and, if applicable, flood insurance for each mortgage loan.

Limitations on the Servicer’s Liability. See “Description of the Securities—Matters Regarding the Servicer and the Depositor” in the prospectus for a description of certain limitations on the servicer’s liability under the pooling agreement.

Back-up Servicing. See “Description of the Securities—Events of Default Under the Governing Agreement and Rights Upon Events Of Default” in the prospectus for a description of the material terms under the pooling agreement regarding the servicer’s replacement, resignation or transfer.

The Servicer’s Third Party Vendors. The servicer expects to outsource to third party vendors all or a portion of the following servicing functions: (i) early stage collections, up to 59 days delinquent, (ii) processing and monitoring of foreclosure actions, (iii) processing and monitoring of mortgagor bankruptcy proceedings, (iv) preservation of properties related to delinquent loans, (v) maintenance, marketing and sale of REO properties, (vi) assuring that hazard insurance coverage is maintained, (vii) determining whether flood insurance coverage is required and assuring that any required coverage is maintained, (viii) tax bill procurement and tracking of delinquent tax payments, (ix) printing and mailing billing statements, ARM notices and default notices and (x) depositing mortgagor payments into a lockbox account. From time to time, the servicer may cease to outsource one or more of the foregoing servicing functions or may choose to outsource additional servicing functions. Some vendors may perform more than one function, and some functions may be performed by more than one vendor.

The servicer has entered into service level agreements with some of its vendors, which set forth detailed performance criteria, including in some cases minimum time requirements for completing specified tasks and maximum error rates, and which in some cases impose penalties for non-compliance with such criteria. The servicer will monitor vendor compliance with applicable servicing criteria through procedures that may include reviews of statistical samplings of mortgage loans and reviews of reports on vendor performance prepared by the vendor or the servicer.

The Servicer’s Quality Control Procedures

The servicer uses a combination of management controls and technology controls to ensure the accuracy and integrity of servicing records. Management controls include the use of approval levels, the segregation of duties, and reconciliations of servicing data and accounts, among others. Technology controls include the use of data security controls and interface controls to ensure that only authorized persons have the ability to access and change system data or to submit data to or receive data from vendors and investors. Specific security profiles for each job function include a predetermined set of data security controls that are appropriate for that job function. The data center for the Fidelity System, which is located

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in Jacksonville, Florida, is kept in a fire protected environment, and commercial electrical power is backed up by generators.

In addition, the servicer conducts periodic internal audits of critical servicing and technology functions. External audits by entities such as Fannie Mae, Freddie Mac and Ginnie Mae and the annual examination by Washington Mutual, Inc.’s independent accountants in connection with their audit of Washington Mutual, Inc. and its subsidiaries may provide independent verification of the adequacy of such functions. Periodic examination by the servicer’s regulatory authorities may provide additional independent review of the servicer’s management controls.

Both the servicer and Fidelity maintain detailed business continuity plans to enable each entity to resume critical business functions in the event of a disaster or other serious system outage, which plans are reviewed and updated periodically. Fidelity is contractually obligated to return the servicer to full functionality within 48 hours of a reported system outage. The servicer and Fidelity perform annual disaster recovery tests in which they reroute data and servicing system operations to Fidelity’s back-up site, and then process sample transactions from all servicing locations to ensure the functionality of the back-up site.

It is the servicer’s policy to require its other third party vendors to implement measures similar to those described above to ensure the accuracy and integrity of servicing records.

The Administrative Agent

The Administrative Agent’s Servicing Experience

Washington Mutual Mortgage Securities Corp., the administrative agent, is a Delaware corporation and a wholly owned subsidiary of the servicer. The administrative agent has been master servicing single- family residential mortgage loans since before 1979. The administrative agent has been acting as administrative agent of the servicer with respect to single-family residential mortgage loans serviced by the servicer since February 2005. The services performed by Washington Mutual Mortgage Securities Corp. as master servicer include (in addition to other services) substantially the same services as those performed by it as administrative agent.

The following table shows the number and aggregate principal balance of single-family residential mortgage loans, including conforming and nonconforming mortgage loans and fixed rate and adjustable rate mortgage loans (but excluding sub-prime mortgage loans), serviced by the administrative agent (as master servicer or administrative agent) as of the specified date.

Single-Family Residential Prime Mortgage Loans Serviced by the Administrative Agent
(Dollar Amounts in Millions)

 

 

 

 

 

 

 

 

 

12/31/2004

 

12/31/2005

 

12/31/2006

Number of Mortgage Loans Serviced for Sponsor or Its Affiliates (or Their Securitization Trusts)

 

 

 

110,940

   

 

 

191,332

   

 

 

226,558

 

Aggregate Principal Balance

 

 

$

 

42,500

   

 

$

 

79,420

   

 

$

 

102,980

 

Number of Mortgage Loans Serviced for Unaffiliated Third Parties

 

 

 

257,060

   

 

 

233,181

   

 

 

215,984

 

Aggregate Principal Balance

 

 

$

 

47,635

   

 

$

 

42,325

   

 

$

 

38,834

 

Services Performed by the Administrative Agent

The servicer and the administrative agent are parties to an administrative agent agreement under which the administrative agent has agreed to perform some of the services required to be performed by the servicer under the pooling agreement. The administrative agent will perform the following services: (1) calculation of monthly distributions to certificateholders, (2) calculation of compensating interest to be paid by the servicer, (3) preparation of monthly distribution reports and other reports required under the pooling agreement, (4) tax administration services for the Trust, (5) communications with investors and rating agencies with respect to the certificates and (6) other services specified in the administrative agent agreement.

The administrative agent’s principal offices are located in Vernon Hills, Illinois. The administrative agent will perform its services using SBO2000, a computerized mortgage loan servicing system that it has

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licensed from Alan King and Co., a third party vendor. SBO2000 produces detailed information about the financial status of each mortgage loan, including outstanding principal balance and current interest rate, and about transactions that affect the mortgage loan, including the amount and due date of each scheduled payment, the amount and date of receipt of each Payoff, the amount and month of receipt of all other unscheduled payments, and how each payment was applied. Each month, the administrative agent will receive from the servicer a servicing report generated by the Fidelity System with respect to the mortgage loans owned by the Trust, and will input data from that servicing report into SBO2000. The administrative agent began using SBO2000 in October 2006. Prior to October 2006, the administrative agent performed its services using a proprietary computerized mortgage loan servicing system.

The administrative agent will calculate monthly distributions to certificateholders and prepare monthly distribution reports using software that it has licensed from IMAKE Consulting, Inc. (“IMAKE”), a third party vendor. IMAKE will develop that software based on its model of the priority of distributions on the certificates. Each month, the administrative agent will generate a monthly distribution report by uploading data from its mortgage loan servicing system onto a server that houses the software licensed from IMAKE. In order to verify the accuracy of the monthly distribution report, the administrative agent will upload the distribution report onto the internet website of a nationally recognized accounting firm, which will compare the distribution report to a report prepared by it based on its own independently developed model of the priority of distributions on the certificates. The administrative agent will deliver the final monthly distribution report to the trustee and post it on the administrative agent’s internet website.

The servicer will pay the administrative agent a fee for its services under the administrative agent agreement. Payment of this fee will not affect distributions to certificateholders.

The Administrative Agent’s Quality Control Procedures

The administrative agent uses substantially the same management and technology controls as those of the servicer to ensure the accuracy and integrity of servicing records. See “—The Servicer—Servicing Procedures—Quality Control Procedures” above.

The administrative agent conducts periodic internal audits of critical servicing and technology functions. Investor reviews and the annual examination by Washington Mutual, Inc.’s independent accountants in connection with their audit of Washington Mutual, Inc. and its subsidiaries may provide independent verification of the adequacy of such functions. Periodic examination by the servicer’s regulatory authorities may provide additional independent review of the administrative agent’s management controls.

The administrative agent maintains a detailed business continuity plan to enable it to resume critical business functions in the event of a disaster or other serious servicing system outage, which plan is reviewed and updated periodically. The administrative agent performs annual disaster recovery tests in which it reroutes data and servicing system operations to a back-up site, and then processes sample transactions to ensure the functionality of the back-up site.

It is the administrative agent’s policy to require its third party vendors to implement measures similar to those described above to ensure the accuracy and integrity of servicing records.

The Custodian

Washington Mutual Bank fsb, a wholly owned subsidiary of the servicer, will act as custodian for the Trust pursuant to a custodial agreement among the trustee, the servicer and the custodian. The custodian will hold the mortgage notes, mortgages and other legal documents in the mortgage files for the benefit of the Trust. The custodian will maintain the mortgage files in secure and fireproof facilities. The mortgage files will not be physically segregated from other mortgage files in the custodian’s custody but will be kept in shared facilities. However, the custodian’s computerized document tracking system will show the location within the custodian’s facilities of each mortgage file and will show that the mortgage loan documents are held by the custodian on behalf of the Trust. The custodian will review each mortgage file and deliver a certification to the effect that, except as noted in the certification, all required documents have been executed and received. See “Risk Factors” in the prospectus for a description of certain risks relating to the custodian’s possession of the mortgage notes and mortgages.

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In the event of the termination of the custodial agreement, the custodian will be required to deliver all mortgage files in the custodian’s custody to the trustee or any successor custodian appointed by the trustee.

The servicer will pay the custodian a fee for its services under the custodial agreement. Payment of this fee will not affect distributions to certificateholders.

Special Servicing Agreements

The pooling agreement permits the servicer to enter into one or more special servicing agreements with unaffiliated owners of one or more classes of Subordinate Certificates or of a class of securities representing interests in one or more classes of Subordinate Certificates. Under those agreements, the owner may, for delinquent mortgage loans:

(a) instruct the servicer to start or delay foreclosure proceedings, provided that the owner deposits a specified amount of cash with the servicer, which will be available for distribution to certificateholders if Liquidation Proceeds are less than they otherwise may have been had the servicer acted pursuant to its normal servicing procedures;

(b) purchase those delinquent mortgage loans from the Trust immediately before the beginning of foreclosure proceedings at a price equal to the aggregate outstanding principal balance of the mortgage loans, plus accrued interest at the applicable mortgage interest rates through the last day of the month in which the mortgage loans are purchased; and/or

(c) assume all of the servicing rights and obligations for the delinquent mortgage loans so long as (i) the servicer has the right to transfer the servicing rights and obligations of the mortgage loans to another servicer and (ii) the owner will service the mortgage loans according to the servicer’s servicing guidelines.

AFFILIATIONS AND RELATED TRANSACTIONS

The depositor, the administrative agent and the custodian are all wholly owned subsidiaries of the sponsor. The sponsor is the servicer and the originator of the mortgage loans.

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, between (a) any of the sponsor, the depositor and the Trust and (b) any of the servicer, the administrative agent, the custodian, the trustees or any originator of the mortgage loans.

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DESCRIPTION OF THE MORTGAGE POOL*

The mortgage pool will consist of 1,906 mortgage loans that will have an aggregate principal balance as of the Cut-Off Date, after deducting payments due on or before that date, of approximately $1,067,998,559.

The mortgage loans are secured by first mortgages or first deeds of trust or other similar security instruments creating first liens on fee simple or leasehold interests in one- to four-family residential properties or shares of stock relating to cooperative apartments. These mortgaged properties, which may include detached homes, duplexes, triplexes, fourplexes, townhouses, individual condominium units, individual units in planned unit developments and other attached dwelling units that are part of buildings consisting of more than four units (so long as the mortgaged property (other than cooperative apartments) consists of no more than four units), have the additional characteristics described below, in Appendix B (which is incorporated by reference into this prospectus supplement) and in the accompanying prospectus.

As of the Cut-Off Date, approximately 5.4% of the borrowers are obligated on more than one mortgage loan underlying the certificates. As of the Cut-Off Date, the maximum number of mortgage loans related to a single borrower is ten, and the maximum aggregate principal balance of the mortgage loans related to a single borrower obligated on more than one mortgage loan represents approximately 0.4% of the mortgage loans by principal balance.

For all mortgage loans, the Minimum Monthly Payment will be due on the first day of each month (the “Due Date”). Each mortgage loan will have a first Due Date during the period from August 2006 through Aptil 2007, inclusive, and will have an original term to maturity of not more than 40 years.

Each mortgage loan will be a conventional mortgage loan evidenced by a mortgage note. After an initial fixed-rate period of one or three months, the mortgage interest rate on each mortgage loan will be adjusted monthly to equal the sum of the applicable Index and the per annum rate specified in the applicable mortgage note (the “Margin”), rounded to the nearest 0.001%. The Margin for each mortgage loan may change if the initial Index is replaced. See “The Indexes” in this prospectus supplement. In addition, adjustments to the mortgage interest rate for each mortgage loan are subject to a lifetime maximum interest rate (a “Rate Ceiling”). As of the Cut-Off Date, none of the mortgage loans have reached their Rate Ceiling. The minimum interest rate for each mortgage loan is its related Margin, unless otherwise specified in the mortgage note.

Each mortgage loan was originated with an initial fixed-rate period of one or three months. As of the Cut-Off Date, approximately 79.3% (by aggregate principal balance) of the mortgage loans were still in their fixed-rate period.

For each mortgage loan, a minimum monthly payment (the “Minimum Monthly Payment”) is required to be paid by the mortgagor pursuant to the terms of the mortgage note. The initial Minimum

 


 

* The description of the mortgage pool and the mortgaged properties in this section and in Appendix B is based on the mortgage loans as of the close of business on the Cut-Off Date, after deducting the scheduled principal payments due on or before that date, whether or not actually received. All references in this prospectus supplement to “principal balance” refer to the principal balance as of the Cut-Off Date, unless otherwise specifically stated or required by the context. Due to rounding, percentages may not sum to 100%. References to percentages of mortgage loans refer in each case to the percentage of the aggregate principal balance of the mortgage loans in the related loan group or in the aggregate, as applicable, based on the outstanding principal balances of the mortgage loans after giving effect to scheduled monthly payments due on or before the Cut-Off Date. References to weighted averages refer in each case to weighted averages by principal balance as of the Cut-Off Date of the related mortgage loans determined in the same way as described in the previous sentence. Before the issuance of the certificates, mortgage loans may be removed from the mortgage pool as a result of Payoffs, delinquencies or otherwise. If that happens, other mortgage loans may be included in the mortgage pool. The depositor believes that the information in this prospectus supplement for the mortgage pool is representative of the characteristics of the mortgage pool as it will actually be constituted when the certificates are issued, although the range of mortgage interest rates and other characteristics of the mortgage loans in the mortgage pool may vary. See “—Additional Information” in this prospectus supplement.

 

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Monthly Payment for each mortgage loan is the amount which will fully amortize the mortgage loan at its initial fixed interest rate (which will generally be lower than the sum of the Index and Margin) in equal monthly installments over its remaining term to maturity. The Minimum Monthly Payment for each mortgage loan will adjust annually, and on any Due Date on which the principal balance of the mortgage loan would otherwise exceed 110% (in the case of approximately 46.2% of the mortgage loans, as of the Cut-Off Date) or 115% (in the case of approximately 53.8% of the mortgage loans, as of the Cut-Off Date) of its original principal balance, to an amount which will fully amortize the mortgage loan at the then current mortgage interest rate in equal monthly installments over its remaining term to maturity. The Minimum Monthly Payment may not, however, increase or decrease on any adjustment date by an amount greater than 7.5% of the Minimum Monthly Payment in effect immediately before that adjustment date (the “Payment Cap”), provided that this 7.5% limitation does not apply to the adjustment made on the fifth anniversary of the first Due Date, on each fifth anniversary thereafter and on the final adjustment date, or if the principal balance of the mortgage loan would otherwise exceed 110% or 115%, as applicable, of its original principal balance. In addition, any amounts owed under each mortgage loan on its maturity date are required to be paid on that date without regard to any Minimum Monthly Payment. Depending on the amount and timing of increases to the principal balance of a mortgage loan due to negative amortization, the final payment on that mortgage loan may be substantially larger than the immediately preceding Minimum Monthly Payment.

Since the mortgage interest rate on each mortgage loan adjusts monthly and the Minimum Monthly Payment adjusts annually, subject to the limitations described above, and since the Minimum Monthly Payment may not be increased on most adjustment dates by an amount greater than 7.5%, increases in the Index will cause a larger portion of the Minimum Monthly Payment to be allocated to interest and a smaller portion to principal. In some cases, the interest due on the mortgage loan may exceed the Minimum Monthly Payment. Any such excess will be added to the outstanding principal balance of the mortgage loan in the form of “negative amortization.” Decreases in the Index, on the other hand, will cause a larger portion of the Minimum Monthly Payment to be allocated to principal and a smaller portion to interest.

The Minimum Monthly Payment for the entire first year of a mortgage loan following origination reflects the fixed rate in effect during its initial fixed-rate period, which will generally be lower than the fully indexed rate in effect at any time during the first year. Therefore, even if the applicable Index does not increase, the Minimum Monthly Payment during the first year of the mortgage loan may not be enough to pay the amount of interest due on the mortgage loan at the fully indexed rate, which is calculated based on the sum of the applicable Index and the Margin. If the mortgagor chooses to pay the Minimum Monthly Payment rather than one of the other higher payment options described below, this will lead to an increase in the outstanding principal balance of the mortgage loan in the form of negative amortization. Even after the first year, when the Minimum Monthly Payment may increase by 7.5%, this adjustment may not be enough to raise the Minimum Monthly Payment to the amount necessary to pay the interest due on the mortgage loan based on the sum of the applicable Index and the Margin in effect during the following year. If the new Minimum Monthly Payment is still less than the fully indexed rate during the following year, there will continue to be negative amortization if the mortgagor chooses to pay only the Minimum Monthly Payment. Therefore the effect of the initial fixed rate at the beginning of the life of the mortgage loan may be to continue to cause the Minimum Monthly Payment to be less than the monthly interest due on the mortgage loan until the fifth anniversary of the first Due Date (or until such Due Date as the principal balance of the mortgage loan would otherwise exceed 110% or 115%, as applicable, of its original principal balance) when the Minimum Monthly Payment will be reset to a fully-amortizing payment.

Except for mortgagors who elect to participate in the servicer’s Auto Pay program (as described below), the monthly statement may show one or more payment options, which may include an amount less than, equal to or greater than a fully-amortizing monthly payment (that is, an amount that would fully amortize the mortgage loan at its current interest rate in equal monthly installments over its remaining term to maturity). In general, when the Minimum Monthly Payment is less than the amount of interest due that month (which, after the initial fixed-rate period, is calculated each month as the sum of the applicable Index and the Margin), the mortgagor will have the option to pay the actual amount of interest due that month. Likewise, whenever the Minimum Monthly Payment is less than a fully-amortizing monthly payment, the mortgagor will have the option to pay that fully-amortizing amount. Finally, the mortgagor may have the option of paying a monthly payment that would amortize the mortgage loan based on a

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15-year term from the first payment date, rather than the actual 30-year or 40-year term of the mortgage loan (unless the mortgage loan’s actual remaining term to maturity is less than or equal to 180 months, in which case this payment option will not be available).

Mortgagors may elect to participate in the servicer’s Auto Pay program, under which funds in an amount preselected by the mortgagor (not less than the Minimum Monthly Payment) are electronically debited from the mortgagor’s checking or savings account and credited to the mortgage loan on a monthly payment date. The mortgagor may select as the monthly payment date any date from the first through the 15th day of the month. In order to enroll in the Auto Pay program, the mortgagor’s bank account must be with a financial institution that is a member of the Automated Clearing House processing system.

Mortgagors may remit principal prepayments together with the scheduled monthly payment or at any other time.

The servicer will send monthly statements to mortgagors in the month prior to the month in which the payment is due. The servicer generally will assess a late fee if the servicer has not received the Minimum Monthly Payment on the 15th day after the date on which the payment was due. In addition to assessing late fees for late monthly payments, the servicer may assess nonsufficient funds fees, payoff statement fees (in connection with Payoffs) and, if applicable, prepayment penalties for early Payoffs.

In addition, for any month, if the servicer receives a payment on a mortgage loan that is less than the Minimum Monthly Payment or if no payment is received at all, the servicer will advance its own funds or funds collected by the servicer on the mortgage loans but not required to be distributed to the certificateholders on the current Distribution Date, to cover the difference between the Minimum Monthly Payment scheduled to be received and the amount actually received with respect to that mortgage loan. However, the servicer will not be required to make such advances if it determines that those advances will not be recoverable from future payments or collections on that mortgage loan.

All of the mortgage loans are assumable to the extent provided in the related mortgage note. The mortgage note for each mortgage loan provides that if the mortgage loan is assumed, the Rate Ceiling following the assumption will be the greater of (i) the original Rate Ceiling for the mortgage loan or (ii) the interest rate in effect for the mortgage loan at the time of assumption plus five percentage points.

The mortgage loans will be purchased by the depositor directly from the sponsor.

None of the mortgage loans will be “Buydown Loans,” which are mortgage loans for which scheduled payments of principal and/or interest have been subsidized for a period of time through a fund provided by the originator or another person at the time of origination. Some of the risks of loss on some mortgage loans will be covered up to specified limits by primary insurance policies.

As of the Cut-Off Date, no mortgage loan is delinquent (that is, more than 30 days past due), and no mortgage loan was delinquent more than once during the twelve-months preceding the Cut-Off Date (or during such shorter period as has elapsed from the date of origination of such mortgage loan by the sponsor or its affiliates or, if originated by an unaffiliated party, from the date of acquisition of such mortgage loan by the sponsor or its affiliates) and any such delinquency lasted for no more than 30 days.

Each mortgage loan with both (i) an original loan-to-value ratio and (ii) a loan-to-value ratio as of the Cut-Off Date in excess of 80% was covered, as of the Cut-Off Date, by a primary insurance policy. For purposes of determining whether a primary insurance policy is required, the loan-to-value ratio is generally calculated as follows: (1) with respect to mortgage loans not secured by property located in the State of New York, the original principal amount of such loan divided by the lesser of (x) the original appraised value of the related mortgaged property and (y) the purchase price of such loan; and (2) with respect to mortgage loans secured by property in the State of New York, the original principal amount of such loan divided by the original appraised value of the related mortgaged property.

As of the Cut-Off Date, certain of the mortgage loans impose penalties for early prepayments in full but do not impose penalties for partial prepayments received on or before the first or third anniversary, as stated in the related mortgage note, of the origination of the mortgage loan. As of the Cut-Off Date, certain of the mortgage loans impose penalties for early prepayments in full, and for partial prepayments in the event that aggregate partial prepayments made during a 12-month period exceed 20% of the original principal balance. Those prepayment penalties are in effect for 30 months after the origination of those mortgage loans. The amount of the applicable prepayment penalty, to the extent permitted by applicable

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law, is as provided in the related mortgage note. See the “Prepayment Penalty Terms of the Group 1 Loans” and “Prepayment Penalty Terms of the Group 2 Loans” tables in Appendix B hereto for information regarding the number of mortgage loans, and the related percentage of each loan group, that contain prepayment penalties, broken out for each of the various prepayment penalty terms.

As of the Cut-Off Date, for mortgage loans that impose prepayment penalties for voluntary full prepayments received on or before the first anniversary of the origination of the mortgage loan, the amount of such prepayment penalty is 2.0% of the original loan amount.

As of the Cut-Off Date, for mortgage loans that impose prepayment penalties for voluntary full prepayments received within three years from origination of the mortgage loan, the amount of such prepayment penalty is (i) 3.0% of the original loan amount for voluntary full prepayments received on or before the first anniversary of the origination of the mortgage loan, (ii) 2.0% of the original loan amount for voluntary full prepayments received after the first anniversary of the origination of the mortgage loan but on or before the second anniversary of the origination of the mortgage loan and (iii) 1.0% of the original loan amount for voluntary full prepayments received after the second anniversary of the origination of the mortgage loan but on or before the third anniversary of the origination of the mortgage loan.

As of the Cut-Off Date, for mortgage loans that impose prepayment penalties for voluntary full prepayments received within 30 months from origination of the mortgage loan, the amount of such prepayment penalty is 2.0% of the original loan amount.

Investors should note that, regardless of the terms of the mortgage note, the servicer will not collect prepayment penalties after the third anniversary of the origination of the mortgage loan.

Loan Group 1

The mortgage loans in loan group 1 consist of 749 mortgage loans with an aggregate principal balance as of the Cut-Off Date of approximately $194,639,464.

As of the Cut-Off Date, approximately 6.0% (by aggregate principal balance) of the mortgage loans in loan group 1 were covered by a primary insurance policy.

As of the Cut-Off Date, approximately 74.9% (by aggregate principal balance) of the mortgage loans in loan group 1 impose penalties for early prepayments. The amount of the applicable prepayment penalty, to the extent permitted by applicable law, is as provided in the related mortgage note. See the “Prepayment Penalty Terms of the Group 1 Loans” table in Appendix B hereto for information regarding the number of related mortgage loans, and the related percentage of those mortgage loans, that contain prepayment penalties, broken out for each of the various prepayment penalty terms.

See Appendix B for a detailed description of the mortgage loans in loan group 1.

Loan Group 2

The mortgage loans in loan group 2 consist of 1,157 mortgage loans with an aggregate principal balance as of the Cut-Off Date of approximately $873,359,094.

As of the Cut-Off Date, approximately 1.4% (by aggregate principal balance) of the mortgage loans in loan group 2 were covered by a primary insurance policy.

As of the Cut-Off Date, approximately 68.6% (by aggregate principal balance) of the mortgage loans in loan group 2 impose penalties for early prepayments. The amount of the applicable prepayment penalty, to the extent permitted by applicable law, is as provided in the related mortgage note. See the “Prepayment Penalty Terms of the Group 2 Loans” table in Appendix B hereto for information regarding the number of related mortgage loans, and the related percentage of those mortgage loans, that contain prepayment penalties, broken out for each of the various prepayment penalty terms.

See Appendix B for a detailed description of the mortgage loans in loan group 2.

Subgroup 2A

The mortgage loans in subgroup 2A consist of 100 mortgage loans with an aggregate principal balance as of the Cut-Off Date of approximately $94,334,074.

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As of the Cut-Off Date, none of the mortgage loans in subgroup 2A were covered by a primary insurance policy.

As of the Cut-Off Date, none of the mortgage loans in subgroup 2A impose penalties for early prepayments.

See Appendix B for a detailed description of the mortgage loans in subgroup 2A.

The Indexes

The index for each mortgage loan (the “Index”) is One-Year MTA, as described below.

The index for the mortgage loans is a per annum rate equal to the twelve-month moving average monthly yield on United States Treasury Securities adjusted to a constant maturity of one year (“One-Year MTA”), as published by the Board of Governors of the Federal Reserve System in the Federal Reserve Statistical Release “Selected Interest Rates (H.15)”, determined by averaging the monthly yields for the most recently available twelve months. The One-Year MTA figure used for each interest rate adjustment date will be the most recent One-Year MTA figure available as of fifteen days before that date.

If One-Year MTA is no longer available, the servicer will choose a new Index that is based on comparable information. When the servicer chooses a new Index, it will increase or decrease the Margin on each mortgage loan by the difference between the average of One-Year MTA for the final three years it was in effect and the average of the replacement index for the most recent three years. The Margin will be increased by that difference if the average of One-Year MTA is greater than the average of the replacement index, and the Margin will be decreased by that difference if the average of the replacement index is greater than the average of One-Year MTA. The new Margin will be rounded up as provided in the related mortgage note. Notwithstanding the foregoing, for purposes of calculating the certificate interest rate on the Class 2X-1 Certificates and the servicing fee for the mortgage loans, the Margin will not be increased or decreased as described above.

Listed below are some historical values of One-Year MTA since 2002. The values of One-Year MTA shown are intended only to provide an historical summary of the movements in the One-Year MTA and may not be indicative of future rates. No assurances can be given as to the value of One-Year MTA on any interest rate adjustment date or during the life of any mortgage loan.

 

 

 

 

 

 

 

 

 

 

 

 

 

Month

 

2007

 

2006

 

2005

 

2004

 

2003

 

2002

January

 

 

 

4.983%

   

 

 

3.751%

   

 

 

2.022%

   

 

 

1.234%

   

 

 

1.935%

   

 

 

3.260%

 

February

 

 

 

5.014%

   

 

 

3.888%

   

 

 

2.171%

   

 

 

1.229%

   

 

 

1.858%

   

 

 

3.056%

 

March

 

 

 

 

 

4.011%

   

 

 

2.347%

   

 

 

1.225%

   

 

 

1.747%

   

 

 

2.912%

 

April

 

 

 

 

 

4.143%

   

 

 

2.504%

   

 

 

1.238%

   

 

 

1.646%

   

 

 

2.787%

 

May

 

 

 

 

 

4.282%

   

 

 

2.633%

   

 

 

1.288%

   

 

 

1.548%

   

 

 

2.668%

 

June

 

 

 

 

 

4.432%

   

 

 

2.737%

   

 

 

1.381%

   

 

 

1.449%

   

 

 

2.553%

 

July

 

 

 

 

 

4.563%

   

 

 

2.865%

   

 

 

1.463%

   

 

 

1.379%

   

 

 

2.414%

 

August

 

 

 

 

 

4.664%

   

 

 

3.019%

   

 

 

1.522%

   

 

 

1.342%

   

 

 

2.272%

 

September

 

 

 

 

 

4.758%

   

 

 

3.163%

   

 

 

1.595%

   

 

 

1.302%

   

 

 

2.180%

 

October

 

 

 

 

 

4.827%

   

 

 

3.326%

   

 

 

1.677%

   

 

 

1.268%

   

 

 

2.123%

 

November

 

 

 

 

 

4.883%

   

 

 

3.478%

   

 

 

1.773%

   

 

 

1.256%

   

 

 

2.066%

 

December

 

 

 

 

 

4.933%

   

 

 

3.618%

   

 

 

1.887%

   

 

 

1.244%

   

 

 

2.002%

 

Additional Information

Appendix B contains important information about the mortgage loans in (i) each loan group and (ii) subgroup 2A including:

 

 

 

 

the mortgage interest rates, the Pass-Through Rates and the original principal balances of the mortgage loans;

 

 

 

 

the Margins, the interest rate floors and the Rate Ceilings;

 

 

 

 

the years in which initial monthly payments on the mortgage loans are due;

 

 

 

 

the first interest rate adjustment dates on the mortgage loans;

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the loan-to-value ratios of the mortgage loans as of the Cut-Off Date;

 

 

 

 

the types of mortgaged properties;

 

 

 

 

the geographic distribution by state of the mortgaged properties;

 

 

 

 

the scheduled maturity years of the mortgage loans;

 

 

 

 

the original terms to maturity of the mortgage loans;

 

 

 

 

the number of mortgage loans originated under full documentation or reduced documentation programs;

 

 

 

 

the stated owner occupancy status of the mortgaged properties when the mortgage loans were originated;

 

 

 

 

the mortgagor’s purpose of financing;

 

 

 

 

the credit score ranges;

 

 

 

 

current and past delinquencies of the mortgage loans, if applicable;

 

 

 

 

the monthly debt to income ratio of all debt;

 

 

 

 

the combined loan-to-value ratios of the first and second liens at origination; and

 

 

 

 

the number of mortgage loans, and the percentage of such loan group, that contain prepayment penalties, broken out for each of the various prepayment penalty terms.

The credit score tables appearing in Appendix B show the credit scores, if any, that the originators or underwriters of the mortgage loans collected for the mortgagors. The credit scores shown were collected from a variety of sources over a period of weeks, months or longer, and the credit scores do not necessarily reflect the credit scores that would be reported as of the date of this prospectus supplement. Credit scores should not be considered as an accurate predictor of the likelihood of repayment of the related mortgage loans. See “Underwriting of the Mortgage Loans—Evaluation of the Borrower’s Credit Standing” in this prospectus supplement.

The material terms of the pooling agreement are described in this prospectus supplement, and the pooling agreement will be available to purchasers of the certificates through a Current Report on Form 8-K that will be filed with the Securities and Exchange Commission within fifteen days after the initial issuance of the certificates. If mortgage loans are removed from or added to the mortgage pool as described in the footnote on page S-53, that removal or addition will be noted in a Distribution Report on Form 10-D or a Current Report on Form 8-K.

Representations and Warranties Regarding the Mortgage Loans

Under the mortgage loan sale agreement pursuant to which the sponsor will sell the mortgage loans to the depositor, the sponsor will make representations and warranties in respect of the mortgage loans, which representations and warranties the depositor will assign to the Trust pursuant to the pooling agreement. Among those representations and warranties are the following:

 

 

 

 

Each mortgage is a valid and enforceable first lien on an unencumbered estate in fee simple or leasehold estate in the related mortgaged property, except as such enforcement may be limited by laws affecting the enforcement of creditors’ rights generally and principles of equity, and except as provided in the mortgage loan sale agreement;

 

 

 

 

The depositor will be the legal owner of each mortgage loan, free and clear of any encumbrance or lien (other than any lien under the mortgage loan sale agreement);

 

 

 

 

No mortgage loan is delinquent (that is, more than 30 days past due), and no mortgage loan was delinquent more than once in the preceding 12 months (or during such shorter period as has elapsed from the date of origination of such mortgage loan by the sponsor or its affiliates or, if originated by an unaffiliated party, from the date of acquisition of such mortgage loan by the sponsor or its affiliates) and any such delinquency lasted for no more than 30 days;

 

 

 

 

There are no delinquent assessments or taxes outstanding against any mortgaged property;

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There is no offset, defense or counterclaim to any mortgage note, except as stated in the mortgage loan sale agreement;

 

 

 

 

Each mortgaged property is free of damage and in good repair, ordinary wear and tear excepted;

 

 

 

 

Each mortgage loan at the time it was made complied with all applicable local, state and federal laws, including, without limitation, usury, equal credit opportunity, disclosure and recording laws, and predatory and abusive lending laws applicable to the originating lender;

 

 

 

 

Each mortgage loan (except mortgage loans secured by cooperative properties) is covered by a title insurance policy insuring the lien status of the mortgage, subject to the exceptions set forth in the policy;

 

 

 

 

Each mortgage loan with a loan-to-value ratio both (i) as of the Cut-Off Date and (ii) as of its respective origination date in excess of 80% was covered, as of the Cut-Off Date, by a primary insurance policy, and such policy or guaranty is valid and remains in full force and effect;

 

 

 

 

All hazard insurance or other insurance required under the mortgage loan sale agreement has been validly issued and remains in full force and effect;

 

 

 

 

Each mortgage and mortgage note is the legal, valid and binding obligation of the maker thereof and is enforceable in accordance with its terms, except only as such enforcement may be limited by laws affecting the enforcement of creditors’ rights generally and principles of equity;

 

 

 

 

The sponsor used no adverse selection procedures in selecting the mortgage loans from among the outstanding adjustable rate conventional mortgage loans owned by it which were available for sale and as to which the representations and warranties in the mortgage loan sale agreement could be made; and

 

 

 

 

Each mortgage loan constitutes a qualified mortgage under the Internal Revenue Code.

Pursuant to the pooling agreement, the depositor will represent and warrant to the Trust that, as of the Closing Date, the Trust will be the legal owner of each mortgage loan, free and clear of any encumbrance or lien (other than (i) any lien arising before the depositor’s purchase of the mortgage loan from the sponsor and (ii) any lien under the pooling agreement).

In the event of a material breach of the representations and warranties made by the sponsor or the depositor, the breaching party will be required to either cure the breach in all material respects, repurchase the affected mortgage loan or substitute for the affected mortgage loan. In the event that a required loan document is not included in the mortgage files for the mortgage loans, the sponsor generally will also be required to either cure the defect or repurchase or substitute for the affected mortgage loan. See “Description of the Securities—Representations and Warranties Regarding the Mortgage Loans; Remedies for Breach” in the prospectus for a description of the purchase price for each repurchased mortgage loan and the requirements with respect to substitutions of mortgage loans.

Criteria for Selection of Mortgage Loans

The sponsor selected the mortgage loans from among its portfolio of mortgage loans held for sale based on a variety of considerations, including type of mortgage loan, geographic concentration, range of mortgage interest rates, principal balance, credit scores and other characteristics described in Appendix B to this prospectus supplement, and taking into account investor preferences and the depositor’s objective of obtaining the most favorable combination of ratings on the certificates.

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DESCRIPTION OF THE CERTIFICATES

General

The certificates will be issued pursuant to the pooling agreement to be dated as of the Cut-Off Date among WaMu Asset Acceptance Corp., as depositor, Washington Mutual Bank, as servicer, LaSalle Bank National Association, as trustee, and Christiana Bank & Trust Company, as Delaware trustee. A form of the pooling agreement is filed as an exhibit to the registration statement relating to the certificates. The accompanying prospectus contains important additional information regarding the terms and conditions of the pooling agreement and the certificates. The offered certificates will not be issued unless they receive the ratings from Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc. (“S&P”), and Moody’s Investors Service, Inc. (“Moody’s”) indicated under “Certificate Ratings” in this prospectus supplement. As of the Closing Date, the offered certificates, other than the Class B-5, Class B-6 and Class B-7 Certificates, will qualify as “mortgage related securities” within the meaning of the Secondary Mortgage Market Enhancement Act of 1984.

The WaMu Mortgage Pass-Through Certificates, Series 2007-OA3 will consist of the following classes:

 Class 1A

 Class 2A

 Class 2A-1A

 Class 2A-1B

 Class CA-1B

 Class CA-1C

 Class 2X-1

 Class CX-PPP

 Class B-1

 Class B-2

 Class B-3

 Class B-4

 Class B-5

 Class B-6

 Class B-7

 Class B-8

 Class B-9

 Class B-10

 Class R

Collectively, the certificates will represent all of the beneficial interests in the Trust. The certificates will have the following designations:

 

 

 

Class A Certificates

 

Class 1A, Class 2A, Class 2A-1A, Class 2A-1B, Class CA-1B and Class CA-1C Certificates.

Class X Certificates

 

Class 2X-1 and Class CX-PPP Certificates.

Senior Certificates

 

Class A, Class X and Class R Certificates.

Senior Subordinate Certificates

 

Class B-1, Class B-2, Class B-3, Class B-4, Class B-5, Class B-6 and Class B-7 Certificates.

Junior Subordinate Certificates

 

Class B-8, Class B-9 and Class B-10 Certificates.

Class B or Subordinate Certificates

 

Senior Subordinate and Junior Subordinate Certificates. The Class B Certificates are the subordinate certificates for all of the Senior Certificates and, therefore, as used in this prospectus supplement, their “related loan group” includes the mortgage loans in loan group 1 and loan group 2.

Residual Certificates

 

Class R Certificates.

Regular Certificates

 

All classes of certificates other than the Class R Certificates.

MTA Certificates

 

Class 1A, Class 2A, Class 2A-1A, Class 2A-1B Certificates.

LIBOR Certificates

 

Class CA-1B, Class CA-1C and Class B Certificates.

Physical Certificates

 

Class R Certificates.

Book-Entry Certificates

 

All classes of certificates other than the Physical Certificates.

Only the Senior Certificates and the Senior Subordinate Certificates, called the offered certificates, are offered by this prospectus supplement. The Junior Subordinate Certificates are not offered by this prospectus supplement.

The “Class Principal Balance” for any Distribution Date and for any class of certificates will equal the aggregate amount of principal to which such class or, in the case of the Class CX-PPP Certificates, the

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related Class X PO Components are entitled on the Closing Date, reduced by all distributions of principal to that class or those components, as applicable, and all allocations of losses required to be borne by that class or those components, as applicable, before that Distribution Date and increased by the portion of the aggregate Net Negative Amortization allocated to that class or those components, as applicable, as described in “—Distributions of Interest” in this prospectus supplement. The “Class Principal Balance” of the Class CA-1B and Class CA-1C Certificates will equal the sum of the related Component Principal Balances.

The “Certificate Principal Balance” for any certificate will be the portion of the corresponding Class Principal Balance that it represents; provided, however, that the Class CX-PPP Certificates will represent a portion of the related Class Principal Balance equal to its percentage interest in the related Class X Notional Amount (as described in this prospectus supplement under “Distributions of Interest—Class X Notional Amounts and Class X Principal Balances”).

Solely for purposes of calculating distributions of principal and interest and the allocation of losses realized on the mortgage loans, the Class CX-PPP Certificates will be deemed to be comprised of two interest-only components, the Class CX-PPP Loan Group 1 IO Component and the Class CX-PPP Loan Group 2 IO Component, and two principal-only components, the Class CX-PPP Loan Group 1 PO Component and the Class CX-PPP Loan Group 2 PO Component. Interest, if any, will be payable with respect to each Class X IO Component, calculated as described in this prospectus supplement under “—Distributions of Interest—Interest Distributions on the Class CX-PPP Certificates.” In addition, the Class CX-PPP Certificates will have a Class Principal Balance, which will be the sum of the Component Principal Balances of the related Class X PO Components and which will initially equal zero. In the event that interest otherwise payable with respect to a Class X IO Component and derived from a loan group is reduced as a result of the allocation of Net Negative Amortization, the amount of such reduction will be added as principal to the related Class X Component Principal Balance. Interest will not accrue on any Class X Component Principal Balance. The Class 2X-1 Certificates will not have a Class Principal Balance.

Solely for purposes of calculating distributions of principal and interest and the allocation of losses realized on the mortgage loans, the Class CA-1B Certificates will be deemed to be comprised of the Class CA-1B Group 1 Component and the Class CA-1B Group 2 Component, and the Class CA-1C Certificates will be deemed to be comprised of the Class CA-1C Group 1 Component and the Class CA-1C Group 2 Component. Each Component will have a Component Principal Balance representing the portion of the related Class Principal Balance. Interest will be payable with respect to each Class CA-1B and Class CA-1C Component.

The “Component Principal Balance” for any Class X PO Component will be the principal balance of that Class X PO Component calculated as described in the second preceding paragraph. The “Component Principal Balance” for any component of the Class CA-1B and Class CA-1C Certificates and any Distribution Date will equal the aggregate amount of principal to which that component is entitled on the Closing Date, reduced by all distributions of principal to that component, and all allocations of losses required to be borne by that component, before that Distribution Date and increased by the portion of the aggregate Net Negative Amortization allocated to that component, as described in “—Distributions of Interest” in this prospectus supplement.

The Senior Certificates will comprise approximately 90.00%, the Senior Subordinate Certificates will comprise approximately 8.65% and the Junior Subordinate Certificates will comprise approximately 1.35% of the aggregate principal balance of the mortgage loans as of the Cut-Off Date.

The offered certificates, other than the Class X and Class R Certificates, are each offered in minimum denominations equivalent to not less than $25,000 each and multiples of $1 in excess of that amount.

The Class X Certificates are offered in minimum denominations equivalent to not less than $100,000 initial related Class X Notional Amount each and multiples of $1 in excess of that amount.

The Class R Certificates will have an initial Class Principal Balance of $100 and will be offered in registered, certificated form in a single denomination of a 99.99% percentage interest. The remaining 0.01% percentage interest of the Class R Certificates will be owned by the servicer as described in this prospectus supplement under “Material Federal Income Tax Consequences.”

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Distributions (i) on the Class 1A Certificates will be based solely on payments received or advanced in respect of the mortgage loans in loan group 1 and (ii) on the Class 2A, Class 2A-1A, Class 2A-1B and Class 2X-1 Certificates will be based solely on payments received or advanced in respect of the mortgage loans in loan group 2, except in each case, in the limited circumstances described in this prospectus supplement under “—Cross-Collateralization,” and except that Carryover Shortfall Amounts may be paid from interest otherwise available for distribution to the Class CX-PPP Certificates. Distributions on the Class CA-1B, Class CA-1C, Class CX-PPP and Class B Certificates will be based on payments received or advanced in respect of the mortgage loans in loan group 1 and loan group 2.

Book-Entry Registration

Each class of Book-Entry Certificates will initially be represented by a single certificate registered in the name of Cede & Co., a nominee of The Depository Trust Company, New York, New York (“DTC”). See “Description of the Securities—Form of Securities” in the accompanying prospectus for a description of the book-entry system.

Definitive Certificates

The Book-Entry Certificates will be issued in fully registered, certificated form to certificateholders or their nominees, rather than to DTC or its nominee, only upon the occurrence of certain events described under “Description of the Securities—Form of Securities—Definitive Securities” in the accompanying prospectus.

The trustee or its paying agent, if any, will make distributions of principal and interest on the definitive certificates directly to holders of those definitive certificates in accordance with the pooling agreement procedures described in this prospectus supplement. Distributions of principal and interest on each Distribution Date will be made to holders in whose names certificates were registered at the close of business on the related Record Date. Distributions will be made by wire transfer in immediately available funds for the account of each holder or, if a holder has not provided wire instructions, by check mailed to the address of the holder as it appears on the register maintained by the certificate registrar. The final payment on any certificate will be made only on presentation and surrender of the certificate at the offices of the trustee or its agent or such office or agency as is specified in the notice of final distribution to holders of certificates being retired. When the trustee receives notice from the servicer (which is required to be no later than the sixteenth day of the month in which a class will be retired) that it believes the remaining unpaid principal balance of a class of certificates will be distributable on the next Distribution Date, the trustee is required to provide notice to registered certificateholders of that class not later than the eighteenth day of the month in which that class will be retired.

Definitive certificates will be transferable and exchangeable at the office or agency of the trustee maintained for that purpose, which initially shall be in Chicago, Illinois. A reasonable service charge may be imposed for any registration of transfer or exchange, and the trustee or its agent may require payment of a sum sufficient to cover any tax or other governmental charge imposed in connection with registration of transfer or exchange.

Priority of Distributions

Beginning in April 2007, on the 25th day of each month, or if the 25th day is not a business day, on the immediately following business day (each, a “Distribution Date”), distributions will be made to the certificateholders in the order and priority as follows:

 

(a)

 

 

 

with respect to the Class 1A, Class CX-PPP and Class R Certificates and the Class CA-1B Group 1 and Class CA-1C Group 1 Components, before the Credit Support Depletion Date, to the extent of the Available Distribution Amount for loan group 1 for that Distribution Date:

 

(i)

 

 

 

first, to the Class 1A, Class CX-PPP and Class R Certificates and the Class CA-1B Group 1 and Class CA-1C Group 1 Components, pro rata, accrued and unpaid interest at their respective certificate interest rate on their respective Class Principal Balance or Component Principal Balance, as applicable (or, in the case of the Class CX-PPP Certificates, accrued and unpaid interest calculated as described in clause (1) of the definition of “Class CX-PPP

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Accrued Interest”); provided, however, that, notwithstanding the foregoing, amounts to be distributed to the Class CX-PPP Certificates in respect of accrued interest (after giving effect to any Net Negative Amortization allocated to the Class CX-PPP Certificates and any shortfall in interest collections resulting from the delay in distribution of Curtailments and some Payoffs (to the extent not covered by compensating interest) and the Relief Act allocated to the Class CX-PPP Certificates) (the “Class CX-PPP Distributable Interest”) distributable pursuant to this paragraph (a)(i) will be reduced to the extent necessary to pay first, any Carryover Shortfall Amounts to the Class A Certificates pursuant to clause (c) below, and second, any Carryover Shortfall Amounts to the Class B Certificates pursuant to clause (d)(xvi) below;

 

(ii)

 

 

 

second, to the Class R Certificates, as principal, until the Class R Principal Balance has been reduced to zero; and

 

(iii)

 

 

 

third, to the Class 1A Certificates and the Class CX-PPP Loan Group 1 PO, Class CA-1B Group 1 and Class CA-1C Group 1 Components, as principal, the Group 1 Senior Principal Distribution Amount, in the order described in “—Distributions of Principal—Group 1 Senior Principal Distribution Amount” in this prospectus supplement;

 

(b)

 

 

 

with respect to the Class 2A, Class 2A-1A, Class 2A-1B, Class CX-PPP and Class 2X-1 Certificates and the Class CA-1B Group 2 and Class CA-1C Group 2 Components, before the Credit Support Depletion Date, to the extent of the Available Distribution Amount for loan group 2 for that Distribution Date:

 

(i)

 

 

 

first, to the Class 2A, Class 2A-1A, Class 2A-1B, Class CX-PPP and Class 2X-1 Certificates and the Class CA-1B Group 2 and Class CA-1C Group 2 Components, pro rata, accrued and unpaid interest at their respective certificate interest rate on their respective Class Principal Balance, Class Notional Amount or Component Principal Balance, as applicable (or, in the case of the Class CX- PPP Certificates, accrued and unpaid interest calculated as described in clause (2) of the definition of “Class CX-PPP Accrued Interest”); provided, however, that, notwithstanding the foregoing, the Class CX-PPP Distributable Interest distributable pursuant to this paragraph (b)(i) will be reduced to the extent necessary to pay first, any Carryover Shortfall Amounts to the Class A Certificates pursuant to clause (c) below, and second, any Carryover Shortfall Amounts to the Class B Certificates pursuant to clause (d)(xvi) below; and

 

(ii)

 

 

 

second, to the Class 2A, Class 2A-1A and Class 2A-1B Certificates and the Class CX-PPP Loan Group 2 PO, Class CA-1B Group 2 and Class CA-1C Group 2 Components, as principal, the Group 2 Senior Principal Distribution Amount, in the order described in “—Distributions of Principal—Group 2 Senior Principal Distribution Amount” in this prospectus supplement;

 

 

 

(c) (i)

 

on the initial Distribution Date, to the Class 1A, Class 2A, Class 2A-1A, Class 2A-1B, Class CA-1B and Class CA-1C Certificates, their Carryover Shortfall Amounts, pro rata according to such Carryover Shortfall Amounts, from the aggregate Class CX-PPP Distributable Interest; and

 

(ii)

 

 

 

on each Distribution Date after the initial Distribution Date, to the Class CA-1B and Class CA-1C Certificates, their Carryover Shortfall Amounts, pro rata according to such Carryover Shortfall Amounts, from the aggregate Class CX-PPP Distributable Interest;

 

(d)

 

 

 

with respect to the Class B and Class R Certificates, before the Credit Support Depletion Date, to the extent of the Available Distribution Amount for loan group 1 and loan group 2 for that Distribution Date, subject to the payment of the Senior Certificates as described above in paragraphs (a), (b) and (c) and subject to any payments to the Senior Certificates from amounts otherwise distributable to the Class B Certificates, as described in this prospectus supplement under “—Cross-Collateralization”:

 

(i)

 

 

 

first, to the Class B-1 Certificates, accrued and unpaid interest at their certificate interest rate on the Class B-1 Principal Balance;

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(ii)

 

 

 

second, to the Class B-1 Certificates, their pro rata share of the Subordinate Principal Distribution Amount;

 

(iii)

 

 

 

third, to the Class B-2 Certificates, accrued and unpaid interest at their certificate interest rate on the Class B-2 Principal Balance;

 

(iv)

 

 

 

fourth, to the Class B-2 Certificates, their pro rata share of the Subordinate Principal Distribution Amount;

 

(v)

 

 

 

fifth, to the Class B-3 Certificates, accrued and unpaid interest at their certificate interest rate on the Class B-3 Principal Balance;

 

(vi)

 

 

 

sixth, to the Class B-3 Certificates, their pro rata share of the Subordinate Principal Distribution Amount;

 

(vii)

 

 

 

seventh, to the Class B-4 Certificates, accrued and unpaid interest at their certificate interest rate on the Class B-4 Principal Balance;

 

(viii)

 

 

 

eighth, to the Class B-4 Certificates, their pro rata share of the Subordinate Principal Distribution Amount;

 

(ix)

 

 

 

ninth, to the Class B-5 Certificates, accrued and unpaid interest at their certificate interest rate on the Class B-5 Principal Balance;

 

(x)

 

 

 

tenth, to the Class B-5 Certificates, their pro rata share of the Subordinate Principal Distribution Amount;

 

(xi)

 

 

 

eleventh, to the Class B-6 Certificates, accrued and unpaid interest at their certificate interest rate on the Class B-6 Principal Balance;

 

(xii)

 

 

 

twelfth, to the Class B-6 Certificates, their pro rata share of the Subordinate Principal Distribution Amount;

 

(xiii)

 

 

 

thirteenth, to the Class B-7 Certificates, accrued and unpaid interest at their certificate interest rate on the Class B-7 Principal Balance;

 

(xiv)

 

 

 

fourteenth, to the Class B-7 Certificates, their pro rata share of the Subordinate Principal Distribution Amount;

 

(xv)

 

 

 

fifteenth, to the Junior Subordinate Certificates, interest and principal in the same manner as for the Senior Subordinate Certificates, first to the Class B-8 Certificates, then to the Class B-9 Certificates and then to the Class B-10 Certificates;

 

(xvi)

 

 

 

sixteenth, to each class of Class B Certificates in order of seniority, the Carryover Shortfall Amount for each such class, to the extent of the aggregate Class CX-PPP Distributable Interest remaining after the distributions pursuant to clauses (c)(i) and (c)(ii) above;

 

(xvii)

 

 

 

seventeenth, to each class of Class B Certificates in order of seniority, up to the amount of unreimbursed realized principal losses previously allocated to that class, if any; provided, however, that any amounts distributed pursuant to this clause (d)(xvii) will not cause a further reduction in the Class Principal Balances of any of the certificates; and

 

(xviii)

 

 

 

eighteenth, to the Class R Certificates.

Notwithstanding the above, amounts to be distributed to each class of certificates in respect of accrued interest on any Distribution Date will be reduced by the amount of Net Negative Amortization, if any, allocated to that class. In addition, notwithstanding the immediately preceding paragraph, on any Distribution Date on which the Subordination Level for any class or classes of Subordinate Certificates is less than the Subordination Level for that class as of the Closing Date, a different distribution will be made. The amount of the Subordinate Principal Prepayments Distribution Amount, if any, otherwise allocable to such class or classes will be allocated to the more senior classes of the Subordinate Certificates, pro rata according to the Class Principal Balances of those classes.

With respect to any class of Class B Certificates, the “Subordination Level” on any specified date is the percentage obtained by dividing the sum of the Class Principal Balances of that class and all classes of Class B Certificates that are subordinate in right of payment to that class by the sum of the Class Principal

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Balances of all classes of certificates as of that date before giving effect to distributions and allocations of realized losses to the certificates on that date.

The “Credit Support Depletion Date” is the first Distribution Date on which the aggregate Class Principal Balance of the Class B Certificates has been or will be reduced to zero.

On each Distribution Date on or after the Credit Support Depletion Date, distributions of the Available Distribution Amount for loan group 1 will be made with respect to the Class 1A and Class CX-PPP Certificates and the Class CA-1B Group 1 and Class CA-1C Group 1 Components as follows:

 

(i)

 

 

 

first, to the Class 1A and Class CX-PPP Certificates and the Class CA-1B Group 1 and Class CA-1C Group 1 Components, pro rata, accrued and unpaid interest at their respective certificate interest rate on their respective Class Principal Balance or Component Principal Balance, as applicable (or, in the case of the Class CX-PPP Certificates, accrued and unpaid interest calculated as described in clause (1) of the definition of “Class CX-PPP Accrued Interest”); provided, however, that, notwithstanding the foregoing, the Class CX-PPP Accrued Interest distributable pursuant to this clause (i) will be reduced to the extent necessary to pay any Carryover Shortfall Amounts to the Class A Certificates;

 

(ii)

 

 

 

second, to the Class 1A Certificates and the Class CX-PPP Loan Group 1 PO, Class CA-1B Group 1 and Class CA-1C Group 1 Components, pro rata, as principal, the Group 1 Senior Principal Distribution Amount;

 

(iii)

 

 

 

third, payments, if any, to the Class 2A, Class 2A-1A and Class 2A-1B Certificates and the Class CX-PPP Loan Group 2 PO, Class CA-1B Group 2 and Class CA-1C Group 2 Components as described in this prospectus supplement under “—Cross-Collateralization”;

 

(iv)

 

 

 

fourth, to the Class 1A Certificates and the Class CX-PPP Loan Group 1 PO, Class CA-1B Group 1 and Class CA-1C Group 1 Components, pro rata, and then to each class of Class B Certificates in order of seniority, up to the amount of unreimbursed realized principal losses previously allocated to that class, if any; provided, however, that any amounts distributed pursuant to this clause (iv) will not cause a further reduction in the Class Principal Balances of any of the certificates; and

 

(v)

 

 

 

fifth, to the Class R Certificates.

Notwithstanding the above, amounts to be distributed to each class of certificates in respect of accrued interest on any Distribution Date will be reduced by the amount of Net Negative Amortization, if any, allocated to that class.

On each Distribution Date on or after the Credit Support Depletion Date, distributions of the Available Distribution Amount for loan group 2 will be made with respect to the Class 2A, Class 2A-1A, Class 2A- 1B, Class CX-PPP and Class 2X-1 Certificates and the Class CA-1B Group 2 and Class CA-1C Group 2 Components as follows:

 

(i)

 

 

 

first, to the Class 2A, Class 2A-1A, Class 2A-1B, Class CX-PPP and Class 2X-1 Certificates and the Class CA-1B Group 2 and Class CA-1C Group 2 Components, pro rata, accrued and unpaid interest at their respective certificate interest rate on their respective Class Principal Balance, Class Notional Amount or Component Principal Balance, as applicable (or, in the case of the Class CX- PPP Certificates, accrued and unpaid interest calculated as described in clause (2) of the definition of “Class CX-PPP Accrued Interest”); provided, however, that, notwithstanding the foregoing, the Class CX-PPP Accrued Interest distributable pursuant to this clause (i) will be reduced to the extent necessary to pay any Carryover Shortfall Amounts to the Class A Certificates;

 

(ii)

 

 

 

second, to the Class 2A, Class 2A-1A and Class 2A-1B Certificates and the Class CX-PPP Loan Group 2 PO, Class CA-1B Group 2 and Class CA-1C Group 2 Components, pro rata, as principal, the Group 2 Senior Principal Distribution Amount;

 

(iii)

 

 

 

third, payments, if any, to the Class 1A Certificates and the Class CX-PPP Loan Group 1 PO, Class CA-1B Group 1 and Class CA-1C Group 1 Components as described in this prospectus supplement under “—Cross-Collateralization”;

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(iv)

 

 

 

fourth, to the Class 2A, Class 2A-1A and Class 2A-1B Certificates and the Class CX-PPP Loan Group 2 PO, Class CA-1B Group 2 and Class CA-1C Group 2 Components, pro rata, and then to each class of Class B Certificates in order of seniority, up to the amount of unreimbursed realized principal losses previously allocated to that class, if any; provided, however, that any amounts distributed pursuant to this clause (iv) will not cause a further reduction in the Class Principal Balances of any of the certificates; and

 

(v)

 

 

 

fifth, to the Class R Certificates.

Notwithstanding the above, amounts to be distributed to each class of certificates in respect of accrued interest on any Distribution Date will be reduced by the amount of Net Negative Amortization, if any, allocated to that class.

In addition, on each Distribution Date on or after the Credit Support Depletion Date, the Class CA-1B and Class CA-1C Certificates will be entitled to receive their Carryover Shortfall Amounts, pro rata according to such Carryover Shortfall Amounts, from the aggregate Class CX-PPP Distributable Interest.

Distributions to the Class CX-PPP Certificates

The Class CX-PPP Certificates will receive distributions of interest and principal as described in this prospectus supplement. In addition, the Class CX-PPP Certificates are entitled to receive the Assigned Prepayment Penalties for loan group 1 and loan group 2.

The “Assigned Prepayment Penalties” for a loan group and a Distribution Date will equal the sum of (a) all prepayment penalty payments remitted to the Trust with respect to voluntary full prepayments on those mortgage loans in that loan group that have prepayment penalties during the period (the “Prepayment Penalty Period”) beginning on the 15th day of the immediately preceding calendar month (or, in the case of the first distribution date, beginning on the Cut-Off Date) and ending on the 14th day of the calendar month in which the Distribution Date occurs and (b) any amounts paid by the servicer during the Prepayment Penalty Period pursuant to the pooling agreement if the servicer waives a penalty on a voluntary full prepayment of a mortgage loan in that loan group other than in accordance with the standards set forth in the pooling agreement, or paid by the applicable mortgage loan seller during the Prepayment Penalty Period pursuant to the mortgage loan sale agreement if it breaches certain representations and warranties with respect to mortgage loans in that loan group that require payment of a penalty on voluntary full prepayment.

In addition, under certain circumstances set forth in the pooling agreement, the payment of any otherwise applicable penalty for voluntary full prepayment by a mortgagor of a mortgage loan may be waived by the servicer and, if waived in accordance with the terms of the pooling agreement, the amount of the waived penalty will not be available for distribution to the holders of the Class CX-PPP Certificates. Circumstances under which the servicer may waive a prepayment penalty include, among other circumstances set forth in the pooling agreement, (i) some cases, for mortgage loans originated by the servicer or an affiliate thereof, where the mortgagor sells the mortgaged property and obtains a new mortgage loan originated and serviced by the servicer to purchase another property, provided that the prepayment is made no earlier than one year after origination, (ii) some cases, for mortgage loans originated by the servicer or an affiliate thereof with prepayment penalty terms longer than one year, where the mortgagor refinances the mortgage loan with a new mortgage loan originated and serviced by the servicer, provided that 90 days or less remain in the prepayment penalty term or (iii) for prepayments of accrued but unpaid interest that has been added to principal as a result of negative amortization.

However, if the servicer waives a penalty on a voluntary full prepayment other than in accordance with the standards set forth in the pooling agreement, the servicer will be obligated to pay, or if the applicable mortgage loan seller breaches certain representations and warranties in the mortgage loan sale agreement with respect to mortgage loans that require payment of a penalty on voluntary full prepayment, the applicable mortgage loan seller will be obligated to pay, to the Trust an amount equal to the amount of the penalty on such voluntary full prepayment, for distribution to the holders of the Class CX-PPP Certificates.

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Moreover, regardless of the terms of the mortgage note, the servicer will not collect prepayment penalties required to be paid more than three years after the origination of the mortgage loan.

Investors should conduct their own analysis of the effect that the payment of penalties for voluntary full prepayment of the related mortgage loans, or decisions by the servicer with respect to waiver thereof, may have on the performance of the CX-PPP Certificates. For additional information concerning the servicer’s ability to waive penalties for voluntary full prepayment, see the pooling agreement. No prepayment penalty payments will be available for distribution to holders of the other classes of certificates. See “Description of the Mortgage Pool” in this prospectus supplement and the “Prepayment Penalty Terms of the Group 1 Loans” and “Prepayment Penalty Terms of the Group 2 Loans” tables in Appendix B hereto for more information regarding the types of prepayment penalties. See also, “Material Federal Income Tax Consequences—Taxation of the Class CX-PPP Component Portion of the Class CX-PPP Certificates” in this prospectus supplement for important tax information regarding the Class CX-PPP Certificates.

Distributions of Interest

For each class of certificates, interest will be passed through monthly on each Distribution Date, beginning in April 2007. The amount of interest each class of LIBOR Certificates (or component thereof, as applicable) accrues during each certificate accrual period will equal a ratio, the numerator of which is the actual number of days in that accrual period and the denominator of which is 360, multiplied by the annual certificate interest rate in effect for that accrual period for that class (or component), and the amount of interest on the Class 2X-1 Certificates and each class of MTA Certificates accrues during each certificate accrual period will equal 1/12th of the annual certificate interest rate in effect for that accrual period for that class, in each case, multiplied by the related Class Principal Balance (or Component Principal Balance) or Class Notional Amount, as applicable, and the amount of interest the Class CX-PPP Certificates accrue during each certificate accrual period will be the amount described below in “—Interest Distributions on the Class CX-PPP Certificates”, in each case, less any prepayment interest shortfalls not covered by compensating interest (as described below in “—Compensating Interest”), any interest shortfalls relating to the Relief Act and any Net Negative Amortization allocated to that class of certificates (or component thereof); provided, however, that the amount of interest to be distributed to the certificates may be adjusted as described in “—Carryover Shortfall Amounts” in this prospectus supplement.

The “Adjusted Cap Rate” for any Distribution Date and the Class 1A Certificates will equal a fraction, the numerator of which is equal to the product of (i) the amount of interest accrued on the mortgage loans in loan group 1 at the Loan Group 1 Weighted Average Pass-Through Rate for that Distribution Date less the Net Negative Amortization with respect to loan group 1 and (ii) 12, and the denominator of which is the Loan Group 1 Balance.

The “Adjusted Cap Rate” for any Distribution Date and the Class 2A, Class 2A-1A and Class 2A-1B Certificates will equal a fraction, the numerator of which is equal to the product of (i) the amount of interest accrued on the mortgage loans in loan group 2 at the Loan Group 2 Net Weighted Average Pass-Through Rate for that Distribution Date less the Net Negative Amortization with respect to loan group 2 and (ii) 12, and the denominator of which is the Loan Group 2 Balance.

The “Adjusted Cap Rate” for any Distribution Date and the Class CA-1B Group 1 and Class CA-1C Group 1 Components will equal a fraction, the numerator of which is equal to the product of (i) the amount of interest accrued on the mortgage loans in loan group 1 at the Loan Group 1 Weighted Average Pass-Through Rate for that Distribution Date less the Net Negative Amortization with respect to loan group 1 and (ii) 12, and the denominator of which is the Loan Group 1 Balance, such fraction multiplied by a ratio, the numerator of which is 30 and the denominator of which is the actual number of days in the related certificate accrual period.

The “Adjusted Cap Rate” for any Distribution Date and the Class CA-1B Group 2 and Class CA-1C Group 2 Components will equal a fraction, the numerator of which is equal to the product of (i) the amount of interest accrued on the mortgage loans in loan group 2 at the Loan Group 2 Net Weighted Average Pass-Through Rate for that Distribution Date less the Net Negative Amortization with respect to loan group 2 and (ii) 12, and the denominator of which is the Loan Group 2 Balance, such fraction multiplied by a ratio, the numerator of which is 30 and the denominator of which is the actual number of days in the related certificate accrual period.

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The “Adjusted Cap Rate” for any Distribution Date and any class of Class B Certificates will equal the Class B Net Weighted Average Pass-Through Rate, computed for this purpose by (i) reducing the Loan Group 1 Weighted Average Pass-Through Rate by a per annum rate equal to a fraction, the numerator of which is the Net Negative Amortization for loan group 1 multiplied by 12, and the denominator of which is the Loan Group 1 Balance and (ii) reducing the Loan Group 2 Net Weighted Average Pass-Through Rate by a per annum rate equal to a fraction, the numerator of which is the Net Negative Amortization for loan group 2 multiplied by 12, and the denominator of which is the Loan Group 2 Balance.

The “Net Negative Amortization” for any Distribution Date and each loan group will equal the excess, if any, of (i) the aggregate amount of negative amortization with respect to all mortgage loans in such loan group during the prior calendar month over (ii) the aggregate amount of Payoffs and Curtailments received with respect to all mortgage loans in such loan group during the related Prepayment Period.

For any Distribution Date, the Net Negative Amortization for each of loan group 1 and loan group 2 will be allocated among the certificates as follows:

 

(i)

 

 

 

first, (a) the Net Negative Amortization for loan group 1, to the Class CX-PPP Certificates in reduction of the interest otherwise payable to the Class CX-PPP Certificates in respect of their Class CX-PPP Loan Group 1 IO Component, until such amount is reduced to zero, and (b) the Net Negative Amortization for loan group 2, to the Class CX-PPP Certificates in reduction of the interest otherwise payable to the Class CX-PPP Certificates in respect of their Class CX-PPP Loan Group 2 IO Component, until such amount is reduced to zero;

 

(ii)

 

 

 

second, (a) the Net Negative Amortization for loan group 1 remaining after the allocation pursuant to clause (i)(a) above, to the Class CX-PPP Certificates in reduction of the remaining interest otherwise payable to the Class CX-PPP Certificates in respect of their Class CX-PPP Loan Group 2 IO Component, until such remaining amount is reduced to zero, and (b) the Net Negative Amortization for loan group 2 remaining after the allocation pursuant to clause (i)(b) above, to the Class CX-PPP Certificates in reduction of the remaining interest otherwise payable to the Class CX-PPP Certificates in respect of their Class CX-PPP Loan Group 1 IO Component, until such remaining amount is reduced to zero;

 

(iii)

 

 

 

third, the Net Negative Amortization for loan group 1 remaining after the allocations pursuant to clauses (i) and (ii) above, to the Class 1A and Class B Certificates and the Class CA-1B Group 1 and Class CA-1C Group 1 Components in proportion to the excess, if any, for each such class or component of (x) the current interest accrued at the applicable certificate interest rate for such class or component over (y) the amount of current interest that would have accrued had the certificate interest rate for such class or component equaled the Adjusted Cap Rate for such class or component and for such Distribution Date (such excess, in the case of each Class of Class B Certificates, multiplied by a fraction, the numerator of which is the Subordinate Component Balance for loan group 1 and the denominator of which is the aggregate Class Principal Balance of the Class B Certificates); and

 

(iv)

 

 

 

fourth, the Net Negative Amortization for loan group 2 remaining after the allocations pursuant to clauses (i) and (ii) above, to the Class 2A, Class 2A-1A and Class 2A-1B and Class B Certificates and the Class CA-1B Group 2 and Class CA-1C Group 2 Components in proportion to the excess, if any, for each such class or component of (x) the current interest accrued at the applicable certificate interest rate for such class or component over (y) the amount of current interest that would have accrued had the certificate interest rate for such class or component equaled the Adjusted Cap Rate for such class or component and for such Distribution Date (such excess, in the case of each Class of Class B Certificates, multiplied by a fraction, the numerator of which is the Subordinate Component Balance for loan group 2 and the denominator of which is the aggregate Class Principal Balance of the Class B Certificates).

The Class Principal Balance or Component Principal Balance of each class of certificates or components thereof will be increased by the portion of the Net Negative Amortization allocated to such class or component in reduction of interest distributable to such class or component. As a result of the allocation of Net Negative Amortization, a portion of the interest accrued on the certificates may be distributed to the certificates later than otherwise anticipated.

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Interest to be distributed on the applicable classes of certificates (or added to the Class Principal Balance of the certificates as a result of the allocation of Net Negative Amortization) on any Distribution Date will consist of accrued and unpaid interest as of previous Distribution Dates and interest accrued during the period beginning on the 25th day of the preceding calendar month (or, in the case of the first Distribution Date, the Closing Date) and ending on the 24th day of the month of that Distribution Date, except for the MTA Certificates and each class of Class X Certificates, which accrue interest during the preceding calendar month. Interest to be distributed on the LIBOR Certificates will be calculated based on the actual number of days in the certificate accrual period and assuming a 360 day year. Interest to be distributed on the MTA Certificates and each class of Class X Certificates will be calculated based on a year consisting of twelve thirty-day months. All distributions of interest for each class of certificates will generally be made only to the extent of the Available Distribution Amount as described under “—Priority of Distributions” in this prospectus supplement.

The annual certificate interest rate for each class of MTA Certificates for each Distribution Date will be determined based on the most recently available One-Year MTA figure as of 15 days before the beginning of the related interest accrual period. If One-Year MTA is no longer available, the index used to determine the annual certificate interest rates on the MTA Certificates will be the same index selected to determine the mortgage interest rates on those mortgage loans indexed, as of the Cut-Off Date, to One-Year MTA. If One-Year MTA is replaced with a new index, the related certificate margin for the MTA Certificates will be increased or decreased by the amount of the increase or decrease in the Margin for each mortgage loan indexed, as of the Cut-Off Date, to One-Year MTA (before rounding of the replacement Margin pursuant to the related mortgage note). See “Description of the Mortgage Pool—The Indexes” in this prospectus supplement.

The annual certificate interest rates for the offered certificates are listed in the table on page S-6 of this prospectus supplement and in the notes to that table.

The “Pass-Through Rate” for each mortgage loan is equal to the excess, if any, of the per annum mortgage interest rate on that mortgage loan over the servicing fee rate (as described in footnote (1) to the table under “—Payment of Fees and Expenses” in this prospectus supplement).

The “Adjusted Loan Group 1 Weighted Average Pass-Through Rate” for any Distribution Date is the product of (i) the Loan Group 1 Weighted Average Pass-Through Rate and (ii) a fraction, the numerator of which is 30 and the denominator of which is the actual number of days in the related certificate accrual period.

The “Loan Group 1 Weighted Average Pass-Through Rate” for any Distribution Date is the weighted average of the Pass-Through Rates of the mortgage loans in loan group 1 as of the second preceding Due Date (after giving effect to (a) the payments due on those mortgage loans on that Due Date and (b) except for the first Distribution Date, any Payoffs received on or before the 14th day of the calendar month of that Due Date).

The “Adjusted Loan Group 2 Net Weighted Average Pass-Through Rate” for any Distribution Date is the product of (i) the Loan Group 2 Net Weighted Average Pass-Through Rate and (ii) a fraction, the numerator of which is 30 and the denominator of which is the actual number of days in the related certificate accrual period.

The “Loan Group 2 Net Weighted Average Pass-Through Rate” for any Distribution Date is (i) the weighted average of the Pass-Through Rates of the mortgage loans in loan group 2 as of the second preceding Due Date (after giving effect to (a) the payments due on those mortgage loans on that Due Date and (b) except for the first Distribution Date, any Payoffs received on or before the 14th day of the calendar month of that Due Date) reduced by (ii) a fraction, the numerator of which is the product of the Class 2X-1 Certificate interest rate for that Distribution Date and the Subgroup 2A Balance, and the denominator is the Loan Group 2 Balance.

The “Class B Net Weighted Average Pass-Through Rate” for any Distribution Date is the product of (i) a fraction, the numerator of which is 30 and the denominator of which is the actual number of days in the related certificate accrual period and (ii) the quotient expressed as a percentage of:

 

(a)

 

 

 

the sum of:

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(i)

 

 

 

the product of (x) the Loan Group 1 Weighted Average Pass-Through Rate and (y) the Subordinate Component Balance for loan group 1 immediately before that Distribution Date; and

 

(ii)

 

 

 

the product of (x) the Loan Group 2 Net Weighted Average Pass-Through Rate and (y) the Subordinate Component Balance for loan group 2 immediately before that Distribution Date;

divided by:

(b) the sum of the Subordinate Component Balances for loan group 1 and loan group 2 immediately before that Distribution Date.

The “Maximum Class B Rate” for any Distribution Date is the Class B Net Weighted Average Pass-Through Rate modified as follows: for purposes of calculating the Pass-Through Rate for each mortgage loan, the Rate Ceiling for such mortgage loan will be substituted for the per annum mortgage interest rate for such mortgage loan.

The “Maximum Loan Group 1 Rate” and “Maximum Loan Group 2 Rate” for any Distribution Date is the Adjusted Loan Group 1 Weighted Average Pass-Through Rate and Adjusted Loan Group 2 Net Weighted Average Pass-Through Rate, respectively, modified as follows: for purposes of calculating the Pass-Through Rate for each related mortgage loan, the Rate Ceiling for such mortgage loan will be substituted for the per annum mortgage interest rate for such mortgage loan.

Interest Distributions on the Class CX-PPP Certificates

The amount of interest available for distribution to the Class CX-PPP Certificates (the “Class CX-PPP Accrued Interest”) on any Distribution Date (before giving effect to the allocation of any Net Negative Amortization and any shortfall in interest collections and payment of Carryover Shortfall Amounts) will equal, subject to the limitations described in this section, the sum of:

(1) interest associated with the Class CX-PPP Loan Group 1 IO Component, which is the excess, if any, of

 

(x)

 

 

 

the product of (i) a fraction, the numerator of which is the Loan Group 1 Weighted Average Pass-Through Rate and the denominator of which is 12, and (ii) the Loan Group 1 Balance over

 

(y)

 

 

 

the product of (i) a fraction, the numerator of which is the Weighted Average Certificate Interest Rate for loan group 1 and the denominator of which is 12, and (ii) the Loan Group 1 Balance reduced by the Class CX-PPP Loan Group 1 PO Component Principal Balance; and

(2) interest associated with the Class CX-PPP Subgroup 2 IO Component, which is the excess, if any, of

 

(x)

 

 

 

the product of (i) a fraction, the numerator of which is the Loan Group 2 Net Weighted Average Pass-Through Rate and the denominator of which is 12, and (ii) the Loan Group 2 Balance over

 

(y)

 

 

 

the product of (i) a fraction, the numerator of which is the Weighted Average Certificate Interest Rate for loan group 2 and the denominator of which is 12, and (ii) the Loan Group 2 Balance reduced by the Class CX-PPP Loan Group 2 PO Component Principal Balance;

provided, however, that if either loan group 1 or loan group 2 is an Overcollateralized Group, the amount of interest available for distribution for the Class CX-PPP Certificates may be greater or less than it otherwise would be, as described in the pooling agreement.

Notwithstanding the foregoing, interest otherwise available for distribution to the Class CX-PPP Certificates on any Distribution Date may instead be distributed as Carryover Shortfall Amounts. See “Description of the Certificates—Distributions of Interest” in this prospectus supplement.

Notwithstanding the foregoing, if the aggregate amount of interest available for distribution to the Class CX-PPP Certificates on any Distribution Date, calculated as described above, is greater than the Maximum Class CX Interest Amount, then the aggregate amount of interest available for distribution to the Class CX-PPP Certificates will be capped at the Maximum Class CX Interest Amount, and the amount of interest accrued on each of the Class CX-PPP Loan Group 1 IO and Class CX-PPP Loan Group 2 IO Components, if such amount is positive, will equal its pro rata portion of the Maximum

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Class CX Interest Amount (pro rata according to such amount, calculated as described above without giving effect to this sentence).

The “Maximum Class CX Interest Amount” for any Distribution Date is the excess, if any, of

 

(x)

 

 

 

the product of (i) a fraction, the numerator of which is the weighted average of the Loan Group 1 Weighted Average Pass-Through Rate and Loan Group 2 Net Weighted Average Pass-Through Rate and the denominator of which is 12, and (ii) the aggregate of the Loan Group 1 Balance and the Loan Group 2 Balance over

 

(y)

 

 

 

the product of (i) a fraction, the numerator of which is the Aggregate Weighted Average Certificate Interest Rate and the denominator of which is 12, and (ii) the aggregate of the Loan Group 1 Balance and the Loan Group 2 Balance reduced by the aggregate Class CX-PPP Loan Group 1 PO Component Principal Balance and Class CX-PPP Loan Group 2 PO Component Principal Balance.

The “Loan Group 1 Balance” for any Distribution Date is the aggregate principal balance of the mortgage loans in loan group 1 as of the second preceding due date (after giving effect to (a) the payments due on those mortgage loans on that Due Date and (b) except for the first Distribution Date, any Payoffs on those mortgage loans received on or before the 14th day of the calendar month of that Due Date).

The “Loan Group 2 Balance” for any Distribution Date is the aggregate principal balance of the mortgage loans in loan group 2 as of the second preceding due date (after giving effect to (a) the payments due on those mortgage loans on that Due Date and (b) except for the first Distribution Date, any Payoffs on those mortgage loans received on or before the 14th day of the calendar month of that Due Date).

The “Subgroup 2A Balance” for any Distribution Date is the aggregate principal balance of the mortgage loans in subgroup 2A as of the second preceding due date (after giving effect to (a) the payments due on those mortgage loans on that Due Date and (b) except for the first Distribution Date, any Payoffs on those mortgage loans received on or before the 14th day of the calendar month of that Due Date).

The “Weighted Average Certificate Interest Rate” for any loan group for any Distribution Date is the weighted average of the annual certificate interest rates on the Class A and Class B Certificates (or components thereof, as applicable) related to such loan group (each of which annual certificate interest rates, in the case of the LIBOR Certificates (or components thereof), will be multiplied by a fraction, the numerator of which is the actual number of days in the related certificate accrual period and the denominator of which is 30) (such rates weighted, (i) in the case of the Class A Certificates related to such loan group, according to the Class Principal Balance or Component Principal Balance thereof, as applicable, and (ii) in the case of each class of Class B Certificates, according to the product of the Class Principal Balance thereof and a fraction, the numerator of which is the Subordinate Component Balance for such loan group and the denominator of which is the aggregate Class Principal Balance of all the Class B Certificates).

The “Aggregate Weighted Average Certificate Interest Rate” for any Distribution Date is the weighted average (weighted according to Class Principal Balance or Component Principal Balance, as applicable) of the annual certificate interest rates on the Class A and Class B Certificates (or components thereof, as applicable) (each of which annual certificate interest rates, in the case of the LIBOR Certificates (or components thereof), will be multiplied by a fraction, the numerator of which is the actual number of days in the related certificate accrual period and the denominator of which is 30).

Class X Notional Amounts and Class X Principal Balances

The Class 2X-1 Certificates will accrue interest on the Class 2X-1 Notional Amount.

The “Class 2X-1 Notional Amount” for any Distribution Date will equal the Subgroup 2A Balance for that Distribution Date. The Class 2X-1 Notional Amount as of the Closing Date will equal approximately $94,334,073.

Solely for purposes of calculating distributions of principal and interest and the allocation of losses realized on the mortgage loans, the Class CX-PPP Certificates will be deemed to be comprised of two interest-only components, the Class CX-PPP Loan Group 1 IO Component and the Class CX-PPP Loan Group 2 IO Component, and two principal-only components, the Class CX-PPP Loan Group 1 PO Component and the Class CX-PPP Loan Group 2 PO Component. Interest, if any, will be payable with

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respect to each Class X IO Component, calculated as described in this prospectus supplement under “—Distributions of Interest—Interest Distributions on the Class CX-PPP Certificates.” In addition, the Class CX-PPP Certificates will have a Class Principal Balance, which will be the sum of the Component Principal Balances of the related Class X PO Components and which will initially equal zero. In the event that interest otherwise payable with respect to a Class X IO Component and derived from a loan group is reduced as a result of the allocation of Net Negative Amortization, the amount of such reduction will be added to the Component Principal Balance of the related Class X PO Component. Interest will not accrue on any Class X Principal Balance.

The Class 2X-1 Certificates will not have a Class Principal Balance and will not receive distributions of principal.

Solely for purposes of determining the percentage interest of each Class X Certificate in distributions to the related class of Class X Certificates and the percentage voting right of each Class X Certificate, each class of Class X Certificates will have a Class Notional Amount. Distributions of principal, if any, and interest to the Class CX-PPP Certificates will not be calculated based on the Class CX-PPP Notional Amount. The “Class CX-PPP Notional Amount” will equal the aggregate principal balance of the mortgage loans in loan group 1 and loan group 2 as of the Cut-Off Date after giving effect to the payments due on those mortgage loans on that date. The Class CX-PPP Notional Amount as of the Cut-Off Date will be approximately $1,067,998,558.

Compensating Interest

The servicer is obligated to remit to the certificate account on the business day before each Distribution Date with respect to each loan group an amount equal to the least of (a) any shortfall for the previous month in interest collections resulting from the timing of Payoffs on the mortgage loans in that loan group made from the 15th day of the calendar month preceding the Distribution Date to the last day of the month, (b) the sum of (i) 1/12 of 0.050% of the aggregate Stated Principal Balance of the mortgage loans in that loan group, (ii) any reinvestment income realized by the servicer relating to Payoffs on the mortgage loans in that loan group made during the Prepayment Period and (iii) interest payments on Payoffs in that loan group received during the period of the first day through the 14th day of the month of the Distribution Date and (c) 1/12 of 0.125% of the aggregate Stated Principal Balance of the mortgage loans in that loan group. Compensating interest will be paid with respect to each loan group and will be added to the Available Distribution Amount for each loan group.

Any remaining shortfall in interest collections resulting from the delay in distribution of Payoffs and Curtailments in a loan group, and any shortfall resulting from application of the Relief Act in a loan group, will be allocated among the related classes of certificates (or components thereof, as applicable) pro rata according to the amount of interest to which each such class (or component) (or, in the case of the Class B Certificates, only the portion of those certificates that derives its interest from the related loan group) would otherwise be entitled (before giving effect to the payment of Carryover Shortfall Amounts), in reduction of that amount.

See “Yield and Prepayment Considerations” in this prospectus supplement.

Carryover Shortfall Amounts

For the initial Distribution Date and the Class 1A, Class 2A, Class 2A-1A and Class 2A-1B Certificates, the “Carryover Shortfall Amount” for such class will equal the excess, if any, of (a) the amount of interest that would have accrued on such class at a certificate interest rate equal to One-Year MTA plus the related margin, over (b) the actual amount of interest accrued on such class for such Distribution Date.

For the Class CA-1B Certificates and for any Distribution Date (unless their Class Principal Balance has been reduced to zero), the “Carryover Shortfall Amount” for such class will equal the sum of the carryover shortfall amount for each Class CA-1B Component, each calculated as the sum of:

 

(i)

 

 

 

the excess, if any, of (a) the amount of interest that would have accrued on such Class CA-1B Component at a certificate interest rate equal to the lesser of (1) LIBOR plus the related margin and (2) the maximum rate described in clause (z) of the applicable paragraph of note (6) to the table on page S-6 of this prospectus supplement over (b) the

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actual amount of interest accrued on such Class CA-1B Component for such Distribution Date;

 

(ii)

 

 

 

the portion of the amount described in clause (i) above remaining unpaid from prior Distribution Dates; and

 

(iii)

 

 

 

one month’s interest at the rate described in clause (i)(a) above on the amount described in clause (ii) above.

For the Class CA-1C Certificates and for any Distribution Date (unless their Class Principal Balance has been reduced to zero), the “Carryover Shortfall Amount” for such class will equal the sum of the carryover shortfall amount for each Class CA-1C Component, each calculated as the sum of:

 

(i)

 

 

 

the excess, if any, of (a) the amount of interest that would have accrued on such Class CA-1C Component at a certificate interest rate equal to the lesser of (1) LIBOR plus the related margin and (2) the maximum rate described in clause (z) of the applicable paragraph of note (8) to the table on page S-6 of this prospectus supplement over (b) the actual amount of interest accrued on such Class CA-1C Component for such Distribution Date;

 

(ii)

 

 

 

the portion of the amount described in clause (i) above remaining unpaid from prior Distribution Dates; and

 

(iii)

 

 

 

one month’s interest at the rate described in clause (i)(a) above on the amount described in clause (ii) above.

For any Distribution Date and for any class of Class B Certificates (unless the Class Principal Balance of such class has been reduced to zero), the “Carryover Shortfall Amount” for such class will equal the sum of:

 

(i)

 

 

 

the excess, if any, of (a) the amount of interest that would have accrued on such class at a certificate interest rate equal to the lesser of (1) LIBOR plus the related margin and (2) the Maximum Class B Rate over (b) the actual amount of interest accrued on such class for such Distribution Date;

 

(ii)

 

 

 

the portion of the amount described in clause (i) above remaining unpaid from prior Distribution Dates; and

 

(iii)

 

 

 

one month’s interest at the rate described in clause (i)(a) above on the amount described in clause (ii) above.

For any Distribution Date (or, in the case of the Class 1A, Class 2A, Class 2A-1A and Class 2A-1B Certificates, for the initial Distribution Date only), Carryover Shortfall Amounts for the Class A Certificates will be paid to those classes, pro rata based on Carryover Shortfall Amounts, to the extent of the aggregate Class CX-PPP Distributable Interest for that Distribution Date. Carryover Shortfall Amounts will only be paid to the Class 1A, Class 2A, Class 2A-1A and Class 2A-1B Certificates on the initial Distribution Date.

Carryover Shortfall Amounts for the Class B Certificates for any Distribution Date will be paid to those classes, in order of seniority, to the extent of the aggregate Class CX-PPP Distributable Interest remaining after the distributions of Carryover Shortfall Amounts to the Class A Certificates for that Distribution Date. See “—Priority of Distributions” in this prospectus supplement.

The amount of interest otherwise available for distribution to the Class CX-PPP Certificates on any Distribution Date will be reduced by the Carryover Shortfall Amounts paid to the holders of the Class A and Class B Certificates on that Distribution Date.

Calculation of LIBOR

The annual certificate interest rates of the LIBOR Certificates are based on the London Interbank Offered Rate for one-month United States dollar deposits (“LIBOR”) as determined by the administrative agent on behalf of the servicer on the basis of quotations as described below. The administrative agent will determine LIBOR for each certificate accrual period on the second business day prior to the day on which

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that accrual period begins (each, a “LIBOR Determination Date”). For this purpose a “business day” is any day on which banks in London are open for conducting transactions in foreign currency and exchange.

On each LIBOR Determination Date, the administrative agent will determine LIBOR based on the “Interest Settlement Rate” for United States dollar deposits of one-month maturity set by the British Bankers’ Association (the “BBA”) as of 11:00 a.m. (London time) on such LIBOR Determination Date. Interest Settlement Rates currently are based on rates quoted by sixteen BBA designated banks as being, in the view of such banks, the offered rate at which deposits are being quoted to prime banks in the London interbank market. Such Interest Settlement Rates are calculated by eliminating the four highest rates and the four lowest rates, averaging the eight remaining rates, carrying the result (expressed as a percentage) out to six decimal places, and rounding to five decimal places.

The BBA’s Interest Settlement Rates are currently displayed on each of the Dow Jones Telerate Service page 3750, Reuters Monitor Money Rates Service page “LIBOR01” and Bloomberg L.P. page “BBAM” (each such page, or such other page as may replace any of the foregoing on such service or such other service as may be nominated by the BBA as the information vendor for the purpose of displaying the BBA’s Interest Settlement Rates for deposits in United States dollars, each, a “Designated Rate Page”).

If on any LIBOR Determination Date, such Interest Settlement Rates are not available from any Designated Rate Page, LIBOR for the related accrual period will be the most recently published Interest Settlement Rate. In the event that the BBA no longer sets an Interest Settlement Rate, the administrative agent will calculate LIBOR for the immediately following accrual period as follows: the administrative agent will determine LIBOR by reference to the quotations offered by the principal London office of each of the designated reference banks meeting the criteria set forth below for making one-month United States dollar deposits in leading banks in the London Interbank market, as of 11:00 a.m. (London time) on the LIBOR Determination Date.

Under this method LIBOR will be established by the administrative agent on each LIBOR Determination Date as follows:

 

(a)

 

 

 

If on any LIBOR Determination Date two or more reference banks provide offered quotations, LIBOR for the next interest accrual period will be the arithmetic mean of the offered quotations, carrying the result (expressed as a percentage) out to six decimal places, and rounding to five decimal places.

 

(b)

 

 

 

If on any LIBOR Determination Date only one or none of the reference banks provides offered quotations, LIBOR for the next interest accrual period will be the greater of:

 

 

 

 

LIBOR as determined on the previous LIBOR Determination Date or

 

 

 

 

the reserve interest rate.

The reserve interest rate will be the rate per annum that the administrative agent determines to be either:

 

 

 

 

the arithmetic mean, (expressed as a percentage) carried out to six decimal places, and rounded to five decimal places, of the one-month United States dollar lending rates that New York City banks selected by the administrative agent are quoting, on the relevant LIBOR Determination Date, to the principal London offices of at least two of the reference banks to which the quotations are, in the opinion of the administrative agent, being so made, or

 

 

 

 

if the administrative agent cannot determine the arithmetic mean, the lowest one-month United States dollar lending rate which New York City banks selected by the administrative agent are quoting on the LIBOR Determination Date to leading European banks.

 

(c)

 

 

 

If on any LIBOR Determination Date the administrative agent is required but is unable to determine the reserve interest rate in the manner provided in paragraph (b) above, LIBOR for the next interest accrual period will be LIBOR as determined on the preceding LIBOR Determination Date, or, in the case of the first LIBOR Determination Date, LIBOR will be considered to be the per annum rate specified as such herein, if so specified.

Each reference bank (i) will be a leading bank engaged in transactions in Eurodollar deposits in the international Eurocurrency market, (ii) will not control, be controlled by, or be under common control with, the servicer and (iii) will have an established place of business in London. If any reference bank should be

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unwilling or unable to act as such or if the servicer should terminate the designation of any such reference bank, the servicer will promptly designate another leading bank meeting the criteria specified above.

The establishment of LIBOR on each LIBOR Determination Date by the servicer for the related accrual period will, in the absence of manifest error, be final and binding.

Calculation of Index for MTA Certificates

The Index for the MTA Certificates will be calculated as described in “Description of the Certificates—Distributions of Interest” in this prospectus supplement. For more information on the Indexes, see “Description of the Mortgage Pool—The Indexes” in this prospectus supplement.

Cross-Collateralization

Cross-Collateralization Due to Rapid Prepayments in One Loan Group

The priority of distributions described in this prospectus supplement under “—Priority of Distributions” will change if all of the following conditions are met:

 

 

 

 

either (i) the sum of the Class 1A Principal Balance and the Component Principal Balances of the Class CX-PPP Loan Group 1 PO, Class CA-1B Group 1 and Class CA-1C Group 1 Components or (ii) the sum of the Class 2A, Class 2A-1A and Class 2A-1B, Principal Balances and the Component Principal Balances of the Class CX-PPP Loan Group 2 PO, Class CA-1B Group 2 and Class CA-1C Group 2 Components has been reduced to zero;

 

 

 

 

there are still Class B Certificates outstanding; and

 

 

 

 

either (i) the Class B Percentage on that date is less than 200% of the Class B Percentage as of the Closing Date or (ii) the outstanding principal balance of the mortgage loans in either loan group delinquent 60 days or more averaged over the last six months, as a percentage of the related Subordinate Component Balance, is greater than or equal to 50%.

When all three conditions are met, all principal received or advanced with respect to the mortgage loans in the loan group relating to the Class A and Class X Certificates (or components thereof) listed above that have been paid in full (less any amount of negative amortization allocated to such mortgage loans) will be paid as principal to the remaining Class A and Class X Certificates (or components thereof) listed above rather than to the Class B Certificates. That principal will be distributed in the same priority as those Class A and Class X Certificates (or components thereof) would receive other distributions of principal.

The “Class B Percentage” as of any date of determination will equal the aggregate Class Principal Balance of the Class B Certificates divided by the then outstanding aggregate Stated Principal Balance of the mortgage loans.

The “Subordinate Component Balance” for either loan group as of any date of determination will equal the product of (i) the aggregate Class Principal Balance of the Class B Certificates and (ii) a fraction, the numerator of which is equal to the excess, if any, of (a) the aggregate Stated Principal Balance of the mortgage loans in that loan group over (b) the aggregate Class Principal Balance or Component Principal Balance of the Class A and Class X Certificates (or components thereof) related to such loan group (and, in the case of loan group 1, the Class R Certificates) and the denominator of which is equal to the excess, if any, of (a) the aggregate Stated Principal Balance of all of the mortgage loans over (b) the aggregate Class Principal Balance of all of the Class A, Class R and Class X Certificates.

The “Stated Principal Balance” of any mortgage loan as of any date of determination is equal to its principal balance 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 allocable to principal that have been distributed to certificateholders with respect to that mortgage loan on or before that date of determination, and as further reduced to the extent that any realized loss on that mortgage loan has been allocated to one or more classes of certificates on or before that date of determination, and as increased by the amounts of any negative amortization (as described above under “Description of the Mortgage Pool” in this prospectus supplement) with respect to that mortgage loan for all prior interest accrual periods.

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Cross-Collateralization Due to Disproportionate Realized Losses in One Loan Group

Realized losses on the mortgage loans in loan group 1 and loan group 2 are allocated generally to the Class B Certificates and not just to the portion of the Class B Certificates representing an interest in the loan group that incurred the loss. Therefore, if realized losses in either loan group that are allocated to the Class B Certificates exceed the Subordinate Component Balance for that loan group, the principal balance of the mortgage loans in that loan group will be less than the principal balance of the related Senior Certificates (or components thereof). That is, the amount of collateral in that loan group will be less than the amount of certificates being supported by that collateral and, therefore, that loan group is undercollateralized. In addition, either loan group may become undercollateralized as a result of the allocation of (i) Net Negative Amortization for one such loan group to the Class X PO Component related to the other loan group or (ii) losses for one such loan group to the component portion of the Class CA-1B or Class CA-1C Certificates related to the other loan group. If either loan group becomes undercollateralized, then payments on the mortgage loans in the other loan group may be used to pay interest and then principal to the Senior Certificates (or components thereof) related to the undercollateralized loan group to the extent described below.

If, on any Distribution Date, the aggregate Class Principal Balance or Component Principal Balance of the Class A and Class X Certificates (or components thereof) related to either of loan group 1 and loan group 2 is greater than the aggregate Stated Principal Balance of the mortgage loans in such loan group (such loan group, an “Undercollateralized Group” and the other loan group that is not an Undercollateralized Group, an “Overcollateralized Group”), then the priority of distributions described in this prospectus supplement under “—Priority of Distributions” will be altered as follows: The Available Distribution Amount for the Overcollateralized Group, to the extent remaining following distributions to the related Senior Certificates (or components thereof) pursuant to paragraph (a) and (b), as applicable (or if after the Credit Support Depletion Date, pursuant to the first four paragraphs immediately following the definition of “Credit Support Depletion Date”), under “—Priority of Distributions” in this prospectus supplement, will be paid in the following priority: (1) first, that amount, up to an amount for the Undercollateralized Group (the “Total Transfer Amount”) equal to the sum of the Interest Transfer Amount and the Principal Transfer Amount for the Undercollateralized Group, will be distributed first to the Class A Certificates (or components thereof) related to the Undercollateralized Group in payment of any accrued but unpaid interest, and then to those Class A and the related Class X Certificates (or components thereof) as principal, in the same order and priority as they would receive other distributions of principal; and (2) second, any remaining amount will be distributed pursuant to paragraph (d) under “—Priority of Distributions” in this prospectus supplement.

On each Distribution Date, the “Interest Transfer Amount” for the Undercollateralized Group will equal one month’s interest on the applicable Principal Transfer Amount at the weighted average of the certificates interest rates on the Class A Certificates (or components thereof) related to the Undercollateralized Group, plus any shortfall of interest on those Class A Certificates (or components thereof) from prior Distribution Dates.

On each Distribution Date, the “Principal Transfer Amount” for the Undercollateralized Group will equal the excess of the aggregate Class Principal Balance of the Class A and Class X Certificates (or components thereof) related to the Undercollateralized Group over the aggregate Stated Principal Balance of the mortgage loans in that loan group.

If the Weighted Average Pass-Through Rate of the Undercollateralized Group is greater than the Weighted Average Pass-Through Rate of the Overcollateralized Group, the payment of interest to the certificates related to the Undercollateralized Group from the interest collected on the Overcollateralized Group may cause a shortfall in the amount of principal and interest otherwise distributable to the Class B Certificates. In addition, after the aggregate principal balance of the Class B Certificates has been reduced to zero, this may cause a shortfall of principal that would be allocated to the Senior Certificates (or components thereof) related to the Undercollateralized Group.

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Distributions of Principal

General

On each Distribution Date, certificateholders (other than holders of the Class 2X-1 Certificates) will be entitled to receive principal distributions from the related Available Distribution Amount to the extent and in the priority described in this prospectus supplement. See “—Priority of Distributions” in this prospectus supplement.

For any Distribution Date and any loan group, the “Principal Payment Amount” is the sum, with respect to the mortgage loans in that loan group, of (i) the principal portion, if any (after deducting accrued interest), of the Minimum Monthly Payments on the mortgage loans due on the Due Date immediately before that Distribution Date, (ii) the principal portion of Repurchase Proceeds that were received on the mortgage loans during the preceding calendar month and (iii) any other unscheduled payments of principal that were received on the mortgage loans during the preceding calendar month, other than Payoffs, Curtailments, Liquidation Principal or Subsequent Recoveries.

“Payoffs” are prepayments in full on a mortgage loan and “Curtailments” are partial prepayments on a mortgage loan, including any amounts in excess of the Minimum Monthly Payment. For any Distribution Date and any loan group, the “Principal Prepayment Amount” is the sum, with respect to the mortgage loans in that loan group, of all Payoffs and Curtailments relating to the mortgage loans in that loan group that were received during the related Prepayment Period, reduced (but not to less than zero) by the aggregate amount of negative amortization with respect to the mortgage loans during the prior calendar month.

“Repurchase Proceeds” are proceeds received with respect to a mortgage loan that was repurchased by the depositor or a mortgage loan seller because of a material breach of the representations and warranties with respect to that mortgage loan, or because a required loan document was not included in the mortgage file, as described under “Description of the Mortgage Pool—Representations and Warranties Regarding the Mortgage Loans” in this prospectus supplement.

For each Distribution Date and each Payoff, the related “Prepayment Period” will start on the 15th day of the month preceding the month in which the Distribution Date occurs (or, in the case of the first Distribution Date, beginning on the Cut-Off Date) and will end on the 14th day of the month in which the Distribution Date occurs. For each Distribution Date and each Curtailment, the related “Prepayment Period” will be the month preceding the month in which the Distribution Date occurs.

“Liquidation Principal” is the principal portion of Liquidation Proceeds and Insurance Proceeds (each, as defined in the pooling agreement) received with respect to each mortgage loan that became a Liquidated Mortgage Loan (but not in excess of the principal balance of that mortgage loan) during the calendar month preceding the month of the Distribution Date. A “Liquidated Mortgage Loan” is a mortgage loan for which the servicer has determined that it has received all amounts that it expects to recover from or on account of the mortgage loan, whether from Insurance Proceeds, Liquidation Proceeds or otherwise.

Distributions to certificateholders (other than holders of the Class 2X-1 Certificates) on each Distribution Date will include any Subsequent Recoveries received by the servicer during the calendar month preceding the month of the Distribution Date. “Subsequent Recoveries” are amounts received by the servicer in connection with the liquidation of defaulted mortgage loans after those mortgage loans became Liquidated Mortgage Loans, up to the amount of losses previously allocated in respect of those mortgage loans. On each Distribution Date on which Subsequent Recoveries are distributed to certificateholders, the Class Principal Balance of the class of Subordinate Certificates with the lowest priority outstanding generally will be increased by the amount of those Subsequent Recoveries.

The Class CX-PPP Certificates will only be entitled to receive distributions of principal to the extent of their Class Principal Balance. The Class CX-PPP Certificates will not receive principal distributions in respect of their Class X IO Components or Class Notional Amounts. The Class 2X-1 Certificates will not receive principal distributions. See “—Distributions of Interest—Class X Notional Amounts and Class X Principal Balances” in this prospectus supplement.

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Group 1 Senior Principal Distribution Amount

On each Distribution Date before the Credit Support Depletion Date, an amount, up to the amount of the Group 1 Senior Principal Distribution Amount for that Distribution Date, will be distributed as principal, sequentially, as follows:

 

(i)

 

 

 

first, to the Class CX-PPP Loan Group 1 PO Component, until the Class CX-PPP Loan Group 1 PO Component Principal Balance has been reduced to zero; and

 

(ii)

 

 

 

second, to the Class 1A Certificates and the Class CA-1B Group 1 and Class CA-1C Group 1 Components, pro rata according to Class Principal Balance or Component Principal Balance, respectively, until such Class Principal Balances and Component Principal Balances have been reduced to zero.

The “Group 1 Senior Principal Distribution Amount” for any Distribution Date will equal the sum of (i) the Group 1 Senior Percentage of the Principal Payment Amount for loan group 1, (ii) the Group 1 Senior Prepayment Percentage of the Principal Prepayment Amount for loan group 1 and (iii) the Group 1 Senior Liquidation Amount; provided, however, that for the first Distribution Date, this amount will be reduced by $100 to pay principal to the Class R Certificates as provided in clause (a)(ii) of the first paragraph under “—Priority of Distributions” in this prospectus supplement.

The “Group 1 Senior Percentage” for any Distribution Date will equal the lesser of (i) 100% and (ii) the sum of the aggregate Class Principal Balance of the Class 1A and Class R Certificates and the aggregate Component Principal Balance of the Class CX-PPP Loan Group 1 PO, Class CA-1B Group 1 and Class CA-1C Group 1 Components divided by the Stated Principal Balance of the mortgage loans in loan group 1, in each case immediately before that Distribution Date. The “Group 1 Subordinate Percentage” for any Distribution Date will equal the excess of 100% over the Group 1 Senior Percentage for that date. The Group 1 Senior Percentage and the Group 1 Subordinate Percentage as of the Closing Date will be approximately 90.0% and 10.0%, respectively.

The “Group 1 Senior Liquidation Amount” for any Distribution Date will equal the sum of (A) the aggregate, for each mortgage loan in loan group 1 that became a Liquidated Mortgage Loan during the calendar month preceding the month of that Distribution Date, of the lesser of (i) the Group 1 Senior Percentage of the Stated Principal Balance of that mortgage loan immediately before that Distribution Date and (ii) the Group 1 Senior Prepayment Percentage of the Liquidation Principal with respect to that mortgage loan and (B) the Group 1 Senior Prepayment Percentage of any Subsequent Recoveries on the mortgage loans in loan group 1.

Group 2 Senior Principal Distribution Amount

On each Distribution Date before the Credit Support Depletion Date, an amount, up to the amount of the Group 2 Senior Principal Distribution Amount for that Distribution Date, will be distributed as principal, sequentially, as follows:

 

(i)

 

 

 

first, to the Class CX-PPP Loan Group 2 PO Component, until the Class CX-PPP Loan Group 2 PO Component Principal Balance has been reduced to zero; and

 

(ii)

 

 

 

second, to the Class 2A, Class 2A-1A and Class 2A-1B Certificates and the Class CA-1B Group 2 and Class CA-1C Group 2 Components, pro rata according to Class Principal Balance or Component Principal Balance, respectively, until such Class Principal Balances and Component Principal Balances have been reduced to zero.

The “Group 2 Senior Principal Distribution Amount” for any Distribution Date will equal the sum of (i) the Group 2 Senior Percentage of the Principal Payment Amount for loan group 2, (ii) the Group 2 Senior Prepayment Percentage of the Principal Prepayment Amount for loan group 2 and (iii) the Group 2 Senior Liquidation Amount.

The “Group 2 Senior Percentage” for any Distribution Date will equal the lesser of (i) 100% and (ii) the sum of the aggregate Class Principal Balance of the Class 2A, Class 2A-1A and Class 2A-1B Certificates and the aggregate Component Principal Balance of the Class CX-PPP Loan Group 2 PO, Class CA-1B Group 2 and Class CA-1C Group 2 Components divided by the Stated Principal Balance of the mortgage loans in loan group 2, in each case immediately before that Distribution Date. The “Group 2

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Subordinate Percentage” for any Distribution Date will equal the excess of 100% over the Group 2 Senior Percentage for that date. The Group 2 Senior Percentage and the Group 2 Subordinate Percentage as of the Closing Date will be approximately 90.0% and 10.0%, respectively.

The “Group 2 Senior Liquidation Amount” for any Distribution Date will equal the sum of (A) the aggregate, for each mortgage loan in loan group 2 that became a Liquidated Mortgage Loan during the calendar month preceding the month of that Distribution Date, of the lesser of (i) the Group 2 Senior Percentage of the Stated Principal Balance of that mortgage loan immediately before that Distribution Date and (ii) the Group 2 Senior Prepayment Percentage of the Liquidation Principal with respect to that mortgage loan and (B) the Group 2 Senior Prepayment Percentage of any Subsequent Recoveries on the mortgage loans in loan group 2.

Subordinate Principal Distribution Amount

On each Distribution Date, an amount, up to the amount of the Subordinate Principal Distribution Amount for that Distribution Date, will be distributed as principal to the Class B Certificates. On each Distribution Date, except Distribution Dates on which the Subordination Level for any class or classes of the Class B Certificates is less than the related Subordination Level as of the Closing Date, each class of the Class B Certificates will be entitled to receive its pro rata (by Class Principal Balance) share of the Subordinate Principal Distribution Amount, to the extent of the Available Distribution Amount for loan group 1 and loan group 2 remaining after distributions of interest and principal to the Senior Certificates (including any distributions of interest and principal to the Senior Certificates as described under “—Cross- Collateralization” in this prospectus supplement), distributions of interest and principal to all of the Class B Certificates senior to that class and distributions of interest to that class. See “—Priority of Distributions” in this prospectus supplement. The relative seniority, from highest to lowest, of the Class B Certificates is as follows: Class B-1, Class B-2, Class B-3, Class B-4, Class B-5, Class B-6, Class B-7, Class B-8, Class B-9 and Class B-10.

The “Subordinate Principal Distribution Amount” for any Distribution Date will equal the excess of:

 

(A)

 

 

 

the sum of:

 

(i)

 

 

 

the Group 1 Subordinate Percentage of the Principal Payment Amount for loan group 1;

 

(ii)

 

 

 

the Group 2 Subordinate Percentage of the Principal Payment Amount for loan group 2;

 

(iii)

 

 

 

the Subordinate Principal Prepayments Distribution Amount (without regard to the proviso in its definition); and

 

(iv)

 

 

 

the Subordinate Liquidation Amount;

over

 

(B)

 

 

 

the sum of:

 

(i)

 

 

 

if either (x) the sum of the Class 1A Principal Balance and the Component Principal Balances of the Class CX-PPP Loan Group 1 PO, Class CA-1B Group 1 and Class CA-1C Group 1 Components or (y) the sum of the Class 2A, Class 2A-1A and Class 2A-1B Principal Balances and the Component Principal Balances of the Class CX-PPP Loan Group 2 PO, Class CA-1B Group 2 and Class CA-1C Group 2 Components has been reduced to zero, principal paid from the Available Distribution Amount for the loan group related to those Class A and Class X Certificates (or components thereof) to the remaining Class A and Class X Certificates (or components thereof), as described under “—Cross-Collateralization” in this prospectus supplement; and

 

(ii)

 

 

 

the amounts paid from the Available Distribution Amount for an Overcollateralized Group to the Class A and Class X Certificates (or components thereof) related to an Undercollateralized Group, as described under “—Cross-Collateralization” in this prospectus supplement.

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The “Subordinate Principal Prepayments Distribution Amount” for any Distribution Date will equal the sum of (i) the Group 1 Subordinate Prepayment Percentage of the Principal Prepayment Amount for loan group 1 and (ii) the Group 2 Subordinate Prepayment Percentage of the Principal Prepayment Amount for loan group 2; provided, however, that if the amount specified in clause (B) of the definition of “Subordinate Principal Distribution Amount” is greater than the sum of the amounts specified in clauses (A)(i), (A)(ii) and (A)(iv) of that definition, then the Subordinate Principal Prepayments Distribution Amount will be reduced by the amount of that excess.

The “Group 1 Subordinate Prepayment Percentage” for any Distribution Date will equal the excess of 100% over the Group 1 Senior Prepayment Percentage; provided, however, that if the sum of the aggregate Class Principal Balance of the Class 1A and Class R Certificates and the aggregate Component Principal Balance of the Class CX-PPP Loan Group 1 PO, Class CA-1B Group 1 and Class CA-1C Group 1 Components has been reduced to zero, then the Group 1 Subordinate Prepayment Percentage will equal 100%.

The “Group 2 Subordinate Prepayment Percentage” for any Distribution Date will equal the excess of 100% over the Group 2 Senior Prepayment Percentage; provided, however, that if the sum of the aggregate Class Principal Balance of the Class 2A, Class 2A-1A and Class 2A-1B Certificates and the aggregate Component Principal Balance of the Class CX-PPP Loan Group 2 PO, Class CA-1B Group 2 and Class CA-1C Group 2 Components has been reduced to zero, then the Group 2 Subordinate Prepayment Percentage will equal 100%.

The “Subordinate Liquidation Amount” for any Distribution Date will equal the excess, if any, of the sum of (i) the aggregate Liquidation Principal for all mortgage loans in loan group 1 and loan group 2 that became Liquidated Mortgage Loans during the calendar month preceding the month of that Distribution Date and (ii) any Subsequent Recoveries on the mortgage loans in loan group 1 and loan group 2 received during that calendar month, over the sum of the Group 1 Senior Liquidation Amount and the Group 2 Senior Liquidation Amount for that Distribution Date.

The rights of the holders of the Class B Certificates to receive distributions of interest and principal are subordinated to the rights of the holders of the Senior Certificates to receive all distributions of interest and principal to which they are entitled. See “—Subordination and Allocation of Losses” in this prospectus supplement.

Principal Prepayments

The “Group 1 Senior Prepayment Percentage” and “Group 2 Senior Prepayment Percentage” for any Distribution Date before April 2017 will equal 100%. During the next four years, these percentages will be calculated as follows:

 

 

 

 

for any Distribution Date occurring in or between April 2017 and March 2018, the Group 1 or Group 2 Senior Percentage, as applicable, for that Distribution Date plus 70% of the excess of 100% over that percentage for that Distribution Date;

 

 

 

 

for any Distribution Date occurring in or between April 2018 and March 2019, the Group 1 or Group 2 Senior Percentage, as applicable, for that Distribution Date plus 60% of the excess of 100% over that percentage for that Distribution Date;

 

 

 

 

for any Distribution Date occurring in or between April 2019 and March 2020, the Group 1 or Group 2 Senior Percentage, as applicable, for that Distribution Date plus 40% of the excess of 100% over that percentage for that Distribution Date; and

 

 

 

 

for any Distribution Date occurring in or between April 2020 and March 2021, the Group 1 or Group 2 Senior Percentage, as applicable, for that Distribution Date plus 20% of the excess of 100% over that percentage for that Distribution Date.

For any Distribution Date occurring in or after April 2021, the Group 1 and Group 2 Senior Prepayment Percentage will equal the Group 1 and Group 2 Senior Percentage, respectively, for that Distribution Date.

There are important exceptions to the calculations of the senior prepayment percentages described in the above paragraph. On any Distribution Date, (i) if the Group 1 or Group 2 Senior Percentage for that Distribution Date exceeds the initial Group 1 or Group 2 Senior Percentage, respectively, as of the Closing

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Date, then the Group 1 and Group 2 Senior Prepayment Percentage for that Distribution Date will equal 100%, (ii) if on or before the Distribution Date in March 2010, (a) the Class B Percentage for that Distribution Date is greater than or equal to twice the Class B Percentage as of the Closing Date and (b) cumulative realized losses on the mortgage loans allocated to the Class B Certificates, as a percentage of the aggregate Class Principal Balance of the Class B Certificates as of the Closing Date, do not exceed 20%, then the Group 1 and Group 2 Senior Prepayment Percentages shall equal the Group 1 or Group 2 Senior Percentages, as applicable, for such Distribution Date plus 50% of the Group 1 or Group 2 Subordinate Percentage, as applicable, for such Distribution Date, and (iii) if after the Distribution Date in March 2010, (a) the Class B Percentage for such Distribution Date is greater than or equal to twice the Class B Percentage as of the Closing Date and (b) cumulative realized losses on the mortgage loans allocated to the Class B Certificates, as a percentage of the aggregate Class Principal Balance of the Class B Certificates as of the Closing Date, do not exceed 30%, then the Group 1 and Group 2 Senior Prepayment Percentages shall equal the Group 1 and Group 2 Senior Percentages, as applicable.

Notwithstanding the above, on any Distribution Date, neither the Group 1 nor Group 2 Senior Prepayment Percentage for that Distribution Date will decrease as described in the definition of Group 1 and Group 2 Senior Prepayment Percentages in the above two paragraphs if (a) the mean aggregate Stated Principal Balance, as of the Distribution Date in each of the immediately preceding six calendar months, of the mortgage loans in either loan group that were 60 or more days delinquent as of such date is greater than 50% of the Subordinate Component Balance for that loan group as of the current Distribution Date or (b) cumulative realized losses on the mortgage loans in either loan group allocated to the Class B Certificates, as a percentage of the Subordinate Component Balance for that loan group as of the Closing Date, are greater than, for any Distribution Date (1) before the eleventh anniversary of the first Distribution Date, 30%, (2) on or after the eleventh anniversary but before the twelfth anniversary of the first Distribution Date, 35%, (3) on or after the twelfth anniversary but before the thirteenth anniversary of the first Distribution Date, 40%, (4) on or after the thirteenth anniversary but before the fourteenth anniversary of the first Distribution Date, 45%, and (5) on or after the fourteenth anniversary of the first Distribution Date, 50%. Finally, if on any Distribution Date the allocation to the Senior Certificates (or components thereof, as applicable) related to either of loan group 1 or loan group 2 in the percentage required would reduce the sum of the Class Principal Balances or Component Principal Balances of those certificates (or components) below zero, the Group 1 or Group 2 Senior Prepayment Percentage, as applicable, for that Distribution Date will be limited to the percentage necessary to reduce that sum to zero.

Subordination and Allocation of Losses

The Class B Certificates will be subordinate in right of payment and provide credit support to the Senior Certificates to the extent described in this prospectus supplement. The support provided by the Class B Certificates is intended to enhance the likelihood of regular receipt by the Senior Certificates of the full amount of the monthly distributions of interest and principal to which they are entitled and to afford the Senior Certificates protection against some losses. The protection afforded to the Senior Certificates by the Class B Certificates will be accomplished by the preferential right on each Distribution Date of the Senior Certificates to receive distributions of interest and principal to which they are entitled before distributions of interest and principal to the Class B Certificates and by the allocation of losses to the Class B Certificates before any allocation of losses to the Senior Certificates.

In addition, each class of Class B Certificates will be subordinate in right of payment and provide credit support to each class of Class B Certificates with a lower numerical class designation. The protection afforded a class of Class B Certificates by the classes of Class B Certificates with higher numerical class designations will be similarly accomplished by the preferential right of those classes with lower numerical class designations to receive distributions of interest and principal before distributions of interest and principal to those classes of Class B Certificates with higher numerical class designations.

After the Class Principal Balances of all of the Class B Certificates have been reduced to zero, any loss with respect to a mortgage loan in loan group 1 and loan group 2 will be allocated to the Class 1A, Class 2A, Class 2A-1A, Class 2A-1B, Class CA-1B, Class CA-1C, Class 2X-1 and Class CX-PPP Certificates, in the manner described below.

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Any loss realized on a mortgage loan in loan group 1 or loan group 2 will be allocated among the certificates as follows:

(i) for losses allocable to principal:

(a) first, to the Junior Subordinate Certificates in reverse numerical order, until their aggregate Class Principal Balance has been reduced to zero;

(b) second, to the Class B-7 Certificates, until the Class B-7 Principal Balance has been reduced to zero;

(c) third, to the Class B-6 Certificates, until the Class B-6 Principal Balance has been reduced to zero;

(d) fourth, to the Class B-5 Certificates, until the Class B-5 Principal Balance has been reduced to zero;

(e) fifth, to the Class B-4 Certificates, until the Class B-4 Principal Balance has been reduced to zero;

(f) sixth, to the Class B-3 Certificates, until the Class B-3 Principal Balance has been reduced to zero;

(g) seventh, to the Class B-2 Certificates, until the Class B-2 Principal Balance has been reduced to zero;

(h) eighth, to the Class B-1 Certificates, until the Class B-1 Principal Balance has been reduced to zero;

(i) ninth, (1) any remaining loss with respect to a mortgage loan in loan group 1 will be allocated to the Class 1A Certificates and the Class CX-PPP Loan Group 1 PO, Class CA-1B Group 1 and Class CA-1C Group 1 Components, pro rata, until their respective principal balances have been reduced to zero; provided, however, that the aggregate losses so allocated to the Class 1A Certificates and the Class CA-1B Group 1 and Class CA-1C Group 1 Components will be allocated as follows:

(A) first, to the Class CA-1C Group 1 Component, until its Component Principal Balance has been reduced to zero;

(B) second, to the Class CA-1C Group 2 Component, until its Component Principal Balance (after giving effect to losses allocable to principal and interest allocated to such component pursuant to clauses (i)(i)(2) and (ii)(i)(2) of this sentence) has been reduced to zero;

(C) third, to the Class CA-1B Group 1 Component, until its Component Principal Balance has been reduced to zero;

(D) fourth, to the Class CA-1B Group 2 Component, until its Component Principal Balance (after giving effect to losses allocable to principal and interest allocated to such component pursuant to clauses (i)(i)(2) and (ii)(i)(2) of this sentence) has been reduced to zero; and

(E) fifth, to the Class 1A Certificates, until their Class Principal Balance has been reduced to zero;

and (2) any remaining loss with respect to a mortgage loan in loan group 2 will be allocated to the Class 2A, Class 2A-1A and Class 2A-1B Certificates and the Class CX-PPP Loan Group 2 PO, Class CA-1B Group 2 and Class CA-1C Group 2 Components, pro rata, until their respective principal balances have been reduced to zero; provided, however, that the aggregate losses so allocated to the Class 2A, Class 2A-1A and Class 2A-1B Certificates and the Class CA-1B Group 2 and Class CA-1C Group 2 Components will be allocated as follows:

(A) first, to the Class CA-1C Group 2 Component, until its Component Principal Balance has been reduced to zero;

(B) second, to the Class CA-1C Group 1 Component, until its Component Principal Balance (after giving effect to losses allocable to principal and interest allocated to such

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component pursuant to clauses (i)(i)(1) and (ii)(i)(1) of this sentence) has been reduced to zero;

(C) third, to the Class CA-1B Group 2 Component, until its Component Principal Balance has been reduced to zero;

(D) fourth, to the Class CA-1B Group 1 Component, until its Component Principal Balance (after giving effect to losses allocable to principal and interest allocated to such component pursuant to clauses (i)(i)(1) and (ii)(i)(1) of this sentence) has been reduced to zero; and

(E) fifth, to the Class 2A, Class 2A-1A and Class 2A-1B Certificates, pro rata, until their Class Principal Balances have each been reduced to zero; provided however, that any loss allocable to the Class 2A-1A Certificates will first be allocated to the Class 2A-1B Certificates, until the Class 2A-1B Principal Balance has been reduced to zero;

and

(ii) for losses allocable to interest:

(a) first, to the Junior Subordinate Certificates in reverse numerical order, in reduction of accrued but unpaid interest and then in reduction of the Class Principal Balances of those certificates;

(b) second, to the Class B-7 Certificates, in reduction of accrued but unpaid interest and then in reduction of the Class B-7 Principal Balance;

(c) third, to the Class B-6 Certificates, in reduction of accrued but unpaid interest and then in reduction of the Class B-6 Principal Balance;

(d) fourth, to the Class B-5 Certificates, in reduction of accrued but unpaid interest and then in reduction of the Class B-5 Principal Balance;

(e) fifth, to the Class B-4 Certificates, in reduction of accrued but unpaid interest and then in reduction of the Class B-4 Principal Balance;

(f) sixth, to the Class B-3 Certificates, in reduction of accrued but unpaid interest and then in reduction of the Class B-3 Principal Balance;

(g) seventh, to the Class B-2 Certificates, in reduction of accrued but unpaid interest and then in reduction of the Class B-2 Principal Balance;

(h) eighth, to the Class B-1 Certificates, in reduction of accrued but unpaid interest and then in reduction of the Class B-1 Principal Balance;

(i) ninth, (1) any remaining loss with respect to a mortgage loan in loan group 1 will be allocated to the Class 1A Certificates and the Class CX-PPP Loan Group 1 IO, Class CA-1B Group 1 and Class CA-1C Group 1 Components, pro rata according to, and in reduction of, accrued but unpaid interest on those classes or components and then to those classes or components, pro rata, until their respective principal balances have been reduced to zero; provided, however, that the aggregate losses so allocated to the Class 1A Certificates and the Class CA-1B Group 1 and Class CA-1C Group 1 Components will be allocated as follows:

(A) first, to the Class CA-1C Group 1 Component, in reduction of accrued but unpaid interest on such component and then in reduction of its Component Principal Balance;

(B) second, to the Class CA-1C Group 2 Component, in reduction of accrued but unpaid interest on such component and then in reduction of its Component Principal Balance (after giving effect to losses allocable to principal and interest allocated to such component pursuant to clauses (i)(i)(2) and (ii)(i)(2) of this sentence);

(C) third, to the Class CA-1B Group 1 Component, in reduction of accrued but unpaid interest on such component and then in reduction of its Component Principal Balance;

(D) fourth, to the Class CA-1B Group 2 Component, in reduction of accrued but unpaid interest on such component and then in reduction of its Component Principal Balance (after

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giving effect to losses allocable to principal and interest allocated to such component pursuant to clauses (i)(i)(2) and (ii)(i)(2) of this sentence); and

(E) fifth, to the Class 1A Certificates, in reduction of accrued but unpaid interest on such class and then in reduction of their Class Principal Balance;

and (2) any remaining loss with respect to a mortgage loan in loan group 2 will be allocated to the Class 2A, Class 2A-1A, Class 2A-1B and Class 2X-1 Certificates and the Class CX-PPP Loan Group 2 IO, Class CA-1B Group 2 and Class CA-1C Group 2 Components, pro rata according to, and in reduction of, accrued but unpaid interest on those classes or components and then to those classes or components (except the Class 2X-1 Certificates), pro rata, until their respective principal balances have been reduced to zero; provided, however, that the aggregate losses so allocated to the Class 2A, Class 2A-1A and Class 2A-1B Certificates and the Class CA-1B Group 2 and Class CA-1C Group 2 Components will be allocated as follows:

(A) first, to the Class CA-1C Group 2 Component, in reduction of accrued but unpaid interest on such component and then in reduction of its Component Principal Balance;

(B) second, to the Class CA-1C Group 1 Component, in reduction of accrued but unpaid interest on such component and then in reduction of its Component Principal Balance (after giving effect to losses allocable to principal and interest allocated to such component pursuant to clauses (i)(i)(1) and (ii)(i)(1) of this sentence);

(C) third, to the Class CA-1B Group 2 Component, in reduction of accrued but unpaid interest on such component and then in reduction of its Component Principal Balance;

(D) fourth, to the Class CA-1B Group 1 Component, in reduction of accrued but unpaid interest on such component and then in reduction of its Component Principal Balance (after giving effect to losses allocable to principal and interest allocated to such component pursuant to clauses (i)(i)(1) and (ii)(i)(1) of this sentence); and

(E) fifth, to the Class 2A, Class 2A-1A and Class 2A-1B Certificates, pro rata, in reduction of accrued but unpaid interest on such classes and then in reduction of their Class Principal Balances; provided however, that any loss allocable to the Class 2A-1A Certificates will first be allocated to the Class 2A-1B Certificates, in reduction of accrued but unpaid interest on such class and then in reduction of the Class 2A-1B Principal Balance.

On each Distribution Date, if the aggregate Class Principal Balance of all outstanding classes of certificates exceeds the aggregate Stated Principal Balance of the mortgage loans in loan group 1 and loan group 2 (after giving effect to distributions of principal and the allocation of all losses to the certificates on that Distribution Date), that excess will be deemed a principal loss and will be allocated to the most junior class of Class B Certificates then outstanding.

Because the Class B Certificates represent interests in both loan group 1 and loan group 2, the Class Principal Balances of the Class B Certificates could be reduced to zero as a result of a disproportionate amount of losses on the mortgage loans in one or both of these loan groups. Therefore, the allocation to the Class B Certificates of losses on the mortgage loans in the other of these loan groups will increase the likelihood that future losses may be allocated to the Senior Certificates (or components thereof, as applicable) relating to the loan group which did not incur the loss.

Similarly, if the Class B Certificates are no longer outstanding, because the Class CA-1B and Class CA-1C Certificates represent interests in both loan group 1 and loan group 2, the Class CA-1B or Class CA- 1C Principal Balance could be reduced to zero as a result of a disproportionate amount of losses on the mortgage loans in one or both of those loan groups. Therefore, the allocation to the Class CA-1B or Class CA-1C Certificates of losses on the mortgage loans in the other of these loan groups will increase the likelihood that future losses may be allocated to the Senior Certificates (or components thereof, as applicable) relating to the loan group which did not incur the loss.

The Class R Certificates

The Class R Certificates will receive $100 of principal on the first Distribution Date, as well as one month’s interest on that amount. These certificates will not receive any distributions of interest or principal

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on any other Distribution Date. However, on each Distribution Date, the Class R Certificates will receive any amounts remaining (which are not expected to be material) in the certificate account from the Available Distribution Amount after distributions of interest and principal on the regular interests issued by each REMIC and payment of expenses, if any, of the Trust, together with excess liquidation proceeds (as described in paragraph (1)(h) of “—Available Distribution Amount” below), if any. Distributions of any remaining amounts to the Class R Certificates will be subordinate to all payments required to be made with respect to the other certificates on any Distribution Date.

Available Distribution Amount

On each Distribution Date, the Available Distribution Amount for that Distribution Date, which will be determined separately with respect to each loan group, and, in each case, will generally include scheduled principal and interest payments due on the Due Date immediately before that Distribution Date, Curtailments received in the previous calendar month, Payoffs received in the Prepayment Period to the extent described below and amounts received from liquidations of mortgage loans in the previous calendar month, will be distributed to the certificateholders, as specified in this prospectus supplement.

The “Available Distribution Amount” for any Distribution Date for each loan group, as more fully described in the pooling agreement, will equal the sum, for the mortgage loans in the loan group, of the following amounts:

(1) the total amount of all cash received by or on behalf of the servicer for the mortgage loans by the determination date (which will be not earlier than the 14th day and not later than the 18th day of the calendar month of that Distribution Date) and not previously distributed (including proceeds of mortgage loans in the loan group that are liquidated and scheduled amounts of distributions from buydown funds respecting Buydown Loans, if any), except:

(a) all scheduled payments of principal and interest collected but due on a date after that Distribution Date;

(b) all Curtailments received after the previous calendar month;

(c) all Payoffs received after the Prepayment Period immediately preceding that Distribution Date (together with any interest payment received with those Payoffs to the extent that it represents the payment of interest accrued on the mortgage loans for the period after the previous calendar month), and interest that was accrued and received on Payoffs received during the period from the first to the 14th day of the month of that Distribution Date, which interest will not be included in the calculation of the Available Distribution Amount for any Distribution Date;

(d) Liquidation Proceeds, Insurance Proceeds and Subsequent Recoveries received on the mortgage loans in the loan group after the previous calendar month;

(e) all amounts payable to the servicer in reimbursement for advances made by the servicer under the pooling agreement;

(f) the servicing fee for each mortgage loan in the loan group;

(g) all prepayment penalties, late charges, non-sufficient funds fees and other fees and charges collected on the mortgage loans in the loan group; and

(h) excess liquidation proceeds, which equals the excess, if any, of aggregate Liquidation Proceeds and Insurance Proceeds on mortgage loans in the loan group received during the previous calendar month over the amount that would have been received if Payoffs had been made with respect to those mortgage loans during the previous calendar month;

(2) the total, to the extent not previously distributed, of the following amounts, to the extent advanced or received, as applicable, by the servicer:

(a) all advances made by the servicer for that Distribution Date relating to the mortgage loans in the loan group in respect to delinquent monthly payments; and

(b) any amounts payable as compensating interest by the servicer for that Distribution Date related to the mortgage loans in the loan group; and

(3) any Repurchase Proceeds with respect to the mortgage loans in the loan group received during the calendar month before that Distribution Date.

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Last Scheduled Distribution Date

The Last Scheduled Distribution Date for the certificates is the Distribution Date in April 2047, which is the Distribution Date in the month after the scheduled maturity date for the latest maturing mortgage loan.

The actual rate of principal payments on the certificates will depend on the rate of principal payments (including principal prepayments) on the related mortgage loans, which, in turn, may be influenced by a variety of economic, geographic and social factors, as well as the level of prevailing mortgage interest rates. No assurance can be given as to the actual payment experience on the mortgage loans.

Optional Termination

The servicer may purchase the mortgage loans and all property acquired in respect of any mortgage loan on or after the Clean-Up Call Option Date (the “Clean-Up Call Option”), which will cause the retirement of the certificates as of the Distribution Date immediately following the exercise by the servicer of the Clean-Up Call Option. Such an optional termination may occur even if the aggregate principal balance of the mortgage loans in any particular loan group is greater than 10% of that balance as of the Cut-Off Date.

The purchase price will equal the sum of (1) the excess of (a) 100% of the aggregate scheduled principal balance of the mortgage loans (other than any mortgage loans in respect of which the related mortgaged property has been acquired by the Trust), plus accrued interest at the applicable Pass-Through Rates through the last day of the month of purchase, over (b) the amount of any Bankruptcy Losses incurred with respect to the mortgage loans to the extent not already allocated to the certificates as a realized loss and (2) without duplication, the appraised fair market value of all mortgaged properties acquired by the Trust and of any other property owned by the Trust, such sum reduced by unreimbursed advances (other than advances made with respect to mortgage loans as to which the servicer expects that foreclosure is not imminent). The trustee, upon receiving written notice from the servicer of its election to purchase the mortgage loans, will be required to notify the certificateholders in writing of the servicer’s election to purchase the mortgage loans not less than 30 days prior to the date of purchase.

An optional purchase of the mortgage loans will cause the outstanding principal balance of the certificates to be reduced to zero through the distribution of the proceeds of that purchase and the allocation of the associated realized losses, if any, on each mortgaged property owned by the Trust the fair market value of which is less than the principal balance of the related mortgage loan as of the time that the Trust acquired the mortgaged property and accrued and unpaid interest on that mortgage loan. Any Subsequent Recoveries received after the payment of the certificates will be retained by the servicer.

Amendment of the Pooling Agreement

See “Description of the Securities—Amendment of the Governing Agreements” in the prospectus for a description of the provisions for amendment of the pooling agreement.

The percentage voting right of each certificate, for purposes of a vote on an amendment of the pooling agreement or any other matter on which certificateholders are entitled to vote under the pooling agreement, will be determined as follows:

 

 

 

 

with respect to any certificate (other than the Class X and Residual Certificates), the product of (x) 100% reduced by 1% for each outstanding class of Class X Certificates and (y) its Certificate Principal Balance divided by the aggregate Certificate Principal Balance of all the certificates, such product expressed as a percentage;

 

 

 

 

with respect to any Class X Certificate, the product of (x) 1% and (y) the portion of the related Class X Notional Amount evidenced by such certificate divided by such Class X Notional Amount, such product expressed as a percentage; and

 

 

 

 

with respect to any Residual Certificate, zero.

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Payment of Fees and Expenses

The following table describes each type of fee or expense that may be paid from collections on the mortgage loans.

 

 

 

 

 

 

 

 

 

Fee or Expense

 

General Purpose
of Fee or Expense

 

Party Receiving
Fee
or Expense

 

Source of Funds for
Payment of Fee or
Expense

 

Distribution
Priority of Fee or
Expense

servicing fee (1)

 

compensation of the servicer for services provided under the pooling agreement

 

servicer

 

all collections on the mortgage loans

 

prior to distributions to certificateholders

all prepayment penalties (except certain prepayment penalties paid by borrowers upon voluntary full prepayment of certain mortgage loans, which will be paid to the Class CX-PPP Certificates), late charges, nonsufficient funds fees and other fees and charges collected on the mortgage loans

 

compensation of the servicer for services provided under the pooling agreement

 

servicer

 

all prepayment penalties (except certain prepayment penalties paid by borrowers upon voluntary full prepayment of certain mortgage loans), late charges, nonsufficient funds fees and other fees and charges collected on the mortgage loans

 

prior to distributions to certificateholders

all interest payments on Payoffs received from the first day through the 14th day of any calendar month

 

compensation of the servicer for services provided under the pooling agreement

 

servicer

 

all interest payments on Payoffs received from the first day through the 14th day of any calendar month

 

prior to distributions to certificateholders

all investment earnings earned on funds held in the investment account and the certificate account

 

compensation of the servicer for services provided under the pooling agreement

 

servicer

 

all investment earnings earned on funds held in the investment account and the certificate account

 

prior to distributions to certificateholders

reimbursement for advances made under the pooling agreement, other than Nonrecoverable Advances (2)

 

reimbursement of the servicer for advances made under the pooling agreement

 

servicer

 

collections on the mortgage loans with respect to which the advances were made

 

prior to distributions to certificateholders

reimbursement for Nonrecoverable Advances (2)

 

reimbursement of the servicer for advances made under the pooling agreement

 

servicer

 

all collections on the mortgage loans

 

prior to distributions to certificateholders

reimbursement for certain expenses, costs and liabilities incurred by the servicer or the depositor in connection with any legal action relating to the pooling agreement or the certificates (3)

 

reimbursement of the servicer or the depositor for certain expenses, costs and liabilities

 

servicer or depositor

 

all collections on the mortgage loans

 

prior to distributions to certificateholders

 

 

 

 

 

 

 

 

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Fee or Expense

 

General Purpose
of Fee or Expense

 

Party Receiving
Fee
or Expense

 

Source of Funds for
Payment of Fee or
Expense

 

Distribution
Priority of Fee or
Expense

any penalty tax imposed under the Internal Revenue Code on a REMIC formed under the pooling agreement in the event the REMIC engages in a prohibited transaction (4)

 

compliance with Internal Revenue Code

 

United States Treasury

 

all collections on the mortgage loans

 

prior to distributions to certificateholders


(1) The servicing fee will be calculated as a per annum percentage for each mortgage loan. The following table describes the servicing fee for each type of mortgage loan:

 

 

 

Type of Mortgage Loan

 

Servicing Fee

mortgage loan in loan group 1 that does not impose a penalty for voluntary full prepayments

 

the greater of (i) 0.375% and (ii) the excess, if any, of the initial Margin on that mortgage loan over 1.10%

mortgage loan in loan group 1 that imposes a penalty for voluntary full prepayments and has a prepayment penalty term of 12 months from origination

 

the greater of (i) 0.375% and (ii) the excess, if any, of the initial Margin on that mortgage loan over 1.40%

mortgage loan in loan group 1 that imposes a penalty for voluntary full prepayments and has a prepayment penalty term of 30 months or 36 months from origination

 

the greater of (i) 0.375% and (ii) the excess, if any, of the initial Margin on that mortgage loan over 2.20%

mortgage loan in subgroup 2A

 

0.375%

mortgage loan in subgroup 2B that does not impose a penalty for voluntary full prepayments

 

the greater of (i) 0.375% and (ii) the excess, if any, of the initial Margin on that mortgage loan over 1.10%

mortgage loan in subgroup 2B that imposes a penalty for voluntary full prepayments and has a prepayment penalty term of 12 months from origination

 

the greater of (i) 0.375% and (ii) the excess, if any, of the initial Margin on that mortgage loan over 1.40%

mortgage loan in subgroup 2B that imposes a penalty for voluntary full prepayments and has a prepayment penalty term of 30 months or 36 months from origination

 

the greater of (i) 0.375% and (ii) the excess, if any, of the initial Margin on that mortgage loan over 2.20%

(2) See “The Servicers—The Servicer—Servicing ProceduresAdvances” in this prospectus supplement for a description of the servicer’s obligation to make advances.

(3) See “Description of the Securities—Matters Regarding the Servicer and the Depositor” in the prospectus for a description of these reimburseable expenses, costs and liabilities.

(4) See “Material Federal Income Tax Consequences—Matters Relevant to Holders of All REMIC Certificates—Prohibited Transactions and Other Possible REMIC Taxes” in the prospectus. It is not anticipated that any REMIC will engage in a prohibited transaction.

Any change to the fees and expenses described in the table above will require (i) an amendment to the pooling agreement and (ii) the consent of certificateholders (unless such change does not adversely affect in any material respect the interests of any certificateholder).

The servicer will be obligated to pay the fees and reimbursable expenses of the trustees and all expenses incurred in connection with the servicer’s responsibilities under the pooling agreement (subject to reimbursement for advances, as described in the table above).

In the event of any resignation or termination of the servicer pursuant to the pooling agreement, the trustee, if acting as successor servicer, will be entitled to the same compensation as that to which the

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servicer would have been entitled. If another successor servicer is appointed, the trustee will be permitted to make arrangements for the compensation of such successor servicer out of collections on the mortgage loans, subject to the limitation that such compensation, together with the compensation to the trustee, may not exceed the compensation to which the servicer would have been entitled.

Reports and Other Information

Prior to each Distribution Date, the administrative agent on behalf of the servicer will prepare and provide to the trustee a distribution report for the related distribution period. Such report will show information about the certificates, including the following: (1) the total amount of (i) interest, (ii) scheduled principal, (iii) Payoffs and Curtailments, (iv) Liquidation Proceeds and Insurance Proceeds, (v) Repurchase Proceeds and (vi) Subsequent Recoveries available for distribution to the certificates on that Distribution Date; (2) the amount of interest and principal to be distributed to each class of certificates on that Distribution Date; (3) the Assigned Prepayment Premiums and related amounts to be distributed to the Class CX-PPP Certificates; (4) the amount of (i) any realized losses, (ii) any shortfall in interest collections resulting from the delay in distribution of Curtailments and Payoffs or from the Relief Act (to the extent not covered by compensating interest) and (iii) any Net Negative Amortization to be allocated to each class of certificates on that Distribution Date; and (5) the Class Principal Balance for each class of certificates before and after giving effect to such distributions and allocations.

The distribution report will show information about the mortgage loans, including the following: (1) the number and aggregate principal balance of the mortgage loans at the beginning and end of the distribution period; (2) updated aggregate pool information, including weighted average Pass-Through Rate, weighted average remaining term and geographic concentrations; (3) delinquency information for the distribution period, including (i) the number and aggregate principal balance of the mortgage loans delinquent one, two and three months or more, (ii) the number and aggregate principal balance of the mortgage loans with respect to which foreclosure proceedings have been initiated and (iii) the number and aggregate principal balance of the mortgage loans with respect to which the related mortgaged properties have been acquired by the Trust through foreclosure; and (4) the aggregate amount of advances of scheduled principal and interest made by the servicer during the related distribution period.

The trustee will be required to send or otherwise make available to certificateholders on each Distribution Date the monthly distribution report described above. The trustee may make available these reports and certain other information through its site on the world wide web. The web page is currently located at www.etrustee.net.” Assistance using the website may be obtained by calling the trustee’s investor relations desk at 312-922-0668. The location of this web page and the procedures used therein are subject to change from time to time by the trustee.

Reports about the certificates required to be filed with the Securities and Exchange Commission, including the Trust’s Annual Reports on Form 10-K, Distribution Reports on Form 10-D and Current Reports on Form 8-K, will be filed with the Commission under the file number assigned to the Trust. The public may read and copy any materials filed with the Commission at the Commission’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an internet website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission. The address of that internet website is http://www.sec.gov.

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 on the administrative agent’s internet website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Commission. Distribution reports will also be made available on the administrative agent’s internet website on each Distribution Date. The administrative agent may also make available on its internet website monthly reports with information about each mortgage loan, including actual and scheduled principal balance, current Pass-Through Rate, amount of last payment and delinquency history. The administrative agent’s internet website is located at www.wamumsc.com and reports are available by clicking on “Investor Information.”

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YIELD AND PREPAYMENT CONSIDERATIONS

General

The yield to maturity of each class of certificates will depend upon, among other things, the price at which the certificates are purchased, the amount payable to that class as interest, the actual characteristics of the mortgage loans in the related loan group or loan groups, the rate of principal payments (including prepayments) on the mortgage loans in the related loan group or loan groups and the rate and timing of liquidations and loss severity on the mortgage loans in the related loan group or loan groups. The yield to maturity to holders of the MTA and Class X Certificates will be lower than the yield to maturity otherwise produced by the applicable interest rate and purchase price of those certificates because interest and principal distributions will not be payable to the certificateholders until the 25th day of the month following the month of accrual (without any additional distribution of interest or earnings with respect to the delay).

Distributions to the Class A and Class X Certificates (or components thereof, as applicable) relate to payments on the mortgage loans in the related loan group or loan groups, as applicable, except in the limited circumstances described in this prospectus supplement under “Description of the Certificates—Cross-Collateralization,” and except that Carryover Shortfall Amounts for the Class 1A, Class 2A, Class 2A-1A, Class 2A-1B, Class CA-1B and Class CA-1C Certificates may be paid from interest otherwise available for distribution to the Class CX-PPP Certificates. Distributions to the Class B Certificates relate to payments on the mortgage loans in loan group 1 and loan group 2.

The mortgage interest rates on the mortgage loans will adjust monthly (except during an initial fixed-rate period of one or three months) and may vary significantly over time. When a mortgage loan begins its adjustable period, increases and decreases in the mortgage interest rate on that mortgage loan will be calculated for each monthly accrual period based on the index as of a specified date. The index may not rise and fall consistently with mortgage interest rates. As a result, the mortgage interest rates on the mortgage loans at any time may not equal the prevailing mortgage interest rates for similar adjustable-rate loans, and accordingly the prepayment rate may be lower or higher than would otherwise be anticipated. Moreover, each mortgage loan has a Rate Ceiling.

Although mortgage interest rates will increase (subject to the Rate Ceilings) or decrease as the index changes (following the initial fixed-rate period, if applicable), the Minimum Monthly Payments on the mortgage loans generally will adjust only once a year. As a result, an increase or decrease in the index will cause the amortization of the mortgage loans to decelerate or accelerate, thereby causing a corresponding change in the amortization of the certificates. In the event that an increase in the index causes the interest due on a mortgage loan for a given month to exceed the current monthly payment for that month, the shortfall in interest will be added to the outstanding principal balance of that mortgage loan in the form of “negative amortization.” In addition, because the initial Minimum Monthly Payment is set based on the initial fixed rate rather than the sum of the Margin and then-current applicable Index, it is likely that the Minimum Monthly Payment will be less than the interest due on that mortgage loan during the early years of a mortgage loan. If a mortgagor only pays the Minimum Monthly Payment due, there will likely be interest shortfalls and the corresponding negative amortization on the mortgage loan until the fifth anniversary of the first Due Date (or until such Due Date as the principal balance of the mortgage loan would otherwise exceed 110% or 115%, as applicable, of its original principal balance) when the Minimum Monthly Payment will be reset to a fully amortizing amount.

Amounts received with respect to Payoffs and Curtailments will be used to cover interest shortfalls on the certificates resulting from negative amortization. To the extent that the aggregate amount of negative amortization with respect to all mortgage loans for a given month exceeds the amount of Payoffs and Curtailments for the related Distribution Date, such excess amount will be deducted from the interest payable to the certificates and added to the Class Principal Balances of the certificates as described in “Description of the Certificates—Distributions of Interest,” thereby causing a delay in the payment of accrued interest. See “Description of the Mortgage Pool” in this prospectus supplement.

In the event that the amount of interest otherwise payable to the Class CX-PPP Certificates is reduced as a result of the allocation of Net Negative Amortization, the amount of such reduction will be added as principal to the related Class Principal Balance.

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Further, some mortgagors who prefer the certainty provided by fixed-rate mortgage loans may nevertheless obtain adjustable-rate mortgage loans at a time when they regard the mortgage interest rates (and, therefore, the payments) on fixed-rate mortgage loans as unacceptably high. These mortgagors may be induced to refinance adjustable-rate mortgage loans when the mortgage interest rates and monthly payments on comparable fixed-rate mortgage loans decline to levels that these mortgagors regard as acceptable, even though the mortgage interest rates and monthly payments may be significantly higher than the current mortgage interest rates and monthly payments on the mortgagors’ adjustable-rate mortgage loans. The ability to refinance a mortgage loan will depend on a number of factors prevailing at the time refinancing is desired, including, without limitation, real estate values, the mortgagor’s financial situation, prevailing mortgage interest rates, the mortgagor’s equity in the related mortgaged property, tax laws and prevailing general economic conditions.

Principal Prepayments and Compensating Interest

When a mortgagor prepays a mortgage loan in full between Due Dates for the mortgage loan, the mortgagor pays interest on the amount prepaid only to the date of prepayment instead of for the entire month. Also, when a Curtailment is made on a mortgage loan together with the scheduled Minimum Monthly Payment for a month on or after the related Due Date, the principal balance of the mortgage loan is reduced by the amount of the Curtailment as of that Due Date, but the principal is not distributed to the related certificateholders until the Distribution Date in the next month; therefore, one month of interest shortfall accrues on the amount of the Curtailment.

To reduce the adverse effect on certificateholders from the deficiency in interest payable as a result of a Payoff on a mortgage loan between its Due Dates, the servicer will pass through compensating interest to the related certificateholders to the limited extent and in the manner described below. The servicer is obligated to remit to the certificate account on the day before each Distribution Date with respect to the mortgage loans in each loan group that experience a Payoff between the 15th day and the last day of the month before the Distribution Date, an amount equal to the least of (a) any shortfall for the previous month in interest collections resulting from the timing of Payoffs on the mortgage loans in that loan group made from the 15th day of the calendar month before the Distribution Date to the last day of the month, (b) the sum of (i) 1/12 of 0.050% of the aggregate Stated Principal Balance of the mortgage loans in that loan group, (ii) any reinvestment income realized by the servicer relating to Payoffs on the mortgage loans in that loan group made during the Prepayment Period and (iii) interest payments on the Payoffs on the mortgage loans in that loan group received during the period of the first day through the 14th day of the month of the Distribution Date and (c) 1/12 of 0.125% of the aggregate Stated Principal Balance of the mortgage loans in that loan group. Payoffs received on mortgage loans from the first day through the 14th day of any month will be passed through to the related certificateholders on the Distribution Date of the same month (except for Payoffs received from the Cut-Off Date through March 14, 2007, which will be passed through to the related certificateholders on the April 2007 Distribution Date), rather than on the Distribution Date of the following month, together with a full month’s interest for the prior month. Accordingly, no compensating interest will be payable for Payoffs on the mortgage loans in that loan group received during that period. Payoffs received during the period from the 15th day through the last day of any month will be passed through on the Distribution Date in the following month, and, in order to provide for a full month’s interest payment for the prior month, compensating interest will be passed through to related certificateholders for that period.

To the extent that the amount allocated to a loan group to pay compensating interest is insufficient to cover the deficiency in interest payable as a result of the timing of a Payoff, or to the extent that there is an interest deficiency from a Curtailment or the application of the Relief Act, that remaining deficiency will be allocated to the certificates (or components thereof, as applicable) related to that loan group (or, in the case of the Class B Certificates, only the portion of those certificates that derives its interest from that loan group), pro rata according to the amount of interest to which each related class of certificates (or component or portion thereof) would otherwise be entitled, in reduction of that amount.

LIBOR Certificates

The yield to investors in the LIBOR Certificates will be sensitive to fluctuations in LIBOR. Changes in LIBOR may not correlate with changes in prevailing mortgage interest rates. It is possible that lower

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prevailing mortgage interest rates, which might be expected to result in faster prepayments, could occur concurrently with an increased level of LIBOR. Conversely, higher prevailing mortgage interest rates, which would be expected to result in slower prepayments, could occur concurrently with a lower level of LIBOR.

Rate of Payments

The rate of principal payments on the certificates (including the Class CX-PPP Certificates, to the extent that a portion of Net Negative Amortization has been added to their Class Principal Balances) generally is directly related to the rate of principal payments on the mortgage loans in the related loan group, which may be in the form of scheduled payments, principal prepayments or liquidations. See “Risk Factors” in this prospectus supplement and “Yield and Maturity Considerations” in the accompanying prospectus. All of the mortgage loans are assumable to the extent provided in the related mortgage note. The mortgage note for each mortgage loan provides that if the mortgage loan is assumed, the Rate Ceiling may be increased. See “Description of the Mortgage Pool” in this prospectus supplement for a description of prepayment penalties imposed on the mortgage loans.

From time to time, the servicer may implement programs to solicit mortgagors of qualifying mortgage loans that it services for refinance, including the mortgage loans underlying the certificates. While those programs will not specifically target the mortgage loans underlying the certificates for refinance, they may have the effect of accelerating the prepayment rate of those mortgage loans, which would adversely affect the yield on all classes of certificates purchased at a premium.

A higher than anticipated rate of prepayments would reduce the aggregate principal balance of the mortgage loans more quickly than expected. As a consequence, aggregate interest payments for the mortgage loans would be substantially less than expected. Therefore, a higher rate of principal prepayments in a loan group could result in a lower than expected yield to maturity on each related class of certificates purchased at a premium, and in some circumstances investors may not fully recover their initial investments. Conversely, a lower than expected rate of principal prepayments in a loan group would reduce the return to investors on any related classes of certificates purchased at a discount, in that principal payments for the mortgage loans would occur later than anticipated. There can be no assurance that certificateholders will be able to reinvest amounts received from the certificates at a rate that is comparable to the applicable interest rate on the certificates. Investors should fully consider all of the associated risks.

Prepayment Assumptions

Prepayments on mortgage loans are commonly measured relative to a prepayment standard or model. The prepayment model used in this prospectus supplement (the “Constant Prepayment Rate” or “CPR”) 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 monthly rate. A 25% CPR assumes a constant per annum rate of prepayment of 25% of the then outstanding principal balance of the pool of mortgage loans. Likewise, a 0% CPR, 12% CPR, 15% CPR, 30% CPR and 40% CPR assumes a constant per annum rate of prepayment of 0%, 12%, 15%, 30% and 40%, respectively, of the then outstanding principal balance of the pool of mortgage loans.

None of the prepayment rates purports 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 pool of mortgage loans, including the mortgage pool underlying the certificates. Furthermore, there is no assurance that the mortgage loans in any loan group will prepay at any given percentage of the CPR. The actual rate of prepayments on the mortgage loans may be influenced by a variety of economic, geographic, social and other factors. In general, during the initial fixed-rate period for some of the mortgage loans underlying the certificates, if prevailing mortgage interest rates fall significantly below the mortgage interest rates on those mortgage loans, those mortgage loans are likely to be subject to higher prepayment rates than if prevailing mortgage interest rates remain at or above the mortgage interest rates on the mortgage loans underlying the certificates. Conversely, during the initial fixed-rate period for those mortgage loans, if prevailing mortgage interest rates rise above the mortgage interest rates on those mortgage loans, the rate of prepayment would be expected to decrease. A comparatively low interest-rate environment may result in a higher than expected rate of prepayments on all of the mortgage loans and, correspondingly, an earlier than expected retirement of the certificates.

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This prospectus supplement does not describe the specific factors that will affect the prepayment of the mortgage loans or their relative importance. Factors not identified in this prospectus supplement may significantly affect the prepayment rate of the mortgage loans. In particular, this prospectus supplement makes no representation as to either the percentage of the principal amount of the mortgage loans that will be paid as of any date or the overall rate of prepayment.

For purposes of the tables in Appendix A, it is assumed (collectively, the “Modeling Assumptions”) that the mortgage loans in each loan group are comprised of the groups of hypothetical mortgage loans, which have the common characteristics indicated:

Groups of Hypothetical Mortgage Loans–Loan Group 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hypothetical
Loan
Number

 

Original
Principal
Balance ($)

 

Unpaid Principal
Balance ($)

 

Remaining
Term
(Months)

 

Original
Term
(Months)

 

Mortgage
Interest
Rate (%)

 

Pass-Through
Rate (%)

 

Margin (%)

 

Servicing Fee
After First
Period (%)

 

1

   

 

 

288,750.00

   

 

 

288,872.75

   

 

 

358

   

 

 

360

   

 

 

7.83300

   

 

 

6.08300

   

 

 

2.85000

   

 

 

1.75000

 

 

 

2

   

 

 

7,969,637.00

   

 

 

7,952,979.06

   

 

 

359

   

 

 

360

   

 

 

7.86010

   

 

 

6.08300

   

 

 

2.87710

   

 

 

1.77710

 

 

3

   

 

 

24,272,284.00

   

 

 

24,272,284.00

   

 

 

360

   

 

 

360

   

 

 

1.58437

   

 

 

0.09600

   

 

 

2.86732

   

 

 

1.76731

 

 

 

4

   

 

 

2,214,420.00

   

 

 

2,210,880.18

   

 

 

479

   

 

 

480

   

 

 

7.66195

   

 

 

6.08300

   

 

 

2.67895

   

 

 

1.57895

 

 

5

   

 

 

14,219,610.00

   

 

 

14,219,610.00

   

 

 

480

   

 

 

480

   

 

 

1.64853

   

 

 

0.08257

   

 

 

2.84362

   

 

 

1.74362

 

 

 

6

   

 

 

230,000.00

   

 

 

231,157.28

   

 

 

354

   

 

 

360

   

 

 

7.63300

   

 

 

6.38300

   

 

 

2.65000

   

 

 

1.25000

 

 

7

   

 

 

102,000.00

   

 

 

102,091.33

   

 

 

356

   

 

 

360

   

 

 

7.68300

   

 

 

6.38300

   

 

 

2.70000

   

 

 

1.30000

 

 

 

8

   

 

 

1,222,300.00

   

 

 

1,226,861.19

   

 

 

357

   

 

 

360

   

 

 

7.83558

   

 

 

6.38300

   

 

 

2.85258

   

 

 

1.45258

 

 

9

   

 

 

56,000.00

   

 

 

56,044.12

   

 

 

358

   

 

 

360

   

 

 

7.73300

   

 

 

6.38300

   

 

 

2.75000

   

 

 

1.35000

 

 

 

10

   

 

 

16,393,583.00

   

 

 

16,356,547.21

   

 

 

359

   

 

 

360

   

 

 

7.78838

   

 

 

6.38300

   

 

 

2.80538

   

 

 

1.40538

 

 

11

   

 

 

54,572,615.00

   

 

 

54,572,615.00

   

 

 

360

   

 

 

360

   

 

 

1.52339

   

 

 

0.17473

   

 

 

2.87250

   

 

 

1.47250

 

 

 

12

   

 

 

182,900.00

   

 

 

184,702.67

   

 

 

476

   

 

 

480

   

 

 

7.78300

   

 

 

6.38300

   

 

 

2.80000

   

 

 

1.40000

 

 

13

   

 

 

5,735,870.00

   

 

 

5,727,046.30

   

 

 

479

   

 

 

480

   

 

 

7.85509

   

 

 

6.38300

   

 

 

2.87209

   

 

 

1.47209

 

 

 

14

   

 

 

31,076,587.00

   

 

 

31,076,587.00

   

 

 

480

   

 

 

480

   

 

 

1.42653

   

 

 

0.10643

   

 

 

2.84906

   

 

 

1.44906

 

 

15

   

 

 

200,000.00

   

 

 

199,498.57

   

 

 

356

   

 

 

360

   

 

 

7.18300

   

 

 

6.80800

   

 

 

2.20000

   

 

 

0.37500

 

 

 

16

   

 

 

471,200.00

   

 

 

470,120.54

   

 

 

359

   

 

 

360

   

 

 

7.89667

   

 

 

7.18300

   

 

 

2.91367

   

 

 

0.71367

 

 

17

   

 

 

3,267,000.00

   

 

 

3,267,000.00

   

 

 

360

   

 

 

360

   

 

 

1.37891

   

 

 

0.64858

   

 

 

2.89914

   

 

 

0.73033

 

 

 

18

   

 

 

1,088,250.00

   

 

 

1,088,250.00

   

 

 

480

   

 

 

480

   

 

 

1.15881

   

 

 

0.60996

   

 

 

2.64547

   

 

 

0.54885

 

 

19

   

 

 

87,500.00

   

 

 

88,078.65

   

 

 

356

   

 

 

360

   

 

 

7.65800

   

 

 

7.18300

   

 

 

2.67500

   

 

 

0.47500

 

 

 

20

   

 

 

961,000.00

   

 

 

963,768.58

   

 

 

357

   

 

 

360

   

 

 

7.26279

   

 

 

6.88779

   

 

 

2.27979

   

 

 

0.37500

 

 

21

   

 

 

725,000.00

   

 

 

725,546.19

   

 

 

358

   

 

 

360

   

 

 

7.69162

   

 

 

7.18300

   

 

 

2.70862

   

 

 

0.50862

 

 

 

22

   

 

 

2,611,130.00

   

 

 

2,604,896.34

   

 

 

359

   

 

 

360

   

 

 

8.08764

   

 

 

7.13845

   

 

 

3.10464

   

 

 

0.94919

 

 

23

   

 

 

12,991,152.00

   

 

 

12,991,152.00

   

 

 

360

   

 

 

360

   

 

 

1.36404

   

 

 

0.62257

   

 

 

2.92073

   

 

 

0.74147

 

 

 

24

   

 

 

363,200.00

   

 

 

365,783.97

   

 

 

477

   

 

 

480

   

 

 

8.83300

   

 

 

7.18300

   

 

 

3.85000

   

 

 

1.65000

 

 

25

   

 

 

3,045,750.00

   

 

 

3,040,801.55

   

 

 

479

   

 

 

480

   

 

 

7.75212

   

 

 

7.17680

   

 

 

2.76912

   

 

 

0.57532

 

 

 

26

   

 

 

10,356,290.00

   

 

 

10,356,290.00

   

 

 

480

   

 

 

480

   

 

 

1.33935

   

 

 

0.59371

   

 

 

2.92055

   

 

 

0.74564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hypothetical
Loan
Number

 

Months to
Next Rate
Adjustment

 

Months to
Next Payment
Adjustment

 

Negative
Amortization
Limit (%)

 

Prepayment
Penalty Term
(Months)

 

Monthly
P&I ($)

 

Rate
Floor (%)

 

Rate
Ceiling (%)

 

Index

 

1

   

 

 

1

   

 

 

11

   

 

 

110

   

 

 

N/A

   

 

 

962.26

   

 

 

2.85000

   

 

 

10.15000

   

 

 

One-Year MTA

 

 

 

2

   

 

 

1

   

 

 

12

   

 

 

111

   

 

 

N/A

   

 

 

29,097.75

   

 

 

2.87710

   

 

 

10.45897

   

 

 

One-Year MTA

 

 

3

   

 

 

1

   

 

 

13

   

 

 

114

   

 

 

N/A

   

 

 

84,916.04

   

 

 

2.86732

   

 

 

10.36777

   

 

 

One-Year MTA

 

 

 

4

   

 

 

1

   

 

 

12

   

 

 

110

   

 

 

N/A

   

 

 

5,895.14

   

 

 

2.67895

   

 

 

10.17000

   

 

 

One-Year MTA

 

 

5

   

 

 

1

   

 

 

13

   

 

 

114

   

 

 

N/A

   

 

 

40,603.09

   

 

 

2.84362

   

 

 

10.37407

   

 

 

One-Year MTA

 

 

 

6

   

 

 

1

   

 

 

7

   

 

 

110

   

 

 

12

   

 

 

739.77

   

 

 

2.65000

   

 

 

9.95000

   

 

 

One-Year MTA

 

 

7

   

 

 

1

   

 

 

9

   

 

 

110

   

 

 

12

   

 

 

339.92

   

 

 

2.70000

   

 

 

10.15000

   

 

 

One-Year MTA

 

 

 

8

   

 

 

1

   

 

 

10

   

 

 

110

   

 

 

12

   

 

 

4,131.38

   

 

 

2.85258

   

 

 

10.16811

   

 

 

One-Year MTA

 

 

9

   

 

 

1

   

 

 

11

   

 

 

110

   

 

 

12

   

 

 

180.12

   

 

 

2.75000

   

 

 

10.05000

   

 

 

One-Year MTA

 

 

 

10

   

 

 

1

   

 

 

12

   

 

 

111

   

 

 

12

   

 

 

56,453.90

   

 

 

2.80538

   

 

 

10.11831

   

 

 

One-Year MTA

 

 

11

   

 

 

1

   

 

 

13

   

 

 

114

   

 

 

12

   

 

 

189,328.18

   

 

 

2.87250

   

 

 

10.21390

   

 

 

One-Year MTA

 

S-93


424B594th “Page” of 273TOC1stPreviousNextBottomJust 94th

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hypothetical
Loan
Number

 

Months to
Next Rate
Adjustment

 

Months to
Next Payment
Adjustment

 

Negative
Amortization
Limit (%)

 

Prepayment
Penalty Term
(Months)

 

Monthly
P&I ($)

 

Rate
Floor (%)

 

Rate
Ceiling (%)

 

Index

 

12

   

 

 

1

   

 

 

9

   

 

 

110

   

 

 

12

   

 

 

471.17

   

 

 

2.80000

   

 

 

10.00000

   

 

 

One-Year MTA

 

 

 

13

   

 

 

1

   

 

 

12

   

 

 

111

   

 

 

12

   

 

 

15,829.10

   

 

 

2.87209

   

 

 

10.17930

   

 

 

One-Year MTA

 

 

14

   

 

 

1

   

 

 

13

   

 

 

114

   

 

 

12

   

 

 

85,223.83

   

 

 

2.84906

   

 

 

10.16856

   

 

 

One-Year MTA

 

 

 

15

   

 

 

1

   

 

 

9

   

 

 

110

   

 

 

30

   

 

 

643.28

   

 

 

2.20000

   

 

 

9.60000

   

 

 

One-Year MTA

 

 

16

   

 

 

1

   

 

 

12

   

 

 

112

   

 

 

30

   

 

 

1,570.29

   

 

 

2.91367

   

 

 

10.15000

   

 

 

One-Year MTA

 

 

 

17

   

 

 

1

   

 

 

13

   

 

 

113

   

 

 

30

   

 

 

11,109.83

   

 

 

2.89914

   

 

 

10.02509

   

 

 

One-Year MTA

 

 

18

   

 

 

1

   

 

 

13

   

 

 

114

   

 

 

30

   

 

 

2,834.49

   

 

 

2.64547

   

 

 

9.86608

   

 

 

One-Year MTA

 

 

 

19

   

 

 

1

   

 

 

9

   

 

 

110

   

 

 

36

   

 

 

281.43

   

 

 

2.67500

   

 

 

9.60000

   

 

 

One-Year MTA

 

 

20

   

 

 

1

   

 

 

10

   

 

 

110

   

 

 

36

   

 

 

3,090.96

   

 

 

2.27979

   

 

 

9.60000

   

 

 

One-Year MTA

 

 

 

21

   

 

 

1

   

 

 

11

   

 

 

110

   

 

 

36

   

 

 

2,331.89

   

 

 

2.70862

   

 

 

9.75690

   

 

 

One-Year MTA

 

 

22

   

 

 

1

   

 

 

12

   

 

 

113

   

 

 

36

   

 

 

9,294.95

   

 

 

3.10464

   

 

 

10.24073

   

 

 

One-Year MTA

 

 

 

23

   

 

 

1

   

 

 

13

   

 

 

114

   

 

 

36

   

 

 

44,049.44

   

 

 

2.92073

   

 

 

10.05802

   

 

 

One-Year MTA

 

 

24

   

 

 

1

   

 

 

10

   

 

 

110

   

 

 

36

   

 

 

1,119.07

   

 

 

3.85000

   

 

 

11.15000

   

 

 

One-Year MTA

 

 

 

25

   

 

 

1

   

 

 

12

   

 

 

113

   

 

 

36

   

 

 

8,003.14

   

 

 

2.76912

   

 

 

9.90570

   

 

 

One-Year MTA

 

 

26

   

 

 

1

   

 

 

13

   

 

 

115

   

 

 

36

   

 

 

27,942.35

   

 

 

2.92055

   

 

 

9.97756

   

 

 

One-Year MTA

 

Groups of Hypothetical Mortgage Loans–Loan Group 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hypothetical
Loan
Number

 

Original
Principal
Balance ($)

 

Unpaid Principal
Balance ($)

 

Remaining
Term
(Months)

 

Original
Term
(Months)

 

Mortgage
Interest
Rate (%)

 

Pass-Through
Rate (%)

 

Margin (%)

 

Servicing Fee
After First
Period (%)

 

1

   

 

 

1,440,000.00

   

 

 

1,449,259.17

   

 

 

356

   

 

 

360

   

 

 

7.48300

   

 

 

6.08300

   

 

 

2.50000

   

 

 

1.40000

 

 

 

2

   

 

 

1,000,000.00

   

 

 

1,004,048.11

   

 

 

357

   

 

 

360

   

 

 

7.88300

   

 

 

6.08300

   

 

 

2.90000

   

 

 

1.80000

 

 

3

*

 

 

 

 

2,019,000.00

   

 

 

2,008,410.91

   

 

 

357

   

 

 

360

   

 

 

7.77705

   

 

 

7.40205

   

 

 

2.79405

   

 

 

0.37500

 

 

 

4

*

 

 

 

 

37,108,587.00

   

 

 

36,963,230.48

   

 

 

358

   

 

 

360

   

 

 

2.35700

   

 

 

1.98200

   

 

 

2.77580

   

 

 

0.37500

 

 

5

   

 

 

483,000.00

   

 

 

481,814.49

   

 

 

358

   

 

 

360

   

 

 

7.18300

   

 

 

6.08300

   

 

 

2.20000

   

 

 

1.10000

 

 

 

6

*

 

 

 

 

41,648,490.00

   

 

 

41,366,773.43

   

 

 

359

   

 

 

360

   

 

 

2.56926

   

 

 

2.19426

   

 

 

2.77833

   

 

 

0.37500

 

 

7

   

 

 

22,730,150.00

   

 

 

22,679,268.67

   

 

 

359

   

 

 

360

   

 

 

7.70932

   

 

 

6.08300

   

 

 

2.72632

   

 

 

1.62632

 

 

 

8

   

 

 

74,661,737.00

   

 

 

74,648,904.59

   

 

 

360

   

 

 

360

   

 

 

1.26399

   

 

 

0.02126

   

 

 

2.61230

   

 

 

1.51230

 

 

9

*

 

 

 

 

548,000.00

   

 

 

548,000.00

   

 

 

360

   

 

 

360

   

 

 

3.30000

   

 

 

2.92500

   

 

 

3.80000

   

 

 

0.37500

 

 

 

10

*

 

 

 

 

11,301,750.00

   

 

 

11,271,517.51

   

 

 

478

   

 

 

480

   

 

 

2.16481

   

 

 

1.78981

   

 

 

2.89458

   

 

 

0.37500

 

 

11

   

 

 

1,296,430.00

   

 

 

1,299,200.00

   

 

 

478

   

 

 

480

   

 

 

7.69347

   

 

 

6.08300

   

 

 

2.71047

   

 

 

1.61047

 

 

 

12

*

 

 

 

 

2,178,800.00

   

 

 

2,176,141.39

   

 

 

479

   

 

 

480

   

 

 

2.54072

   

 

 

2.16572

   

 

 

3.14971

   

 

 

0.37500

 

 

13

   

 

 

21,999,278.00

   

 

 

21,965,216.83

   

 

 

479

   

 

 

480

   

 

 

7.78097

   

 

 

6.08300

   

 

 

2.79797

   

 

 

1.69797

 

 

 

14

   

 

 

56,080,418.00

   

 

 

56,080,418.00

   

 

 

480

   

 

 

480

   

 

 

1.33576

   

 

 

0.05208

   

 

 

2.64505

   

 

 

1.54505

 

 

15

   

 

 

825,000.00

   

 

 

839,501.50

   

 

 

352

   

 

 

360

   

 

 

7.38300

   

 

 

6.38300

   

 

 

2.40000

   

 

 

1.00000

 

 

 

16

   

 

 

2,000,000.00

   

 

 

2,017,192.93

   

 

 

355

   

 

 

360

   

 

 

7.58300

   

 

 

6.38300

   

 

 

2.60000

   

 

 

1.20000

 

 

17

   

 

 

2,003,000.00

   

 

 

2,006,670.46

   

 

 

357

   

 

 

360

   

 

 

7.80898

   

 

 

6.38300

   

 

 

2.82598

   

 

 

1.42598

 

 

 

18

   

 

 

980,500.00

   

 

 

976,242.18

   

 

 

358

   

 

 

360

   

 

 

2.53078

   

 

 

0.83081

   

 

 

3.09997

   

 

 

1.69997

 

 

19

   

 

 

3,702,000.00

   

 

 

3,702,164.00

   

 

 

358

   

 

 

360

   

 

 

7.40288

   

 

 

6.38300

   

 

 

2.41988

   

 

 

1.01988

 

 

 

20

   

 

 

46,792,349.00

   

 

 

46,680,864.86

   

 

 

359

   

 

 

360

   

 

 

7.59515

   

 

 

6.38300

   

 

 

2.61215

   

 

 

1.21215

 

 

21

   

 

 

212,008,347.00

   

 

 

212,008,347.00

   

 

 

360

   

 

 

360

   

 

 

1.28413

   

 

 

0.10564

   

 

 

2.72023

   

 

 

1.32023

 

 

 

22

   

 

 

1,216,000.00

   

 

 

1,221,428.36

   

 

 

477

   

 

 

480

   

 

 

7.86159

   

 

 

6.38300

   

 

 

2.87859

   

 

 

1.47859

 

 

23

   

 

 

716,000.00

   

 

 

714,459.24

   

 

 

478

   

 

 

480

   

 

 

3.13345

   

 

 

0.63799

   

 

 

3.89546

   

 

 

2.49546

 

 

 

24

   

 

 

4,093,920.00

   

 

 

4,102,457.97

   

 

 

478

   

 

 

480

   

 

 

7.64791

   

 

 

6.38300

   

 

 

2.66491

   

 

 

1.26491

 

 

25

   

 

 

40,693,342.00

   

 

 

40,628,172.69

   

 

 

479

   

 

 

480

   

 

 

7.74467

   

 

 

6.38300

   

 

 

2.76167

   

 

 

1.36167

 

 

 

26

   

 

 

186,627,072.00

   

 

 

186,630,390.89

   

 

 

480

   

 

 

480

   

 

 

1.32399

   

 

 

0.14188

   

 

 

2.71071

   

 

 

1.31071

 

 

27

   

 

 

598,250.00

   

 

 

597,188.07

   

 

 

359

   

 

 

360

   

 

 

9.37650

   

 

 

7.18300

   

 

 

4.39350

   

 

 

2.19350

 

 

 

28

   

 

 

1,985,897.00

   

 

 

1,985,897.00

   

 

 

360

   

 

 

360

   

 

 

2.01858

   

 

 

1.00839

   

 

 

3.18048

   

 

 

1.01019

 

 

29

   

 

 

2,200,000.00

   

 

 

2,197,163.56

   

 

 

479

   

 

 

480

   

 

 

9.22463

   

 

 

7.18300

   

 

 

4.24163

   

 

 

2.04163

 

 

 

30

   

 

 

2,084,960.00

   

 

 

2,084,960.00

   

 

 

480

   

 

 

480

   

 

 

1.44771

   

 

 

1.01030

   

 

 

2.62182

   

 

 

0.43741

 

 

31

   

 

 

263,600.00

   

 

 

266,958.77

   

 

 

354

   

 

 

360

   

 

 

7.63300

   

 

 

7.18300

   

 

 

2.65000

   

 

 

0.45000

 

 

 

32

   

 

 

995,000.00

   

 

 

1,001,836.15

   

 

 

356

   

 

 

360

   

 

 

7.65800

   

 

 

7.18300

   

 

 

2.67500

   

 

 

0.47500

 

S-94


424B595th “Page” of 273TOC1stPreviousNextBottomJust 95th

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hypothetical
Loan
Number

 

Original
Principal
Balance ($)

 

Unpaid Principal
Balance ($)

 

Remaining
Term
(Months)

 

Original
Term
(Months)

 

Mortgage
Interest
Rate (%)

 

Pass-Through
Rate (%)

 

Margin (%)

 

Servicing Fee
After First
Period (%)

 

33

   

 

 

486,500.00

   

 

 

488,354.44

   

 

 

357

   

 

 

360

   

 

 

7.65800

   

 

 

7.18300

   

 

 

2.67500

   

 

 

0.47500

 

 

 

34

   

 

 

190,000.00

   

 

 

189,304.21

   

 

 

358

   

 

 

360

   

 

 

2.62500

   

 

 

2.02500

   

 

 

2.80000

   

 

 

0.60000

 

 

35

   

 

 

524,000.00

   

 

 

525,190.55

   

 

 

358

   

 

 

360

   

 

 

9.99586

   

 

 

7.18300

   

 

 

5.01286

   

 

 

2.81286

 

 

 

36

   

 

 

11,621,505.00

   

 

 

11,494,487.16

   

 

 

359

   

 

 

360

   

 

 

8.20095

   

 

 

7.14973

   

 

 

3.21795

   

 

 

1.05122

 

 

37

   

 

 

40,247,565.00

   

 

 

40,247,565.00

   

 

 

360

   

 

 

360

   

 

 

1.47783

   

 

 

0.60871

   

 

 

3.03530

   

 

 

0.87068

 

 

 

38

   

 

 

160,000.00

   

 

 

159,754.79

   

 

 

478

   

 

 

480

   

 

 

4.40000

   

 

 

1.60000

   

 

 

5.00000

   

 

 

2.80000

 

 

39

   

 

 

9,214,200.00

   

 

 

9,199,865.94

   

 

 

479

   

 

 

480

   

 

 

7.66504

   

 

 

6.98525

   

 

 

2.68204

   

 

 

0.67979

 

 

 

40

   

 

 

27,450,473.00

   

 

 

27,450,473.00

   

 

 

480

   

 

 

480

   

 

 

1.56500

   

 

 

0.54683

   

 

 

3.21076

   

 

 

1.02523

 


 

 

*

 

 

 

Those mortgage loans with a “Hypothetical Loan Number” marked with an “*” represent mortgage loans in subgroup 2A.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hypothetical
Loan
Number

 

Months to
Next Rate
Adjustment

 

Months to
Next Payment
Adjustment

 

Negative
Amortization
Limit (%)

 

Prepayment
Penalty Term
(Months)

 

Monthly
P&I ($)

 

Rate
Floor (%)

 

Rate
Ceiling (%)

 

Index

 

1

   

 

 

1

   

 

 

9

   

 

 

110

   

 

 

N/A

   

 

 

4,631.61

   

 

 

2.50000

   

 

 

9.90000

   

 

 

One-Year MTA

 

 

 

2

   

 

 

1

   

 

 

10

   

 

 

110

   

 

 

N/A

   

 

 

3,332.52

   

 

 

2.90000

   

 

 

10.30000

   

 

 

One-Year MTA

 

 

3

*

 

 

 

 

1

   

 

 

10

   

 

 

110

   

 

 

N/A

   

 

 

8,412.42

   

 

 

2.79405

   

 

 

9.91978

   

 

 

One-Year MTA

 

 

 

4

*

 

 

 

 

1

   

 

 

11

   

 

 

110

   

 

 

N/A

   

 

 

144,100.53

   

 

 

2.77580

   

 

 

9.83286

   

 

 

One-Year MTA

 

 

5

   

 

 

1

   

 

 

11

   

 

 

110

   

 

 

N/A

   

 

 

1,553.52

   

 

 

2.20000

   

 

 

9.60000

   

 

 

One-Year MTA

 

 

 

6

*

 

 

 

 

2

   

 

 

12

   

 

 

111

   

 

 

N/A

   

 

 

166,229.42

   

 

 

2.77833

   

 

 

9.79420

   

 

 

One-Year MTA

 

 

7

   

 

 

1

   

 

 

12

   

 

 

112

   

 

 

N/A

   

 

 

77,645.15

   

 

 

2.72632

   

 

 

10.17823

   

 

 

One-Year MTA

 

 

 

8

   

 

 

1

   

 

 

13

   

 

 

113

   

 

 

N/A

   

 

 

249,595.38

   

 

 

2.61230

   

 

 

10.06493

   

 

 

One-Year MTA

 

 

9

*

 

 

 

 

3

   

 

 

13

   

 

 

115

   

 

 

N/A

   

 

 

2,400.00

   

 

 

3.80000

   

 

 

10.62500

   

 

 

One-Year MTA

 

 

 

10

*

 

 

 

 

1

   

 

 

11

   

 

 

110

   

 

 

N/A

   

 

 

35,323.64

   

 

 

2.89458

   

 

 

9.90613

   

 

 

One-Year MTA

 

 

11

   

 

 

1

   

 

 

11

   

 

 

110

   

 

 

N/A

   

 

 

3,598.54

   

 

 

2.71047

   

 

 

10.11047

   

 

 

One-Year MTA

 

 

 

12

*

 

 

 

 

2

   

 

 

12

   

 

 

111

   

 

 

N/A

   

 

 

7,271.37

   

 

 

3.14971

   

 

 

10.14043

   

 

 

One-Year MTA

 

 

13

   

 

 

1

   

 

 

12

   

 

 

111

   

 

 

N/A

   

 

 

60,529.57

   

 

 

2.79797

   

 

 

10.32605

   

 

 

One-Year MTA

 

 

 

14

   

 

 

1

   

 

 

13

   

 

 

113

   

 

 

N/A

   

 

 

151,180.81

   

 

 

2.64505

   

 

 

10.12548

   

 

 

One-Year MTA

 

 

15

   

 

 

1

   

 

 

5

   

 

 

110

   

 

 

12

   

 

 

2,653.53

   

 

 

2.40000

   

 

 

9.60000

   

 

 

One-Year MTA

 

 

 

16

   

 

 

1

   

 

 

8

   

 

 

110

   

 

 

12

   

 

 

7,071.60

   

 

 

2.60000

   

 

 

10.20000

   

 

 

One-Year MTA

 

 

17

   

 

 

1

   

 

 

10

   

 

 

110

   

 

 

12

   

 

 

6,956.36

   

 

 

2.82598

   

 

 

10.12591

   

 

 

One-Year MTA

 

 

 

18

   

 

 

1

   

 

 

11

   

 

 

110

   

 

 

12

   

 

 

3,895.93

   

 

 

3.09997

   

 

 

10.03477

   

 

 

One-Year MTA

 

 

19

   

 

 

1

   

 

 

11

   

 

 

110

   

 

 

12

   

 

 

12,016.60

   

 

 

2.41988

   

 

 

9.73806

   

 

 

One-Year MTA

 

 

 

20

   

 

 

1

   

 

 

12

   

 

 

111

   

 

 

12

   

 

 

154,971.52

   

 

 

2.61215

   

 

 

9.98610

   

 

 

One-Year MTA

 

 

21

   

 

 

1

   

 

 

13

   

 

 

113

   

 

 

12

   

 

 

711,385.00

   

 

 

2.72023

   

 

 

10.06337

   

 

 

One-Year MTA

 

 

 

22

   

 

 

1

   

 

 

10

   

 

 

110

   

 

 

12

   

 

 

3,146.46

   

 

 

2.87859

   

 

 

10.12620

   

 

 

One-Year MTA

 

 

23

   

 

 

1

   

 

 

11

   

 

 

110

   

 

 

12

   

 

 

2,638.72

   

 

 

3.89546

   

 

 

10.67027

   

 

 

One-Year MTA

 

 

 

24

   

 

 

1

   

 

 

11

   

 

 

110

   

 

 

12

   

 

 

10,546.38

   

 

 

2.66491

   

 

 

9.96491

   

 

 

One-Year MTA

 

 

25

   

 

 

1

   

 

 

12

   

 

 

111

   

 

 

12

   

 

 

108,658.95

   

 

 

2.76167

   

 

 

10.08634

   

 

 

One-Year MTA

 

 

 

26

   

 

 

1

   

 

 

13

   

 

 

113

   

 

 

12

   

 

 

502,038.38

   

 

 

2.71071

   

 

 

10.08287

   

 

 

One-Year MTA

 

 

27

   

 

 

1

   

 

 

12

   

 

 

112

   

 

 

30

   

 

 

2,472.09

   

 

 

4.39350

   

 

 

11.48543

   

 

 

One-Year MTA

 

 

 

28

   

 

 

1

   

 

 

13

   

 

 

115

   

 

 

30

   

 

 

7,384.57

   

 

 

3.18048

   

 

 

10.29409

   

 

 

One-Year MTA

 

 

29

   

 

 

1

   

 

 

12

   

 

 

113

   

 

 

30

   

 

 

7,153.11

   

 

 

4.24163

   

 

 

11.16663

   

 

 

One-Year MTA

 

 

 

30

   

 

 

1

   

 

 

13

   

 

 

112

   

 

 

30

   

 

 

5,737.21

   

 

 

2.62182

   

 

 

9.97848

   

 

 

One-Year MTA

 

 

31

   

 

 

1

   

 

 

7

   

 

 

110

   

 

 

36

   

 

 

847.84

   

 

 

2.65000

   

 

 

10.05000

   

 

 

One-Year MTA

 

 

 

32

   

 

 

1

   

 

 

9

   

 

 

110

   

 

 

36

   

 

 

3,200.31

   

 

 

2.67500

   

 

 

9.60000

   

 

 

One-Year MTA

 

 

33

   

 

 

1

   

 

 

10

   

 

 

110

   

 

 

36

   

 

 

1,564.78

   

 

 

2.67500

   

 

 

9.60000

   

 

 

One-Year MTA

 

 

 

34

   

 

 

1

   

 

 

11

   

 

 

110

   

 

 

36

   

 

 

763.14

   

 

 

2.80000

   

 

 

9.60000

   

 

 

One-Year MTA

 

 

35

   

 

 

1

   

 

 

11

   

 

 

110

   

 

 

36

   

 

 

2,280.02

   

 

 

5.01286

   

 

 

11.93786

   

 

 

One-Year MTA

 

 

 

36

   

 

 

1

   

 

 

12

   

 

 

112

   

 

 

36

   

 

 

40,722.25

   

 

 

3.21795

   

 

 

10.41512

   

 

 

One-Year MTA

 

 

37

   

 

 

1

   

 

 

13

   

 

 

113

   

 

 

36

   

 

 

138,965.35

   

 

 

3.03530

   

 

 

10.15414

   

 

 

One-Year MTA

 

S-95


424B596th “Page” of 273TOC1stPreviousNextBottomJust 96th

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hypothetical
Loan
Number

 

Months to
Next Rate
Adjustment

 

Months to
Next Payment
Adjustment

 

Negative
Amortization
Limit (%)

 

Prepayment
Penalty Term
(Months)

 

Monthly
P&I ($)

 

Rate
Floor (%)

 

Rate
Ceiling (%)

 

Index

 

38

   

 

 

1

   

 

 

11

   

 

 

110

   

 

 

36

   

 

 

709.05

   

 

 

5.00000

   

 

 

11.60000

   

 

 

One-Year MTA

 

 

 

39

   

 

 

1

   

 

 

12

   

 

 

113

   

 

 

36

   

 

 

25,357.98

   

 

 

2.68204

   

 

 

10.08641

   

 

 

One-Year MTA

 

 

40

   

 

 

1

   

 

 

13

   

 

 

114

   

 

 

36

   

 

 

77,348.34

   

 

 

3.21076

   

 

 

10.30029

   

 

 

One-Year MTA

 


 

 

*

 

 

 

Those mortgage loans with a “Hypothetical Loan Number” marked with an “*” represent mortgage loans in subgroup 2A.

and that:

 

 

 

 

One-Year MTA remains constant at 5.014% and LIBOR remains constant at 5.32%;

 

 

 

 

the related servicing fee is as set forth in this prospectus supplement;

 

 

 

 

after the first adjustment to the Minimum Monthly Payment for each mortgage loan, subsequent adjustments to the Minimum Monthly Payment will be made every twelve months thereafter;

 

 

 

 

there are no limitations on the adjustment of the mortgage interest rates on the mortgage loans other than the Rate Ceilings and rate floors;

 

 

 

 

no mortgage loans are assumed;

 

 

 

 

scheduled payments on all mortgage loans are received on the first day of each month beginning April 1, 2007;

 

 

 

 

any Payoffs on the mortgage loans are received on the last day of each month beginning in March 2007 and include 30 days of interest;

 

 

 

 

there are no defaults or delinquencies on the mortgage loans;

 

 

 

 

an optional termination does not occur (except as set forth in footnote 2 to Appendix A);

 

 

 

 

there are no partial prepayments on the mortgage loans and prepayments are computed after giving effect to scheduled payments received on the following day;

 

 

 

 

the mortgage loans prepay at the indicated constant percentages of the CPR;

 

 

 

 

the date of issuance for the certificates is the Closing Date; and

 

 

 

 

cash distributions are received by the certificateholders on the 25th day of each month.

Any discrepancy between the actual characteristics of the mortgage loans underlying the certificates and the characteristics of the hypothetical mortgage loans set forth above may affect the percentages of the initial Class Principal Balances set forth in the tables in Appendix A and the weighted average lives of the offered certificates. In addition, to the extent that the characteristics of the actual mortgage loans and the initial Class Principal Balances differ from those assumed in preparing the tables in Appendix A, the outstanding Class Principal Balance of any class of offered certificates may be reduced to zero earlier or later than indicated by the tables.

Variations in actual prepayment experience may increase or decrease the percentages of the original outstanding Class Principal Balances and the weighted average lives shown in the tables in Appendix A. Variations may occur even if the average prepayment experience of all the mortgage loans equals the indicated percentage of the CPR. There is no assurance, however, that prepayments of the mortgage loans in any loan group will conform to any given percentage of the CPR.

Based on the assumptions described above, the tables in Appendix A (which is incorporated by reference into this prospectus supplement) indicate the weighted average lives of the Class A and Senior Subordinate Certificates and provide the percentages of the initial outstanding Class Principal Balance of those classes of certificates that would be outstanding after each of the dates shown at various constant percentages of the CPR.

Lack of Historical Prepayment Data

There are no historical prepayment data available for the mortgage pool underlying the certificates. In addition, the historical prepayment data about prior securitized pools of Option ARM Loans of the sponsor

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included in static pool information filed by the depositor with the Securities and Exchange Commission as an exhibit to a Current Report on Form 8-K may not be comparable to prepayments expected to be experienced by the mortgage pool.

The depositor does not make any representation that the mortgage loans will prepay in the manner or at any of the rates assumed in the tables in Appendix A or below in “—Yield Considerations with Respect to the Class X Certificates” and “—Yield Considerations with Respect to the Senior Subordinate Certificates.” Each investor must make its own decision as to the appropriate prepayment assumptions to be used in deciding whether or not to purchase any of the offered certificates. Since the rate of principal payments (including prepayments) on, and repurchases of, the mortgage loans will significantly affect the yields to maturity on the offered certificates (and especially the yields to maturity on the Class X and Senior Subordinate Certificates), prospective investors are urged to consult their investment advisors as to both the anticipated rate of future principal payments (including prepayments) on the mortgage loans and the suitability of the offered certificates to their investment objectives.

Yield Considerations with Respect to the Right of the Class CX-PPP Certificates to Receive Prepayment Penalties

The amount available for distribution to the holders of the Class CX-PPP Certificates on any Distribution Date in respect of penalties for voluntary full prepayment of the related mortgage loans is dependent on the amount of the related penalties for voluntary full prepayment collected and remitted to the Trust for the related Prepayment Penalty Period. The amount of penalties for voluntary full prepayment collected and remitted to the Trust is dependent on several factors, including (i) the rate at which mortgagors, whose mortgage loans impose such prepayment penalties, make voluntary prepayments in full, (ii) whether mortgagors make voluntary prepayments in full during the applicable term of the prepayment penalty, (iii) whether the mortgage loan contains an exception to the payment of the prepayment penalty, (iv) whether the prepayment penalty may be waived by the servicer and (v) the amount of the prepayment penalty.

Investors should conduct their own analysis of the effect that the payment of penalties for voluntary full prepayment of the related mortgage loans, or decisions by the servicer with respect to waiver thereof, may have on the performance of the Class CX-PPP Certificates.

Yield Considerations with Respect to the Class X Certificates

The Class CX-PPP Certificates generally receive only distributions of interest (except for amounts added to the Class CX-PPP Principal Balance as a result of the allocation of Net Negative Amortization, which is then distributed to the Class CX-PPP Certificates as principal, and for certain prepayment penalties collected on the related mortgage loans).

The yield to maturity on the Class CX-PPP Certificates will be extremely sensitive to the rate of prepayment on the mortgage loans in loan group 1 and loan group 2. The faster that those mortgage loans prepay, the less interest the Class CX-PPP Certificates will receive. Furthermore, the higher the interest rates on these mortgage loans that prepay, the less interest the Class CX-PPP Certificates will receive. Prospective investors should fully consider the risks associated with an investment in the Class CX-PPP Certificates, including the possibility that if the rate of prepayment on the mortgage loans in loan group 1 and loan group 2 is faster than expected, the rate of liquidations on those mortgage loans is greater than expected or an optional termination occurs earlier than expected, investors may not fully recover their initial investments. Notwithstanding the foregoing, the Class CX-PPP Certificates will also be entitled to receive the Assigned Prepayment Penalties for loan group 1 and loan group 2 which may affect the yield on such certificates. See “—Yield Considerations with Respect to the Right of the Class CX-PPP Certificates to Receive Prepayment Penalties” above.

The yield to maturity on the Class 2X-1 Certificates will be extremely sensitive to the rate of prepayment on the mortgage loans in subgroup 2A. The faster that those mortgage loans prepay, the less interest the Class 2X-1 Certificates will receive. Prospective investors should fully consider the risks associated with an investment in the Class 2X-1 Certificates, including the possibility that if the rate of prepayment on the mortgage loans in subgroup 2A is faster than expected, the rate of liquidations on those

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mortgage loans is greater than expected or an optional termination occurs earlier than expected, investors may not fully recover their initial investments.

To illustrate the significance of different rates of prepayment on the distributions on the Class X Certificates, the tables below indicate the approximate pre-tax yields to maturity (on a corporate bond equivalent basis) under the different percentages of the CPR indicated (disregarding the payment of any prepayment penalties to the Class CX-PPP Certificates).

Any differences between the assumptions and the actual characteristics and performance of the mortgage loans and of the certificates may result in a yield to maturity being different from those shown in the tables. Discrepancies between assumed and actual characteristics and performances underscore the hypothetical nature of the tables, which are provided only to give a general sense of the sensitivity of the yields to maturity in varying prepayment scenarios. In addition, it is highly unlikely that the mortgage loans will prepay at a constant level of the CPR until maturity or that all of the mortgage loans will prepay at the same rate. The timing of changes to the rate of prepayments may significantly affect the actual yield to maturity to an investor, even if the average rate of prepayments is consistent with an investor’s expectation. In general, the earlier a payment of principal on the mortgage loans, the greater the effect on an investor’s yield to maturity. As a result, the effect on an investor’s yield to maturity of prepayments occurring at a rate higher (or lower) than the rate anticipated by the investor during the period immediately following the issuance of the certificates will not be equally offset by a later like reduction (or increase) in the rate of prepayments.

The following sensitivity tables for the Class X Certificates are based on the Modeling Assumptions and assume further that the certificates are purchased at the prices set forth in the tables plus accrued interest from the Cut-Off Date. In addition, the sensitivity tables for the Class CX-PPP Certificates assumes that no prepayment penalties are paid to those certificates. There can be no assurance that the mortgage loans will have the assumed characteristics or will prepay at any of the rates shown below, that the purchase price of the certificates will be as assumed or that the pre-tax yield to maturity will correspond to any of the pre-tax yields shown in the tables below. The actual prices to be paid on the Class X Certificates have not been determined and will depend on the characteristics of the mortgage pool as ultimately constituted. In addition to any other factors an investor may consider material, each investor must make its own decision as to the appropriate prepayment assumptions to be used in deciding whether or not to purchase a class of offered certificates.

Pre-Tax Yield to Maturity of the Class CX-PPP Certificates at an
Assumed Purchase Price of 1.35000% of the Initial Class CX-PPP Notional Amount
Plus Accrued Interest from the Cut-Off Date
(Assuming No Prepayment Penalties Are Paid to the Class CX-PPP Certificates)

 

 

 

 

 

 

 

 

 

 

 

Percentage of the CPR

0%

 

12%

 

15%

 

25%

 

30%

 

40%

 

32.79

%

 

 

 

 

34.09

%

 

 

 

 

29.81

%

 

 

 

 

15.07

%

 

 

 

 

7.03

%

 

 

 

 

(10.50

%)

 

Based on a constant prepayment rate of approximately 34.17% of the CPR, the assumed purchase price above, plus accrued interest from the Cut-Off Date, and the assumptions described above, the pre-tax yield to maturity of the Class CX-PPP Certificates would be approximately 0%. If the actual prepayment rate were to exceed the rate assumed above, even for one month, while equaling that rate for all other months, an investor in the Class CX-PPP Certificates would not fully recover the initial purchase price of the certificates.

Pre-Tax Yield to Maturity of the Class 2X-1 Certificates at an
Assumed Purchase Price of 0.55000% of the Initial 2X-1 Notional Amount
Plus Accrued Interest from the Cut-Off Date

 

 

 

 

 

 

 

 

 

 

 

Percentage of the CPR

0%

 

12%

 

15%

 

25%

 

30%

 

40%

 

300.57

%

 

 

 

 

272.90

%

 

 

 

 

265.66

%

 

 

 

 

240.46

%

 

 

 

 

227.16

%

 

 

 

 

198.90

%

 

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Based on a constant prepayment rate of approximately 87.43% of the CPR, the assumed purchase price above, plus accrued interest from the Cut-Off Date, and the assumptions described above, the pre-tax yield to maturity of the Class 2X-1 Certificates would be approximately 0%. If the actual prepayment rate were to exceed the rate assumed above, even for one month, while equaling that rate for all other months, an investor in the Class 2X-1 Certificates would not fully recover the initial purchase price of the certificates.

The pre-tax yields to maturity shown in the preceding tables were calculated by determining the monthly discount rates (whether positive or negative), which, when applied to the assumed streams of cash flows to be paid on the certificates, would cause the discounted present values of those assumed streams of cash flows to equal the assumed purchase price, plus accrued interest. These monthly discount rates were converted to corporate bond equivalent rates, which are higher than the monthly discount rates because they are based on semiannual compounding. These yields to maturity do not take into account the different interest rates at which investors may be able to reinvest funds received by them as distributions on these certificates and thus do not reflect the return on any investment in these certificates when any reinvestment rates other than the discount rates are considered.

Yield Considerations with Respect to the Senior Subordinate Certificates

If the aggregate Class Principal Balance of the Junior Subordinate Certificates is reduced to zero, the yield to maturity on the Senior Subordinate Certificates will become extremely sensitive to losses on the mortgage loans and the timing of those losses, because the entire amount of those losses will generally be allocated to the Senior Subordinate Certificates in reverse numerical order. The aggregate initial Class Principal Balance of the Junior Subordinate Certificates is equal to approximately 1.35% of the aggregate principal balance of the mortgage loans in loan group 1 and loan group 2 as of the Cut-Off Date.

For the Senior Subordinate Certificates, this prospectus supplement uses a standard default assumption, or SDA, that represents an assumed default rate, which is a percentage of the outstanding principal balance of a hypothetical pool of mortgage loans. The SDA does not describe historical default experience or predict future default rates of any pool of mortgage loans, including the mortgage loans owned by the Trust.

A 100% SDA assumes constant annual default rates on the then outstanding principal balance of the mortgage loans, as follows:

 

 

 

1st month:

 

0.02%

2nd through 29th month:

 

increasing by 0.02% each month

30th through 60th month:

 

0.60%

61st through 120th month:

 

declining by 0.0095% each month

121st month and after:

 

0.03%

The tables below assume that there is no delay between the default and the liquidation of the mortgage loans. In the tables below, an SDA of 0% assumes no defaults, an SDA of 200% assumes default rates 2.00 times 100% SDA, and so forth. However, it is highly unlikely that the prepayments or realized losses on the mortgage loans will occur as the following tables assume, and, as a result, the actual pre-tax yields to maturity on the Senior Subordinate Certificates are highly likely to differ from those shown in the tables.

The following tables show the sensitivity of the yield to maturity on the Senior Subordinate Certificates to different prepayment rates and levels of defaults based on the Modeling Assumptions, except that it has been assumed that:

 

 

 

 

mortgage loan defaults occur on the last day of each month at the SDA percentages in the tables, and defaulted mortgage loans are immediately liquidated;

 

 

 

 

each liquidation of a defaulted mortgage loan results in a realized loss allocable to principal equal to the percentage indicated, the loss severity percentage, multiplied by the principal balances of the mortgage loans assumed to be liquidated;

 

 

 

 

there are no delinquencies on the mortgage loans, and principal payments on the mortgage loans, other than those on mortgage loans assumed to be liquidated, will be timely received together with prepayments, if any, at the respective constant percentages of the CPR set forth in the table;

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the purchase prices of the Class B-1, Class B-2, Class B-3, Class B-4, Class B-5, Class B-6 and Class B-7 Certificates will be approximately 100.000000%, 100.000000%, 100.000000%, 100.000000%, 95.210186%, 89.876621% and 80.292409%, respectively, of their respective Class Principal Balances;

 

 

 

 

losses on liquidation of the mortgage loans occur at a rate of 20% and 40% (as indicated in the table under the column “Loss Severity Percentage”) of the outstanding principal balance of defaulted mortgage loans at the time of default in the month in which the mortgage loans first default; and

 

 

 

 

all scheduled payments on mortgage loans are advanced by the servicer whether or not received from the related mortgagors.

The rate of distributions in reduction of the Class Principal Balance of any class of Senior Subordinate Certificates will be related to the actual amortization schedule of the mortgage loans; accordingly, the interest distributions and distributions in reduction of the Class Principal Balances of the Senior Subordinate Certificates may result in yields to maturity that differ from those reflected below.

The tables below are for illustrative purposes only and this prospectus supplement does not represent that the actual rates of prepayment and liquidation and loss severity experience of the mortgage loans will correspond to any of the assumptions made in this prospectus supplement. No assurance can be given as to the appropriateness of the tables in any particular context, nor as to whether the tables or the assumptions upon which they are based reflect present market conditions or future market performance. It is possible that those mortgage loans that are more likely to default are also less likely to experience prepayments, which means that higher prepayment speeds would not necessarily reduce the expected amount of realized losses. In addition, it is unlikely that liquidations will occur in the month of default and the timing of liquidations may cause the pre-tax yield to maturity of the Senior Subordinate Certificates to differ from those shown below.

Differences between the assumptions in the tables and the actual characteristics and performance of the mortgage loans will likely result in different yields from those shown in the tables. Because differences between assumed and actual characteristics can affect the performance of the certificates, investors should understand the hypothetical nature of the tables, which give only a general sense of the sensitivity of yields to maturity under varying, but not all, realized loss and prepayment scenarios.

Sensitivity of Pre-Tax Yield to Maturity
of the Senior Subordinate Certificates to
Prepayments and Realized Losses

Class B-1 Certificates

 

 

 

 

 

 

 

 

 

Percentage
of SDA

 

12% CPR

 

25% CPR

 

40% CPR

 

Loss
Severity
Percentage

 

0%

   

 

 

5.8%

   

 

 

5.9%

   

 

 

5.9%

   

 

 

N/A

 

 

 

100%

   

 

 

5.8%

   

 

 

5.9%

   

 

 

5.9%

   

 

 

20%

 

 

100%

   

 

 

5.8%

   

 

 

5.9%

   

 

 

5.9%

   

 

 

40%

 

 

 

200%

   

 

 

5.8%

   

 

 

5.9%

   

 

 

5.9%

   

 

 

20%

 

 

200%

   

 

 

5.8%

   

 

 

5.9%

   

 

 

5.9%

   

 

 

40%

 

Class B-2 Certificates

 

 

 

 

 

 

 

 

 

Percentage
of SDA

 

12% CPR

 

25% CPR

 

40% CPR

 

Loss
Severity
Percentage

 

0%

   

 

 

5.9%

   

 

 

5.9%

   

 

 

5.9%

   

 

 

N/A

 

 

 

100%

   

 

 

5.9%

   

 

 

5.9%

   

 

 

5.9%

   

 

 

20%

 

 

100%

   

 

 

5.9%

   

 

 

5.9%

   

 

 

5.9%

   

 

 

40%

 

 

 

200%

   

 

 

5.9%

   

 

 

5.9%

   

 

 

5.9%

   

 

 

20%

 

 

200%

   

 

 

5.9%

   

 

 

5.9%

   

 

 

5.9%

   

 

 

40%

 

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Class B-3 Certificates

 

 

 

 

 

 

 

 

 

Percentage
of SDA

 

12% CPR

 

25% CPR

 

40% CPR

 

Loss
Severity
Percentage

 

0%

   

 

 

6.1%

   

 

 

6.1%

   

 

 

6.1%

   

 

 

N/A

 

 

 

100%

   

 

 

6.1%

   

 

 

6.1%

   

 

 

6.1%

   

 

 

20%

 

 

100%

   

 

 

6.1%

   

 

 

6.1%

   

 

 

6.1%

   

 

 

40%

 

 

 

200%

   

 

 

6.1%

   

 

 

6.1%

   

 

 

6.1%

   

 

 

20%

 

 

200%

   

 

 

6.1%

   

 

 

6.1%

   

 

 

6.1%

   

 

 

40%

 

Class B-4 Certificates

 

 

 

 

 

 

 

 

 

Percentage
of SDA

 

12% CPR

 

25% CPR

 

40% CPR

 

Loss
Severity
Percentage

 

0%

   

 

 

6.5%

   

 

 

6.5%

   

 

 

6.6%

   

 

 

N/A

 

 

 

100%

   

 

 

6.5%

   

 

 

6.5%

   

 

 

6.6%

   

 

 

20%

 

 

100%

   

 

 

6.5%

   

 

 

6.5%

   

 

 

6.6%

   

 

 

40%

 

 

 

200%

   

 

 

6.5%

   

 

 

6.5%

   

 

 

6.6%

   

 

 

20%

 

 

200%

   

 

 

6.5%

   

 

 

6.5%

   

 

 

6.6%

   

 

 

40%

 

Class B-5 Certificates

 

 

 

 

 

 

 

 

 

Percentage
of SDA

 

12% CPR

 

25% CPR

 

40% CPR

 

Loss
Severity
Percentage

 

0%

   

 

 

7.2%

   

 

 

7.7%

   

 

 

8.1%

   

 

 

N/A

 

 

 

100%

   

 

 

7.2%

   

 

 

7.7%

   

 

 

8.1%

   

 

 

20%

 

 

100%

   

 

 

7.2%

   

 

 

7.7%

   

 

 

8.1%

   

 

 

40%

 

 

 

200%

   

 

 

7.2%

   

 

 

7.7%

   

 

 

8.1%

   

 

 

20%

 

 

200%

   

 

 

7.2%

   

 

 

7.7%

   

 

 

8.1%

   

 

 

40%

 

Class B-6 Certificates

 

 

 

 

 

 

 

 

 

Percentage
of SDA

 

12% CPR

 

25% CPR

 

40% CPR

 

Loss
Severity
Percentage

 

0%

   

 

 

8.0%

   

 

 

8.9%

   

 

 

9.8%

   

 

 

N/A

 

 

 

100%

   

 

 

8.0%

   

 

 

8.9%

   

 

 

9.8%

   

 

 

20%

 

 

100%

   

 

 

8.0%

   

 

 

8.9%

   

 

 

9.8%

   

 

 

40%

 

 

 

200%

   

 

 

8.0%

   

 

 

8.9%

   

 

 

9.8%

   

 

 

20%

 

 

200%

   

 

 

4.6%

   

 

 

8.9%

   

 

 

9.8%

   

 

 

40%

 

Class B-7 Certificates

 

 

 

 

 

 

 

 

 

Percentage
of SDA

 

12% CPR

 

25% CPR

 

40% CPR

 

Loss
Severity
Percentage

 

0%

   

 

 

9.5%

   

 

 

11.4%

   

 

 

13.3%

   

 

 

N/A

 

 

 

100%

   

 

 

9.5%

   

 

 

11.4%

   

 

 

13.3%

   

 

 

20%

 

 

100%

   

 

 

9.5%

   

 

 

11.4%

   

 

 

13.3%

   

 

 

40%

 

 

 

200%

   

 

 

9.5%

   

 

 

11.4%

   

 

 

13.3%

   

 

 

20%

 

 

200%

   

 

 

(18.7%

)

 

 

 

 

11.4%

   

 

 

13.3%

   

 

 

40%

 

The following table sets forth the amount of realized losses that would be incurred with respect to the certificates in the aggregate under each of the loss scenarios in the seven preceding tables, expressed as a percentage of the aggregate outstanding principal balance of the mortgage loans as of the Cut-Off Date:

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Aggregate Realized Losses

 

 

 

 

 

 

 

 

 

Percentage
of SDA

 

12% CPR

 

25% CPR

 

40% CPR

 

Loss
Severity
Percentage

 

100%

   

 

 

0.5%

   

 

 

0.3%

   

 

 

0.1%

   

 

 

20%

 

 

 

100%

   

 

 

1.0%

   

 

 

0.5%

   

 

 

0.3%

   

 

 

40%

 

 

200%

   

 

 

1.0%

   

 

 

0.5%

   

 

 

0.3%

   

 

 

20%

 

 

 

200%

   

 

 

1.9%

   

 

 

1.1%

   

 

 

0.6%

   

 

 

40%

 

The characteristics of the mortgage loans underlying the certificates will not correspond exactly to those assumed in preparing the tables above. The yield to maturity of each class of Senior Subordinate Certificates therefore will differ even if all the mortgage loans prepay monthly at the related assumed prepayment rate. In addition, it is not likely that the mortgage loans will prepay at the same percentage of the CPR, and the timing of changes in the rate of prepayments may affect significantly the yield to maturity received by a holder of a class of Senior Subordinate Certificates.

Additional Yield Considerations Applicable Solely to the Class R Certificates

The Class R Certificateholders’ after-tax rate of return on their certificates will reflect their pre-tax rate of return, reduced by the taxes required to be paid with respect to the Class R Certificates. Holders of the Class R Certificates may have tax liabilities with respect to their certificates during the early years of the REMICs’ term that substantially exceed any distributions payable during those years. In addition, holders of the Class R Certificates may have tax liabilities with respect to their certificates the present value of which substantially exceeds the present value of distributions payable on their certificates and of any tax benefits that may arise with respect thereto. Accordingly, the after-tax rate of return on the Class R Certificates may be negative or may otherwise be significantly adversely affected. The timing and amount of taxable income attributable to the Class R Certificates will depend on, among other things, the timing and amounts of prepayments and losses experienced by the mortgage pool.

The Class R Certificateholders should consult their own tax advisors as to the effect of taxes and the receipt of any payments received in connection with the purchase of the Class R Certificates on after-tax rates of return on the Class R Certificates. See “Material Federal Income Tax Consequences” in this prospectus supplement and in the accompanying prospectus.

CREDIT ENHANCEMENTS

Subordination

The Senior Certificates receive distributions of interest and principal to which they are entitled before distributions of interest or principal to the Class B Certificates. No class of Subordinate Certificates will receive distributions of interest or principal on any Distribution Date until the Subordinate Certificates senior to that class have received all distributions of interest and principal due on or before the Distribution Date. See “Description of the Certificates—Priority of Distributions” in this prospectus supplement.

Losses on mortgage loans in loan group 1 or loan group 2 will be allocated, in each case, until their Class Principal Balances have been reduced to zero, first, to the Junior Subordinate Certificates in reverse numerical order; second, to the Class B-7 Certificates; third, to the Class B-6 Certificates; fourth, to the Class B-5 Certificates; fifth, to the Class B-4 Certificates; sixth, to the Class B-3 Certificates; seventh, to the Class B-2 Certificates; eighth, to the Class B-1 Certificates; and ninth, to the classes or components of the related Senior Certificates as described under “Description of the Certificates—Subordination and Allocation of Losses” in this prospectus supplement.

Shifting of Interests

The Senior Certificates related to a loan group in the aggregate generally will receive their pro rata share of scheduled principal payments received with respect to the mortgage loans in the related loan group on each Distribution Date. In addition, unless credit enhancement to the Senior Certificates has reached a specified level and the delinquencies and losses on the mortgage loans do not exceed specified limits, the Senior Certificates related to a loan group will receive 100% of principal prepayments received with respect to the mortgage loans in the related loan group, net of any portion thereof applied to reduce negative

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amortization, until the tenth anniversary of the first Distribution Date. During the next four years, the Senior Certificates generally will receive a disproportionately large, but decreasing, share of principal prepayments received with respect to the mortgage loans in the related loan group. This will result in an acceleration of the amortization of the Senior Certificates, enhancing the likelihood that holders of the Senior Certificates will be paid the full amount of principal to which they are entitled. See the second and third paragraphs of “Description of the Certificates—Distributions of Principal—Principal Prepayments” in this prospectus supplement for important limitations on the accelerated amortization of the Senior Certificates.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

For federal income tax purposes, the servicer will cause one or more REMIC elections to be made with respect to the Trust, exclusive of the prepayment penalties to which the Class CX-PPP Certificates are entitled. The offered certificates, other than the Class R Certificates (the “REMIC Regular Certificates”), will represent ownership of REMIC regular interests coupled, in the case of the offered Class A and Class B certificates, with rights to receive payments under a cap agreement and, in the case of the Class CX-PPP Certificates, with the obligation to make payments under a cap agreement, and will generally represent ownership of debt for federal income tax purposes, to the extent of the REMIC regular interest portion thereof. For federal income tax purposes, the Class R Certificates will represent ownership of the residual interests in each REMIC. The portion of the CX-PPP Certificates that represents a right to receive certain prepayment penalties (the “Class CX-PPP Component”) will represent stripped interests in the mortgage loans to which they relate and will not represent an interest in any REMIC.

All interest and original issue discount (“OID”) on the REMIC Regular Certificates will be includable in certificateholders’ income using the accrual method of accounting regardless of the certificateholders’ usual methods of accounting. In preparing federal income tax reports to certificateholders and the Internal Revenue Service, the servicer will treat the Class X Certificates, and may treat the other offered certificates, as having been issued with OID. The prepayment assumption that will be used in determining the rate of accrual of OID and market discount, if any, for federal income tax purposes is 25% CPR, as described in this prospectus supplement under “Yield and Prepayment Considerations.” This prospectus supplement does not represent that the mortgage loans will prepay at any given percentage of the CPR. Holders of the Class A, Class B and Class CX-PPP Certificates should see “Special Tax Considerations Applicable to the Class A and Class B Certificates” and “—Taxation of the Cap Agreement Portion of the Class CX-PPP Certificates” in this prospectus supplement.

In certain circumstances, OID regulations (as described under “Material Federal Income Tax Consequences” in the accompanying prospectus) permit the holder of a debt instrument to recognize OID under a method that differs from that used by the issuer. Accordingly, it is possible that the holder of a certificate may be able to select a method for recognizing OID that differs from that used by the servicer in preparing reports to the certificateholders and the Internal Revenue Service.

If actual prepayments differ sufficiently from the prepayment assumption, the calculation of OID for certain classes of offered certificates might produce a negative number for certain accrual periods. If that happens, certificateholders will not be entitled to a deduction for that amount, but will be required to carry that amount forward as an offset to OID, if any, accruing in future accrual periods.

Certain classes of certificates may be treated for federal income tax purposes as having been issued at a premium. Whether any holder of a certificate will be treated as holding a certificate with amortizable bond premium will depend on the certificateholder’s purchase price and the distributions remaining to be made on the certificate when the certificateholder acquires it. The use of an assumption that there will be no prepayments might be required in calculating the amount of premium to be amortized in each period. Holders of those classes of certificates are encouraged to consult their own tax advisors regarding the possibility of making an election to amortize any premium. See “Material Federal Income Tax Consequences—Taxation of Owners of REMIC Regular Certificates—Original Issue Discount” and “—Taxation of Owners of REMIC Regular Certificates—Premium” in the accompanying prospectus.

The REMIC Regular Certificates, to the extent they represent ownership of REMIC regular interests, will generally be treated as “qualifying real property loans” for mutual savings banks and domestic building and loan associations, “loans secured by an interest in real property” for domestic building and loan

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associations, and “real estate assets” for real estate investment trusts, or REITs, in the same proportion that the REMIC assets would be so treated. In addition, interest on the REMIC Regular Certificates, exclusive of any interest payable to the Class A and Class B Certificates in respect of Carryover Shortfall Amounts, will generally be treated as “interest on obligations secured by mortgages on real property” for REITs in the same proportion that the REMIC income would be so treated. The Trust makes no representation concerning whether the certificates or any portion of any certificate will be treated as a “qualified mortgage loan” for purposes of including such certificate or portion thereof in a transaction with respect to which an election to be treated as a REMIC might be made. Because of their obligation to make payments of Carryover Shortfall Amounts, the Class CX-PPP Certificates may also prevent an entity holding them from qualifying to be treated as a REMIC. See “Material Federal Income Tax Consequences” in the accompanying prospectus.

Special Tax Considerations Applicable to the Class A and Class B Certificates

Each holder of a Class A or Class B Certificate is deemed to own an undivided beneficial ownership interest in two assets, a REMIC regular interest and an interest in payments required to be made in reduction of Carryover Shortfall Amounts that reduce the entitlement of the Class CX-PPP Certificates to payments of interest (the “Class X Cap Amount”). The treatment of amounts received by the holder of a Class A or Class B Certificate under such certificateholder’s right to receive the Class X Cap 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 Class B Certificate must allocate its purchase price for that certificate between its undivided interest in the REMIC regular interest and its undivided interest in the right to receive the Class X Cap Amount in accordance with the relative fair market values of each property right. The Trust intends to treat payments made to the holders of the Class A and Class B Certificates with respect to the Class X Cap Amount as includible in income based on the tax regulations relating to notional principal contracts. 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. Under the REMIC regulations, the Trust is required to account for the REMIC regular interest and the right to receive the Class X Cap Amount as discrete property rights. It is possible that the right to receive the Class X Cap Amount could be treated as a partnership among the holders of the Class A and Class B Certificates, on the one hand, and the Class CX-PPP Certificates, on the other hand, in which case holders of the Class A and Class B Certificates would be subject to potentially different timing of income and foreign holders of the REMIC Regular Certificates could be subject to withholding in respect of any payments of the Class X Cap Amount. Holders of the Class A and Class B 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. Treasury regulations have been promulgated under Section 1275 of the Internal Revenue 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 Internal Revenue Code. Therefore, holders of the Class A and Class B Certificates will be unable to use the integration method provided for under such regulations with respect to such certificates. If the Trust’s treatment of the Class X Cap Amount is respected, ownership of the rights to the Class X Cap Amount will nevertheless entitle the owner to amortize the separate price paid for the right to the Class X Cap Amount under the notional principal contract regulations.

In the event that the right to receive the Class X Cap Amount is characterized as a “notional principal contract” for federal income tax purposes, upon the sale of a Class A or Class B Certificate, the amount of the sale allocated to the selling certificateholder’s right to receive the Class X Cap Amount would be considered a “termination payment” under the notional principal contract regulations allocable to the related certificate. A holder of a Class A or Class B Certificate would have gain or loss from such a termination of the right to receive the Class X Cap 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 the Class X Cap Amount.

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Gain or loss realized upon the termination of the right to receive the Class X Cap Amount will generally be treated as capital gain or loss. Moreover, in the case of a bank or thrift institution, Internal Revenue Code Section 582(c) would likely not apply to treat such gain or loss as ordinary.

Taxation of the Cap Agreement Portion of the Class CX-PPP Certificates

Any portion of a purchaser’s investment in a Class CX-PPP Certificate treated by such purchaser as representing the obligation to make payments under a cap agreement would be treated as an interest in a notional principal contract. To the extent that the obligation of the holder of the Class CX-PPP Certificate under the cap agreement had a negative value at the time of purchase, the holder of such Class X Certificate would be treated as having paid an amount equal its purchase price for such Class X Certificate increased by a positive amount equal to the negative value of the obligation under the cap agreement for the REMIC regular interest represented by such Class X Certificate and to have received a payment equal to such positive amount as a premium for its obligation under the cap agreement. The holders of the Class CX-PPP Certificates will be required to accrue interest payable from the REMICs included in the Trust in amounts equal to the Class CX-PPP Accrued Interest without reduction by any payments made to other Certificates in respect of Carryover Shortfall Amounts. The holders of the Class CX-PPP Certificates will then be treated as having a payment obligation under a cap agreement for that period in an amount equal to their respective obligation to pay Carryover Shortfall Amounts to the Class A and Class B Certificates. The Swap Regulations specify rules for accounting for income from and deduction of payments made under obligations such as the cap agreement. Under the Swap Regulations, deductions in respect of the obligation to make payments under a cap agreement would be taken into account for the taxable period to which they relate, which generally would approximate accrual basis accounting regardless of an investor’s usual method of tax accounting. Such deductions would be ordinary deductions. The Swap Regulations further provide that an investor in certificate would take into income any premium received for the obligation to make payments under a cap agreement over the term of that obligation, generally by allocating it to each period in accordance with the prices of a series of cash-settled option agreements that reflect the specified index and notional amount expiring in each period. Under the Swap Regulations, straight-line or accelerated amortization generally would be impermissible. The Swap Regulations also permit a simplified alternative allocation methodology called the “level payment method,” under which the premium allocable to the obligation to make payments under a cap agreement would be allocated to each period on the basis of the principal portion of each of a series of equal payments having a discounted present value equal to such premium. There is no explicit authority with respect to the character of such amortization inclusions, although they are generally regarded as ordinary items. Payments made by the Trust to certificateholders in respect of the cap agreement and allocable to investors in the Class CX-PPP Certificates that are individuals may be treated as investment expenses subject to the limitations on deductibility imposed on miscellaneous itemized deductions under the Internal Revenue Code.

Holders of the Class X Certificates should be aware that the effect of allocating to the REMIC regular interest portion of their certificate a purchase price in excess of their purchase price for the entire certificate would be to decrease the amount of OID associated with their certificate. It is expected that an investor’s amortization of any portion of the premium they are deemed to have received for the obligation to make payments under a cap agreement, if applicable to such Class X Certificate, would offset such reduction in OID, but the degree of offset in any given period would depend upon the applicable amortization methodology and upon the treatment of such amortization as an inclusion in ordinary income, each as discussed above. Although dependent upon the applicable discount rate, the annual amount of offset should be relatively complete in the case of an investor amortizing the premium allocable to the obligation to make payments under a cap agreement under the level payment method described above.

On disposing of a Class X Certificate, a holder will recognize gain or loss with respect to the related REMIC regular interest, and, with respect to the Class CX-PPP Certificates, separately will be deemed to have made a payment to be relieved of the obligation to make payments under a cap agreement. The gain or loss with respect to the REMIC regular interest will be the excess of the amount deemed realized in respect thereof over its adjusted basis; the amount realized will be the sale price for the related Class X Certificate increased by a positive amount equal to the negative value of the obligation under the cap agreement, if applicable to such Class X Certificate, at the time of disposition. Such gain or loss generally will be capital gain or loss, the term of which will be based on the period such holder held the certificate.

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The deemed payment to be relieved of the cap agreement obligation will equal a positive amount corresponding to the negative value of the cap agreement obligation. There is limited authority on the treatment of any such payment, or on the treatment of any unamortized premium received by the holder in connection with undertaking the cap agreement obligation upon acquiring a Class CX-PPP Certificate, although such items likely would be current items of income and deduction at the time of the disposition. Although it is expected that such payment would give rise to an ordinary deduction, the Internal Revenue Service could contend that it represents a capital loss. Likewise, although it is expected that the unamortized premium would be treated as ordinary income, it is possible that it could constitute capital gain. As a result, prospective investors are cautioned to consult their own advisors on the appropriate character of such income and deduction. Further, to the extent that the deemed payment constitutes an item of ordinary deduction, it may be subject to the limitations on deductibility imposed on miscellaneous itemized deductions for individuals under the Internal Revenue Code as discussed above.

Taxation of the Class CX-PPP Component Portion of the Class CX-PPP Certificates

Although there is no authority addressing the taxation of securities like the Class CX-PPP Component, the stripped coupon rules of Section 1286 of the Code should apply to the Class CX-PPP Component. No applicable regulations under Section 1286 of the Code have been issued and uncertainty exists as to how it will be applied to securities like the Class CX-PPP Component. Accordingly, it is suggested that holders of the Class CX-PPP Component 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 “—Possible Application of Contingent Payment Rules” herein.

Under the stripped coupon rules, it appears that original issue discount will be required to be accrued in each month on the Class CX-PPP Component based on a constant yield method. In effect, each holder of the Class CX-PPP Component would include as interest income in each month an amount equal to the product of the holder’s adjusted basis in the Class CX-PPP Component at the beginning of that month and the yield of the Class CX-PPP Component to the holder. The yield would be calculated based on the price paid for that Class CX-PPP Component 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.

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. Those provisions should apply to the Class CX-PPP Component. It is uncertain whether the assumed prepayment rate would be determined based on conditions at the time of the first sale of the Class CX-PPP Component or, with respect to any subsequent holder, at the time of purchase of the Class CX-PPP Component by that holder.

It currently is intended to base information returns or reports to the IRS and certificateholders on 25% of the CPR, as described under “Yield and Prepayment Considerations” in this prospectus supplement and on a constant yield computed using a representative initial offering price for the certificates. However, no representation is made that the mortgage loans will in fact prepay at a rate conforming to 25% of the CPR 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 Class CX-PPP Component should consult their own tax advisors regarding the use of the prepayment assumption.

As the effect of prepayments is taken into account in computing yield with respect to the Class CX-PPP Component, it appears that no loss may be available as a result of slower than expected prepayments until such time as the prepayment of all remaining loans bearing prepayment penalties would not produce sufficient payments to the Class CX-PPP Component to cover their remaining basis.

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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. As payments on the Class CX-PPP Component will not occur if the mortgage loans to which prepayment penalties apply do not prepay during the period where prepayment penalties apply, the Class CX-PPP Component 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 in 1996 regarding contingent payment debt instruments, the “Contingent Payment Regulations,” but it appears that the Class CX-PPP Component, 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 Class CX-PPP Component, that are subject to the stripped bond rules of Section 1286 of the Code. Certificateholders should consult their tax advisors concerning the possible application of the contingent payment rules to the Class CX-PPP Component.

SALES OF CLASS CX-PPP COMPONENTS. Any gain or loss (equal to the difference between the amount realized and adjusted basis) recognized on the sale or exchange of a Class CX-PPP Component by an investor who holds the Class CX-PPP Component as a capital asset will be capital gain or loss, except in the case of banks and other financial institutions, as provided under Section 582(c) of the Code, and subject to any application of the Contingent Payment Regulations. The adjusted basis of a Class CX-PPP Component generally will equal its cost, increased by any income reported by the seller, including original issue discount, and reduced, but not below zero, by any previously reported losses and any distributions with respect to the Class CX-PPP Component.

Gain or loss from the sale of a Class CX-PPP Component may be partially or wholly ordinary and not capital in some circumstances. Gain or loss recognized by banks and other fina